The Pomp Podcast - Allen Farrington On Why Bitcoin Is Venice #905

Episode Date: April 8, 2022

Allen Farrington is a former institutional investor and author of the new book "Bitcoin Is Venice". In this conversation we discuss institutional adoption, errors of modern economic theory and why Bitcoin is such an elegant solution to many of the world's problems. ======================= Exodus is leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience, Exodus has become one of the most popular and loved cryptocurrency apps. It’s supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset’s price history and your portfolio’s performance over time. And maybe the best part, Exodus is integrated with the Trezor hardware wallet - making advanced security easy for everyone.  Visit exodus.com/pomp for your free download or search Exodus on the App Store or Playstore. ======================= Today’s episode is sponsored by Abra. Based in California and backed by top VC firms, Abra is an all-in-one simple, secure app that allows you to trade over 110 cryptocurrencies, get 0% interest loans using your crypto as collateral and earn interest with up to 14% APY on stablecoins and 8.15% APY on Bitcoin.  Join nearly 2 million users by downloading Abra from the Google Play or Apple App store. If you download the app today, you will get $15 in free crypto once you fund your account.  You came, you invested — now conquer. ======================= DeFi Technologies represents what’s next in the digital economy -- providing simplified, trusted access to crypto, decentralized finance and Web 3.0 investment opportunities. Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols, through a single stock purchase on a regulated exchange. Currently listed on U.S. (OTC: DEFTF) and Canadian (NEO:DEFI) exchanges. For more information or to subscribe to receive company updates and financial information, visit our website at http://defi.tech  =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Alan Farrington is a former institutional investor and the author of a new book, Bitcoin is Venice. In this conversation, we talk about institutional adoption, the errors of modern economic theory, and why Bitcoin is such an elegant solution to many of the world's problems. I really enjoyed this conversation with Alan, and I hope that you enjoy it as well. Before we get into this episode, though, I want to quickly talk about our sponsors. Today's episode is brought to you by Exodus, the world's leading desktop, mobile, and hardware

crypto wallet. They offer beautiful, user-friendly blockchain products that sync across all of your devices, making it easier to send, receive, and exchange over 150 or more crypto assets in one place. And with world-class customer service available to you 24-7, Exodus always has your back but the fun doesn't stop with staking and trading they recently launched a new nft marketplace where you can buy and sell your favorite nfts on the solana network by partnering with the popular nft platform magic eden they're offering the full monty on verified collections with more added every single day ready to check it out for yourself run don't walk over to exodus.com slash pomp for your free download today again if you want the world's leading desktop mobile

and hardware crypto wallet. Go to Exodus.com slash Pomp today. Today's episode is sponsored by Abra. They're based in California and they're backed by top VC firms. Abra is an all-in-one, simple, secure app that allows you to trade over 110 cryptocurrencies, get 0% interest loans using your crypto as collateral, and earn interest with up to 13% APY on stablecoins and 7.15% APY on Bitcoin. You can join nearly 2 million users by downloading Abra from the Google Play or Apple App Store. If you download the app today, you will get $15 in free crypto once you fund your account. You came, you invested, now conquer. Abra, conquer crypto. Go check it out today. This episode is brought to you by DeFi Technologies. DeFi Technologies represents

what's next in the digital economy. They're providing simplified, trusted access to crypto, decentralized finance, and Web3 investment opportunities. Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols through a single stock purchase on a regulated exchange. DeFi Technologies is currently listed on the U.S. Exchange at DEFTF Stock Ticker and the Canadian NEO Exchange at DEFI. For more information or to subscribe to receive company updates and financial information, visit their website at defi.tech. I'm really excited about what these guys are doing. I've become an advisor to the business, and I highly

suggest you go check them out. Go to their website at defi.tech today. All right, let's get in this episode. I hope you guys enjoyed this one. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got Alan Farrington here with me. How are you, man? I'm very well.

I'm super excited about this because I feel like you went from zero to like a thousand on the Yeah, I kind of feel that way too. Entirely unexpected too. For sure. So you've got a brand new book out that basically looks at all the errors of modern economic theory. So I figured that'd be a good place to start. I think there's a whole bunch of people who are wondering what the hell's going on in the world. And it's human nature to look just at right now and forget that there's decisions in the past that led up to today. So maybe walk us just through like, what do you assign today's problems to and from past economic theory um how long do we have i feel like i should probably just read you the book

to explain yeah how did we end up where we are um to be fair that what what we go into in the book i say we by the way because i have a co-author um uh sasha myers who will be at the conference unfortunately you can come to this but we're doing a book signing on the friday if anyone's interested so that's just why i keep saying we um we don't our our approach isn't really to explain um kind of the exact point that we are at now um it's not it's not really to like trace history exactly it's it's a lot more theoretical than that um what we dig into is some surface level explanation of what we uh kind of amusingly sarcastically just called degenerate fiat economics but it's not some it's not really an economics it's certainly not a textbook it's not really a book about um you

know laying out economic theory as we think it should be sort of understood or taught or whatever it's almost a step back from that in terms of what ways of thinking about economics are even helpful in the first place and probably obvious by the title or you know anyone who has heard of me before the conclusion of this is that if you approach it properly and and uh sort of competently and with a philosophically coherent outlook, you end up having quite a favorable view of Bitcoin. You don't necessarily, I think, conclude that Bitcoin is the answer

to absolutely all of this, but you certainly end up having a very favorable view of it relative to the fiat alternative. How much of this can just be assigned to Austrian economics versus Keynesian economic kind of thought processes versus there's more nuance to it than just, hey, there's two completely different schools of thought?

