Freakonomics Radio - 160. Why Everybody Who Doesn’t Hate Bitcoin Loves It
Episode Date: March 27, 2014Thinking of Bitcoin as just a digital currency is like thinking about the Internet as just e-mail. Its potential is much more exciting than that. ...
Transcript
Discussion (0)
Hey, podcast listeners.
We made the episode you're about to hear because you asked for it.
You sent us emails, many, many emails over the last several months,
maybe over the last couple of years, with questions like these.
What is Bitcoin?
Bitcoin.
Bitcoin.
Bitcoins.
What exactly is a Bitcoin?
Can I get...
Do you know what this is?
It's a digital currency.
I do know that it involves the internet.
So that's cool.
All right.
So what is Bitcoin?
It strikes me that the world is currently divided into two groups of people.
Those who care a great deal about Bitcoin and either love it or hate it.
And those who couldn't care less.
Now, the second group is large, but the first group is noisy.
And as a result, you've been hearing a great deal about Bitcoin in the media.
You've heard that it's a digital currency, a cryptocurrency technically,
whose price has risen from about five cents per Bitcoin to much, much higher than that.
The value of Bitcoin skyrocketed to a new record of $900 today.
You've heard that Bitcoin was launched in 2009 after a white paper on the topic was
published a year earlier by a secretive person or perhaps group of people who go by the name
Satoshi Nakamoto and who, according to Newsweek, in the latest attempt to expose the brains behind
Bitcoin, may or may not be a 64-year-old Japanese-American man living in Los Angeles County.
The man outed by Newsweek magazine as the creator of Bitcoin
is now denying that he is the founder of the digital currency.
I have nothing to do with Bitcoin. I was just an engineer doing something else.
You may have also heard that only 21 million bitcoins will ever be circulated, and that each coin is created by a form of mining in which a powerful computer
has to solve hard math problems.
And so the mining basically was a way to rig into the protocol a systematic way to distribute the currency.
So you're not worried that, say, somebody is going to have a whole lot of bitcoins and flood the market overnight, which could then cause your bitcoin to be worth less.
You may have even heard people call this mining wasteful.
So it's just burning a lot of electricity, enough to power, you know, many, many homes.
I've heard estimates as high as three million homes could be powered with the electricity that goes to Bitcoin mining.
You've probably heard that Bitcoin has enemies in high places.
In the U.S. government, for instance.
Senator Joe Manchin is working to ban something called Bitcoin.
And in governments abroad. A Chinese government crackdown on domestic trading
of the virtual currency Bitcoin is starting to have an effect.
You may have heard that alleged criminals like Bitcoin...
The CEO of one of the world's leading Bitcoin exchanges,
BitInstant, has been arrested in New York.
The prosecution claims Charlie Shrem was involved
in a drug money laundering scheme via the Silk Road website.
And you definitely heard about the biggest heist in digital currency history.
It was only virtual money, but it is gone.
The largest Bitcoin exchange declared bankruptcy in Japan today.
The Mt. Gox online exchange, based in Japan, was hacked out of 850,000 coins of the virtual currency earlier this week,
valued at near half a billion dollars.
This incident produced headlines declaring that the Bitcoin revolution is over.
The skeptics say, thank God, what took so long?
While the boosters say, you're kidding, over?
The Bitcoin revolution hasn't even begun yet.
One way to look at it is basically
Mt. Gox has to fail for Bitcoin
to be able to go mainstream
because Mt. Gox was never set up
to be able to take Bitcoin mainstream,
which is what's basically happening now.
So is Bitcoin headed for the mainstream
or oblivion?
What problem does it solve?
Or is it a solution in search of a problem?
And perhaps most important, should you care?
From WNYC, this is Freakonomics Radio, the podcast that explores the hidden side of everything.
Here's your host, Stephen Dupner.
Just say your name and what you do.
And since you've done so much that's so amazing, feel free to brag.
Don't be, you know, super shy.
Okay?
You know, I'm from the Midwest, and so we really don't do that.
Do your best.
