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1:03

Hello, and welcome to decoder I'm Neil Patel editor in chief of the verge and decoder is my new podcast about big ideas and other problems.

1:11

This episode is about a very big idea.

1:14

Bitcoin, the verge has been covering Bitcoin since we launched in 2011.

1:18

And since then, I've heard many loud, powerful voices talking about how it's going to be the future of everything.

1:25

Some of the biggest names in tech are convinced that Bitcoin is going to radically reshape our relationship to money somehow.

1:34

Good evening. Tonight, Elan Musk makes one of his riskiest bets ever linking Tesla's fortunes to Bitcoin.

1:41

I sat down with him tech investor, Marc Andreessen earlier today, and he sang the praises of the digital currency, Jack Dorsey, going all in on Bitcoin, revealing in a podcast interview that he's maxing out the $10,000 weekly spending limit on Bitcoin established.

1:54

For recently, To be honest, I'm a little bit of a Bitcoin skeptic.

1:57

The virtue has been covering Bitcoin since the beginning and over the past 10 years, we've seen the value of Bitcoin skyrocket.

2:04

Very few actual uses for what should be a revolutionary digital currency, but that value keeps going up and people are more and more interested in Bitcoin.

2:15

So it feels like maybe we're at an inflection point for the Bitcoin story.

2:19

And there doesn't seem to be a lot of gray area between the people who think Bitcoin is going to change everything and the people who think it's nonsense.

2:28

So today we're going to try something different.

2:31

For this episode. I had two conversations.

2:34

First I spoke to a Bitcoin investor and then a few days later, I spoke to a Bitcoin skeptic in each conversation.

2:42

I tried to play the other side, but without the usual yelling chaos, that seems to characterize Bitcoin debates.

2:49

The investor is Nick Carter.

2:51

He's a general partner at castle Island ventures, which funds startups that are building on top of the Bitcoin infrastructure to make payments more accessible.

2:59

Basically making sure Bitcoin can function like a currency.

3:03

The skeptic is Steve hanky.

3:06

He is professor of applied economics at Johns Hopkins university, senior fellow and director of the troubled currencies project at the Cato Institute, a former member of president Ronald Reagan's council of economic advisors.

3:18

And he was the president of Toronto trust Argentina in Buenos RAs when it was the world's best performing mutual fund in 1995, he's also advised other countries on how to deal with hyperinflation and how to stabilize currencies.

3:31

Now I did my best to ask Nick and Steve similar questions and to push them on the shakier parts of their arguments in the end.

3:40

My biggest question about Bitcoin is whether people are interested in Bitcoin because it's a Bitcoin or because it's worth a lot of dollars.

3:49

Listen to these conversations and let me know what you think.

3:53

We're going to start with Nick Carter.

3:55

Here we go.

4:08

Nick Carter. You're a general partner at castle Island ventures.

4:11

Welcome to Dakota. Thanks for having me guys.

4:13

I'm really excited for this. Yeah.

4:16

You have a kind of an interesting history. You were the first crypto analyst at fidelity.

4:19

Now you manage investments into the Bitcoin ecosystem at castle Island ventures.

4:24

I want to start at the very beginning.

4:26

What drew you to Bitcoin and crypto?

4:28

Generally it wasn't Not anything super dramatic.

4:31

It wasn't, you know, like my family had our wealth confiscated by some tyrannical government or anything as much as I weirdly enough wish I had a great big one origin story.

4:41

I don't, but I just was attracted to the playful community initially on Reddit, believe it or not.

4:48

And I thought it was really cool to tip people through the internet and do P2P payments that weren't being cleared through any traditional financial medium.

4:58

That was really interesting and exciting to me to have that instant, final settlement on internet payments.

5:04

And then it was only with time.

5:06

And it took me a long time that I came to realize that there was actually a deeper sort of philosophical underpinning behind the project that there were, there was a real monetary project and, you know, it was tightly intertwined with some normative views on economics and the role of central banking and society.

5:24

I want to start pull back out of that. I'm really interested in your perspective on what the normative aspects of central banking are and how they might change with Bitcoin, but just help me out from the very beginning.

5:34

How would you define Bitcoin at this moment in time?

5:40

Yeah, so the thing is about Bitcoin is that we have a bit of a definitional problem because the word Bitcoin actually refers to a number of different things and that causes confusion.

5:50

So on the one hand, it's a protocol.

5:52

So it's a set of rules that people opt into to send value through a communications medium in a final way.

6:01

So you get final settlement. And on the other hand, it's also a financial asset, you know, so Bitcoin is the name of the monetary unit that circulates within the Bitcoin protocol.

6:11

So like doesn't make a lot of sense to a lot of people, but the Bitcoin network is such that really, there's only one native currency that is changing hands on the Bitcoin network.

6:22

And we call that Bitcoin.

6:23

And as of today, all of the Bitcoins are worth about a trillion dollars.

6:28

So that's our problem is that we used the same word to refer to the network itself and to the actual medium of payment on the network.

6:38

I think there's a lot of focus on the dollar value of the outstanding Bitcoin right now.

6:43

But one thing that strikes me is there is the Bitcoin network.

6:47

There's the Ethereum network, there's doge coin, which Elon Musk just tweeted about.

6:52

And it's spiked to value.

6:53

There's a wide variety of cryptocurrencies and crypto assets, right?

7:00

The NBA is selling highlight clips is non fungible tokens or NFTs for like a quarter of a million dollars, right?

7:07

So there's all these crypto assets and crypto networks and cryptocurrencies, Bitcoin still seems like the center of that conversation.

7:14

How do you think it relates to all of the others?

7:18

Bitcoin is the alpha and the Omega. I mean, it's the originator of this whole thing.

7:21

Bitcoin is the reason we have the word blockchain, right?

7:24

They coin kick this whole thing off in 2009.

7:28

It was the first public blockchain, the first cryptocurrency, it wasn't the first, you know, digital cash project, but it was the first successful one, the first decentralized one, the first one that people realized, wow, we can actually transact outside of the purview of the state here.

7:47

We don't necessarily need financial intermediaries.

7:50

And Bitcoin has this great set of embedded values in this commitment to genuine decentralization and genuine distribution of governance, such that no one individual or entity can co-opt or change the network.

8:06

And it has this extreme resilience and robustness and this unwillingness to change or be changed by anyone.

8:14

That's what gives a lot of strength.

8:15

That's what a lot of the clones of Bitcoin and the competitors and the alternative cryptocurrencies lack, fundamentally, most of them are set up by corporations.

8:24

You know, the venture investors that try and own a huge percentage of the initial stake, things like that.

8:30

And they have CEOs and, and foundations and leadership.

8:33

Bitcoin is much more organic, which kind of explains it sticking power.

8:38

It's this real phenomenon that people can align with and all of the competitors.

8:43

There's certainly some interesting technology out there, but it's not surprising to me.

8:48

The big one has endured in the way that it has, because it's kind of unique in terms of its own trajectory, it's history.

8:55

And I think people really align with that.

8:57

They aligned with the unique circumstances of its launch.

9:00

They like the fact that it's pretty decentralized.

9:03

I think ultimately Bitcoin is our best shot to basically strip some of the power from governments in the monetary context and, and from large financial institutions for that matter.

9:16

Why should we strip the power from governments and the monetary context?

9:19

Because they misbehave because they mismanaged their currencies and in the U S you know, things seem pretty much, okay, inflation's not too bad, but the U S experience the experience of Americans is not the typical experience for people globally, right?

9:35

We're only something like 4% of the population, your average person on the planet earth probably does not have a high degree of trust in their banking sector.

9:44

They may be living under inflation or conditions of monetary repression.

9:49

They might have to deal with capital controls, which exists so that their government can manage exchange rates.

9:56

So because central banks tend to misbehave because they tend to plunder or the currency of savers in order to achieve their own government aims, we have plenty of reason to be skeptical of monetary authorities.

10:10

And I would actually extend that to the federal reserve.

10:13

I mean, the fed is not behaving in a way that I think is consistent with, you know, good objectives for society.

10:20

My interpretation of what they're doing is that their actions are actually worsening inequality, but that's a whole different conversation.

10:27

I think the very fact that sovereign currencies do fail and you see hyperinflations, I think that justifies the existence of an alternative.

10:37

That's not state controlled and historically gold has been that alternative.

10:40

And it's, it's actually quite a good alternative, I would say, but Bitcoin just improves upon Gold's qualities in some critical respects.

10:48

And I think it's totally valid to propose one alternative, which is not state controlled because, you know, ultimately that's just a tool for, for freedom and you can't mandate that anyone use it, it's a free choice to opt into it.

11:02

But I think it's really inspiring that, you know, probably around a hundred million people worldwide have opted into the system so far.

11:12

So what does a Bitcoin critic think of this decentralizing potential specifically in the context of places outside the United States, this is a good place to bring in professor Steve hanky.

11:23

As I said at the top he's professor of applied economics at Johns Hopkins university and senior fellow and director of the troubled currencies project at the Cato Institute.

11:31

Great to be with you.

11:32

I wanted to start the conversation, addressing the big promise.

11:36

Bitcoin seems to be making that someday there can be a stateless or decentralized currency that can replace the us dollar right off the bat.

11:45

Professor hanky tells me that a Bitcoin is not a currency and B Bitcoin is not really decentralized it, not the centralized It's

11:54

heavily centralized 99% of all the transactions occur on centralized exchanges.

12:01

That leads to all kinds of issues about potential vulnerability.

12:05

In terms of privacy.

12:08

According to professor Hankey, there are three criteria for something like Bitcoin to be considered a currency, they have to be a reliable unit of account, a medium of exchange, and a store of value To

12:19

become a considered a currency, whatever it is, has to be a reliable unit of account, a reliable measuring rod.

12:27

And obviously Bitcoin has a problem in that area.

12:32

Yeah, it is highly volatile just in the last week.

12:36

It's shed about 25% of its value from its all time high.

12:40

So it's, it's very volatile and moves around.

12:44

It's not a very stable system, if you will.

12:49

And not none of it's a yard stick, that's moving around all over the place.

12:54

That means two things.

12:56

It's not used to price current transactions.

12:59

And that's what a unit of account is.

13:02

Something that's used as a unit that can be assigned and used as a price to price.

13:10

Current things are price inventories and things like that.

13:13

So unit of account is, is a very big thing.

13:17

It's a big bugaboo for Bitcoin.

13:19

It's a big bugaboo by the way, for many so-called currencies, many national currencies produced by central banks or are not used as reliable units of account.

13:32

And that's why if you look at transactions for commodities, for example, almost all the commodities in the world are traded in us dollars.

13:41

That is the unit of account that's used for corn oil, soy beans, you name it.

13:47

Most people don't realize it's also used as an invoicing currency, the us dollar for many if manufactured goods.

13:56

In other words, if you go to England, for example, this is a good example.

14:00

We have British pounds Sterling and we go to Germany and what's Germany used.

14:05

Now they use the Euro, but what is the invoicing currency for about 35% of the manufactured goods in England?

14:14

It's a us dollar.

14:16

So if you're going to replace anything with Bitcoin, it would be the U S dollar to put it into context.

14:22

That's, that's what we're talking about.

14:24

The second currency criteria is a medium of exchange and Bitcoin is not used as a medium of exchange.

14:33

Isn't it's not used because it's very expensive.

14:36

Transactions costs are very high.

14:39

So about the only places that you find at our places experiencing hyperinflation like Venezuela or very high inflation, like Argentina, some may, maybe these kinds of places, but it's not used because it's very expensive to use the third item in the currency criteria.

14:59

It's a store of value and the store of value.

15:04

Of course it's it's, it's no good.

15:06

It's not safe. It's not safe.

15:08

There have been a lot of infringements and lack of trust, and it's extremely volatile.

15:14

So on all those three criteria, it basically, you can't check the box for Bitcoin.

15:22

So let's take them in order. So unit of account is really interesting to me, right?

15:27

You're saying in most places around the world, you making a large transaction, you're making a series of repeated transactions for commodities or manufacturing.

15:35

You are working across currencies.

15:38

The backstop is the dollar.

15:39

The argument here is, well, the reason the backstop is a dollar is because those currencies are unstable.

15:45

They might be mismanaged by the central banks of those countries.

15:48

There might be hyperinflation.

15:50

There might be all kinds of shenanigans.

15:52

The currencies might collapse. The dollar is stable because the United States does a good job or a reasonably better job.

15:58

Maybe not even a good job.

15:59

Bitcoin solves the problem in those countries, right?

16:02

It is decentralized. You can see it, it might flow in a volatile way against the dollar, but compared to a mismanaged currency in an unstable country, it might be a much better bet to clear some of those repeated transactions to be more secure in terms of knowing who is making the transaction with who preserving a ledger.

16:22

There are lots of benefits of Bitcoin as a currency compared to the unstable currencies that we currently backstop with the dollar.

16:31

Well, I would argue number, number one, and these countries where you do get some usage of, of Bitcoin, they are not used as units of account in those countries like Venezuela.

16:41

The dollar is a unit of account.

16:43

Everything will be priced in dollars.

16:45

You pay for it in Bitcoin.

16:47

So Bitcoin comes in and he's used it for transactional purposes there, but it's very costly to do it.

16:54

And, and, and people who are doing it are very inefficient.

16:58

Let's put it this way. They, they are really speculators.

17:01

They they're, they're not transacting.

17:03

It comes in and it got started in these places due to the fact that the local unit of account that the Venezuelan Boulevard has completely disappeared.

17:15

It's not used the unit of account used in Venezuela is a us dollar.

17:20

And by the way, I have very good sources on the ground in Venezuela.

17:25

And today, as we speak with inflation, as I measured over 2000%, and then Suela the transactions, 80%, about 80% of all the transactions are actually done in us dollars and Bitcoin.

17:40

At most, we're talking about a fringe footnote.

17:44

That's picked up by, you know, bloggers and Bitcoin fanatics and that kind of stuff.

17:50

But it's, it's peanuts.

17:52

It's really irrelevant.

17:53

It doesn't make any difference.

17:55

80% in Venezuela, all transactions in us dollars.

18:00

And the only reason you get other units, you being used like the Venezuelan Boulevard, small change, let's say you have an $85 bill that's invoiced to you.

18:11

And to pay, you've got four $20 bills and you hand them over to whatever you bought, whatever you bought, but you've got $5 left leftover, and there is a small change problem.

18:23

There are, there aren't that many, $1 bills running around in Venezuela, the small change, what do they do?

18:29

They use bully VARs for the $5 differential and residual in that transaction, they would use boulevards and Bitcoin is somewhere way, way off on the horizon someplace.

18:41

It's, it's, it's more or less kind of an academic footnote, but it, it is used to some extent.

18:48

And, and it's used because of hyperinflation and its attractiveness for basically speculators, not, not people really doing transactions.

18:58

I think my question there is what you were describing with the dollar and the Boulevard is a bad system for most Venezuelans, right?

19:07

Like that's not an ideal monetary system for the average citizen of Venezuela to participate in the opportunity to participate in a more decentralized system that is perhaps free of interference from the government or free of the actually having to have cash like physical cash and whatever elements around you.

19:27

That seems like a better system.

