Bankless - SotN #50 - El Salvador Adopting Bitcoin | Nic Carter

Starting point is 00:00:01 Who's the guest we have with us to talk about this important subject? The guest that we have brought on is Nick Carter, who was the host of the Twitter spaces. Apparently it was supposed to be just a casual Twitter space, but in this crazy world of the 2020s, in casual Twitter spaces, presidents of countries show up while bills are going through the Congress to make Bitcoin legal tender. So apparently that's things like this happened in the 20s. And so we are bringing Nick Carter on to not only talk about that crazy event and Twitter spaces as like a news media publication at large, but also more importantly, an entire country putting Bitcoin as its legal tender currency. The bitcoins of the world are up in arms about how awesome this is. Nick used this term that when I was listening to him talk on maybe his own podcast about how Bitcoin is being used as its intended purpose.

Starting point is 00:01:10 and I think the intended purpose line is interesting to drill into because who's to say what Bitcoin is actually intended for. So I want to get Nick's perspective on that. And then on the other side of things, there's a different cohort of people who are a little bit skeptical as to like, what this, is this really the big deal that the Bitcoiners say it is? And so we want to take on both sides of the news event on this state of the nation. Suffice it to say, Nick Carter is probably our favorite bitconer. Would you say that, David? Yeah. Our favorite bickliner?

Starting point is 00:01:41 Absolutely. How many times has Nick been on the show? This will be number four. Second podcast. He's been on two podcasts and this is his second state of the nation. Number four. All right. So he's earned his bankless t-shirt.

Starting point is 00:01:51 But like Nick is the person to talk to you about this subject. I think the first half of this conversation we plan to talk mostly about the good side of this. All of like the reason that this is a perfect fit for Bitcoin in the second half, we're going to talk more about the critiques. Super excited for that conversation. But David, before we get in, we got to talk about what's new. We are still looking for our perfect bankless editor. If that is you, if you're an editor, if you're a writer, if you like DFI,

Starting point is 00:02:18 if you want to join the bankless team, we've seen tons of applications. We're looking for the perfect one. But email your resume, sample of your writing, is more important, your Twitter personality, whatever you have, do applications at banklessh.com. Do that. David and I review those on a weekly basis or so, and we're excited to hear from you, if that's you. Also, David, got to talk about Ledger.

Starting point is 00:02:43 Ledger's doing some cool stuff in the space. Hey, I put out this meme. This is me. Not all the memes on Bankless HQ are mine, but I was thinking of this as I was using my ledger the other day. This is like your grandpa's non-custodial wallet was just like a pot full of gold, right? Gold coins. Buried gold coins.

Starting point is 00:03:02 But what is yours? I mean, Grandpa didn't trust the banks. Yours is probably a hardware wallet like Ledger. It was a super cool. David was actually, I think it was last week before, Metamass support for, there's a new Chrome update and metamast support with a ledger. It was actually disabled, didn't work, but you could actually still use ledger using Ledger Live. And that was sort of a another mechanism, another way of using the ledger that I hadn't used as much before. But Ledger Live is super cool. It is a piece of

Starting point is 00:03:38 software put out by Ledger hardware. And they've added so much more to it, probably since the last time you checked all of these crypto services. So you can buy, sell, exchange, lend and stake. All the verbs. Getting into defy the services. All the money verbs all through Ledger lives. So that's super cool. Yeah. What else should we add with Ledger, David? Yeah, it's if there's a lot of new people subscribing to bankless and coming into the world of banklessness of crypto. And Ledger is has always been the easiest hardware wallet to use. And they also have now a bunch of back-end software to live a bankless life inside of the Ledger ecosystem. So it's a great, you know, first stepping stone into a very complicated world that packages up all the Defi services into a very

Starting point is 00:04:22 nice interface along with the top-tier security of an actual hardware wallet. Not your keys, not your crypto. But then also Ledger and this partners allows you to do all the money verbs that we talk about on the bankless program. So check Letcher out. If you don't have one, go to the banklost.c.c. slash ledger, check that out. Or also, if you have a ledger, start checking out the ledger live application. David, I'm going to ask you the question I ask at the beginning of every single state of the nation since we started these things. That is, what is the state of the nation today? The state of the nation is expanding. In the Market Monday piece that I put out yesterday, I used this metaphor, this risk metaphor. If you've ever played the game of risk,

Starting point is 00:05:02 It's a game where you have different territories and you have like different armies positioned around the borders and you try and claim the next border. Bitcoin just claimed El Salvador. So it is now instantiated in the risk board, you know, an orange country, El Salvador. And the question that we have for Nick Carter is where does Bitcoin go next? Where does it expand next? I'm getting like kind of like flashbacks, not flashbacks. I never was alive back in the 70s radius, but like of the Cold War with the USS versus Russia and like the containment strategies. Yeah, the U.S., like think of the perspective from the dollar trying to contain Bitcoin,

Starting point is 00:05:40 right? And so, you know, we got Bitcoin advancing out of El Salvador. We got the dollar trying to contain it. But, you know, if El Salvador falls, you know, what about Costa Rica? What about Panama? What about the other dollarized countries of Latin America? Like, is this the dollar, the, the Bitcoin domino effect about to happen? And so Bitcoin is expanding.

Starting point is 00:05:59 And it's claimed El Salvador and who knows what happens next. What's so interesting is in order to claim like countries and territories in a game of risk, you have like soldiers and, you know, cannons and that sort of thing. But Bitcoin is doing this without soldiers, without an army. It's just doing this through idea propagation, essentially. So this is a super important story. I think in the, we call this historic. This is absolutely on every single timeline of like, you know, 20th century, 21st century,

Starting point is 00:06:29 evolution of money, the date June 2021 will be there because that is the date that the First Nation State actually adopted a cryptocurrency as legal tender. And like we're here for it. So guys, stick around for this fantastic conversation. We're going to introduce Nick Carter in just a minute. But we want to thank the sponsors that made this episode possible first. Synthetics is Ethereum's decentralized derivatives liquidity protocol. What does that mean? Synthetics is a platform for creating and trading synthetic assets, which are assets that are priced via an Oracle rather than bids or asks. Traders can use the Quenta Exchange, which hosts and trades all of the synthetic assets created by synthetics. Traders on Quenta can trade synthetic tokens like SBTC, S oil, or S-DFI.

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Starting point is 00:09:13 at AVE.com. That's AAAVE.com. Hey guys, welcome back. Super excited to dig into this with Nick Carter, fourth time on the show. He is a partner at Castle Island, a recurring guest on bankless. We've called him our favorite Bitcoiner. I think you heard us say this. So Nick Carter, you are our favorite bitcoiner that we have on bankless. And you are really at the center of this whole El Salvador thing. So welcome, man. We're super excited to talk to you about it. Thank you. And thanks for making me your official favorite bitcorner. That means a lot. Fourth time on the show, too. I know it's been a really long time since I was last on, though. It has been. It's been like months. We were talking about this. It's been

Starting point is 00:09:56 11 months. It feels like it was way sooner, but like so much has happened, including the adoption of Bitcoin by a country, which is a subject of today. I want to ask the question of like, this feels like a big milestone to me. I know some people say, look, El Salvador is not that big, but like it is a nation state. It is a country adopting Bitcoin. Did you think this would happen in 2021? Or like, what was your like mental date for the milestone when this type of thing would happen? Yeah, I mean, I'm like delusionally bullish Bitcoin at all times. Spoken like a true bickharner. So I sort of always expect the best possible thing to happen immediately.

Starting point is 00:10:41 So I speculated on my own podcast about, you know, the first sovereign country to like truly adopt Bitcoin. But I thought it was going to be like Norway or Singapore or something. like a really you know like I don't know how to describe it but just a country that you know understand you know really deeply understands like sovereign wealth and like I mean Singapore already kind of has exposure to Bitcoin through Temasek I think but yeah I didn't think it would be El Salvador I didn't think we'd get a legal tender law I didn't think we would get actually like a legal tender mandate as in like merchants are mandated to accept Bitcoin that was far, far more than I expected.

