Bankless - 140 - The Future is Fiat | Noah Smith (Noahpinion)

Starting point is 00:00:07 Welcome to bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Guys, an episode title, you probably wouldn't think to see on bankless. The future is Fiat. What? Wait, what are we talking about today? Today, David and I talk to writer economist Noah Smith.

Starting point is 00:00:32 He's a contrarian. He is what I would call a knowledgeable outsider, which is fairly. rare in crypto conversations. He's bullish on some crypto claims, but he's also willing to call BS on many other claims. That's why this was such an interesting conversation. We have two sections in this episode. The first is all about geopolitics. Noah thinks we're already at war. We go into that question of who we're at war with and why. Why Noah thinks the world is dividing between the new allies, which is the U.S. and EU, and the new Axis, which is Russia and China. And in the economic Showdown, we talk about who would win. Is it China or is it the U.S.? Are they equally matched? Is one power

Starting point is 00:01:11 greater than the other at this point in time? And does it have to actually come to blows? That's a question we asked Noah in this episode. In the second part, we talk all about Noah's thoughts on crypto. What is his bull case for crypto? War? Question mark? We get into that discussion. We also talk about what a global conflict would look like. Now that crypto enables capital flight, That is a big theme of this episode, The Flight of Capital, and which kinds of powers are more impacted by this capital flight? Finally, we get into Noah's big critique of the crypto industry, the misconceptions, he thinks that we believe, and why he says the future is Fiat. All in all, David, this was a really fun episode to do. And yeah, what were some of your thoughts going into this? No, it is such a clear-headed, articulate, fun to talk to guy. I just had a fantastic time being on the other

Starting point is 00:02:02 side of the microphone, he's a treat to listen to. And he delivers his thoughts in like pretty punchy and entertaining ways. So from a content perspective, thoroughly I enjoyed this whole entire thing. And he's got such a broad scope of what he is informed on. He seems to be like one part historian because he was rattling off some like deep history. In fact, that's how we start off this episode. And just to compare and like learn about and position ourselves in history in terms of global macro powers, but also to also understand the crypto industry a little bit better, just a polymath through and through, and very articulate one if that. Yeah, I absolutely agree. It was a lot of fun.

Starting point is 00:02:39 And there were lots of points in the conversation where Noah talks about we. And I think that we he kept referring to is representative of the United States. I really feel like, though, we didn't get to talk too much about the United States and its future, Noah really views himself as kind of a maybe an advocate for the United States. as a nation. And that was interesting to me as well. So if you're in another part of the world that doesn't really identify with the we of U.S. citizen that Noah's talking to, that's the vantage point that he's coming from. So you can definitely see that in the episode. Premium subscribers, of course, stick around after the show for the debrief where David and I talk about our

Starting point is 00:03:17 thoughts after the show. This is almost more fun than the podcast sometimes it is because we get to give our raw and filtered thoughts to the bankless nation. If you're a premium subscriber, there's a link in the show notes where you can access. that and if you're not one, become one today. Arbitrum 1 is pioneering the world of secure Ethereum scalability and is continuing to accelerate the Web 3 landscape. Hundreds of projects have already deployed on Arbitrum 1 producing flourishing defy and NFT ecosystems. With a recent addition of Arbitrum Nova, gaming and social daps like Reddit are also now calling Arbitrum home. Both Arbitrum 1 and Nova leverage the security and decentralization of Ethereum and provide

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Starting point is 00:06:06 If you want to learn more, there's a link in the show notes to see how you can get involved with a fuel network. Bankless Nation, we are super excited to host this conversation with Noah Smith. He was described to me as a millennials economist, and I think that's a pretty good description. He's pretty rational, he's open-minded. He's also a future forward. but I also think that description is just the start because Noah does more, I feel like, than

Starting point is 00:06:27 economist activity. He's kind of a polymath. He's an excellent writer. I have absorbed a ton of his content on his substack. It's one of my favorites. It's always something prescient he's posting. And I think he's also described himself as, quote, somewhat favorable to the optimistic view of crypto. But he's also measured on his view of crypto. So it's good to bring you on a crypto podcast. How are you doing today. Hey, I'm doing all right. It's a good day. It is a good day. September 26 is when we're recording this 2022 for posterity. So in case the day you're listening to this is not a good day. Do you know what today is? It's a very important day in history. What, tell me. It is the best holiday Stanislav Petrov Day. Okay. You don't have to fill us in. On this day in 1983,

Starting point is 00:07:13 Russian warning systems accidentally detected what they thought was an American nuclear life. Oh, I know the story. And I know the story. You know the rapid response people wanted to to launch World War III. And one guy Stanislav Petrov said, no, no, guys, I think it's a glitch. And because of this guy, the human race was saved. Because at that time, we had approximately like 10 times as many nukes as we do now. It was birds, right? It was like seagulls or birds or something that the radar was picking up, right? Oh, yeah, yeah, yeah, something. Yeah. Yeah. Where is the statue of this guy? Where is the statue of him? Well, it's, I mean, it's Russia. So they didn't really want to do, you know, Russia has become this very atavistic

Starting point is 00:07:50 place. They're really degenerating from an advanced society. They almost got there, you know, and then they're degenerating into this sort of barbarian hell right now, and it's not a good look. And of course, they're not going to have a statue of a guy who doesn't launch nukes. What would you accredit the decline of Russia towards corruption, authoritarianism? The resource curse. It's when you have an economy based on oil, and therefore, like, whether you get rich or powerful depends entirely on your control of this resource, then that does not lend itself to, you know, the kind of broad-based society. So when you look at the beginning of the Soviet Union before they really became an oil superpower at all, you know, it was all about manufacturing, right? It was the Russian industrial

Starting point is 00:08:31 revolution. And of course, they did it in a stupid and inefficient way, but they still did it, right? They still, the Soviet Union ramped up manufacturing a ton and it was mostly for the military. And it wasn't that efficient, but they could make, they learned to make a bunch of stuff. And then, you know, starting in the 70s under Brezhnev, they really started when oil became incredibly expensive and Russia developed its oil resources. Russia shifted from being this sort of inefficient yet powerful manufacturing empire to an empire of oil. And then when you look at countries that do this, most of them turn out badly. I know Norway turned out well, but like most countries that go down this road have very dysfunctional politics. And so Russia's technological capabilities degraded.

Starting point is 00:09:11 They essentially, according to Camille Galeev, who's the best guy to follow on this, they stopped respecting nerds. You know, like being a good engineer no longer became a good thing in society. If you needed someone to dig the oil up out of the ground, you could just pay Halliburton or whoever to come over and do it for you. And all you did was control the land. And, you know, that doesn't really lend itself to an intellectual society. And so that's what really happened. They forgot their nerds. They degenerated into barbarians because that's all the.

Starting point is 00:09:41 All that barbarians are just extractive people, right? People who just live via extraction of resources instead of creation of resources. This sounds like I know a blog post. Maybe you haven't written this yet. But like what happens to a society that doesn't respect nerds? Is basically Russia's kind of the case study that. Right. You know, we're obviously going to talk nerds because, you know, one of the nerds that we hold

Starting point is 00:10:02 in highest esteem. And I hope he doesn't mind being characterized as a nerd is Vitalik Boutrin. So I know you know him. You've interviewed him recently. We'll talk about him in a second. but while we're on kind of the Russia theme for a minute, my part of our purpose in this episode, I think, Noah, is to like get a download of your brain,

Starting point is 00:10:18 like how you think some of your mental models for the world and match that against kind of our mental models for crypto and some of our intuitions and see where they match and see where they kind of clash. And I think in order to do that, we need to understand a bit about your mental model of the world right now from a macro geopolitical perspective. There was a post you wrote recently called The War Economy.

Starting point is 00:10:43 And I think this was first in a series of posts. And you differentiated the war economy as being sort of a new era that we've entered into. Like as in, I think, present tense, we are in the war economy. And this is very different from the neoliberal economy of like the 1990s and maybe early 2000s. Can we talk about that for a minute? Let's camp on this idea of the war economy. some idea of the gigantic economic reorganization that's happening. But like the first question in that word war is a question maybe to you. Are we at war right now, Noah? Like if you're saying we're in a

Starting point is 00:11:18 war economy right now, what is that? And are we actually at war? Well, so formally we're, you know, involved in some random small military conflicts like, you know, in a policing role, but it's not really a war. The big war is in Ukraine and we are giving weapons to Ukraine with the lend lease program. We are not directly involved in that war, but we're helping Ukraine via giving them stuff, basically. And that's similar to the way we helped Britain in the beginning of World War II. You know, before we got involved, for a while, Britain was just holding out defending itself against Nazi attacks, and we supported them with Lendlies. We sent them tanks and planes and guns and whatever else they needed. And so that effort ramped up our defense production. At one point,

Starting point is 00:12:02 we were actually draining some of our own military resources just to send lots of stuff to Britain. And it's very analogous to, I mean, you know, it's called the Lendley's program again. It's the same kind of thing, except now it's Ukraine instead of Britain. And if you want to read a book about this, I recommend Freedom's Forge. It's about how private industrialists essentially took over and saved the American War effort. And it couldn't have happened without them, especially Bill Nudson. he's the sort of the guy who built Chevrolet, even greater auto manufacturing guy than Henry Ford. And then when Roosevelt called him up and said, would you like to be on this council of war production, he just said yes.

Starting point is 00:12:43 You know, because he was an immigrant. He was a Danish immigrant. And he said, this country has given so much to me. Now I have to give back. So he boarded a train, quit his high paying incredibly prestigious job and just went to Washington to join this war planning council. And so that's a really interesting story of how we did this. But for the beginning of it, we weren't fighting any war. We were just supporting Britain. So you're seeing almost to the beginnings of kind of, would you call it an economic war? And like, what do you expect? I guess two questions.

Starting point is 00:13:12 Do you expect this to turn into a hotter war? Or is this more like a Cold War type scenario that we've seen in decades past? And then like from a war perspective, is this about sort of the U.S., maybe NATO and Russia? or are there other powers at play? I think you have this concept of like the new access and the new allies, like borrowing from like World War II terminology. Talk about this for us. Right.

Starting point is 00:13:37 Okay. So will this be a hot war or cold war? I certainly hope it does not turn into a hot war. You know, we have nuclear weapons. We have less than we did before, but we still have enough to blow up us in Russia pretty effectively. We both have about 1,600 nuclear weapons deployed. That will roast both countries.