19:28

Why wouldn't you want to transition to a better system from a broken financial system that relies on a weird exchange rate between the Boulevard and the dollar and the dollar isn't even your currency?

19:39

Well, the ideal system for someplace that's hyper inflating would be to do officially what spontaneously has already occurred.

19:47

What spontaneously occurred is dollarization Venezuela is dollarized at the tune of about 80% of all transactions and savings.

19:58

That's even even a bigger percentage.

20:00

Of course, the savings are safe and Miami or someplace else, not in, not in Caracas, but they're in dollars.

20:06

That's the big lumps of savings or, or cash that's held by corporations in Venezuela, it's in us dollars.

20:13

So the ideal thing to do would be to officially dollarize and get rid of the Boulevard completely.

20:21

The day you would do that, hyperinflation would end immediately and you'd end up like someplace like Panama is officially dollarized.

20:30

They use the us dollar Ecuador as officially dollarized El Salvador is officially dollarized.

20:36

There are 37 countries around the world that are officially dollarized.

20:41

They use some, some other currency rather than a home currency.

20:45

I, this, this leads right Into,

20:48

in my previous conversations about Bitcoin.

20:50

You just quickly arrive at nationalism concerns.

20:54

You quickly arrive at international relations concerns.

20:58

If you are a country and your currency is unstable, giving up your monetary policy.

21:04

So the Williams, the United States seems like a bad idea.

21:06

If you're a citizen of one of those countries, you are 5,000 steps removed from the value of the currency that you hold.

21:14

I just see the, the incentive to say, you know what, I'm going to go to the different decentralized system that does not have state actors on top of me acting on a whim.

21:24

Well, I was a state counselor in Montenegro in 1999 and advisor to the president Yukon of itch.

21:32

And we had a hyper inflating currency.

21:35

It was called the Yugoslav DNR because in those days Montenegro's was still part of the rump Yugoslavia and Yukon of ICH decided, and there was a strategic thing and this, and it was nationalistic.

21:48

He wanted to exit Yugoslavia and he also wanted to do so in a way that would be very popular with the population.

21:59

How do you do this?

22:01

My advice was that you make the German Mark legal tender.

22:06

And if you did that, you would stop hyperinflation immediately.

22:10

So we did this, it smashed inflation and started the first step towards independence.

22:17

Actually, it wasn't viewed as a dependency thing.

22:22

It was viewed as a way to get out from the strangle hold of Melissa Vich and the rump Yugoslavia.

22:30

And so that was that particular case.

22:33

Look at Panama. Panama is actually a big financial center.

22:37

They've been dollarized for over a hundred years not to put it back, Neil, I, and to your context, this is a problem politically.

22:47

I, I completely agree with you, but if you adopt the U S dollar one argument has said, Oh, gee, we don't want to be dependent on the U S government and so forth.

22:59

So that's a negative, but it's actually a positive you're.

23:03

You're telling me that these local central banks are more reliable than the us federal reserve.

23:09

And why does everyone in the world use the us dollar as a unit of account?

23:14

Well, it's it's right now, it's the best alternative.

23:17

And, and by the way, if we go back 2000 years and look at history and history of currency is there's always one dominant international currency, always one.

23:30

And the us came into the picture after world war one, the dominant currency before world war one was a pound Sterling.

23:39

That was the international currency.

23:41

They got into trouble because of financing requirements and burdens associated with world war one, Sterling became very unstable.

23:50

And as that started happening, that instability, the us dollar became a competitor, a challenger.

23:58

And what you're arguing here, your, your conjecture was well, a de-centralized non sovereign currency.

24:07

I won't call it a currency because it isn't a current Bitcoin.

24:11

Isn't a currency recently.

24:13

Somebody said, well, what's the fundamental value of Bitcoin?

24:17

Does it have a fundamental value?

24:19

And to have a fundamental value things, the fundamental value, not the market value, the market value is whatever the value is.

24:27

The price of Bitcoin. That's the market that the fundamental value is zero.

24:32

Because to have a fundamental value, you have to have an asset that generates some kind of free cash flow that can be discounted back into present value and Bitcoin doesn't people say other currencies don't have a fundamental value.

24:49

Well, if you look at money in the United States broadly define the most broad major as M four and four is computed and calculated reliably at the center for financial stability that has 14 components.

25:05

And a currency is only one very small component at the one end.

25:10

And at the other end of the 14, you've got treasury bills.

25:14

So in that sense, the U S dollar has a fundamental value.

25:19

It, it is comprised of components, 14 components, and 10 of them pay interest.

25:25

And four do not.

25:28

I'm not going to do better at financial system regulation than you are, but let me push back on this from the perspective of a regular person, the interest rate in this country is very low.

25:37

It has stayed low for a long time.

25:38

If you have a dollar, the purchasing power of that dollar goes down over time.

25:42

That is what most people experience.

25:44

You put your money into a savings account.

25:47

You're making a tiny fraction of interest compared to just putting it into the stock market index fund.

25:53

She put it into Bitcoin.

25:54

You have massive gains over time, right?

25:57

It is just, it has just gone up because more people believe that it will become a challenger currency.

26:02

So the idea that the dollar is a per year, M four definitions generates value from the perspective of a regular person does not hold.

26:11

It might hold in a larger financial ecosystem because the treasury would print more money.

26:16

But it does, from my perspective, I just have some dollars.

26:19

The best thing I can do is spend them on something that might generate value.

26:23

If I have some Bitcoin, the best thing I can do is hold it because it will itself increased in value.

26:30

My conjecture is that I think eventually it will enter a death spiral and go towards zero towards his fundamental value.

26:37

Why do you think it will go to a death spiral?

26:39

Oh, because there'll be many superior alternatives in the crypto space that will move Bitcoin out of the picture.

26:47

And I, and I, I know exactly how to design them.

26:51

They aren't, they aren't there yet. Right now.

26:55

We're going to take a break here. But when we come back, I'll pick up with Nick Carter to follow up on my question of why anyone was used a Bitcoin right now, instead of just holding onto It

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29:07

We're back. And we're picking up our conversation with Nick Carter.

29:10

I wanted to know why anyone would spend a Bitcoin right now.

29:13

The value just keeps going up. It's best to just hold it.

29:16

People are spending them, but I just can't figure out why.

29:18

If all it's doing right now is appreciating.

29:24

I don't have any pictures For our ethics policy.

29:26

We're not allowed to own stock. And we extended that to cryptocurrency because we cover it and we do have the ability to affect the price.

29:32

So I don't have any, if I did have some Bitcoin, why would I ever spend it at this point in time?

29:38

At this point in time, he probably wouldn't want, and so It's

29:42

not really a widely offered or used or employed medium of exchange at this stage in its life cycle.

29:49

And that's okay.

29:51

You know, right now the focus is more on getting it up to speed as a large scale, monetary good.

29:59

And then maybe once it is more mature, we can develop ways to spend it.

30:05

But if you expect it to appreciate relative to the dollar, and I think we all do, or most Bitcoiners do, rather, that's a deflationary thing and you don't necessarily want to spend, I think that's totally fine.

30:16

We expect this experiment to play out over the course of decades.

30:19

It's the same way that you don't really spend gold, but gold is worth $10 trillion in the aggregate.

30:25

The fact that it's not used in a retail payments context, no one buys coffee with grains of gold.

30:31

That doesn't deal with minimized gold as a monetary.

30:34

Good. It just means that people are using it more as a way to store value over time, especially relative to sovereign currencies.

30:44

But I think this brings you back to your core definitional problem.

30:47

You've described Bitcoin and gold as monetary goods.

30:50

You've also described them as currencies.

30:52

I think Bitcoin's initial philosophical, underpinning was a new kind of currency or placement for cash untraceable free of government and corporate constraints.

31:03

I can not think of a reason to use it as a currency at this time.

31:06

I can think of a reason to hold it as an asset.

31:08

When do you think the shift to actually using it as a currency would arrive?

31:12

Yeah, it's a good point. And, and you know, a lot of Bitcoiners, we actually fought a civil war over this exact question, largely bloodless Sylvia.

31:19

So they're there, but when you say largely that implies there was sun, well, things have really heated on, on Reddit and the big one talk forums and Twitter, but this was a great question that people in the Bitcoin community struggled over, right?

31:35

Because if you want to create a peer to peer digital cash, you know, is that even compatible with the way the Bitcoin network works and unfortunately, or for better for worse, Bitcoin can only throughput so much data per unit time, right?

31:49

We are blocks, Bitcoins divided up into blocks.

31:52

We have about 144 blocks a day.

31:54

Our, they max out at about three megabytes and because transactions carry a payload of a few hundred bytes, that means you can only squeeze so many transactions into a day's worth of blocks.

32:06

And that's there for good reason.

32:07

It's because you don't want to overwhelm the network with data because then nobody would be able to run a node and participate in the network, right?

32:14

So there's a physical constraint, which limits the transactional throughput of the network, right?

32:19

We have to keep that in mind. Some people want it to lift that constraint and embrace this vision that you promote here.

32:26

And some people would say the original vision of Satoshi, I might contest that, but you know, he's not around to clarify what his vision was, which was to facilitate cheap, you know, fast payments on the internet, especially for, you know, small dollar transactions.

32:44

And that tribe kind of lost the battle I would say.

32:48

And the tribe, the one was the one that said, look, we want to do that too.

32:52

We just want to pursue it in a more measured way whereby we introduce layering into the system.

32:59

And so that's really the key concept to understand is at the base layer, you have a fast settling settlement network, which you might think of as equivalent to sending a wire transfer, right?

33:11

You send a wire costs, you $15.

33:12

It's kind of annoying, but once you've done it, that payment is totally final.

33:17

There's no reversing it. The money really settles between banks, same thing with Bitcoin.

33:22

Once you've done it, it's pretty much final within 30 minutes or an hour.

33:26

Then the way the payments system works in the real world is we introduce many, many other layers on top of that.

33:32

So you have ACH and then you have obviously banks kind of sit on top of that, you know, fed wired network.

33:38

And then the banks themselves, you've got payment processes on top of them.

33:42

And then you move up five wrongs in the ladder and you get to you making a Venmo or PayPal payment to me, or you get to you making a credit payment with a merchant that payment doesn't really settle.

33:55

Immediately, take some time to settle.

33:57

A credit card payment might settle at 90 days, 120 days.

34:00

The settlement is occurring on the base layer, but the payment, the financial messaging and the financial settlement are totally distinguished from each other, right?

34:08

So that's the way Bitcoiners really began to think about it too, was let's distinguish payment and settlement.

34:16

We can settle large transactions on the base layer.

34:19

That's suitable. If you want to send a billion dollars from Mexico to the Philippines and you want to have it settled within 30 minutes, and everybody can trust it, that cleared.

34:27

But if you're buying groceries, you probably actually don't need final settlement for that transaction.

34:32

That's a low stakes transaction.

34:34

You don't need to employ this, you know, powerful utility scale infrastructure to do that.

34:39

So this was the alternative vision of Bitcoin that emerged.

34:42

And I grant that it's complex and it's not that intuitive.

34:46

And it doesn't even sound that much like the way Satoshi described Bitcoin.

34:51

Yeah. But that's okay. You know, things evolve, right?

34:53

We are discovering product market fit.

34:56

You know, how should this protocol actually interact with the real world, real constraints that exist in the world.

35:01

And I think the way to do that is to mirror the layered approach of the payment system.

35:07

And that's kind of the way that people are thinking about it today.

35:10

It's not mature yet. We don't have these half dozen layers that I described the work in the payment stack.

35:16

We do have some emerging second layer solutions, but that's sort of the current thinking around this is that not every transaction needs that final sediment.

35:25

And so we'll have more convenient payments networks that are built on top and that settled a Bitcoin.

35:31

So one of the things that strikes me about that comparison is one, it does look an awful lot or an awful lot like The

35:38

existing layers of the payment infrastructure that banks control.

35:41

And second you're describing it is product market fit, which is language that as a tech product person, I deeply understand product market fit is not predictable for people, right?

35:53

Like Slack started as a video game company and then they made Slack and the investors were just along for the ride.

35:58

And now they're invested in a B2B software company that got bought by Salesforce.

36:03

Like that was not what they thought they were doing.

36:05

When they sat down at Slack the first day, they thought they were making a video.

36:08

Totally, totally banks and governments to some extent are far more predictable for consumers, right?

36:14

And there's like a democratic process that if you hate one president's financial policy, you can at least vote for the other guy.

36:20

It's very hard to participate in Bitcoin governance or even understand the fights between the tribes you are talking about.

36:29

It might be more democratic in that the decision-making is more decentralized, but in another way, it just seems far more opaque, complicated and unpredictable.

36:37

And I just don't know how to reconcile that initial vision of fast clearing payments for regular people, with the sort of opaque chaos that I sometimes hear about from the Bitcoin community.

36:50

That's a fantastic point. And you know, there's this concept, the tyranny of structurelessness have you come across this?

36:56

Yeah. So this characterizes decentralized communities, especially cryptocurrencies where governance is not codified, there is a lack of hierarchy and it's bewildering for people.

37:08

Oftentimes when they try and determine who has power and Bitcoin, how much power the core developers have relative to the miners and the economic node operators and the answer you'll get as well, just read the Bitcoin stock exchange or subscribe to the mailing list.

37:24

It's like completely incomprehensible jargon.

37:27

And so there have been efforts to sort of reckon with that and identify the power structures, but there is a real structurelessness.

37:34

I think it's sort of beautiful in a chaotic way that it's this organic collaborative open source phenomenon.

37:41

You know, it sounds kind of Easter terror and difficult to penetrate when you're hearing it from me.

37:47

But the debates really do happen in the open.

37:49

It's just, they don't happen in a specific place.

37:52

It's just this constant low grade warfare on Twitter and mailing lists and at conferences and so on.

38:00

But if I were Wait, let me stop you. If I was to say, where should I invest my money?

38:03

And you say one quality of the asset that you're investing in is constant, low grade Twitter warfare.

38:09

My instinct would just be to run the other way.

38:13

Yeah. So it's not at a stage in its development where, you know, it's thou well understood by society.

38:19

But I would say that's where the opportunity is, right?

38:21

If you are early to an idea which then becomes more widespread, you know, there's a risk premium in the uncertainty.

38:28

And so that is where the financial return comes from.

38:32

But I think the thing to understand is that Bitcoin's key features actually don't change that often.

38:38

So like the one change I referred to in 2017 where there's a civil war and then the resolution of the civil war was we pursued the layered scaling approach.

38:46

We made a change to Bitcoin that made it easier to scale in a layered banner called segregated witness.

38:52

It doesn't really matter. That was the last change to the Bitcoin core protocol that was in summer of 2017.

38:57

That was long time ago.

38:59

We're trying to push through a new change.

39:01

Now we, I say we, the Bitcoin community is contemplating a new change, right?

39:06

What's the change? Well, we're basically pulling out the guts of some of the cryptography and putting in a new cryptographic function called Schnorr, which should provide some incremental improvements to the privacy of the system and to the scalability, basically in short form.

39:25

And that's not even a controversial change, but we haven't even agreed on how we want to push through that change.

39:30

That's the debate. We're having a meta debate right now.

39:32

How do we even agree on how to deploy the change?

