We Study Billionaires - The Investor’s Podcast Network - BTC022: Dr. Adam Back & Bitcoin's Proof of Work (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to this Wednesday's release of the show where we're talking about Bitcoin. So today's guest is probably the biggest name in the entire Bitcoin space, and that's Dr. Adam Back. Dr. Back is the inventor of proof of work, which is one of the key components of the Bitcoin code base. In fact, Satoshi Nakamoto's original Bitcoin white paper referenced Dr. Back for his key contributions to make the blockchain even possible. Beyond his initial contributions, Dr. Back is the. co-founder and CEO of Blockstream, which is a company that's a leader in innovation and foresight for the entire Bitcoin ecosystem. During this discussion, Dr. Back talks about some of his early

Starting point is 00:00:40 discoveries, his opinion on proof of work and why it's important, some of the new initiatives at Blockstream to bring more mining capacity to North America, his opinion on the Bitcoin contango trade, and much, much more. So without further delay, here's my chat with the one and only Dr. Adam back. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. Hey everyone, welcome to the show. Here I am with the one and only Adam back.

Starting point is 00:01:23 Adam, welcome to the show. Thanks for having me on. So, Adam, I think the question I've been dying to ask you is just your discovery of proof of work for me is mind blowing. And it's mind-blowing that this was incorporated straight into the white paper. Satoshi referenced you in the white paper. And I just try to put myself in your shoes and going back to the moment where you discovered this and kind of like what led up to it when you discovered it and you started to write about

Starting point is 00:01:55 it. Like what kind of utility did you think that it had at that time or at that moment? Just explain that moment to us as you discovered this. I was running an anonymous remailer. So I got interested in cryptography and privacy and basically deploying technology allowed users to exercise their rights on the online world. And so I was running this remailer. And at that time, this is the late 90s, obviously still today, there was a recurring problem

Starting point is 00:02:28 with spam where people would send bulk unsolicited mail, probably with a one in a million conversion rate, but hey, you know, sending an email is practically free. And it's kind of a bean, you know, most people's anybody operating a mail server individually or as a company, the majority of the email that they were processing was spam. And it was also a nuisance for users to have to sift through all this stuff to find the actual emails. And so that was going on in the background, but my particular concern was operating this remailer to get privacy. And it also had the ability to post, to Usenet discussion groups, kind of broadcasts decentralized mailing list like technology chat forums. It seemed that there were people that were sending spam

Starting point is 00:03:12 through the remailers, particularly to these discussion groups. And once it hit these discussion groups, the Usenet technology broadcasts that across thousands of servers all over the world. So it's actually a way to amplify a denial of service. And it wasn't even commercial spam. I was just look like random numbers and things. And talking amongst people who operated remailers on a cypherpuncts list, our best theory was that people that are doing this were pro-establishment, anti-privacy, and just wanted to annoy the administrators of Usenet servers so that they would try to block remailers.

Starting point is 00:03:49 It seemed like an anti-privacy kind of, you know, create some nuisance so that there would be a blowback against remailers because people were spamming with it. So anyway, there's a kind of, um, Back, I'm probably then for email. It's like, well, what do we do about this? And so usually what people do about spam is they put their system administrator how on and they think, well, I'm the super user, which is more the case in those days, you know, big servers and not that many powerful desktops and laptops.

Starting point is 00:04:17 And they would block IP addresses, block email addresses. But the actual protocol on the permissionless internet is there isn't really any concept of, you know, super user and regular user. Once you get onto the IP network, everybody is the same, right? So it struck me this was a bad and dangerous direction because it was pushing towards the internet driver's license concepts, which resurfaces once in a while, you know, people want real names or personal information

Starting point is 00:04:45 in order to get a cell phone contract or an internet connection. And so the whole point of the remailers was that you should have privacy in communicating person to person, and particularly in discussion forums. So I had to look at the spam problem from a different direction, which is, well, the blocking identities and IP addresses isn't really a solution. It's kind of losing arms race. And anyway, Deer is trending in a bad direction.

Starting point is 00:05:13 What's the root problem? So the root problem as well, email is practically free. So I was thinking, well, people on the Cyphrinexplace were already pretty excited and interested in electronic cash, but it was difficulties bootstrapping it because it relied. on banking partner and that kind of thing. So some of the electron protocols then were centralized, you know, there would be a central server with a double spender. It's like David Choms protocol and some other ones, a similar design.

Starting point is 00:05:39 And actually, you know, PayPal didn't exist. Getting a credit card merchant processing account was difficult, complicated, and anyway, not a fit for sending private mails because identity. And it would also exclude lots of people, right? So, you know, billions of people in the world don't have credit cards and couldn't get a credit card merchant processing account, don't want to put their ID on things. And somebody's financial well-being where they're happy to send a 10 cents or a dollar to send a message, maybe that's expensive for somebody. And we want to have a global even discussion on Newsnet about wide range of topics. And so that's where, well, we can't use the banking rails.

Starting point is 00:06:21 We can't pay them. So it's complicated. but could we at least add a cost to the center? And so I had coincidentally been looking at hash collisions. So there's this concept called a birthday paradox where if you pick a room of people and you say, what is the chance that people share the same birthday, it's a much lower number than you expect, just a kind of statistical anomaly or counterintuitive fact.

Starting point is 00:06:46 So with the hash functions such as shaw 1, shaw 2.56, similar kind of thing applies, except the cost, you'd have to try lots of hashes until you find two that collide to the same output. The work to do that is impractical. You could run all the computers on the world until sun builds out and probably wouldn't find one or something. So if you did have one, if somebody from the far future came back and gave you one, you could instantly verify it, you know, a few thousand CPU cycles. So I thought that's a fascinating concept, which relates, right, which is, well, you can prove that work was expended, but this is far too expensive. So maybe we can tune it and modify the design of what's going on so that you can make it tunably expensive and still instantly verifiable.