Starting point is 00:13:53 It might not destroy the human race. It's enough to roast our countries. And I'll die. There'll be a nuke dropped on my head. I live at the center of San Francisco. Anyway, if the Russians can aim, I'm not sure they can aim, but I'll die. So, anyway, I really hope it does not turn hot. So I think it'll be a cold war.

Starting point is 00:14:14 But you'll notice that the Cold War had plenty of actual wars embedded within it. It just didn't have the big one, right? They called it cold because we never launched the nukes. But we had millions die in Korea, millions die in Vietnam, millions die in Afghanistan, and millions die in a whole bunch of proxy wars that the superpowers were not involved in directly at all. You know, proxy wars, genocides, some of which we supported, some of which we opposed. But then, you know, Cambodia, Indonesia, Ethiopia, all these genocides.

Starting point is 00:14:44 So the Cold War killed tens of millions of people. we just thought that's a good, good outcome compared to nuclear holocaust and Armageddon, which is even worse. And so I hope and expect that, you know, people still love their children and don't want to see their countries become ashes and that we will not directly go to war with Russia or China and will not launch the nukes. I really hope and expect that that will happen. But a Cold War struggle, you know, is still like a war. You know, we still have to produce a lot of stuff. We had major defense production and spending during the Cold War. So that's a real conflict.

Starting point is 00:15:25 And, of course, it could turn hot. And we have to prepare for that, even if it doesn't happen, hopefully it doesn't happen. And so in terms of the new axis, there's really two reasons I coined that term. First of all, they're not calling it an axis. The original access terminology was mostly just a term, you know, we used. It was a term Mussolini made up. He said, this is the axis upon which the world will turn. We're like, oh, those guys are called the axis.

Starting point is 00:15:47 But actually it was just a series of loose sort of pacts between these countries to just. And this was Japan, Italy, Germany, World War II. Right. And, you know, there were a few other smaller ones that we don't remember, like Finland, who joined because they were just, you know, once the Soviet Union stopped being Germany's partner and started being Germany's enemy when Germany stabbed them in the back, Finland is like, okay, we'll join the Nazis because the Soviets are the biggest threat to us. But we forgive them.

Starting point is 00:16:11 We forget about that. You know, but yeah. So there was a, I don't know, Bulgaria or something. somewhere. But anyway, it was a loose partnership. The Nazis and the Japanese Empire did not like each other. They did not care about each other. They didn't coordinate at all. They would have, if they had won the war, they would have immediately had a Cold War with each other and started fighting, right? It was a loose partnership. They didn't really give each other anything. So we in the Soviet Union were actually pretty close allies. We supplied the Soviet Union with all. So I talked

Starting point is 00:16:42 about Lenlees. We did this for Britain. We also did this for Stalin. You know, we were the industrial powerhouse, we gave Stalin all this stuff. And Stalin said that without our material support, he would have lost the war. And that would have been very, very bad. And, you know, as bad as Stalin was, he was the second worst guy in Europe at the time. And had we not, you know, given him all, like, you know, the Soviet Union, we did, had some manufacturing, you know, but not enough. And so we just gave them tons of material to resist the Germans. And it worked. They supplied the manpower. We supplied the material. And that worked. You know, So we're doing a similar thing for Ukraine that we did for Stalin that time.

Starting point is 00:17:21 And since, you know, some of the fighting was on Ukrainian territory and, you know, this is sort of like we're supporting Ukraine again. Ukraine always gets invaded because it's right in the sort of the highway between Europe and Asia. But this term new axis, who is the new axis? So we know who the old axis is. China and Russia. China and Russia. China and Russia.

Starting point is 00:17:39 Yeah. But how aligned are they with each other really? because they don't really, I don't really pair them in my brain. Like, how much of a partnership is there really there? Oh, well, the point is that the original access wasn't as closely allied as people think. And that was what I was trying to describe. So the answer is it is a partnership of convenience. It is not a partnership of values, much as their values might coincide.

Starting point is 00:18:03 You know, like totalitarianism isn't like this thing where totalitarian say, hey, you're a totalitarian too. Friend. It's not like that. Right. Right. It's like, oh, we want to rule the world. You want to rule the world? It's like this inherent distrust between these powers, right? And Hitler and Stalin briefly allied and then Hitler stab Stalin in the back, very predictable kind of, you know, betrayal because evil turns in on itself. That's a quote from the Dragonlance Chronicles, which is an old fantasy series that everyone has forgotten. Is this kind of like my enemies, enemies, my friend, sort of alliance that you're talking about in the new accent?

Starting point is 00:18:38 Yeah, exactly. That's exactly right. And so for China, what they want from Russia is basically distract Europe, distract America if possible, so we can have a freer hand in our backyard to increase our power within Asia, which is what they really care about. Right. They're hoping Russia will just basically like distract these people. They're like, okay, Europe, America, you go fight the Russians while we do our thing. And that's what they're hoping. Also, you know, of course, pragmatically speaking, they want oil from Russia and they're

Starting point is 00:19:08 getting oil at a deep discount from Russia. You know, Russia can't really easily sell oil to Europe or wherever anymore. So they're selling to China and India, who is their old Cold War ally. And they're selling oil to China, India, but they have to really discount it very steeply because now those buyers have some monopsony power and are able to exert leverage and say, hey, how about a discount? And they're getting a big discount, like 30% or more. And just to make sure that my thinking is correct, Russia is like, that's a big nuisance, like invading neighbors. and, you know, committing atrocities. And it's just annoying.

Starting point is 00:19:44 But China, it's so annoying. But China is like the bigger threat, right? The actual one with like organization and economic strength. Is this right? Like Russia's being the one doing the violence, but it's China that's the much bigger cloud on the horizon, correct? Well, yes and no. I mean, so Russia has more nukes.

Starting point is 00:20:02 Russia could roast us more easily than China could. And that is a bigger threat. But in terms of actually winning a Cold War with us, there's no way Russia could contend with us in a Cold War. You know, they contended with us in the 20th century. There's no way they could do that in the 21st. Right. They are a small, shrunken version of the Soviet Union, you know, and they're a shadow of their former self. There's no way that they could contend with us in a Cold War on their own.

Starting point is 00:20:30 But China is a completely different animal. China's strength is economic. So people don't understand the magnitude of this. They need to understand the magnitude. China, by value added, China manufactures as much as the United States and all of Europe combined. That's how important China has become to manufacturing, is it become the center of supply chains for everything that gets traded and produced across borders. It is the indispensable country for a lot of companies. It is the world's greatest manufacturing power.

Starting point is 00:21:01 And remember, the reason we won World War II was not because, you know, we love freedom and liberty and justice and our men. or Heman, you know, awesome fighters and Patton, you know, yelled a lot. That's not why it happened. It was because we outmanufactured the enemy, plain and simple. And so China could do that to us today, the way we did it to Germany and Japan in World War II. Certainly, certainly. And so that's, for the first time in the history of industrialization, the core of global manufacturing is not in Europe or America or allies of America. Okay, so just tracking to where we are and how you view the world, like Noah's lens on the world, right?

Starting point is 00:21:43 So we are in a war economy right now. This is not a kinetic war between superpowers yet. We hope it never turns into that. It's more like a cold war that we're already in. And there are kind of two, I guess, sides of the chessboard. There's the new allies, which are sort of the U.S. and Europe and associated allies. And there's the new access, which is primarily... Japan, Korea, Taiwan. Yeah, okay. And hopefully India will join, but they're still the swing power. They're kind of an unknown. And so the new axis would be Russia and China. And you put together this post that I thought was really interesting with some actual graphics and data points

Starting point is 00:22:20 where you sort of sized up the two economies and you're kind of like Battle of the Titans who would actually win. And by the way, bankless listeners, this is the sort of thing that Noah publishes on his blog, which I think is super valuable. And you sort of size up the economy. And a few metrics you look at, one is kind of population of the new allies and the new axis, another is GDP, and another is manufacturing. And as I was scanning through this post, it seems like, you know, the new axis is superior in terms of population, at least right now. We could talk about demographics in the future, but they beat the new allies, except if you add India in the mix, and they're kind of the, I guess, the dark horse in this. From a GDP perspective, the new allies are. still ahead versus the new axis by a good bit, it seems like. But from a manufacturing perspective,

Starting point is 00:23:11 it looks like the new axis is pretty close. It's kind of like neck and neck, certainly within striking distance. And like if you look at China, which is this blue bar right here going up, it looks like it's almost double the size of the U.S. from a manufacturing perspective. You need all of the U.S. plus Europe combined to equal China in terms of manufacturing prowess. So kind of set this up for us. Is this what the landscape looks like? If you were to kind of compare new allies versus new access, like which is ahead in terms of winning some kind of war, not a kinetic war, but maybe an economic war, whatever thing that we're in right now. War of power. I would say that they're approximately equal, right? They're equally matched. This graph is the one that I would look at. You know, there's a few other countries I could have added on the new allies side like, you know, Korea is important. Australia and Canada are like, I guess, non-nobes. negligible. But it's comparable. You know, in World War II, we just overmatch Germany and Japan, like America by themselves could just outmanufacture Nazi Germany and Imperial Japan together,

Starting point is 00:24:13 you know, several times over. That is not true anymore. And during the Cold War, we could outmanufacture the Soviet Union. You know, they were a lot better than modern Russia, but they weren't as good as us. We and our allies in Europe and Japan could just completely overmatch them in terms of manufacturing capacity. For the first time, a power has, has risen, that can match us and our allies in terms of manufacturing capacity. I would say that the small differences on that graph are as much an artifact of measurement as they are representing a real advantage for us. I would say that overall, it's approximately equal. Now, we manufacture different things. So we saw during the pandemic, America had a huge difficulty manufacturing

Starting point is 00:24:56 masks and other, you know, sort of very basic kind of physical goods that we needed for. for the pandemic, we couldn't ramp up because we were just so used to ordering this stuff from overseas. And this has triggered a big realization that we need supply chain resilience in order to harden ourselves for this war economy. And so that's a big part of the war economy is just supply chain resilience. And of course, it's not even worth writing a big post about that because the Biden administration is already all over it. It's one of their big things that they're doing sort of in the background. But notice that when it came time to make vaccines, everyone was predicting that we'd have this big trouble manufacturing

Starting point is 00:25:32 MRNA vaccines and large quantities, especially, the lipid nanoparticles in which the MRNA vaccines are delivered. And so we had no trouble, actually. Our biotech companies rose to the occasion in a very World War II-like effort. You know, we called up, like, we figured out what the supply chain was. We called them all up. They massively expanded production. The government funded a big expansion of production, you know,

Starting point is 00:25:56 with guaranteed contracts and things like that. And then these biotech companies just made it. at all. And we produced massive amounts of vaccine. China still can't produce any of that. They've been working on this for years. They don't even have the capacity, much less the capacity ready at hand. So China utterly failed in this test of advanced high-level manufacturing. And this really illustrates the way that global supply chains have changed over the last 30 years. Over the last 30 years, especially the last 20 years. Over the last 20 years, what has happened is that all the simple stuff, the stuff that we made 100 years ago and that,

Starting point is 00:26:30 formed the backbone of American industry during our industrialization period, that stuff has been farmed out to China. Instead of farmed out to domestic robots, which was the other alternative, it was farmed out to China. And so China has that, all that stuff. And we retained the very high value stuff. The stuff you can sell for a lot of money in peacetime, right? We took the ends of the supply chain. So, you know, when you would get an iPhone, it would say like designed in Cooper Tino manufactured in China. Right. And that's really typical. So we would design that. stuff. Other people would slap it together. We would make some of the high value components, and China has striven to make more of the high value components domestically. So we make the hard

Starting point is 00:27:13 stuff that requires like innovation and a lot of like nerds who are, you know, disproportionately immigrant nerds, you know, working in a lab somewhere, figuring out how to make like this really awesome screen or this really high performance chip or, you know, blah, blah, blah, this really software, you know, that works really well. And then China has like what we used to have, which is just armies of guys. And by guys, I mean usually women, in, you know, these gigantic, incredibly efficient factories with machine tools. You know, it's not just like manual labor anymore. They have like a lot of machine tools in some factories even automated.