39:35

We don't know. So it is chaotic, but the core Bitcoin protocol doesn't change much.

39:41

That's the point? And the rules are sort of pretty explicit in the software.

39:46

You know, if you want your transaction to be valid, you have to construct it in this way, which gives it this nice quality where you actually don't need to pay any attention to that stuff, to use the network, to use the network.

39:57

You just need to understand the nature of the protocol and, you know, right.

40:02

Or use a wallet that is compatible with the protocol.

40:06

And that gives it this good Nexon, calls it social scalability, whereby people in any sort of cultural Milia, any political or economic space can engage with Bitcoin and trust that, you know, they're not going to be defrauded by the protocol or anything.

40:24

So it is interesting of course, to track the like turf Wars and the fights and, you know, people that are, have conflicting visions of what the protocol is or should be.

40:34

But fundamentally the thing itself is pretty static.

40:38

I would say Nick Carter is talking about the use of Bitcoin that hasn't quite arrived, but could with a little more awareness.

40:46

And buy-in professor hanky doesn't really see the point.

40:49

He thinks it's possible to have better cryptocurrencies, which would fundamentally operate differently than Bitcoin.

40:55

And as he mentioned, he thinks he knows exactly how to design them.

41:00

I

41:00

feel

41:00

like

41:00

in

41:00

many

41:00

ways

41:00

you

41:00

are

41:00

the

41:00

mirror

41:00

image

41:00

of

41:00

the

41:00

pro

41:00

Bitcoin

41:00

argument,

41:09

right? You you're saying you could design the cryptocurrency that worked.

41:13

If it had some backing by a state currency, like the dollar, but the governance of the countries around the world might impose some regulatory regime that would just kill it.

41:23

The Bitcoin community would say, well, that's why Bitcoin is the beginning and end of the story because the government can't kill it.

41:29

I would simply say, we'll see.

41:32

Yeah, I do Think

41:34

you could design an ideal system.

41:36

But right now, what is happening is Coinbase, which is a cryptocurrency exchange startup.

41:42

They filed their S one per that document.

41:45

They generated a 1.2, 8 billion in revenue off of 2.8 million monthly transacting users.

41:51

That's their metric. So 2.8 million people transacted some cryptocurrency with Coinbase in 2020 that generated them one and a quarter billion dollars.

42:01

I see that. And I say, well, it's, that's the way it's going.

42:05

We w we're not going to stop that train.

42:07

And most of that was Bitcoin, right?

42:09

That that's the dominant cryptocurrency and Coinbase is future is not, there's just going to be more speculators it's.

42:16

They will build a financial infrastructure.

42:18

Some of which looks like solving the transaction speed and privacy problems.

42:23

Some of which looks like clearing the transactions later, the layers of banking that would otherwise exist in a regular financial system, just built on cryptocurrencies, primarily Bitcoin, if you're investing in Coinbase, it doesn't feel like what you're doing is wildly speculating.

42:38

You're saying, Oh, this is a big business already.

42:41

And it has a chance to be much bigger.

42:43

Well, I, I'm not arguing with that at all.

42:45

I I'm agreeing with, you know, without getting into the, into the weeds on the thing I'm agreeing with that thrust, let let's say at 30,000 feet, I totally agree with what you just said.

42:59

So the question is, how do you do this to make it work?

43:03

And that's what I think I know how to do.

43:07

And you have to do it with a currency board kind of structure.

43:11

You were talking about trust Schuler.

43:15

And I have always said, you do it under the laws and Switzerland and base it and Switzerland.

43:20

And what would that be?

43:21

What, what is a currency board?

43:24

A currency board is something that issues a liability currency.

43:28

It's backed a hundred percent with assets and some anchor currency, the currency word currency, and the anchor currency trade at an absolutely fixed exchange rate and are freely convertible.

43:41

And there is no bid ask spread, even.

43:45

So the, and the transactions cost are diminimous.

43:48

Now, what would you have for an anchor that gets into, you said, well, you, with the currency word, you'd have some FIA currency issued by, by a sovereign that that's possible.

43:58

The wisest one to use.

44:01

It would be most readily used, would be the U S dollar right now.

44:05

However, I've also advocated for gold back currency boards, because gold does have the advantage of not being issued by a sovereign.

44:14

It is not a liability of any sovereign.

44:17

So in places like Turkey and Iran and Russia, they're ideally suited for gold backed currency boards or gold backed cryptos.

44:27

You see those three countries that I just, you are actively trying to deed dollarize themselves and get away from the U S and get away from the possibility of having financial sanctions placed on them and things like that.

44:43

Yeah.

44:43

Currency

44:43

boards

44:43

are

44:43

a

44:43

recurring

44:43

theme

44:43

with

44:43

professor

44:50

hanky. And of course he was the architect for currency boards in four different countries.

44:54

Meanwhile, Nick Carter is funding companies that might rebuild something that looks like the current financial system on top of Bitcoin.

45:01

I wanted to know where he saw the biggest growth, and I just couldn't help, but wonder why all of that effort was better than the system we have now with dollars.

45:09

This whole conversation just keeps coming back to dollars.

45:13

As

45:13

you

45:13

are

45:13

making

45:13

investments

45:13

into

45:13

the

45:13

other

45:13

layers

45:13

of

45:13

the

45:13

Bitcoin

45:13

stack,

45:13

where

45:13

do

45:13

you

45:13

see

45:13

the

45:13

biggest

45:13

opportunities

45:23

Right now? Honestly, it's in the sort of brokerage and banking space.

45:28

I know there's a lot of irony there, and you've sort of pointed to that.

45:31

You know, why would you rebuild banking?

45:33

Why would you rebuild the, you know, the traditional financial system from scratch?

45:38

Right? My answer is always well because the traditional financial system is sort of groaning under its own weight in a certain way.

45:46

And why not? You know, if you actually look at the technologies that banks run on, we're talking about COBOL, which is a computer language sort of from the seventies, basically nobody knows that language anymore.

45:58

So it's very hard to find developers to maintain this old ancient systems.

46:02

And we're talking about mainframe databases.

46:05

So this is just pre-market, you know, we're, we're competing with the existing system and proposing an alternative.

46:12

Then the other thing is that I would point to is unlike people that sort of store their assets in banks dollars, typically what is facilitated by the crypto financial system, as you could call it where there is intermediation, where people do use custodians and Bitcoin banks and things like that is the ability to cheaply withdraw your assets from that intermediate system.

46:34

Should you choose to, and now not everyone chooses to do that, right?

46:38

So some people self custody, their Bitcoin, and then some people custody with a bank fake one bank.

46:43

But if you suspect that that bank is misbehaving, or you want to move to a competitor, it's totally trivial to remove your assets.

46:51

And to me, that's a strong corrective force, which is a good market mechanism to hold them accountable and ensure that it's actually more competitive system with a strong kind of consumer surplus.

47:02

So to me, that's the ultimate merit of this system is that it actually more resembles a system of free banking built on gold, but where it was actually in this case, it's really easy to withdraw the monetary unit.

47:14

Whereas like with the, you know, dollar base bang system, there isn't really like a fundamental unit at the core of that.

47:20

You know, the banks are holding your dollars.

47:22

It's sort of hard to extricate your dollars from the bank system, right?

47:26

So one of the things you've described over and over And

47:30

over again, quite well, I would add is the things that we regulate into Fiat currency are built structurally into Bitcoin.

47:37

So the relationship between the physical dollars in the world and the dollars and the financial system, that's a regulated numerator, right?

47:45

Like there's a number, the fed manages it.

47:48

They might be doing a bad job, but they are regulating the banks constantly.

47:51

They're regulating the investment system constantly.

47:53

And that is just a group of politicians that you either love or hate.

47:56

And the Bitcoin side it's built into the code there's forum warfare that sometimes adjust the code, but it's built into the nature of the currency itself.

48:04

What I would push you on. And what I've remained curious about is a lot of the regulations that exist are there to sensibly protect people, right?

48:15

The reason there are layers of transaction settlement is to protect from fraud is to protect from criminals, doing criminal stuff is like, there's an endless list of reasons.

48:24

We have regulations, perhaps we have too many, but there is an endless list of reasons we have regulations.

48:29

How does the structure of Bitcoin enable those fundamental regulatory protections that come up as new people try to do new unsavory things?

48:41

Yeah. Great question. So as you suggest, Bitcoin is regulated in a certain way in that the protocol regulates the monetary nature of the thing.

48:51

So for instance, the issuance rate is highly regulated.

48:55

I would say perfectly.

48:57

So in that each block of Bitcoins is only going to produce 6.2, five new coins.

49:03

And we can forecast that out.

49:05

That has historically been the case.

49:07

It's followed the defined schedule, 50 Bitcoins, a block, and then 25 and then 12 and a half and so on.

49:13

So that part of it, there is regulation by the protocol, but the protocol is a very sort of thin layer, right?

49:20

It doesn't purport to speak for much.

49:23

It doesn't cover a lot. It covers, these are the rules for creating new Bitcoins.

49:27

These are the rules for constructing a valid spend of Bitcoin.

49:31

And these are some sort of primitive functions you can encode into that expenditure, you know, so you can define basic smart contracts and that sort of, and then you've got rules for auditing the supply of Bitcoin and so on, but Bitcoin covers that monetary layer.

49:48

And then it's left to the Bitcoin intermediaries to consider the other contexts of financial activity.

49:56

And so the protocol itself, isn't concerned with very much aside from the coordinator of the money and what's valid spend and keeping the supply largely inflation free and ensuring that the network has uptime and so on when it comes to the intermediaries that are present in the system, like I'm talking about the coin bases of the world, right?

50:17

The Bitcoin banks, those are regulated by the state.

50:21

They have a number of regulatory regimes that they fall under two they're regulated by FinCEN money, service businesses.

50:28

They're actually typically regulated on a state-by-state basis as money transmitters.

50:32

So whether or not you think that's sufficient or whether we need a federal regulation for crypto exchanges.

50:38

That's an interesting question for sure.

50:40

And I would actually argue that the state-by-state MTL regime is not sufficient right now, but, but yeah, so there, those intermediaries are regulated.

50:49

They're not exactly regulated the same way banks are because banks obviously have FTC protections and, you know, the bank goes bust.

50:57

The government will guarantee your savings in that bank up to a certain threshold.

51:02

I think it's 250 K that's not the case with Bitcoin banks because there is no possibility to have that FBIC because there isn't a lender of last resort beneath that system.

51:13

The government can't just make more money. That's Right.

51:16

And that's, that's the requirement.

51:17

That's a necessary condition to Institute something like FTC, or to be able to carry out bank bailouts and so on.

51:24

So you have to take the bad with the good, basically, if you want to extricate the state from the money supply and you want them to not have that discretionary power to inflate it, then you're also not going to be able to have depository insurance, which is state backed.

51:41

You might have private insurance, for sure that exists.

51:44

There are private insurers that insure crypto exchanges a hundred percent, but you're not going to have that level of state insurance.

51:51

That level of state guarantee.

51:53

That's a trade.

51:54

I am sort of willing to accept, you know, the risk of transacting with Bitcoin is real, but that's the risk that I'm sort of happy to incur in exchange for having access to the good qualities of Bitcoin.

52:06

So We

52:07

have come to the while someone's going to regulate this portion of the conversation.

52:12

So I have a quote here from Janet Yellen, who's new treasury secretary.

52:16

Then I'd say, she says to the extent that Bitcoin is used, I fear it's often for illicit finance.

52:22

It's extremely inefficient way of conducting transactions and the amount of energy that's consumed in processing those transactions is staggering.

52:29

I read that and I say, okay, there's going to be a push to regulate Bitcoin in some way, all she is saying is that the negative qualities of Bitcoin, what kind of regulation do you think is appropriate?

52:41

Given this, push this interest to take some steps to constrain Bitcoin?

52:47

Yeah, I think Bitcoin is actually well understood by the U S government right now.

52:52

And I would contend that it has been well understood since about 2012.

52:56

So the first regulators to contend with Bitcoin were FinCEN, which manages, you know, issues of money laundering and so on.

53:05

And the IRS, right?

53:07

And the IRS decided the Bitcoin was property and they would tax it as property.

53:12

So you have to pay capital gains.

53:14

If you have a gain on your Bitcoin at a sale.

53:17

And FinCEN decided that Bitcoin exchanges would be subject to their MSP rules.

53:24

So can you just explain what an MSP rule is?

53:27

Yeah. So exchanges are expected to conduct, know your customer and anti money laundering sort of compliance efforts.

53:34

So if you sign up at a crypto exchange, you have to basically prove that you are who you say you are, and they'll look into like suspiciously, large transactions and things like that.

53:45

So the entities that are at the hubs of the network are regulated in a certain way.

53:52

And then Bitcoin, as an asset is also regulated or it's taxed rather.

53:57

And then there's other regulatory bodies, you know, the office of the comptroller of the currency, for instance, they regulate banks and they said, banks can custody Bitcoin on behalf of their clients.

54:08

That was a new thing that happened.

54:09

So the regulatory approaches are evolving a little bit and actually treasury is revisiting the obligations that exchanges have.

54:19

So they're deciding right now, actually over the next few weeks, whether exchanges should have additional obligations in terms of reporting and information retention.

54:28

So we'll see what happens there.

54:31

But Bitcoin has been something that, you know, I think it's a mistake to think the Bitcoin is this completely unregulated wild West style asset.

54:40

In fact, it's already rather integrated into the us financial system.

54:45

There are banks and large financial institutions and asset managers, places where I've worked, that are appear on the Bitcoin network.

54:53

They are part of it. They use it directly, right, fidelity or used to work.

54:58

They have fidelity digital assets, they're a custodian and a brokerage for Bitcoin on behalf of their clients.

55:03

So it's already quite well-integrated into the financial system, Coinbase the exchange I mentioned before, they're going to IPO soon, tens of billions of dollars.

55:14

That's a highly anticipated IPO.

55:16

So, you know, Bitcoin is part of American capital markets.

55:19

At this point, it's been understood by regulators and in fact, our new crop of financial regulators that are coming in in this new administration, as far as I can tell all of them understand Bitcoin very well.

55:30

Gary Gensler, likely new chairman of the sec taught a class on Bitcoin at MIT.

55:34

So he's totally a subject matter expert on it.

55:38

So maybe it could change the way that the government interfaces with Bitcoin, but I feel like they already understand it quite well.

55:47

Let me put that into contrast with where we started, which is Bitcoin has very appealing philosophical qualities that if you live in a country that is not stable, it might be better than that.

55:59

Country's currency in banking system.

56:01

We've come all the way full circle to I'm talking to an investor who's building who is investing in second layer Bitcoin infrastructure.

56:10

That looks like the traditional banking system that the regulators and government functionaries of the United States understand it at its core fidelity.

56:18

One of the biggest investment houses is a brokerage for, it seems like all of that philosophy has been subsumed or recreated into the traditional banking system.

56:29

So the risk rewards that you are describing only work, if you believe America is either going to fail or you live outside of America, I

56:37

just see Bitcoin's relevance is highly contextual, right?

56:40

So if you're American, it's interesting to you as an inflation hedge and a financial asset.

56:46

And that's what it is, has been.