I think that's a very good start. there is um i forget forget which one but relatively early on there's an end note there's a very very long end note where we answer exactly this question and so i think as a starting point just looking into austrian economics is is fantastic everybody should do that everybody should compare their learnings from doing so to what they've i would imagine if unless they've actually you know done studied economics like an undergraduate degree for example probably they've just imbibed from the culture and they'll notice a massive contrast there um but this this end note goes into basically a a whole bunch of other schools that uh don't necessarily contradict

austrianism i wouldn't put them up as kind of competing schools or anything they're just they're as you say they're nuanced yeah they they flesh it out some more so for for people who are interested i would strongly encourage after you've done the kind of core austrian regimen i would encouraged looking into uh complexity economics ergodicity economics islamic economics and actually there's a whole bunch of kind of i guess you'd call them just heterodox thinkers that quite self-consciously don't place themselves in any particular school and there's a very long list of them that we do cite at various points my favorite which i've been kind of banging the I'm on for a while is a guy called Hernando de Soto, who wrote a fantastic book called The

Mystery of Capital. He doesn't, as far as I'm aware, at least he doesn't consider himself an Austrian economist at all. But I think his writing fits not only with the Austrian school very nicely, but it has very kind of obvious morals, once again, for Bitcoin. It's very useful for explaining some of the things that I would argue Bitcoin fixes. And so when you started to think about some of those uh kind of herit docs uh type ideas what are the like main takeaways right if somebody's like hey look i don't have uh a year to go and study all of this like what's one or two of them that you would kind of put forward as examples of uh of if you went to go do this work you'd walk away with sure um i'll maybe just pick uh of the ones i mentioned i'll just pick a few

and like give a give one of their lessons if you like so the reason that um complexity economics is maybe kind of controversial. I haven't really heard that many people in the Bitcoin sphere talk about this. So I don't know if there's any inadvertent Bitcoin blasphemy involved here. But the reason that I like complexity economics, I think it actually fits very nicely

alongside Austrian economics. I don't think there's much of a contradiction. The reason I would say it's controversial, though, it's kind of bizarre that most of the, um i guess foremost uh economists who identify with that school and they it's not that they sort of explicitly dislike austrianism it's more that they come to conclusions that i would argue are politically motivated and that don't actually really follow from the economics that they've just done but the gist of it and the reason i like it is that i think that it's a very nice counterpoint

to austrianism for people who are very uh either mathematically or kind of mechanically inclined and so one of the i think this is actually a really good thing about austrianism is this is in no way a criticism is that um you'll you'll hear people who are kind of fans of it one of the things they tout is that if you go through an austrian economics like textbook say so something that is like really rigorously academic you'll find next to no equations right and this is like an obvious counterpoint to um basically all of mainstream i i actually don't even really like saying keynesianism because i think the mainstream goes beyond what would count as just keynesian to for that to be all that helpful um it's a good kind of an insult though but um yeah mainstream

economics equations absolutely all over the place austrian not so much i think there's potentially attention there this is something that i felt given that my undergrad was in math um that i i have some sympathy for people who look at that and you know they don't disagree with any of it they they follow all the reasoning and it's if anything it's kind of refreshing that it's like it's just verbal logic and that's great and they you know they follow it they understand it i have some sympathy for if they have an instinct that there there must still be some kind of math behind this right it's not just like completely beyond being um very careful exactly what i say here but like modeled or measured in some way like clearly there are numbers involved

clearly there is causation involved there must be some way of explaining this that isn't you know the the complete farce of of the math that goes into mainstream that's where i think complexity is really interesting because the i would argue it provides that to some extent but i think the main thing that it provides is more just kind of it's more like intellectually satisfying than necessarily like oh here's the explanation of how everything works because the the satisfaction that it gives is in providing mathematical tools that themselves in my view more or less prove why you can't know the kinds of things that it's implied in the mathematical modeling of mainstream economics which is might seem kind of weirdly

paradoxical but it's once you do grasp it you're like ah perfect there's like you know it's not just a kind of a philosophical explanation for why you know this is basically nonsense because you couldn't possibly know any of the things that are going into this it's actually more of a mechanical explanation of why you can't know these things so that's why i like um that's why i like complexity economics that's the the value that i think it brings what about de soto uh de soto so he's not uh he's certainly not involved in the complexity school i'm not really even sure how to place him uh to be honest he was one of the ones i mentioned as just being kind of heterodox so his his whole um spiel i guess like the moral of the mystery of capital um is

it's quite um i guess yeah philosophical i'm not sure how else to describe it really it's it he likes to emphasize um actually exploring the reality of institutions in which so-called capitalism is operating and so what the without like ruining it necessarily i mean most of the mystery of capitalism is is it's fascinating and it's actual almost journalistic quality and that he and his his uh researchers his his academic uh team actually go to many places in the world and do like really rigorous in-depth research of uh marketplaces for property and capital and so and the legal regimes around them that make this point basically beyond what he assumes his readership

is going to be really used to in the West. But his argument is that capitalism itself is, it depends on much more than just free markets. And I think I completely subscribe to this, having read that book and thought about it quite a bit. I think that in, I guess, economic discourse, like popular economic discourse that we're used to, there often is and and can be and there's certainly a temptation to conflate the two to