Starting point is 00:07:31 And so that's where Hashgatch came from. And because it was for store and forward, like a communication mechanism where there's not, you know, a client and a server interacting where the server says, please answer this challenge and then you, you know, you solve a capture and you send it back. I mean, a capture being another kind of thing that's used for this. But there's no client and server. It's broadcast. the reader is not online at the same time as the sender, that kind of thing. So it was necessary

Starting point is 00:07:56 for the sender to make a proof using a challenge that he chose himself. That made it a genuine proof rather than something that convinces only a server. It's a transferable proof. Anybody can verify that the person that posted this discussion comment spent a cent of electrical power doing so or something. So when you said that you had to tune it, is this really similar to what we see with the difficulty adjustment where it gets easier or it gets harder, depending on how much hashing power we see is on the network. Is that what you're talking about when you're saying you had to tune it? Yeah, it's exactly the same. So with the hash cache kind of email postage stamp, I had set it to 20 bits, which is about a million tries. So with and that's a kind of

Starting point is 00:08:43 fixed difficulty, but I had the concept that the verifier should increase the minimum postage they would accept every few years as CPUs got faster. And people started to do that. And so that is the difficulty adjustment. And of course, these are relatively cheap. It's in the context of electronic cash, curiously, when I posted this on a Siphonix list and a crypto list in 1997. It was in a context where people were pretty excited. You know, electronic cash, David Chon's e-cash system, was, you know, top of mind and a very exciting potential for the world sort of thing.

Starting point is 00:09:21 Bitcoin, like, five, but in a far smaller scale. But it was centralized and it was difficult to bootstrap. And so a lot of people looked at this and said, wow, this is interesting. It's like artificial scarcity. It's like digital gold. And then start, you know, started having discussions about, well, how could you control, all the inflation, they were sort of hypothesizing that with Moore's law and an incentive to, you know, if you could do mining with this to create coins, that people would go nuts

Starting point is 00:09:51 and make a ridiculous amount of coins and that would erode and make it difficult to have a stable value. And so I think people were, and you know, by 1998 there were two kind of more, more detailed proposals being Waydai's B-Money and Nixarbo's BitGold, which both used this. proof of work and proposed ways to have a stable value, as it were, or a market set value. But in a kind of federated model with human market makers or sort of a council or super node set of power users that would decide how much work was needed or how many coins were going to be issued in the epoch, things like that. So if you scroll forward to 2008, when Satoshi

Starting point is 00:10:34 started sharing drafts of the Bitcoin paper, it seemed to me. that he'd correct the one thing that people hadn't figured out how to do back then, which was, in hindsight, it looks simple, but it's to say, well, let's not try to target a stable value, but let's instead target a predictable supply curve and let the market worry about the value. And that, it turns out, is technically possible to do inside a distributed system with no, you know, human councils or supernodes and governance and deciding how much. and deciding how many coins per epoch and that kind of thing. It was funny, this Johns Hopkins professor that just keeps on bagging on Bitcoin,

Starting point is 00:11:16 just published an article. I think it was in CNN just this past week where he was talking about these governance structures. And I'm thinking to myself, dude, the entire point of this is to not have a governance, some people involved in the loop of managing this. It's like, how can people not see that this? I mean, Bitcoin is many things. things, but like, that is one of the chief things that, like, this is all about is not having that. It's just crazy. Even some Bitcoin technologists, technical commentators will talk

Starting point is 00:11:50 about governance by which they mean the change process within Bitcoin. But I personally take exception to that terminology. You know, there is no governance. The change process within Bitcoin is opt-in backwards compatible optimization and features. And, you know, there is no governance. There's certainly no economic or core system metrics that are, that there's any plausible governance discussion to be had about. So Bitcoin has no governance, I would say, you know, some other coins. Yeah, I mean, you know, Ethereum has governance because there's a group of people that are sort of graph somewhere off the supply curve. And it's all over the place. There's labels on it where different people decided different things, right?

Starting point is 00:12:29 So I think actually Plan B said something interesting as a way to explain this because it's mathematical. mathematical and software, people have difficulty understanding why it's inviolable. Like, they think, well, you know, the software could be changed. And his analogy was that the, you know, it's a game of chess, the game of chess. You could change the rules, but nobody will play with you if you do, right? So you can make a modified piece of software where the different number of coins per block or something, and nobody's interested in playing that game. So the economic consensus just continues. So, Adam, going back to the discovery here, what is the time frame when you get this aha moment about proof of work prior to even hash cache, where you were just like, I think this might solve

Starting point is 00:13:16 this problem. Where are we at in the timeline? That was in May 1997, I think, and I'd been reading about these has collisions on Usenet, coincidentally, on a crypto list, and kind of found it interesting, was looking at the mathematics of it. In the background, there's this ongoing spam law waging in general email and a bit of it creating a kind of a political problem for remailers, which I was one of the operators of a remailer. And so it occurred to me, I spent, I don't know, probably two or three days thinking about design variants of how to do it. And then I was thinking, well, I could post this as interesting. I think this would be the right design variant to use.

Starting point is 00:14:02 And I thought, well, you know, in the IACF process, you should have running code first. So I shut up and wrote the code for a couple of days. And I posted it. And so it was, you know, here's the code. Here's a description of how it works. And that was on a mailing list. And there's lots of discussion. You know, people integrated into remailers and actually into a lot of different things.

Starting point is 00:14:23 pseudonym's sort of cost to create a persistent pseudonym, which is a bit like vanity addresses in Bitcoin, and as sort of storage denial of service protection and distributed file systems, and actually over time, spam assassin, which is a common kind of ISP-grade anti-spam filter, added support for hash cache postage stamps in the headers. So it would give you some negative scoring. So it was trying to grid is this spam. So it looked for spaminess metrics. And you know, if it had make money fast, plus 20 to the score, this is probably spam, right? It had a valid hash cache header in it. Big negative. This is not spam, right? So it would protect you from being falsely categorized to spam, which happens to, right? So they did that on the

Starting point is 00:15:14 server side and Microsoft made system as well and integrated it into their whole suite of email things, you know, the clients, the Outlook Mail server, things like that. But their protocol was essentially the same thing, but a slightly different format. So it wasn't cross-comparable. That was that kind of technology. I didn't actually get wrong to writing a paper, describing it more formally until about five years later. I'm generally more interested in building and deploying. Action. You're interested in action and actually doing it. I love that theme about you. And I've seen you post that on Twitter from time to time.