Starting point is 00:27:48 They have robots. But China is doing the volume. And if we were to go to war, it would be a contest of quality versus quantity. And they'd have the quantity on their side. And I'm not confident we could beat that. One interesting thing I noticed in the charts that we were showing on screen is that it took many nations to get above China in terms of manufacturing output. I think what you were saying before that is like during World War II, America was like the big Chad in the room in terms of manufacturing. We were like a gigatad.

Starting point is 00:28:19 A unipolar power that we were just dominant. Like we directed the world because we had all of that power. That's right. And now it seems to be a little bit flipped in that China has all of the manufacturing power. It takes a coalition of countries to be able to match China, although we do beat China in some when you stack all of them together. But what you're saying is that that manufacturing of what China is uniquely capable at, like the qualitative side of what China is capable of manufacturing is something to consider

Starting point is 00:28:50 and what they are good at gives them an advantage in times of tension and conflict. Is that an apt summary? It gives them one advantage. You know, like I said, we just have different capabilities. Supply chains mean specialization. In the old days, we didn't have as much supply chain because it was not as easy to just ship little components around the world and manage everything via the Internet. That has changed since the time of World War II in a big way. So back then, it was like Germany makes cars.

Starting point is 00:29:17 We make cars. I guess that's still true of cars because they're heavy and hard to ship. But then it was like, Germany makes chemicals. We make chemicals. Germany makes, you know, like, I don't know, electronics. We make electronics. And so that was sort of how it was then. Now we are integrated into supply chains.

Starting point is 00:29:32 We're interdependent economically in a way that we weren't then. We still had a lot of trade then, but it was like, you know, metals and commodities and stuff like that that was getting traded. It wasn't this, you know, the supply chaining of stuff, right? You look at where your computer gets made. It gets made all over the place. And so that just wasn't the way it was back then. And so now that we have these supply chains, we have to think about a little different than just numbers. You know, yes, the numbers are important.

Starting point is 00:29:57 but we also have to think about what's in those numbers. You know, what do we have a chokehold over? And so one of the most important things that we have a choke hold over, and of course China knows us and is trying to correct it, but it's difficult, is computer chips. So almost all the computer chips in the world are made by the United States and its allies. And computer chips are, they go into everything. You're including Taiwan in this. I'm including Taiwan. Okay. Because we'll get to Taiwan in a second. Although Taiwan is a surprisingly small amount. You know, people talk about how TSM makes all the stuff. TSM makes some great high-end stuff. TSM makes some great high-end stuff. In terms of market share, in terms of value added, Taiwan's actually reasonably small.

Starting point is 00:30:32 They're just strategically important for chips because they have some very advanced stuff with this one company, TSM. But essentially, the United States, Taiwan, South Korea, Japan, Europe, together produce most of the semiconductor industry in the world. And China's racing to catch up, but they won't be there for a while. And without semiconductors, without chips, it's very hard to make a modern military. So that's a bottleneck that we have. China has the bottleneck on processing of minerals. So, you know, if you dig up lithium, right, out of the ground and you want to process it somewhere, China does most of that, right? And lithium is important for batteries and batteries are what going drones, and drones are, you know, small drones.

Starting point is 00:31:16 And small drones are getting more and more important to war. You know, that's just strategic rare earth minerals everybody talks about. Then there's stuff like, you know, cobalt and copper and nickel and. and all these things like that, China processes a lot of the stuff. And that's a very low-end primary industry. If you were trying to think of where you could make a bunch of money today, would you think about nickel processing? Not in the U.S., not at all.

Starting point is 00:31:39 I mean, it's such a commodity. Right. A hundred years ago, you absolutely would. Can I ask a high-level question? Maybe no, this is a really dumb question. But let me ask the dumb question that might be on other listeners' minds, which is like, why does all of any of this matter? manufacturing output, GDP, population, labor.

Starting point is 00:31:56 Why does it matter in the nuclear era post-1945 when every country on the planet, every major superpower, has effectively mutually assured destruction anyway? Doesn't that just completely level the playing field? Like, if you got into an all-out total war scenario and the nukes start flying, no one wins. That's right. Everybody loses. And isn't this a totally different world?

Starting point is 00:32:21 If we're matching, like, you know, who would win in a contest of the wills, you know, kinetic power manufacturing? We're not producing tanks anymore. Like, the nuclear arsenal of one country can completely level another, and that can happen simultaneously. So, like, does any of this even matter anymore? So how's Russia doing right now with that idea? Can you elaborate? So Russia has actually slightly more than us, the most deployed nukes in the world, 1600 nukes deployed. Is that allowing them to conquer the world?

Starting point is 00:32:50 It's not. Because they are fighting a. like kind of, I guess, a proxy war maybe against the West. Yeah, right. It's proxy for us. It's not proxy for them. They're mobilizing their whole country. They're emptying out their population, waiting for Snowden to fight. You know, I'm excited about that. So tell me about this. How does this work? If you're actually like a head-on conflict between the new allies and the new access, like World War II style type of thing, right? Right. Don't nukes just like equalize the playing field? And maybe don't take nukes. To some degree. Yeah, to some degree. It's like, does that change the calculus at all? Yes. It changed.

Starting point is 00:33:21 changes the calculus somewhat, sure. Nuclear deterrent is very important deterrent to total war. So the thing is that if all you have is nukes and you don't have the rest of the military machine and the industrial manufacturing might, whatever, to back it up, if all you have as nukes, then you can either kill yourself to destroy the world or do nothing and surrender. Right. You have a binary choice. Kill yourself, you can either be a suicide bomber or you can just roll over.

Starting point is 00:33:49 Because that's what it is. if you launch nukes, there's mutually assured destruction. Remember, if one country launches a nukes in another country, it's getting nuked in return because we have second strike capabilities, nuclear submarines, and such. And so if you nuke, you get nuked and then you die. So essentially, launching the nuclear war as being a suicide bomber as a nation. Would you do that? So your point is that no nation is effectively willing to do that, except as a last resort. Maybe. Well, we don't know, and we don't know. And I hope we don't find out. Same.

Starting point is 00:34:21 But certainly the Soviet Union cared enough about conventional military forces to build up a massive conventional army, even though it had 10 times as many nukes as modern Russia, enough to roast not just America, but the whole planet. You know, they had 20,000 nukes, 30,000 nukes. I'm sorry, 30,000 nukes. We had about 2025. And so that's just insane. You know, you just turn the country into a parking lot. You turn the world into like a nuclear hellhole wasteland. And that's what a lot of the science fiction of the 60s and 70s was about.

Starting point is 00:34:55 But in the 80s, it reached a real peak. You know, that's when our nuclear arsenals peaked. If you just do a Google image search for nuclear arsenals, you will see how much things have actually come down and how crazy it was in the 80s. But they nevertheless built up a giant conventional army. We built up a giant conventional army. Conventional deterrence was still important. And so as it will be today.

Starting point is 00:35:16 Can I ask you another point on this? And by the way, maybe that's why. round-tripping to you a happy Petrov Day to you. That was 1983, as you said earlier. What a thing that was avoided at that point in time. Absolute worldwide destruction. But like there's another kind of event that has been talked about before. And Ray Dalio, I don't know if you read any Dalio, but like changing world order, his sort of thing. He thinks that China and the U.S., the new access, new allies, as you've turned them, could come to blows over Taiwan effectively. Like that could be the thing. What's your take on that?

Starting point is 00:35:46 Do you think Taiwan is the thing? How likely are China and the U.S. to, come to blows over the Taiwan issue? Relatively likely. Joe Biden has now said four times, unequivocally, that if Taiwan is attacked, we'll defend it. Each time the White House said, our position has not changed. That means that was always what we were going to do. And so we were always going to defend Taiwan if it's attacked, and that remains true now. Yes, it is highly likely. China's leaders definitely want to retake Taiwan. China's population probably wants to retake Taiwan as well. So do you think that there's a potential future where what we're seeing with Ukraine as the proxy war between the United States and Russia, Taiwan becomes the proxy war between the United States and China? And if we want to compare these two things, how much more or less involved might we be in Taiwan? Well, first of all, neither of those is proxy at all. The current war with Russia is not a proxy war. I mean, you can say that Ukraine. For us, for the United States. Ukraine is a proxy for us, but certainly for Russia, they're mobilizing their whole society. That's not a proxy conflict. And if the United States fought China directly, that would be a proxy war on neither side. That is just called a war on neither side. The fact that we're fighting over some smaller country, that's typical. Like of wars. You know, that's typical. That's just called like, you know, Athens and Sparta fighting over Corinth or something. It's like, that's what we're. It's

Starting point is 00:37:03 why countries fight. Why do we want to protect Taiwan so much? Well, a couple of reasons. The reason everyone talks about, there's a couple of reasons why everyone talks about. There's Taiwan's a democracy. We love democracies. We want to protect them. And also they make a bunch of computer ships. Neither of those are the real reason. The real reason is two other things. The first reason is because if China conquers Taiwan, that completely compromises the security of Japan, who is our major ally in the region, and that basically puts Japan at the mercy of China, and Japan basically becomes a Chinese vassal. Maybe not colony, but yeah, vassal, right?