56:49

Financialized people created a bunch of financial products that contain Bitcoin that you can buy on your regular old brokerage.

56:56

You don't even need to use one of these exchanges if you don't want to.

56:59

So that's, that's the role of basically plays in America today.

57:02

And maybe in the future, you know, the financial system will break down or become more politicized.

57:07

And then it'll regain salients as an asset, which gives you the ability to make transactions that the state or the banks don't want you to make.

57:17

But the way it's happened is that in fact, the state and the banks have actually embraced the asset in America.

57:23

However, as I said earlier, if those property rights and those assurances from the financial system are not present, then it's quite relevant to you as a, as a payment source, as a store, hold of wealth or payments, medium and store hold of wealth.

57:38

And so what we see really is, and this is controversial.

57:42

In some quarters, we see the us exporting its property rights, it's embracive property rights, because that's what Bitcoin does.

57:51

It enshrines very, very strong property rights, which are cryptographically enforced as the U S financial system embraces Bitcoin.

57:57

It exports those property rights abroad and gives people a broad exposure or the ability to access this product, which in my view, aligns with core American values.

58:09

And I know again, that might be a controversial thing to say, but that's the way I see it is that by financializing and rendering Bitcoin, highly liquid and portable, and by creating tools that allow people to interact with Bitcoin in a safe way and store their wealth in a safe way.

58:26

And we can get into the wallet technologies and how that's going.

58:28

The American kind of Silicon Valley of financial apparatus has rendered Bitcoin into something that is really useful for people in countries with malfunctioning financial systems.

58:41

So I totally grant that.

58:43

It looks like there's a total contradiction, what I'm saying, where Bitcoin started off as this totally cypherpunk libertarian thing.

58:50

And eventually the wall street suits got their hands on it, but it is just used in a heterogeneous way.

58:56

It's totally useful for dissidents and people trying to offshore their wealth from regimes with capital controls or hyperinflation.

59:05

And at the same time, it's this asset that rich hedge fund guys are speculating on, on wall street.

59:12

So it contains multitudes.

59:15

Again, I come back to it. It's more like the dollar than not right in that, in that specific regard, like the dollar has been the world's reserve currency for a long time.

59:24

It is used as a tool of American influence.

59:27

I doubt when you came on this morning, you thought you were going to be making the argument that Bitcoin exports, American cultural values, like you'd be surprised you were ready for it.

59:36

Well, I've just thought that for a long time. And it's the point that I've tried to express like what values, and this is what I was saying at the very beginning, what values are encoded into Bitcoin autonomy, individual Liberty, right?

59:47

The right to transact. When others say that you can't to a certain degree of privacy and monetary independence too.

59:54

And I would argue that the way the fed operates right now is not consistent with, if you look at what the founding fathers had to say about central banking, very different and a total respect and a sanctioning of, of property rights.

1:00:08

And in Bitcoin, you know, this saying like possession is nine tenths of the law and Bitcoin possession is 10 tenths of the law, right?

1:00:16

So you don't need the law to determine who owns Bitcoin.

1:00:20

It's a cryptographic procedure.

1:00:22

You can prove that you own it. If you own it.

1:00:24

If you have it, if you have the keys to spend it, you are presumed to be the owner.

1:00:28

So that is a very strong, and I would argue novel former property, right?

1:00:32

And a lot of those things are the values that this country was founded upon.

1:00:37

And that still power, you know, American governance, I would say.

1:00:41

So, yeah, I see them as consistent.

1:00:43

And I think that's why America is actually well-suited to underwrite and embrace to this technology.

1:00:49

Whereas China, for instance, would not be because the Chinese regime does not respect individual Liberty or the right to transact outside of surveillance.

1:01:01

And they don't respect property rights, right.

1:01:04

That's, you know, that's not me being controversial.

1:01:06

Like in China, you can only control a certain amount of your wealth.

1:01:10

And if you're a billionaire in China, that's sort of a dangerous position to be in and you can't offshore very much well from China, it's hard to extricate your assets.

1:01:18

So I think America is actually uniquely positioned to support this technology.

1:01:24

And that doesn't mean co-opting it or capturing it or changing in any way, but just to allow it to flourish, which is what's happening.

1:01:33

How do you line that up with the initial argument of Bitcoin is great for you.

1:01:37

If you are in a state that is mismanaging its currency or has hyperinflation, or is otherwise failing.

1:01:42

And what I hear from a lot of Bitcoin proponents, maybe not you necessarily that the American financial system is headed toward collapse, potentially America itself in Bitcoin as a hedge against that.

1:01:56

I mean, I certainly believe that inflation is going to be much higher in the next decade in the U S than it is today.

1:02:02

And there's plenty of macro variables that I could go into talk about debt to GDP and supply growth, which I think would be really tedious for anyone to hear.

1:02:13

But I do happen to believe that it is likely that people that hold are gonna lose purchasing power at a faster rate than they've been losing, purchasing power over the last few decades.

1:02:26

And we'll likely to see the situation that is reminiscent of the seventies or the forties in terms of the inflationary dynamics.

1:02:33

I don't believe that the payment infrastructure or the dollar is going to collapse, and I don't think that's even necessary for you to believe in Bitcoin.

1:02:41

You don't ha that's not a necessary belief to hold.

1:02:44

You just have to want to opt in to a system that is different and more predictable in certain ways.

1:02:52

But obviously America is withdrawing from the world and the dollars power seems to be on the wane.

1:02:58

And maybe it's not going to be the sole global reserve currency in 10 years time.

1:03:02

That seems likely enough to me, but I don't, I'm not a collapse Attarian and I don't think that's necessarily part of the Bitcoin thesis Again.

1:03:13

I mean, I just keep coming back to the regular people I talk to are mostly interested in Bitcoin because of dollars.

1:03:19

So, you know, if the dollar experiences a more rapid inflation, the value of Bitcoin for the average American consumer is still tied to that currency.

1:03:28

Well, if that's still how we measure the value of Bitcoin, It's

1:03:32

priced in dollars. Yeah, sure. But you could price it in units of gold.

1:03:35

I do that actually, because it's a pure way to get a sense of Bitcoin's real purchasing power.

1:03:42

Whereas if you're pricing Bitcoin in dollars, both the denominator and the numerator are changing, right?

1:03:48

The value of the dollar is changing and probably big ones changing.

1:03:51

So it's kind of this weird impure metric.

1:03:52

It's hard to reason about.

1:03:54

So yeah, if it were up to me, we would all talk about the price of Bitcoin announces ounces of gold, or, you know, something that's historically had a similar value throughout history, like fine men's suits or heads of cattle or something like that.

1:04:10

We're going to take a break while I eagerly await someone to build a calculator that can tell me the value of Bitcoin in men's suits.

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1:06:09

back with decoder before the break, Nick and I eventually kind of landed on the idea that Bitcoin stole relies on the dollar.

1:06:15

This again is one of the gripes that professor hanky has.

1:06:19

So

1:06:19

it

1:06:19

feels

1:06:19

like

1:06:19

your,

1:06:19

your

1:06:19

argument

1:06:19

here

1:06:19

kind

1:06:19

of

1:06:19

comes

1:06:19

down

1:06:19

to

1:06:19

Bitcoin

1:06:27

itself. As a currency does not have any real value.

1:06:30

It is being driven up in value by speculation.

1:06:32

You could design a cryptocurrency that you would mostly transact in.

1:06:37

That would be a more stable store of value, but it would have to be backed by something like gold.

1:06:42

So somewhere you would have to have a vault full of gold to give the cryptocurrency a real value that if everything fell apart, you could go back to that value.

1:06:51

Yeah. Going back. And in terms of history of these currencies, let's say the last 2000 years, which I've done and gone through the dominant international currency that existed on all these periods of time and tell the U S went off gold.

1:07:07

There was always a safety factor involved.

1:07:11

All these currencies, either they were gold or silver, or they were convertible into gold or silver.

1:07:20

So all we're doing is kind of going back before 1973 to a time when every international currency ever existing either was gold or silver, or was convertible into gold or silver.

1:07:39

Let me ask you a very philosophical question to come back to your point about how you define a currency, how much has gold war.

1:07:46

It has a fundamental value because there's a goal lending market.

1:07:50

So people get confused about that.

1:07:52

They say, Oh, gold, it doesn't pay any interest.

1:07:54

Well, no, I mean, it does.

1:07:57

It does. If you go, you go to the gold banks in London and you see what the interest rate is that they're paying on gold ones, But

1:08:04

they're paying that interest in, in currency.

1:08:06

They're not paying it in gold. They are paying at and currencies it settled in and a cash payment.

1:08:13

So I guess my question is all the way at the bottom of that is gold is valuable because we say it's valuable and you can design a market that pays you interest against her gold in currency.

1:08:24

Bitcoin is valuable because we say it's valuable and you can design a market that pays interest in Bitcoin itself, which feels superior And

1:08:33

not to confuse the thing which I might have done.

1:08:36

There's a market value.

1:08:37

The market value for gold is whatever gold is trading at today.

1:08:41

The market value for Bitcoin is whatever Bitcoin is trading it today.

1:08:46

The fundamental value, there are many ways to calculate this, but the simplest thing for people to get in their head, when, when I said Bitcoin has a zero fundamental value, of course I did that as a provocation, but I can back it up.

1:09:05

And at the end of the line to have a fundamental value, you have to be able to generate some kind of revenue and money broadly defined, does generate an interest rate.

1:09:17

And so it has a fundamental value.

1:09:19

Bitcoin doesn't generate an interest rate and gold does have a market value.

1:09:25

It has a fundamental value and the fundamental value, not only it pays interest, but it's also used in many commercial endeavors.

1:09:33

So it's different in that sense, You're

1:09:36

saying that the Gold's fundamental value comes because it is also physical and can be used to do many other things other than be a currency, right?

1:09:44

So at the end of the day, the gold market collapses, you could sell it on the commodity market and still get some money, Right?

1:09:50

For a basic backstop, fundamental value, but, but gold has another value.

1:09:57

That is another way to define a fundamental value is the golden constant and the golden constant.

1:10:05

If we go back, we can go back even further than 2000 years with gold, an ounce of gold, you could buy a constant basket of goods and services over time for millennia.

1:10:19

It has a fundamental purchasing power, and that's the golden constant that's over a long period of time.

1:10:27

You can always buy the same defined basket of goods with an ounce of gold that you, that you could a thousand years ago, or 2000 years ago, Want

1:10:38

to unpack another provocative thing you said, which is there will be a bit coin death spiral.

1:10:43

Walk me through that. What are the, what are steps one, two, and three that lead up to the spiral.

1:10:47

And then what does a spiral itself look like As

1:10:50

you probably, if detected underneath the critique of Bitcoin, I'm a very pro crypto private currency kind of person, private competition.

1:11:01

I I'm, I'm very high AQI and Friedrich Von Hayak Nobel Laureate and good for family friend Hayak was a proponent of competitive currency space.

1:11:14

And he thought everyone should be free to use.

1:11:18

He wasn't thinking in terms of cryptos, by the way, obviously ma maybe private currencies.

1:11:23

He was thinking of the, of the realm where you did have private currencies and those private currencies can compete with themselves or with currencies issued by a sovereign.

1:11:34

So I think I I'm all for competitive currencies.

1:11:38

I think the way to do it, given the technology that we have today is going to be digital crypto, if you will.

1:11:46

And I hope that the space currency space is opened up eventually for private currencies that are, that are efficient, that do provide a good store value, low transactions costs stable, have good they're good units of account or become widely used.

1:12:06

And they will be competitive with sovereigns.

1:12:09

Now, when that happens, Bitcoin will go as a Dodo bird went.

1:12:15

I don't know whether it will be very rapid.

1:12:18

It probably will be somewhat rapid as volatile as Bitcoin is, but everyone will see all of a sudden there's some alternative in the crypto space.

1:12:28

That's very superior to Bitcoin.

1:12:30

And, and then you will see even the speculators start walking away from this speculation, they will realize the way word ness of their ways, and they'll start dumping Bitcoin on it.

1:12:46

It will go into a death spiral.

1:12:48

It'll go down very fast.

1:12:49

And I think it will approach its fundamental value because even those engaging in illegal activities like to use Bitcoin will find that there are other alternatives that are more attractive and more stable and more usable and safer.

1:13:10

So I hear that there are currently multiple competitors to Bitcoin.

1:13:15

There are some stable coins pegged to the dollar and other currencies.

1:13:18

There's a theory, which is a very serious competitor to Bitcoin, which allows all kinds of other things to happen on its network.

1:13:25

Why haven't those existing competitors to Bitcoin started the cycle, the death spiral you're talking about?

1:13:32

Well, I mean, everyone is marching to the crypto drum, including a lot of speculators and entrepreneurs, forward-looking people.

1:13:43

And they sense that this is a space that will be attractive to be in.

1:13:51

And as with any innovation you learn by doing it.

1:13:56

Every new thing that comes along, that an entrepreneur comes up with with a startup, all of the startups don't succeed.

1:14:03

Some, some make a lot of, most of them fail by the way, and the ones that make it there they're generation one there's generation two.

1:14:14

And as you look at this, it's a little bit like I was reading an interesting piece on GPS.

1:14:20

Where did we get GPS from?

1:14:23

Well, that actually was Doppler an Austrian physicist, 1842 came up with this.

1:14:30

So it took a while.

1:14:31

The thing to an application that to click that bang, you know, the thing really, really took off that that's GPS.

1:14:40

This is not going to have that kind of time horizon by the way.

1:14:44

Yeah, this is going to happen a much more rapidly.

1:14:47

And I think the big thing that will slow it down is a sovereign.

1:14:52

The sovereign is a jealous God.

1:14:55

And if the sovereign is producing something that is very profitable for the sovereign and gives them prestige and all the rest of it, namely a national currency, they will be resistant to the challenger.

1:15:11

That will be really the thing that slows this process done will, will be the regulatory constraints that are put on it.

1:15:21

That that's my view, but there will be a superior crypto.

1:15:24

We're in the early stages of this crypto world, digital world, but that's where we're going.

1:15:31

I'm on, I'm on that train.

1:15:36

I think I've got my head around both Nick and professor Hankey's perspectives on where Bitcoin is now.

1:15:41

But to wrap this whole thing up, I had to ask them both about the future of Bitcoin.

1:15:46

Where does Nick Carter think this train is headed Hard

1:15:50

to say what we've seen historically from Bitcoin we're in the fifth cycle.

1:15:54

I would say you have these bubbly appreciations, you know, these melts up and then drawdowns and people get depressed and then there's a winter and no one cares about it for a while.

1:16:06

And then the whole cycle happens again.

1:16:09

So that's actually happened. I would say about five times from the fifth one right now.

1:16:12

So I expect the same thing happens again, human psychology is never changes.

1:16:18

You know, people want to plow into it when it is a sexy glamorous asset.

1:16:24

And when they have extremely optimistic expectations of its future growth and that tends to happen all at once.

1:16:30

And then people also get disillusioned all at once and dessert it all at the same time.

1:16:36

So it seems likely to me that we're going to have the same cyclical nature to it, but that we continue to find higher lows after each cycle.

1:16:45

So you have a bubble and a collapse.

