Michael Saylor's MASTERCLASS in Cryptocurrency Investing and the Future of BITCOIN

hey guys hope you enjoyed the episode brought to you by our sponsors at blue blocks go to blue blocks dot com forward slash impact theory for 15 off your order or just use discount code impact theory at checkout all right enjoy the episode hey everybody welcome to another episode of conversations with tom i am here with somebody whose logic has had a profound impact on how i think about bitcoin in particular and investing in general the one and only michael saylor michael welcome to the show thanks for having me dude so you are the founder and ceo of microstrategy you went to mit at one point you almost became a fighter pilot and a misdiagnosis has granted us all a very interesting public ceo to watch and i want to actually start with that story there's something about the way that you face massive disruption that i find really interesting so i want to start with the beginning of microstrategy there was sort of you versus another guy going head to head with your ideas i think started companies at relatively the same time and he kept telling you that you were doing things wrong and you would make an adjustment and it would have a material impact on your business and you just kept going with that facing what you referred to as these existential threats and the way that you handle existential threats i find incredibly informative so if you don't mind starting there that would be really interesting sure um you know so i started a company when i was 24 and we didn't have a lot of resources i i guess i took out like a five thousand dollar furniture loan and then i employed my uh my first employer dupont to give me a 250 000 contract and then i asked for like a hundred thousand in cash up front and and uh my negotiating technique was they said we don't normally do it and i said well i don't have any money and so i can't build the software you want unless you give me the money up front and uh that that negotiating strategy only works once in your life but for me it worked and so they wanted what i had to offer and so they gave him the money so we started with not that much capital and when you don't have the much capital you know you can't you can't do anything so we were using we're building computer simulations based upon uh an existing piece of software that i had and it was limited but we did what we could and we grew the company to like 750 000 a year and then we grew it to 950 000 the next year and we and we saw an opportunity uh to plug into a graphical interface and uh the idea was give computer simulations to executives to predict the future and the problem was uh it was kind of delphic they couldn't figure out what the assumptions were so we thought well maybe we can actually create a piece of software that lets them plug in the assumptions and of course we couldn't afford to write it in c plus plus so we didn't even have the programming skills to build the software it was like 1991 or so so we found a product called wings which was like an excel spreadsheet but it had its own scripting language and graphical interface it was one of the first graphical interface development tools and we took that product and we plugged it into our simulation engine and um and you know that that uh friend i told you about friend slash competitor was a former professor from mit and uh so he had the phd and he had all the knowledge and uh and i was just the kid you know trying to grow a company so in his wisdom what he said was you know like everybody knows that you got to use excel if you use a spreadsheet you can't use wings excel is the winner and my response was yeah it might be the market share leader but it doesn't have the functionality the technology just doesn't work for me so i can either use excel and fail like take to take the safe choice and fail or i can try something new and succeed and he goes well you know long term that's not going to work i said well you know we all know that eventually excel will crush them like all my business school case studies say that so i i said yeah but short term we're going to fail so we got to do something so we built the product with wings and it was a screaming success and the company doubled and we became a two million dollar company and we became a four million dollar company and then we became uh six an eight million dollar company and uh then a 16 million dollar company and right around the time we were 16 million dollar company he was still a one million dollar consultancy because he hadn't taken the risk and he was not at risk he had no existential threats whereas we had a 16 million dollar company with threats which was was excel was going to squeeze wings out of the business and so the answer was we rebuilt our product on microsoft base so we started using visual basic and microsoft technology and at that point when we were 16 times bigger than that consultancy he said you know every every good software engineering company that i know uses c plus plus they don't use visual basic you know and uh and so you're not going to get taken seriously and i said well you know i have people that can figure out how to do it in visual basic and they can't figure out how to do it in c plus plus so we did it the other way and then we doubled to 32 million and we doubled the 64 million and he stayed 1 million and we we at 64 million we had this existential risk which is we needed to code part of our software and c plus plus but we of course were 64 times bigger than we had been and we were 4x bigger than we were when we started so we hired a lot of people and we started coding in c plus plus and uh he still had a a secure consulting company that was a million dollars with no risk and uh you know and it went on like that the next thing was we adopted uh you know the internet and we started building our software to run on html and people said well you know like no big company uses html it's a risky thing and it might not be secure or it doesn't do that and we thought well you know well we can't give the software to 20 000 people unless we try this and so maybe we'll try to figure out the problem so the result was initially we built it and not that many people used it and then we built it and people use more of it and then we built the third version and everybody used it and then the people that hadn't built the internet version got squeezed out of business and then you know then it went on and by at this point right the company is like 200 times bigger than the million dollar consultancy which is still not at risk but it's the difference between being a technology company and being a services company services companies don't take risks and they don't they don't uh pursue architectures technology companies need to take risk and and of course that eventually uh the mobile wave hit and we rebuilt our software to run on ios and then people said well you're crazy android's the winner so we built our software on android and eventually we had software running on pc operating systems web operating systems android and ios operating systems and then of course eventually the web browsers changed to chrome and and and plug-ins we built something supported plug-ins and if you sign up for technology i think you gotta have this model in your head that you're a snake that's shutting its skin every three four years or i mean a really good model in nature for growth under pressure is a chambered nautilus and a chambered nautilus is this creature that grows under under deep sea pressure and it and it builds a shell and of course the shape of the chambered nautilus is this spiral because the creature is rebuilding the next shell to be twice as big as the last shell and turning in on itself and is using its previous work as the structure to support the next piece of work and so if you look at the at the design of a chambered nautilus what you see is is nature's solution for growth under pressure and um and i think that's how technology companies work you're just always growing you can't abandon what you've done but no neither can you uh can you not move forward and not take risk and not not branch off in a new area so you so there's this very interesting dynamic dance between between uh respect for the past and integrity uh and architecture versus uh the opportunity and the challenge of the future and you're living in that zone in the middle the the friction between those two this is uh the very thing that makes you so compelling to me and the way that you think through problems and and compelling in a way where i have taken your advice and invested a substantial portion of my entire net worth um into bitcoin not by force of personality but by the way that you can walk people through the logic of how to think through a problem and the one sort of uh capstone that i'll put on the story that you just told to really build your credibility and then we're gonna go because my audience probably doesn't know a lot about crypto in general they may not know a lot about you yet um and the capstone i want to put on is you are if not the longest serving ceo of a publicly traded company in your industry one of certainly the top and you know in an era where ceos and public companies you know are constantly like in fear of losing their job you've navigated through insane storms including the dot-com crash including the 2008 crisis uh including kovid so it's um i think you said at one point you actually went through a 98 loss in shareholder value and still manage to keep your job so just understanding how profoundly difficult that is now i will credit it to something and then you can tell me if i'm crazy what i credit it to is not only your ability to sort of analogize something like the the chambered nautilus but that you think from first principles and that's what i found so compelling in your analysis of bitcoin is just reducing it down to first principles so want to be great for you to define what first principles are so that people understand that and then for the rest of the interview we sort of build on how that plays out in crypto yeah i think probably the most valuable thing that i learned from mit was to think from first principles and to be intellectually fearless mit is just uh is an entire university full of very bright people but intellectually fearless people my my freshman classmates you know one of them started a computer company and launched a pac-man competitor and got a cease and desist letter from commodore computing the game company another one designed hardware that went on the space shuttle you know another one uh used to like rip down and fix his own cars for fun on the weekends and they were they were just capable people that weren't afraid to do something and what does that mean to be intellectually fearless like you're not afraid of looking stupid you're not afraid of breaking something what what is that my and my first material science class the professor