Starting point is 00:15:54 It's like, hey, we can sit around and talk about things or we can actually create this and get things done. And that's a cool story that you're kind of showing that that's what you did from the very early days, is that you coded it out and you put it out there before you really kind of even formally described what was actually happening with the code that you were publishing. I want to summarize something and just correct me if my understanding of this is wrong. But when I think about what this discovery really kind of meant, this proof of work discovery, and especially how it applies today, I was taking this online course. I think it was like this free Princeton course. It was like 70 hours, just teaching you like all the nuances of like how Bitcoin works behind the scenes. I don't fully understand the encryption. I know that the mathematics to take shot 256 make it applicable so that if there's five people running five processors and

Starting point is 00:16:48 the difficulty is being scaled down for shot 256. That math to do that to me is just a mind-blowing event. Like, that's just like, I can't imagine trying to program or work out the math on how you would figure out statistically how to adjust shot 256, which like you had said earlier, you could have all the processors in the world running on it until the sun goes out and you're not going to have this event where you're having the same input produced the same output, right? So when you're thinking about scaling that difficulty down to now there's five people guessing and they can figure it out in a 10 minute time period. The math that's associated with doing that scaling down to me is an amazing feat. And that's pretty much what your proof of work discovery was all about is what I just described.

Starting point is 00:17:41 Is that an accurate description of how you would put it into layman's terms for people that are kind of listening to what this means and how it's really kind of applicable to Bitcoin? So I think the point is the full collision. We know how to do it. It's just too expensive. And so to make it simpler, faster, and tunably expensive, it's almost definition change, right? So we're saying, okay, we give up. We're not going to find a full collision.

Starting point is 00:18:11 It's not too expensive. But how about if we find a partial collision where, you know, the first 10 bits or 20 bits are by chance or zero. And so that's what I did. And I mean, you know, zero is as good as any number. It could be a magic string, could be anything, but you're trying to reach a target and effectively by looping on a hash function, changing a counter in it, you're sort of throwing 256 coins and looking at the ones at the beginning, all landed heads. And of course, that's very unlikely the more heads you get, right? But if it's 20, then it's going to take, say, half a second on a CPU at that time. And if you want that to increase, you know, if you want the time, if you want to stay at like

Starting point is 00:19:02 a minute of work after computers have doubled in speed, then you're probably going to want to increase it to 21. And so with hash cash cash, I had a kind of crude graduation of the amount of work, so it would only either double a half. But it's pretty straightforward to make it take one and a half times longer. You just put a floating point representation of a number in there and say, is it less than this? And that'll do it. And that's what Bitcoin does. So I think how Bitcoin targets the interval is more like a control system. It's like a feedback loop, right? So you start the system, you take a guess at a number, you start the system running, and then you measure over a period, what is the average time between blocks in this, you know, across this

Starting point is 00:19:44 2,000 block period, and you'll say, oh, it's five minutes, I want it to be 10, let's double difficulty, that'll fix it, right? And if it goes in the other direction, you reduce it. So it's just a control system where you measure and adapt, measure and adapt. Let's take a quick break and hear from today's sponsors. All right, I want you guys to imagine spending three days in Oslo at the height of the somber. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo

Starting point is 00:20:21 Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people. using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstage talks,

Starting point is 00:21:04 hands-on workshops on freedom tech and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference, it's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately.

Starting point is 00:21:43 How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence.

Starting point is 00:22:18 And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, NetSuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, domesticifying AI at netsuite.com slash study. The guide is free to you at net suite.com slash study. NetSuite.com slash study.

Starting point is 00:22:50 When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with

Starting point is 00:23:33 helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing... Sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show.

Starting point is 00:24:08 You hear all these different narratives. You hear all these different opinions on what's going to work in the long term. You hear a lot of people actually bash Bitcoin because it's using proof of work. And I've always had the opinion, which is the polar opposite of that, that proof of work is the essence of why Bitcoin's going to work because you actually have to perform. If we're using a comparison to gold, you have to actually go out there with your shovel and dig through the earth's crust and perform work in order to find whatever probability per dig.

Starting point is 00:24:42 Let's say you've got to do 100 digs to find whatever amount of ounces of gold. you have to do that work in the physical realm in order to create value behind what gold is, because it's so scarce and hard to find. So why would that be any different when we move into the digital realm that there doesn't have to be some type of work performed in order to create value behind the units that are being mined? When I look at these other protocols and they're not doing these things and there's just this pre-mine or there's this proof of stake and all these other things, to me, represents more of what we've already got in today's society with fiat currencies than it does

Starting point is 00:25:23 something that is hard, sound, immutable, fungible money. Assuming you agree, but is there anything that you want to add on to that or do you believe that proof of work is really required for this to be successful in the long run? Yeah, I think so. And I think that economic game theory is counterintuitive, even to people with... In economics, right? So there are some very interesting effects here. So, I mean, one thing that I think there's saying, if you scroll through Satoshi's old writings, he had said something like, yes, it uses electricity, but as with gold, it's

Starting point is 00:26:04 far more efficient to the world to have a hard money versus the kind of slippage and churn that happens when you have political money. And then another comment I've heard is Paul Stortz made the observation that there is an economic incentive to obtain money. And so people are willing to expand up to the commodity cost to obtain it. And if there is no clean cost, that effort will be expended in other ways, i.e. in political lobbying, favoritism, audits, physical bank security, cross-jacks, controls. theft, inside a double dealing, inefficient political systems. So we haven't saved a thing. What we've done is we've had a messy, uneven playing field. I think another thing that's interesting is Eric Vosquil had a discussion with him,

Starting point is 00:26:58 where I concluded that actually he was right in some degree that people look at, they look at the world as if a cost arose at initio, but there's no cost that doesn't have an alternative. So, you know, they say, well, the electricity was used to mine Bitcoin, okay, but there was a foregone alternative, right? Instead of mining the Bitcoin, maybe they would have engaged in some other consumerish behavior. They would have bought a car. And so no energy was solved. You know, maybe Bitcoin is probably actually reducing a number of pollutive and carbon producing things in the world, for example. It's really reducing gold mining, because I think people are starting to realize that gold prices were probably higher if Bitcoin

Starting point is 00:27:43 was not monetizing in the alternative. And gold mining is extremely industrial and chemical process. So I think that there is probably some necessary inevitability for the production of money to have, or of our hard money, to have an actual economic cost. So, Adam, when we think about this, and whenever I'm looking at this, and whenever I'm looking at the price curve, the thing I just keep coming back to and the thing I keep asking myself is how in the world, because here I am, I'm a finance guy, I'm looking at stocks, I love stock investing, and I've never in my life seen a price chart that looks like Bitcoin. I've never seen something that almost looks like it grinds and has like this perfect shape

Starting point is 00:28:32 on the bottom of the price chart over a 10-year period of time. And I know a lot of people in the community don't like to necessarily call it that it looks like Metcalf's law for various reasons because you're comparing something that's a little bit different. But when you look at that price chart and you look at it in log terms, it looks like Metcalf's law playing out in real time, but it's a price chart. And I'm telling myself, okay, what in the hell is driving this to happen? There's something mechanically that's happening in the code that's causing this to play out. And the only thing that I can arrive at is because when you look at these peaks that happen in the price action, it doesn't seem like it's bound.