1:16:47

It's a higher load and a bubble on a collapse in a higher, low to me, that's the secular process of monetization Bitcoin into this sort of asset that is actually globally useful, which we're not really there yet, but at a trillion dollars, we're kind of breaking into that upper echelon.

1:17:03

I would say we're sort of almost there on the cusp.

1:17:05

I don't know where it's going price-wise but I think in five years time, Bitcoins can be fully integrated into a lot of payments networks.

1:17:14

That's clear.

1:17:15

You're going to be able to hold it with your bank.

1:17:17

Most likely you're going to be able to buy a spot Bitcoin on any brokerage, whether it's a crypto brokerage or a sort of legacy brokerage, we're going to have much better tools to transact with it.

1:17:28

So you don't have to use addresses. You don't have to copy paste addresses.

1:17:30

That's going to seem really antiquated and we're going to have much more sophisticated layers such that you can transact on Bitcoin with deferred settlement and you can have different trade-offs in terms of transactional types on Bitcoin.

1:17:46

So I think it's just going to continue its process of integration with the financial system becoming easier and more convenient to use becoming understood as this global macro asset.

1:17:57

And it's something that will be normal for pension funds and endowments and mutual funds and other institutional allocators to own.

1:18:06

So it will just continue its process of financial normalization.

1:18:08

In one day, it's going to be a boring old asset alongside everything else.

1:18:13

And it won't be an exciting cooler, glamorous thing anymore.

1:18:17

And that's when we'll know that we made it when big winners don't get asked to talk on podcasts anymore, because it's not notable to be a big corner.

1:18:25

Cause it'll just be anything else like buying an index of equity, you know, buying the S and P 500 or something.

1:18:32

I like that.

1:18:32

Of

1:18:32

course

1:18:35

I had asked Steve hanky the same question about this.

1:18:39

I think there is going to be more positive innovation in the crypto space, and that is a structural incremental change that will be taking place.

1:18:49

And that's why I will predict with, I think, a great assurance that eventually we will see Bitcoin ending up exactly where the Dodo bird is.

1:19:00

Well,

1:19:06

This has been a wild ride.

1:19:08

I did not think of a Bitcoin optimist would have gotten to Bitcoin exports, American values.

1:19:14

And I really did not think the Bitcoin skeptic would essentially pitch a different version of Bitcoin, more supportive, but governments, like I said, my biggest question about Bitcoin is whether people like Bitcoin or whether they like dollars after these two conversations.

1:19:29

I think the answer is that people just like money and whether Bitcoin can become actual money is still an open question.

1:19:36

Thanks again to Nick Carter and professor Steve hanky for taking the time to talk today.

1:19:42

Thank you for tuning in.

1:19:43

I hope you enjoyed it as always. I'd love to hear what you think of the show.

1:19:47

You can email [email protected] or hit me up directly.

1:19:50

I'm at reckless on Twitter.

1:19:51

If you like Dakota, please share it with your friends and subscribe wherever you get your podcasts.

1:19:56

Dakota is a production of the verge and part of the Vox media podcast network today's episode was produced by Sophie Erickson, Crayton de Simone Ninja Merino with help from Aria broadsheet.

1:20:05

Our music is I Breakmaster cylinder.