comes out and we're literally all freshmen it's the first the first hour of our um of our time in in the class and maybe it's like a freshman year class like freshman year first semester so it's early so the professor walks on the first lecture and he holds up a tile he says you know i'm a consultant to nasa and this tile burned off the space shuttle on re-entry last week so they have a problem they don't know why they flew me down to talk about it so they gave me the tile we had a deep discussion they're still not sure he says so here's the tile what do you guys think and uh you know everybody looks at each other and these are like 18 year olds right where okay i was valedictorian of my class or i'm an eagle scout or whatever but they're all thinking was this in the readings you know i did i not read this and and there's this first you know horrifying thought right that i should know the answer but i don't and then uh the light bulb goes off and and you know one one guy in the front row raises his hand and he and he suggests that maybe he ought to try to you know reverse the lattice composite or you know or ask a question about uh the nature of the material and where it was in the space shuttle and then he pauses a theory and then the rest of us go wow that professor actually expects us to think for ourself and then and then we realize he just asked us the question that he doesn't know the answer to that nasa doesn't know the answer to that no one in the world knows the answer to it's not in the back of the book and then the second thought is not only is it a truly a truly uh unique question he actually has confidence that maybe we can reason our way through it to figure out a methodology to solve the problem so i would say that a lot of your education consists of rote learning you read something you read the answers on the back of the book you try to remember what the answers are and then you regurgitate them back but there's a point in your life when you have to reason from first principle so what are first principles a grasp of math a grasp of the scientific method you know um a grasp of of you know elements like at some point you have to build a building you have to choose an element will you choose steel or will you choose bronze or will you choose gold or will you choose silver or or ceramic or whatever if you don't understand the math of civil engineering and if you don't know anything about material science then you certainly can't put one thing together with a structure and make it stand or not stand so engineering in general is is about learning enough math enough science and enough uh engineering technique in order to construct the mechanism that's going to work right under whatever the circumstances as you need it to work i think that's that's what it means to reason from first principles you have to be able to take a clean sheet of paper like a literally a clean sheet of paper like a for example i tell you design something that flies you get wood okay design something that flies you get a metal pick the metal well we don't design planes with steel why it's the perfect metal for everything except flying it's just too heavy to fly you will never ever successfully design a plane with steel without aluminum you will never design a metal plane it's just not happening so so if i tell you design a plane that flies in high winds that's a different design designer you know design something that works in cold right if if you're unable to to divine the impact of the change in the material design something that flies on the moon but it's it's different flying on the moon than flying on the earth right what if i change the gravitational constant what if i change this the speed you know with of sound right what have i changed the density of the air how about run a marathon how about run a marathon at the top of mount everest how about how about stay alive for a day at the top of mount everest if i were gonna string those together to give people an overarching sentiment of what unites those and tell me if you think this is crazy what i explain to people is you have to understand the physics of the situation like the the whole thing about flight you have to understand lift to understand this is about using and trust me when i say i don't know the actual physics of flying but the sort of ballpark idea is you've got thrust you've got the wind hitting underneath the wings so weight is going to become an issue the amount of thrust that you have is going to become an issue and when your thrust exceeds the you know effort that you need to get that lift then you fly and if you fail to do that then you crash and when you understand this is about recognizing the the way that it works so tensile strength of the you know object you choose to build your building is going to determine the amount of weight that it can hold things like that and once you understand that foundational layer now you don't have to necessarily follow a book you can just think well i know that this will work because this is a function of you know strength weight durability and once you get the parameters that you're operating under now you can build something that's new because you just you understand literally the physics of that situation i think engineering is a discipline of uh constructing mechanisms to channel energy and um so you have to understand a bit of math you got to understand uh the basics of physics you fly and and you and you generate lift but you gotta you got to know enough to know that the amount of lift you generate is different if the density the air is different and if there is no air try generating right like uh human beings human beings rise through channeling energy so so fire was pretty elemental okay how about uh does that burn or does that not burn right i give you two things can you burn a rock can you burn some wood all wood doesn't burn the same can you burn grass yeah design an oven how about uh you know we wouldn't have made it without uh air bows and arrows missiles right probably the most elemental thing is you need to hunt from a distance okay so design a bow design an arrowhead i give you four rocks choose the one that makes the best arrowhead okay kind of common sense right not not the light happy shiny soft rock maybe the sharp flint rock that will will do the job now design an arrow you want a long arrow short arrow but you have some ideas but then there's also experiments right how long should the arrow be okay we'll make it this long fire the arrow now make it this long fire the arrow again now make it this long fire there now should i create a bunch of randomly different sized arrows probably one of the arrows works better than the others right so after i fire a hundred arrows and i pick the 87th arrow then i'm going to manufacture 10 000 arrows of the the 87th arrows length and and width and make up and you know and then put the right arrowhead on it and manufacture it and pretty soon you don't have to go and wrestle with a gorilla or a bear in order to get dinner so it goes on right i mean what's the sale channeling went into wind energy you ever create a sailboat one sale two sales three sales what kind of sale different shape of sale how do you make the sale how high should the sale be right so there's an entire set of engineering which is just common sense can you imagine that there's a shape of a boat that goes through water better than a different shape of a boat okay there's there's laminar flow you know oftentimes you know there's a there's the ratio if i make the boat one foot wide and 100 feet long it goes faster that's a crew shell right if i make the boat 10 feet wide and 40 feet long or 50 feet long well it goes slower but on the other hand it carries a lot more stuff right and uh and there's something called hull speed what you'll find is that there's a maximum speed at which you can push push a hole through the water it's uh it's not a function of the energy you use it's a function of the shape of the hole right common sense create a square shaped boat right harder than a needle shaped boat which has the fastest hull speed it's when the aspect ratio is one to a hundred you go fast when the aspect ratio is one to five you go slower when the aspect ratio is one to two you go slower what's the best aspect ratio depends on what you're trying to build right what should you once you figure it out make more like that does the material matter yeah ever see a butt with rocks doesn't float as well you know yeah everything matters how do you solve the problem right through being methodic is it important well it might be a matter of life and death so i look i think the big thing that happened with regard to bitcoin this year is that bitcoin is the first is the first point in human history where engineering impinged on economics up until this point people didn't really embrace the idea of energy theory and engineering theory and math and sciences is being integral to the way that a monetary asset function you know it used to be money was you know seashells and tokens and then and then we have this general you know we have gold and we have coins and then we have general agreements and and uh and the like and bitcoin was the first time when we created um a digital monetary asset a pure a pure digital token on a pure digital network that uh that actually uh respects the laws of conservation of energy you know i say it's sound money but that's the same as thermal dynamic we sound money which is conservation of energy which means mathematically proper we'll get to that in a minute because those are like really deep concepts that even i after being in this for a while struggle with some of those definitions but so now i want to help people understand so we're talking about boats and arrows and there's a certain type of arrow that works better and it takes a lot of experimentation there's a boat and a certain type of boat some of which you could probably think your way through like even just as a lay person looking at a square boat it seems like okay something doesn't feel right intuitively and then i think it was a portugal army that at one point like took over the world because they had longer trees which meant that their boats were faster and so you get to a point what i want people to understand about the way you approach the world is you get to a point where you can know nothing about it and say hey somebody tell me which boat to buy and you're as ignorant before as you were after but at least you have if you have a good consultant you have the right boat but when you yourself can reason from first principles now you can act at a moment of tremendous uncertainty now the reason i care about this probably important to articulate that to you when uh kovic kicked off i had a moment of panic for because i i first of all i started not poor but i was broke so i start broke i utterly transformed my life um i work in the inner cities a lot because i'm in