Starting point is 00:29:15 It looks like it's more emotional. But when you look at the floor of the price action, there's these moments where it almost seems like it's just grinding through something that's forcing it to go up. And so the only thing that I can come to, the realization, and I go back, there's an awesome book called The Book of Satoshi that I've read. and it's pretty much all of Satoshi's writings that was pulled from online. And one of the quotes in there that really stuck with me is he really gets into something that you just described, which is this labor theory of value might actually be playing out with Bitcoin. And you talk to any economists and they'll roll their eyes at this labor theory of value. They'll say that's clearly not something that actually works in reality, especially when you get into specialized services, like say you're a doctor or whatever. Like that's just, just not something that's applicable. But I think when you look at Bitcoin and you look at the mining process and you look at how commoditize the mining process is and how competitive it is,

Starting point is 00:30:15 it's really kind of the electrical cost to mine these things that's setting the price floor, especially when you look at the scarcity that keeps getting tighter and tighter like a noose around, like a taller around a dog that just keeps getting tighter and tighter every four years. So, this is my question. Is proof of work driving this price floor because of the electrical costs that are associated with the flow of Bitcoin that's being dropped into the market and how much tighter it gets every four years? I think the complete elasticity of the supply curve is interesting, right? Because if you look at any other commodity, the people who are extracting the ore or producing the finished product are going to react. to market conditions. If the price is gold is up, they'll reopen mines that are, have an

Starting point is 00:31:10 expensive per gram production cost. They'll work shifts. People will like recycle, reclaim gold from electron. Everything will ramp up to the max. It takes the edge off the price increase a little bit. And similarly, if the price is depressed, they'll shut everything down and it will provide some, it'll take some edge out of the selling because there's less to be bought as well. Bitcoin in comparison, people will say Bitcoin doesn't care, which is more insightful than it sounds, right? But it kind of applies here too, right? It's like the prices up, Bitcoin doesn't know that, actually. So it just keeps producing coins. And the miners, of course, they will chase a higher cost by being economically incentivized to bring more miners online and so forth.

Starting point is 00:31:56 It's an interesting question to what extent miners sell coins to pay electricity bills. And, you know, a blog stream and me personally as well have been doing mining for about five years now. And the conclusion is that it's better back tested. Like this passionately back tested, it's just a better financial strategy to hold the coins and not sell them. People will say, well, how could you do that? But like, where does the money come from? And I said, look, you're about to invest some dollars in mining. Some of that's going to go into equipment and some of it's going to go into electricity.

Starting point is 00:32:34 So if you've got $100,000 or a million dollars, calculate the ratio between the equipment and the electricity you'll need to run it for three years. And instead of spending all of your money on miners and then saying, oh, no, I have no money left. I'm going to sell the coins to pay for electricity. You're better off to mine at, let's say, half to size, where you've got half the money set aside to pay the electricity bills and can talk about more why that is. But basically, I think that mining has some downside protection as compared to buying. So buying and holding

Starting point is 00:33:08 is very sensitive to the entry price. And that catches new people. They look at the price and like, well, I've been hearing about it. It's in the news again. I want to get a bit, establish a Bitcoin position. But now, is this a good price? Should I wait for it to fall? Will it just go up. So they get a decision, right? And so with mining, it's interesting because you don't care as much about what happens. If the price goes up rapidly, you tend to get a derivative benefit because there'll be a shortage of miners or people can't manufacture new miners fast enough to bring them online. So you'll get a kind of derivative premium for a while so that catches up. And that's the current state of the market, really, is it? Last year, minor sales were kind of weak,

Starting point is 00:33:49 but this year it's really hard to acquire new miners without very long forward delivery dates. And if you started mining and the price falls, you would think that's bad. But actually, what tends to happen is price is falling. And so some miners will switch off because they fall below their break-even. And so as that falls, if you keep mining, you've got a cost basis that allows you to keep mining, or you've pre-funded the investment, right? You've got the capital to pay for electricity and you're going to mine through it. Obviously, you're not going to mine below the cost of buying Bitcoin with electricity.

Starting point is 00:34:25 That wouldn't make sense. But there's a big hysteresis between the equipment, break-even and the initial investment. So that's typically fairly far off. So you end up mining more coins than you expect through the bottom of the market. And then let's say the market recovers somewhat. So we did one coincidentally where when we started. the Bitcoin price was around $15,000. If you had bought, that would have been your entry price.

Starting point is 00:34:52 And when we finished, when these machines reached end of life, the price was about $7,500. And so if you bought and hold, you'd have made a 50% loss in cash terms, Bitcoin. But with mining, we ended up making a 25% profit in dollars. And you wonder, like, well, how could that be? And so you go back, test a bunch of things and try and figure out a pattern of what's going on here. And the point was price fell all the way down to 3500, which gives you an indication of this period. And remind a lot of coins, prices below 3500, because you know,

Starting point is 00:35:24 you're generally mining at a discount or you stop. And then a price recovered to 7500. And that was enough to push us into the discount on mining, plus the fact that we got more coins that we expected because the price really fell a long way in the middle of it. So I think generally what you see is it's less sensitive to entry price or timing. You have some downside protection. You still have a fairly good upside participation. Like we've seen across the periods we back tested, it averaged about 60% upside participation as compared to buying, just buying and holding Bitcoin. So for the trade-off, I think, you know, that's an interesting trade-off better than being frozen in decision, let's say, right? For people who are new to Bitcoin,

Starting point is 00:36:10 or look into establish a position. When you say 60% upside, that's on an annualized basis? No, sort of absolute return across a three-year period. I mean, of course, there are many periods where buying and holding outperforms. I mean, Bitcoin's price history is nothing but exponential, but it's also volatile. So the point being that you experience less volatility by doing mining, and there are people, you could say, well, you know, look, Bitcoin has performed well over all three previous X-year periods, right? And that would be statistically the case. But that's still a unnerving prospect

Starting point is 00:36:48 for people who are not used to Bitcoin haven't adapted, right? I mean, we've both, you know, participated in different conventional markets. And there's enough volatility in those, but Bitcoin at times takes that to a whole different level, right? So I think that the reduced volatility of mining versus buying and the prospect of there's downside protection, and some upside participation, get a pretty reasonable upside participation at 60%, statistically, is something less scary than full Bitcoin. Of course, some people would, you know, do a mixture.