Starting point is 00:37:44 Japan becomes a Chinese vassal at that point. At that point, you know, the United States is out of East Asia, but that's not even the most important thing. The most important thing is China rules East Asia and the, you know, Japanese and Taiwanese, and of course South Korean as well, center of technology, then falls, you know, China can then extract whatever technologies they want from those then vassal countries. And those countries don't want to become Chinese vassals because, you know, China also has a very dim view of Japan, but also of South Korea and, of course, of Taiwan. And so that's the first reason is because China then conquers

Starting point is 00:38:17 all of Asia and becomes the undisputed sort of lord of manufacturing, you know, including high-end stuff that our allies currently have. T. Greer, Tanner Greer wrote this, although he goes by Tigrier wrote this really good blog post called Losing Taiwan means losing Japan. He's right about that. And that's why Japan also, despite, you know, like Japanese people being famously pacifist, Japan has also pledged to defend Taiwan in a war.

Starting point is 00:38:45 That is one reason we would fight China. But that is not even the most important reason we would fight China over Taiwan. The most important reason has to do with game theory. All right? It's time for some game theory. If China launches an attack on Taiwan, while American bases are still active, America could very easily spoil it just by attacking because our bases are intact. We just send our forces in and sink their fleet or whatever, right?

Starting point is 00:39:09 In order to carry out a successful attack on Taiwan, especially a successful invasion of Taiwan, China must destroy the American bases in the region, including Okinawa, Guam, and some other bases as well. And so they have to take those bases out first for their invasion or, you know, or major attack to have a chance of success. To have a, not a chance of success, to be not exposed to American counterattack. So if they don't want to be left at America's mercy, they must preemptively strike us and basically Pearl Harbor us. Right. And if they do that, we will fight. You do not get to launch an unprovoked, you know, attack, slaughter thousands of American servicemen.

Starting point is 00:39:52 you know, and destroy American bases, you don't get to do that without starting a war, okay? That's a war. If you say, oh, we wouldn't go to war, we would just let them destroy our bases because we don't want to fight over Taiwan. You are wrong. Countries when they get attacked like that go to war. Okay. And so in other words, if China launches an attack on Taiwan, it can't afford to risk us,

Starting point is 00:40:18 you know, it can't afford to risk leaving our bases there. So it will attack our bases first. and we will fight a war because they preemptively attacked us. It's a Pearl Harbor situation. It would be the same. It would kill probably more people than Pearl Harbor and be an extremely analogous situation. They preemptively attacked us because they couldn't afford to have our military forces there to act as a spoiler for their campaign of conquest. That's exactly why Pearl Harbor was attacked.

Starting point is 00:40:43 And so if China attacks Taiwan, they will attack America first. If they attack America, we are at war. That does seem like a much more logical reason than the TSM or yeah, the other normally stated ones. Yeah, whatever. Okay, so usually kinetic wars happen after economic wars. And Noah, you wrote a blog post called what would sanctions against China actually look like? How effective might they actually be? And like the world is starting to get pretty familiar with global international sanctions after Russia invaded Ukraine.

Starting point is 00:41:18 So like we're starting to be able to like comprehend these things and understand them a little. little bit better. Maybe you could walk us through if we do get to that point, which you stated that you think is perhaps likely and other people also have agreed, that I do think that means that we're also doing the economic war too. What would the economic war against China look like? Essentially, the only real economic weapon that we have that would affect China, unless we want to do a blockade, which is, again, that would lead to war, is computer chips. So we actually waged economic war against Japan before we ever had any real war. When Japan was conquering China, we tried to stop Japan from conquering China, for which

Starting point is 00:41:56 China is still not particularly grateful to us, but we tried to stop Japan from conquering China by putting sanctions on them, right? Which is basically sanctions of the time. And so oil was the important thing that we sold to Japan because we were the biggest oil producer and Japan needed our oil. And with this embargo, they couldn't get it. And that's why they attacked Southeast Asia and conquered Southeast Asia because that Indonesia had enough oil to prosecute their war in China, which was what they really cared about,

Starting point is 00:42:24 their war of conquest. Against China, our key commodity that we sell them is not oil, but computer chips. China does not have independently the ability to make enough computer chips to sustain its military machine or even its manufacturing machine, to be honest. All that value added that you saw in that big blue column of China in my graph, most of that depends on computer chips. And China makes, you know, they do some of the low-end parts of the computer chip supply chain, but on their own, they can't make nearly enough computerships to sustain their peacetime or wartime economy. So what we would do, and of course that may change, you know, but it will take China at least 10 years, really more like 20, and maybe never. And so for a while, they're going to be very vulnerable in this one area.

Starting point is 00:43:09 So what we would do economically is cooperate with our allies, Taiwan, Japan, South Korea, and Europe, and cut China off from computer chips. Like we cut Japan off from oil before World War II. And that would not bring China to its knees, but it would really hamper them a lot. That's interesting because that's given by many historians as a reason for Japan. Actually, bombing Pearl Harbor was the U.S.'s economic war of restricting Japanese access from oil. And so they actually had to get ahead of this. It's a bit simplified.

Starting point is 00:43:42 Yeah. No, so what really happened was that our oil embargo meant that they had to take over Indonesia, which had a lot of oil then. Indonesia was a Dutch colony. The Dutch were allied with the British. The British were allied with us. So Japan's first idea was, okay, let's get the oil by conquering Siberia from Russia. All right? Then they tried it.

Starting point is 00:44:03 They sent some troops north into like modern-day Mongolia. And Russia brought in Zhukov, their famous tank general. and they just kicked Japan's ass in an opening Battle of World War II that nobody knows about called the Battle of, well, there were two battles, but the main one was the Battle of Khalkingol in Mongolia. Nobody remembers this now, but the Soviet Union kicked the shit out of Japan's army because they had much better armor. Then the Japanese militarists were like, okay, so we can't kick the Soviet Union's ass. So they signed a neutrality pact with the Soviet Union with Stalin. They went to visit Stalin and signed a neutrality pact. And they said, okay, instead, where else can we get this oil to prosecute our constitutional?

Starting point is 00:44:41 conquest of China. The only other place nearby we can get it is Indonesia. So they decided to attack Indonesia, but they knew that attacking a Dutch colony, because we're still in the era of residual European imperialism here, right? Indonesia-Dutch colony, attack the Dutch, the British get involved. If the British get involved, the Americans get involved. And the Americans have already proven that they take a dim view of our conquest in Asia, right? And so they knew America would get involved by just sort of, you know, friend of a friend of the Netherlands, which who's, so that's why they attacked Pearl Harbor. They're like, okay, we're going to inevitably have to fight America, so we might as well just take out their ships right now. So that when we inevitably think.

Starting point is 00:45:20 I've just reminded of that meme that, you know, the domino meme where like just one domino falls this chain of events and then you get to kind of World War II is kind of what this feels like. Right. World War II was the real war for oil. Right, right. That was the War of Oil. You have an absolutely encyclopedic mind around these things. It's so interesting to talk to you about it.

Starting point is 00:45:38 But before we tie off kind of this war economy section and move on to crypto, and I promise to make listeners, there's a tantalizing link here between the two in Noah's mind. But I got to ask one question, which is it feels very much like we have an unstoppable force meets an immovable object kind of thing here. Like I've read people like Dahlia, et cetera,

Starting point is 00:45:59 who think that China is absolutely hell-bent on taking Taiwan. Like, they think it's theirs, and they're hell-bent on taking it, and they're happy to be patient, maybe for decades, but eventually they're going to want it. And they're playing for number one spot here.

Starting point is 00:46:15 And if the U.S.'s position is, thou shalt not take Taiwan without causing a war with the U.S. and its allies, then we've got the unstoppable force-meats-movable object here. And is there any way that this ends peacefully, or are we, like, on a collision path to war? I don't know. I can give you a bullshit answer, and Dalia is happy to.

Starting point is 00:46:42 But nobody really knows. Spicy. No, I mean, like, everybody's happy to bullshit about the international affairs things, right? Any rich guy, right? Like, go ask David Sacks. Go ask this guy. What does this guy know? This guy knows dick all.

Starting point is 00:46:58 Dalia, like, the guy you want to ask is a guy. named Bruce Bueno de Mosquita. He has some models that have been a little bit predictive, and now he works for the CIA. What's he saying? He's a political scientist. He won't tell you the answer, but he'll know the answer better than anyone else. There's a lot of ways that could end without war. There could be some sort of agreement. China could have, you know, internal conflict and instability, which is not out of the question, given that Xi Jinping is just screwing everything up so badly. You know, there's a lot of things that could happen, right? The States could have instability. You know, Trump could return. We could have another coup this time,

Starting point is 00:47:36 one that succeeds, disputed presidential election causing a civil war. We could easily have instability as well. And so one of the countries could just back off and, you know, then the status quo just goes to the other country by default. Or both could have instability and then no one knows what the hell is going on, right? And then we could have a war that is basically like China sails some ships over. We sink the ships. China yells a lot and then it's done. They just stop. Or we could have a war where, We send some ships in to defend Taiwan. They sink our ships. They take over Taiwan and they win.

Starting point is 00:48:06 And then no one uses nukes. And so it's possible that there's a limited war as well, in addition to the possibilities of no war at all. China could get different leadership that is less hell-bent on taking Taiwan. The idea that when you say China's hell-bent on taking Taiwan, they're going to do it, that's a proposition. That is not a truism. Not a fact.

