SLP1 - Bitcoin as Sound Money with Saifedean Ammous, Austrian Economist

okay guys welcome to the first show for the first guest we've got safety in a moose he's an Austrian economist he's a professor at the Lebanese American University and most importantly he's the author of this book that I'm holding right here it's the Bitcoin standard and I think this is a very very important book and what safety has really done with this book is he's really combined the insights and presented an understanding of Bitcoin that incorporates all these different facets in a way that nobody has done up to now in terms of in the Bitcoin and cryptocurrency world and so welcome safe teen thank you so much for having me Steve it's fun talking to you always thank you thank you safe teen yeah so I think some of the really interesting things I found you know about your book is that you were really able to combine the insights and present them across so many different kind of Austrian economists and I think some of the key ones we've got Mises we've got menga we've got rothbard we've got people like dieter Holzman hopper and also guys like Julian Simon as well and I think along with some of your contributions as well that have or some of your sort of focuses if you will and one of them was around you know bitcoins locked difficulty adjustment and the stock to flow ratio so I thought there were a few really key points that I got out of my reading of your book but maybe let's start with just a bit of a basic question what is sort of what is the basic case for Bitcoin as sound money and you know what is saleability and why does that matter yeah so the way that I would look at it if you study Austrian economist and see what their conception of sound money is you'll see that you know even though pretty much all of them spoke about gold as money you know it was not gold for the sake of gold it was because of gold's economic properties that it fulfilled certain characteristics which made it sound money in other words Gold's physical and chemical properties ensured that it remained always a good that had a high stock to flow ratio in other words the stockpile of existing gold in the world was always very large compared to the marginal production every year so the new supply of gold was never was never very high so it will never inflationary and it never increased and supply the very high amount that in turn is what gave gold its sale ability in other words its acceptability as a store of value and as a medium of exchange and so the Austrian definition of sound money is not that money is has to be a yellow shiny metal rather it's that money is something that is widely accepted as a store of value and medium of exchange in other words the concept of saleability refers to the idea that because something is desirable as a store of value people want to hold the lot of it and a lot of people want to hold a lot of it and so people will then be willing to accept it as a means of payment because of their willingness to hold it in other words when people choose to buy or sell it or in other words when people choose to exchange it for other goods they find that there are a lot of others who are willing to buy and sell it in other words if you're looking to buy food you'll find that the people who won't have food are willing to accept that money rarely have a meat exchange exactly and for me that comes down to the fact that I mean the reason that if something would be saleable would be accepted is fundamentally you know we can go back to a lot of physical characteristics that makes something desirable you know transports ability and divisibility and so on these these were quite important in past but you know in the modern world with modern industrialization we can make anything into whatever form we want it's not that difficult so what ends up really I mean we'd give different material different physical and chemical properties ends up being the most telling factor in whether something ends up being money or not is its ability to store value across time once something yeah once something is good at storing value across time people want to hold it for the long run and then people start accepting payment in it and start using it in payment and so the point is that if you want to sell a quantity of this good because it is widely held by everybody as a store of value when you decide to sell a quantity of it you're least likely to move the market effectively because a lot of people have a lot of it and so if you start to sell some of yours you know there will be many many buyers looking to buy it or if you're trying to buy some of yours there will be many sellers looking to sell it because a lot of people hold a lot of it and I think that's a key point is that you bring up there because some people point out I'll look Bitcoin is so volatile but really they're not appreciating my view the what is a very you know small drop in the bucket drop it's a drop in the bucket compared to the ocean of the rest of the world and so do you have any comments around what we might hypothesize about Bitcoin volatility going forward yeah I mean the way that I see it is that considering the Bitcoin has only been around for nine years the fact that it is at this kind of volume and then offers this kind of liquidity is it's astonishing so far so you know the the the fantasy of having a money that grows from zero to being the prime monetary asset of the entire planet and does so smoothly is obviously impossible with the months don't work like that it won't just increase at a fast rate to say 5% per day every day that is predictable we knew then that was the case and people would pile on speculate on it and that would make it rise even more but then you know it'll rise above the trend it'll fall down it can essentially you know the markets can't function according to a predictable plan and that's why now I think all of these attempts to create digital currencies that are stable and down you are doomed because you know value is not something that can be decreed it's something that emerges and the emergence process cannot be smooth and orderly it has to it grows one convicted toddler at a time you know more people hold it more people inside of it in the way that really surprised but that can't be a smooth process because we don't know how many people now choose to enter this every day that's right yeah so that's great yeah yeah but but the the fundamental value there the reason that I think bitcoin is worth paying attention to is that I think it has the fundamental characteristics that will drive it towards being a widely accessible medium of exchange and store of value and that is that its supply grows at a slow rate and you know we're still at a stage now 10 years on where the supply growth rate is still relatively high in that it's around 4% but that doesn't even take into account that a lot of the coins that exist are probably lost and that their owners can't sell them so if you take into consideration that maybe four or five million out of the 17 million bitcoins that exist are lost permanently and will not be able to be recovered which looks like it's likely then you know the growth rate is higher than 4% like five six percent per year 7 percent maybe and so that's kind of high relatively speaking and so I think you know we still haven't seen the period where Bitcoin really shows us it's hard money chops shows us it's hard money credentials which you know in the first even though people new to the supply was limited the reality was that miners were producing a lot of new coins every day and they had to sell them because they had to finance their operating in with you know with with government money they needed to buy machines and needed to pay electricity bills and so new coins were being sold on the market all the time and that just you know will make the price be more volatile and will get people the misguided idea that these coins are easy that there will always be new bitcoins coming along and so in the first few years you know we saw things like people giving away coins and I think that's just that's a necessary part of the bootstrapping process of the money initially it's easy that it's easy to mine but then it just keeps getting harder but over time it's just going to get harder and harder to proceed to procure the new supply is going to be increasingly insignificant compared to the existing stockpile in other words that the daily traded volume of the currency between people who already hold existing