1:20:08

We'll see you Week. The This episode of decoder brought to you by Okta, the leading independent identity solution, Octa provides best-in-class subset of Dakota brought to you by Okta, the leading independent identity solution. Okta provides best in class authorization so your customers and workforce can safely access what they need from anywhere. They're dedicated to building the most reliable, neutral identity platform because it means protecting more than a lock in. Identity is protecting people. Their ideas, their work, their brilliance. It's protecting your future with confidence, learn more at protecting your future with confidence. Learn more at okay. ta.com t a dot com. Support for this episode comes from Saatva. If you're working long hours on your next big idea, you're probably missing your eight hours of you're working long hours on your next big idea, you're probably missing your eight hours of sleep. And even one night of bad sleep can really affect your energy the next day, which is why I sought for wants to help with it's Saatva classic inner spring and even one night of bad sleep can really affect your energy the next day. Which is why Satva wants to help with its Satva classic inner spring mattress. Thanks to its two layers of coils, the Satva classic inner spring contours to your body. Why? You can wake up feeling refreshed instead of groggy and tired. Plus, you'll sleep even better knowing that satfya mattresses are always offered at half the price of retail stores. Start enjoying prices you thought you'd only dream about by visiting saatva at saatva dot com slash fox. Hello, and welcome to decoder. I'm Neil Apatel, editor in chief of the verge. And decoder is my new podcast about big ideas. And other problems. This episode is about a very big idea, Bitcoin. The verge has been covering Bitcoin since we launched in twenty eleven. And since then, I've heard many loud, powerful voices talking about how it's going to be the future of everything. Some of the biggest names in tech are convinced that Bitcoin is going to radically reshape our relationship to money. Somehow. Good evening. Tonight, Elon Musk makes one of his riskiest bets ever, linking Tesla's fortunes to big coin. I sat down with Fayette and Tech investor, Mark and Teresa, earlier today, and he's saying the praises of the digital currency. Jack Dorsey, going all in on Bitcoin, revealing in a podcast interview that he's met setting up the ten thousand dollar weekly spending limit on Bitcoin establishments. To be honest, I'm a little bit of a Bitcoin skeptic. The VirTra been covering Bitcoin since the beginning. And over the past ten years, we've seen the value of Bitcoin skyrocket. Very few actual uses for what should be a revolutionary digital currency. But that value keeps going up. And people are more and more interested in Bitcoin. So it feels like maybe we're at an inflection point for the Bitcoin So it feels like maybe we're at an inflection point for the Bitcoin story. And there doesn't seem to be a lot of gray area between the people who think Bitcoin is going to change everything and the people who think it's nonsense. So today, we're gonna try something different. For this episode, I had two conversations. First, I spoke to a Bitcoin investor And then a few days later, I spoke to a Bitcoin skeptic. In each conversation, I tried to play the other side, but put out the usual yelling and chaos that seems to characterize Bitcoin debates. The investor is Nick Carter. He's a general partner at Castle Island Ventures. Which funds startups that are building on top of the Bitcoin infrastructure to make payments more accessible. Basically, making sure Bitcoin can function like a currency. The skeptic is Steve Hanke. He is Professor of Applied Economics at Johns Hopkins University, senior fellow and director of the troubled currencies project at the Cato Institute to, a former member of president Ronald Reagan's Council of Economic Advisors, and he was the president of Toronto Trust Argentina in Brueenas Arias. When it was the world's best performing mutual fund in nineteen ninety five. He's also advised other countries on how to deal with hyperinflation and how to stabilize currencies. Now, I did my best to ask Nick and Steve similar questions and to push them on the shakier parts of their arguments. In the end, my biggest question about Bitcoin is whether people are interested in Bitcoin because it's Bitcoin. Or because it's worth a lot of dollars. Let's send to these conversations and let me know what you think. We're gonna start with Nick Carter. Here we go. Nick Carter, your general partner, Castle Island Ventures. Welcome to decoder. Hanke Thanks for having me for having me, guys. I'm really excited for this. Yeah. You you have a kind of an interesting history. You were the first cryptoanalyst at Fidelity. Now you manage investments into the Bitcoin ecosystem at Castle Island Ventures. I wanna start at the very beginning. What drew you to Bitcoin and Crypto, generally. There wasn't anything super dramatic. It wasn't, you know, like my family had our wealth confiscated by some traditional government or anything as much as I, weirdly enough, wish I had a great Bitcoin origin story, I don't. But I just was attracted to the playful community initially on Reddit, believe it or not. And I thought it was really cool to tip people through the Internet and do p to p payments that weren't being cleared through any traditional financial medium. That was really interesting and exciting to me to have that instant final settlement on Internet payments. And then it was only with time, and it took me a long time that I came to realize that there was actually a deeper sort of philosophical underpinning behind the project that there were there was a real monetary project and, you know, it was tightly intertwined with some normative views on economics and the role of central banking and society. I wanna start pull back out of that. I'm really interested in your perspective on what the normative aspects of central ranking are and how they might change with Bitcoin. But just help me out from the very beginning. How would you define Bitcoin at this moment in time? Yeah. So the thing is about Bitcoin is that we have a bit of a definitional problem because the word Bitcoin actually refers to a number of different things. And that causes confusion. So on the one hand, it's protocol. So it's a set of rules that people opt into to send value through a communications medium in a final way. So you get final settlement. And On the other hand, it's also financial asset, you know. So Bitcoin is the name of the monetary unit that circulates within the Bitcoin protocol. So, like, doesn't make a lot of sense to a lot of people, but the Bitcoin network is such that really, there's only one native currency that is changing hands on the Bitcoin network, and we call that Bitcoin. And as of today, all of the bitcoins are worth about a trillion dollars. So that's our problem is that we use the same word to refer to the network itself and to the actual medium of payment on the network. I I think there's a lot of focus on the dollar value of the outstanding Bitcoin right there's a lot of focus on the dollar value of the outstanding Bitcoin right now. But one thing that strikes me is there is the Bitcoin network, there's the Ethereum network, there's Dogecoin, which Elon Musk just tweeted about, and it spiked in value. There's there's a a wide variety of cryptocurrencies and now crypto assets. Right? The NBA is selling highlight clips is non fungible tokens or NFTs for, like, a quarter of a million dollars. Right? So there's all these crypto assets in crypto networks and crypto currencies. Bitcoin still seems like the center of that conversation. How do you think it relates to all of the others? Bitcoin is the alpha and the omega. I mean, it's the originator of this whole thing. Bitcoin is the reason we have the word blockchain. Right? Bitcoin kicked this whole thing off in two thousand nine. It was the first public blockchain, the first cryptocurrency. It wasn't the first, you know, digital cash project, but it was the first successful one. The first decentralized one. The first one that people realized, wow, we can actually transact outside of the purview of the state here we don't necessarily need financial intermediaries. And Bitcoin has this great set of embedded values and this commitment to genuine decentralization and genuine distribution of governance such that no one individual or entity can co opt or change the network. And it has this extreme resilience and robustness and this unwillingness to change or be changed by anyone. That's what gives a lot of strength. That's what a lot of the clones of Bitcoin and the competitors and the alternative cryptocurrencies lack. Fundamentally. Most of them are set up by corporations, you know, have venture investors that try and own a huge percentage of the initial stake, things like that. And they have CEOs and foundations and leadership. Bitcoin is much more organic, which kind of explains its sticking power. It's this real phenomenon that people can align with. And all of the competitors, there's certainly some interesting technology out there. But it's not surprising to me that big one has endured in the way that it has because it's kind of unique in terms of its own trajectory its history. And I think people really align with that. They align with the unique circumstances of its launch. They like the fact that it's pretty decentralized. I think, ultimately, Bitcoin is our best shot to basically strip some of the power from governments in the monetary context. And and from large financial institutions for that matter. Why should we strip the power from governments in a monetary context? Because they misbehave. Because they mismanage their currencies. And in the US, you know, things seem pretty much okay. Inflation is not too bad. But the US experience, the experience of Americans is not the typical experience for people globally. Right? We're only something like four percent of the population. Your average person on the planet Earth probably does not have a high degree of trust in their banking sector. They may be living under inflation or conditions of monetary repression they might have to deal with capital controls, which exists so that their government can manage exchange rates. So because central banks tend to misbehave, because they tend to plonder the currency of savers, in order to, you know, achieve their own government aims. We have plenty of reason to be skeptical of monetary authorities. And I would actually extend that to the federal Any would actually extend that to the Federal Reserve. I mean, the Fed is not behaving in a way that I think is consistent with, you know, good objectives for society. My interpretation of what they're doing is that their actions are actually worsening inequality, but that's a whole different conversation I think the very fact that sovereign currencies do fail and you see hyperinflations, I think that justifies the existence of an alternative. That's not state controlled. And historically, gold has been that alternative. And it's, it's actually quite a good alternative, I would say, but Bitcoin just improves upon Gold's qualities in some critical and it's it's actually quite a good alternative, I would say. But Bitcoin just improves upon gold's qualities in some critical respects, and I think it's totally valid to propose one alternative, which is not state controlled because, you know, ultimately, that's just a tool for freedom. And you can't mandate that anyone use it. It's a free choice to opt into it. But I think it's really inspiring that, you know, probably a hundred million people worldwide have opted into the system so far. So what does a Bitcoin critic think of this decentralizing potential? So specifically in the context of places outside the United States. This is a good place to bring in Professor Steve Hanky. As I said at the top, he's professor of applied economics at Johns Hopkins University and senior fellow and director of the troubled currencies project at the Cato Institute. Greatly be with you and you lie. I wanted to start the conversation addressing the big promise Bitcoin seems to be making. That someday there can be a stateless or decentralized currency that can replace the US dollar. Right off the bat, professor Hanke tells me that a, Bitcoin is not a currency. And b, Bitcoin is not really decentralized. It is not decentralized. It's heavily centralized, ninety nine percent of all transactions occur on centralized exchanges. That leads to all kinds of issues about potential vulnerability in terms of privacy. According to Professor Hanke, there are three criteria for something like Bitcoin to be considered a currency. They have to be a reliable unit of account, a medium in exchange, and a store of value. To become a considered a currency, whatever it is has to be a reliable unit of account. A reliable measuring rod. And obviously, Bitcoin has a problem in that area. Yeah. It is highly volatile. Just in the last week, it shed about twenty five percent of its value from its all time So it's it's very volatile and and moves around. It's not a very stable system, if you Nilay. not a not a it's a yardstick that's moving around all all over the place. That means two things. It's not used to price current transactions. And that's what a unit of account is something that's used as a unit that can be assigned and used as a price to price current things or price inventories and things like that. So unit of account is is a very big thing. It's a big bugaboo for Bitcoin. It it's a big bugaboo, by the way, for many so called currencies. Many national currencies produced by central banks are are not used as reliable units of account, and that's why If you look at transactions for commodities, for example, almost all the commodities in the world are traded in US dollars. That is the unit of account that's used for corn, oil, soybeans, you you name it. Most people don't realize it's also used as an invoicing currency, the US dollar, for many of manufactured goods. In other words, if you go to England for example. This is a good example. We have British pound sterling, and we go to Germany. And what's Germany use now? They use the euro, but What is the invoicing currency for about thirty five percent of the manufactured goods in England? It's a US dollar. So if you're gonna replace anything with Bitcoin, it would be the US dollar. That's that to put it into context. That's that's what we're talking about. The second currency criteria is a medium of exchange, and Bitcoin is not used as a medium of strange. It's it's not used because it's very expensive. Transactions cost are very high. So about the only places that you find that our places experiencing hyperinflation like Venezuela or or very high inflation like Argentina some may maybe Zimbabwe, these kinds of places, but it's not used because it's very expensive to use. The third item in the currency criteria, it's a store of value. And the store of value, of course, it's it's no it's no good. It's not it's not safe. There have been lot of infringements and lack of trust and it's extremely volatile. So on all those three criteria, it it basically you can't check the box for Bitcoin. So let's take them in order. So unit of account is really interesting to me. Right? You're saying in most places around the world, you're making a large transaction, you're making a series of repeated transactions for commodities or manufacturing. You are working across you are working across currencies, the backstop is the dollar. The argument here is, well, the reason the backstop is the dollar is because those currencies are unstable. They might be mismanaged by the central banks of those countries. There might be hyperinflation. There might be all kinds of shenanigans. The currencies might currencies might collapse, the dollar is stable because the United States is a good job. Or a reasonably better job, maybe not even a good job. Bitcoin solves the problem in those countries. Right? It is decentralized. You can see it. It might float in a volatile way against the dollar. But compared to a mismanaged currency in an unstable country, it might be much better bet to clear some of those repeated transactions to be more secure in terms of knowing who is making the transaction with who preserving a ledger. There are lots of benefits of Bitcoin as a currency compared to the unstable currencies that we currently backstop with the dollar? Well, I would argue number number one in these countries where you do get some usage of of Bitcoin. They are not used as units of account in those countries like Venezuela, the dollar is a unit of account. Everything will be price than dollars you pay for in Bitcoin. So Bitcoin comes in and he's used it for transactional purposes there. But it's very costly to do it. And and and people who are doing it are very inefficient. Let's put it this way. They they are really speculators they're they're not transacting. It comes in and it got started in these places due to the fact that local unit of account, the Venezuela and Bolivar, has completely disappeared. It's not used. The unit of account used in Venezuela is a US dollar. And by the way, I have very good sources on the ground in Venezuela. And today, as we speak, with inflation, as I measured over two thousand percent in Venezuela, the transactions eighty percent about eighty percent of all the transactions are actually done in US dollars. In Bitcoin, at most, we're talking about a fringe footnote that's picked up by, you know, bloggers and Bitcoin fanatics and that kind of stuff. But it's It's peanuts. It's really irrelevant. It it doesn't make any difference. Eighty percent in Venezuela, all transactions in US dollars And the only reason you get other units you being used like the Venezuelan Boulevard, small change. Let's say you have an eighty five dollar bill that's invoice to you. And to pay, you've got four twenty dollar bills and you hand them over to whoever you bought, whatever you bought, But you've got five dollars left left over, and there is a small change problem. There aren't there aren't that many one dollar bills running around in Venezuela. The small change, what do they do? They use Bolivars. For the five dollar differential and residual in that transaction, they they would use Bolivars, and Bitcoin is somewhere way off on the horizon someplace. It's more or less kind of an academic footnote, but it it it is used to some extent. And and it's used because of hyperinflation and its attractiveness for basically speculators, not not people really doing transactions. I think my question there is, what you're describing with the dollar and the Bolivar? Is a bad system for most Venezuelans. Right? Like, that's not an ideal monetary system for the average citizen in Venezuela to participate in. The opportunity to participate in a more decentralized system that is perhaps free of interference from the government or free of, you know, actually having to have cash, like physical cash. And whatever elements are around you, that seems like a better system. Why wouldn't you wanna transition to a better system from a broken financial system that relies on a weird exchange rate between the Bolivar and the dollar and the dollars and even your currency? Well, the ideal system for some place that's hyperinflating would be to to do officially what spontaneously has already occurred. What spontaneously occurred is dollarization. Venezuela is dollarized at the tune of about eighty percent of all transactions. And savings, it's even even a bigger percentage. Of course, the savings are safe in Miami or someplace else, not in not in Caracas, but they're in dollars. That's that's with the big lumps of savings or or cash that's held by corporations in Venezuela. It's in US dollars. So the ideal thing to do would be to officially dollarize and get rid of the Bolivar completely the day you would do that, hyperinflation would end immediately, and you'd end up like someplace like Panama, is officially dollarized. They they use the US dollar. Ecuador is officially dollarized. El Salvador is officially dollarized. There are thirty seven countries around the world that are officially dollarized. They use some some other currency rather than a home currency. I think this this leads right into, you know, in my previous conversations about Bitcoin, you just quickly arrive at nationalism concerns. You quickly arrive at international relations concerns. If you are a country and your currency is unstable, giving up your monetary policy to the Williams United States seems like a bad idea. If you're a citizen of one of those countries, you are five thousand steps removed from the value of the currency that hold. I I just see the the incentive to say, you know what? I'm gonna go to the the different decentralized system that does not have state actors on top of me acting on a whim. Well, I was a state counselor in Montney Grove in nineteen ninety nine, an adviser to the president Yukhanovitch. itch. And we had a hyper inflating And we had a hyperinflating currency. It was called the Yugoslav Díneur because in those days, Montnegros was still part of the Ram Pugoslavia. And Juchonovitch decided and there was a strategic thing in this and it was nationalistic. He he wanted to exit Yugoslavia. And he also wanted to do so in a way that would be very popular with the population. How do you do this? My advice was that you make the German Mark legal tender. And if you did that, you would stop hyperinflation immediately. So we did this. It smashed inflation and started the first step towards independence, actually. It wasn't viewed as a dependency thing. It was viewed as a a way to get out from the stranglehold of Malosovitch in in the rumpugoslavia. And so that was that particular case. Look at Panama. Panama is actually a big financial center they've been dollarized for over a hundred years. Not to put it back, I into your context, this is a problem. Politically. III completely agree with you. But if you adopt the US dollar, one argument said, Oh, gee, we don't wanna be dependent on on the US government and so forth. So that's a negative. But it's actually a positive. You're you're telling me that these local central banks are more reliable than the US Federal Reserve. And why does everyone in the world use the US dollar as a unit of account? Well, it's it's right now, it's the best alternative. And and by the way, if we go back two thousand years and look at history and history of currencies, there's always one dominant international currency always 1995. And the US came into the picture after world war 1995. The dominant currency before world war one was upon sterling. That was the international currency. They got into trouble because of financing requirements and burdens associated with World War 1995, became very unstable. And as that started happening that instability, the US dollar became a competitor, a challenger. And what you're arguing here, you're your conjecture was, well, a decentralized non sovereign currency. I won't call it a currency because it is a current Bitcoin isn't a currency. Recently somebody said, well, what's the fundamental value of Bitcoin? Does it have a fundamental value? And to have fundamental value, things the fundamental value, not the market value. The market value is whatever the value is the price of Bitcoin. That's the market value. The fundamental value is zero because -- Yeah. -- to have a fundamental value, you Hanke to have an asset that generates some kind of free cash flow that can be discounted back into present value and Bitcoin doesn't. People say other currencies don't have a a fundamental value. Well, if you look at money in the United States broadly defined the most broad measure is M4. M4 is computed and calculated reliably at the center for financial stability. That has fourteen components and a currency is only one. It's a very small component. At the one end, And at the other end of the fourteen, you've got treasury bills. So in that sense, the US dollar has a fundamental value. It it is comprised of components, fourteen components, and ten of them pay interest and four do not. I'm not gonna do better at financial system regulation than you are, but let me push back on this from the perspective of regular person. The interest rate in this country is very low. It has stayed low for a long time. If you have a dollar, the purchasing power of that dollar goes down over time. That is what most people experience. You put your money into a savings account you're making a tiny fraction of interest compared to just putting it into the stock market and it index fund. If you put it into Bitcoin, you have massive gains over time. right? It is just, it has just gone up because more people believe that it will become a challenger has just has just gone up because more people believe that it will become a challenger currency. So the idea that the dollar is a per your m four definitions generates value from the perspective of regular person does not hold. It might hold in a larger financial ecosystem because the treasury would print more money. But it does from my perspective, if I just have some dollars, The best thing I can do is spend them on something that might generate value. If I have some bitcoin, the best thing I can do is hold it because it will itself increase in value. Well, my conjecture is that I think eventually it will enter a death spiral and and go towards zero towards its fundamental value. Why do you think it Nilay go to a decimal? Oh, because there'll there'll be many superior alternatives in the cryptospace that that will move Bitcoin out of the picture. And I and III know exactly how to design them. They aren't they aren't there yet right now. We're gonna take a break here. But when we come back, I'll pick up with Nick Carter to follow up on my question of why anyone was used a Bitcoin right now, instead of just holding onto but when we come back, I'll pick up with Nick Carter to follow-up on my question of why anyone would use a Bitcoin right now. Instead of just holding on to it. 