Starting point is 00:11:24 What I thought was that sovereigns would start buying it. Yeah, converting some of their foreign exchange reserves into Bitcoin. But this is different, completely different, and very unexpected. But yeah, kind of on the timeline I was expecting. But again, I'm, you know, I'm like super, like, delusional about this stuff. Okay. But so like, so we're pretty delusional about crypto too, right? So, like, I don't think people have ever listened to you a bankless podcast

Starting point is 00:11:52 that wasn't bullish like crypto in some way. But is this, did we overhyde this in the intro a little bit? Like, so my question is like, this seems like a pretty major historic event here, right? Is there, is everything going to be different from here on out? Like there was a before a sovereign country adopted Bitcoin as legal, uh, tether and then there's an after. Do you think it's that much of a change agent? Or is this just a another like piece of the evolution?

Starting point is 00:12:22 of global adoption? No, 100%. This is, I would say, one of the most pivotal points in Bitcoin's history. On a par with like when Bitcoin first monetized without Bitcoin pizza transaction. So this is at that scale of importance. And I say that because like first Bitcoin was this like,

Starting point is 00:12:50 you know, empty like ledger slots. that had no value and then it obtained value and then it was a collectible or like a synthetic commodity so it was sort of monetizing but it wasn't explicitly money in like the sense that an economist like george selgen would describe it as money which is a generally accepted medium of exchange it wasn't generally accepted and then by decree by law it became um a literal money in a, you know, entire country. And that's the first time anything like that has happened. So, yeah, I think it's absolutely, absolutely pivotal.

Starting point is 00:13:31 Of course, like, you know, like from a, just from like a narrative sense. Of course, like, does that mean that, you know, millions of more people are actually going to adopt Bitcoin? No. But in terms of like the taxonomy of money, like, it's transcended into this new category now. Let's talk about just keep harping on the significance of this really quick. Because let's just imagine you're talking to somebody that is, you know, they've heard of Bitcoin, but other than hearing about it, they don't really know what it is. And you're trying to explain to them the significance of El Salvador or any country really adopting Bitcoin as currency. How would you explain it to someone who is just, you know, doesn't really understand what crypto as a whole is?

Starting point is 00:14:13 Trying to explain it to it from that perspective. I mean, effectively we had, El Salvador had a dollarized monetary system, which went to, that effectively dollar was the currency of the land. I believe they actually do also in tandem have a local currency, but it's just been kind of irrelevant for a long time. In parallel to that, now there's an additional monetary system, which is legal, where Bitcoin is on an even kind of par with, you know, dollar from a legal perspective.

Starting point is 00:14:45 So from a tax perspective in terms of the tax treatment of transactions, in terms of actually paying your taxes, in terms of being the accepted and legal tender for the settlement of debts, and in terms of merchants having an obligation to accept this. So in every conceivable way in this country, assuming this law, you know, actually gets implemented and things like that, you're going to look at Bitcoin being elevated

Starting point is 00:15:12 to the same, you know, level of significance in terms of, you know, your legal rights, and obligations with respect to the medium. So effectively, now El Salvador is on this dual monetary standard, dollars on one hand, Bitcoin on the other. So it's been elevated to sort of an equivalent status. One of the big deals here is that El Salvador and citizens don't have to pay capital gains tax on their Bitcoin. Can you fit that into the story as well? Yeah. So in the U.S., Bitcoin is taxed as property and actually all cryptocurrencies, cryptocurrencies, crypto assets. And so that means that when you make a transaction, you purchase something with Bitcoin,

Starting point is 00:15:54 the tax code interprets that as a sale. And you are then taxed on the difference between when you acquired that Bitcoin and the value of it when you sold it. So you have to keep track of that. And then you have to pay a short or long-term capital gains tax, which is an enormous hurdle. And that's actually really how countries like the U.S. maintain this monetary hierarchy with stuff like tax treatment. There's no like explicit law saying, you know, the dollar has to be worth something and, you know, the dollar is like sacrosynct. In practice, what we have is, you know, a bundle of laws and sort of processes which, you know, encourage the dollar to have value and sort of instill it with value. And tax treatment is, you know, paramount among them. And that's how other foreign

Starting point is 00:16:43 currencies and foreign assets and things like that are disempowered. the expense of the dollar. So eliminating that tax hurdle and that just friction through tax, that's a really, really key thing in sort of elevating Bitcoin to sort of this egalitarian status. Yeah, I think people totally forget this. Like, you know, I've said this a few times because I believe it's true and I've heard others say it. But like, I think the worst UX for crypto is actually in the tax code. Right. So like there have been moves even in the U.S. to sort of pass some safe harbor sorts of legislation that say under a certain amount of crypto you spend per year, say that's not like taxes capital gains, it's more tax as a currency's money,

Starting point is 00:17:30 but it's never gotten anywhere. I think people forget that like countries don't have to make something like cryptocurrency illegal. All they really have to do is make it majorly inconvenient through their existing legislative processes. And right now, using cryptocurrency for anything other than a store of value is like majorly inconvenient just because of the capital gains tax codes. So here's a, for instance, right? So according to the tax code, every time you make a transaction on Ethereum, pay some gas, right? There's a capital gains event there.

Starting point is 00:18:09 It could be small, it could be like, you know, very de minimis. But like, that's Ux friction. I mean, I'm paying a few dollars in Ethereum gas. There's a capital gains tax event on there, and I have to track that. So, yeah, plus one on your point there is countries with their existing tax code already make the UX of cryptocurrency very difficult without even having to make it illegal. Yeah, I just wanted to throw in here that I wrote about. this for your newsletter actually back in the day crypto fiat mutualistic or parasitic

Starting point is 00:18:45 and I specifically talk about the implicit and explicit privileges of the dollar and sovereign fiat relative to all other near monies and you know crypto is like a near money like it has value people treat it like a money but it lacks a lot of these explicit privileges and the the tax treatment is like probably the the most important one. You see now why Nick Carter is our favorite bitcoiner because, you know, he even refers to past bankless issues as he's making his points. Here's the article that he mentioned.

Starting point is 00:19:21 Oh, you guys have it. Yeah. Yeah. There is. You scroll down. I literally enumerate the dollars explicit privileges. And then like the, you know, something, it's funny, like there's stable coin. There's so many more stable coins today as opposed to one like this.

Starting point is 00:19:37 What was the size back then? This is from December, oh, May 2020. May 2020. So here, 15 billion. We're 10x from here, aren't we? Yeah. Yeah, just about, yeah. That's crazy.

Starting point is 00:19:50 Insane. So, yeah, so there's implicit and like, you know, these emergent features, like the fact that, you know, if you want to participate in like U.S. securities markets, you need dollars, like stuff like stuff. So there's like the very explicit stuff and there's the implicit stuff. and then El Salvador has, you know, worked on the explicit side. Obviously, TBD on, you know, what happens, though. Right. So, Nick, let's get into the background of President Naib Bukele. And, you know, since he hopped into your Twitter spaces,

Starting point is 00:20:22 I can only assume that you guys are friends now. What have you learned about President Naib before this event, right? Like, before that the announcement went public that El Sal was going to put forth a bill that would ratify Bitcoin as legal tender. Where do you think Bitcoin entered in President Nyeev's life? Like how did he become pro-Bitcoin? Do you know anything about the backstory here? That's a great question.

Starting point is 00:20:52 I believe that it had a lot to do with Bitcoin Beach, which is this kind of like nonprofit initiative design to encourage people to transact with Bitcoin in this specific beach town in El Salvador. And I had heard of a lot of Bitcoiners going down there. My friend Miles Suter had spent a ton of time down there with Jack Mallors. I believe Peter McCormack was down there. I actually thought about going long before I knew anything was going on from a monetary perspective, just because I thought it was cool.

