We Study Billionaires - The Investor’s Podcast Network - BTC026: Bitcoin Mastermind w/ Lyn Alden & Jeff Booth (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to our Wednesday release of the podcast where we're talking about Bitcoin. Boy, things could not be getting more high adventure than what we're seeing in this space right now with the price action. At the middle of April, we saw an all-time high in Bitcoin of nearly $65,000. And as we're releasing this in the middle of May, the price has experienced a major correction clear down to $40,000. For the people not accustomed to an asset with this much volatility, I've tried to bring on two of the best guests to assist through the chaos, and that's Jeff Booth and Lynn Alden. During the show, we address many hot topics currently in the news from energy concerns,

Starting point is 00:00:42 centralization concerns, speed of payment concerns, the alt-coin season that we're currently seeing, how corporate boards might be viewing the volatility and much, much more. I'm super thankful to Lynn and Jeff to record this. this discussion with nearly no advance notice, and I hope you guys enjoy the chat. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right, so here we are, like we said in the introduction. I'm here with Lynn Alden, Jeff Booth.

Starting point is 00:01:28 Guys, just is so excited to have you here to have this chat because, man, it's getting crazy out there. It's getting a little insane. So I want to just open it up to you guys. Like, how are you guys seeing things right now? Because it kind of, to me, it felt like this thing was on a rocket ship. And then somebody shot the wing off over the weekend. And now it's just chaos and fud and fear and people were going crazy.

Starting point is 00:02:02 So I just want to kind of capture some of your thoughts initially and then we'll go from there. Okay. Yeah. I mean, the way I'm looking at it is that, you know, we can use different kind of on-chain indicators and basic, you know, sentiment analysis to see how it's going. And for a while, you know, it was kind of on track where the bull market looked a lot like the 2017 post-having bull market. And so now it's starting to look a little bit more like the 2013 bull market, where it had a longer correction in the middle there. They had like a six-month, you know, a pretty significant correction.

Starting point is 00:02:33 But it's interesting so far because it's kind of a hybrid. And so in terms of percent loss, so far it doesn't really deviate from the 2017, you know, bull market at all. So some of those corrections were down, you know, in the high 30 percent range, close to 40 percent in some cases. None of them lasted this kind of three-month period that we're seeing now. And so in that way, it's looking a little bit more like the 2013 period. And so I'm kind of analyzing it like I do any other asset class. And so, for example, in my research service, I cover multiple different asset classes. And generally what you see is that if everybody kind of, you know, within an industry,

Starting point is 00:03:09 gets kind of super bullish at the same time, that's when you're likely to get, have kind of pullbacks and corrections and things like that. And so I think now we're seeing that. I saw a similar thing with gold last year where after the initial, you know, kind of CARES Act fiscal stimulus, we saw, of course, the big run up in gold. But then when you got to kind of late summer of 2020, he started to get real rates kind of rising a little bit off of their, off of their load. you started to get a roll over in gold sentiment, right?

Starting point is 00:03:37 And so you were in kind of a long-term gold, you know, kind of an eight-month correction. And just when everybody kind of thought it was dead, that that's, of course, when it kind of bottoms a little bit and shows some life. And so we kind of see similar things with Bitcoin, where it's on, you know, they're on different clocks, right? So when, you know, while gold was correcting that time and it kind of, you know, benefit, you kind of being harmed by that rising real rate phenomenon, Bitcoin was doing better. And so now it's rolling over a little bit.

Starting point is 00:04:04 We have some of the people that, for example, have been, you know, avoiding it this whole time, now doing victory laps because it went down 30-some percent, you know, kind of ignoring the fact they went up hundreds of percent in the cycle. And so, you know, it's hard to say whether or not this has been the bottom or if we're going to see a deeper correction later. But so far that, you know, the overall network effects are still in place. It's just that if you look across the board sentiment, you had pretty strong sentiment in Bitcoin. And then you had really bubbly sentiment in the broader, you know, the crypto space where you had Ethereum classic outperforming Ethereum. You had Dogecoin, you know, going to the moon. You had, you know, people are inventing, you know, new coins called Come Rocket and things like that. And so, you know, when you get to that phase, you start to get a really kind of dilutive effect in the industry where a lot of the enthusiasm that might otherwise be for Bitcoin starts spreading out.