manufacturing or i was and so i see these incredible people that are destitute because in my opinion they don't not all of them lack intelligence because intelligence is evenly distributed so in any neighborhood you're going to sort of find the same distribution of iq but what you won't find is the right frame of reference they don't think in the right way and because they're not thinking in the right way they get stuck so i become obsessed with how do i convey mindset to people so they can think through novel problems and solve it in a way that allows them to get out covet hits and i'm like whoa the monetary system is blowing up i'm super scared for other people that the basically they have no sense of how to invest or if inflation is going to go crazy like how to protect against that and so i start bringing on financial experts and none of them could talk at the street level about like what does the guy do that's making 52 000 a year what does that guy do and none of them had an answer and then i come across you and you've got this idea that we're having a once in a thousand year opportunity with bitcoin and i'm like i've got to get people to understand how you have come to that how you have come to that conclusion through first principles and then like we can get to sort of the what they should do so walk through how you go from that sort of early tweet that you just sent off as a whatever saying you know bitcoin is never going to be anything to like whoa this is real and as a person and as the ceo of a company i'm going all in how does that change happen well the catalytic event is uh the pandemic and the events that took place in march of 2020 and what you saw was main street shut down it literally shut down and came to a grinding halt and wall street had an initial panic and a rapid recovery of v-shape recovery and so we put those two together you had an l-shape recovery main street just shut down and then you had a v-shape recovery and we call that a k but what we but if you decompose it and and i was very sensitive to it because on one hand in my personal life i'm an investor and in my public life i run a a main street company i run a software company that has people that manufactures software that does things so what i saw was if you had um if you had a large portfolio of stocks or assets and you went into this pandemic after the fed ended up expanding the money supply and with the interest rates going to zero and the expansion of the m2 monetary base the money base you found that you were actually 25 30 percent wealthy or doing nothing you could have done nothing the entire year as long as the only mistake you could have made is do something right if you if you had a billion dollars and you did nothing for the entire year you had 1.3 billion dollars at the end of the year on the other hand if you had a main street company and you're generating let's say 100 million dollars a year in cash flow and you're valued at a billion because of the cash flow you would have to be generating 130 million after a year to be valued the same because the value uh the assets that the money buy is is being devalued by 30 if the currency is devalued at some rate and you know the money supply expanded to 24 last year so you could use that as your metric or you could use the s p 500s return as another metric but clearly the currency devalued which means that if you're a main street company you had to work 20 percent harder to get nothing and if you're a wall street company you had to work you had to do nothing to get 20 percent better and so what i saw was a shift in balance of power you know and a shift in in wealth and it was pretty disturbing to me too you know it's like you don't want to be uh the dentist working for a fixed amount of money that's getting 20 less valuable every year so the average person i think struggles with that because they're like well i'm getting my stimulus check what do you mean like how's this going down cost of breads the cost of bread i'm all good i think there are some fundamental misnomers or or or understandings of the world that people miss and one and the most pernicious one is the idea that inflation equals cpi which is consumer price index average the idea is a number that for inflation inflation is only two percent or inflation is one percent or inflation might be three percent okay that's just a mistaken idea um to to what is inflation inflation is the rate at which the things you want to buy are going up in price and what are the things you want to buy well you might want to buy pizza you might want to buy netflix but you might want to buy a house you might want to rent a house but if you want to rent a house it might not go up in price as much as if you want to buy a house what if you want to buy a house in the middle of manhattan it might go up in price differently than a house in the middle of kansas what if i want to buy food what if i want to buy energy what if i want to buy a picasso and what if i want to buy something really scarce what if i want season tickets to you know the baseball game what if i want health care what if i want early retirement they're all things you can buy you can buy assets you can buy um luxury service you want to buy a rolex you want to buy a maserati or a porsche luxury goods or do you want to buy commodity goods and there are some things you don't have to pay for right they're ad finance right streaming youtube what's that what's the inflation rate on streaming youtube ad finance right so the inflation is is the cost of stuff if the money um supply is expanding that means the currency is devaluing um in a closed system we want to make that simple i live in a town and there's a thousand houses and i and i double the amount of currency in the town and everybody wants a house what's the price of houses due right if the only thing i can buy is a house and if i double the amount of currency then the price of the house must go up probably go up by two but but maybe not exactly by two but it goes up if i increase the amount of money if i get if i raise everybody's salary by a factor of 10 and i keep the number of houses constant one might presume that the price of houses will go up how will inflation actually take place well there's a different coefficient uh for price uh for the price gradient or the change in price for everything you might want to buy and it's different at every point in time so for example if i put you in lockdown and i make it illegal to go to the movies and i make it illegal to go to a restaurant and the price of restaurants and movie theaters aren't going to go up if i if i make it illegal to or or inappropriate to go on a cruise and fly in an airplane then the price of cruise tickets and movie theater tickets and restaurants they just don't go up because you can't buy them if you want to there's no velocity on that money okay what can you buy you can buy stocks you can buy crypto right so what you know what does go up well if i give you a thousand dollars and you can go and you can buy stocks then the price of stocks go up now what happens um what happens next well so everybody gets locked into their apartment and they decide they really want a house with grass so what happened next well 12 weeks after the lockdowns the price of like suburban housing went up and people started trying to buy houses they said this is unprecedented we've never had so much demand for houses in the suburbs of new york well that's not a surprise you know what if your choices if i close the parks in the cities and you know and and i close your office then why wouldn't you move out into the country and live at a house with green grass right you're not the utility you're not missing out on a restaurant you're not missing out on a park you're not missing out on your job so rational human behavior causes people to take their money and go buy things they want so and where do they buy them well um you know hampton's real estate went up in in price 50 percent palm beach they go to the places where they want to go did the price of land in the middle of north dakota go up by 50 not so much it's not you know it's not a scarce desirable asset by people stampeding um so what is inflation inflation is a vector it's not a scalar a vector means you can calculate for a thousand different products a thousand different numbers and they change every month so i could give you a thousand different numbers uh 12 different times a year and it would be different in every city everybody can figure out than in minot north dakota it's different than manhattan and it's even different in manhattan than in brooklyn and it's different in brooklyn than in upstate new york so inflation is varying by time by space and it's varying by every item and if you want to calculate the inflation index you have to construct a market basket of goods and services and assets that you would want to acquire and then i can give you the rate at which that market basket of goods and services and assets is changing every month or every week um and uh of course that would be different for every person so what happened after the lockdowns well we got hyper inflation in some things bonds hyperinflated cost of bonds doubled in three weeks whoa that's hyperinflation uh equities inflated you know they were up 40 you know year over year uh you know cryptos inflated bitcoin was up three four hundred percent so the cost of scarce art the scot the cost of luxury real estate all of that stuff inflated you know or hyper inflated what didn't inflate things that people can't buy and and yeah i can define a market i could define a market basket of things that don't go up in price by definition too right if i define a market basket of highly manufactured goods that have very low variable cost right like what's the price of your streaming youtube video or what's the price of some manufactured box of macaroni that's five percent food and 95 marketing right i mean the more ma if i spent two billion dollars on a fat on a factory to stamp out widgets that have a variable cost of 10 percent right then inflate then i've already sunk the cost in the factory those things don't inflate at the same rate as you know if there's only one mona lisa in the world and if i increase the amount of money in the world by a factor of a hundred don't you think that the value of the mona lisa would go up assuming that lots of wealthy people wanted it and that that gets you to the really the the interesting theory of economics right if i want to really understand the anything in the engineering world i need to use vector vector calculus right or vector math i would never use arithmetic you cannot solve the problem of fluid dynamics with arithmetic you can't design a boat you can't design a plane you can't design a nuclear reactor and you can't design a bridge with the arithmetic well a scalar like oh inflation is two percent that's arithmetic right you know adding it up right uh isaac newton