Starting point is 00:48:25 It's not a fact. It's a thing that seems true. If you look at like Xi Jinping seems hell-bent on taking Taiwan, but we don't really know, we don't really know what the Politburo supports because they're very secretive, right? We don't really know what the Chinese people want. You know, maybe they want Taiwan, but they would, they don't want a war. They just want Taiwan to love them. And so Hu Jintao basically said, you know what, we're not going to take over Taiwan. We're just going to put it off forever. We'll still say that Taiwan is ours. We'll still make the claim that Taiwan is ours,

Starting point is 00:48:56 but we're not going to make any preparations to take it. And we're just going to, you know, sort of not do anything about it. And it's possible a Hu Jentau-like leader could come to power instead of Shijun-Ping. Yeah, it's fascinating. Just put it all. Kind of the Heisenberg uncertainty principle for like country conquest, right, as you actually don't have to, you know, have to take it over until you kind of take it over. I guess, you know, one line that rang true for me as I was reading your writings, I can't remember which article I found this in Noah was, you actually said that you were more worried about the U.S. electing an authoritarian at home, more worried about. that rather than World War III. And maybe that's something we can come back to. Right. Trufi is Defi's largest credit protocol, connecting global lenders with institutional grade lending opportunities. TrueFi has completed over $1.7 billion in originations and paid out nearly $35 million to lenders, proving that defy is ready to take its next big leap into the $8 trillion

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Starting point is 00:52:43 capital flight is actually the case, the strongest case in your mind for crypto. Before we get to that argument, I just want to get your highlight. level thoughts here. So you've talked to Vitalik. I know you've been an observer of the industry for a while. I know you've been at times bullish. I know you're a holder, I believe, of ether and Bitcoin. Is that correct? Yes, correct. So what do you think of this crypto thing? What's your take? Well, so I think that there's, you know, there's several angles to it. One of the angles is just the original idea of Bitcoin, you know, the classic story of Bitcoin replacing Fiat money because Bitcoin is deflationary where fiat money is inflationary. You know, the Fed controls your money and they're devaluing your money,

Starting point is 00:53:23 blah, blah, blah, blah, blah, blah. That story is all guff. It's a fundamental misunderstanding of how money works and why money is money and what it is. And it is, it's a fantasy story that does help to sustain the price of Bitcoin, which results in some notional wealth for a few people, but it is not a real thing. It is what I call guff. It's just some bullshit, people say. That said, Bitcoin could be very important in a world of conflict because it could allow people to sort of, you know, transfer money across borders more easily when there's instability in their home country. So, you know, we put sanctions on Russia, Russian rich people want to get their money out. They don't have to carry a physical sack of gold over the border or anything. They can just transfer Bitcoin. And so, you know, even without the help of any bank, right? It's bankless. And so then, so if you look at World War II and what happened then, there was a lot of people, you know, people fleeing conflict and instability with physical valuables that they could transport, which is really what gold is all about. And so Bitcoin could replace that because the internet will still be up and people can transfer Bitcoin. Although, you know, I might even bet on something

Starting point is 00:54:32 like Monero, you know, is less traceable than Bitcoin. And so actually, that's the other one I'm thinking of buying as Monero. And so I think that story could be interesting and important, whereas the story of Bitcoin becoming like replacing fiat currency as the thing that used to buy pizza, that's not real. That's not going to happen. I think people are starting to realize that's not going to happen too. Then on top of Bitcoin, you've got the rest of crypto, right, which is, I would say, mostly based on Ethereum. There's some other things like Salana tried to come in and do their thing, but it's mostly based on Ethereum. And it's Web 3, other blockchain stuff. And that can encompass everything from smart contracts, you know, DAOs to like NFTs, collectibles, to the various,

Starting point is 00:55:16 you know, web three kind of Ponzi scheme scams, you know, they're supported. And so, you know, when Sam Bankman-Fried went on the Oddlots podcast, he's like, yeah, these are all Ponzi's, you know, and then everyone, and the Oddlops was just like, oh? Did you just say that? He's like, yeah, they're Ponzi's. But, you know, I provide a service. If you want to do a Ponzi on my platform, do it.

Starting point is 00:55:43 Guess what happened? Guess what happened next? Sam Bingman-Fried's an interesting character because I feel like he's in the business of facilitating other people's Ponzi schemes and then using hedge funds to, you know, to make money off that in addition. But then he sort of, he feels okay about it because he's an effective altruist, right? He's going to, he's like, I'm going to extract money from the world and then I'm going to give that money away to good causes. And therefore I'm acting as a conduit from, you know, people who lose their money to like people who deserve more money. And so therefore I'm good. Diving back into our conversation of like global tensions.

Starting point is 00:56:16 We've been doing a lot of comparison and contrasting about World War II to where we are now with geopolitics, except now there's a new player. Now there's a new player on the field, which is this neutral internet-bound player of crypto. And what you, as you've labeled, is specifically enabled for capital flight. And back in World War II, it really seemed like we had these like great Leviathans going after each other. It was the United States versus Germany versus Japan, versus Britain, versus France. And all these were. like big cohesive units. But that's because they had like strong abilities of capital controls to force the whole entire country of, you know, say country onto like the same page, right? And now we have like the internet, which is a democratizing technology. Now that internet has crypto. And so now like the people of the world don't necessarily have to go along with the leadership of a country.

Starting point is 00:57:08 And I'm wondering how you think about the crypto force playing a role in a world of conflict. Like, how might that be leveraged by the people of the world and how might nations respond to that? Well, I think that, um, to be honest, the efficacy of crypto in creating a world of no capital controls is somewhat limited because, um, you know, like if you look at the amount that has escaped Russia due to crypto, it's not that large, right? I've seen some estimates. it's like we're not talking like $100 billion or something, right? We're talking about like maybe $100 million, a couple hundred million dollars. And that's not nothing.

Starting point is 00:57:52 If you've got a couple hundred million dollars, more power to you. But it's not yet at the stage that I would say like we're seeing vast, massive crypto-enabled capital flight. The bigger capital flight was really from China. And China, there was this interesting, you know, sort of triangle trade that was going on with China using Tether. to get money out of the country, Chinese people using Tether. And they'd get a bunch of Bitcoin in their portfolios at the end of this trade. And then as long as Bitcoin was going up, they made money and they preserved their wealth. But when Bitcoin's going down, that doesn't really work.

Starting point is 00:58:22 So there's been some episodes of this. But so far, we haven't seen anything like the collapse of capital controls from Russia and China and, you know, countries that are doing this. And I'm not sure that how important capital controls were during World War II either. I think that no one was really trying to get their money out of America. And relatively few people were trying to get their money out of Britain. A few more in Germany, almost nobody in Japan was trying to get their money out. A lot of people tried to get their money out of China and succeeded to some degree.

Starting point is 00:58:55 And often they got their persons out of China as well. Soviet Union people had already kind of fled from the USSR's depredations in earlier decades in the Civil War and all that stuff. So you didn't have, you saw people like, you know, running across the border with a sack of gold or whatever, right? China was, I think, the biggest case of this, although you saw some in Germany as they, it became apparent they were losing the war. Now, I think that we'll see more, and I think crypto will be a part of that. But I don't think, I wouldn't go so far as to say that it just invalidates all these countries' financial systems and capital controls. It makes them more leaky than before, but that doesn't mean that they just go poof. So my college friend Bologi Shrini Vasa.

Starting point is 00:59:37 He's your college friend? Yeah, what? Yeah. We were neighbors in the dorms. I mean, we've had him on the podcast, of course, so you must know about his network state thesis and his views on crypto. Yeah. What's your take on that?

Starting point is 00:59:48 So I continue. I mean, you know, I think Vitalik had the best take on the network state. His review is really good. And so I would just farm out my thoughts on the network state to Vitalik, basically. But I think that the short version is that we're not going to see crypto be able to replace whole societies. That can't happen because societies are a lot more than just, you know, flow of funds, right? A society needs a lot more than banks. You know, you need roads. You need schools. You need police. You need all other kinds of stuff that Bitcoin will never replace. And no crypto can

Starting point is 01:00:20 replace that. You know, you're still going to have to use the roads and the trains and whatever, wherever you go. You know, and the idea that, yes, you can have an international network of sort of like footloose, rootless cosmopolitan rich people. You know, rootless cosmopolitan was the official government endorsed Russian slur for Jews. So I love, you know, calling myself a rootless cosmopolitan because the Russians would have called me that. And Stalin eventually endorsed it when he turned against the Jews. Anyway, fun fact. But people who like travel all around the world, you know, I mean, are actually real rootless cosmopolitans, right? And there's nothing necessarily wrong with that, but you need a place to use the roads.

Starting point is 01:00:59 You need a place to use the trains. And if you don't contribute to the public goods, you know, if you figure out a way to not pay taxes, and if you figure out a way to just live this floating international ideal Balagian life, right, where you're just, you're a citizen of nowhere and you just don't pay any taxes, but you're meat sacrosides somewhere and you eat food and you go to places and you meet people in real life and you sleep somewhere and all this stuff, you are essentially being a parasite on the public goods provided by your host country.

Starting point is 01:01:32 And crypto will never replace that because it take, you know, maybe you could replace it and use crypto also, but crypto by itself can't replace it because there's no way for crypto to create goods in the physical world that you need. And so those will have to be provided somewhere. So in practice, a lot of the people who talk about this like network state are, they just move to Singapore, right? And it's very much like what people did during the imperial. age where they live in these sort of gray zone entrepot towns like Hong Kong was the big one back in the

Starting point is 01:02:01 day. Singapore was also there, but Hong Kong was the biggest. Or Shanghai during the pseudo-colonial period when you had like the concessions and all this stuff. You had people like Sassoon going there and setting up his business. And you had the Bund, all this stuff right in Shanghai. And so you had these sort of international gray zones, Casablanca, remember that movie? You had these international gray zone antropos where people would move and, you know, these rich sort of, you know, these rich sort of international drifting people, but the end of the day, they had to pick a country. And the same is true now. And in practice, the network state is just Singapore. That's a fascinating view. So if part of our goal in this episode really know is to pick your

Starting point is 01:02:38 brain and see what you think of things, see what you think of crypto and some of the ideas coming from crypto. And I think it does hold thus far the conversation that your statement in one of your articles, that you're somewhat favorable to the optimist view of crypto. But you're not all in on this thing. You don't think it's going to wholesale replace a nation state. do you think it can supplement, but like as long as we are meat sacks, which we are for, you know, at least for the next few decades, for sure. For a while. Until we upload.