just say okay you know if you have free markets you'll eventually get capitalism or or some some kind of equivalence like you know capitalism basically is just what happens when you have free markets and de soto's argument is that free markets are necessary but insufficient what is definitely maybe not even in and of itself sufficient but is necessary in addition to free markets is uh property rights and not not just property rights sorry because you could kind of argue that's a feature of free markets in the first place but um legible records of property rights that everybody has access to and can understand and over which there's no conflict and which is um which is effectively legally recognized there's really more a point about

legal regimes and about trade um but his point though is that if that exists people can create capital from their assets and then engage in free trade ultimately far far more effectively than without that and so what he points out in a lot of the places that he goes and looks at is that there's actually like flourishing free trade but there's almost no wealth creation because people have no access to capital. They have access to goods that they can trade, in many cases entirely extra-legally, but because the legal system

that they're forced to operate under precludes them from accumulating capital, there's very little additional wealth that can be created. Actually, to put it in kind of Bitcoin-ery terms, it's very difficult to have a low time preference in that environment because you still can't even potentially

get quite wealthy, right? You can do well with the free trade, but you can't really invest at anywhere near the scale that, you know, would be ideal. Yeah, it's fascinating to think about the idea of property rights. And I think the argument really is his book specifically is why capitalism triumphs in the West and fails everywhere else, right? Yeah, I forgot the subtitle, yeah. Yeah, and so the whole idea of the free market or kind of this capitalistic ideal, it obviously works in the West. Why doesn't it work everywhere else? And ultimately comes down to this idea of property rights, but not just having them, but also everyone else knowing you have them, who owns what, right?

And so when you start to think about Bitcoin, obviously, is it a fair kind of comparison to say that it's essentially a digital version of what he's talking about? I think so, yeah. I think that book lends itself very, very nicely to Bitcoin. I mean, it's not like the obvious conclusion of it is, ah, well, Bitcoin fixes this. But I think for for the people who are in exactly the situation that he explores in great depth, what Bitcoin offers is a system. I mean, obviously, it has the same kind of benefits just for trade and for money and so on and, you know, uncensorable money. But that's kind of straightforward. I wouldn't expect that to be remotely insightful. What it offers beyond that is exactly such a almost it's not even really a legal regime.

It's kind of a supra-legal or quasi-legal regime of the grounding for capital formation. So it's extending to them this global network of, in a sense, digital property rights that has all of those characteristics that I mentioned earlier as obviously being ideal and not necessarily present in otherwise failing legal regimes. So, you know, everybody can see that you have it, you can see that you have it, you can transact with it freely, and it can hopefully be a basis for capital formation. Yeah, it's fascinating too to think most of the argument really seems to be you need the local legal structure to be set up in a way in which it then provides that property rights and the readability of the property rights to the citizens. So go to any country around the world to go find that. It would require the local government to actually put that in place.

It's not something that the citizens could put together, the property rights or the legal structure. They need the politicians to do that. With Bitcoin, in some way, it's outside of the system, but it assigns that same property rights structure. And in another way, the people did create this and then exported it globally. And so it's very unique when you start to view Bitcoin not as a – It's fascinating, yeah. it's something that yeah they can probably for the first time in their experience of acquiring property and trying to accumulate capital it is a system that they can merely opt into without

having to convince anybody really yeah it's uh it's fast sort of is why i was kind of struggling to even come up with a good adjective to to describe it as like supra legal in a sense is kind of supra political to potentially apolitical i know that triggers a lot of people saying that I quite like sticking to, yeah, Bitcoin is apolitical. I think this is maybe a good example of why, though, right? And a lot of that debate does just come down to semantics, ultimately. But I think in this case, it's quite a clear example of at least why the semantics are helpful,

even if you don't necessarily agree with that, that approach to labeling things, that people in that kind of environment where the local legal regime is not conducive to capital accumulation, um they which is ultimately a political question they have this alternative that they can opt into completely regardless of what any political pressure is brought to bear so i i think it's fair to call that a political yeah i think so um another thing that a lot of folks are talking

about right now obviously one is uh this idea of just like what is the economic theories that are at play right now how are people making decisions and uh is it good or bad what are the impacts. Related in some way is all of the ESG stuff that seems to be quite popular. And there's, I think, two pieces of the conversation that no one just states out front, which is, I don't think anyone wakes up in the morning and is like, today's the day I'm going to go destroy the environment, right? I think most people generally think that, hey, we should take care of the earth. The disagreement ends up being in, well, what is actually negatively impacting the earth? How do we stop that? There's a very long passage in the book,

by the way about how probably the best way to actually seriously incentivize protecting the environment is to have a low time preference in the first place so yes in a very roundabout sense bitcoin fixes this but i mean bitcoin fixes everything so that's yeah i i think that it's um it's interesting because there's obviously an appetite in the institutional world with the media with um you know people who i think are looking to virtue signal etc around hey i am pro esg right and frankly half of them probably couldn't even describe what exactly that means but we've seen studies i think they think they're saying that they are moral like they're basically it's not even i'm a good person it's more like i'm not explicitly a bad person yes so one of the

most interesting things is there was a study done that basically shows uh like 70 of the funds that they studied uh changed the language on their websites to be more esg friendly or specifically reference ESG type, uh, initiatives, you know, uh, ethos, et cetera. And then they looked that from when those words got added to the website, did they change the actual contents of the portfolio? Yeah, of course. And of course, majority of them did not. Right. So it was like majority of the fund study actually added ESG type language, but majority of those that added the language didn't actually change anything in their portfolio, which I don't think is necessarily like a huge surprise, but to actually see the data. Uh, and even if you