Starting point is 00:21:24 I think it's called El Zante. And apparently the merchants there accept lightning transactions and stuff like that. I haven't been, so I can't really, you know, talk about it with that much detail. But my understanding is that is probably how the president Buckele, you know, first kind of, you know, got turned on to Bitcoin. But, I mean, he could have learned about it from anywhere, frankly. I mean, from the internet. He's, like, super plugged in. He's a very, very, like, tech savvy president.

Starting point is 00:21:55 I mean, a lot of people compare him to AOC in terms of his level of, like, online reach and like how active he is on social media and stuff like that. So it wouldn't surprise me if he had, you know, like learned about it on Reddit or whatever, like the same way I did. The Bitcoin Beach, that actually really, really fits well into my whole risk metaphor because Bitcoin literally established a beachfront in El Salvador. A beach head. A beach head.

Starting point is 00:22:25 Yeah. Yeah, this is Bitcoin's Normandy. That's right. Right. Yeah. Okay. So not only is President Nayyab a believer in Bitcoin, but he also kind of seems to be a straight-up Bitcoiner. Like the guy's got laser eyes, man.

Starting point is 00:22:39 Like he speaks like a Bitcoiner. Have you noticed these qualities about him as well? I mean, he cottoned on to the Bitcoin discourse very quickly and like understood, even in his spaces conversation with us, he seemed to be, you know, repeating a lot of these like bitconry type phrases. So I mean he clearly spent a lot of time with Bitcoiners You know prior to going public with this announcement and passing this law and stuff So it's pretty interesting to see a head of state so plugged in to like the Bitcoin community And it's really stuff like that it's really interesting nick you compare him to like aOC because like I just looked at his age He's 39. I think that like barely fits as a millennial so he's like an elder millennial on that end of the spectrum right and like

Starting point is 00:23:28 I mean, millennials, Gen Z, this very much seems to be sort of the digital generation here. And the way that he interacted with the Bitcoin community, assumed the culture, like, joined your Twitter spaces, that's a whole social media savvy that you don't see very often in U.S. politicians anyway. But like, I'm curious as to why you think he proposed this bill and should remind folks to the El Salvadoran Congress voted overwhelmingly in favor of this bill as well. I think it was like 62 out of 84 total votes voted in favor. So it wasn't just the executive branch. The legislative branch actually voted in favor of it. But like what were the reasons it was proposed and why was

Starting point is 00:24:15 this so favorable, seen as so favorable by the legislative branch? Yeah. I mean, he enjoys enormous popularity. He's probably one of the most popular world leaders to domestically, something like a 90% approval rating. One of the uncertainties was whether they would get a majority or a super majority with the passage of this bill. They announced to us on that space as the vote was happening that they got a super majority, which was crazy to hear the like the votes roll in live on this audio chat. But yeah, I believe his party controls the legislature.

Starting point is 00:24:53 you know, so they had the equivalent of like a blue wave over there. I mean, I don't know if like you would describe his party as blue or red, not to like put it under an American lens. But yeah, they have overwhelming like legislative support. So it's not like that surprising necessarily that, you know, his bill passed. But yeah, the crazy thing is just the speed of execution. I mean, the text of the bill is released. on or the announcement was on Saturday.

Starting point is 00:25:26 They released the text of the bill on Tuesday and then hours later voted on the bill. And the vote concluded at 2 a.m. You know, Eastern time. So they actually had this midnight session in Congress, which was crazy. And I actually think I said on the spaces. I would be complaining if I, you know, were a legislator and I had to read and understand this bill in like 30 minutes and then vote on it. Right. So we've talked about why this event is significant from the Bitcoin perspective. But let's talk about why this event is significant from the El Salvadoran perspective.

Starting point is 00:26:03 Why is this good for El Salvador? Why? What was the incentive for President Naib to propose this bill? What was the incentive for Congress to ratify it? And why is this good for El Salvadoran citizens? Why do they think that this is good for the country? So, like, honestly, the jury's out whether this will be good. for regular old El Salvadoran citizens. And I want to be honest about that.

Starting point is 00:26:28 Like, we don't know. Most of them are not Bitcoiners, obviously. I mean, like, the Bitcoin penetration worldwide is like single digit percent. So with the reaction I've seen from Salvadorans has mostly been confusion. You know, like, what is Bitcoin? How did this parallel, you know, internet currency come to be, you know, tender of the land. and, you know, am I going to have to use Bitcoin to buy things? So that's been like the main reaction that I've seen.

Starting point is 00:27:04 Obviously, Salvador and Bitcoiners are super pumped about it. But you'd have to assume they're not the majority of the population. So we'll see. Like, we'll see. The fact that Article 7 makes acceptance of Bitcoin for merchants mandatory, that to me is very different from just ratifying Bitcoin as a legal tender that is optional. That's different because at that point you move from elevating Bitcoin and eliminating frictions, and you move to potentially adding frictions because not every merchant is going to have the

Starting point is 00:27:42 facility or the technological means to accept Bitcoin. It's not like Bitcoin merchant tools are ubiquitous in that. America. They're certainly not. There's definitely startups that are like trying to solve this, but it's far-fetched to imagine that every, you know, taco stand or supermarket or small business has the means to actually accept Bitcoin. So I'm very curious as to see what that rollout is going to look like. I believe the law goes into effect in 90 days and whether that's going to be enforced too. Nick, was there like an exception if merchants didn't have the technical capability to accept Bitcoin? There was sort of like this carve out, this exception.

Starting point is 00:28:25 Well, they created this fund called, I think, Bendisol, which is a trust fund, which apparently will help manage liquidity between dollars and Bitcoin. But yeah, you're right. Actually, I think there might be some language in the bill about that, some link to like to the best of their ability. It's a very, very short bill. So a lot of it will depend on the actual means of implementation. So again, it's kind of a wait-and-see thing. So, you know, yeah, go ahead. Yeah, I was like curious, right? So if it's not really for the El Salvadorian people, if they're kind of like mystified, look, we're already using a money. And by the way, Bitcoin isn't a great medium of exchange or unit of account anyway, anywhere. I don't even

Starting point is 00:29:07 think Bitcoiners would say that it is. But like it seems like the Bitcoin case for why a nation-state should adopt Bitcoin is not being dependent on the monetary sovereignty of another country. Right? So like El Salvador with U.S. dollars as its money, as its currency, is very much dependent on, well, what is the U.S.'s monetary policy? And while interesting, last 12 months, we've had 5% inflation. Maybe that's really 12% inflation.

Starting point is 00:29:43 in U.S. dollars. We don't know. And the monetary policy is really in the hands of, let's be honest, the elite baby boomers that are like part of kind of the U.S. government apparatus. Right. So the win, I would think Bitcoiners would say the win for a nation like El Salvador is you have a credibly neutral monetary system rather than being dependent on another nation states. Is that what you think the president saw in this for his country? I believe so. So I think there's two things going on. So that is my real answer for what I think is happening is that it's a beginning of effectively a reprisal against the U.S. for officially dollarized countries to stake out their own monetary sovereignty or to distance themselves a little bit from the Federal Reserve policy, which they're exposed to. Now, President Bukaley denied this on the spaces chat when I asked him, which is maybe fair and sort of diplomatic because maybe you don't want to be super explicit about the fact that you sort of intend to de-dollarize long-term because, you know, bad things have happened

Starting point is 00:30:55 to people who have de-dollarized or like stopped selling oil for dollars. Like Gaddafi tried to get off the dollar standard for the sales of oil. So did Chavez. Iran has tried that. And he also probably doesn't want to scare his own citizens. who are just used to the dollar, right? Like we can, in the back of his mind, he can think like maybe this is a five to 10 year phase out,

Starting point is 00:31:22 maybe faster, maybe slower. But there's no point in just like bringing that up on day one, right? Right. And this is an incremental step, if that is what he intends to do. You know, first of all, make Bitcoin on an even legal footing with the dollar. Then maybe later on, you know, foreign exchange reserve conversion or, you know,

Starting point is 00:31:42 more explicit distancing from the dollar. But here's a very interesting data point, which kind of corroborates this theory. The U.S. actually has threatened El Salvador with sanctions this year, earlier this year. When Buckele, I believe certain officials in El Salvador, not state-level sanctions. Some Buckele, I think, fired, like a lot of the jurists,

Starting point is 00:32:08 like in their judiciary and consolidated power in a certain way. And the U.S. bristled at this and made some noises about potentially sanctioning, you know, members of the government in El Salvador. So my hypothesis, and I'm not an expert on this at all, you know, I only found out about, you know, the, like, politics of El Salvador pretty recently.