gave us the calculus of variations you know and calculus in general and pretty much every sophisticated thing that flies or floats you know it's all based upon calculus and uh and you just can't solve the problem without that math so that's the problem of inflation okay so let's inflation is our problem but we have the confounding variable of the average person is being told by sort of the mainstream media by the government hey inflation's not a problem they look at their basket of netflix and bread and whatever and it all seems fine they're getting their stimulus checked there's no worry but the reality of inflation is completely different and we're now seeing a break in the narrative from the government saying well actually inflation is you know whatever twice what we thought it was and that may be just the tip of an iceberg that's coming so inflation is a problem in two ways one if you pour money into the system inflation is going to go up on a certain set of items and then number two if you're confused about what inflation is because it is not simple arithmetic you're now paralyzed especially when that's confounded by marketing essentially so cool so we've got inflation is sort of problem number one you're you often use the analogy of you know if you have a boat that has a leak in it you've got a real problem and if you know that inflation at some level exists you've already got a problem so when did you begin to think okay i've got this in fact what i'm really the the part that i find so intriguing about your story is when you turn to wall street and we're like i have a profitable company it is wildly profitable and yet wall street does not like it dear wall street why do you not like my company and the answer to this is so revealing yeah the company was valued at like one times revenue plus uh cash and uh i said well i have i have 500 million in cash why don't we get more credit and the answer is cash is trash like it's ray dalio's quote cash is trash well why is cash trash well if the money supply is expanding at seven percent a year then then the risk-free hurdle rate is seven percent if you don't generate more than seven percent yield on your cash then it's devaluing so from 2010 to 2020 the money supply expanded is seven percent so all the cash you're holding is losing seven percent of its value um assuming you have a zero percent interest rate or zero yield on the cash so you can imagine the traditional world you invest your cash at three percent treasury yields and you get a minus seven and it's like a minus four percent and divide four into 72 and you know and somewhere 15 20 years out you're going to lose half of the shareholder value in the treasury if you do that people might hold their nose but after march of 2000 the money supply is expanding at 24 the interest rate's zero so now you have to put a forecast in place at what rate will the the money supply expand if it expands at 20 a year and you're gonna generate zero in treasury yield then you're looking at cutting your treasury purchasing power in half in three and a half years whoa okay now that's not trivial so you have to find a way if you're gonna if you're gonna have assets to get over the hurdle rate another way to say it is i have to invest it in a strategy which is going to appreciate faster than the money is devalued if the money is devalued at seven percent a year then the s p 500 index better yield nine or ten percent if it yields 10 percent and the money devalues at seven percent you're plus three you can save money in an s p 500 index fund you can't save money with bonds unless unless you're buying bonds and the interest rates keep getting uh reduced if you if you bought a bond at four percent yield and the interest rate got taken down to three and a half the bond uh trades up and when the interest rate goes down to three it trades up again and when it goes down to two and a half trades up again when the bond rates get or the libor uh you know the short-term bond rate and interest rate goes to zero you can't take it down anymore so bonds won't hold value either so now you're in a conundrum i have a lot of assets but i'm not beating the hurdle rate and the hurdle just tripled this is the problem that a company that's cash rich has and it's a problem that anybody that works for a salary has which is i general out of cash and the cat the currency is being devalued every year the real question is what's the rate which is devalued and in that let's do the thought experiment what if uh what if we didn't print any more money what if the inflation rate uh the monetary inflation rate not the cpi but what if the money expansion rate was zero in that case uh the currency is also an asset and it's a store of value and a medium of exchange at the same time that's a complete uh austrian economics like deflationary economy where we have call it hard money or sound money the closest thing to that would be the gold standard if the government said you can exchange your money for gold at any time and we'll keep gold equal to the amount of money and we won't print any more money well that puts you on a hard money standard in that case you could just store your money in a bank and it would be more valuable in the future not less valuable when the government goes off the gold standard and we went off the gold standard explicitly in 1971 now the currency is losing some percent of its purchasing power every year because it's being inflated away and what's the number well it was about seven percent a year and now it's like 20 percent a year and it's 15 to 20 a year you know you've got to figure out is it 15 20 or 25 but if it's 15 to 20 the currency is weakening one to two percent a month when it gets to be 40 to 50 it's collapsing that's argentina or worse so you've either got a country where the currency is weakening our country where the the currency is collapsing when that happens now you have a decomposition the money is broken into two components you have a currency component which you use as a legal medium of exchange like the dollar of the euro or the yen or the remember and then you have an asset component which you use as a store of value over the over the long term money uh or u.s dollars have ceased to be a store of value for at least the past decade since the great financial crisis so what people did was they stampeded into etfs and index funds right and to a certain extent bonds right how do you store your value over the long term well if i if i take money and i buy a mixture of stocks and bonds that will store my value because if if the economy's healthy the bonds the stocks go up by 10 a year the s p does and if the market uh the economy is not healthy the fed will lower the interest rates by 50 basis points and the bond will trade up and so that works for how long it works and watch the interest rates for the last decade it works until you crank the interest rates down to zero the it used to be overnight money was 550 basis points tom before the great financial crisis and then they cranked it down from 550 to 500 to 450 to 400 to 350 to 300 to 250 to 200 to 150 to 100 to 50 to zero and now we have uh you know the banker say i'm not even thinking about thinking about raising interest rates so that breaks bonds as a store of value unless you go negative interest rates and uh stocks stocks worked except for the fact that you know what stocks worked in the past decade apple amazon facebook google a big tech company that grows 20 a year top line when apple stopped growing 20 a year top line they fixed it by taking on mass amounts of debt buying their stock back and leveraging up their eps so so companies that grow faster than the rate of monetary inflation faster than the seven percent they could hold value a company growing 20 percent like google facebook or amazon they all hold value in fact they accrete value why because 20 is more than seven right it's plus 13 a year right um what how what happens to all those all the other companies which companies in the s p 500 amounted to all the indexes to all the gains it was big tech right big fang stocks were the winners everybody else treads water because if you're growing at seven percent and the money supply is is collapsing at seven percent you're net zero and how else do you get around it well you can go borrow a lot of money leverage up buy back half your stock and get your cash flow per share up but what what happens when you're fully leveraged which is like where they are right now you can't do it anymore so what's the problem right now the problem today is the currency is is being devalued at 20 a year not seven percent a year right that's i turned up the heat in the frying pan and the second problem is some stocks could hope to grow twenty percent a year like the minority five percent of them could grow twenty percent a year for the past decade what percentage of stocks can grow 30 percent a year because now you got to grow 30 or 35 years because the hurdle rate just jumped now you're pushed out on the risk on the risk uh curve here you've got to take a massive risk as a company to grow that fast you got to do acquisitions you got to you gotta burn the candle on both ends you gotta take on massive new leverage this is squeezing value stocks don't work right i mean it squeezes you out of the value stock trade because if the company is reliable and it's growing its cash flows five percent a year and the money supply is expanding at twenty percent a year cash is trash back to my story right why is cash trash because i had a value stock with a lot of cash and the money supply is expanding looking from the point of an investor they can invest in the s p 500 index or the nasdaq and that those were all up like 40 year-over-year or something you know or they could hold cash and get zero percent nobody wants the whole cash and so they might as well just take it and put it into something else now long term you can get a bump on equities uh when you have a boost when interest rates get spiked down you saw it when we flood the market with liquidity initially that makes stocks go up but let's take the example of zimbabwe and argentina if i keep doing it for 10 years what happens to those stocks they don't go up right the problem over time is stocks are valued based upon the discounted value the cash flows or at least in part and so if i give you a company generating 100 million in cash every year for the next decade but i tell you there'll be ten times as much money in the economy in a decade that hundred million dollars of cash will only be worth ten one tenth as much in a decade so you the discount rate is jumping which means the value of the cash flows into the future is collapsing the road to serfdom is working exponentially harder for a currency growing exponentially weaker and so how do you solve the problem and the solution to the problem is you convert your assets from a weak currency that's inflating into a strong currency or