currency there's no to be far larger than the new supply of currency in other words the the output of the miners is going to be a rounding error and insignificant rounding error in the in the total volume of bitcoins transacted and once we reach that point I think at that point you know Bitcoin becomes really hard money and people you know the way to see it then is that people will really want the whole bit of the store of value and that is just going to continue to become obvious to more and more people over time and as more and more people do it use it in the store of value that just increases its the depth of its market in other words increasingly saleability increases the ability of the buyer and seller to find others wanting to buy or sell it and when when they need to exchange it these are fantastic points I 100% Groo I think yeah you're right about that point that you know right now it's about 4% or maybe a bit more inflation but obviously in the next two years we'll have another Harvey and then so on and so forth and then by the time is 2032 what to the point you were saying it is going to be very very hard money from a stock to flirt ratio and I think that's another fantastic point that you make in your book where you one of the interesting things that you do is you historically situate Bitcoin you sort of go through history monetary history and say why is it important to use the hardest money and I really like the point that you made about you basically were saying you need to use the hardest money lest someone else come and take your value by basically producing your monetary unit really cheaply so if you could just expand on that point a little bit yeah I think the way the way that I put it in the book you know it's you can't really isolate yourself from the consequences of what people are using in the hard money in other words this isn't technology that can just be used in a vacuum you know you can you can choose for instance not to use a car and then that just means that every day it takes you a little bit longer to get to your work well that's perfectly fine you know instead of getting to your words in ten minutes it takes you 30 minutes let's say that doesn't matter so then you know let's say we both using bikes but I move on from using embark to using a cars you stick to your bike you know it saves me a little bit of time but there's no reason why you you can't just keep going on with your life with your bike because you know you wake up 20 minutes earlier than me get home 20 minutes after me but you're in better shape than me it's a trade-off many people are willing to do and you can remain you need you need to do that for many decades and many people have been doing that for decades and it's perfectly fine but I think money is a different kind of technology because that's just not an option you can't isolate yourself from others using the more advanced technology than you and the reason for that is that using something as money is essentially the goodness of it is in terms of how good it is in a store of value because anything can be exchanged you know especially today you know we can put anything into warehouses and then exchange your seats for it or we could make anything into into a physical form that it makes it easy to move it around and exchange it not necessarily anything but a lot of things but the you know what determines whether something is good or bad is money for me is whether it's a good store of value and so if you use something has a store value that is far superior to what I'm using the sort of value that's a problem for me it's not a problem that I can just ignore it's not like my bike it's an adversary a technology in a way that your ability to store value in your good medium of exchange and value store will just mean that it continues to accumulate and gain value over time whereas mine will continue to lose value over time and so then that just puts you in the position where you are able to buy and own whatever value I own because you are accumulating value so this is you know this I make this point in my book where I spent about before first four chapters talking about they're on different money's in their history and you seen it by the end of the 19th century the whole world was on the gold standard and the reason for that was not that you know somebody gold producers say went and convinced everybody to do it it wasn't because some government or some kings liked the color of gold and everybody followed suit it was economic reality and compelled everybody to deal with it there was no that there was no way around it if you used something other than gold and many people did up until the 19th century you paid a heavy price for it so societies that used a cheap forms of money that were easy to produce whatever hard to produce for them according technological capabilities but easier to produce to other societies eventually had to switch away from that my best example is maybe the glass beads that were being used in West Africa these were pretty hard money in West Africa because they didn't have extensive glass making technology there but they were very easy money for Europeans to make because glass making was widespread in Europe and so once Europeans found that West Africans were using these things as money they would go back to Europe they would fill an entire boat with you know fill the hull of a boat with many many glass beads and then they'd go take those beads to Africa and they used them to buy things and you know for Africans these things were far more precious than the cost of their production in Europe and so it was a hugely beneficial trade wherein the Europeans who could make those glass beads on the cheap could then go to Africa and keep buying up stuff so people in Africa then they had no choice about not using glass beads as money anymore once somebody has a hard-earned money they're able to produce your money at a lower cost then you are able to produce it or they are able to produce money at a lower cost than the value that you put into your money another way of thinking of it then it's just a license for them to take your value away from you and the sooner you realize this and switch away from using your bad store of value the better off you'll be and if you don't realize it soon enough in the long run it's really you know really hurt you in the situation in West Africa was that eventually these things became known as the slave beads because Europeans were able to continue to buy everything with them to the point that that many Africans were left with nothing and then they started buying slaves from Africans in exchange for those beads also you know if you look at silver and towel silver was demonetized in the nineteenth century and it lost its monetary role you know it was it was compelling economic reality that was enforced on the countries that were using so they just saw the fact that countries using gold we're appreciate where we were doing better the global market for gold was getting deeper and more liquid and the ability of gold stored value was rising with time and so as a result more and more people started dumping silver and then the price of silver started to collapse and so any country that was on silver you know they had to adjust the economic reality and moves to the gold standard and those that didn't like China and India they waited a long time until they did that they paid a very heavy price for that hmm yeah no that's that these are fantastic points and I think there are some interesting parallels that we're seeing today now because because their money is not as though the fiat money that we use is not so scarce people are now being chased into in a sense they're being chased into speculating in property and it stops and in bonds and they don't have a sort of easy way to store their value so I think that's an interesting question then before in the future you know let's say if the if if this thesis plays out what what might the norm be would people save directly into Bitcoin and then receive a small you know quote unquote deflate beneficial deflationary benefit yeah I mean the the the the problem in the way that I see it today is that people simply don't have don't have good money available it doesn't matter where you are in the world it's it's this money who's been criminalized that's been made illegal it's not possible for people to have money and you know the common objection you'll hear from people there's been well you know who needs a stable store of value when you