Starting point is 00:32:33 My hypothesis is that that might have motivated this. So this might be a populist reprisal, to the U.S. government saying, like, okay, like, we're dollarized, but like, we're going to introduce this other parallel currency. So in the case that you do proceed with sanctions, we're still going to have this, you know, alternative, you know, monetary network that we can tap into if necessary. Yeah, I think people miss that there's like two things that that Bitcoin provides, right? One is like the actual, um, credible, neutral monetary policy against issuance. So you're not relying on the Fed. But the second is credibly neutral value transmission,

Starting point is 00:33:15 right? So you don't have to use like the Swift system that basically the U.S. controls and can impose sanctions on them. So there's these two aspects of like we call that in crypto like censorship resistance that you get to benefit from. And you're saying it could be both of those potentially. It could be either. Yeah. But it's not something you want to come out and say, probably. Probably not. Probably not. Yeah, I agree. I mean, would I be concerned about U.S. inflation? Actually, President Buckele did make reference to this. He made reference to the Cantillon effect, although he didn't, you know, specifically call it out, but he described it. So he basically said on the spaces that I hosted, he said, the U.S. Fed is, you know, like aggressively printing money that's effectively monetizing the debt in the U.S. and those transfer payments are going to Americans. But the entire world bears. the liability of inflation. Anyone that's dollarized bears the cost of, you know, very accommodative Fed policy and effectively inflation, but they don't, you know, benefit from that issuance. Certainly

Starting point is 00:34:23 those transfer payments that are being funded by monetary issuance are not going to Salvadorians, they're going to Americans. And so he did kind of obliquely make reference to this hierarchical system whereby the whole world is exposed to the dollar, but right now it's a very nativist policy in the U.S. where dollar inflation is, you know, mainly benefiting Americans. Nick, one of the big topics of conversation in this whole news is the Lightning Network. And also after Bitcoin Miami, 2021, the Lightning Network definitely seemed to have a big resurgence in just conversation. And I saw a tweet from you talking about how one of your big take takeaways from the Bitcoin 2020 conference is the maturity of the Lightning Network.

Starting point is 00:35:09 And notably Jack Mahler's, who heads up Zapp, was one of the core liaisons with President Naib and just bit-coiners, Bitcoinerism. And so there was a direct connection between El Salvador and the Lightning Network through Jack Mahlers. Do you have any, like, thoughts or reflections as how the Lightning Network fits into this story and also, like, kind of the phase of development that the Lightning Network finds itself in at this present moment? Yeah, I mean, the strike story is absolutely central in this you know, bachronization, as some people are calling it, you know, of El Salvador. Jack Mallors was

Starting point is 00:35:49 apparently one of the main conduits here to the state. And, you know, strike has a lot of usage down there and apparently is growing its user base. Now, you know, can, non-custodial lightning apps power, you know, an entire country's merchant payments. Like, in theory, there's not really any limit to what, you know, the number of transactions you can do with lightning. Of course, like you need to open and close channels and things like that. Could it work? Like, probably, like I see no, like, technical barrier to that working.

Starting point is 00:36:29 Do I think lightning is going to become ubiquitous in El Salvador for, like, brick and mortar merchant payments, like definitely not. Lightning is complex to reason about, you know, these apps are still a little, you know, challenging to use, like, to be clear. Like, I obviously use lightning a lot, but it's enough to just understand Bitcoin and then, you know, additionally to understand that there's this, you know, overlay network built on top of Bitcoin, you know, that's like a lot of work. So I don't think, lightning will have ubiquity in El Salvador. But I do think I agree that it's reached this good stage of maturity where it certainly works. I just I think people are reasoning about payments

Starting point is 00:37:18 wrong. They think, oh, you know, we can build these, you know, crypto blockchain-based payment systems that just replace, identically replace like plug and play, you know, payment experiences in the real world. I think lightning is much more interesting for like, you know, content, monetization on the internet for streaming payments for like brand new payment experiences that weren't possible for. Not necessarily just replicating these like, you know, old world payment experiences for that like centralized services or like QR code based payments like you have with Allipay. Like that seems to make a lot more sense. And if I'm getting my details to correct, the strike app is actually one of the mechanisms as to how companies can

Starting point is 00:38:04 kind of plug into this new this new law of Bitcoin as legal tender while still kind of denominating and then thinking in dollars because Strike has this treasury in the background and they manage risks so they have a dollar neutral position and so when El Salvador and citizens are using strike, they can actually be sending nominally dollars to each other while it's Bitcoin in the background. A, are those details correct to the best of your knowledge and is there any more like illumination that you could shed on that? Yeah, it's a little opaque to me. You know, like we're not. on investors in strike. We've invested in, you know, similar countries providing digital

Starting point is 00:38:39 dollars to Latin Americans, but not strike. So I don't have like precise knowledge. I believe there's like some some interplay with tether, which is like maybe a little perturbing. And that's actually getting a little bit of press. But yeah, I believe that's the case. and we'll see. This will be a huge stress test for that entire infrastructure. It's important to me that even if there is a public, as in state-created, funded, sponsored wallet that people use or invited to use, that there be private sector alternatives and that there be no restriction on the number

Starting point is 00:39:25 of private sector wallets that people are allowed to use. So my hope would be that, you know, there would be a good number of like non-custodial, semi-custodial, you know, dollar-backed, like private sector wallet experiences that people could use should they want to transact with Bitcoin. Worst case would be like some sort of like custodial government app, which is the only way to make a Bitcoin transaction in the country. Or if they gave a license to like one or two wallet companies, you know, I don't think that would be optimal. It's not optimal, Nick, but is it, would it be that bad? It's like you,

Starting point is 00:40:05 you don't have, I mean, we've had this conversation before about like difference between sort of, you know, Ethereum, sort of a D5 vision, which is like maximally bankless at all layers, and then kind of a Bitcoin vision, which is, it's got lightning, some non-custodial sort of things, but can also scale from a Bitcoin bank perspective, right? And I think you've advocated for like, hey, that could be a reasonable way to scale. So, long as there is a free, open, private market building on top of Bitcoin as a settlement network and as a monetary network, right? It's like you can kind of get a Venmo type experience or an alley pay type experience now if you're willing to give up your private keys and just go

Starting point is 00:40:48 custodial. That can work in an app very simply. Do you think that would be the end of the world if it all ends up sort of custodial payment driven in El Salvador? door? So, yeah, it's a difficult question because you're right. I do believe that a hybrid network can be practical in the work, whereby you do have custodial experiences like the same way that we've all used exchanges and Bitcoin banks, crypto banks, things like that. And so I think that can be a very strong complement to a base layer which is sensor resistant

Starting point is 00:41:26 and gives you an array of transactional modes. However, in the case of El Salvador, the thing that makes me nervous if this were to end up fully custodial is the government mandate, you know, the insistence that merchants accept Bitcoin. Because then, you know, you're eliminating free choice in currency, which is important. You know, like Bitcoin is ultimately about free choice and about, well, maybe. if you are using a custodial service, you can always withdraw your coins. So if the government ratifies like two or three custodial wallets or says you have to use the state-sponsored Bitcoin custodial wallet to do your Bitcoin transactions, and merchants have to use the state-sponsored custodial wallet,

Starting point is 00:42:13 that eliminates the choice in currency to a significant degree. So I'm wary of, you know, a development like that. Like people don't really know this been Venezuela. the government has created like Bitcoin like remittance services as far as I understand. Like you can renew your passport and pay for it in Bitcoin or with the Petro. But you know, I don't think people are really that excited about that or think that, you know, that it necessarily empowers Venezuelans. So there's a big contrast between like the Maduro approach to embracing Bitcoin and,

Starting point is 00:42:50 you know, just like the laissez-faire approach. and I naturally hope that we get more of the latter rather than the former. So just some numbers really quick. El Salvador is a country of 6.5 million people, and for context, that puts El Salvador right behind Maryland as the biggest state and right above Indiana, 17th largest. And as a GDP, as a country, it's the 101st largest GDP country in the world. So, you know, relatively small country, relatively modest.