take it with a grain of salt and say hey you know maybe the data is not completely accurate but directionally i think it confirms what a lot of people probably would assume and so when you start to think about this how do you look at esg you mentioned a little bit of like lower the time preference and that actually would be a more kind of pro-environment type uh approach what else on that issue do you feel like is either misplaced or people are misunderstanding yeah this is really interesting question so i i have a thesis about this which is i think actually kind of boring in a in a way it's sort of it's a good counter to the temptation to view this all as some kind of giant conspiracy or or even i don't think anyone anybody serious is really putting that

forward but even as a kind of subversive political tool i certainly see the temptation to see it as a subversive political tool mainly because i think the combination of how vague borderline meaningless a lot of the language actually is versus how it then seems to be implemented in, you know, a very similar way all the time towards, you know, very clearly aligned political ends. So I do appreciate all that. I'm not even sure I disagree with that. My thesis, and I think why I'm kind of characterizing it as a little bit boring is where this is even coming from in the first place i think is nowhere near that exciting and nowhere near that conspiratorial where i think it comes from is basically how asset management at a global scale works and the i think this is ultimately just

a product of the flaws in that industry i'm wondering if maybe there's a way of spinning this as oh bitcoin fixes this too we maybe come back to that i'm not sure i don't have a solid line of reasoning that gets to that point. But I think that actually probably most people don't really know, or most Bitcoiners, I would imagine, unless they've worked in institutional finance for a long time, I would imagine they don't know a lot of this.

So the vast majority of asset management in all its various guises is remunerated, or rather at the corporate level, not the personal level. that the revenues are a function of the volume of assets managed. And in almost every case, they are far more a function or far more heavily a function of assets under management than on performance.

And so this creates all kinds of problems that have nothing to do with ESG, nothing to do with Bitcoin. They're more just kind of classic cartel behavior, regulatory capture, and so on. that the incentive that almost every asset manager faces is basically to be as close to average as possible in terms of the success of doing their own job. And this is where index investing comes from.

I could have a whole other rant about how ridiculous even the concept of index investing is in terms of thinking about the implications for allocating capital effectively and efficiently. But that's why it exists, because people don't want to... It's not that they don't want to not do well. They just don't want to do worse than anybody else because then their assets will be taken away

by the underlying clients and then they won't make any money. And if you deviate too much from whatever your perception of the average is, and in many cases, you know, the fact that there is an index is a very clear kind of quantification of what the average is.

Yes, you can conceive of it, obviously, as being like a risk-reward trade-off, as you would in any, you know, if you're just like an entrepreneur if you're doing any kind of business activity where there is some uncertainty. But the payoffs are massively skewed in asset management because if you do well, you get paid a tiny bit more.

But if you do badly, you get fired and your entire business is over. So I think it's really important to understand that that is in the background of this. Where ESG comes in, not to completely discredit the political angle, um but i i pretty much think that most people like honestly don't care yeah they're not actively bad you know they're not like lying through their teeth they they it has like just enough not even

truth to it but kind of relatability and i think even that actually goes back to how vague all the languages right it's not that the clearly political outcomes are you know that's that's what they wanted all along and this was all a conspiracy to get there it's more that there's very little to object to in the language that's used up front hence the example that you gave right like anybody can change their language to be esg friendly correct and it doesn't make any difference to what they're actually doing um but i think that the the ultimate effect for them is that it's really about compliance this creates an additional compliance burden that for large incumbents is highly attractive because it's a fixed cost on a you know a per company say basis that is

effectively being there as far as i'm aware there's not really any like strict regulation about this but it's being almost bootstrapped into a norm across the entire global industry that just gives incumbents an advantage because it's a cost that they can bear and that smaller competitors can't. And I think that's ultimately what it comes down to, honestly. It's incredibly boring by comparison. It's just that they want,

it's a form of organically bootstrapped regulatory capture that nobody actually cares what they're saying, really. Or at least nobody making the decisions to include this kind of language. and the evidence is exactly as you say right that they then don't change anything what they do like is that they alone can afford the compliance costs that's my theory on this yeah i mean look it's directionally correct right in the sense of we definitely know that people are changing language we know that it leads to all this compliance we know that it boxes some people out

and we know that uh the same people who are changing language on their website still get on their private jet they don't really advocate for building nuclear power plants like all these things that we know would actually have an impact it feels like it's much more virtue signaling than it is impact yeah absolutely yeah and i think there's there's an obvious frustration i think actually the reason that i'm i i have any desire to even say this at all right because it's kind of like a controversial thing to come out with um is to reassure people to not well not to reassure mainly to to warn to start with but then reassure if they make this decision to warn people not to bang their heads against the wall in terms of this language because it's completely straightforward

to make the argument that like for example bitcoin is the most esg investment in history ever like across all three categories you could do this quite straightforwardly if you took the meanings of the words seriously but the problem is that the people you're arguing with don't so i just wouldn't waste time on it to be honest and i think this is where kathy wood uh at one point she was on a uh a panel and it was like her jack dorsey and i forget the other folks that were on there maybe elon musk and maybe one other um and she walked through it she said you know what is e environmental right like she literally went esg and explained it and i think that people uh don't think that much one of my big theories uh on society today across geographies is that we have