a strong asset if you will that is deflating right the the simplest example is i'm a wealthy business person in argentina and the peso is trading three to the dollar three pesos to the dollar and the year is 2003. and now i can go forward and i tell you well in the year 2020 the peso's going to trade 150 to the dollar on the on the blue market or the black market that's going to be the real rate so what's your best uh strategy work hard invest diversify into other argentine companies making pesos no your best strategy is convert all your existing pesos into dollars and get it out of the country and your next best strategy is forward finance your cash flows and convert those into dollars get them out of the country and your next strategy is sell equity in your ranch or your business in pesos in 2003 at three to one three pesos of the dollar and then buy dollars because the dollar is going to go up by a factor of 50. so what you're doing is you're financing in a weak currency and then you're converting into a strong currency and that's pretty obvious if you lived in zimbabwe or if you live lebanon went from 150 lebanese uh lira to 700 seven it went from 1500 to 7500 overnight whoa so it means you lost 80 percent of your money if you had it in a lebanese bank and so the answer of course is convert your lira while it's 1500 to the dollar into dollars before the devaluation right now what can you do if you're a modern business person right if i can't convert to dollars the next best thing is buy something tangible that won't lose 80 percent of its value overnight buy a boat by land traditionally people bought other tangible assets gold right something like that but if you buy an asset which is valued based upon its expected future cash flows that are in that collapsing currency that doesn't work for you like you could own a every good business in in venezuela how's that going to help you when the venezuelan currency collapses by a factor of a million it won't okay so what's bitcoin well bitcoin is the strongest asset the human race has ever invented it's like gold with none of the defects of gold so define what the defects are why why is it the greatest monetary invention so i buy uh a million dollars of gold okay um if the price goes up the gold miners first of all the gold miner is going to create more gold and dump it on the market if i could eliminate uh all gold mining forever if i could wave a magic wand and make it impossible to mining more gold my million dollars a goal will hold its value better because it'll be scarce but gold miners are inflating the value of the supply of gold by at least two percent a year or so and then if the price doubles again investors will invest in more gold miners and they'll create more capacity to mine coal so you'll create capacity to mine gold you'll mine the gold you'll crank up the rate at which the gold mines function after that people with gold jewelry will melt their jewelry down convert to gold bullion and sell it right if the price of gold went up by a factor of 20 you would be like converting all your gold stuff into gold bullion because it seems like a good idea they call it scrap gold right and then after that um bankers will issue gold warrants and gold and gold paper and gold derivatives and they'll sell them short without the gold because they can speculate in it and they don't have to have a one-for-one coverage of gold to the gold derivatives and so that's called hypothecation and rehypothecation okay if it keeps going up the government's holding gold will start to sell some of their gold to manipulate the price down right and all of these and if and ultimately if it goes up enough someone will club you over the head and take your gold or a hostile regime will take your gold or a politician will pass a law taxing your gold right there's a there's a lot of ways you lose gold because it's physical how do you cure the problem right i mean here's how you cure the problem you make it impossible to mine any more gold and then you make it possible to take custody of your gold personally off of the exchange or off of the bank so that way the bank can't hypothecate it or rehypothecate it miners can't inflate it investors can't create any more gold miners and then you make it possible to move it from here to switzerland or singapore in an hour for for a nickel and that way if you don't like your bank or don't trust your bank if the state of new york passes a law taxing it you move it to state of wyoming you know if the government passes the law taxing you know the the ownership of uh land in california you can't move the land out of california can you if you have million dollars of gold in a bank and in a vault in new york city you know there's only a couple places you can move it you can move it to london if you have six months okay so you're going to be subject to the law of london or the law of new york can you actually move to your favorite island or you know can you move to the cayman islands and bury your gold underneath your hut in the cayman islands and be safe about it not likely can't even get it through the airport right so so the problem with other properties and gold is the simplest example but the problem the the challenge or the analogy holes with any property i give you a bunch of money and i tell you you want to keep it and give it to your grandchild do you buy a building in manhattan do you buy a ranch in california do you buy a stack of gold bars do you buy shares in a company headquartered in san francisco do you buy bonds issued by a government or company or do you buy bitcoin and you can you can see the problem of course is the the debt is devaluing rapidly the land in california can be taxed and is not movable you know uh the building in new york is not going anywhere it might be valuable to a rich person that lives in new york what about a rich person lives in beijing do they want your building in new york how are you going to hide your building right buildings get properly taxed there's a very famous story about you know a bunch of luxury you know yachts sitting in sardinian port and the locals decided that that it wasn't fair that all these uh people were rich people were sitting on their yachts in the port spending all this money but they weren't paying enough taxes now they're putting millions and millions of euros into the economy but they came up with the idea that they were going to put a tax on the yacht on the value of the yacht and so they you know they passed a yacht tax that would have cost people millions or tens of millions of euros if they stayed in that port and uh everything was happy and all the restauranters and the hotelers and and and the entertainment people and the port they were all happy making tons of money off the yachts until the day before the tax went into place and the morning that the tax went into place the port was empty and the economy died every left because yachts are floating capital it just moves it's floating property right so it's it's a very visible example right why it's not that smart to put a an unfair tax or an extreme tax on a yacht if people can float the yacht to the next port you know 100 miles to the left so one would be discouraged from taxing stuff that floats on the other hand taxing a building that's buried you know 100 feet down in the bedrock that's easier you can't move the building so bitcoin represents the apex property rights of the human race like i'm not mind you i'm not disputing the ability or or the you know legitimacy of a government to pass a tax at the end of the day they can tax your gold they can tax your stocks your bonds your building yourself your income whatever they want but the point really is you're a lot more likely to tax the stuff that you walk past you know every day on the way to work and your lot and uh legitimately you can move yourself and you can move your property if it's crypto to another jurisdiction but you can't legitimately move a ranch in california so your property rights are stronger and the value of the property is higher right you have a valuable thing in manhattan it's interesting to other wealthy people in manhattan but when you have bitcoin it's interesting to wealthy people everywhere on earth right it's you can liquidate a billion dollars of bitcoin on the weekend in any currency you know any anytime try liquidating a billion dollar building right that's year process right so it's liquid it's fungible it's desirable and so that what that's what makes the asset valuable and it's very it's the it's the most difficult thing to impair tom once i had a million dollars seized by the argentine government here's how it happened i had a million dollars in a bank in argentina in dollars and it was a us bank um on on one day they simply passed a law converting it all to pesos and they and they converted everybody's everybody's account to pesos in the country and the next day they devalued the peso ten to one and 24 hours after they'd you know done that i had 100 000 whereas i had a million before and they did it i mean they did it quickly and easily to everybody in the country now in theory you know that if if it had been property they would have had to pass a law seizing 90 of the property of everybody in the country that would not be so popular right to seize the property and if they wanted to seize 90 of the property of everything in the country they would have had to subpoena a court in new york or delaware and get my appearance right and there would have been three four five years of lawsuits going on and if you really wanted to take something you have to kidnap everybody and take them to jail and sweat their private keys out of them and that's not very practical right so at the end of the day it's not likely that uh that the governments of all the world will just confiscate 90 of your of your crypto assets or your bitcoin but in fact it's a foregone conclusion that they're definitely going to compensate 90 of your currency right it's happening at one percent a month or two percent a month right now so all you got to do is wait between five and ten years and you're going to lose 90 percent of your purchase of your money if it's in if it's in a currency or a currency derivative and they don't even have to pass a law all right my friends let's talk about blue blocks blue blocker glasses have been a game changer in my life if you're someone like me who is sensitive to artificial lighting and extra sensitive to artificial blue light from a cell phone or a computer screen then you need to try blue blocker lenses they are going to improve your sleep and now there's a company called blue blocks 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don't understand inflation like this is going to be a problem like your money will go down in value and i was like i get it but i feel like it's happening slowly enough that i've got time to like get my head together like this is so disruptive and so um you