Starting point is 00:04:58 and we started to get kind of this temporary issue where like Bitcoin scarcity stops mattering because everyone can just issue more more coins and people can pile into more coins. It's kind of a similar thing you see at the top of equity bull markets or at least local tops, I should say, where if there's a crazy demand for equities, all sorts of crappy companies can issue equity and give as much equity as people want. And it's not until you kind of clear some of that out that you see which companies actually, you know, their equity is really worth something.

Starting point is 00:05:25 So considering we still have. many alt coins outperforming Bitcoin, is your opinion that there's still more selling to go from where we're at right now? And just for people, I think we're around 44,000 right now. Based on what you're saying, it sounds to me like you think that there's a little bit more selling to happen. I don't have a strong opinion either way. I mean, I think, you know, we haven't seen some crazy capitulation where just, you know, we're kind of like a death spike. But, you know, we've seen a pretty prolonged down move. And so I'm kind of at the point now where I'm not getting very clear intermediate term price signals.

Starting point is 00:06:02 And so I don't, you know, I try to do the thing where if I have conviction about something, I'll say it. And if I don't know something, I'll say, I don't know. And so in terms of the next three months or so, I don't have a firm opinion either way about Bitcoin's move. I remain basically strategically bullish while being pretty agnostic about near-term price action at this time. Jeff? I think that just was a really great way to say it. Nothing has changed, nothing on the structural Y Bitcoin. And the game that's going to be played for a long time, ups and down on the way through.

Starting point is 00:06:36 You have a network effect. One thing I think a lot of people are making a mistake on Bitcoin and comparing the other altcoins. Is they're comparing it to, let's say, in the technology world, Google or Yahoo. This is a protocol. It's like investing in the internet with a network effect. And so the other things on top aren't that. But to Lynn's point from what, let's look at 99, 2000 is in the internet boom. You had a whole bunch of companies in a short term doing better than Amazon.

Starting point is 00:07:14 Because they started at a low and they could say, balls.com. like crazy things that would, because you could write a business plan and put it on a napkin, and anybody would finance it hoping to catch the magic of Amazon and others. And it creates a whole bunch of extra race in the market, trying to get rich quick schemes. And so when you see a bunch of the alt coins and everything else, that's what I see. I see a really bubbly type of market. What I worry about a little bit is that's going to hurt some people. And they're going to miss kind of the really important aspects of why Bitcoin is important, really critical.

Starting point is 00:08:05 And they're going to kind of lump all the cryptocurrencies into the same game. But if you fast forward what happened in the dot com bust, a whole bunch of premium names, also fell. And then after that, nothing changed on the fundamentals. They reinforced and grew and grew and grew. So we have Elon Musk, goes out, buys a billion dollars plus, puts it on his balance sheet a couple months back. I think his cost basis is still lower than where we're at right now at $44,000 of Bitcoin. He, Jack Dorsey talked about how Bitcoin creates this massive incentive structure for renewable energy. Elon replies the Jack Dorsey saying he agrees. And then out of nowhere this past weekend, I think it was before the weekend started,

Starting point is 00:09:11 Elon comes out and says that he thinks that there's energy concerns with Bitcoin. He says that he's working with Doge coin developers to make Doge better. He's watching something that as of last night, he said he still has all of it on his balance sheet, except for that 10% that he sold. He still has it sitting on his balance sheet. but all of his comments are causing the price of Bitcoin to plummet, even though it's sitting on his balance sheet, the price of Tesla is plummeting. So what?

Starting point is 00:09:51 I'm trying to wrap my head around why, right? I'm just asking myself, why would somebody go out and do this? Even if you did believe this stuff, you'd think you'd be quiet about it as you do more research. I mean, we all know Elon is not your typical person, especially while. on Twitter. But talk us through how you're interpreting all these mixed signals. It's so strange to me.

Starting point is 00:10:18 But Lynn, take it away. What are your thoughts? So I get, I mean, if you look at his history with Bitcoin, even before he bought it, he was kind of like flirting with Bitcoin while still, while talking about Dogecoin. And back in December, he tweeted, you know, I think he phrased it as, uh, Bitcoin is almost as BS as Fiat. Yeah, yeah. And I remember, like, because one of my friends kind of highlighted that, and he's like,

Starting point is 00:10:44 oh, he's going to make the, the Bitcoiners angry. And so I just put a meme out there that was like, you know, it's kind of basically how like, like basically that winning the poo meme where, you know, he's like he looks kind of slumpy. And then he's in like a talk since I wrote like, you know, like the slumpy versions being long Bitcoin and Tesla. And like the more sophisticated version is like long Bitcoin short Tesla. And that's basically, you know, so there's a lot of kind of, for a while, there's been kind of like a lot of pro Tesla pro-Elon feelings in the Bitcoin community for a while. And I've always been somewhat out of consensus in the sense that maybe it's because I come from a little bit more of a value investing background.