a critical thinking crisis which is just that people basically uh they hear something they immediately say oh i heard that of course it's true and they just run with it and people don't stop and think and by the way you may stop think and still arrive at the same conclusion or you may stop think and arrive at a different conclusion but this uh kind of uh intellectual laziness that frankly we've probably been trained because we stare at computers all day that have all these notifications and bells and whistles and uh feeds and just constantly are hitting us with dopamine it incentivizes us to go faster go faster go faster stay on the hamster wheel mentally and so you don't stop and think and i think that that kind of critical thinking crisis ends up

actually putting people in a really bad situation because when there are topics like this where you're like wait a minute yes you can be pro esg and pro bitcoin because actually bitcoin is esg friendly that like blows people's minds my favorite example of this i mean obviously there's been a lot about bitcoin specifically lately and you know obviously you're going to want to ask me about it but there was one from maybe like two or three weeks ago you might be able to find this tweet actually uh it was something as mark andreessen tweeted and then i think it got even bigger because musk replied and it was something along the lines of i think he screenshot some like was it like a fun document or something it's probably exactly the kind of thing you were

talking about where you know these people are like fixing their esg language but he was he was pointing out something it it was like this esg fund um had changed its uh you know it's like parameters it's esg parameters on the spot to now include defense companies which had previously been excluded because you know they're bad guns are bad right but now guns are good because now guns are going to the good guys to fight the bad guys but also they weren't going to change they weren't going to put any oil into esg good because i'm butchering this obviously andreason's tweet i don't know if you've managed to find it but um it's a lot more succinct but it's just sort of characterizing the like obvious it's not even contradiction it's just like incoherence like

there's there's blatantly no attempt to even have this make any sense or be consistent it's just whatever is the the virtue signal of the day that's how we're gonna that's how we're gonna tweak it yeah and now it's obviously kind of spiraling into uh into bitcoin i mean it's been present in bitcoin for a while but there was another i don't know why these two seem to really enjoy tweeting at each other but there was one from only a few days ago this time between musk and andreessen which originated with the classic clothes dryer comparison right um so yeah so now it's it's uh well it has come to bitcoin refrigeration right is the one i always go to like nobody's advocating that we should stop using refrigeration for food right but guess what it

consumes a lot of energy right and guess the entire society globally has decided that that is a good use of energy so i don't like that as a comparison though i i really like the clothes dryer one specifically okay why because there is an alternative that is exactly the same and uses no energy which is you hang up your clothes we don't do that because it's annoying so it's the perfect example to compare to bitcoin so on the one hand because it consumes what i forget the figure is like 10 or 20 or something times more energy globally than bitcoin mining does but also it is like indisputably pointless other than i want to make it clear that i'm not actually advocating against clothes dryers but it's just it's so straightforwardly and transparently

about the subjective value of the of what would you even call it like the user's own time and um yeah time you may as well just leave it at that because ultimately that's what it comes down to right it takes longer to to drive them um but everybody everywhere is perfectly happy with utilizing energy and paying for it obviously to speed up that process so it's not even like and that's why i think it's such a good comparison to bitcoin mining specifically because bitcoin mining enables something that there is no other way to achieve right whereas with this there's a entirely straightforward way to achieve it which is basically that you just do nothing you just don't do the thing you get the same outcome and it just takes so i prefer that as a comparison

uh what was it you mentioned a minute ago refrigeration that's more obviously useful i don't want to give up my friend i actually don't for example this i'm not saying this to virtue single i'm just saying it's kind of funny i don't have a clothes dryer i have a drying rack i'm fine with that but i would not be fine giving up my fridge yeah that do you do it intentionally so that you can say uh no i don't have uh oh i should say that though yeah i should say i'm doing it for esg purposes yeah i'm doing it because in the other room i'm mining bitcoin so i'm like balancing my own uh my own energy budget which you know is surely coming in the near future Of course, of course. If we think about kind of institutions in general, what's your experience or kind of thoughts and institutions actually starting to adopt Bitcoin? Obviously, we've seen public companies buying Bitcoin. We've seen a number of asset managers come out and say, hey, maybe we're not going to buy Bitcoin directly or invest in something like a GBTC with indirect exposure, but we'll help our clients like build products and services that drive revenue for the business. How do you see them all kind of playing in this space?

I am quite I guess conservative is maybe the best word around this I used to be extremely excited because I think the economic logic is like entirely straightforward I think any Bitcoiner would tell you that even being a Bitcoiner in the first place

if you describe yourself that way probably part of that is a view on what one's portfolio ought to be so I used to be a lot more excited about assuming that as soon as there's a kind of a critical mass in the thinking in institutions

that this would just happen naturally. The thing that I've realized in the past few years, though, is the incredible hurdles around not just regulation, but I think infrastructure is probably the most important one. And it's made me appreciate a lot more, actually, what a whole bunch of companies that you hear about every now and then, but never, basically because they only cater to institutions in the first place, don't really get as much fanfare

as a lot of others, so I think NYDIG is probably the best example here. I think what they're doing which is basically entirely in the background, we don't really hear much about them besides occasionally like Ross Stevens will do an interview and everyone will lose their minds or write a shareholder letter or something, but what they're doing in the background is so incredibly useful basically because for an institution

to take a holding in anything at all um it it requires significantly more almost from the point from the perspective of an individual who's done the same thing unimaginably more red tape yep to actually get that over the line not just in terms of like everybody's made the decision and they're happy with it but how practically do you do it uh which is even more complicated in in the case of bitcoin as opposed to just any other kind of asset class i suppose because there's entirely novel technical questions around you know what it even means for an institution or for anybody but you know obviously institutions may be more important to quote unquote hold bitcoin like how does the equivalent i was going to say how does custody work but it's not even it isn't really custody