know bill gates predicted it so i won't say it was unpredictable but it was so surprising and unlike anything i had ever lived through i just didn't know what was going to happen and i didn't understand money markets well enough or finance in general i'd always better myself as an entrepreneur so i understand how to build business i understand how to create wealth but maintaining it is like a whole another thing that honestly i know a little bit about now i knew nothing about it then so i just kept saying look get me as close to buried in the backyard as i can then i come across you and you talk about hurdle rate and then i was like oh my god this isn't something i've got 30 years to figure out this is something i have four years to figure out to get to like a halfway point to where i've already lost 50 of my wealth so i was like whoa now i have to take action so now i start researching like crazy okay is it going to be crypto is it going to be specifically bitcoin is it going to be something else and this idea of creating basically turning sunlight into cryptographically protected money is a a very interesting idea and so i'd like to know now so those are all the reasons why like there's you can protect yourself from the government um but you have a compelling argument as to why i should be willing to stomach sort of short-term volatility and why because that's like the argument if i'm that average person on the street i'm like yo literally last week this lost like 30 or 40 percent of its value so that's terrifying so why would i be better off in that than you know even a bond with a negative yield at least like i'm bleeding to death more slowly than the 35 loss or whatever that i just took over the last week well bitcoin's the best performing asset for the past decade and it's you know it's 100x better than gold and it's 10x better than uh equity portfolios so the volatility is the price you pay for the performance that you get and uh oftentimes the best investment idea isn't the most comfortable investment idea um i i think um if i told you there's a hundred percent certainty you're going to lose seven percent of your money over the course of a year you might think well you know i have a decade before i lose half of my money i have time to think about it that's that's the status quo when monetary inflation seven percent if i told you there's a hundred percent probability that you're going to lose 20 percent of your money over the next year and half of your money over the next three years well i mean you might think you need to move faster what well what if i told you you're going to lose all your money what if i told you the currency is going to collapse to zero in three months which is kind of what it did in zimbabwe and venezuela well what have i told you we're going to have 95 percent inflation i think the unofficial inflation rate in argentina is like 85 percent this year what if i told you we're going to have hyperinflation everything will be twice as expensive next year now how long would you wait before you took a risk i i you know if i really want to you know get you to jump out of the pot right i could just make it simple next tuesday i'm seizing all your money or you can spend it between now and next tuesday right what i mean that really uh what is the word focus is one right right it strengthens one stiffens one spine and focus is one if i just made it very black and white i'm just going to take all your money next tuesday or you can spend it between now and then so how do you actually um get comfortable with the volatility well i think first you have to get you have to understand how big your problem is and the second thing is one of time horizon and what do you what's your aspirational goal for example if you're if you don't aspire to change your lifestyle one iota and you know you're going to watch netflix let's take a stream you're going to live in your parents basement watching netflix order domino's pizza and stream youtube video for the rest of your life do you have an inflation problem coming probably not if you want to if you want to buy your own house you have a bigger inflation problem because housing went up 15 if you want to get married buy a house have three kids and if you know if you want to take expensive vacations and have a have a house on the lake you have a big inflation problem guess what luxury homes on the lake went up in price a lot same with education if i plan to send those kids to school i'm really in trouble yeah so it really comes down to what is your aspiration and that that determines your hurdle rate i mean what you want determines your inflation rate and your inflation rate determines your hurdle rate and that makes a difference i think in terms of historic metaphors i mean there's plenty for example my family came to um to the united states in 1736 on a wooden ship okay and if you if you want to go study those voyages they spent eight weeks have you ever tried there's not a single person that's like probably got in a wooden ship with three sails for eight weeks to cross the north atlantic in order to come to america the mortality rate is like two to five percent on that trip the mortality rate to go from europe to the far east is like 35 it's insane like one out of three people that started the journey dies on the trip whoa okay so the you know we talk about volatility is bitcoin bumpy is crypto we're just talking about bitcoin yeah bitcoin is bumpy what else is bumpy uh wooden ships in 15 foot seas if you want the definition of a rocky ride the the rocky ride was was leaving europe so why'd they do it so you're saying that the bold are the ones rewarded if you choose correctly right i mean the ones that moved too soon you know went to certain colonies you know that on the potomac river and the james river and they died right so there's a lot of early settlers who took arrows in their back you know in the 1600s on the other hand uh by the mid 17 1700s by 1736 you know people have been living in in north america and you had philadelphia and you had massachusetts successful colony and the like so if you choose the right decision or make the right decision at the right time you can have a better life but there's still risk right so why the people come from europe they came for property rights and civil rights right they either couldn't exercise their religion or there was no hope for them all the property was owned by someone else and you know property rights matter if i a lot of people don't realize this they think that they they think the property rights are nice to have property rights are a nice to have the same way that that fat on your frame or an insulin are nice to have if i strip away your insulin you're a type 1 diabetic you can't form fat if you can't form fat you can eat all day long and you're going to starve to death it's not a nice to have to store to store energy over time fat is an organic energy battery and property is a social energy battery so being able to store property means i can go three months without a job and not starve and live and live a life there is no hope for a civil life without property so you know people went from europe to the us for property when they got to the east coast they went west it's in the american ethos was there a bumpy ride taking a wagon train over the rocky mountains you ever fly over the rocky mountains and looked down before they had the railroad and before they had the highways and then you ask how did people actually cover the turf it's like yes it was a bumpy ride there was volatility along the way you know i think the risk and the discomfort today of owning bitcoin is a heck of a lot less than the risk and the discomfort of getting in a ship or getting on a horse or you know getting in a wagon or walking right or settling and doing what you need to in order to secure your civil rights and your property rights and your freedom but um there is an analogy um the only way you make the volatility go away is you make the opportunity go away the reason you went west was because people weren't living there and you wanted thousands of acres to yourself to live a better life right and when you got there you found that there was no one that had come before you to you know to clear the thing you know and build a house for you and give you running water and hand the keys to you and do your bidding because you know you're going to a new place that was where the opportunity was so i think it's very it's very uh quintessential to the american spirit or the or the entrepreneurial spirit or or just the human spirit you know what about immigrants a nation made of immigrants people went from a country where they had nothing to a country where they could have something that's the story that you see over and over again is the volatility is there a risk yeah always right um is there opportunity yeah when do you leave look the i mean the rich first sons of the nobles in europe didn't come yeah it was the poor disenfranchised the people that uh that didn't have a choice that came right that the protestants left catholic countries the catholics left protestant countries the poor left every country those who were you know hoping for a better life came and you know if you're if you're sitting wealthy with lots and lots of stuff and a comfortable life style and a comfortable portfolio you might not see the same impedance right you wouldn't have the same inspiration to do something it's interesting so the humanitarian side of this is one of the things that i find more fascinating about the bitcoin movement there is something very encouraging about the fact that all the people in my life that came to me with this saying tom you really have to look at this we're young people um you know the level of awareness that they have had that and i have a lot of employees that sort of straddle are they the low low end of um gen millennials are they the upper end of gen z you know i guess it depends on where you split it but they're sort of early 20s and uh you know they're looking at this as like hey this is this is the opportunity our generation has been looking for there's finally a moment where we can really capture some upside we're young enough that if we sort of invest poorly it should be fine that we should be able to make this money back up they buy into the ethos of only invest what you're prepared to lose you know these aren't guys that are doing things on leverage and so that is is very hopeful you know when you talk about the beginning of the pandemic was this well transferred to people that basically owned bonds and assets and now with you know hopefully this sort of prolonged and i think that's an important thing to note is yes there's volatility to bitcoin in the short term i've heard you say if you're looking at a number in anything less than a four year increment it's just noise and that once you extend out to four years and beyond suddenly it actually becomes a story