At least say, will you say your name at least?
I will.
I'll admit to that much.
So my name is Mark Andreessen.
In a former life, I was an inventor, an entrepreneur, and more recently, I've become a professional venture capitalist.
Andresen's VC firm, Andresen Horowitz, has had a hand in a number of big-name tech companies like Facebook.
Twitter, Pinterest, you know, a very large number of the mobile apps people use all the time.
E-commerce, we do a lot. And lots of other categories of technology. Okay. And before that and before that and before that, you were doing things like helping build the first browser that a lot of us who got on the Internet when it was new started to use, Netscape Navigator.
Before that, Mosaic, yes?
Yeah, that's right.
A group of colleagues and I built Mosaic, which was sort of the first widely used web browser in the early 90s and then later founded a company called Netscape that basically built commercial versions.
Andreessen's firm has invested about $50 million in two Bitcoin-related companies,
one of which is Coinbase, a Bitcoin exchange and transaction service
that is a rival to the now-defunct Mt. Gox.
So Mark Andreessen has, quite literally, a vested interest in Bitcoin.
You say vested interest, I say skin in the game.
Okay, fair enough.
Is there money where my mouth is? But we'll have that debate another day.
So what gets someone like Andreessen so excited about Bitcoin?
At the core of what Bitcoin is, is the solution to a fundamental problem in computer science that's been around for decades that had never been solved before. Now, if you're not a fan of computer science, this might get a little bit
less interesting before it gets more interesting, but hang in there. The problem Bitcoin solved,
says Andreessen, was known as the Byzantine generals problem. The metaphor basically is you
have a group of generals in the Byzantine empire, and they've surrounded a huge city. And there's these encampments that these generals have all the way around the city. And
at some point, they're going to lay siege to the city. But they have the coordination problem,
which is they have to be able to communicate with each other to develop the battle plan and decide
when to launch the attack. And so they're sending runners back and forth between the cities. The
twist to it is some of the generals are traitors, but none of the other generals know which ones
are traitors. And so the question is, how do you coordinate a significant number of people who don't know
each other and don't trust each other being able to communicate securely and be able to
basically establish digital trust?
And as you're probably well aware, digital trust is a concept that's brand new.
Like, you know, one of the huge problems of the internet over 20 years is who do you trust?
You know, which websites do you trust?
Which people do you trust?
When you do a transaction, who do you trust?
And so this idea of the Byzantine generals problem turns out to apply directly to the internet as a whole.
One of the things as a consequence that's been missing on the internet for 20 years is kind of a native concept of money.
And so the ability to very easily pay somebody online, the ability to very easily charge for a piece of content,
the ability to very easily exchange a digital title or a digital key or a digital contract that's just
been missing because you have no mechanism for establishing trust. And so Bitcoin basically
holds out the promise of being the first solution to establishing trust over an untrusted network.
Now, you may be thinking, wait a minute, I've been using the internet for years to
pay people online, carry out all kinds of transactions.
There's already a huge e-commerce infrastructure.
Isn't this what banks and credit card companies already do?
I think of Bitcoin as really a revolutionary new technology that is in some ways way past due.
That's Susan Athey. She's an economist at Stanford. She also studied computer science.
And she's an advisor to Ripple, another virtual currency, which is a Bitcoin rival.
But in the financial world, we're still basically running the system on decades-old technology.
So what's really revolutionary, I think, about the whole math-based currency movement
is that people have figured out a way that I can send an item of
value from one entity to another entity securely, almost instantly, and without a middleman.
Until now, middlemen were necessary to fight what is called the double spending problem.
Let's say you download this radio program, and then you send a copy to a friend. Now you each have a digital copy.
That's nice.
But in the case of digital money, that would not be so nice.
You are not supposed to be able to spend your money and keep it too.
Now, to avoid this, we've relied up till now on a middleman like a credit card company or PayPal.
What they do is essentially transfer IOUs back and forth
to make sure that digital money is not spent twice.
The beauty of a new currency, which is part of a virtual currency protocol,
is that what I'm moving from me to you is just an entry on a secure public ledger.