can just put your money in the stock market and make a positive return and at least you know when you put your money in the stock market you're driving the economic cycle forward whereas if you keep your in you know if you just hold the money if you say value and money you're just being antisocial by sticking that money under your mattress figuratively and therefore preventing it from circulating in the economy and generating jobs and that's of course Keynesian nonsense it's embarrassing the silly thing for people to say because number one economic activity isn't generated through spending economic activity is generated through production so me putting money under the mattress or saving it or investing it isn't going to magic economic resources isn't going to create more vapor it's going to make people want to work more or less the people's do that is not it is not about the level of spending contrary to call the Kings in perspective but more important thing I think is what people don't get is that the value of money is that if you have it as a reliable store of value you know this is a different thing from investment that's what people don't understand there's nothing wrong with investment but it's a different thing from money is meant to be the thing that offers you high liquidity in other words high scalability and better way of putting it that you're always able to sell it when you want it it will maintain its value over time so that's something that everybody needs to have some bit of because you know you never know when you break a leg you never know when you get into an accident you're gonna have an emergency and you need to do something about it this is this requires you to have some money and everybody needs to have something like that investment is what you do after you've secured a little bit of money that you know you can use as your basically the foundation it is the money then once you've moved beyond that then you start investing and so if people have the ability to hold a certain amount in money that is hard that is hard to confiscate and hard to inflate then beyond that they will put the rest of their money into investments but they'll be able to take good risk with that investment because they have that solid rock basis of a hard money that maintains its value over time in other words money offers you no return but you know it has the least risk and it has no return but it's it's liquid it's highly liquid investment little liquidity or they're supposed to have low liquidity because you know you're supposed to be tying up your capital with somebody who's using it productively and that's that's a point that Keynesian is Miss you know if it's if it's you know for for for investment to be real it's not just it the money needs to be tied up the money needs to go somewhere and a person needs to be able to use it and so it can't be very nature and the fact that we have very liquid the markets for getting in and out of investment doesn't really change that more about just leave for the nature of the money that we have that it can be withdrawn easily out of investments but if you look at you know early stage investment the reason it's in liquid is that the company needs to have the money and it needs to have the commitment for the money you can't continue to operate with fickle investors coming in and out of businesses and that's all that's a feature not a bug and that's why you know the IPO that the ICO model is another reason it's completely broken early-stage you know there's a reason companies don't IPO early-stage because they need the predictability of having the money and independently of the market valuation of their company so you know they need to just know that we have X amount of dollars for next few years and to work accordingly and not have to check their stock price every morning once the company has matured a point where you know stable and reliable expenses and revenues then it can I Pio and it can go on to the market where it offers that liquidity yeah and another great point actually that sort of brings up it's almost like these companies that had done an ICO now they're sitting on you know big chunks of aetherium and now they're basically got to try and time the market on when do they kind of sell out some of that aetherium or try and buy things with that ethereal and now they're having to kind of do investment management on that aetherium rather than just go to business in in you're actually creating a valuable product i mean of course if they had a valuable product they wouldn't have a nice knowing in the first place nobody who has an actual product has been doing an SEO was just a big just a big recycling of etherium from one ICO to another you know starting from etherium itself all the way down to all these different layers of I SEOs that have been built upon it as we say stupid games stupid prizes but yeah so I think to go back to the original point if people have the ability to pour more money that is reliable that they could store the value in then you know this would be the financial basis that give everybody financial security and then with the rest of their money the current situation is that people don't have that and so they're having to risk to take risk with everything with all their money you either put it in real estate or you put it in stocks or you put it in venture capital or whatever but everything is out there and everything offers a return so everything has a risk and so the dangerous thing is that of course you know you could end up making losing everything and you know you don't even have to make the mistake yourself could just be driven towards the mistake because of the you know better cost by the manipulation of money supply but the absence of a store of value is why people end up having to speculate and why the Fiat system is just one big speculative bubble after another you know call across the major economies of the world housing is just always continuously appreciating and getting much much more expensive because everybody is using their house as their safety net financial safety net rather than e'en as as a home and that's and that's that's not healthy yet you know it's it's it's a rational decision for people to do it in this current situation because if you look at it you know what do you do do you hold cash hasn't your money or do you hold do you hold stocks well stocks are very volatile at least the home you know it's even because even though it is volatile at least it has the security of it being there always so you can always live in it and so that you know whatever happens at least you always have a home so it is rational within the current consensus of the current system to do something like that but the end result a result of everybody following that path is that houses just continued to become insanely expensive because people are using their houses as their savings account and so demand for charge and I think if we had a sound money if we had a hard form of money people would buy houses only when they needed them only when you're able to afford it and only when you know that you want this house because you want to live in it in the long run in that kind of world there'd be far less demand for buying houses and houses would be I think less expensive and we'd have a far smaller bubble or maybe no bubble you know people now over invest in building many many houses because at the margin people are buying more houses than they need not because they want the house but because they want to use this store of value that's right me me too directly so much of society's resources towards constructions or towards construction and the house and as we saw that 10 years ago you know blew up in a giant bubble across the world yeah that's right and I think it's it's almost a parallel to the point you were making around the clock technology where you know if the prices for that go up enough well then now enough new supply will try and hit the market and then what happens to your store of what people were incorrectly using as their store of value well the price tanks exactly the point is that it's easy to make oh you know this is it right I mean houses are relatively hard to make it you can't just print houses although actually 3d printers my chance they are they're relatively hard to making that they are expensive but they're not that hard to me so you can just continue to make more and more houses and that's what ended up happening if people end up using anything as a store of value the