it's like how do you how do you have a proxy for custody that is legally satisfactory i mean this is like this is kind of boring I don't want to go on about this for too long but the the point being that I'm now a lot less I think it will happen eventually I'm a lot less excited about it being kind of imminent because I remember there was maybe I would probably everybody had a slightly different experience of this but for me it was maybe two years ago or so when there was a rush of oh you know the institutions are coming and I kind of bought into that on basically only on the um on the economic reasoning not on the infrastructure side technically the institutions did come they just didn't come in the uh aggregate number of them that i think people i think i think

we're expecting the way the way to view what has actually happened with institutions is that so far it has been predominantly institutions that are they're kind of like quasi individuals like there is an individual with so much power sounds a bit nefarious but like influence let's say at that institution that they can just force it over the line and they can absorb the cost so classic is like sailor classic example of this uh abby johnson at fidelity kathy wood at arc there's not that many more people in this like in that position at all never mind to you know actually buy into bitcoin in the first place so i mean i think it will happen i'm just kind of i'm a lot more reserved about you know expecting at any minute yeah this brings me to the last thing

i want to talk about which is this idea of like a divergence in thought and so i'll use two frameworks uh they're over generalizations uh intentionally uh to kind of highlight uh the differences but one is what i'll consider more of like an old school 60 40 portfolio kentian economics right uh diversification protects you like all these things that i think um uh if you went and you sat, uh, in any sort of educational environment over the last 50 years, you got that old school kind of economic personal finance, uh, um, education. Then there's this new school idea, which is much more Austrian concentration, uh, less about like, Hey, there's a bunch of solutions. Like, no, there's only one solution. Um, how do you work through that as like one lens

between what I'll just label as like old school and new schools of thought, whether it's around economics or even just like personal finance and your relationship with assets? I think it's probably quite a natural outcome, I guess, of demographics and relative differences in circumstances

of the demographics that matter at those stages in their life. I think it's probably an incredibly complex problem if you actually dug into it. I would pick out two factors, though. So one is that young, I'll just say younger and older, I don't think the actual specific cut-off matters all that much, but younger people are, by virtue partly of exposure to the web

when they were kids, but now certainly with smartphones, are far more used to just things being digital. Probably in particular, financial things being digital. So like doing your banking on your phone and doing your payments on your phone, that's an enormous mental hurdle to get over, I think, in terms of the jump to then, you know, having Bitcoin on your phone, for example, or like doing a lightning payment or something like that. for me and for actually i'm not a good example because you know i'm a bitcoiner but for my non-bitcoiner friends who are my age who've had like roughly the same life experiences as me i don't think that's i don't think paying with lightning on your phone is really that big a leap for them at all in a way that it would be incomprehensible to some well i shouldn't say

not like everybody i don't want to be overly deterministic about it but it would have been completely incomprehensible 20 years ago. There's a lot of people now for whom it is completely incomprehensible. So I think that's one, it's just affinity with things and in particular, financial things being digital. When you think about this idea of then taking it and evolving it to not just old school, new school, but like internet versus classroom, it feels like that's another framework that you could analyze it. What do you think about that? Yeah, I think that's, that's a great one i think that's probably less relevant demographically there probably is a strong demographic component there but i think i think if anything that probably comes more down

to personality in a sense like i think the internet this is like not remotely original as an insight but i think the internet has provided an opportunity for people who are either genuinely really curious or as is maybe more relevant to bitcoin actually are suspicious of you know the mainstream in quotes um it has provided those people an opportunity to seek out a far wider range of of information ideas communities i think is maybe even the most important one of communities that have formed around alternative heterodox ideas um that yeah they would never have been exposed to otherwise and i mean i think it's like it's kind of a classic talking point in in certainly on bitcoin twitter i mean there's there's a relatively small group that it applies

to but i'm sure everybody's heard it where you know you're you either studied um you studied economics at undergrad or you worked in finance and some some part of finance or both potentially and it was only when you discovered bitcoin that you also discovered right back to what we started off talking about right not even necessarily austrianism but literally anything at all other than what i would call mainstream most of which is keynesian economics and i don't see how you can possibly put that down to anything other than the internet i don't think that's even a bitcoin thing that's obviously bitcoin helps in like being a kind of a a point of attraction for people who have that interest in the first place but it's very much you know the internet creating the

opportunity for those communities to organically come into existence in the first place i think that not only does the internet provide access to information you don't get in the classroom right so that's obviously kind of a easy one um there's also the community and it's like this like reinforcement, uh, of like, uh, you have self-learning, then you test ideas, you get feedback, you do self-learning, you test ideas, you get feedback. And I think school tries to do that, but like, there's a balance in school. I think a lot about, um, you know, school is half learning half like social control, right? Like, like, you know, I always think of like, imagine if you're a third grade teacher, half your job is literally like everyone chill out, right? Like

everyone stay in your seat everyone shut the hell up right like like it's just a lot of people who don't want to be there i think that's a really important difference right correct and and third grade is obviously different than when you're older right probably no one wants to be yeah but but i do think there's this element of uh the environment the uh the thing that is being asked of the teachers near impossible right hey take i don't know how you are in third grade but maybe you're uh you're what you're probably like 10 11 12 somewhere in that range right whatever the age or no uh third grade is like younger eight right yeah uh and so if you're in third grade you're eight years old and you're around 25 other eight-year-olds like game on right like and