Starting point is 00:43:23 But still, for Bitcoin, it's a whole entire country. And so to me, this is like Bitcoin's biggest test, right? We get to ask and hopefully answer the question, do 6.5 million people want to use Bitcoin when the barriers for using Bitcoin are their lowest in the world, right? Is the Lightning Network actually suitable to help facilitate this growth and adoption and help just grow usage of Bitcoin as a utility? To me, this is like Bitcoin's Make It or Break It moment where we kindly kind of find out, like, does people actually want Bitcoin?

Starting point is 00:43:59 Is that kind of how you see this event as well? I don't know if I want to put so much pressure on the people Vel Salvador. I mean, it's going to be very, very interesting to see how this plays out. There's a lot of ways it could go terribly wrong from a narrative perspective for a big. Bitcoin. But it does mean that every economist now has to concede that Bitcoin is legal tender in at least one jurisdiction. So to me, that's like the strongest thing is that it just signals Bitcoin's progression to a new phase of life. Now, do I actually expect six million El Salvadorans to use Bitcoin in day-to-day payments? Absolutely not. Like, I think usage will

Starting point is 00:44:41 still be pretty de minimis. I think the relevance of Bitcoin is chiefly like attracting crypto entrepreneurs to the country, you know, attracting capital. inflows, that seems to be a big part of what Buckele is interested in, and then more long-term, potentially kicking off a de-dollarization, or at least diversifying the set of monetary networks that El Salvador is exposed to. And they're not the first country to do that. Like Iran has already kind of explicitly said, like, we're, you know, looking at the Bitcoin network in terms of, like, a way to settle international, you know, trade payments, you know, things like that. Venezuela also apparently has like state-sponsored Bitcoin mining.

Starting point is 00:45:27 So El Salvador is actually continuing this trend, started by pariah states. What's interesting is they're the first non-pariah state, the first like sort of state that's actually part of the international community to do this. But yeah, that's the big trend is like actually at the state level, I think, you know, like diversifying their monetary exposure. That's interesting you say, like, El Salvador is the first non-pariah state to start doing this, right? Although you did mention that it has kind of gotten in trouble in the past with maybe the U.S. government and some of the choices with this most recent president. But like, I guess this is another way at which Bitcoin is being stress tested.

Starting point is 00:46:08 Right. So this could be, as David said, Bitcoin's biggest test. And you have to wonder if it's also a test on the nation state level, right? So like the IMF issued something last week talking about having to seriously analyze the move of El Salvador. And you wonder if that's kind of tied into bank loans and international bank loans, this sort of thing. And you kind of wondered like the analogy Dave and I were talking about in the intro to this is, does this lead to a Bitcoin Cold War? Right? If we're talking about de-dollarization, which is this has got to mean de-dollarization to the powers that.

Starting point is 00:46:46 be, right? It's kind of a signal towards that. Does the U.S. actually want that? Does the international community want that? Will they take steps to contain it? Will they take steps to sanction it in small ways or big ways? How do you think Bitcoin holds up against that? We've always called this the final boss, right? But like at some level, Nick, I feel like, look, the final boss hasn't really been paying attention to crypto at all over the last 12 years? It's just like this side show. Okay, geeks, yeah, you have your internet money. Cool. Not really a threat. Too volatile to be a threat. Now we have a nation state, a non-pariah nation state that's adopted it. So what are the powers that be going to do? How are they going to react to this? That's the most fascinating

Starting point is 00:47:34 part of this whole thing. And I think we've all known, I mean, you guys make this analogy all the time talking about like the nation this is the state of the nation right uh talking about like you know blockchain based systems as like a new like new sovereign collectives right so like we've known for a long time now that there are geopolitical stakes here and that um you know crypto users are like staking out a new territory that's just not it's not physical territory but um you know it's very real in terms of, you know, reimagining what their most relevant political affiliation and political unit is, right? So we've known this is happening, but this is just fascinating. It's an acceleration of what was happening. And I agree. I think that is going to be really the enormous big test

Starting point is 00:48:31 here is to see how the IMF, how the BIS, and obviously just like how the U.S. like policy establishment is going to react to this. I think a lot of Latin American countries that have this kind of historical trauma from IMF intervention and from like sort of imperialistic U.S. policy and meddling and supporting coups and things like that, they're not that happy with being vassal states of the U.S. We all know that the Washington consensus, like the system of institutions the U.S. set up after World War II is declining in stature. That's a fact. China has set up their alternative. So now you have the Belt and Road Initiative. China has more bilateral trade with more countries than the U.S. does right now. So, you know, there's like a neo-Cold War there. But what Balogi said on the space was fascinating. He said, El Salvador could be the first in this new non-aligned movement. Because if you remember in the Cold War, the first world, which was just Western countries, they're affiliated with capitalism in the U.S., the second world, which was Soviet states. And then you had the so-called third world. And that was used to refer.

Starting point is 00:49:40 not to their level of development, but to their alignedness to who politically they were aligned with, and they had chosen to not be aligned with either side. And I find Ballagy's reasoning on this incredibly compelling. So you've got the dollar system, and you have to opt into the, you know, the UN, the IMF, the World Bank, you know, the WTO, things like that. And that tends to come with, like, if you can get that capital inflow into your country, it comes with stipulations. you know, become a free market democracy, you know, like, adopt the dollar. Adopt the dollar.

Starting point is 00:50:18 Expose yourself to, you know, that discretion of like, expose yourself to the risk of being, you know, beholden to the dollar infrastructure, which clears through one node in New York, you know, and so that comes with stipulations, there's strings attached. On the other hand, you have like the Chinese model, which is probably, except, you know, the Sino-C-BDC, the digital run MNB, you know, it's a pretty, like, exploitative model, frankly, if you look at the way China interfaces with a lot of its trade partners. But, yeah, you know, maybe we'll give you this nice package of investment. We'll build bridges and we'll sell, you know, your president's surveillance technology. And we'll give you,

Starting point is 00:51:03 you know, this payment system bundled. So, like, there's an emerging Chinese alternative of two. But then maybe this is a third way. Maybe this is a third way. You know, you have a monetary network where you're not exposed to Beijing. You're not exposed to Washington. You can store value outside of the confines of those two systems. You can transact outside of those two systems. And you can attract this capital base of sort of crypto entrepreneurs, you know, crypto natives, digital nomads. And, you know, maybe that can be like the alternative in terms of foreign and direct investment. And so I think President Buckele is kind of signaling that he wants a third way.

Starting point is 00:51:42 I mean, he could have, you know, subjugated them, you know, their country to Chinese influence or remained in, you know, the tight, you know, U.S. circle with the IMF and like the various other, you know, international institutions. But this is potentially a signal that there's a third way here. And that's one of the most fascinating things I've, you know, come across a long time. This is super fascinating, right? So you've got the U.S., the first way, China, the second way, now this third way, which is adopting cryptocurrency. And this is kind of like the crypto domino theory. And maybe El Salvador is just kind of the first domino to fall. What other countries are next, do you think? Is it going to happen in Latin America, for instance? I've heard some murmurings from like, you know, Mexico and some other, you know, Latin American countries about this. Is this where the next domino falls? We don't know, but a lot of policymakers that have witnessed this and then immediately signaled their own affinity for Bitcoin are in Latin America. I won't enumerate them all, but you're talking about Ecuador, Colombia, Argentina, Brazil, Mexico, Panama.