of you know growing i think it's like 200 year-over-year um which is you know pretty thrilling um how far does when you think about this being sort of the apex property how much goes into just the the fact that it's taking sunlight and turning it into something that's cryptographically protected and how much of that stance is that this evens the playing field you know i think a bitcoin is like that shining city and cyber space where billions of people will eventually want to live right instead of moving from europe to america or moving from the old world to the new world or whatever we're moving from the planet to cyberspace we can't move to outer space yet i can't get a billion people off the planet and settle on a better earth but i can move a billion people to cyberspace bitcoin is property in cyberspace is 21 million city blocks in cyber manhattan um the people that moved there first right get to buy the land cheapest and then event you know how many people will eventually want to live there well unlike manhattan where there's a limit there's really no limit why wouldn't everybody want to live there right i mean i don't know that there won't be other cities in cyberspace that that might meet other needs i mean i suppose if the chinese you know made it illegal to own bitcoin but there was a chinese bitcoin there might be a chinese version of bitcoin in cyberspace kind of like alibaba you know and ant and and wechat kind of branched off from facebook and google and amazon so there might be some other digital dominant monetary networks or dominant monetary networks but but bitcoin is the greatest the greatest monetary network that the human race has ever developed and it's certainly the dominant one right now and it looks like it's going to be continued to be the dominant one for as long as we live so um what makes it uh dominant well i mean clearly the architecture is a proof of work or in other words throwing up a wall of encrypted energy right it's all of the crypto hash power that's channeling energy through the hashing function which creates uh creates the stability and the security and so it's based upon the architecture but um but ultimately the appeal of it is that it's an open permissionless protocol that everybody on earth can engage in anybody can mine it anybody can so anybody can contribute security to the network and anybody can run their own node and anybody can own it and then any company uh can plug into it and so there's nothing that open there is not there is no monetary protocol or asset or currency that is so open as the bitcoin asset and so that's what's driving its value right now it's it's an opportunity for people that are that have little that have uh little to lose and much to gain it's all it's an opportunity for everybody though i mean the way i think of it is it's a moral imperative a technical imperative and an economic imperative morally it's an imperative because it's it's the best hope for 8 billion people to secure their property rights if i give you a 50 android phone you can carry around in the android wallet your property and no bank or no hostile regime can seize it and we've never and that's the best property right you're ever going to get i think it's a technical imperative for the same reason you've got 8 billion mobile phones that will all have property and so what's more important storing your photos and your videos on your mobile phone or storing all your money all your life force on your mobile phone you're worried about losing the photos you took on your iphone you worried about losing your life savings clearly it's more valuable so so it's a it's a technology imperative for an apple and amazon and google and facebook and companies like square and paypal and binance and coinbase are already extraordinarily successful by embracing it you can see that right now and finally it's an economic imperative because there's 500 trillion dollars worth of fiat derivatives cash and bonds and stocks and real estate that's valued based upon cash flows and all of those things are being devalued at one percent a month something so we can go back and forth over what's the rate of currency expansion but you know it's it's not that hard to see that this is a 25 to 50 trillion dollar a year problem for anybody with assets on earth it's very rare that you find it a technology that's the solution to every rich person's problem and every poor person's problem simultaneously what do you say to people that that say um the pushback i've seen on bitcoin is hey guys sorry i get why you're excited about it but it's the netscape of crypto and uh you know just as a technological layer it was early cool yay thanks for sort of proving the model but this is never gonna last people will build something way better yeah well netscape didn't make it to a trillion dollars in market value in 10 years right if we if we calculate the amount of monetary energy on the network bitcoin would be more successful than google facebook amazon apple or microsoft in fact it would be more and it's you know much more successful than than netscape or aol or anything from that genre those things never got to one one hundredth right i think netscape you know at its peak you know was maybe 120th 130th 140th of what we're seeing in front of us right now and uh the the difference really is there is no other uh there is no technology and architecture that's uh that's appropriate to replace it the solution to the issue of long-duration asset or long-duration safe haven store of value is is a very secure crypto asset network and so bitcoin is the single most secure network in the world it's the most secure database in the world it's the most secure asset in the world the way that you make it secure is through the extraordinary decentralization combined with uh the way that it uh that it converts energy into a very special specialized sha 256 hash function so in order to attack that network it would take extraordinary time and effort and energy and resources it's it's pretty much the most secure thing we've got in cyberspace and what about people that look at that and go yes cool you've built this amazing protective layer but it comes at the cost of the environment the actual cost is um you know nominally 0.1 of the energy used in the world but the economic value of the energy is not even 10 basis points it's like three basis points so you're talking about like it's almost if you put it on a sheet of paper it'll be like a couple of dots but you can't even see it the uh the overall energy generated in the in the economy is like 106 000 terawatt hours and the wasted energy is 50 000 terawatt hours and bitcoin is 120 out of 50 000 wasted energy so it really is insignificant as an energy load on the environment but if you dig a bit deeper you'll find that actually bitcoin is much cleaner energy than all the rest of the applications cars planes trains automobiles it's pretty obvious uh planes use fossil fuels there's no hope for them not to bitcoin doesn't bitcoin is actually something that runs on electricity it doesn't run on fossil fuels you know most cars still use fossil fuels and even electric cars are charged at charging stations that are charged with fossil fuels so so the environmentalists ultimately are going to focus upon the energy grid and if they want to shut down fossil fuels or change the energy mix away from coal or something they'll do that bitcoin is the highest value application of energy on a wholesale basis that we have in the world there's nothing nothing more valuable there's no more valuable use of energy than bitcoin the latest generation of shaw 256 miners they will generate almost 45 cents a kilowatt hour in value which means you can take them anywhere on earth to the north pole you can put a nuclear reactor on the north pole and run and run bitcoin mining from it you can plug them into wind generators a thousand miles out into a desert you can plug them into geothermal on an island like iceland and you can generate 45 cents kilowatt hour the typical residential electricity cost is 13 cents a kilowatt hour industrial usage in the first world is 11 cents a kilowatt hour and all that energy has to be co-located with the factories and the people right we don't you know we don't have an application an industrial application of energy like bitcoin that you can put anywhere on earth so what's the result the result is that bitcoin is used to recycle stranded energy or wasted energy if you have um if you have a hydroelectric dam and you have a lot of energy but you don't have people to use it well the dam is generating energy year round but the people don't need it but maybe a few months a year or maybe they don't need it in the evening they just need it during the day to run their air conditioners like air conditioning is a great example of a cycling energy use bitcoin is perfect a perfect energy uh battery because you can run it at night while the people are asleep and the air conditioning is off and so you level out energy consumption on the grid thereby driving down the cost of energy for everybody on earth and for any any plant that would otherwise be decommissioned you have a use for it if you don't want to decommission it and of course as you can imagine the sun shines in the desert where people don't live and the wind blows in places where people don't live and volcanoes you know and geothermal energy exists where people don't want to live those are three sources of energy they're all sustainable renewable energy but if you know anything about a power engineering you know you can't move electricity more than 500 miles on a grid period it's a hard stop a hard limit if you happen to find geothermal energy more than 500 miles from manhattan we don't need it and and news flash we've already got too much energy right so even if you found geothermal energy in the middle of central park we still don't need it and so what if i told you tom i've actually got infinite free sustainable energy and it's a thousand miles away from a city what are you gonna do with it well i mean the only obvious thing to do with is bitcoin mining so bitcoin is migrating to the ends of the earth to the most sustainable energy which is also the cheapest energy which is also the greenest energy and um and it's a solution to the problem of how do we catalyze sustainable energy how do we get green it's also a solution to every country's problem you know you're in the middle of africa with a waterfall and no industry what's your best how are you going to lift your people out of poverty you plug you know a turbine into your waterfall you plug bitcoin mining into the turbine and now you have cheap uh cheap energy plus that's green that's plugged into a clean hard currency exporter that pays taxes that elevates you out of poverty that's environmentally friendly so i i think that's a good story here people just don't they don't understand right just how powerful bitcoin is as a force