Starting point is 00:11:23 You and me both, Lynn. Exactly. Because I have the same, I've always had the same opinion. Like I never got Tesla, but I was a Bitcoiner. And I felt like such an oddball. Yes. I was always critical of Tesla. And because so Musk has, and it's not one of those things like, you know, there's obviously good engineering happening at Tesla.

Starting point is 00:11:42 But it's more about the fact that he tends to over promise and under deliver and slower than, you know, his initial forecast. If you kind of go back and look at his timeline for when, you know, automatic driving would be here and things like that. Right. Yeah, yeah. Basically, he's kind of inherently a marketer at heart and he seems kind of all of the place, especially on Twitter. And so, you know, I think it's one of those things where it's really important, I think, for Bitcoin not to, you know, the Bitcoin community not to get caught up with, you know, hero figures or I actually think Peter McCormack phrased it best, like, you know,

Starting point is 00:12:19 basically single person worship is like centralization or, you know, however you phrased it, like, you know, you're basically relying on the opinion of one man, you know, that's when you're going to run into issues. And so overall, I think there's even, there's a lot of theorizing about why he changes his opinion. One is just, you know, his opinion changes a lot on a lot of things. And so, you know, I wouldn't necessarily say there's a reason for it. If there is a reason for it, it is possible that, for example, because Tesla's involved in renewable energy credits, that he got a tap on the shoulder from someone, for example, or the company did, you know,

Starting point is 00:12:51 the adults in the room, I guess, you could say, and that they had to change something up and change their opinion of the energy environment. It's really hard to say because, you know, we're not necessarily, you know, working with a kind of the standard CEO here? Here's a different way to look at it. This is actually the, the best thing on the planet for Bitcoin. It is proving why decentralization matters. So if you consider look at Satoshi White Paper and everything else, the root problem with conventional currency is that trust is required to make it work. And so, and central governments have erode that trust. And so as somebody gains more and more power over you or over your finances or anything else,

Starting point is 00:13:39 the rest of society is up to kind of whim and fancy of that person. And even if that person is, like, we're all trying to read in what he's thinking. I personally believe that he did get a tap on ESG and it became, okay, I have to softly backpedal. I won't totally go out, but I have to softly backpedal to be able to protect kind of credits and everything else. That's what I believe. I could be totally wrong. It could be. He's just learning like and you know how people learn and then they go into alt coins and they're all over the map because they don't really understand it. So he could be just a very powerful person learning publicly and crazy markets all the way through. It actually doesn't matter on each of those, on each of those tangents. What matters is it's proving the thesis on why decentralization is the most important gift to humanity,

Starting point is 00:14:39 because it pushes the power of the power to individuals rather than centralizing power. So he had, and I'm assuming, Lynn, you agree with Jeff there? Yeah, I agree. And I think, you know, it's a shame that, so it's interesting because we're seeing a lot of kind of, you you know, interesting news kind of get kind of overshadowed by the Elon thing, right? So, for example, I've been covering, you know, the fact that NIDIG has had a number of interesting kind of announcements lately where that, you know, they brought over the executive from Bridgewater. They've announced like partnerships with banks, you know, to kind of, you know, it's basically to bring

Starting point is 00:15:20 Bitcoin to banking. And so that's kind of, you know, more signal to noise stuff where, you know, for example, the network effect continues to strengthen. And obviously for people following tap route, that's obviously making advancements as well. And so you actually see the underlying technology getting better. You see the network effects getting better. But then on top of that, we see we have the crazy price action and the charismatic personalities and then the Twitter wars. That's the stuff that's getting, of course, 90% of the attention.

Starting point is 00:15:46 And that's fine because that's what's going to dictate, you know, people clicking on on articles. Of course, it's going to get written about a lot. And that's what's going to cause people to freak out because that's what the price action is doing. But I think, you know, for people that are going to dictate. are kind of looking at this as more than kind of a tactical trade. It's really about monitoring the fundamentals, just like I would with any other type of investment.