And that public ledger is maintained by a set of computers all talking to each other using a
protocol. So I don't have to worry about some bank giving me an IOU and then taking that IOU
and handing it to another bank. Instead, if I make a transaction over the virtual currency,
it's just an entry in the ledger. So I don't need a middleman.
Without us knowing each other ahead of time, I can send you a unique piece of digital property
that might be digital cash or digital key or digital contract.
That's Mark Andreessen again.
It's a unique piece of digital property. I can send it to you.
What then happens is the network basically validates the transaction.
And after the transaction is validated, everybody else in the network is able to inspect that transaction.
And they're able to confirm that I originally owned that piece of property.
And now you originally own that piece of property. And I didn't transfer it to three
other people at the same time. I didn't lie about the fact that I transferred it. You didn't lie
about the fact that you now own it. And basically everybody can inspect this blockchain anytime they
want and they can basically prove through the math of Bitcoin that that transaction actually
took place. And that's kind of the magic to the system. The blockchain that Andreessen just mentioned
is what Susan Athey was describing earlier
as a public ledger.
It is a log of all transactions in the Bitcoin ecosystem.
Now, banks and other financial institutions
already have ledgers of their own,
which let them transfer funds internally
or with other trusted parties.
But now it seems Bitcoin's blockchain technology
could do this without the middleman, which means faster and cheaper.
And that actually opens up all sorts of economic possibilities,
some of which we can talk about, but some that we probably haven't even imagined yet. Okay. What sort of economic possibilities does that open up? Well, if you're in the retail,
banking, or credit card industry, mostly bad possibilities. Those industries have made
fortunes by taking a cut of every transaction, which a virtual and virtually frictionless
currency like Bitcoin could perform for much, much less.
Now, what's the big deal about that?
What kind of markets might benefit?
One is the remittance market.
So, you know, we have poor people from developing countries go abroad
and then they remit their money back home to their home country
to feed their children or their parents and their families.
And the fees can be, you know, around 10 percent.
Mark Andreessen, not surprisingly, sees a lot of potential upsides, too.
Some of that business will be transactions.
Some of that business will be digital contracts.
Some of that business will be digital keys, digital signatures.
And then a system will start to work itself into things like anti-fraud or things like public payments or things like micropayments.
Wait a minute. Anti-fraud?
Aren't banks and credit card companies already pretty good at anti-fraud?
Well, credit card fraud, we actually know basically what credit card fraud costs the economy, which is basically most of the credit card fees.
And so economy-wide across all credit card transactions, credit card fees range basically between 2% and 3%. The majority of that is paying for fraud.
And so one way to think about credit card fraud is credit card fraud is a 2% to 3% drag on the
entire economy. It's an artifact of the fact that credit cards were never designed to be used the
way that they're being used today. Credit cards never anticipated online transactions. Credit
cards, by the way, the credit card system never anticipated malware running inside a cash register at Target, right?
I mean, in the 1950s, that was an inconceivable idea, which is when credit cards were dreamed up.
And so if you have a payment system like Bitcoin where you don't have the credential exchange and you have no risk of identity fraud and you have no risk of people being able to run transactions on your credit card after the fact, you can basically eliminate that entire category of fraud. Now, Mark, I think one part of the Bitcoin story that's confusing for people
is that most of the coverage, at least in the past five or six months, has been about the
volatility of the currency itself, of Bitcoin as a currency, right? Sure. So it sounds to me like
you're saying the uses of Bitcoin being so wide and deep
that we should all appreciate
or at least appreciate the potential of it.
That said, the volatility of the currency scares people
and including scaring off some of the people
that Bitcoin supporters like yourself
would probably like to not be so scared of.
So it just makes me wonder, maybe this is impossible.
I just don't understand the constraints. Wouldn't Bitcoin as a transaction method, as a kind of frictionless transaction,
be better if it weren't also a currency or pegged to a currency? Or is that not the way this problem
could have been solved? So it's a very complicated, we would have to take another six hours to go through this in detail.