Starting point is 00:52:52 Like policymakers, representatives, politicians, and all those countries have made noises about Bitcoin laws. you've also seen, you know, governors of states and places like Texas and Florida, you know, expressing kind of pro-crypto views. But I think like your most likely candidates would be already dollarized nations because these are places that already don't have the monetary independence, right? So they're not giving anything up. So already dollarized nations that maybe feel similarly to El Salvador, they feel hard done by historically in terms of the influence of the United States. And so and where remittances are, you know, pretty material as well in terms of inflows with the theory that, you know, Bitcoin-based remittances

Starting point is 00:53:41 are maybe more efficient. I guess that kind of remains to be seen whether that's true or not. So you might be looking at, you know, Panama is a dollarized country. Officially, Costa Rica is an unofficially dollarized country, but if you've been to Costa Rica, you know you can transact with dollars there. Actually, they tend to. merchants there ask for dollars and they give you back the sucre, I think. So you get the soft money back. Here, take my liability. Yeah, yeah.

Starting point is 00:54:10 You know, that would be an interesting one. I think Ecuador, Ecuador had their own CBDC back in 2015. Nobody knows that. They didn't really succeed. It was kind of tether-like, had some issues. But Ecuador had this spontaneous bottom-up dollarization that I talk about a lot. There's some good papers on that by Larry White. So those are maybe my three choices for, like, if this is to continue to happen in Latin America,

Starting point is 00:54:38 I would actually expect to see it from maybe one of those countries. So historically, we have not seen good things happen to countries that deny or reject the dollar. America tends to invade these countries. I mean, this was what all of, this was what Vietnam was. This was what all of the Cold War was. we've supported multiple coups in Latin America. So it's not like out of the question for us to look at, you know, good old Uncle Sam and like the hegemony of the dollar and say like,

Starting point is 00:55:10 oh, like what's going to happen next? The difference between the 70s and 80s Cold War and the other coups that the America and the CIA has sponsored in Latin America is that this time it's that there is a cohort of bitcoinsers inside of America, right? It's not communism. It's not whatever that mess was. This is Bitcoiner. And Bitcoin is a global network with a global community.

Starting point is 00:55:34 And that global community is very significantly domiciled inside of the United States. How do you see this dynamic really changing out this version of the future that we see coming toward us? Yeah, I mean, like the U.S. Empire's military adventurism has not been popular for two decades now. You know, the Iraq War, like, there was significant. protest around that. The Iraq War had no justification for it. It was based on a contrivance a lie. And, you know, after the fact, we now learn that it was probably more to do with upholding this oil for dollars, you know, trade, which keeps the dollar afloat, or at least policymakers thought it kept the dollar afloat. And that was probably, you know, the primary justification for the Iraq

Starting point is 00:56:21 war. You know, now today, looking back on it, everybody, virtually everyone would say, it was a waste of money and, you know, a pointless conflict. So, you know, does the American people have the appetite for more military adventurism to support a fraying dollar standard that doesn't even work for regular Americans? Like the, you know, the Federal Reserve policy has created enormous inequality, which is equivalent, you know, in magnitude to, you have to go back to like the 1920s to find inequality that bad. So I don't think, you know, most Americans have any allegiance,

Starting point is 00:56:57 really to the dollar system. It doesn't work for most Americans. So would they really support, you know, a military expedition to, you know, reinsert the dollar in these countries that are just peacefully opting out of it? I don't think you would find that level of popular support. So I'm not sure that the dollar system

Starting point is 00:57:19 has the credibility to attract, you know, that level of a popular mandate. And yeah, as you say, There's probably 30 to 40 million Bitcoiners in the U.S. alone. So it's like an enormous demographic, and they're all going to be sympathetic to the Salvadorians. Yeah, I've always, I think it's pretty easy to say without evidence that in 2020, the global population very much has a distaste for violence these days. We're too global of a population to really accept that anymore. Nick, there's a number of conversations that we want to get to.

Starting point is 00:57:54 And we also want to bring in, like, perhaps the Ethereum or non-Bitkointer perspective to this whole debate, as well as a few other things, as well as a article from the Mises Institute as well, which had a critique on this move by El Salvador. So we're going to get to those conversations. But first, a moment to talk about some of these fantastic sponsors that make this show possible. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans,

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Starting point is 01:00:48 And the first half of the show was all about information and bullishness about Bitcoin. And in the second half of the show, we're going to bring up some of the critiques that we've heard. And I think the first critique that I really resonated with was from the Mises Institute, which wrote an editorial. And I thought the conclusion was worth bringing up here. They wrote, hopefully El Salvador is on a path to a more prosperous future. It's long-suffering people surely deserve as much. For that, new ideas are needed. But an oily Keynesian president with slick American advisors, question mark, that's not.

Starting point is 01:01:18 nothing new, not even when they put their plans in modern language about Bitcoin and put laser eyes on Twitter account. If the president really wants monetary freedom for El Salvador, he should not have presented them with what was effectively a government handout for Bitcoin holders and the companies behind the strike app and other potential intermediaries. Instead, he should have simply repealed existing legal tender provisions and announced that the people would be free to use whatever medium they prefer for their transactions. Nick, how do you feel about this take from the Meesey's Institute. Yeah, no, I'm sympathetic to that take.

Starting point is 01:01:50 I mean, it's cool to see a nation state ratifying Bitcoin and making it legal tender, but I am fundamentally skeptical of state power, right? That's like my stance on all this stuff. And I am not a fan of state mandates regarding currency. I, you know, think that ultimately you get the best, you know, consumer product if they're is a free and open choice. And so Salvadorans are not exactly being presented with a choice here because of this merchant mandate.

Starting point is 01:02:27 So I think, yeah, a better way would be, you know, eliminate, you know, the legal tender provisions, as the Visus Institute says. So like certainly like this is exciting, but it's not without its drawbacks. And yeah, I wish that the language of the law wasn't as focused on like, enforcing certain types of behavior, but rather on, you know, eliminating hurdles. Although I guess all of that said, if you do want to foster a new monetary network effect, maybe you need some like encouragement to get it started. But again, I don't actually see why you would necessarily strictly want a whole country to Bitcoin eyes. I mean, I'm, you know, if it is happening organically

Starting point is 01:03:11 great, but is there a need? Is there a policy need to accelerate it? I don't think. you need. You know, in the first half, Nick, we were talking about the reasons that President Naiv, like, adopted Bitcoin and pushed so ardently for this. And we talked about, you may be the sunny side of things, which is like monetary independence for my people and a censorship-resistant value transmission network that no other sovereign can control. And those sound really good. But, like, the critic's perspective would be, what if President Naeep is just another Bitcoin holder and wants to pump his bags. Right?

Starting point is 01:03:47 Like, so like, he's got laterized. If that is the reason why, right? So like, let's be honest, we are, are all really excited about the upside to crypto and everyone in crypto likes to talk about value, price go up. And in fact, Bitcoin's mantra is number go up. He wouldn't be a Bitcoiner unless he didn't want a number go up. Is he just trying to pump his bags here?

Starting point is 01:04:10 Well, we don't know if he has Bitcoin. I mean, I think it would make more sense to, if that was the plan, to co-vour acquire Bitcoin in their state reserves and then make a big song and dance about this whole thing. That doesn't appear to have been the way that it happened. It seems like through this trust liquidity facility, they might acquire some Bitcoin over time. But they haven't gone about it in that in a way that would suggest, okay, well, we have a financial incentive to make the value of Bitcoin go up. Or rather, they could have extracted more value from it had they planned to do it in that way.