Starting point is 00:16:06 So two of the things that he brought up that I think is important for us to address, because we probably have a ton of people that are listening to this that have just got into the space in the last 90 days or 100 days, and they might not even be ahead in their position based on how much it's gone sideways lately. So the one thing that Elon brought up is he was talking about miners in China and how this is a centralized thing. So, Lynn, I'm sure you can crank this one out of the ballpark as to addressing how this is fud. Yeah, there's a couple, I mean, there's one is the energy fud and one is the centralization fight and they're two different ones. And so basically with the centralization, you know, we saw from the 2017, you know, the differences of opinion there

Starting point is 00:16:51 between, you know, different parts of the community that, you know, as the ways Bitcoin's designed is that really the nodes have the power. And so the centralization, the partial centralization of hash rate is not really the key factor there. It's really about, is there a central development team that can kind of override miners and nodes? No. Is there basically a cabal of miners that can push changes through?

Starting point is 00:17:16 No. It's really about the decentralized node network itself. And that's also why the Bitcoin community is so adamant about keeping nodes simple to run. so that the average person can verify the entire blockchain and basically be involved in the consensus over time. And so miners, of course, have a large role, but just because one country has majority of hash rate doesn't necessarily give them control over the blockchain.

Starting point is 00:17:43 And then the second one is the energy fud, which, and that's, you know, there's pros and cons there. There's parts of things that are merit, right? So there is a big mining area in China. Some of it is, you know, the hydroelectric overcapacity. where they go there. That's basically the cleanest, freest energy you're going to get because they're really tapping into renewable energy, but otherwise be wasted because it's overbuilt,

Starting point is 00:18:05 you know, in certain areas, especially, you know, during the wet season. And then, but the other factors, you do have provinces in China that are more coal-heavy. And so, you know, that is a fact. But then over time, you know, especially because China's actually moved in some ways to try to discourage mining in those jurisdictions, you know, a lot of Bitcoin proponents. are in favor of, you know, trying to do actions to decentralize the mining a little bit more, bring it more towards North America, bring it to cleaner resources where possible. But overall, you know, it's one of those things where the way it's currently works,

Starting point is 00:18:40 I think there's a couple issues. One is people assume that the energy consumption is going to be as exponential as the price increases. But the way that the block subsidy having works, that's not how it goes in practice, where the energy scales better than the price action over time. So there's that. And then two, just the fact that even though you have individual cases where, say, a bunch of coal kind of mines Bitcoin, the overall structure of how Bitcoin works is it's really optimized to go around the world and kind of soak up wasted energy and basically the overbuilt energy. And so the overall kind of, you know, big structure of the type of energy that Bitcoin uses is really a net positive. And it's the fact that, you know, a lot of people criticizing Bitcoin's energy use, they kind of start with the, you know,

Starting point is 00:19:26 with the kind of axiom that Bitcoin's useless and therefore energy spend on it is a waste, whereas, for example, we don't really question, you know, energy spent on washing machines or, you know, Christmas lights or, you know, whatever the case may be, because we know that there's varying, varying degrees of use for them. And so people that really know how Bitcoin works and know why it's valuable, they know that, one, the energy spend is worthwhile. And two, that, you know, basically that over the long run, you know, that basically the incentive structure is actually pretty attractive for energy rather than this giant, you know, kind of exponential increasing environmental drain. There was one other, I'm sorry to interrupt you, Jeff. Go ahead.

Starting point is 00:20:06 And so just, and what Lynn said is all true, but here's the thing. I actually think Bitcoiners don't do themselves enough favor with that argument because it's hard to understand. Now you're comparing, you're fighting the wrong battle, you're comparing what uses more energy and Christmas lights or this or and everything else. Or the, it helps promote renewable, which is true. But if you, on top of that, ask anybody to explain how climate is solved through an inflationary monetary system. 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 of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo

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Starting point is 00:24:49 All right. Back to the show. So you have to have growth forever and you'll debase your currencies to get that growth forever. So it's not real growth. And so you keep growing. How is that aligned with a finite planet? finite resources on a finite planet. It isn't. So if you start to there where Bitcoin by kind of forcing, what's happening is as we move to more and more things becoming in the cloud or digits

Starting point is 00:25:27 or information, really simple examples, if you take music, we used to buy CDs and we had limited music. We drove to the record store to buy the CDs and everything else. And there was a whole production schedule and distribution choosers who out of the musicians could be able to supply us music. So a whole bunch of people were blocked by access to even find us because of the high cost of distribution. Now we have unlimited music for $10 a month and we don't buy things. So GDP is a bad measure because as more information, as more things become information, we get more for less. And that's declining GDP as we get more for less.