I'll give you a couple of headlines on it, though. First of all, Bitcoin can be used as
a transaction system without being used as a currency. It can be used that way. And so,
like, literally, the way that would happen is when you go to buy something on the internet,
you basically do a conversion of dollars to Bitcoin, send the money across the wire,
and then the merchant on the other end immediately converts Bitcoin right back to dollars. And what's the transaction fee on that?
Yeah, so the transaction itself in that case is free, because Bitcoin transactions today are free,
and then in the long run, there will be very small transaction fees associated with that kind of
thing. The main fee that you would pay for the transaction use case today is the fee to exchange
Bitcoin and dollars back and forth. That today is running about 1%. But no, you can imagine
those fees coming down fairly quickly. And then you get into this interesting question, if you're
a merchant, would you rather pay the 1% or sub 1% to be able to do the exchange? Or would you be
willing to bear the volatility for some period of time, for example, until you could potentially
spend the Bitcoin? And you might spend the Bitcoin by buying something from one of your suppliers,
or you might spend the Bitcoin by having a refund program, a rebate program, a loyalty program back to your customers, or whatever it is. And so that'll be
part of kind of the economics that will determine who chooses to hold Bitcoin versus who chooses to
convert it back to regular currency. Similarly, very shortly, there will be derivatives. There
will be Bitcoin derivatives, and there will be Bitcoin insurance. And so as a merchant,
one of the things you'll be able to do is hold Bitcoin and then buy a derivative that protects
you against currency fluctuations, which of course is what people doing business internationally will do today.
If you're doing business in Japan and you don't want to bear the yen currency fluctuations, you buy a derivative that protects you from that.
That's not quite available yet, but that will be coming very, very shortly.
And that's one of the business opportunities that is clearly a big opportunity on top of Bitcoin. So what are the advantages of a currency and or transaction platform that is not affiliated
in any way with the government?
So there are people who will tell you that's a really, really big deal.
Like I think in the U.S., you know, with certain exceptions like 2008, you know, generally
in the West, in the U.S., we're blessed with a fairly stable financial system, with a fairly
stable monetary system, with a fairly stable government.
You know, we complain about our government all the time, but like it works pretty well.
I think the benefit to Bitcoin not being connected to a government is much greater in poorly run countries.
And, you know, you go all over the planet once you get outside of the U.S., there's like, you know, 150 countries that have what we would consider to be subpar governance.
Right.
And so typically they have corrupt governments.
And then you also have a lot of countries that have very badly run banking systems
and very badly run central banks.
And so I think in a lot of the rest of the world, outside the U.S.,
outside of Western Europe, there is a fair amount of demand from people
to be able to do things that we take for granted,
like being able to exchange money without it getting stolen
or to be able to store money someplace where the central bank can't just hyperinflate it.
So you can see why Marc Andreessen is such an evangelist for Bitcoin, aside from the
fact that his firm has Bitcoin investments.
But what about the Mt. Gox exchange getting hacked to death to the tune of several hundred million dollars?
What about the potential criminal uses of a virtual currency?
Who's supposed to be looking out for all that?
Coming up on Freakonomics Radio, you'll hear from one man who is ready for that job.
I'm the superintendent of financial services for the state of New York.
And he knows what he's up against.
It's very hard to transport a million dollars in hard currency overseas. You can't just put it in
a backpack and get on a plane very easily. But it is very easy to do that now digitally using Bitcoin. From WNYC, this is Freakonomics Radio. Here's your host, Stephen Dubner.
So one reason we're doing this episode on Bitcoin is that, as we said at the top, so many of you readers and listeners asked for a Bitcoin episode. Now, you also asked about Bitcoin when
we were running our public radio pledge drive, asking you to go to freeconomics.com and make
a donation, which by the way, you can still do whenever you want. And a lot of you wrote to say
that, hey, I'd love to make a donation, but I use Bitcoin for online transactions and your radio
station WNYC does not accept Bitcoin.
My name is Eric Dean.