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We're back and we're picking up our conversation with Nick Carter. I wanted to know why anyone would spend a Bitcoin right now. The value just keeps going up. It's Hes to just hold it. People are spending them, but I just can't figure out why if all it's doing right now is appreciating in value. I I don't have any pictures have any bitcoin. For our ethics policy, we're not allowed to own stock and we extended that to cryptocurrency because we cover it and we do have the ability to affect the price. So I don't have any. If I did have some Bitcoin, why would I ever spend it at this point in time? At this point in time, you probably wouldn't want to. And so it's not really a widely offered or used or employed medium of exchange at this stage in its life cycle, and that's okay. You know. Right now, the focus is more on getting it up to speed as a large scale monetary good And then maybe once it is more mature, we can develop ways to spend it. But if you expect it to appreciate relative to the dollar, and I think we all do or most Bitcoiners do rather. That's a deflationary thing and you don't necessarily want to spend. Hanke that's totally fine. We expect this experiment to play out over the course of decades. It's the same way that you don't really span gold but gold is worth ten trillion dollars in aggregate. The fact that it's not used in a retail payments context, no one buys coffee with grains of gold, that doesn't deal with minimize gold as a monetary good. It just means that people are using it more as a way to store value over time especially relative to sovereign currencies. But I I think this brings you back to your core definitional problem. You've described Bitcoin and gold as monetary goods. You've also described them as currencies. I think Bitcoin's initial philosophical underpinning was a new kind of currency or replacement for cash, untraceable, free of government and corporate constraints. I cannot think of a reason to use it as a currency at this time. I can think of a reason to hold it as an asset. When do you think the shift to actually using it as a currency would arrive? Yeah. It's it's good point and and, you know, lot of big corners. We actually fought a civil war over this exact question, largely bloodless. So they all Hanke I hope so. Oh, they're they're Yeah. But when you say largely, that implies there was a sun. Well, things get really heated on on Reddit and the Bitcoin talk forums and Twitter. But this was a great question that people in the Bitcoin community struggled over. Right? Because if you want to create a peer to peer digital cache, you know, is that even compatible with the way the Bitcoin network works? And Unfortunately, or for better or for worse, Bitcoin can only throughput so much data per unit time. Right? We our blocks equipment divided up into blocks. We have about a hundred and forty four blocks a day. Or they maxed out at about three megabytes and because transactions carry a payload of a few hundred bytes. That means you can only squeeze so many transactions into a day's worth of blocks And that's there for good reason. It's because you don't wanna overwhelm the network with data because then nobody would be able to run a node and participate in the network. Right? So there's a physical constraint which limits the transactional throughput of the network. Right? We have to keep that in mind. Some people wanted to lift that constraint and embrace this vision that you promote here. And some people would say the original vision of Satoshi. I might contest that, but, you know, he's not around to clarify what his vision was, which was to facilitate cheap, you know, fast payments on the Internet especially for, you know, small dollar transactions. And that tribe kind of lost the battle, I would say. And and the the tribe the one was the one that said, look, we wanna do that too. We just wanna pursue it in a more measured way whereby we introduce layering into the system. And so that's really the key concept to understand is at the base layer you have a fast settling settlement network, which you might think of as equivalent to sending a wire transfer. right? You send a wire costs, you send a wire, it costs you fifteen dollars. It's kind of annoying. But once you've done it, That payment is totally final. There's no reversing it. The money really settles between banks. Same thing with Bitcoin. Once you've done it, it's pretty much final. Within thirty minutes or hour. Then the way the payments system works in the real world is we introduce many many other layers on top of that. So you ACH and then you have obviously, banks kinda sit on top of that, you know, fed wire network. And then the banks themselves, you got payment processors on top of them, and then you move up five rungs in the ladder and you get to you making a Venmo or a PayPal payment to me or you get to you making a credit payment with merchant That payment doesn't really settle immediately. Mhmm. Takes some time to settle. Credit card payment might settle ninety days, hundred twenty days. The settlement is occurring on the base layer, but the payment, the financial messaging, and the financial settlement are totally distinguished from each other. Right? So that's the way Bitcoiners really began to think about it too, was let's distinguish payment and settlement we can settle large transactions on the base layer. That's suitable if you wanna send a billion dollars from Mexico to the Philippines and you wanna have it settle within thirty minutes. And everybody can trust that that cleared. But if you're buying groceries, you probably actually don't need final settlement for that transaction. That's a low stakes transaction. You don't need to employ this, you know, powerful utility scale infrastructure to do that. So this was the alternative vision of Bitcoin that emerged. And I grant that it's complex and it's not that intuitive. And it doesn't even sound that much like the way Satoshi described Bitcoin. Yeah. But that's okay. You know, things evolve. Right? We are discovering product market fit. You know, how should this protocol actually interact with the real world, real constraints that exist in the world? And I think the way to do that is to mirror the layered approach of the payment system. And that's kind of the way that people are thinking about it today. It's not mature yet. We don't have these Hanke dozen layers that I described that work in the payment stack. We do have some emerging second layer solutions but that's sort of the current thinking around this is that not every transaction needs that final settlement. And so we'll have more convenient payments networks that are built on top and that settle the bitcoin. So one of the things that strikes me about that comparison is, one, it does look an awful lot or sound an awful lot like the existing layers of the payment infrastructure that banks control. And second, you're describing it as product market fit, which is language that as a tech product person, I I deeply understand. Product market fit is not predictable. For people. Right? Like, Slack started as a video game company, and then they made Slack. And the investors were just along for the ride And now they're invested in AAB to b software company that got bought by Salesforce. Like, that was not what they thought they were doing when they sat down at Slack the first day. They thought they were making a video. Totally. Hanke and governments to some extent are far more predictable for consumers. Right? And there's like a democratic process that if you hate one president's financial policy. You can at least vote for the other guy. It's very hard to participate in Bitcoin governance or even understand the fights between the tribes you are talking about. It might be more democratic in that the decision making is more decentralized. But in in another way, it just seems far more opaque, complicated, and unpredictable. And I I just don't know how to reconcile that initial vision of fast clearing payments for regular people with, you know, the sort of opaque chaos that I sometimes hear about from the Clint community. No. That's that's a fantastic point. And, you know, there's this concept that tyranny of structurelessness. Have you come across this? Yeah. So this characterizes decentralized communities, especially cryptocurrencies, where governance is not codified. There is a lack of hierarchy and it's bewildering for people oftentimes when they try and determine who has power in Bitcoin? How much power do the core developers have relative to the miners and the economic node operators. And the answer you'll get is, well, just read the Bitcoin stock exchange or subscribe to the mailing list. It's like completely incomprehensible jargon. And so there have been efforts to sort of reckon with that and identify the power structures but there is a real structurelessness. I think it's sort of beautiful and chaotic way that it's this organic, collaborative, open source phenomenon it sounds kind of esoteric and difficult to penetrate when you're hearing it from me, but the debates really do happen in the open. It's just they don't happen in specific place. It's just this constant low grade warfare on Twitter and mailing lists and conferences and so on. But if I was to Wait, let me stop me stop you. If I was to say, where should I invest my money? And you say 1995 quality of the asset that you're investing in is constant low grade Twitter warfare. My instinct would just be to run the other way. Yeah. So it's not at a stage and it's development where it's that well understood by society. But I would say that's where the opportunity is. Right? If you are early to an idea which then becomes more widespread, you know, there's a risk premium in the uncertainty. And so that is where the financial return comes from. But I think the thing to understand is that Bitcoin's key features. Actually, don't change that often. So like the one change I referred to in twenty seventeen where there's a civil war and then the resolution of the civil war was we pursued the layered scaling approach. We made a change to bitcoin that made it easier to scale in layered banner called segregated witness. Doesn't really matter. That was the last change to the Bitcoin core protocol. That was in summer of twenty seventeen. That was long time ago. We're trying to push through a new change. Now we, I say we, the Bitcoin community is contemplating a new change. Right? What's the what's the change? Well, yeah, we're basically pulling out the guts of some of cryptography in putting in new cryptographic function called Shneur, which should provide some incremental improvements to the privacy of the system and to the scalability, basically, in short form. And that's not even a controversial change, but we haven't even agreed on how we wanna push through that change. That's the debate. We're having a meta debate right we're having, a meta debate right now. How do we even agree on how to deploy the change? We don't know. So it is chaotic, but the core bitcoin protocol doesn't change much. That's the point. And the rules are sort of pretty explicit in the software, you know, if you want your transaction to be valid, you have to construct it in this way, which gives it this nice quality where you actually don't need to pay any attention to that stuff to use the network. Cheese and I work you just need to, you know, understand the nature of the protocol and, you know, write or use a wallet that is compatible with the protocol, and that gives it this good next job, but calls it social scalability, whereby, you know, people in any sort of cultural melia, any political or economic space can engage with bitcoin and trust that, you know, they're not gonna be defrauded by the protocol or anything. So it is interesting, of course, to track the, like, turf wars and and the fights and you know, people that Hanke conflicting visions of what the protocol is or should be. But fundamentally, the thing itself is pretty static, I would say. Nilay Carter is talking about a use of Bitcoin that hasn't quite arrived but could with little more awareness and buy it. Professor Hanke doesn't really see the point. He thinks it's possible to have better cryptocurrencies, which would fundamentally operate differently than bitcoin. And as he mentioned, Hes thinks he knows exactly how to design them. I feel like in many ways, you are the mirror image of the pro Bitcoin argument. Right? You you're saying, you could design the cryptocurrency that worked if it had some backing by a state currency like the dollar, but the governments of the countries around the world might impose some regulatory regime that would just kill it. The Bitcoin community would say, well, that's why Bitcoin is the beginning and end of the story because the government can't kill it. I would simply say, we'll see. Yeah. I do think you could design an ideal system. But right now, what is happening is Coinbase, which is a cryptocurrency exchange startup. They filed their s 1995. Per that document, they generated a one point two eight billion in revenue off of two point eight million monthly transacting users. That's their metric. So two point eight million people transacted some cryptocurrency with Coinbase in twenty twenty. That generated them, you know, one and a quarter billion dollars. I see that and I say, well, it's go that's the way it's going. We're not gonna stop that Reagans most of that was Bitcoin. Right? That that's the dominant cryptocurrency. And Coinbase's future is not there's just gonna be more speculators It's they will build a financial infrastructure, some of which looks like solving the transaction speed and privacy problems, some of which looks like you know, clearing the transactions later, the layers of banking that would otherwise exist in a regular financial system just built on cryptocurrencies, primarily bitcoin. If you're investing in in coinbase, it doesn't feel like what you're doing is wildly speculating. You're saying, oh, this is a big business already and Hes a chance to be much bigger. Well, I I'm not arguing with that at all. I I I'm agreeing with, you know, without getting into the into the weeds on the thing. I'm agreeing with that thrust. Let let's say at thirty thousand feet, I totally agree with what you just said. So the question is, how do you do this to make it work? And that's what I think I know how to do. And you have to do it with a currency board kind of structure. You were talking about in in a trust Schueller and I have always said you do it under the laws in Switzerland and base it in Switzerland and what would that be? What what he is a currency board? A currency board is something that issues a liability currency board is something that issues a liability currency. It's backed a hundred percent with assets and some anchor currency. The currency board currency and the anchor currency trade at an absolutely fixed exchange rate and are freely convertible and there is no bid ask spread even. So the and the transactions cost are de minimis. Now, What would you have for an anchor? That gets into you you said, well, you with the currency board, you'd have some fiat currency issued by by a sovereign. That that's possible. The wisest one to use it would be most readily used would be the US dollar right now. However, I've also advocated for gold currency boards because gold does have the advantage of not being issued by sovereign. It is not liability of any sovereign. So in places like Turkey and Iran and Russia, they're ideally suited for go back currency boards are gold backed cryptos. You see? Those three countries that I just gave you are actively trying to de dollarize themselves -- Yes. -- and get away from the US and get away from the possibility of having financial sanctions placed on them and things like that. Currency boards are a recurring theme with professor Hanke. And of course, he was the architect for currency boards in four different countries. Meanwhile, Nick Carter is funding companies that might rebuild something that looks like the current financial system on top of Bitcoin. I wanted know where he saw the biggest growth. And I just couldn't help but wonder why all of that effort was better than the system we have now with dollars. This whole conversation just keeps coming back to dollars. As you are making investments into the other layers, the Bitcoin back? Where do you see the the biggest opportunities? Right Right now, honestly, it's in the sort of brokerage and banking space. I know and I know there's a lot of irony there and you've sort of pointed to that, you know, why would you rebuild banking? Why would you rebuild you know, the traditional financial system from scratch. Right? My answer is always, well, because the traditional financial system is sort of groaning under its own weight in a certain And why not? You know, if you actually look at the technologies that banks run on, talking about Kupol, which is a computer language sort of from the seventies. Basically, nobody knows that language anymore. So It's very hard to find developers to maintain these old ancient systems. And we're talking about mainframe databases So this is just free market. You know, we're we're competing with the existing system and proposing an Then the other thing is that I would point to is unlike people that sort of store their assets in Hanke, dollars typically. What is facilitated by the crypto financial system is you could call it, where there is intermediation, where people do use custodians and Bitcoin banks and things like that, is the ability to cheaply withdraw your assets from that intermediated system should you choose to. And now not everyone chooses to do that. Right? So some people self custody their Bitcoin and then some people custody it with the bank. 1995 But if you suspect that that bank is misbehaving or you wanna move to a competitor, it's totally trivial to remove your assets. And to me, that's a strong corrected force, which is a good market mechanism -- Yeah. -- to hold them accountable and ensure that it's actually more competitive system with strong kind of consumer surplus. So to me, that's the ultimate merit of this system is it it actually more resembles a system of free banking built on gold but where it was actually in this case, it's really easy to withdraw the monetary unit, whereas, like, with the, you know, dollar based banking system, there hasn't really like a fundamental unit at the core of that. You know, the banks aren't holding your dollars. It's sort of hard to extricate your dollars from the bank system. Right? So 1995 of the things you've described over and over and over again quite well, I would add, is the things that we regulate in the fiat currency. Are built structurally into Bitcoin. So the relationship between the physical dollars in the world and the dollars in financial system that's a regulated numerator. right? Like there's a number, the fed manages Like, there's a number the Fed manages it. They might be doing a bad job, but they are regulating the banks constantly. They're regulating the investment system certainly, and that is just a group of politicians that you either love or hate. On the Bitcoin side, it's built into the code. There's forum warfare that sometimes adjust the code, but it's built into the nature of the currency itself. What I would push you on and what what I've remained curious about is a lot of the regulations that exist are there to ostensibly protect people. Right? The reason there are layers of transaction settlement is to protect from fraud, is to protect from criminals doing criminal stuff. Is to like, there's an endless list of reasons we have regulations. Perhaps we have too many, but there is an endless list of reasons we have regulations. How does the structure of Bitcoin enable those fundamental regulatory protections that come up as new people try to do new unsavory things? Yeah. Great question. So as you suggest, Bitcoin is regulated in a certain way in that the protocol regulates the monetary nature of the thing. So for instance, the issuance rate is highly regulated, I would say, perfectly so in that each block of bitcoins is only gonna produce six point two five new coins. And we can forecast that out. That has historically been the case. It's followed the defined schedule fifty bitcoins a block and then twenty five and then twelve and a half and so on. So that part of it, there is regulation by the protocol. But the protocol is a very sort of thin layer. Right? It doesn't purport to speak for much. It doesn't cover a lot. It covers These are the rules for creating new bitcoins. These are the for constructing a valid span of Bitcoin. And these are some sort of primitive functions you can encode into that expenditure, you know, so you can define basic smart contracts. And that's sort of it. And then you've got rules for you know, auditing the supply of Bitcoin and so on. But Bitcoin covers that monetary layer and then it's left to the Bitcoin intermediaries to, you know, consider the other contacts of financial activity. And so the protocol itself, isn't concerned with very much aside from the coordinator of the money and what's valid spend and keeping the supply largely inflation free and ensuring that the network has uptime and so on when it comes to the intermediaries that are present in the system, like I'm talking about the coin bases of the world, And so the protocol itself isn't concerned with very much aside from the the core nature of of the money and what's a valid spend and keeping the supply largely inflation free and ensuring that the network has uptime and so on. When it comes to the intermediaries that are present in the system, like I'm talking about the coin bases of the world. Right? The Bitcoin banks Those are regulated by the state. They have a number of regulatory regimes that they fall under. Do they are regulated by Fin Sun? Money service businesses. They actually typically regulate on a state by state basis as money transmitters. So whether or not you think that's sufficient, or whether we need a federal regulation for crypto exchanges? That's an interesting question for sure. And I would actually argue that the state by state MTL regime is not sufficient right now. But but yeah, so they're those intermediaries are regulated. They're not exactly regulated the same way banks are Mhmm. -- because Hanke, obviously, have FDIC protections. And, you know, if the bank goes bust, the government will guarantee your savings in that bank up certain threshold. I think it's two hundred and fifty k. That's not the case with Bitcoin banks because there's no possibility to have that FDIC because there isn't a lender of last resort beneath that system. The government can't just make more money. That's right. And that's that's the requirement. That's a necessary condition to institute something like FDIC or to to be able to carry out bank bailouts and so on. So you have to take the bad with the good, basically. If you want to extricate the state from the money supply, and you want them to not have that discretionary power to inflate it, then you're also not gonna be able to have depository insurance, which is state backed. You might have private insurance for sure that exists. There are private insurers that ensure crypto exchanges, hundred percent but you're you're not gonna have that level of state insurance, that level of state guarantee. That's a trade I am sort of willing to accept, you know. The risk of transacting with Bitcoin is real, but that's the risk that I'm sort of happy to incur in exchange for having access to the good qualities of Bitcoin. So we have come to the while someone's gonna regulate this portion of the conversation. So I have a quote here from Janet Yellen, who's the new treasury secretary of United States. She says, to the extent that Bitcoin is used, I fear it's often for illicit finance. It's extremely inefficient way of conducting transactions. And the amount of energy that's consumed in processing those transactions is staggering. I read that and I say, okay, there's gonna be push to regulate Bitcoin in some way. All she is saying is that the negative qualities of Bitcoin. What kind of regulation do you think is appropriate given