Starting point is 00:26:15 But if you have a system that requires higher and higher GDP to pay back debt, that you can't pay back, you have to keep on manipulating the system. And it's not just a little bit of manipulation. So people think, okay, after this manipulation, they'll be over. Just like they thought in 2008, after that manipulation, it'll be over. Everything's good again. because one system is totally opposite to the other system, it requires ever more manipulation forever to be able to do.

Starting point is 00:26:46 And the negative consequences of that action, quite simply should slumber prices be what they are? Should oil prices be what they are in COVID? They're a result of money printing. They're not a result of natural supply and demand market, the result of creating more demand out of money printing. And the byproduct of that, of its people storing value in their houses

Starting point is 00:27:13 to buy more lumber and everything, everything else, which is net positive for a growth economy, but it's not, it's not congruent to, and by the way, I don't know if I love the answer of what I'm saying, but I would love anybody to defend to me, just to ask Elon, how you're going to fix the climate through an inflationary monetary system. One other thing that I wanted to highlight beyond the two points that Lynn brought up,

Starting point is 00:27:48 which was the energy and then the centralization argument, the other thing that I think Elon was bringing up with his recommendation of how he was going to amend Doge coin with the developer tweet, he was talking about making the clearing times faster for the transaction, so you don't have to wait 10 minutes. Like this is, you know, I'll say my comments and see, I'm assuming you guys agree. Like, we are, A, we already have the Lightning Network, which clears immediately Bitcoin Lightning Network. And the cost to the fees associated with the Lightning Network are near meaningless.

Starting point is 00:28:27 And yet he's out there talking about this technical solution with Dogecoin. And I was just, I was just confused. do is like there's no way that he doesn't know this, right? Or I think you might give too much credit. So I think there's a whole bunch of Bitcoin community that that, and I get it on he's doing this to manipulate stock. He's doing this for control of Dogecoin and everything else. That might be right. or he's doing it to gain more power or influence. That might be right too. But I don't think it just might be, he doesn't know.

Starting point is 00:29:14 He's busy with so many other things. And you're asking him to be, you're asking him to be an expert without, and he hasn't gone down to the sand on all of this stuff. And he's promoting, and it doesn't, it sure doesn't look like an expert on any of these things. And that's the thing with Bitcoin. There are so many smart people in this space that want real answers, want the truth. And so if you put something out there that flies in the face of it, you'll be attacked. We need to be careful about that.

Starting point is 00:29:50 We need to be careful about everything being price action. Yeah. Because the importance of the network is far greater than price action. I understand how price action is a part of it, but the real importance for where we're going as a species is way more important than the price action. I was going to say I'll second all of that. And what I was going to say with your initial questions,

Starting point is 00:30:15 I think that Elon should look into the Lightning Network because there has been a ton of development on that over the past couple years. Obviously, we have a lot of apps coming out that are making use of it, but then also there's the work that like Lightning Labs does to kind of you know, basically provide a lot of those apps with the, but the technology allows them to function, we're getting kind of more and more network effects and usability in that network over time.

Starting point is 00:30:39 And, you know, it's one of those things where, you know, my base case is that Elon just doesn't know and that, you know, I think people give them too much credit, assume he's a genius or anything it touches. Whereas, you know, I will say, you know, using myself as an example, you know, I cover multiple asset classes. I cover multiple stocks within the equity universe, let alone what multiple commodities are doing, what central banks are doing, what different countries are doing. And so, you know, studying Bitcoin over the past couple of years has been a large project to spin up on and to be able to contribute, you know, and basically educate other people on it and make sure that I'm not saying stuff that I don't know.