I'm the Senior Director of Business Development here at WNYC.
So why doesn't WNYC accept Bitcoin?
I mean, Tesla's doing it and Overstock.com is doing it.
A comic book shop in Bozeman, Montana is doing it.
So what would it take for WNYC to accept Bitcoin?
I think it would take a turnkey provider that we could go to that would essentially say, yes, you can just put this little widget on your
site. You can set your prices in dollars. We will do all the translation on the back end.
We will take all of that headache off of your shoulders. And does that mean they buy the risk
as well? Exactly. So we will guarantee that you will get a rate of this amount over the
next month because there's no swaps. There's no futures that we can buy in Bitcoin right now.
So they would handle all of that and just say, we will make it so you can do this.
And overall, the net transaction fee is still going to be lower than every other credit card
processor. What you're describing sounds a little bit like a bank. Yeah. Yes, it does. So who's, okay, so I'm guessing
that as we're speaking, there are hundreds, if not thousands, if not hundreds of thousands of people
thinking about doing exactly this. Do you know anything about these markets? I know of a few
startups that are exploring this, again, serving that kind of middleman risk mitigation function,
right? So we will guarantee you a rate for the next 24 hours and we will handle all the processing. Again, the actual
technology to accept it is not that hard. It's really just getting the dollars out of the other
end. So they've popped up. None of them are firms I've ever heard of. I have no idea what the
capitalization is of any of those firms. I have no idea if it's like a guy in a basement just mining
Bitcoins and doing whatever.
But as soon as there's a name
that kind of leaps off the page
and I go, OK,
that's somebody
that we could do business with,
then absolutely I'd talk to them.
It's so similar
to what happened
with the early web.
It's almost exactly the same.
That's Mark Andreessen again,
web pioneer then,
Bitcoin booster now.
In the early days of the internet, almost all the big telecom CEOs said this thing will never work.
Almost all, by the way, the big technology CEOs said this thing will never work.
The media CEOs all said this will.
Let me tell you a quick story.
When we started Netscape, we met with the CEOs of the six major telecom companies and the six major media companies.
We basically did a tour.
And 11 out of 12 laughed us out of their offices and said, look, there's just no way. There's just no way. It's like, have you tried to use this?
It's super slow. It doesn't work. And the screens are fuzzy. And like, I can't imagine. And but,
you know, like the advertisers are never going to advertise in this thing. And like consumers
are never going to use this. The early days of the web were not primarily people talking about
how great it was going to be. The early days of the web were primarily people talking about all
the bad uses. And so if you go back and pull the coverage from 93 and 94.
All right, Mark, we can do that for you.
Here from NBC's Today Show in 1994 are Katie Couric, Bryant Gumbel, and Elizabeth Vargas.
That little mark with the A and then the ring around it.
At?
See, that's what I said.
Katie said she thought it was about.
Yeah. Oh. But I'd never heard it. Around. I'd never heard it said. I'd always seen the mark, but never heard it said.
And then it sounded stupid when I said it. Violence at NBC. What is internet anyway?
Internet is that massive computer network. The one that's becoming really big now.
Well, yeah. How does one, what do you write to it, like mail? No, a lot of people use it.
Now, to be fair, it wasn't just morning show hosts who didn't get the internet.
The economist Paul Krugman would go on to win the Nobel Prize.
Here's what he wrote in 1998 in Red Herring Magazine.
Quote, the growth of the internet will slow drastically as the flaw in Metcalfe's law,
which states that the number of potential
connections in a network is proportional to the square of the number of participants,
becomes apparent.
Most people have nothing to say to each other.
By 2005 or so, it will become clear that the Internet's impact on the economy has been
no greater than the fax machines.
All right, so maybe it's not fair to make fun of Paul Krugman either.
Predicting the future, as we've said around here again and again, is pretty hard.
But that's kind of my point here.
For every person who tells you that Bitcoin is nothing but a bubble that will blow up any day now or who tells you that Bitcoin is poised to solve every financial problem known to man,
well, neither of them have any way of knowing.