Starting point is 01:03:04 Yes, until we upload. Then we will need some sort of nation state. And the best crypto can do is supplement that. And you think the way it's big use case, it's killer app so far, is in getting around to kind of nation state capital controls. And you did say this in one of your articles about smart contracts specifically because we've been talking about Bitcoin, but I'll read a quote from you. there might even be a way to use smart contracts to port whole businesses or other networks

Starting point is 01:03:28 of formalized economic relationships over from China or Russia with their structure largely intact when local intermediaries, Chinese and Russian banks, courts, etc., can't be trusted because they're manipulated by the state or under foreign sanction or simply disrupted by conflict. Blockchains might be able to step in and provide the decentralized trust they were designed to provide. So you think in a world of, you know, the war economy where trust, is eroding with institutions, whether domestic institutions or kind of international institutions, that's where you see crypto kind of stepping up to the plate, and not completely superseding nation states, but supplementing some of the trust that people had in these institutions and diffusing that,

Starting point is 01:04:10 and I guess attracting some of that trust onto their networks, even the form of smart contracts. Right. And this is the, what I would call the weak form of the Balagian thesis, this idea that, you know, you're not going to replace nation states, but, but you're going to weaken nation states grip on some of the important things. And the nations whose grip is weakened will be the totalitarian nations more than the democratic nations. The United States isn't going to implement capital controls at all. You want to move your money out of the United States? Just do it. You know, it's not hard. Wait, wait. You don't think so in a worse scenario. You don't think the U.S. will go like a 1993 FDR executive order. Sorry, you can no longer have

Starting point is 01:04:48 gold. Sorry, you can no longer have crypto. It's a legal turn your crypto in. Maybe, but to be honest, there'll be just sanctions. Or some form of tax expression aligned with this idea? No, that's not going to be so important, I think, at this point. Yeah, because nobody's going to, like, at that point, to be honest, we didn't need to do that at that point. We did not need to do that in World War II. It was just, you know, we had this financial crisis. That was more really for the Depression than World War II. work to itself. The United States has the dollar, right? And the dollar is the safe haven. People keep declaring the death of the dollar and it keeps just going up, right? Like, people keep moving

Starting point is 01:05:29 their money into dollars. They're not moving their money into Bitcoin is the safe haven of the world. It's just, sorry, Baji, that didn't happen yet. Maybe someday. But yeah, people moving their money to dollars. To be honest, like most of the capital flows will just go into America. And we won't necessarily even want those coming in. So maybe I don't think capital controls are going to be a big deal in America. They're going to be a very big deal in Russia, China, especially China. That's going to be the big one. I feel like that's a big win, a big dub for the crypto industry. If it allows for the citizens of totalitarian countries to subvert their own capital controls, preserve their wealth, and defang their totalitarian countries.

Starting point is 01:06:17 countries and it doesn't really do disrupt too much inside of the Western more liberal democratic countries. That sounds like a huge PR win if we can as an industry express that if that is actually how that plays out. It seems like a big win for, you know, lower case out liberalism for sure. Just goodness. Humanity. Yeah. Yes. As it should be. And this is where I have always disagreed with Bologi. You know, Bologi has often seen a threat to freedom from America itself. And I've always disagreed at that. I've said, Bologi, you're misperceiving the threat here. America is not, you know, Bologi is like, oh, my God, totalitarian wokeness.

Starting point is 01:06:54 And I'm like, no, it's just, you know, a slightly more annoying form of the same kind of things that liberalism always creates, right? We've had versions of wokeness before, and maybe this one is annoying because it has, like, people making dumb Twitter and Facebook posts. But, like, we've had, like, America is not a totalitarian state. and we're not going to become a totalitarian state. The worst case scenario is that, you know, we have like coup and civil war and stuff like that. Instability, yes, we could have that, right? But totalitarianism, we've never had anything close to it. We're not going to happen.

Starting point is 01:07:25 This is another thing. I want to come back to this, Noah, because you are an America optimist, I think. I've heard you say on podcasts that you're on Team America. This is so interesting. And I think refreshing in some ways, or at least it's a different vantage point than we're exposed to in crypto, because I do think part of the crypto, your question is, hey, you know, America, maybe, the U.S. is slipping towards more totalitarianism. And we've had, like, even recently, I don't know if you're following the tornado cash thing,

Starting point is 01:07:51 some suppression of what we would say are like, you know, First Amendment, freedom of speech, code rights, right, and allowing your crypto users not to use an on-chain privacy mixer. We could talk about that. I want to talk about America in a minute with you. But before we do, a few more of your thoughts on crypto and Bitcoin, because I don't think we're quite finished here on this. I want you to burst our bubble on some of the misconceptions. make sure that they are cemented here.

Starting point is 01:08:12 So you wrote a post called the economic misconceptions of the crypto world. And you said there are two misconceptions, crypto people. I'm here to burst your bubble. Number one, misconception number one is cash is a form of long-term savings. And misconception number two, scarcity creates value. Can you talk about those two misconceptions that crypto people seem to have? Yeah. The first one has to do with what I was talking about before, which is the sort of foundational

Starting point is 01:08:36 story of Bitcoin. This idea that Bitcoin will replace Fiatio, currency because it's a better store of value. When you look in Wikipedia or take an econ, high school econ course, it tells you that money is three things, a unit of account, a medium of exchange, and a store of value. I've always been annoyed with this list because there's actually two kinds of stores of value. There are things that appreciate a lot over the long term, and there are things that fluctuate very little in the short term. And those things are not the same things because of something called the risk-reward trade-off in finance.

Starting point is 01:09:12 So let's compare, instead of, let's put aside Bitcoin for a second, and let's think about Treasury bills versus Apple stock. Okay? So Apple stock will go up in the long term, assuming Apple continues to kick ass and sell a lot of products that people like. But it is volatile. Sometimes Apple stock goes down. Sometimes it goes up, blah, blah, blah.

Starting point is 01:09:30 If you get paid in Apple shares, as Apple employees do, if you get paid in Apple shares, prepare for your paycheck to be volatile. And no one wants to buy bread and gasoline and rent and pizza and whatever, cocaine, whatever you're into. You know, no one wants to buy that with Apple shares because it's volatile. You'd rather hang on to Apple shares with long term because it's a good long term store of value. It's not a good short term store of value. What's a good short term store value? T bills.

Starting point is 01:10:03 Which is basically, you know, T bills are no longer the same as dollars, actually, because the interest rates got raised. But for a long time, two bills and dollars were interchangeable, because they were just zero interest rate government bonds. And so take like a U.S. dollar, you'd want to pay for your stuff in dollars instead of Apple shares because, yes, the dollar has inflation, so its value erode steadily, but at least until recently, and really still, like, it's not that unpredictable, right? When you get paid in dollars, you know how much you're getting paid in terms of bread and gasoline and rent, right? You know it because the dollar is a good short-term store of value. And there's this very deep principle of financial markets that says that there's a

Starting point is 01:10:42 tradeoff between these two and you can't be both at once in anything even remotely approaching an efficient financial market. It doesn't have to be like perfectly efficient and blah, blah, blah, zero, you know, profit. It can be even like remotely like hand wavy, slightly efficient. And yet you still have a tradeoff between risk and reward. Hold on to Apple shares for a long term and you'll make money, but it's volatile in the short term. Hold on to dollars for the long term and you'll money, but it's reliable in the short term to buy your bread. And so those are never the same asset. Because if you had the same asset, you know, the one asset that could do it all, you know, it would be breaking the very fundamental principle of financial markets. And there's a good

Starting point is 01:11:22 reason for that, which is that reward is the way that investors get compensated for taking risk, right? The reason you're willing to hold a volatile asset like Apple, which may even be down at the time you need to retire or like, I don't know, pay for a kid's wedding or whatever. Like, there's real risk in holding Apple shares. You're compensated by the fact that on average, it returns a lot over time. And if you know the math of Brownian Motion, there's actually, you know, a tradeoff between the volatility and the drift, right? It's the same thing.

Starting point is 01:11:54 So options people will know all about that. And so there's this risk reward tradeoff where things that are good long-term stores of value are shitty short-term stores of value. And things that are good short-term stores of value. And things that are good short-term stores of value are shitty long-term stores of value. And the idea that Bitcoin replaces fiat money is predicated on thinking that that's not true. And in fact, we can be a good long-term store of value and useful as a currency. Okay.

Starting point is 01:12:20 So point taken. And I think that distinction between short-term, store of value and long-term story-of-value is very good, right? And I think more people in crypto should think about that. But also, why not Bitcoin for the long-term store of value? But more broadly, let me throw this back at you and like kind of- I hold it. Kind of ether terms, right? Yeah. For example, so advocates of ether, it's like David and myself, we actually think ether is an interesting money, like proto-money, of the Ethereum economy. And it can act as a long-term store of value, obviously, for the Ethereum economy, volatility aside. But then you can just make a synthetic out of it. And you could put some

Starting point is 01:13:00 eth in a smart contract. You can use a price oracle and peg that eth to a dollar, for instance, and create this synthetic called die, which is a dollar pegged version of ether. It has some other assets inside of it, but also ether. And so this is ether from a store of value, long-term store of value perspective, being synthesized and turned into something that's a bit better as a short-term store of value, and then can also be used as a medium of exchange and unit of account. I think you just reinvented reverse repo. Well, maybe, or maybe this is just kind of like the gold standard backing, you know, nation state. Maybe it's something else. Something we've already invented in a new form factor.

Starting point is 01:13:36 Right. That's a classic finance thing. We also see, like, ether as a monetary unit. It's like also being used as a unit of account inside of the Ethereum economy, which is a very small subset of the world, but like you pay for NFTs in ether. That is the unit of account. That is also the medium of exchange. And so we see some saturation there. What do you think of these arguments? All these things are, I mean, Apple shares are a unit of account. And Apple shares can be a medium exchange. I can swap you Apple shares for, you know, whatever. Yeah, well, can be versus is because there are many, many diverse marketplaces where Ether is the unit of account. And like the Apple doesn't have that.

Starting point is 01:14:13 And also the differences, like we would give, I think the crypto advocates would throw another thing at you is like the reason Apple could never be a money is because of its governance structure. Shareholder vote could like print more Apple shares at any point in time, could do all sorts of things. whereas the idea of a monetary unit in crypto is you have some immutability there. There's some sort of governance guarantees that we have scarcity. And I don't know if this gets to your second misconception here, which I mentioned earlier, which is you think that crypto advocates have a second misconception that they have to deal with, and that misconception is scarcity creates value. You don't think that's correct either. So talk about that for us.

Starting point is 01:14:55 Okay. So the reason people don't use Apple shares as their current. has nothing to do with fear of dilution. Okay. These people are not, this is not a governance issue with dilution. The reason is because of volatility. The reason is because stocks go up and down. That's why they don't use it.