Starting point is 00:31:16 And that's basically involved a very, very large chunk of my time to really go down that rabbit hole and understand it. And in order of, you know, while I'm doing that, I'm still balancing all these other asset classes that I'm monitoring for, you know, literally thousands of readers and, you know, kind of maintaining awareness of that. And so, you know, for me, when I got into Bitcoin, lightning was one of the things that I was aware of. Like, basically, it's, I knew it solved certain problems, but I never, you know, that was one of the later things that I kind of dove into, you know, after kind of getting the base layer figured out, right? So if he's, if he's, he's,

Starting point is 00:31:52 you know, keeping track of what's happening at SpaceX, what's happening at Tesla. And whatever happens in his personal life. And then he's getting into cryptocurrencies and Bitcoin and Dogecoin because now he's distracted in Dogecoin. And then, you know, so what degree has a research has he done, for example, on Lightning? And also, you know, has he spun up on the fact that he's basically presenting certain arguments about block size and things like that, that have basically been debated for like five years now by people that are deep into this industry.

Starting point is 00:32:21 And basically just kind of seems to lack a knowledge of history about kind of, you know, where some of the decision points were made, how we got to this, how some of the different forks kind of turned out. And so, yeah, my base case is that he just hasn't really spun up on that particular area in a way that maybe he should have before, you know, making a billion dollar investment in an asset class. You do all those things, Lynn, but you also write in an encyclopedia on inflation on a Tuesday morning and blast it out. Well, that's an example of something that it took two weeks of writing that. And then, you know, it comes out on a Tuesday. That was a Tuesday morning. Don't give me two weeks. I don't believe it. But just build on Lynn's point

Starting point is 00:33:03 and go to other people, not as deep in the Bitcoin community, who have some of these same mistakes as they go through their journey. I would say it's most. Including me going through it in the beginning, Michael Saylor, look at his tweets on Bitcoin before he gain conviction. So part of the thing as you start to go down to the sand, you get smarter and smarter and smarter. He's just doing that publicly and everybody thinks he's already a genius and knows all the answers. Jeff, so what are the board conversations going to sound like after all this Elon stuff? Do you see it changing? Do you see people putting a lot of credence in some of that fud that's been put out there?

Starting point is 00:33:49 Or is it just kind of like, okay, well, that's that guy's opinion. and let's have the conversation we were intended to help. I would say almost zero. It hasn't changed at all. In fact, in fact, this conversation is accelerating. The more,

Starting point is 00:34:05 actually, even Elon on this forces, forces the truth to get out and more and more questioning on it. And there's been a lot of this from really smart bitcoins that have come out. And it deserves an answer, right? That,

Starting point is 00:34:20 how does inflation, How does an inflationary monetary policy handle climate? It deserves an answer. If you don't have an answer, then you just look over here. I'm selling cars. Tell me how. And if you don't have an answer, and that's kind of how I think about it, then I'm long Bitcoin until I see something different that has.

Starting point is 00:34:46 And then here's another, I was asked this question recently on why Bitcoin. and why not Ethereum or why anything else? I actually don't, when we go into the protocol and what this is, I think there's a unique set of circumstances that built Bitcoin to this point. And so let's take a whole bunch of the other coins, which I don't really look at at all. So why am I a maximal? So not that I couldn't make money on some of the other coins in the short,

Starting point is 00:35:22 short term, but I need to know enough about them to be able to make money and I don't know enough about them. But why am I maximus on Bitcoin? It's because of the two things. One, the network effect on Bitcoin and where it is. And I don't do not think a smaller coin could ever get passed and brought enough adoption through out of government before it was shut down if it was gaining enough adoption. I think so we have a we have a point in time that Bitcoin is big enough and has been flown

Starting point is 00:36:04 under the radar for long enough that could actually bring. That still has decentralization. Exactly. It has decentralization. And I think if it didn't win, and that's actually why I'm kind of against a whole bunch of other coins. If it didn't win, then things will be centralized. And so...