this push, this interest to take some steps to constrain bitcoin? Yeah. I think Bitcoin is actually well understood by the US government right now. And I would contend that it has been well understood since about twenty twelve. So the first regulators to contend with Bitcoin were Fin San, which manages, you know, issues of money laundering and so on, and the IRS. Right? And the IRS decided the Bitcoin was property, and they would tax it as property. So you have to pay capital gains if you have a gain on your Bitcoin at a sale. And FinSign decided that Bitcoin exchanges would be subject to their MSP rules. So you just explain what an MSP rule is? Yeah. So exchanges are expected to conduct, know your customer and anti money laundering sort of compliance So exchanges are expected to conduct know your customer and anti money laundering sort of compliance efforts. So if you sign up at a Crypto Exchange, you have to basically prove that you are, who you say you are. And they'll look into, like, suspiciously large transactions and things like that. So the entities that are at the hubs of the network are regulated in a certain way. And then Bitcoin as an asset is also regulated or it's taxed rather. And then there's other regulatory bodies you know, the office of the control of the currency, for instance, they regulate Hanke. And they said banks can custody bitcoin on behalf of their clients. That was a new thing that happened. So the regulatory approaches are evolving a little bit, and actually, treasury is revisiting the obligations that exchanges have. So they're deciding right now. Actually, over the next few weeks, whether exchanges should have additional obligations in terms of reporting and information retention. So we'll see what happens there. But Bitcoin has been something that, you know, I think it's a mistake to Hanke. The Bitcoin is this. Completely unregulated, Wild West style asset. In fact, it's already rather integrated into the US financial system. There are banks and large financial institutions and asset managers, places where I've worked, that are a peer on the Bitcoin network. They are part of it. They use it directly. Right? Fidelity who are used to work. They have Fidelity digital assets. They are custodian and a brokerage for Bitcoin on behalf of their clients. So it's already quite well integrated into the financial system. Coinbase, the exchange I mentioned before, they're gonna IPO soon, tens of billions of dollars that's a highly anticipated IPO. So, you know, Bitcoin is part of American Capital Markets at this point. It's been understood by regulators. And in fact, our new crop of financial regulators that are coming in, in this new administration. As far as I can tell, all of them understand Bitcoin very well. Gary Gensler, likely new chairman of the SEC, taught a class on Bitcoin at MIT. So he's totally subject matter expert on it. So maybe it could change the way that the government interfaces with bitcoin, but I feel like they already understand it quite well. Let me put that into contrast where we started, which is Bitcoin has very appealing philosophical qualities that if you live in a country that is not stable, it might be better than that country's currency and banking system. We've come all the way full circle to I'm talking to an investor who's building who is investing in second layer Bitcoin infrastructure that works with the traditional banking system. That the regulators and government functionaries of the United States understand it at its core. Fidelity, one of the biggest investment Hes, is a brokerage for Bitcoin. It seems like all of that philosophy has been subsumed or recreated into the traditional banking system. So the risk rewards that you are describing only work if you believe America is either going to fail or you live outside of America. I just see Bitcoin's relevance is highly contextual, just see Bitcoin's relevance as highly contextual. Right? Okay. So if you're American, it's interesting to you as an inflation And a financial asset. And that's what it is. It has been finalized. People created a bunch of financial products that contain Bitcoin that you can buy on your regular old brokerage. You don't even need to use one of these exchange if you don't want to. So that's that's the role it basically plays in America today and maybe in the future, you know, the financial system will break down or become more politicized and then it'll regain salience as an asset, which gives you the ability to make transactions that the state or the banks don't want you to make. But the way it's happened is that, in fact, the state and the banks have actually embraced the asset in America. However, as I said earlier, if those property rights and those assurances from the financial system are not present, then it's quite relevant to you. As a as a payment sausa, as a storehold of wealth, or payments medium and store hold of wealth. And so what we see really is, and this is controversial in some quarters, We see the US exporting its property rights, its embrasive property rights because that's what BigONE does. It enshrines very, very strong property rights. Which are cryptographically enforced. As the US financial system embraces Bitcoin, it exports those property rights abroad and it gives people of broad exposure or the ability to access this product, which in my view aligns with core American values. And I know, again, that might be controversial thing to say, but that's the way I see it is that by financializing and running Bitcoin highly liquid and portable, and by creating tools that allow people to interact with Bitcoin in a safe way and store their wealth in a safe way and we can get into the wallet technologies and how that's going. The American kind of Silicon Valley financial apparatus has rendered Bitcoin into something that is really useful for people in countries with malfunctioning financial systems. So I totally grant that it looks like there's a total contradiction, what I'm saying, where Bitcoin started off as this totally cyberpunk libertarian thing. And eventually, the Wall Street suits got their hands on it. But it is just used in a heterogeneous way. It's totally useful for dissidents and people trying to offshore their wealth from regimes with capital controls or hyperinflation. And at the same time, it's this asset that rich hedge fund guys are speculating on on Wall Street. So it contains multitudes. Again, III come back to you. It's more like the dollar than not. Right? In that in that specific regard, like, The dollar has been the world's reserve currency for a long time. It is used as a tool of American influence. I doubt when you came on this morning, thought you were gonna be making the argument that Bitcoin exports American cultural values. Like, you'd be surprised if you're ready for it? Well, I've just thought that for a long time. And it's the point that I've tried to express like what values, and this is what I was saying at the very beginning, what values are encoded into Bitcoin autonomy, individual Liberty, it's a point that I've tried to express? Like, what values and this is what I was saying the very beginning. What values are encoded into Bitcoin? Autonomy? Individual liberty. Right? The right to transact when others say that you can't, to a certain degree privacy. And monetary independence too And I would argue that the way the Fed operates right now is not consistent with if you look at what the founding fathers Hanke to say about central Hanke, very different. And a total respect and a sanctioning of of property rights. And in Bitcoin, you know this saying, like, possession is nine tenths of the law. And bitcoin, possession is ten tenths of the law. Right? So you don't need the law to determine who owns Bitcoin. It's a cryptographic procedure. You can prove that you own it. If you own If you own it, if you have it, if you have the keys to spend it, you are presumed to be the owner. So that is a very strong and I would argue novel from a property write. And a lot of those things are the values that this country was founded upon and that still power, you know, American governance, I would say. So, yeah, I see them as consistent. And I think that's why America's actually well suited to underwrite and embrace the technology, whereas China, for instance, would not be because, you know, the Chinese regime does not respect individual liberty or the right to transact outside of surveillance. And and they don't respect property rights. Right? That's, you know, that's not being controversial. Like, in China, you can only control a certain amount of your wealth. And if you're a billionaire, in China. That's sort of a dangerous position to be in. And you can't offshore very much wealth from China. It's hard to extricate your assets. So I think America is actually uniquely positioned to support this technology, and that doesn't mean co opting it or capturing it or changing in any way. But just to allow it to flourish, which is what's happening. But how do you line that up with the initial argument of Bitcoin is great for you if you are in a state that is mismanaging its currency or has hyperinflation or is otherwise failing. And what I hear from a lot of Bitcoin proponents, maybe not you necessarily, that the American financial system is headed toward collapse, potentially America itself. In Bitcoin is a hedge against that. Yeah. I mean, I certainly believe that inflation is gonna be much higher in the next decade in the US than it is today. And there's plenty of macro variables that I could go into and talk about that to GDP and m one supply growth, which I think would be really tedious. For anyone to hear, but I do happen to believe that it is likely that people that hold dollars are gonna lose purchasing power at a faster rate than they've been losing purchasing power over the the last few decades. And we're we're likely to see the situation that is reminiscent of the seventies or the forties in terms of inflationary dynamics. I don't believe that the payment infrastructure or the dollar is gonna collapse. And I don't think that's even necessary for you to believe in bitcoin. You don't have that's not necessary belief to hold. You just have to want to opt in to a system that is different and more predictable in certain ways. But obviously, America is withdrawing from the world and the dollars power seems to be on the wane and maybe it's not gonna be the sole global reserve currency in ten years time. That seems likely enough to me. But I don't I'm not a calpsitarian, and I don't think that's that's necessarily part of the the bitcoin thesis. Again, I mean, I just keep coming back to the regular people I talked to are mostly interested in Bitcoin because of dollars. So even if the dollar experiences a more rapid Nilay, the value of Bitcoin for the average American consumer is still tied to that currency. Well, if that's still how we measure the value of Bitcoin. It's priced in dollars. Yeah. Sure. But you could price it in units of gold. I do that actually because it's a pure way to get a sense of Bitcoin's real purchasing power. Whereas if you're pricing Bitcoin in dollars, both the denominator and the numerator are changing. Right? The value of the dollar is changing and big 1995 So it's kind of this weird impure metric. It's hard to reason about. So, yeah, if you were up to me, we would all talk about the price of bitcoin and ounces of gold. Or, you know, something that's historically had a similar value throughout history like find men's suits or, you know, heads of cattle or something like that. We're We're going to take a break while I eagerly await someone to build a calculator that can tell me the value of Bitcoin in men's take a break while I eagerly await someone to build a calculator that can tell me the value of Bitcoin in men's suits. This episode of Dakota brought to you by Okta, the leading independent identity solution Octa provides best in class authorization to your customers and workforce can safely access what they need most episode of Dakota brought to you by Okta the leading independent identity solution. Okta provides best in class authorization so your customers and workforce can safely access what they need most right. When they need it from anywhere organizations around the when they need it from anywhere. 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So you can sleep more while spending less stop dreaming about better sleep and start experiencing it by visiting safa.com/fox that's S AA, T V a.com/v O X you can sleep more while spending less. Stop dreaming about better sleep and start experiencing it by visiting sapphire dot com slash fox. That's s double ATVA dot com slash V0X. We're back with decoder. Before the break, Nick and I eventually kind of landed on the idea that Bitcoin stole relies on the dollar. This again is one of the gripes that professor Hanke has. So it it feels like your your argument here kind of comes down to Bitcoin itself as a currency does not have any real value. It is being driven up in value by speculation. You could design a cryptocurrency that you would mostly transact in, there would be a more stable store value, but it would have to be backed by something like gold. So somewhere you would have to have a vault full of gold to give the cryptocurrency a real value that if everything fell apart, you could go back to that value. Yeah. Going back in in terms of history of these currencies, let's say the last two thousand years, which I've done and and gone through the dominant international currency that existed on all these periods of time. And until the US went off goal, there was always a safety factor involved. All these currencies, either they were gold or silver or they were convertible into gold or silver. So all all we're doing is is kind of going back before nineteen seventy three to a time when every international currency ever existing either was gold or silver or was convertible in the gold or silver? Well, let me ask you a very philosophical question. To come back to your point about you define a currency. How much is gold worth? It has a fundamental value because there's a goal lending It has a fundamental value because there's a gold lending market. So people get confused about that. They say, oh, gold. It doesn't pay any interest. Well, no. I I mean, it it does. If you go you go to the gold banks in London and you see what the interest rate is that that they're paying on gold loans. But they're paying that interest in in currency. They're not paying it gold. They are paying it in in currencies. It's settled in in in a cash payment. So I Hes my question is, all the way at the bottom of that is gold is valuable because we say it's valuable. And you can design a market that pays you interest against your gold in currency. Bitcoin is valuable because we say it's valuable and you can design a market that pays interest in Bitcoin itself, which feels superior and not to confuse the thing, which I might have done, there's a market value. The market value for gold is whatever gold is trading at today. The market value for bitcoin is whatever bitcoin is trading at today. The fundamental value, there are many ways to calculate this, but the simplest thing for people to get in their Hes, 1995 I said Bitcoin has a zero fundamental value, of course, I did that as a provocation, but I can back it up. And at the end of the line, to have a fundamental value, you Hanke to be able to generate some kind of revenue and money broadly defined does generate an interest rate and and so it has a fundamental value. Bitcoin doesn't generate an interest Reagans gold does have a market value. It has a fundamental value. And the fundamental value not only it pays interest, but it's also used in many commercial endeavors. So it's different in that sense. You're saying that gold fundamental value comes because it is also physical and can be used to do many other things other than be a currency. Right. So at the end of the day, the gold market collapses, you could sell it on the commodity market and still get some money back. Right. For a basic backstop fundamental value, but but gold has another value that is another way to define a fundamental value is the golden constant. And the golden constant, if we go back, we can go back even further than two thousand years with gold, an ounce of gold, you you could buy a constant basket of goods and services over time for millennia. It has a fundamental purchasing power, and that's the golden constant. That's over a long period of time. You can always buy the same defined basket of goods with an ounce of gold that you that you could a thousand years ago or two thousand years ago. I wanna unpack another provocative thing you said, which is there will be a Bitcoin death spiral. Walk me through that. What are the what what are steps one, two, and three that lead up to the spiral? And then what does the spiral itself look like? Well, as you probably have depicted underneath the critic of Bitcoin, I'm a very pro crypto private currency kind of person. Private competition. I I'm a I'm very haiyaki, and Friedreich von Hayek and Nobel laureate and and good family friend. Hyac was a proponent of competitive currency space, and he thought everyone should be free to use he wasn't thinking in terms of crypto does, by the way, obviously, may maybe private currencies. He was thinking of the realm where you did have private currencies and those private currencies can compete with themselves or with currencies issued by a sovereign. So I I think I I'm all for competitive currencies. I think the way to do it, given the technology that we have today, is gonna be digital crypto, if you And I hope that the space, currency space is opened up, eventually, for private currencies that are that are efficient that do provide a good store value, low transactions cost, stable, have good they're good units of account or become widely used, and they will be competitive with sovereigns. Now when that happens, Bitcoin will go as the dodo bird went. I don't know whether it will be very rapid It probably will be somewhat rapid as volatile as bitcoin is. But everyone will see all of a sudden, there's some alternative in the crypto space that's very superior to Bitcoin. And and then you will see even the speculators start walking away from this speculation. They they will realize the waywardness of their ways, and and they'll start dumping bitcoin in it. It will go into that desperately. It'll go down very fast. And I think it will approach its fundamental value because even those engaging in illegal activities that like to use Bitcoin will find that there are other alternatives that are more attractive and and more stable and more usable and safer. So I hear that there are currently multiple competitors to Bitcoin. There are some stable coins pegged to the dollar and other currencies. There's Ethereum, which is a very serious competitor Bitcoin, which allows all kinds of other things to happen on this network. Why haven't those existing competitors to Bitcoin? Started the cycle, the death spiral you're talking about? Well, I I mean, everyone is marching to the the crypto drum, including a lot of speculators and entrepreneurs forward looking people, and they sense that this is a space that will be attractive to be in. And as with any innovation, you learn by doing it. Every new thing that comes along, that an entrepreneur comes up with with a startup, all of the startups don't every new thing that comes along, that an entrepreneur comes up with with a startup, all of the startups don't don't succeed. Some Some make it, a lot of most of them fail, by the way. And the ones that make it, they're they're generation one, there's generation two. And as you look at this, it's a little bit like I I was reading an interesting piece on GPS. Where did we get GPS from? Well, that actually was doppler, an Austrian physicist eighteen forty two Cato up with this. So it took a while to the thing that an application to to click that Hanke, you know, the thing really really took off. That that's Hes. This is not going to have that kind of time horizon by the way. Yeah. This is gonna happen much more rapidly. And I think the big thing that will slow it down is a sovereign. The sovereign is a jealous god. And if the and if the sovereign is producing something that is very profitable for the sovereign and gives them prestige and all the rest of it, namely a national currency, they will be resistant to the challenger. That will be really the the thing that slows this process done Nilay will be the regulatory constraints that are put on it. That that's my view. But there will be a superior crypto. We're in the early stages of this crypto world, digital world, but that that's where we're going. I I'm on I'm on that train. I think I've got my head around both Nick and Professor Hanke perspectives on where Bitcoin is now. But to wrap this whole thing up, I had to add them both about the future of Bitcoin. Where does Nick Carter think this transcended? It's hard to say what we've seen historically from Bitcoin were in the fifth cycle, I would say. You have these bubbly appreciations, you know, these melts up, and then drawdowns and people get depressed and then there's a winter and no one cares about it for while and then the whole cycle happens again. So that's actually happened I would say about five times. We're in the fifth one right now. So I expect the same thing happens again. Human psychology is never changes. You know, people want to plow into it when it is a sexy glamorous asset and when they have extremely optimistic expectations. So feature growth, and that tends to happen all at once. And then people also get disillusioned all at once and desert it all at the same time. So it seems likely to me that we're gonna have the same cyclical nature to it, but then we continue to find higher lows after each cycle. So You have bubble on a collapse. It's a higher low and bubble on collapse and a higher low. To me, that's the secular process of monetization Bitcoin into this sort of asset that is actually globally useful, which we're not really there yet. But at a trillion dollars, we're kind of breaking into that operational on, I would say. We're sort of almost there on the cusp. I don't know where it's going price wise, but I think in five years time, Bitcoin's gonna be fully integrated into a lot of payments networks. That's clear. You're gonna be able to hold it with your Hanke. Most likely, you're gonna be able to buy spot Bitcoin on any brokerage, whether it's a crypto brokerage or sort of legacy brokerage. We're gonna have much better tools to transact with it, so you don't have to use addresses, you don't have to copy paste addresses. That's gonna seem really antiquated. And we're gonna have much more sophisticated layers such that you can transact on Bitcoin with deferred settlement and you can have different trade offs in terms of transactional types on Bitcoin. So I think it's just gonna continue its process of integration with the financial system becoming easier and more convenient to use, becoming understood as this global macro asset and it's something that will be normal for pension funds and endowments and mutual funds and other institutional allocators to own So it'll just continue its process of financial normalization. And one day, it's gonna be a boring old asset alongside everything else, and it won't be exciting cool or glamorous thing anymore. And that's when we'll know that we made it. When Bitcoiners don't get asked to talk on podcasts anymore because it's not notable to be a corner because it'll just be anything else like buying an index of equity, you know, buying the S and P five hundred something. something like that. Of course, I had asked Steve Hanke the same question about future. I think there is going to be more positive innovation in the cryptospace. And that is a structural, incremental change it will be taking place and that's why I will predict with, I think, great assurance that eventually we will see Bitcoin ending up exactly where the dodo bird is. Well, this has been a wild ride. I did not think of a Bitcoin optimist would have gotten to Bitcoin exports American values. And I really did not think that Bitcoin's skeptic would essentially pitch a different version of Bitcoin more supported by governments. Like I said, my biggest question about Bitcoin is whether people like Bitcoin or whether they like dollars. After these two conversations, I think the answer is people just like money. And whether Bitcoin can become actual money is still an open question. Hanke again to Nick Carter and Professor Steve Hanke for taking the time to talk today. Thank you for tuning in. I hope you enjoyed it. As always, I'd love to hear what you think of the show. You can email us at decoderdiverge dot com or hit me up directly. I'm at reckless on Twitter. If you like decoder, please share it with your friends and subscribe wherever you get your pod Hes. DeCoder is a production of the verge and part of the Voxmedia podcast network. Today's episode was produced by Sophie Ericsson, Reagans Desa known Andrew Marino with help from Aria Brocci. Our music is my brake master cylinder. We'll see you next week.