Starting point is 01:04:50 So that's the thing that kind of shocked me a little bit. It's like making Bitcoin legal tender is like a big deal and it's going to impose like new obligations on your citizens and it might make them a little upset with you. So why not acquire Bitcoin in your reserves first and then do that, you know, and then provide that sort of PR dividend and, you know, reap the benefits of that. That's the thing that kind of confused me about this whole thing. I thought that there would be like a definite like chronology to it. I'm curious about your take on this to Nick. So let's say it was the case that President and I just did this to pump his bags. Maybe he's made some secret purchase, had a lot of Bitcoin.

Starting point is 01:05:29 He's a big holder or maybe he bought in, you know, 2012. We don't know. Let's say he did this. Is that is that a bad thing necessarily? Or is this just like is the second order analysis here that this is, ultimately how cryptocurrency and how Bitcoin gets adopted. It's through number go up. It's through greed. And this is how you build a bottom up store of value asset. There's no really like there's no other way to do it other than this sort of thing. So I'm curious what you think of that second

Starting point is 01:06:00 order analysis that even if that's the case, maybe that's still good. Maybe that's how Bitcoin propagates. Yeah, that's a very good point. And I was reflecting on this because I was rereading Hayek's denationalization of money, which is like funny because we're talking about, you know, the collision with the nation state. And Hayek felt that the best currencies would be price stable, right, relative to some basket of goods and services. And they would actually outcompete other currencies on the basis of that stability. But, you know, reflecting on that, it looks like deflationary, non-stable, but, you know, like constantly or, you know, over the long term, deflationary currencies are the ones that are winning out

Starting point is 01:06:43 private deflationary private currencies like Bitcoin. And so maybe Hayek was wrong about that and making these things, you know, deflationary by design, by, you know, implementing NGU technology. Like, maybe that's more viral and more, maybe that's the secret to successfully monetizing a new non-state currency

Starting point is 01:07:08 from scratch. So like we celebrate when we see like members of, you know, the Biden administration that disclosed they have Bitcoin. Like there was a high level official recently, I think, that did a disclosure. And so that is kind of the way this thing warms its way into society, like penetrates every, every echelon of society. And then people are positively disposed towards it. It's not that much you can do to stop it. I mean, people are ultimately going to act in their own economic interest. Yeah, it's funny.

Starting point is 01:07:37 I mean, this is not Hayek, but Hasu, whom you also know, made this argument. Close enough. Close enough. Our modern Hayek is Haseau. And he basically made the argument that, hey, all crypto communities that are trying to be non-sovereign store of value will converge on a deflationary monetary policy, right? So like we see with Ethereum, the Ethereum community is really excited about ultrasound money. Why?

Starting point is 01:08:03 It's this convergence, right? And that's how a bottom-up money grows. if you're taking an academic or systemic perspective, you might say, well, actually, you know, 4.3% annual inflation is actually the optimal golden number for a money economy, right? But then you turn around to like the academic, you say, yeah, but like how do you get it adopted in decentralized way? Because if that 4.3% inflation money is competing against a deflationary store value, it's going to lose. So that's kind of the argument that high. I don't know how you got 4.3%. The golden number. Arbitur. What is it? Like a local maximum or something.

Starting point is 01:08:47 Maybe it's not the perfect equilibrium, but it's an equilibrium. Exactly. So, like, you know, ultimately, you have to look at it from an evolutionary perspective. What are the traits that enable, you know, this organism to survive and replicate? And maybe one of those traits that's, you know, conducive to, election or whatever is is like an attractive monetary policy as opposed to just a flat one. Nick, one of the other lines of conversation that I've been hearing go around is, President Naib has previous flirtations with authoritarianism. He once marched the military

Starting point is 01:09:26 into Congress and forced them to sign a bill that would give him like a bunch of helicopter tanks and some militia equipment of surveillance equipment. He also ousted like five judges and the attorney general. And the concern from the Ethereum community, the Ethereum culture, towards the Bitcoin community, the Bitcoin culture is that all these Bitcoiners are just over the moon enjoyed with President Naiv and El Salvador adopting Bitcoin when he has a track record that stands for something that is very antithetical to Bitcoin. Does it concern you that there's some portion of the Bitcoin community that is just like ready to praise President naive regardless of past actions just because he accepted bitcoin yeah i think that's a really really

Starting point is 01:10:13 great question i'm glad you asked it honestly um because it's like a fine line right you're trying you're excited that we're seeing literally nation-state adoption of bitcoin but at the same time like no state is perfect and el salvador i think is like defined as like a troubled democracy or something um depending on whom you ask like um so yeah i mean I mean, certainly, actually, the first time I heard about Buckele was I read an economist story about him long before this happened saying like there's like a millennial authoritarian in control of El Salvador. And so I tried to, you know, ask him some tough questions on the space. Certainly Alex Gladstein was on there and asked him some tough questions too. So I like to, you know, say that we weren't, you know, 100% purely positive.

Starting point is 01:11:04 and, you know, obsequious or whatever, that we weren't pure sycophants. But, you know, it could certainly look that way to outsiders that see Bitcoin's cheerleading Buckele. I mean, I haven't, like, pulled punches, like, when I went on Bloomberg and also, you know, described him as an authoritarian. So I'm, you know, fully aware of, like, the contradictions there. I think, like, maybe the synthesis is, you know, we can't stop anyone. adopting like whether it's a nation state or a dictator or whatever already some like pretty questionable places uh you know states have like have some engagement with bitcoin whether it's north

Starting point is 01:11:47 korea is believed to be behind a lot of those attacks on exchanges um at the state level um iran venezuela et cetera and you know that doesn't mean that bitcoiners are like embracing those countries just because they share the same network. You know, I think the point of the network is that there is no moral or political, like, gating factor, you know, on like who can do a transaction or whether a transaction is valid, unlike, you know, the dollar network, for instance, where that absolutely exists. And so because Bitcoin is intended to be or is, you know, truly permissionless and its usage, you're going to share a network with, you know, bad people. And so that's, that's we say money for enemies. I think a lot of people need to remember that, is that, yeah, like,

Starting point is 01:12:37 we support, you know, censorship resistance. That also means you have to bite the bullet and say censorship resistance for, you know, like people that, like, are questionable in some way. Does this, does this feed into, like, Elizabeth Warren's narrative, recent narrative, for instance, which is like, hey, like cryptocurrency, Bitcoin specifically is the money for terrorist criminals and rogue nation states. Now here's the first millennial authoritarian. And no big surprise. He's adopted Bitcoin because that's what authoritarian's like.

Starting point is 01:13:10 Does this give that narrative argument more power? Yeah, but you know, you can just flip it on its head and say like the biggest network is the one that has social skillability and doesn't impose any, you know, requirements or standards of behavior for those who choose to use it. And in my view, the best money is the one with the biggest network, the most number of nodes in the network. And so that's one reason why I think Bitcoin will outcompete the dollar ultimately, because the dollar increasingly has all these conditions to like who you have to be and how you have to act to use the dollar network. And the administrators of that network, the node operators, you know, the validators, they are like getting increasingly aggressive in, you know, imposing those conditions.

Starting point is 01:14:02 So, and like Warren is like she's, you know, as far as I can tell, she wants to promote the CBDC and use it to, you know, implement her political agenda in society through the means of the money. That doesn't seem too dissimilar from like social credit, frankly, or any other like highly surveilled, you know, digital money system. And so, like, in my view, like, I just think organically people will long-term be attracted to a network that doesn't have these, you know, like political mandates built into it, you know, that doesn't really care about who you are, like what you believe in. And yeah, of course, that's going to include a lot of, you know, a lot of rogue nations and, you know, like criminals and things like that. But I, you know, that's, I think that's actually the recipe for a successful monetary network. So part of the recipe, I guess, for defy has been, and you know, Nick, the like the bankless kind of thesis on all of this is we love Bitcoin. We think it's fantastic. We're probably more bullish on Ethereum. And the reason is defy. Right. So this sort of gives essentially a nation state like El Salvador an entire banking system in a box where maybe we can get even further in the dream of having a Venmo type experiment experience that's totally peer to peer. And you have a an entire financial system. And so like a question in the defy communities and the theorem community's mind is we wonder whether this is going to be the gateway to other crypto networks, for instance.