your parents aren't there right like sure the teacher is like a authority figure but like really you know and so you get in this weird environment and that i actually think gets extrapolated out till when you're in high school and sure maybe there's a greater degree of respect you're dealing with somebody who's a little bit more mature or whatever but like it's still not i want to be here i'm here because i want to learn and if the teacher wasn't here i still would learn yeah when you get to the internet the people who are quote-unquote learning they're the ones who i think are uh are there because they want to be and they're able to extract quite a bit of information there's another there's an interesting kind of symmetry there another difference so not

only does everybody want to be there but nobody can be stopped from being there either and neither of those are the case in you know traditional classroom education yeah very important difference yeah um when you just look out 10-15 years like what is there one or two milestones that you're super excited about on the uh on the bitcoin front where you're like man you know this is the thing that uh when this happens great question yeah i'll uh i'll think that it's uh it's game on there's There's some kind of fairly obvious ones I want to not be boring about. I mean, like more legal tender laws.

Actually, that's kind of tricky. I don't mean to go off on too much of a tangent. I don't really approve of the legal tender laws, but some fluffier legal recognition would be nice. Do you want me to go into that? Yeah, do it. So I dislike legal tender just in general, nothing to do with Bitcoin,

because it implies sort of knowing better than the market. It's enforcement of a means of exchange that you have to assume probably wouldn't happen otherwise. What I would prefer, and this obviously, again, this is beyond just Bitcoin, but how it applies to Bitcoin is fairly obvious. is that there i gather there i wouldn't even say there needs to be i don't want to sound too statist about it but it is helpful for it to be recognized that um there are certain

monies with which debts will be recognized and accounts will be done and taxes will be paid but rather than i think legal tender almost starts with that kind of sort of practical truism that it's just you know i'm not even saying it's good i'm just saying it's helpful and extends it to like okay well then we will dictate exactly how all these things will work i think what would be a lot more helpful would be a a list i suppose of currencies with which you can do these things if you want to not that you have to so i think that's probably the major hang-up i have with actual legal tender laws because frankly there's a lot of people who just don't care about bitcoin and they're they have every right to not care about bitcoin i'm

not at all comfortable with forcing them to use it i want it to win on its own basically i wanted to win on its own merits not because a government is telling people they have to use it so my preference would be far softer which is that you can use this for clearing debts and doing your accounts and paying your taxes uh but not that you have to so that's my that's my little legal basically like once it's named legal tender you're you have to accept it and so rather than do that Which I just don't think should be the case for anything, never mind for Bitcoin. Yeah, yeah, yeah.

I'm going to go back to your question though now, because all I was saying about legal tender was I didn't want to have the boring answer of like, oh, it's legal tender in the US. I think something, well, this is maybe, this is something that we didn't touch on. Probably won't go into that much detail on it just now,

but my connection to Blockstream, I would, I mean, obviously just in general, I would like for them to succeed, but I think an obvious indication of what success for them would mean is that liquid becomes common, if not ubiquitous, as infrastructure for securities. And actually, I should backtrack on that a little bit

so I can be more of like a Bitcoiner rather than like a Blockstream shill. Any sidechain technology, it doesn't necessarily, obviously, through my connection to Blockstream, I would be thrilled if it is liquid that ends up in that position. um but let's say bitcoin native scaling layers end up having that you know fulfilling that role in securities markets i think that would be um that would be very good in and of itself i also

kind of like it because it's sort of like a niche answer that uh probably wouldn't occur to to most people yeah it's very nuanced right but but i think um one of the key pieces to all of this is it feels like Bitcoin is winning. Yeah. But there is no guarantee of future success. That's what I keep in my mind. It's like if you evaluate Bitcoin's progress in the last 13 and a half years

to nearly a trillion dollar asset, Bitcoin is quote unquote winning. But if you evaluate from here to where I think most people believe it will go, there's a lot of work to do. And there's no guarantee. And so it's like you can be positively viewing the past while also having this like almost worried view of the future, right?

I have quite a, I think a controversial take, or certainly I don't imagine this will be a very popular take on this, which is that I actually, I'll be careful how I word this exactly. I don't want to say I don't care about Bitcoin. That's obviously not true. I don't, looking forward, I see Bitcoin as far more of a hedge than anything else. So I think that Bitcoin's continued success increasingly becomes dependent on the failure of other institutions.

And I think that there are a lot of ways that that failure can go that will be extremely unpleasant and so i i feel weirdly conflicted on this because you know i'm not like i i'm not in favor of uh suffering and and you know uh institutions collapsing but if that's going to happen anyway then i'm extraordinarily grateful for having bitcoin as a life raft probably all of that sounds quite dark and like not really appropriate for you know oh bitcoin miami we're here to celebrate um but i i can't i can't really kind of argue my way out of that position i think it's i i think it maybe there's something really interesting that um i haven't heard this in quite a while but i remember uh safe saying uh he might have said

it more recently but i i remember hearing him say it a couple of years ago i think that actually that at this point the biggest threat or that point the biggest threat to bitcoin is that uh governments roll back fiat and go on a gold standard or or have some it doesn't need to be that specifically but you know actually take the idea of sound money seriously i think that's a that's very similar that's very related to what i'm saying in that it's it's more it's kind of the opposite side of the same coin i guess and that i see the opportunity coming prime not exclusively but there are obviously lots of areas to be excited about where it does i mean like liquid for example um probably more obvious ones would just be like what lightning does for