producers of it will find a way to make more and more of it and so that will bring the price down so effectively you know you can think about the process of monetization as just the market finding the strongest bubble and the hardest bubble to pop and so people invest their money in cars in houses in buying oil in government bonds and buying commodities in stocks all of these things are yeah all of these things are bubbles that people will put money into as a store of value but all of these are lousy as a store of value by simple because of a simple fact that store value in them you make it attractive for others to make more of them and produced means to bring the price down and so you know the way that gold became money was through hundreds of years of people storing value in many many different things and then all of these things getting inflated but only gold being inflated the least or gold selling the one that cut in its supply increased the least and so therefore over time it just met it just was the strongest bubble or the hardest bubble to pop because it's hard for people to make more and more of it and I think we're seeing we're seeing something like that now the putting their money into anything else Willie you know they'll experience something generally pretty much everything is getting a 5% plus or minus return per year through either you know you speculate on it now and then and a lot of people buy in it this year and so you're making good return but then next year people will make more of it and that will bring the price down so roughly speaking you know anything that's going to want to be monetized anything that people are using as a store of value is offering a plus minus 5% per year something like that except Bitcoin Bitcoin because of its hardness has been doing around 500 percent per year on average over the last eight years and it'll likely continue to do something like that more I mean who knows we don't know what's gonna happen but it likely outperform everything else in the long run just because it's very hard to make in other words when people spec you know people don't even need to be intelligent enough to recognize these issues or to even think about them but through trial and error the people who end up putting money in Bitcoin will end up doing better so the value of the Bitcoin will rise that will give bitcoiners more wealth compared to others and then that will encourage others to start putting more money into Bitcoin so over time more and more wealth and value go into Bitcoin even with all the bubbles and the price crashes and the rise and drop in the price we're still going to see this process I think continue to repeat because you know the economic reality is that no matter how was or crashes people just can't make more of it whereas if they can make more of everything else yeah and I think yeah that's a great another point that you raised which we mentioned earlier which is around the bib around bitcoins block difficulty adjustment so just for anybody who's new to that basically the point with that is that bitcoin is on a very strict release or supply schedule and because of that schedule no matter how many new miners and hash power hits the network it's still only going to make that set amount of Bitcoin so as you point out that that actually makes it much much harder than basically anything else so I think that's a good kind of point which leads into this concept it's it's it's not quite an it's not an accident that you know bitcoins superiority it's not like in some ways there's some elements of fluke or chance about it but in some ways it's not but I think another kind of point actually that brings to mind is what you've mentioned earlier which is around the immaculate conception of Bitcoin you know it's difficulty to change so if you could just elaborate a little bit on around why is Bitcoin better and what what is the deal about the Immaculate Conception quite mark with quotation marks but for me the the the the whole reason this one has value is and people who have in point over the last few years I think we're just continuing to be more and more vindicated by this the only reason Bitcoin has value is that it is hard to change this because it has a hard monetary policy that nobody can change if bitcoins value proposition was that it or quick payments then you know I think this point would be it would have collapsed and failed by now because if you look at it you know the amount of between before the I mean the devii in the transaction fees on Bitcoin and the capacity for Bitcoin transactions has been shown to be limited to the scaling problems surrounding Bitcoin so far and you know there's always going to just be a limit on how much we have as transactions in this kind of centralized sorry this kind of be simply because you know the way Bitcoin works do you need 10 minutes for each block and without one confirmation at least you should not accept the payment because it can be it could be fraudulent and so that a system for math day that's not a way to replace MasterCard or Visa so the people buying it or not the Cardinal either they're buying it for something else and my view is that it is being bought because it's store of value and if a store of value only because we know this is the supply and we know that the supply can't be increased and so well from all the others is that it's the one coin that can even come close to making this claim that and be increased because every other coin out there it's largely trivial for the people behind it to change the code and change the supply so we saw you know the second biggest coin in terms of market value and and in terms of the number of people maybe using it is probably etherium and we saw that when things in that coin of the people who run it and the centralized party that is in control of this currency it was almost trivial for them to hard fork the currency it reverse it change the transaction log and then repeat things in a way that was favorable for them the long story of the Dow if anybody is interested it's not a prehistory although it was only what two years ago I think wasn't even one year ago or two years yes anyone else to you I can't I can't remember this specific day I think maybe one and a half I'll look it up yeah yeah yeah but I mean it's it was trivial for them to change things so they still you know the etherion people still don't know what the monetary policy is they need to hard fork to implement a new form of monetary policy at some point they might switch to what they call proof of stake which isn't complete so I hope they go along with it because it would suit me perfectly plus you know most likely what is going to end up happening is the different versions so the more we get of the different for the copy Bitcoin the more we just see the real value proposition of Bitcoin it's very different among these works because it's because it's the only one and in control of it as soon as one of these Forks gets forth you know the people who made the fort whether they like it or not they control this thing I have made something that they control and they have made something they can change at will and so they can change the monetary policy lines at will and that means that this isn't hard money because it's money whose hardness is determined only by somebody deciding that it is hard whereas Bitcoin you know it doesn't need anybody to give and it's operating as it is and whether you like or not means nothing yeah okay yeah it'll continue at all and will continue to be hard whether you like it or not what does all the others they just depend on somebody promising that they're going to keep it hard in other words the only way to make a new Bitcoin is through proof from work but but if you want to make more of any of the out points any any one of the out coins or coins or Forks or pickle it's not through proof of work it's through proof of whatever scam artists are behind that work or point that's really what it comes down there's no guarantee is that you know the people behind the Z cash or aetherium or any of those coins you know they could get together tomorrow and decide well we're gonna change the money supply to increasing by 5% to 10% it's trivial for them to do this none of these points have anywhere near the kind of potential of it and I think that's like a gaunt gun yeah I mean this isn't something that the onus of proof is not on me to prove that bonus proof is on them to illustrate credibly to the market that they cannot change it and