Starting point is 00:36:30 And then you're back to square one because then they're going to... And then you're back to square one. And in the world we're moving into, so it's not the world we came from. Centralization in the world we're moving into. So if essentially you can control... centralization means it ultimately eventually is on a paradigm of dictatorship. Because you have to, you have to, because if technology is deflationary and move exponentially more so, and you run kind of an inflationary policy against that, what it means is you're aggregating more and more power in the state. over time that turns into

Starting point is 00:37:16 I often ask myself why in Russia doesn't everybody just revolt right? Why doesn't everybody stand up and say I'm done with this? We're going to have free and open elections and everything else. And what ends up happening is a very small one number minority will but most people won't. They'll go to

Starting point is 00:37:42 the short-term safety for their family, they'll make the case that I'm just going to stay quiet. Now think about that scenario with centralization with robotics and AI. And think about how different that power is. So if people won't stand up in a system where you can still find anonymity and find kind of a way to stand up, rally enough people around you to stand up. If people won't do that now, or they historically won't or not enough people to overthrow a government, how would that look with where we're going with

Starting point is 00:38:26 technology? So decentralization and putting this power into it, into empowering individuals and where we're going, I think is critical for humanity. I think it is that big a deal. And that's actually why that and the truth is I don't think anything's going to stop Bitcoin no matter what where we are right now. But when I see a bunch of a bunch of Fad or alt coins or trying to all everything else that's kind of taking that could hurt people as a result of this big innovation and why it's so important, that's why I'm only Bitcoin. That's why I defend that's why I would defend that network because because it matters that much. Not for I don't need it for my wealth.

Starting point is 00:39:18 Lynn, what are your thoughts on that? So I think, you know, it's one of those things where I think it's like, you know, people always often criticize Bitcoiners as being, you know, kind of all or nothing. And, you know, it's kind of like an immune response system where, you know, it's one of those things where normally is a good thing. Sometimes in individual cases, it's a bit much, you know, here and there. But overall, that's an important part of kind of what's kept Bitcoin going for as long as it has. and kind of that that hardcore focus on keeping Bitcoin decentralized, maintaining the network effect,

Starting point is 00:39:51 that's kind of an important thing to play out. And so I do think that overall education is a really important thing to keep doing for people. And, you know, it's one of those things where it's important not to take for granted the idea that Bitcoin will succeed. It's going to succeed based on, you know, the development of the community and the network effect over time. And that involves people, you know, kind of calling out funding. where they see it, sharing education where they see it. I try to do my part by tackling different subjects and kind of writing about them for kind of both a retail and institutional audience.

Starting point is 00:40:25 And so, for example, I think that, you know, one of my views is that, you know, one of the more significant risks for Bitcoin is the ESG narrative. And I think that's because, so people often talk about state attacks, right? But, you know, state attacks can come wrapped in other types of attacks. you can have a state attack that's wrapped in an ESG concern, right? So it is true, for example, that we see a lot of companies around the world, you know, are shifting more towards trying to emphasize their, their ESG abilities. And, you know, like anyone else, I'm in favor of trying to make the world, you know,

Starting point is 00:40:59 as clean a place as possible, as trying to have the best governance as possible, social concerns. But, you know, sometimes those can be, you know, the things they optimize for are not necessarily, you can have like a thing of green washing rather than being truly green, for example. Right. So, you know, I'm certainly in favor of cleaner energy, but I'm not in favor of things that are kind of greenwashed, things that make you feel good, but don't actually move the needle. And so I think that's one of those things that can apply to Bitcoin, where if people don't, you know, make sure people are familiar with the details of how Bitcoin uses energy,

Starting point is 00:41:31 that that people can get carried away with that sort of fud. And I think it's good to keep educating people on it. So what you're really saying is you think that there's, could be a coordinated effort amongst policymakers to ban a proof of work and proof of stake is the only thing that that is allowable. Is that kind of what you're getting at? I mean, that's one of the things, you know, that's possible. But you can have less extreme versions of that, right? You can basically make it so that, you know, if you have Bitcoin on your balance sheet, that's damaging to your ESG score or that, you know, that basically you have to,

Starting point is 00:42:04 you know, you're on the wrong side of renewable energy credits, for example, you know, things like that. Whereas, you know, for example, when you have research being put out by ARC, for example, you know, there's areas where I agree or disagree with ARC on different subjects. But one of the things they, I think, are great on is putting out open research about different topics. And they've kind of put out research about Bitcoin's energy usage and Bitcoin's energy efficiency. And so, you know, I think it's one of those things where, you know, you can have soft or hard attacks where, you know, you kind of use one narrative to push another narrative. And so, you know, I was asked the question before in an interview, do I think Bitcoin's energy

Starting point is 00:42:43 concerns are a problem? I said, no, but that I think the narrative around Bitcoin's energy concerns could be a problem. And that was actually shortly before, you know, Elon's kind of turn on this. And this ended up being an oddly specific example of how the narratives around that can be a concern, even though the underlying technology and energy use, in my view, does make a lot a sense. That's a that that that is exactly I think what's happening. If I talk to a lot of I'm involved in some of ESG companies, but here's the difference today and in some of them. They're hitting a point of inflection where where they're cost competitive to existing and better cost.