Starting point is 00:37:22 And other than newcomers who don't have a Bitcoin position, the other type of investors we've seen be interested to do this are people who actually are very deep in Bitcoin, almost felt overexposed to Bitcoin. And so they had some dollars. and were interested to do something Bitcoin correlated, but with more downside protection. And so that made sense to them as well. But for a very different reason.

Starting point is 00:37:49 I think another reason to do mining is, as we were talking about earlier, Bitcoin gets some of its value from being permissionless and decentralized. And so if mining becomes too centralized, that could expose it to governance-like risks, right? And so I think if you look at the Bitcoin market cap and you work out what it would take invested in mining, what percentage of that it would take to on an individual basis or on a whole system basis, it's only a couple of percentage points of the, let's say, one trillion in market cap as composed to a handful of billions in mining equipment and electrical spend. So one approach on that, that was my personal philosophical point of, of just a general philosophical point

Starting point is 00:38:36 of jumping into doing some mining on more than a hobby basis myself. Well, maybe I should be part of the solution and operate. Some of them might. I mean, not physically hand on, but, you know, have a, they're mine miners so I can say, if something dramatic is happening, I can instruct a service provider, look, I want you to do this with my miners and they're going to do it. That's an interesting point. And I just want to kind of summarize it, especially for a lot of the finance and investing types that are listening to this, In short, what you're really getting at is this is giving you a better sharp ratio by investing

Starting point is 00:39:11 because you don't have as much volatility and you're saying that over a three-year period of time, you have demonstrated through back testing, which doesn't necessarily mean it's going to be what it is moving forward, that you've had a 60% outperformance. So if you're having less variance in your price and you're having an outperformance, that's going to give you a higher sharp ratio than if you would just buy the underlying. And that's something to be said. because when we look at the sharp ratio on Bitcoin, and I know the sharp ratio I've looked at is over four-year periods, but it has literally outperformed everything, financial, every financial

Starting point is 00:39:43 asset on the planet over the last 10 years, which is something to be said. So that's a really interesting stat. Well, I mean, I would say what you say is accurate, but I would emphasize that the expected return is lower by mining, but a sharp ratio measuring, measuring, the trade-off between investment return and volatility, it has reduced your volatility by more than it has reduced your return. Maybe that's attractive to some people, or they'd like a little bit of a lower risk. Of course, the other thing, obvious thing you can do with risk, which is always some people talk about Bitcoin for newcomers, is to say, well, by one to five percent from the point

Starting point is 00:40:25 of view, you know, your stock portfolio is moving around, you're uncertain about lots of factors in today's world. So what's the worst that can happen? You could lose one to five percent. And looking at the other factors you're looking at, including M2 money supply expansion and probable double-digit asset price inflation, trying something at a one to five percent ratio that may improve that. It's just an asset allocation, and mixing a high sharp ratio asset with higher volatility. It may repair your returns if things go badly. So that's another thing, just asset, I mean, portfolio allocation. So, Adam, what are you guys doing from a block stream lever? Is this all internal as far as

Starting point is 00:41:06 just you're using your own retained earnings in order to invest in this? Is this something you're going to open up to the market that people can participate in it with you as well, through equity or through debt somehow? What's your approach moving forward for this? How we started was sort of about 50-50 internal investment, use of companies, cash reserves, and actually converted a bunch of US dollars into Bitcoin. So Bitcoin holdings increased through that. And the other was hosting for high net worth individuals and institutions. So there were Reid Hoffman as an individual and Fidelity as one of the hosting customers,

Starting point is 00:41:47 and there have been more that have been announced over time. So a number of the recognized brand name institutions in this space who are doing mining, many of them don't have physical operations, so they will host equipment. us. Something else we've had, we're interested in decentralization and us doing some institutional and in company mining is a form of macro decentralization, right? We're doing it in Canada or the US. We're a new voice. So, you know, if there are 50 institutional miners instead of 49, that's a small amount of decentralization. But, you know, it's not very end user decentralized. And so we have seen a lot of ongoing requests from individuals

Starting point is 00:42:27 to say, hey, can I buy $10,000 worth of mining or can I buy $100,000 worth of mining? And that was something that we were interested to do, but weren't set up to do at the beginning. So we set about trying to address that problem and meet that demand. So more recently, we have offered something called the Blockstream Mining Note, which tries to do that. Now, on a regulatory basis, it's only available to non-US investors. And there's a qualification criteria, which, where the minimum minimum is, you know, investment has to exceed 125,000 euros. Again, this is for non-US investors. But, you know, it does bring the barrier down. Adam, just for clarification, you said it's a note.

Starting point is 00:43:08 Yeah, so it's actually, I think it's the first of its kind, actually. We worked with a company called Stoker in Europe that is a kind of regulatory specialist, and they are the registration agent for this. It's a Luxembourg's securitization vehicle. And so it has a foot in both worlds. So it's both a Luxembourg securitization vehicle with an ICIN, an investment zero number. And so, you know, you can potentially give that to a broker deals with, you know, a longer tail of assets and say, how can you, can you hold this as part of my portfolio? Can you margin lend against it? That kind of thing is all possible if you have a, or bespoke brokerage. But it's also an asset in a cryptocurrency tokenization sense. So it's a liquid security token. So it's an STO.

Starting point is 00:43:57 I love it. This is awesome. Okay. So the security token means, I mean, it all implies some quite interesting things for people who are able to access it regularly. One is that you can potentially transfer at OTC. So after the issuance phase, there are some different limits that apply later. So it can be transferred down to 0.01, but only to qualifying users.

Starting point is 00:44:22 And to be a qualifying user, the user has to register on Stoker. and they have the registration agent for these transfers, but there's no conventional stock transfer agent fee, only kind of network fees, which are de minimis. And so you could gift somebody a BMN or part of a BMN, you could swap it OTC, and there are, you know, smartphone wallets that you do that. So it's kind of private OTC scenario. And there are some exchanges which we are working with that may end up being in a position to list STOs going forwards. And so in that sense, they would be a kind of nominee ombudsman holder of these notes. So the notes of the registration agent would be in the name of that exchange.