that's not something that you can just install you know not not like we copy bitcoins designer and then here we have an immutable blockchain because we copied Bitcoin design no because any immutable blockchain can be made with the rules of the boxing so what makes Bitcoin immutable is not the code what makes the mutable is the fact that the code is decentralized and distributed among adversarial stakeholders that have no possibility of coordinating a move away from it because you know we saw in 2017 we saw with bitcoins fork crisis well it was crisis for others not for Bitcoin we saw it was not possible for these people to change Bitcoin supply with the chain bitcoins block size what they just ended up with another for and no Bitcoin has proven its immutability or I should say Bitcoin has made a very credible claim for being for you know for you being able to tell you that you can be fairly confident than the next 100 years we're still not going to be able to change anything if it cannot make that claim about any other out course it would be trivial for any of them to change anything we've seen you know how trigger-happy they are with the onus is on them to illustrate how they have a set monetary policy but it's not something that they are even interested in illustrating because you know if these people cares about hard money they'd be in bitcoins the only reason that you might start your own stupid out coin is because you don't understand hard money astonishing you know when you follow all of these people that have started their own coins it's universally true that not a single out corner I have ever met or come across understands all economics and by economics I obviously mean real economics Austrian economics it's impossible to find a corner who's not a Keynesian it's impossible every single street corner in multi corner and out corner you know you just scratch this economic understanding and you just get access pool of Keynesian which ideas festering in their brains every single one of them you know that there is not as even one of them that even will pay lip service to Austrian ideas and if you know we've had a lot of fun with these multi corner with Paul and Kyle's Armani you know when they start talking about economics or they talk good that they want to dismiss Austrian economics obviously there could be ignorant of it they don't even know where it is so they all resort to the same in the office platitudes about the whole web house - economics is too rigid and not practical in the real world and it's not very realistic explanation of how this idiotic Keynesian brain damage propaganda they resort to but none of the outcomes are even making a claim towards trying to be hard money and you know if the people behind them valued hard money they'd be bitcoiners that's right and I think one thing that I really like about your book is you you actually point out the difference in sort of different conceptions of saleability so in the part you know and one of the key points around saleability that you sort of add in that came in later is around the importance of censorship resistance or government like whatever your money is being government resistant because if it can just be inflated well then we're back to the same problem that we're in today so I think that kind of brings up that next question of what is Bitcoin really competing against is a competing against banks or central banks or even something like the BIS and the IMF and some of these big multinational or kind of engine like big government-sponsored world organizations yeah I think that's the that's the fish that we are here to fry the conception of Bitcoin a competing game Bank is very misguided and a very interesting idea that I came across a couple days ago for the first time from a guy called the maxilla BAM he was interviewing me and he made a and he made the point that in the first ten years of Bitcoin we've had relatively high inflationary rate of the supply and that easy in Bitcoin meant that big meant that big block reward was subsidizing the mining of Bitcoin so the users a Bitcoin got to use it without having to pay transaction people because - we're happy to process transactions for free very little three of the world read that reward wasn't the year wasn't the inflationary reward of the coin not in the transaction fees and so that created the you know just like an Austrian business cycle theory we know that easy money creates malinvestments by making people disconnect true value and through a opportunity cost of actions the high inflation of Bitcoin has made the lock space artificially cheap and so it led to a lot of man investment into block space and led to a lot of people putting love you know building business models around the cheap transaction fees becoming emotionally invested in having low transaction fees and that just something that wasn't going to be sustainable after the reward at the corner award drops in value transaction fees eventually are gonna have to take over and it's going to have to be the case over time that transaction fees need to become more and more important so I was like oh no this was your question it's basically just talking about what is Bitcoin campaigning against and I think yeah basically you've answered the question it's just that bitcoin is not out to stop banks yeah banking it is directly central banking and the other monetary interventions that governments do such as legal tender laws the existence of a lender of last resort implicit bailout guarantees capital gains tax laws so on and so forth that act to sort of force us to use fiat money you know and I guess in the Austrian parlance and someone like you know Gita holzman when he uses in his book the ethics of money production he talks about now legal tender laws force us to sort of use the inferior money and treat it as though it was the superior money yeah absolutely so you know that that are that notion that was marketed by a lot of the early bitcoiners that bitcoin is free instant transactions around the world is it's it's just funny to think of it that way but it is malinvestment it's a business model that was only possible because of the inflationary monetary policy of the Bitcoin central bank in the first ten years that people even got this notion that we can run the Bitcoin proof of work system for free somehow you'll be able to you to put your transaction on this one megabyte block that is transmitted to the entire world and recorded over thousands of computers all around the world you'll be able to transmit your transaction on that one common ledger and have it recorded in all these computers for free and that's a broken business model that many have tried to fit on Bitcoin but that can't survive there it can survive yeah and it won't survive I think if the reality is you know if you if you think about it that they D the the model of banking itself I mean banking has existed under was under easy money and it'll always exist in my opinion the core functions of banking and you can ignore the sort of emotional hysteria that many people today have around banks being evil banks being evil it's not banking that is wrong banking is a normal activity known a healthy economic activity wishful in particular you know the two core functions of banking which is deposit banking I think is always going to be something that people will demand just because people don't want to have access to all of their money available for them at all times because that's a massive security risk Dority of people will prefer that their money is held somewhere safe so that they are not you know always under the threat of having all of their money taken away from them you want to have all of your wealth stored under your mattress just because if it is under your mattress then it's trivial a wealth of as a mattress then have it everybody could lose all of their life savings in five minutes if they just have a gun put next to their head so people are always gonna want to have their wealth or a majority of people at least are always gonna want to have their wealth stored with organize you hope to provide safe storage and then secondly the model of the other very important functions and banking provides is matching borrowers and lenders or matching investors with one with entrepreneurs that's a highly important and sophisticated job where you know the bankers sit down take your deposit and they look at your time frame how long you want to keep the money with them and then they'll find somebody who needs that money