Starting point is 01:15:13 You could have no dilution possible. You could have some provision preventing that. People still wouldn't use shares as money, even without the possibility of dilution. And the reason people don't use Bitcoin as money is, well, besides whatever, like, you know, cumbersome network. I don't even know about that stuff. Assume that stuff's all solved by lightning. whatever. But the real reason people don't use Bitcoin's money is because the price goes up and down,

Starting point is 01:15:34 right? And so consider the guy who bought pizza with Bitcoin. Remember that? Early in the days of Bitcoin. Oh yeah. Bitcoin pizza guy is very famous. Laslo. Bitcoin pizza guy. Laslo. Yeah. So he bought pizza with Bitcoin that would now be worth what, a couple hundred million? Yeah. Easy. A couple hundred million dollars. Would you like to pay a couple hundred million dollars for pizza? I wouldn't. Yes, absolutely not. I wouldn't do that because I could use dollars and I could pay $20. for pizza and that's that's better. And so the reason that there's a very good reason for that guy not to have done that. And so as long as you expect Bitcoin to appreciate on average, now Bitcoin is insanely volatile in its early days, even more than now. But as long as you expect

Starting point is 01:16:18 Bitcoin to appreciate in the long term, it would be smart to not use it to buy pizza. And that's true. Even once adoption saturates, all the bubbles are done, blah, blah, blah. if you have a deflationary protocol that decreases the number of bitcoins in the world, that is going to provide a positive return, right? And that positive return that it provides will make people trade it. Just like gold, right? Gold is in the same boat here. No one uses gold to buy things, and it's not because gold is heavy and physically

Starting point is 01:16:49 cumbersome and you have to carry around to blooms in your wallet. People would do that, actually. But no, you could use electronic gold shares, right? electronic gold ETF shares. You can do that. That's possible. And no one does it. No one does it because gold is volatile because gold has a positive, increasing rate, expected

Starting point is 01:17:09 return over time because gold is constantly being withdrawn from the market to become jewelry or industrial uses. And because it's constantly being withdrawn from the market, it has, you know, scarcity, natural scarcity in the long term. And because of that, it has volatility because people trade it. Right. And because people trade it and it goes up and down, nobody uses. uses it for money. I'd like to see if this is a curveball. I definitely agree with you that the normal

Starting point is 01:17:33 economy, the economy that already exists where I go into my coffee shop is not going to be like, hey, we don't accept dollars. We only accept Bitcoin. That's just not going to happen. I do think that this metaverse economy, whichever, like this weird metaverse thing, like slap it in some VR technology, online digital items, digital trinkets, digital whatever, whatever internet online economies, gaming, web three, pick your buzzword. These economies that are brand new don't have the burden of a history of like coffee shops denominate in dollars. And they also have the fluidity of being able to choose a digital currency from Genesis, which is why we see so many NFTs priced in ether. And so I'm wondering if like, yes, what you're saying is totally correct about the pre-existing economy, but this new economy with a brand new blank slate might be more conducive to an internet native money, regardless.

Starting point is 01:18:27 of the fluctuations of volatility of that currency in dollar terms, because, like, I own some NFTs. I don't look at them in dollar terms. I look at them in ether terms. So there might be this like weird corner of the internet, which might become very large in the future, that the volatility of the currency. But if either crashed to zero, if either crashed, you'd probably start looking at them dollar terms. Like if they're just vaporized. Yes. And like all correlations go to zero in a crash. But also, it works in the inverse way as well. They go to 100. Correlations go to one.

Starting point is 01:18:58 Right. Yes. But yes. That's what I meant. Yeah. Okay. So the answer is that you're pricing one long term appreciating asset in terms of another long term appreciating asset.

Starting point is 01:19:06 And that's fine. But when it comes time to buy things like, I guess if you want to represent the metaverse is like a world in which you're just buying and selling NFT type things all day. And that's the economy. Yeah. Yeah. Yeah. Yeah.

Starting point is 01:19:19 People might use crypto, but I think what they're going to use is USDC. You know, you already see like, you know, I was talking to some NFT people. in Japan. I have these friends who do NFTs in Japan that I really love. They are the Galverse people. Do you know those people? No. Okay. It's like an NFT brand. They're basically like anime and they're trying to use NFTs to sell the pseudo rights to intellectual property for anime. And it's a great idea. I love these guys. I don't know if they're going to make any money, but I think they're great. And I said, oh, did you get out before the crash? Like, yes, fortunately, we exited to USDC. That was great. We exited to USC. Yes. That is how money works. That is why USDA is money on Tether, right?

Starting point is 01:19:59 I mean, like, I kind of think Tether is committing some fraud still, like they got dinged for fraud, that USDC is not. So I would trust more in USDC than Tether, but Tether probably works fine too. And so, but it's USDC and Tether. It's these stable coins that are money. What these are is money market funds. USDC is a money market fund. It's just not regulated as a money market fund. But it is because, you know, it holds things that make a little more than dollars.

Starting point is 01:20:26 but usually don't, if it almost never crash and issues its own shares, i.e. tokens that act as dollars in the crypto economy and are valued at exactly at a dollar. You can look at the chart. And so that's a money market fund. That is dollars. And so people are going to use USDC and Tether. And I think that what people need to understand is that the Fed is not the only entity that creates dollars, that prints dollars. It is one of the entities. The Fed can print dollars. It has that power, but it's not the only one with that power. Other private financial institutions, including banks, but not just banks, have the power to print money. And USDC, the creation of USDC is printing dollars.

Starting point is 01:21:13 That is the creation of dollars. Not exactly dollars, because USDC isn't exactly the same as a dollar, but pretty damn close. If you looked at divisio monetary measures that try to add the dollar-like quantities of all these different things, you'd see USDC show up and you'd see Tether show up, right? The creation of dollar stable coins creates dollars. You have printed dollars and you're not the Fed. You know, USDC is not the Fed and Tether's not the Fed, but they've printed dollars. And so that's pretty cool.

Starting point is 01:21:44 You can print dollars, printing dollars is fine. It doesn't, like it's not some shadowy external like distant moneyman who controls your wealth blah, blah, because your wealth isn't in dollars. Your wealth isn't stuff that goes up is in the long-term store of value. Your wealth is Apple shares or gold or Bitcoin or your house. That's your wealth. Your liquidity is in dollars. Your liquidity is in USDC if you're in the crypto economy or in Tether, right?

Starting point is 01:22:09 And so that's why you exit to USDC because that's your money. That's your liquidity. And so basically that's working exactly as a well-functioning financial market economy should. And if we do have a metaverse where people are paying in crypto all the time, it's going to be in stable coins. It's going to be in things who's expected value depreciates over time because USDC depreciates and tether depreciates at the rate of U.S. inflation. Right. Those are depreciating currencies. Those are inflationary currencies because they're just pseudo dollars, right?

Starting point is 01:22:41 And that's where people are going to have their liquidity and their long term wealth will be in ETH, will be in Bitcoin, will be in whatever. Or will just be in real assets, you know, like a house or a company. And that's how it should work. This is all is working as it should, right? So, no, if I were to kind of summarize your thoughts on crypto and why you're kind of like cautiously optimistic on the space, but not just over the move, you don't think it's going to do everything that it's like, it's eternal optimists and impermables think it will do. Right.

Starting point is 01:23:10 You respect the use case for capital flight, particularly in this kind of war economy. Capital flight, DAOs. Maybe smart contracts. Yeah, smart contracts. I think that the overhead to start a company across borders. is just insane. You know, look how much money Stripe is printed with Alice, right? Like the overhead to start these companies is just nuts.

Starting point is 01:23:30 Legal overhead, regulatory overhead, international, blah, blah, bullshit. Just, you know, if we're going to create this seamless global cyberpunk economy where I can make a movie with some kids in like Argentina and, you know, Morocco and Korea in like an afternoon and sell that on some digital marketplace, if you want to have that kind of creator economy, you can't afford to have these people like make a corporation, hire lawyers to navigate the laws of Korea and Morocco and Argentina and the United States all at the same time. That's huge overhead. No, just make a DAO.

Starting point is 01:24:01 So you're bullish on this capital formation use case, the DAO use case of smart contracts as well. It sounds like you're very bullish stable coins in general and maybe think that's one of crypto's killer apps and then also NFTs. But aside from that, the things that you are not bullish on that you don't buy that you think are kind of BS from the crypto space is probably the big. biggest one is that crypto, whether in the form of Bitcoin, ether, or some other cryptocurrency, is going to come usurp the dollar for reserve currency status. You don't think that's happening anytime soon. And you kind of call BS on that side of things. And like Web3 as well, there's a

Starting point is 01:24:36 post that maybe it was a guest post. But yes, yes, web three culture is similar to Amway culture. I think there's elements of the Ponzi economics that you probably don't vibe with and you're pretty bearish on as well. Is this accurate? Sure. There's a million Web3 Ponzi's out there. and there's this funny guy, Lyron, Shapira, who just like, you know, he's sort of this cryptoskeptic. He just, like, yells about Ponzi's all day. And it's kind of funny. He correctly called, like, you know, that helium and Axi were going to be Ponzi's. And that was just obvious. Yeah, there's a million Ponzi's. There will continue to be Ponzi's. Like, Ponzi's are natural to unregulated financial markets, right? They are a naturally occurring thing. My dissertation was on that.

Starting point is 01:25:14 That sounds cool. But, okay, but here's what's interesting. So we think of, like, at bankless, we think of Bitcoin as a Ponzi too. And not a Ponzi scheme, but more like a Ponzi game. Maybe like a pyramid game is like more a way to sort of think about things. And you also wrote a post that said, I think Bitcoin has room for one more bubble. So you are also bullish on maybe this Bitcoin Ponzi as well, 21 million fixed supply. And this is what Sam Bankman-Fried was getting into when he was on the Odd Loss podcast and be like, yes, I support your Ponzi.

Starting point is 01:25:45 He was using Ponzi in a much more expansive. way than what typical society is used to. But if you come into crypto, you kind of like see the world of finance as like a set of Ponzi's built on top of each other with a dollar at the very bottom. And that's a very like foreign concept to many people. Well, yeah, no, what do you think of this? Right. But that's what finance is. It's like, that's not all finance is. There's like, you can raise capital to like build a productive enterprise. But like high finance and trading, there's just a lot of who would think to do that? Who would think to do that? Are you talking about Bill Nudson? Is this World War II?

Starting point is 01:26:18 Um, no, so like, yeah, you can do that. And people, people do that all the time. There's tons of, you know, it's mostly in debt markets, which is why the debt markets are so much bigger than the equity markets because companies just borrow. But then, yeah, no, this is finance. Finance is full of Ponzi's, full of ponzi's, most of financial regulation is just trying to stop these natural Ponzi bubbles from just, like, frothing because people get mad. You know, like, people are mad that they lose all their, you know, they're constantly like, there's just suckers. There's just, there's just, You know, wise guys and lucky guys taking money from suckers and unlucky people, right? And so we think that this volatility in financial markets is sort of bad. When it's combined with a lot of debt, like in the housing bubble, it can actually hurt the real economy. If it's not combined with debt, it typically doesn't matter for the real economy. Like stonks go up, stonks go down. One person makes money, another person loses money, all this stuff, right?