Starting point is 00:45:03 And then the exchange would reflect the qualification requirements onto the users. So it would be accessible to a subset of the users, i.e. not in the US and reaching some level. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up. And customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for

Starting point is 00:45:37 a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Ryder spend 82% less time on audits with Vanta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at Vanta.com slash billionaires.

Starting point is 00:46:11 That's Vanta.com slash billionaires. Ever wanted to explore the world of online trading, but haven't dared try? The futures market is more active now than ever before, and plus 500 futures, is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&B 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for.

Starting point is 00:46:53 See a trading opportunity. you'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit plus500.com to learn more.

Starting point is 00:47:17 Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes, thanks to the Fundrise income fund, which has more than $600 million invested in a 7.97% distribution rate,

Starting point is 00:47:52 With traditional savings yields falling, it's no wonder private credit has grown to be a trillion-dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. All right. So I have a million questions here. So you said that it's through Stalker that you're registering for your ownership

Starting point is 00:48:45 of the note, which is a token on liquid. How is the maturity of this? And And is there a coupon? Is it couponless? I'm assuming it's, would this be a, there would be no coupon being paid. You would just get a kind of a payout at the maturity date. Right. So we had some quite a bit of internal design discussion about the mechanism, jurisdiction, tax planning. So there's quite a lot that goes into this.

Starting point is 00:49:11 But yes, so it's coupon less. So there's no Bitcoin being dividended out of it. So the bitcoins roll up inside until maturity and then they're pay. out in Bitcoin to the holder at the time of maturity. So you hold this token. What's the maturity on these? 36 months. 36 months.

Starting point is 00:49:33 So I could buy it 12 months after it's already been issued for whatever price it's trading for on the open market. And then I hold it, let's say I hold it through maturity at that time. The token just disappears and Bitcoin shows up in a wallet that's registered with that specific token? Is that how that would work? Yeah. If it's on the exchange, they would probably take care of that for you. If you are holding it in a wallet, you'd probably need to go to stocker and deposit the token and put a Bitcoin address, kind of like, you know, having a oil future. You've got to take delivery at the end, right? So now are you guys going to go through

Starting point is 00:50:10 just one issuance? Are you going to go through multiple issuances to just kind of continue funding? And it sounds to me a little bit like what you had previously described or half of whatever you guys are generating, you're putting into hardware. And then the other half you're retaining as payments for the electrical expenses, which is kind of your maybe derivative strategy in order to make sure that your electrical costs have kind of like a predictable curve to them. Is that how you're kind of going about it from like a strategic sense? Part of that is back tested, right?

Starting point is 00:50:42 So we're thinking, based on our own experience, prop mining, that this is a better way to do it economically, as opposed to spending your capital allocation on the miners and then paying as you go or selling Bitcoin's as you go. So we put those economics into the note because we want the note holders to have a positive economic outcome so they buy more of them, basically, right? So it's a win-win formula. And it's exactly like you say. So, of course, the price is bundled. So how you ascribe value to the cost of the miners versus the remaining duration on the hosting contract is a matter for, you know, the market to decide ultimately. And over time, of course, it's got an additional makeup, which is the number of coins per note. And, you know, there's a dashboard where you can see that on a fairly real-time basis.

Starting point is 00:51:33 Now, you asked another question, which is, do we issue more? So yes, we are intending to issue about $100 million, so 85 million euros of the, of this series. And they are, so even though they issued at different times, we do some clever things to achieve fungibility between them. So they are, you know, all interchangeable and you shouldn't care as an investor whether you bought an early sales trunch versus elite a sales trunch versus in the market. And that's quite interesting to actually achieve because, you know, these. This first 12.5 million sales trunch is power update early July. And let's say there's another tranche that sold in September. For that to be equal, it has to have a 33-month hosting contract.

Starting point is 00:52:20 And we have to market by the number of coins per note that the miners that we've already been running have achieved. And so that's what we do. So I would think that you would do it in a way where, let's say you have your first tranche, whatever you raise, through that initial tranche, that has dedicated servers that are basically partitioned saying, hey, this amount of processing power is dedicated to this tranche of funding. And then as the next tranche comes in, whatever servers that are associated, I'm saying servers, but really kind of processing power in pterahashes or whatever it might be, is dedicated to this tranche of funding. Am I understanding it correctly? That that's how it's being managed?

Starting point is 00:53:03 So, no, it's actually all interchangeable once. Think about it like pool of capital that's mining, and there's a certain economic makeup of the per note value. So let's say it's August. They've been running for a while, there's a certain proportion of Bitcoin per note. There's now not 36, but 35 months left to run on the contract. So the value of the hosting contracts gone down a bit. The Bitcoin have a market value and the machines have, you know, some depreciation scale of value, right? And now it rolls over to September and we want to add some more notes, which are interchangeable with the running notes. And so what we do is try to match the economic characteristics of the existing notes. So we say, okay, let's look at the makeup. It has a defined number of Bitcoin. We can fix that.

Starting point is 00:53:56 We just go market buy that many Bitcoin. It has 35 months left to run on the hosting contract. We'll give it a 35-month contract. Oh, I see how you're doing. And then machines should be comparable, right? But it's defined in terms of hash rate. So even if these machine shortages mean that sometimes you want to take what you can get, right? So if the machines that come online are 42 joules instead of 38, they're less efficient, it's still fungible because the definition is in the hash rate target of what it's producing, right?

Starting point is 00:54:29 So it will mean that maybe we pay slightly less for the machines, but it expends slightly more power, but it's still interchangeable because the finished product is the hash rate you get from it. But at any point in time, post the initial issuance, let's say we're three months into the ownership of this. I can look at how much Bitcoin has been mine that's associated with that note. Is that correct? Right. And it's actually the same for all of the notes because it's kind of harmonized. There's a pool of hash rate, so it's averaged, but there is a defined, this is how many

Starting point is 00:55:02 coins have been mined per note or in aggregate, and this is how many notes there are. And another question people ask is, well, what if I want to sell the coins, you know, because I can't extract them. And so you can sort of synthesize the equivalence of there being a Bitcoin coupon by, you know, if you have additional bitcoins outside you, we just sell those instead. Ed. Something else you could do, you know, we were talking earlier about yield strategies, is you could, assuming there are exchanges which on the BNN notes as collateral, you could short Bitcoin using it as collateral to the tune of the number of coins per note. And that would even, you know, that would be equivalent to selling, right, because it would lock

Starting point is 00:55:45 in a dollar value, plus it would give you a yield typically resulting from, you know, kind of Bitcoin perpetual products, right? Wow. So this is just, this is such an interesting approach and it's so much different than participating in a mining pool or just going out and buying equity in a mining company. It really has a feel that you are really participating in the funding of hardware and then getting the kickback of whatever that hardware is pumping out. Fascinating. I'm really curious, why not in the U.S.? I think I know the answer that you're going to say, but I'm curious, what's the reason that you were not able to do this in the U.S.