for the same period then utilize to utilize it for their business and they will take the money from you and give it to them that's that's a very legitimate function because the majority of people should not be required you know I mean people specialize and it's wrong to try and think that we're going to kill banking is just to try and think that we're going to get rid of the division of labor you know but that's you know if you're a doctor and you don't want to spend your time thinking about where to invest your money idea of there being businesses out there who specialize in how to invest the money they compete for your money and you give it to them and then they offer you good returns that if they don't you take your money off and you try it with somebody else that allows you to focus on I'm an engineer or a lawyer or whatever actual productive well lawyers of that example but you know doctor or engineer or whatever productive actual job that you're doing to serve society you know people focus on that instead of everybody trying to be you know Warren Buffett in their spare time you're not going to be Warren Buffett in your spare time if you're trying surgeon you have to choose you know and it's good that you don't need to do that because people can specialize in it and then you can delegate to them so I think the function of banking is just normal healthy part of a market economy that's always going problems we have with banking are due to the fact that banks have a monopoly that is enforced by government and due to the fact that governments allow banks to create money in other words by having a central bank as a lender of last resort you're making banking just from being a business of deposit and lending in to a business of money creation and so when they can create money and they have a protected monopoly that allows them to create money it's only a matter of time before banks really abused this so the problem really is not banking the problem is the model of central banking that backs our banking system that's right ultimately it's run on easy money so what what we what I think bitcoin is offering is just a completely separate independent financial system built on hard money that is going to be there is going to be competing with the easy money of central banks around the world have Ana witness the development of financial institutions on top of Bitcoin then and we are witnessing it obviously it's growing by the day but over time it's going to grow more and more and the interesting thing will be to see how it grows and develops over time my my personal perspective is then we're still going to see banks but I don't think we're going to see their banking panics and we're going to see yeah I don't think we'd see fraction reserve banking on the Bitcoin but we will see banking and we will see Bitcoin develop into an alternative to central banks in other words the Bitcoin settlement network is going to be an alternative to the interbank settlement and payments network or intercept payment and settlement Network whereas instead of where we have one central bank for the entire planet which the US Federal Reserve we'd move to a world in which we you know the US Federal Reserve today is the only institution that can offer final settlement and final clearance or or maybe you could argue a few other central banks can but fundamentally they all are branches of the US central bank because they all used dollars as as their money and so the Federal Reserve's liability but we move from that towards the systems which we have thousands and thousands of central bank's able to offer final clearance of payment across the world in that case you know it'll be far more decentralized and it'll be a free market system it would give us get rid of the you know the Federal Reserve as the final central bank and also all these internet the control central banks around the world like the IMF for the World Bank and East Bank of International Settlements these unelected unaccountable bureaucrats who you know with but that would their small little decisions that they take before their lunch in a morning affect the fate of millions of people living in countries all and it's a travesty having system that these institutions even exist it's it's a real tragedy that the IMF exists that the BIS exists the World Bank exists and it's going to be a wonderful world when we get rid of these things imagine imagine a world in which all of the parasites that work in these absolutely criminal organisation please people have to get actual jobs you know teaching math children or driving uber cabs around Society will be far more productive when these people are actually being productive instead of just going out there and forcing others to utilize their crappy money that wasn't settled that's right yeah and I think one of the things that you know it's interesting that some people are now trying to sort of so just discord or fear to say oh look with Bitcoin and a lightning Network if Bitcoin is the settlement layer people might now start doing fractional reserve on top of it but what kind of safeguards could bitcoiners put in place to stop this an example would they you know make audit requirements on large Bitcoin hosted wallets and exchanges would they want to see demonstration of reserves or would they you know maybe if they heard rumors they would do bank runs and these yeah yeah exactly and you know with Bitcoin I think I don't know III listen to the perspective and the debate on fractional reserve banking within Austrian economists for quite a while and I'm not convinced of the fraction Reserve Bank it could develop and Bitcoin I think all the examples of fractional reserve banking that we've had have either collapse or have had a lender of last resort I don't see fractional reserve banking as being stable without a lender of last resort yeah I think the theoretical explanation the empirical record support this contention however if you look at you know but then again I'm happy to be proven wrong but it's not something that I take so religiously you know if we end up having a free-market monetary system with hard money and some form of fractional their bank doesn't develop well then yes I think it will develop and the reason is that within a in a free market without a lender of last resort the ability of the banks to create credit is obviously always restricted by the fact that they could be liable to be subjected to bankrupt people come in and ask for their money and so the banks can't do fractional banking much because they once they start inflating the credit and the money supply they people could wake up about it and then start demanding their money and get it out now in the physical world this is restrained by the fact that you know physical bank runs can be discouraged in many ways government can somehow force you to continue to deal with a bank as it is banks can be very slow in redeeming obligations to people the government can come in and print money to save the bank and this is really fundamentally the reason we are why we don't see bank runs is that if we were to all go to the bank today the central bank would print enough money to or you know increase enough some money supply to allow anyhow so because we know that we could get it we don't need to do it and so it's just a threat it's it's the fact that they are there that makes this stuff not happen however in the world of Bitcoin the marginal cost of conduct very very little it's very cheap for people to click a button and ask for their dollars for for their bitcoins counted in the exchange and so also without a lender of last resort the way that I see it as soon as us as soon as a bank is engaged in fractional reserve banking as soon as a bank has increased its life assets liquid assets to back it up then it the way that I see it is in a digital world its own assets or its own tokens will be the value they will be discounted compared to the underlying assets and they will be discounted to these they have been fractionalized and so the result would be that people will just want to take their money out of that financial institution and I think the bank room would happen very quickly so the financial situation would fall apart quickly so you know we haven't seen a successful example of fractional reserve banking in Bitcoin so far I've asked professor white you know why he thinks that the case and his argument was well you know because there's no lending in Bitcoin nobody's borrowing in Bitcoin and then that means there's