We'll have to wait and see.
Although I will tell you this.
One economist did talk about the future of Bitcoin
before Bitcoin even existed. It was Milton Friedman, also a Nobel laureate, in 1999,
just a year after Paul Krugman told us the internet was only a fad.
I think that the internet is going to be one of the major forces for reducing the role of government. The one thing that's missing
but that will soon be developed is a reliable e-cash, a method whereby on the
internet you can transfer funds from A to B without A knowing B or B knowing A.
The way in which I can take a $20 bill and hand it over to you and there's no
record of where it came from.
And you may get that without knowing who I am.
That kind of thing will develop on the Internet,
and that will make it even easier for people to use the Internet.
Of course, it has its negative side.
It means that the gangsters,
the people who are engaged in illegal transactions, will also have an easier way to carry on their business.
Ah, the gangsters.
It always comes back to the gangsters.
Even though gangsters have always done pretty well with cash, as have tax evaders.
But still, you can see how a virtual currency like Bitcoin could alarm not only the banks and credit card companies whose fees might get hit,
but regulators and lawmakers like this guy.
My name is Benjamin Lossky. I'm the superintendent of financial services for the state of New York.
And in that role, I run the Department of Financial Services, which oversees all banks, insurance companies, and everything in between in the state of New York. Okay. Now, I've read that your office oversees entities with a total asset value of $6.2
trillion. First of all, is the number right? $6.2 trillion?
A give or take.
Not that I expect you to have the... Okay. That's a lot of money. Bitcoin, therefore,
as of today, at least, would represent a tiny, tiny, tiny, tiny drop in the biggest,
biggest, biggest bucket. Why are you worried about Bitcoin? Or why are you
concerned enough to think you might should be worried?
Look, I think I'm both concerned, worried, and excited about Bitcoin. I think it has
potentially a big, a bright future to it. And it could really potentially, at least the technology
could revolutionize or at least improve upon our existing payment systems. And I think we're in a
period where we're going to have just a lot of change over the next five to 10 years in mobile
payments and how we, you know, the collision between the traditional banking sector and technology.
Lossky recently organized a two-day fact-finding mission
to help his office write some of the first Bitcoin regulation in the United States.
So what did he learn?
It holds a lot of potential. And as we
design this regulatory scheme for Bitcoin, for virtual currencies, we want to make sure we are
setting rules of the road that enable innovation to continue, that allow the sort of positives,
the potential really interesting future that Bitcoin can have as a way for people,
especially to engage in international transactions, to happen and to happen efficiently.
But at the same time, we learned, and I think the law enforcement panel was very clear on this,
that there are very unique, tough challenges for law enforcement when it comes to virtual currencies.
They gave the example of it's very hard to transport a million dollars in hard currency
overseas.
You can't just put it in a backpack and get on a plane very easily.
But it is very easy to do that now digitally using Bitcoin.
And with the uses of other technologies that there was testimony about, things like what
are called tumblers that make people even more anonymous, it's become a real hurdle sometimes for law enforcement to try and track down who is engaging in some of these transactions.
Lossky, like the economist Susan Athey, thinks Bitcoin could reshape the remittance market. Right now, there are thousands and thousands of New Yorkers who work very hard every day
to send money back home to their families in whatever country they're from.
And right now, they're paying fees for those wire transactions each week at the end of the week,
seven, eight, nine percent. And that's a lot of money for people who often can't afford it.
And Lossky heard about potential uses that he hadn't even imagined.
There was some testimony about how one of the potential advantages of Bitcoin as a currency
was that it was programmable.
It was a programmable currency.
And I didn't really understand that.
And I asked a couple of different panels what that meant and could they expand upon it.
And the first day, one of the gentlemen answered and said well you can for example color code and that's
not literally but in the technology the bitcoins you're using to have them perform certain
functions you know it's code as well and he said at one point, he said, you know, you could be coding in such a way that you would be paying for transactions.
And at the same time, the code could be working on a cure for cancer.
And that, again, I'm still trying to get my mind around that.