Starting point is 00:56:23 We may be able to in future. There are different regulatory requirements, and that's for the process. And I think the other thing, so you mentioned a couple of things there. One is that you are not buying shares in a mining company. So this is more like a non-discretionary financial instrument. So you're not relying on some management discretionary decision. If you put money into buying shares in a prop mining company, now you are exposed to, well, did they make a good decision?

Starting point is 00:56:56 Did they decide to use your money to expand a farm over there? Or, you know, sell some coins to dollars. The price is falling or pay out a management bonus or pay out a dividend or not. None of that stuff applies, right? It's all non-discretionary defined. What's happening? There's, you know, extremely thin deterministic behavior. And it's, it's going to be like a Bitcoin ETF.

Starting point is 00:57:17 but it's kind of like, I mean, it's not an ETF, but it's something in that direction where there's a defined thing that does something very thinly managed. I'm kind of curious, so let's just say I buy a thousand dollars worth of this note. When are you expecting over that three-year timeframe for the person to break even on the principle of the thousand dollars based on back testing? Yeah, so I think obviously it's difficult because there are so many exponentials that go into the Bitcoin world, you know, exponential price, the high volatility. The hash rate is prone to like really actually even exceed price because you've also got

Starting point is 00:57:59 a factor of more modern equipment being developed over time that has a higher hash rate per jewel. So I think, you know, one thing we can do is look at the back testing with a caveat that the future doesn't guarantee that and say that, you know, it hasn't lost money over a previous three-year periods, that it has this 60% upside participation as compared to buying and holding. But what is very defined is the short term because Bitcoin has a fully liquid market price. The current difficulty is, you can look at it, that's verifiable, and you can infer from that what your, you know, mined Bitcoin revenue would be. So for notes, the list price of the note, of course, that may change based on the inputs later, is 200,000 euros. So that's actually

Starting point is 00:58:44 a minimum investment. And if it were running now, I would say that would produce about 20,000 euros per month. So it's, if the metrics went such that it was straight line, you would see a break-even at 12 months. Yeah, about a year. And that's intuitively, that's kind of what I was expecting to hear you say. It was about at a year time frame. Right. And so, of course, it can, it's, you know, it's not as volatile as Bitcoin. But, but, but it's still a altar. So you've got to like buckle up going into these things, right? And that can go both directions, right?

Starting point is 00:59:21 So if you scroll forward to some of these stock-to-flow-derived price targets or just price targets, people are thrown out, or comparators between previous halving lows and highs or cycle lows and highs, $300,000 price into next year, of course, the profitability is going to be through the roof because nobody can manufacture that amount of equipment. that timeframe, like there isn't enough founder of capacity in the world if you manage to, you know, seize all the capacity that's being used to build, smartphone chips and so forth,

Starting point is 00:59:53 which is hard to, hard to compete with in terms of their command of capacity, basically. But of course, if I were to happen, I think it's fair to say you would have done even better if you just bought Bitcoin and held it now, right? But, you know, in the alternative, there's certainly people looking at the market now and saying, well, $60,000 is a high price. I'm scared to buy. And they get stuck in the decision cycle. So now, as an alternative to that, I think it's a pretty reasonable tradeoff.

Starting point is 01:00:19 I'm kind of curious on the stocker thing. Are they doing this with equity as well, where they're assisting in the issuance of tokens for equity? Yeah. So they've, they are a company that specializes in that area. So they do the KYC. They are a Luxembourg securitization, like licensed Luxembourg securitization manager. I don't know all the correct terminology, but they're experts in that domain. And they do fundraisers for these kind of, I think it's called a non-public investment in Europe.

Starting point is 01:00:52 And so one they did is for a supercar called Mazzanti. So it's an Italian kind of bespoke custom supercar company. That's equity in the company or something like that. Or equity or proportion of revenue, something I didn't look into all details. But they are doing things like that. Another one is Infinite Fleet. Yeah, Samson was telling us about this. So that's how he's doing it is through. Okay, it makes sense now. Okay, so let's transition to real fast here. And I know your time is limited and I want to be respectful of that. I just want to hear what is the biggest news you've seen this year or something that really kind of just kind of made you go. Oh, wow. It seems like the metrics and institutional sort of almost stampede to participate is, you know,

Starting point is 01:01:40 there's something new every day or two, right? Big fund managers, big banks, where the CEOs have been skeptical. It's just custom of demand, right? They're right in stock the flow charts now from Fidelity. Yeah. So that's kind of interesting to see. And of course, the adoption level is still fairly low. The Treasury disclosures are interesting, too, that Michael Saylor kind of encouraged

Starting point is 01:02:06 people to do. It's something we've actually been doing since 2014, which is when we were incorporated. And that obviously works pretty well, right? We got the equivalent of probably a couple of rounds of investment through Bitcoin price appreciation and investor dollars into mining. That was also highly profitable in dollar terms. putting more Bitcoin on the balance sheet. So I think it's an interesting sort of precursor to transitioning to a Bitcoin monetary base if that happens, or at least a kind of alternative

Starting point is 01:02:38 store of value, right? Because nobody, I think sometimes people over-emphasize that fiat currencies have fallen, even the best of them, 99% over a hundred-year time frame, right? But nobody in the investment space says you should put, you know, cash under the mattress, Right. So it's not really a useful comparison. So I think maybe gold is an interesting comparison. And Bitcoin may, I guess, in the long term, do a little better than gold, even at the top of a Ness curve, you know, after fully adopted, whatever level that is, you know, if that's 100 trillion or 200 trillion, five to 10 million a coin, even then because the, you know, having displaced lots of different sort of artificially monetized goods like, you know, stocks, realist, state, artwork, gold, things where people are not buying it for the enjoyment of it, but they're buying it to preserve capital or to, in the expectation of price appreciation by other people seeking to do the same thing. So even in that case, I think it would outperform gold because it's strictly scarce where, you know, there's always more gold. So the supply inflation

Starting point is 01:03:46 should taper off to well below gold, I guess is my point. Just the sequence of positive news is just really keeps going. That's pretty interesting. So you and I have exchanged some messages with Plan B in the background about this contango trade. And what I find fascinating is you're seeing this pretty much only materialize or these spreads, these large spreads between the spot and the future price materialize on physically settled exchanges.