for for energy sustainability yeah i would agree with that like the the attacks upon it from an environmental standpoint are relentless and to be honest i just sort of brushed them off based on the facts that you've given it seemed like wait people just don't understand the narrative or they don't understand the facts they've fallen for a narrative and until elon musk who's sort of the king of clean energy for the love of god uh came out and expressed concerns over the environmental impact of bitcoin um how is it possible if everything that you just said is true that somebody's so into the world of clean energy could be against it i think we've got a lot of education to do the the industry hasn't published um transparent statistics about the nature of the energy usage in bitcoin mining because the bitcoin miners are very decentralized and so and so um encouraging transparency and gathering all the data and publishing it that will be helpful because because there's a good story here i think that the the the mining uh the energy usage is not well understood for example three years ago someone thought that energy was used in transactions and then they thought since energy is used in transactions if we scale up the number of transactions eventually bitcoin will boil the ocean and uh that wasn't true either because the bitcoin network never increases the number of transactions and then the energy usage is unrelated to transactions and in fact the energy usage is decreasing exponentially as as the transactions scale in efficiency exponentially but the model was flawed and so people picked it up and no one's published a better model so so we need to and if you only spend an hour thinking about it or spend a few hours you might not understand the nuances so i think that the industry needs to do a better job of transparently communicating the current usage of energy and transparently communicating how it's going to change over the next 20 years bitcoin energy usage for example is exponentially falling that the latest generation of miners generate five x as many hashes for the same amount of electricity so in fact energy consumption decreases eighty percent per extra hash whoa it's massive and then after the next halving it gets cut in half again and the protocol keeps cutting it in half every four years and the technology advances are doubling it every year or more right and so if i double every year and i cut in half every four years and the transactions the transaction efficiency is on our transaction cost is only scaling with the log of the price i mean most people can't do the logarithmic math in their head but if you if you actual and they don't know the ratio between transaction fees and block rewards but once you figure it out let me boil it down to the summary it's 200 basis points of of the value on the network today falling to 120 falling to 70 falling to 40 falling to 20 falling to 10 falling to seven basis points going to six to five you know eventually getting to five basis points and that and and as it's falling to five basis points of the overall um monetary energy in the network the energy mix is rotating from from uh more fossil fuel to less fossil fuel and at the same time the energy intensity is falling because the security on the network is coming proportionally more from the technology of the hash the hashing miners than it is coming from raw power and so this there's a lot of things going on there you know if you're a journalist you just write click bait right and i and i think that they came across there might be an example of one power plant there was a fossil fuel power plant that was that was used to to run bitcoin miners and so that became a very colorful story well what about all of the hash rate well it also got pretty colorful when when on twitter uh you and elon musk were sort of going back and forth and i'm actually really impressed by the way and i don't know if this speaks to your vision into stoicism and having stoic values but the fact that elon was razzing you may be the most generous uh interpretation on twitter about sort of your views on bitcoin and energy and all that but then like i don't know three or four days later you introduce him to minors in the u.s that are really making strides into being green i'm curious what one why not if somebody's coming at you like that why were you so generous is it that you see yourself as as a an ambassador to bitcoin and it didn't make sense to get into a pissing contest or is there something else going on well first of all i think elon believes in the power of crypto for human freedom and sovereignty and sound money i mean he understands the importance of the underlying technology and he also believes in bitcoin that's why he bought billions of dollars of it right so he believes that and so we all we all agree on 99 right the power of technology to make the world a better place the power of sound money the power of responsibility the importance of freedom and property rights the importance of decentralization we all agree on that um and so elon has concerns that we should be the good guys which means make sure that we pursue it in a sustainable fashion that's good for the planet and so you know he he wants to encourage everybody uh to be on the right side of of the energy debate so uh there's not a lot of transparency and i think the industry was uh not as organized as it could be so i said to him have you met the miners they'd love to hear from you and can we work together and he said i would love to work together i'd love to meet the miners and so so when people agree with you on 99 of your agenda and they have concerns and and bitcoin has either real or imagined energy issues right they're either real someone could fire up a coal power plant and someone and people don't care for that and then imagine maybe people are worried that it's going on more than it is going on or they're worried about the future so the mature responsible thing to do when you have real and imagined problems is to bring everybody together in order to talk about your issues and solve your problems you know in the most transparent responsible fashion we can so so he was enthusiastic to meet them their enthusiastic meet him we shared everything that we're doing they shared what they're doing he shared his concerns we talked about solutions and and i think lots of good will come of it i think that the miners will will now have a platform to communicate just how sustainable they are and their goals for sustainability i think we can put together clear clear metrics and models for the future that communicates to the mainstream investors and mainstream media and anybody else that's interested what's going on and and i think that ultimately that's it's constructive and a a way for us to all go forward together in in a in an environmentally friendly appropriate fashion that everybody can get behind i love it michaelman seriously i can't thank you enough hey for coming on the show but b for being a um an ambassador for this moment where if this really is that sort of once in a thousand year opportunity for people to get into something early that could become you know the dominant protocol in in a shift where money becomes technology and as somebody who is just so hungry for the average person to have that kind of opportunity for you to take the time to boil this stuff down to first principles to walk people through this i i know but you have a company to run and yet you've taken you know hours to be with me you've done this countless times to put this information out there i watched your debate on gold i mean it's just the the number of things that you're doing to help people understand what this is and then obviously ultimately it's up to everybody to determine their risk tolerance and uh you know what they're willing to do but dude i just i'm blown away by your willingness to engage this community and you know give people a way to think through the problem so thank you for that and where where can people follow you to get more of your insights the best place to follow me is on twitter at michael underscore sailor and then if you're interested in bitcoin bitcoin is hope so go to hope.com h-o-p-e and i post everything on hope.com and so uh thank you tom for giving me a platform i do think it's an opportunity to improve the lives of billions of people and but i think it's a complicated new subject and it merits you know information like you're conveying on your on your podcast here dude thank you guys trust me when i say that you're going to want to spend as much time with michael saylor as possible i forced all of my family to set up wallets so that i could send them money myself so that they could buy crypto i wouldn't even send them crypto i made them go buy it themselves so they could understand how the process works they could decide what coins they wanted to get but this really like this i michael has already said everything that he's gonna say you should definitely trust him over me but i will just say this really feels different this really feels special this feels like a moment it feels like a movement that's the right way to say it it feels like a movement and there is nobody and i mean nobody that i've seen in this space that is a better voice for that movement than michael i cannot encourage you enough to go spend i'm not kidding 10 hours watching his videos you will be richly rewarded you will have somebody walking through first principles about why this stuff makes sense and i get it if this was your first introduction it's hard to wrap your minds around it he's very consistent you're going to hear those things over and over and over and eventually it's all going to make sense and you'll be armed enough to make your own decision but please research this stuff i beseech you just because i like to see other people succeed i beseech you to research even if you walk away saying it doesn't make sense for me i just don't want people to miss this opportunity out of ignorance so thank you guys for rocking this one i consider this a very special episode again michael thank you amazing to have you and guys speaking of things that are amazing if you haven't already be sure to subscribe and until next time my friends be legendary take care you

Channel: Tom Bilyeu

Views: 1,299,522

Keywords: Tom Bilyeu, ImpactTheory, TomBilyeu, Inside Quest, InsideQuest, Theory Impact, motivation, inspiration, talk show, interview, motivational speech, Michael Saylor, Microstrategy, impact theory, conversations with tom, business, startup, growing business, bitcoin, what is bitcoin, bitcoin cash, how does bitcoin work, bitcoin stock, cryptocurrency, what is cryptocurrency, crypto, investing, risks, first principles, strategy, MIT, technology, currency, cash, stocks, rule of 72, volatility, Elon Musk

Id: Vuz44fwkEz0

Length: 100min 0sec (6000 seconds)

Published: Thu Jun 10 2021

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