Starting point is 01:27:11 Everyone can lose money at the same time, of course. It's not conserved. But the point is that, like, this is finance, right? There's going to be a lot of these Ponzi's Axis Ponzi, Helium was a Ponzi. Helium switched from like a real business model that wasn't really working to like a Ponzi. And then, you know,

Starting point is 01:27:27 they're like, well, we could just Ponzi. And maybe that'll help boost us to like some kind of sort of scale where we can become not a Ponzi. And no, that didn't happen. And Axi is just like, we could have a Ponzi if it's also fun. But in the end it was just a Ponzi. And then like, because it, I mean, because let's be honest, it wasn't fun.

Starting point is 01:27:45 So then, like all these people... The making the money was the fun part. The making the money. That's the fun part. As soon as that doesn't happen anymore, then the Ponzi ends. Right, right. And so you have all these Ponzi's. And so the interesting thing about Amway is that Amway has a thing where you have,

Starting point is 01:28:02 instead of just the overall value of like Amway shares or whatever, people monetize the people that they onboard and the people they onboard. Right. So if I onboard Ryan and Ryan onboard's David, whatever crappy, shitty, Amway products David manages to sell. They're going to be crappy, shitty products. I get a little bit of cut from that because I'm the guy at the top and then you all worship me because I'm the guy at the top.

Starting point is 01:28:23 And at the events, I'm the speaker and you buy my book. And that's Amway culture. And what I'm surprised is that none of these Web 3 people have figured out how to create a downline because you can easily do that. It's very easy with NFT, you know, whatever, is to create a downline. What do you mean a downline? Oh, the downline is the chain of people who you onboarded and they onboarded and they onboarded. It's the chain of descent.

Starting point is 01:28:44 It's like the lineage of onboard. Oh, that was BitConnect. We had that. They got prosecuted to get in trouble with the SEC. And that was from 2017. As they should, but you know, do it offshore. I don't know. You can just like scam people out of a lot of money.

Starting point is 01:29:00 But I mean, okay, so that's illegal. I don't endorse crime. You'll get arrested. Don't do that. But what I'm saying is when I say do this, I don't mean you should do this. You shouldn't do this. I'm saying someone will do this, right? This is how unregulated financial markets work.

Starting point is 01:29:13 If people do shit like that. And, you know, Web 3 is the financialization of tech. It's like, tech people were like, okay, well, we figured out how to sell people the internet, and we sell people social media and AI and all those other stuff. And now what will we sell people? Well, maybe now we're done selling people stuff. Maybe now we could just extract. It's time to own.

Starting point is 01:29:37 Let's, you know, like, it's time to build. Do you think it's purely, do you think Web 3 is purely extracted? Well, I mean, Ponzi's are extractive. If you start a Ponzi, like if you fund a Ponzi and then you know it's a Ponzi and then you dump the tokens onto retail idiots, you know, and then walk away with cash, but, you know, before the Ponzi collapses, you have extracted. You have cashed out. You have taken a little like hose.

Starting point is 01:30:04 You have stuck that into some Main Street idiot who was, you know, like some Muppet, as they call them in the traditional finance industry. You've stuck your hose into some muppet and you've gone, I drink your milkshake. You know, that is what you've done. And, you know, I don't endorse that. That's not, I wouldn't do that as a living. You know, I write blog posts for living. I would not figure out ways to use a combination of algorithms and marketing to just extract value from the masses as my way of life, but someone is going to, someone's going to do that. I definitely see that, and we've seen more than our fair share, and a lot of the bankless work is actually kind of educating about, like, what are the sustainable things we're building

Starting point is 01:30:48 here, and what are the kind of the Ponzi's? Noah, I feel like we could go on with this episode for a lot longer, and what this means is this is a reason for you to come back, sir. It's been a ton of fun. Happy to come back. Because we still haven't talked about the U.S., we haven't talked about its place in the world, and there's so much there. So I think I've got two more things.

Starting point is 01:31:05 One is sort of a serious question, and the other is just more of a fun question to kind of close this out. But let me ask the serious question first. And this is part of the conversation we're just having, but also ties into America. So all of these Ponzi games we're talking about in Web 3 and Bitcoin being a Ponzi, right, Ether being maybe a Ponzi too. They're all the way down. So it's finance. How about the dollar, sir? Is the dollar a Ponzi game as well?

Starting point is 01:31:28 What would it take for the U.S. to lose its reserve currency status? I know that it's stronger than it's ever been. I mean, we kind of see how it's trading against the euro and the pound right now. But all fiat systems come to an end, don't they? And how about the U.S. and its destiny? Well, all things come to an end when the sun blows up. And the world goes dark and the heat death of the universe. But the idea that all fiat systems come to an end, that doesn't necessarily mean a lot, right?

Starting point is 01:31:55 Like, there's plenty of fiat systems around that have not come to an end. like the number of fiat systems that have not come to an end greatly out number is the number that have come to an end right so like every country has its own fiat system now right and the number of fiat systems in the pre-modern era was relatively small because not many countries had these state capacity to create a fiat system yet the mongols did it right you had a few countries doing it

Starting point is 01:32:20 but then before the 20th century fiat systems were relatively uncommon and so to say that they always come to an end most of them have not come to an end. Well, let me pull that back a little bit. How about their dominance comes to an end? Their reserve currency status, for example, most recently, the pounds transfer to the dollar, for instance. The pound is on a gold standard.

Starting point is 01:32:41 That wasn't a fiat currency. I mean, it was a fiat currency in that we're issuing pounds that are nominally pegged to gold, but it was not, you know, you had fractional reserve banking, whatever, but it was not, so the modern dollar is not backed by anything except the Federal Reserve's promises to keep inflation low. Like, that's the only thing backing the modern dollar. There's never been a reserve currency before that was like that. We're the only one.

Starting point is 01:33:03 We're the only one ever, unless you count Kublai Khan, right? And I don't even know it was going on there specifically. I mean, I know a lot, but we don't exactly know how to market this. So are you bullish on the future, like supremacy, reserve currency status of the dollar into the decades ahead until the heat death of the universe, until the sun explodes? No. I think if the dollar collapses and nothing replaces it, we have a world. of global financial anarchy and a lot of wealth gets destroyed, your Bitcoin will go down, way down. Everything will go down. That's a difficult world. What we need to replace the dollar is just a

Starting point is 01:33:38 better fiat currency. And I don't know who's going to make that. And we hope that the euro would take some of the burden away from the dollar. And then Europe turned out to not quite be a country. And so they had the euro crisis in the early 2010s. And so the euro has not been as good at replacing the dollars it should have, but it's in there. And the yuan is the other big contender, right? And China just has to change its whole society so that it's not like this closed society that tries to control everything that everybody does and capital controls and all the stuff. So that's a lot easier said than done. We need to replace the dollar, to improve on the dollar, we need a better fiat currency. Commodity money is not likely to replace the dollar.

Starting point is 01:34:17 The future is fiat. It's not necessarily dollar fiat. And the reason the future is Fiat is because Fiat is just so incredibly useful for buying pizza. No one has ever come with a better system for buying pizza than Fiat. And you can tell because Americans eat a lot, lot too much pizza. Dude, I think we just, I think we found our episode title, The Future is Fiat here with Noah Smith. Yeah.

Starting point is 01:34:44 This is what the future are right. The future really is just pizza. Yeah, I was about to say, let's see. We're going to get some pizza in here. The future is pizza. How about that? No, this has been a lot of fun. I promise the fun question too. So why should we be bullish on rabbits, sir? What is your obsession with rabbits? Can you tell me about this? Well, I always had dogs. I love dogs and cats, and I always had dogs and cats. And I had other pets like hamsters, fish, whatever. But then I never had rabbits because I was under a misconception that they poop everywhere, that they're not toilet trainable. But in fact, it's insanely easy to toilet train a rabbit. You just put the litter box next to the hay feeder and they toilet train themselves within a day. So rabbits are easily toilet train themselves within a day. So rabbits are easily toilet. trainable. And once I found out that, I realized that they're basically just like vegan cats.

Starting point is 01:35:28 Like, and so, so if you want a vegan cat, then get a rabbit. But how smart are these creatures? I mean, do they have the intelligence level of a cat? I mean, they're dumb, but cats dumb, too. Cats, you think they act smart because they like, you know, seem wary of things. But no, cats are dumb. Like, if you have cats, they like, they can't figure out basic stuff and are always like just like falling over, you know, like. I feel like this is a hot tape for a lot of cat owners out there. Rabbits are dumb, too. Is a rabbit like having a cat? I love cats, and they're dumb, and I love rabbits, and they're about equally dumb.

Starting point is 01:36:00 So rabbits and cats are about equally smart slash dumb. I'm picturing a rabbit like a cat, but without all the pretenses, without all the kind of the, the ego, maybe. No, no, rabbits have the ego as well. Really? So, like, rabbits definitely, like cats are like, this is my house. You just live here, human, right? They're very much bossy, and rabbits are the same way. They're like, pet me now.

Starting point is 01:36:22 I will say that I grew up at a very, very young age with a rabbit in the house. There's my sister's rabbit. I was like two to four or something. That thing terrorized me. I was, it's bitch. I was very scared. They're bossy. You know what they're like personality-wise?

Starting point is 01:36:40 They're actually really like horses. If you've ever had horses or taken care of horses, you will recognize that rabbits have the same personalities as horses. Interesting. And the same digestive. system weirdly. Noah, I learned a lot about rapids today. I learned a lot about the future of the world, the economy, World War III, the potential for that Taiwan, crypto as well.

Starting point is 01:37:00 You taught us some things. So thanks for coming on. This has been a blast. That was fun. Please visit us soon. All right. Yep. See you again.

Starting point is 01:37:06 Bankless Nation. This has been Noah Smith. We've got some action items for you. The big action item of the episode is go over to Noah's substack. It's Noahopin. dot substack.com, no opinion.substack.com. In those show notes, we're going to include a bunch of links to some of Noah's articles that we discussed today. There's at least 10 of them that we pulled in order to have this conversation, quotes from at least 10 of them. This is one of my favorite

Starting point is 01:37:31 substacks. You absolutely have to subscribe. And also, we'll include a link to Freedom's Forge, the book that Noah recommended earlier in the episode. So you have that, as always, risks and disclaimers. None of this. Absolutely none of it. has been financial advice. Certainly not legal advice either. Crypto is risky. You could lose what you put in. Perhaps rabbit advice. Maybe some rabbit advice sprinkled in. We'll take that. But we're headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.

Bankless - 140 - The Future is Fiat | Noah Smith (Noahpinion)

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