Starting point is 01:04:15 When you get into the cash settled exchanges, it doesn't seem like that this is happening. But with the size of some of these physically settled derivatives exchanges all over the world, which are massive, billions and billions in size, what is causing this? Is this going to continue to persist, especially as the volatility gets larger as we go through this bull market we're in? And does that cause the spread to even blow out larger than what we're seeing right now? The locking up of coins on the physically settled exchange is this almost. like a second-having kind of event that's playing out in real time. Give us some of your thoughts on this. I think it's a kind of submarine issue to many people, or not issue. I mean, it's a positive driver, but it's not something that they would be visible to them necessarily because it's kind of wrapped up in, you know, some kind of advanced trading strategies and, you know, it's kind of mysterious, but it seems like actually has the potential to be a kind of Bitcoin monetization driver because people who are not even interested in Bitcoin can get an extremely high

Starting point is 01:05:28 U.S. dollar interest return. 30, 40%. Yeah, completely Bitcoin neutral. And so, you know, of course, once they realize that this is the case and that they can do these kind of match positions on increasingly high-tier platforms, more and more money will flow into that. So one theory could be that, of course, there's an enormous pools of money outside of the crypto space, buying 30-year bonds and negative rates and things like that, right? So there's like a lot of money out there. So you would think that once the damn breaks and it flows in,

Starting point is 01:06:02 the yields would slow down. But I think the problem is that it's universe expanding. So when you say that, intuitively, I agree with you. But in order for them to continue to participate, they're locking up more of the underlying as they come in and try to chase those spreads. And so if they're locking up more of the underlying, they're clawing it off the market, which is almost like it's supplying another halving or supply suffocation of the underlying coins. Because the only way that you can do these positions is you've got to put them in escrow. The understufficiency line. Right. Yeah. So I think there's some positive reinforcement loop where it's a mistake to think that, you know, let's say there's $4 trillion of demand to borrow dollars. And so, you know, there's only, let's say, half a trillion that is extant on crypto trading platforms. And so, this is sort of demand to go leverage long because many, you know, the people that are in Bitcoin generally want more Bitcoin or regret former conservatism. And so, and of course, they're speculators too. But, you know, there's clearly a high demand for leverage. And as there's a

Starting point is 01:07:15 shortage of it, they bid the price up. And the problem is basically that people who are, have dollars on crypto exchanges will generally be inclined to market by Bitcoin and hold it. So the only way you can persuade them to lend it to you is to bid the price up. And it is, you know, there's an oversubscription for that. And so you would say, well, you know, know that there's so much demand now, there's more than that money outside the ecosystem, once they overcome, there are many platforms where you can't count physical Bitcoin as collateral, so you've got to use other collateral, so that takes some of the fun out of it. But as you said, I think the thing is that it's not a stationary picture,

Starting point is 01:07:51 because it's also, as more money flows in, it satisfies the demand to buy more Bitcoin and pushes the price up, locks up the physical Bitcoin for these yield strategies, which is more scarcity, somebody wants to institutionally buy Bitcoin, where are they going to go, right? Is it a perpetual machine once you get a physically settled derivatives market that's mature in place? That's the question I'm toying with. I have no clue what the answer is. And I don't know that there's any way that we could solve or say conclusively that that's

Starting point is 01:08:28 what this is. But in a weird way, it's kind of looking like that's what's potentially the case here. Yeah, I mean, it does seem like there's some kind of hyper-bitcoinization aspect to this, which it's just a self-feeding monster that wants to absorb all the money. And so basically what it's doing is it's just, you know, shifting the Bitcoin dollar exchange rate. As that changes, it can absorb more money because now the price per coin is higher. So it's not $4 trillion, and it's $8 trillion and then it's $20 trillion. And before you know it, you have full-scale global hyper-bitconization or something.

Starting point is 01:09:07 So we'll see how it plays. And, you know, the one interesting part about it, though, is that unlike the kind of trade of psychology that goes into pullbacks and during a growth cycle like we're in now, there have typically been like a dozen, 10, 20, even 30 percent pullbacks on the way across, you know, 100x growth period or something, which we've seen in the past. And so, you know, people have to become accustomed to that. Some people panic sell or make other mistakes, over-leverage, that kind of thing. But with the yield strategies, you're immune to that. These are, you know, largely immune to volatility. So long as the platform you're using is solvent,

Starting point is 01:09:53 doesn't get hacked. And so that's where more mature platforms coming into play helps. Then what's not to like about the yield in this environment. And so there's a reason for people to buy Bitcoin to collateralize the dollar yield collection. And so they don't even directly care about the price. I mean, it's 10x, at least 10x right now on an annualized basis of what they're getting on any type of traditional government issued long-term bond. 10-X. It's crazy. Well, Adam, I could literally talk to you all day. Thoroughly, thoroughly enjoyed this conversation. And I really want to do this again because when I posted that I was going to be talking to you on Twitter, I think I had three or 400 people send me questions as to what they wanted us to talk about.

Starting point is 01:10:41 So I would really enjoy if we could get back on and hammer through some of those questions if you're up to it. But either way, man, I am so excited and just want to thank you for your time to come on today. Well, thanks for having me on. And let's indeed do that. Pay through some interesting questions. There was a lot of interesting questions there, yes, sir. All right. Well, hey, we'll do this again and thank you for your time today. All right. Thank you.

Starting point is 01:11:06 Hey, so thanks for everybody listening to the show. If you enjoyed the conversation, be sure to subscribe to the show on whatever podcast app you're using. We really appreciate that. And if you have time, leave us a review. So thanks for joining us this week. And we'll catch you next Wednesday. Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - BTC022: Dr. Adam Back & Bitcoin's Proof of Work (Bitcoin Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.