payments what mining does for energy there are areas where it um it brings new technological capabilities that aren't necessarily directly dependent on the price um but they are dependent on the price not going to zero right so ultimately i do think that it succeeds as alternatives fail in the very long run that's that's what will drive its success yeah if we bring this back to uh uh your book in conclusion uh it feels like the errors of modern economic theory uh drive so much of this because that is where investment comes from that is where the currency value comes from that is ultimately the incentives in a society and so if we can understand the errors of uh many of the theories that are being played out today and even in the recent past uh and we can

start to correct that uh it goes back to you know fix the money fix the world yeah it feels like that is which is the final line in the book is it okay it's actually i i really like that as a way of framing the book though because i was saying to you just before we started recording that having bitcoin in the title is like kind of clickbait um there are very long passages about bitcoin so i don't want to scare people off there's you know considerable new content there about about bitcoin which i'm quite excited by um and touched on a little bit now too so the whole um i actually basically just characterized the whole of chapter seven i think uh the likely effect of bitcoin on um capital markets in the case of liquid payments in the case of lightning

and then energy in the case of mining um but the the way that we tried to write the book was we were quite self-conscious about it not just being like an advert for bitcoin it's more like and actually i think part of the reason here is that well time will tell if this actually is ends up being remotely true but i think that this is primarily a book for people who are not or not yet but are pre-coiners right so it's i i would like to think it would be more appealing to pre-coiners than to bitcoiners i don't think bitcoiners will learn all that much from it is basically the reason and that the way that we're trying to appeal to pre-coiners is not so much oh here's why bitcoin is amazing it's more here's why contemporary finance contemporary economics

is horrible and framing that in terms of things that they very much can relate to, like cultural values and intellectual sort of methodologies. And then much, much later in the book saying, oh, by the way, if you take that seriously, which we would argue you should, and to a large extent you probably do, even if you don't realize it,

what pops out of that is, oh, by the way, Bitcoin ticks all these boxes like perfectly. it does feel like the way we communicate with the pre-corners is important as well like the language used the the way the ideas are presented uh it is uh important because you need people to have a certain type of mentality you have to get out of the old school thought you have to have an open mind you have to really think that uh some of this is possible in order to to really understand what the uh the potential is yeah yeah that was the um that was kind of the basis of my talk at last year's conference actually because i was thinking about that a lot

in the lead up just to not even to me giving the talk necessarily but to the conference it just kind of coincidence that it was on my mind that i i was beginning to become a bit wary of um the idea that most of what pre-corners were presented with was a combination of like quite complicated financial concepts and quite complicated technological concepts not that there's anything wrong with those they're obviously all correct anyway but I worry they're maybe a bit intimidating if you weren't already aware of these problems

just having all this material laid on you maybe would just scare you away and so what I ended up focusing on what my talk was basically about was trying to make the case from the starting point of literature, of classic literature in the way I don't want to like re-give the whole talk now but I I if anything I was just kind of pleased with myself that I even like that turned out to be a coherent topic to have a talk about

but I think there's you know that that links to what we or what I mentioned about how we wrote the book we didn't obviously like literature wasn't the starting point but it was a bit more holistic than that kind of culture it really very much is actually now that I'm sort of thinking all of this out loud is very much a book about culture um and the the the the conclusion is um that bitcoin fits it nicely as as opposed and this was kind of the point i was getting out with the talk too as opposed to oh this is just scary and new like there's never been anything like this before true in some respects but i think more importantly not at all true in some other respects it in my view ties you know partly by whether your starting point if you want that to be literature

or culture or or the kind of values from which sensible economics emerges in the first place this should feel familiar or it i think maybe the more important point and actually back to your question about how we communicate it can be made to feel familiar and so to whatever extent it can it you know we should yeah where can we send people to find the book uh so it's on the bitcoin magazine website if you want to pay in bitcoin which might be fun some people might want to do that uh it is also on amazon uh if any of the listeners are coming to the conference this week uh bitcoin magazine are gonna be pumping physical copies there uh and we're doing uh signing so me and sasha co-author will be uh doing book signing i believe it is uh friday at 12

awesome and then where can people find you on the internet uh probably just twitter i mean i have presences in various other places but it's obviously used twitter to coordinate it so it's at alan is a-l-l-e-n-f-3-2-3-2 what's 32 for uh the fact that i joined twitter in february 2019 and all the good handles were taken i do actually i like the number 32 so um no one's ever asked me this before i've actually i've kind of i've wanted someone to bring this up at some point so i can then say that when i was a kid well it's still now i suppose but i supported both uh the soccer team inter milan and the indianapolis colts and uh my favorite players were christian vieri for inter milan and edger and james for the colts and they were both number 32 so i've had

this in the back of my mind for a while like i like dripping 32 into things and when i tried you know alan nope alan f nope alan farrington nope alan f1 no blah blah i was like oh well 32 might work so that is where that came from i love to hear how people come up with the user names awesome let's thank you so much for taking the time to do this i think thank you for having me it's been great really enjoyed it if anyone hasn't gone to get the book highly recommend it and uh we'll go from there thanks very much thanks so much for listening to today's episode i really hope you guys enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or

crypto industry, we've got you covered. Head over to palmscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to palmscryptocourse.com to learn more and I'll meet you guys for the next episode.