no fractional reserve banking which you know I see the point but I think you could still have it you know you could have a form of fractional reserve banking a an exchange office Bitcoin payments in an asset that they produce you know they run a payment network backed by Bitcoin and they issue tokens that are partially backed by Bitcoin I think we could have seen a business model like that that is similar to fractional reserve banking but it's not sustainable in unity because there's no lending but because why would anybody take the asset that is say 70% backed by Bitcoin and trade it on par with Bitcoin it'll always just be discounted by 30% next to Bitcoin which just makes the whole process moot you know what's the point of making this 90% between and trades at 70% of bitcoins price well then just continue to call it Bitcoin and then just run with a asset that is 100% back by Bitcoin so so III don't see it developing I think that's just not going to work out yeah but you know that's a great point I think yeah I agree I think a fractional reserve Bitcoin would trade at a different price to the full reserve Bitcoin and that's where in like that's basically what you're saying one other point I had was interesting actually this came up from the Peter Schiff debate with Erik Voorhees and I suppose there's been some chatter about whether you might go and debate Peter and I think one of the entry points that he tries to make and I'm just curious to see how you would come back to that argument is he basically one of his main arguments was oh look gold has other things you can do with it other than the medium of exchange component and in his view this is what gives it that quote-unquote intrinsic value again even from an Austrian point of view just that term intrinsic value doesn't really work but yeah just curious how how would you if you were in a debate with him how would you come back to him I mean oh yeah it strikes me as odd that the yeah I think it was be a rashard who mentioned during there was a shift today about how just how much of a gains in leadership begin to sound like when he's trying to knock me and and and this is one of the idea that something has intrinsic value where nothing has intrinsic value value human consciousness only you give things value only you understand that so just because bitcoin is not physical doesn't mean it can't have value and you know the best example you can tell future shippers you know I'll take his take a black ops he you know would he not same one for for all of the non-physical stuff that's on his laptop like if I had an axe fire matters to break the security protecting his laptop and then managed to say lock has all of his files for them to be deleted in a week like the ransomware attack you know people pay real money to get their data back well that data's not physical that's right you know it has all of your company files it has all of your family pictures it has all of those things that you find extremely valuable even though they're not physical so just merely something being physical it doesn't give it value and something being not physical doesn't mean that it can't have value so we give value and bitcoin is a digital way of representing value fuel numbers that have acquired value because people have value and so the problem team bitcoin Austrians needs to really come to terms with they need to just get over their emotional attachment Peter Schiff could sort of understand because his entire business model depends on the pumping gold but he needs to just cover the terms of the fact but look Gold doesn't money because it's yellow or because it's shiny or because me just said so or because Menger said so these are not the reasons that gold is money it's not it's physicality and it's not because this money it is money because it was accepted on the market it sound money the definition of what made it sound money ayat and sell it at a price that they choose that they accept between the buyer and the seller the the the value of Bitcoin is determined between the buyer and the seller of Bitcoin and it's not it's not decreed from above by government or by somebody else and that's really what makes Bitcoin hard money as opposed to [Music] money and that's also what makes gold money so the value of the fact that Bitcoin just emerged on what was really you know the most astonishing thing for Bitcoin for me was the moment that it moved towards people beginning to pay real money for or option to say real money is beginning to pay government money for the fact that people started exchanging resources that were valuable with real opportunity Falls for the digital thing it's still for me the most those pizza is really still that's it you know once once removed from zero anything above zero I think that was a that was 90% of the world takeover battle one now the rest of the world is just coming to terms with it might take another 100 years but really it was last loaf who just set the ball rolling that's right that was it you know once it moved towards being a good that had them people were willingly trading it without somebody putting a gun to their head and forcing them to accept it and you know whatever the value was once it moved towards that that fit I think it was game over but that that's just going to continue to once it had value it's going to continue to appreciate in value it's going to the degree to prove itself to be a better store of value and over time you know it's just going to be a matter of the rest of the world coming to terms with this and learning to accept it and deal with it yeah yeah so oh so you know they they just need to come to terms I think Austin economists need to think lenka it's a good that has generated saleability on the market it is accepted on the it has an increasingly liquid global market the liquidity is increasing by the day the pool of buyers and sellers potential buyers and sellers is increasing by the day and the suitability of this is going to play a monetary role is increasing by the day so right now you know people buying it or not buying it because they're using it as a daily medium of exchange they are using it as a store of value and they're speculating on its suitability as a store of value to continue to increase its you change and I think that's you know that's like any entrepreneurial death it's a bet that has positive and negative risk in it but it so far has been working out for people who have bought Bitcoin with the long-term horizon anybody who's bought with one and decided to sit on it for more than three years had been rewarded handsomely for doing so yeah that's right exactly and I think the other thing that is what might kind of distinguish if you will between the what we might call the crypto Austrians you know such as yourself and Pierre and bit Steen and Vijay Boyer party and some of those other guys and sort of the more traditional Austrians I think there's a slightly more appreciation of the stages of money so this is something I think you know it William Stanley Jevons wrote about saying you know things start as a collectible then store a value then medium exchange then unit of account and you know I think we're just seeing that now in real time yeah yeah exactly it's it's it's it's that fallacy of thinking that if bitcoin is not born in its final form then it's never going to get to that final form and it has just you would expect that kind of silliness from K Indians who think the world is just everything comes from government decree who can't understand the concepts of things emerging through human action who think you know I mean if you are a came in the generally using governance is what the size of money is and so from that see how they could have the conception that well you know Bitcoin can't be money because it's not stable there's no central bank there's no government to stabilize its value but Austrians remember pressures on the market and it's not going to be a simple process it's going to be a market process of this discovering what is going to be suitable as money and that's really I think a better way of thinking and I think it was Neil wood fine I was always got some very interesting takes on Twitter where he said you know it's a very popular thing for people to say money is a social construction and it's just typical of the kind of brain damage that is taught in universities today which is you know nothing has a reason everything is socially constructed this is of course much of Marxist garbage economics that has been profits