I'm not sure I fully understand that. There is clearly a kernel of very interesting computer programming innovation that's built into virtual currency that holds a lot of promise.
That's fascinating.
You know, when you said color coding, where my mind jumped to, I'm just curious what you'd say about this.
You know, let's pretend that the U.S. government wants to give $10 million to some country to feed its people on Wednesday and the money shows up in cash on Thursday,
well, that cash can go to buy anything, obviously. Cash is fungible and that's what we love about it.
That's what's great about it. But on the other hand, if I could color code that Bitcoin or other
cryptocurrencies so that it can be used actually to buy food and wheat and soy and so on and not
rocket launchers.
Well, that's a great piece of that's a great ability for me to have in a currency that
acts like cash.
Yeah.
Yes.
And I think my understanding, and it was really from the day two testimony when I asked that
question again about programmable currency, that that is one of the things that potentially
you could have with the color coding.
They also gave an example of a young person whose parents want to give them an allowance,
but want to make sure it goes for certain things and not other things.
You could program it in certain ways that would do that. I have to say, I was surprised, a little bit excited too, I guess, to hear Benjamin Lossky, a state regulator, talk about how excited he is about the future uses of Bitcoin or something like it.
It's quite unlike the view taken by Alan Greenspan, former chairman of the Federal Reserve.
Bitcoin, Dr. Greenspan, Bitcoin has been on a tear up 80-fold this year.
What are your thoughts on this? Is Bitcoin, in fact, a bubble?
I guess so. Let me say that currencies to be exchangeable have to be backed by something.
We're on the gold standard. gold and silver had intrinsic value.
Could it be the new gold?
Not really backed by anything?
No, it has to have intrinsic value.
You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. If you ask me, is this a bubble
in Bitcoin? Yeah, it's a bubble. So there's a number of top economists who have basically
taken positions like that. That's Mark Andreessen again. It's a little bit like dogs watching TV.
It's all very interesting, but whatever, until another dog shows up on screen and then the dog
freaks out. Economists, this stuff is all whatever, technology, geek, nerds, whatever.
And then currency is the flag, right?
And so the minute the word currency shows up, like all the economists perk up.
Because if there's one thing the economists are all experts on, it's currency.
And they think they look at it and then they're like, oh, my God, people are paying $600 for this thing.
It's just a piece of fake digital currency.
Like people have just completely lost their minds.
I don't think that they are looking at the underlying substance.
It is the underlying substance, the underlying capability of this new technology that excites
people like Andreessen. Maybe it excites you too, but odds are you haven't heard much or thought much about that technology.
What you have heard about is this runaway, inflationary, possibly criminal, subject to hacking, weirdo, anarchist cryptocurrency.
And it has you confounded, maybe even frightened.
It makes you feel any better.
That's how a lot of people were feeling a few centuries ago when another transactional
technology hit the market. One of the characteristics of a new idea is all the experts who came up in
the sort of old regime look at it and laugh. By the way, the exact same thing happened with paper
currency 300 years ago. Almost exactly 300 years ago, a Scottish economist, ironically, named John
Law, basically invented this, at the time, crazy idea of paper currency or fiat currency.
And actually, he was laughed out of Scotland.
He was laughed out of the UK.
And he was laughed actually all the way to France, where he became the French finance minister for King Louis XV.
And every economist on the planet 300 years ago thought that he was a complete lunatic.
And so I think this is just – this is the story.
This is kind of
the recurring story of how progress happens. It doesn't happen by the establishment all
basically sitting up at once and saying, aha, that's a wonderful idea. Like that's just not
how it happens. Hey, podcast listeners, here's a riddle.
Name an activity that millions upon millions of people do around the world,
and yet most of them would rather not do.
Yeah, I've tried to quit like 10 times.
I need to quit. I've tried many times. It does not work. I fail.
I need a healthier lifestyle.
I could quit, I think, just any time if I made my mind up.
I'm smoking a cigarette right now.
What's the best way to quit smoking?
That's next time on Freakonomics Radio.
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