Starting point is 01:15:35 And if you're doing Bitcoin, I know you're a big advocate of crypto dollars, for instance, why not crypto dollars on defy rails? It seems like that could be actually a bigger gift, potentially to the El Salvadorian people where they get essentially this entire banking network that's digital out of the box. And maybe it's going to become one of the best banking network on the planet's an internet scale banking network. What are your thoughts on that? Will Bitcoin be the gateway to defy for El Salvador or other Latin American countries? Yeah, I guess the question would be, you know, like, what does Defi offer to Salvadorans, you know, that's, like, really addressable to their lives? And, like, you know, early in the episode, I said, like,

Starting point is 01:16:20 I actually don't think Bitcoin is that relevant to most Salvadorians. So, you know, taking off my, like, crypto-roast-tinted glasses, like, ultimately it's, like, cool to see a nation-state adopting Bitcoin. But, you know, is it going to move the needle for your everyday Salvadorian in a really material way? I'm not clear on that. And so I would probably extend that to DeFi. Like, is there a feature of DeFi that would really materially benefit, you know, Salvadorian?

Starting point is 01:16:52 I'm not sure, you know, I'd have to think about that. Well, one thought for you then is like, so 80% of El Salvadorians are bankless. And I don't mean that in the way that we mean it. I mean, they literally have no bank, right? And so you could imagine something like if Ethereum gets its roll-up ecosystem working kind of a layer two. You combine sort of a mobile type experience with like MetaMask and Crypto Dollars. And maybe you have a digital bank account like right up the gate.

Starting point is 01:17:23 I know there's probably not laptops and this sort of thing, but the mobile phone saturation might be a bit higher. There might be a way to do that as like one potential idea. Thoughts on that? Yeah, no, it's plausible. It's plausible. There's just a lot of work that has to be done, primarily around education, I would say, in terms of getting people to understand what it's like to use a digital bearer asset.

Starting point is 01:17:48 And, you know, the responsibilities involved there. So that could well emerge, you know, like high yield dollar-based savings accounts that are, you know, plug into defy on the back end. I think that will require, like, probably intermediaries that look like regular old fintechs. and make those experiences totally frictionless. But I think that's probably more of like a medium-term outlook. Nick, as we come to a close here, I want to kind of zoom out and have more of a higher-level philosophical conversation

Starting point is 01:18:27 using this El Salvadorian event as context. One thing that I think has become really obvious to me is the priority differences between Bitcoiners and Ethereum with how they approach adoption, right? Bitcoin wants to be very, very physical, right? Like the risk metaphor of Bitcoin claiming El Salvador, like Bitcoin is, Bitcoin wants a march through physical territory throughout the world and become, you know, legal or supported tender throughout the world.

Starting point is 01:18:55 And you can also see the same sort of interest in, you know, Bitcoin mining, where Bitcoin mining really wants to be hooked into the physical power grid of the physical world, right? And even within this El Salvador news event, like, they have plans. to literally make a Bitcoin volcano, where the Bitcoin integrates with a volcano. Ethereum is very different. Ethereum has no interest in being the unit of account or legal tender for any sort of nation state. It wants to be the unit of account on the internet, right? And not only, and it also doesn't want to be instantiated in a proof of work network,

Starting point is 01:19:29 it wants to be instantiated in a nebulous online virtual proof-of-stake network. How do you, do you have any reflections on this cultural divide in different and goals for these two different crypto networks. Yeah, that's really, that's, that's really, like, fascinating way to put it. I mean, Bitcoin is, to me, like, Bitcoin isn't just, like, a digital version of gold. It's, like, literally synthetic gold. Like, I think of it as, like, the successor, like, to gold. And so, yeah, these physical analogies make a lot of sense to me.

Starting point is 01:20:07 Like, you know, the way we talk about mining, it's for, physical. A lot of Bitcoiners think Bitcoin is literally backed by energy. I don't think that, but a lot of Bitcoiners do. So you're right. It's got this kind of like some people describe proof of work as gravity as attaching weight to blocks. So all these physical metaphors do exist. And yeah, I think of it as like following this progression of like gold, like this new gold that's like spreading throughout the world and like mostly households and then later investment funds and then later governments, you know, holding some gold. The same way, like the same distribution that gold has. So I think that's a very apt comparison. And you're right, Ethereum, it doesn't really

Starting point is 01:20:49 aspire to these things. It's completely different, you know, computational lubricant kind of thing. So, yeah, no, I don't have that much to add. That's well put. So, Nick, let's project this. if you can make any sort of crazy projections or predictions for, you know, the next, as a result of the repercussions of this particular event, like, what do you think is the most likely next steps in this story? I think there will be a backlash probably as the law gets implemented. And, you know, Salvadorans are like, what the heck is this Bitcoin thing? Like, you know, I lost my channel backup on the Lightning Network or whatever, you know,

Starting point is 01:21:30 and some like the U.S. difficulties come to the four. then the press is going to go to El Salvador and be like, hey, no one's using Bitcoin. So it was like a flop or whatever. I think that's probably pretty likely. I also think the IMF is going to start to say like their assistance is conditional on countries not adopting Bitcoin. So I think we'll see some, yeah, I think we'll definitely see some backlash from the international development organizations.

Starting point is 01:21:58 IMF is the most important one because they deal with, you know, short-term lending to governments that are troubled. I do think that we'll continue to see sovereign adoption. I think we will see countries adopt Bitcoin in their foreign exchange reserves, not just with legal tender laws, but the most obvious move here for me is diversifying their foreign currency exposure by adding Bitcoin. Bitcoin is now a foreign currency, right? It is the currency of the land and I'll solve it They could never take that away from us. But yeah, I do think this progression will continue. I think some of the younger politicians that are more forward-looking

Starting point is 01:22:37 will recognize that there's this Bitcoin or demographic, which is spontaneously emerged in their countries, and they want to appeal to it. And this bidding war is going to be kicked off between nation states, using tax policy as the primary thing to attract this, like, this very liquid wealth, you know, which is, which has emerged and is controlled by like young crypto entrepreneurs, you know, like digital nomads. Like that sovereign individual thesis is real, you know, like it's happening. Buceli was one of the first heads of state to realize it,

Starting point is 01:23:15 but he's not going to be the last. So, you know, it's a very exciting time to be, you know, kind of a sovereign individual, you know, like to the heads of state of the world. like, you know, you're welcome to bid for my, you know, for my presence. Like, I will happily, like. Join Nick on Twitter spaces. Talk about Bitcoin. Make me an offer. Like, I'll move to your jurisdiction, you know. There's a lot of us. There's like 100 million of us now. So we're mobile. We talked about this. Nick, thank you so much for joining us on this.

Starting point is 01:23:49 This is definitely, we've talked about in our Josh Rosenthal episode that this is kind of the crypto renaissance. Like the 2020s are certainly going to be interesting. for the sovereign individual. We're glad you are with us on that journey. Nick, thanks for stopping by and telling us all about this. This has been fun, guys, really fun. Let's do it in less than a year next time for the next episode. And we'll lubricate those gears to get you a bankless t-shirt for next episode, Nick. Guys, risks and disclaimers. First of all, David wanted me to let you know, like and subscribe if you are enjoying this feed. That's how we propagate it to more hearts and minds. This is a battle for hearts and minds.

Starting point is 01:24:26 State versus crypto networks. Of course, risks and disclaimers. None of this was financial advice. Heath is risky. Bitcoin is risky. All of crypto is too. You could lose what you put in. But we are 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 - SotN #50 - El Salvador Adopting Bitcoin | Nic Carter

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