universities for long specifically in the case of money this is very useful because it helps people it helps to hoodwink people it helps make people news stupid and all that you know whatever anything can be used as money we all agreed that say toilet paper is going to be the monetary system then we would all be using toilet paper as money and then that would be money this is the kind of thing that changes wants to believe because this is the kind of thing that you need to believe to believe in their idiotic monetary system yeah if but they can't conceive of the notion that no not it's not just about people deciding it if everybody decided that toilet it would be money everywhere but by that idiotic choice that they make because you know actions have consequences so it's not the process it's not socially cuz much better as me would find puts it it's much better to understand it as being socially discovered yeah so there are things that will make for good money and there are things that will make for a bad money and you're free to socially construct with your friends any kind of monetary system you like you know you're free to decide that we're gonna use toilet paper as money and other people will be free to decide to use other things as money and a couple of hundred years later you know those who choice toilet paper and those who chose things not very good will just end up whereas those who chose things that work money within the succeeding so this is really what bitcoin is what bitcoin is doing it's being monetized through people beginning to recognize more and more its value proposition and I think Austrians should start thinking of this more and more seriously it's it has market saleability its increasing by the day its liquidity is increasing its ability to be bought and sold by the day is increasing its supplies is getting harder and harder and in the immortal words of Satoshi that I would tell them you know it might make sense to get a case it catches on I think everybody needs to keep that in mind if it does catch on it's going to be a big problem well for the other charters in Keynesian Xia it'll be a big problem for them not so much for those who had the foresight and the prudence to acquire some early yeah especially the people are the foresight in the prudence not to fall for the idiotic government propaganda that gets taught at universities as economics that's right yeah that's the key point yeah so look I mean now that you've written I mean honestly I think this Bitcoin standard book is going to be a very a lot of people are gonna look back on this and sort of see that as this book as one of the key things that helped convince a lot of people what like what bitcoin was really about like what was sound money I guess my question then is what's what's next for you do you have another book or another project in mind safety yeah what's next I want to write an economics textbook that's what I really want to do okay I'm gonna be like a big magnet my office type one alright I think what I'd like to do is just mean if when people ask me for economics books after reading my book or after taking in my classes it's hard to recommend a one go-to resource the best thing that we have probably today is Rothbart man economy and state but pretty old and it's also huge it's about a thousand pages and then the second part of the book which is power and market it's about another five thousand five hundred pages and you know it's not written in today's language instead it's a bit outdated people who won't be many people especially you know young people won't be able to really enjoy reading a thousand five hundred pages of profiles very systematic and very detailed treatment of the topic and so I mean I think like particularly for university students I think there would be value in there being a more updated and brief they breathe but a shorter version that communicates the main ideas I mean obviously you know rothbard is math I think right as well as Rothbard I'll never be able to communicate as well as he does but you can get a lot of the yeah well you can get the main ideas across without needing a thousand five hundred pages I think or I would hope you know haven't started yet but I'm hopeful that you might be able to communicate the main concepts of economics in less than nine and I'd like to write a book in three hundred four hundred pages that could serve as a sort of one go to stop for somebody who wants to learn economics sound economics and the idea that the coin book touches on a lot of those ideas but it doesn't doesn't do it systematically it doesn't do it's like a textbook what it doesn't do it from the context of explaining Bitcoin you know so when we're explaining Bitcoin we need to explain business Michael so we'll jump to what business cycle we jump towards money which other words from that but I'd like to just do this from scratch from beginning with what subjectivism and what is car city and what is marginal analysis then you know just the the the proper Austrian way of reasoning proxy illogical reasoning and reducing the implications of it and the building on I want to I'd like to be able to write something like that put it in 300 400 pages and so that you know if university professors want to teach it cannot be able to use it and use it as a sort of Keynesian garbage free 100 percent free of all kind of Keynes in propaganda it'll be free of the 20th century basically yeah yeah and good to sort of dispel some of the kind of commonly taught notions you know might be good at having like a debunking or some some of that some sort of section like that as well yeah I think I mean I'd like to I don't want to turn it into a book that they bunks things because I am hopeful that the first of all you know we've already had enough folks debunking Keynesian economics I think if you still need somebody at the bottom you know you're probably beyond my ability to help you you know the way that I see it is that these things I hope that the book will outlive Keynesian economics so it would be you you'd be planning for obsolescence if you're if you're writing a book to just the bank Keynes and economics hopefully in in within a few years you know there won't be many people taking Keynes in economics seriously I hope and so the book would not be very useful I think I'd like to write it considering my view would be that I would love to write it without having it be fixated on if you if you if you let if you frame the book as me here this is the bond King of Kings and economics essentially allowed them to win because you've essentially allowed them to frame the terms of which you're going to be approaching the topic and for me I'd like to just ignore Keynesian economics and present sound the proper economic in a teaching yeah that's actually yeah in its own right and then you know once once you've read it and understood it you know then the debunking of Keynesian economics is its happens automatically in your mind you'll never be able to take Kings seriously I think that's that's a better way of approaching the book yeah no that's good and I think it'll also have more of a timeless quality about it as well that way so that's that's another kind of angle that you can take it anyway look we've gone a little over now and now I suppose I'll we'll start wrapping up so I suppose where can the listeners find you and find your work online so I'm most active on Twitter as you know where all of our cult of Bitcoin extremes usually if you active sayfudine is my handle FAI f eb e am my book is a Bitcoin standard you can find it from Amazon and many other online and offline booksellers my website is sayfudine got common it has links to my latest papers and my blog posts and all sorts of other online goodies that I that I have yeah that's about it okay that's great um so yeah what I'll do is I'll put all the links in a in a show notes page for this episode and you can find all of my work at Stephan laverra calm and I'll put a show notes page there for this and likewise you can find me on Twitter at Stephan laverra lastly would appreciate if you share and Brighton review the podcast as well as I'm just getting started with it thanks very much guys and I'll speak to you in the next one

Channel: Stephan Livera

Views: 1,498

Rating: 4.9183674 out of 5

Keywords: bitcoin, cryptocurrency, lightning network, austrian economics, the, economics, libertarian, standard, austrian, cryptoaustrian

Id: gDYWiQTqLV4

Length: 79min 22sec (4762 seconds)

Published: Fri Oct 26 2018