Starting point is 00:43:23 That's when ESG moves. And again, it reinforces the cycle. And so I come back to the principal thing. you would argue that that's good for that you would argue that's good for the environment a winning a winning a winning technology that is both clean green and it's cheaper than their existing alternatives and but that that thing is more deflation and so I keep coming back to so you're going to print a whole bunch of money to be able to make prices go down more to be able to print a bunch of money to be able to print a bunch of money to be able to print a bunch of money. money. So the system itself, but to Lynn's point, I do agree with that. I don't, I don't, the, the attack vector becomes a lot of people believe, believe that Bitcoin is a problem for energy, is a problem for the environment. And that becomes the attack vector on, on Bitcoin. 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.

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Starting point is 00:47:30 Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund fund's prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. Lynn, what are your thoughts? If you were going to break it down simply for people that are listening to this, they hear us say proof of work, proof of stake, they're new to the space. Can you summarize the difference between the two and then talk about how these ESG concerns kind of pop up between the two different methods of implementing the protocols, validation, and security? Sure. Basically, the way the blockchains work is that you have to put up something of value to verify the blockchain, to have your vote matter in a way of speaking. And with proof of stake, you're basically using your existing units of that blockchain. In some cases, you're risking them in order to select which version the blockchain is valid. And with proof of work, you're contributing energy. You're basically taking electricity and you're solving. hash functions, and then you're kind of voting on which blocks are valid blocks. And if you end up

Starting point is 00:48:48 choosing a block that ends up not being kind of the longest chain, you've wasted that work. And so there's an incentive to make sure you're voting for the correct that you think is going to be the longest and most valid chain. And so there are different consensus mechanisms. And I think the argument against proof of stake is essentially that the existing system is proof of stake, not necessarily in the little sense of the blockchain, but in the sense that basically, you know, if you own chunks of the system, you have more say over the functioning on the system, whereas, you know, proof of work is more, if anything, is actually, you know, what gives gold value over the long term is that it's essentially proof of work. Basically,

Starting point is 00:49:28 someone dug through literally tons and tons and tons of rock in order to, you know, basically collect one ounce of gold. And basically, you've taken a ton of energy and condensed it into one ounce of rare metal, right? So that's kind of the original proof of work. And so Bitcoin is kind of, you know, this, the digital proof of work. And so overall, you know, there's two different systems. And, you know, in general, a proof of work systems, you know, going to use more energy, whereas a proof of stake system, you know, you say you take Ethereum's case, which starts as proof of work, but then they're trying to become proof of stake. So it's kind of more self-referential. And so technically that can be a lighter functioning system,

Starting point is 00:50:11 but you're giving up some of the benefits of decentralization and all these other things that are kind of the key part of why these blockchains are useful technology. Because as soon as you have a non-centralized blockchain, what you essentially have is a kind of a decentralization feeder. You have like a really expensive database, more or less. There's basically a less efficient version of a fully centralized database. And so, you know, when it comes to decentralization, it's almost all or nothing.

Starting point is 00:50:40 Either you have sufficient decentralization where it's kind of believably decentralized or you have just, you know, kind of varying shades of inefficient databases. And if you're moving to a proof of stake, after a proof of work has mined a sufficient, like a meaningful amount of the overall supply, and you're moving towards a proof of stake and you don't have full nodes that can be run by anybody at a very cheap cost, the issues that you're describing comparing it to the existing system that we have today, where the people that hold all the wealth are the ones that get to make up the rules, I think only amplify itself in that type of scenario that I just described,

Starting point is 00:51:26 where you have a few people that are literally running data centers, call it 10 years from now because the block size is so large that, you know, somebody can't just take $200 and run a full note at their house. I think it becomes even more concerning. But, and I'm assuming. Exactly. And I think a really good example is 2017 of Bitcoin, right? So when that kind of, you know, when debates were being had about expanding the block size,

Starting point is 00:51:56 you know, originally you had a lot of big players on board with expanding the block size. size. You had a lot of the big mining pools and you had a lot of the big exchanges. And if that was a proof of stake system, you know, that change would have had a higher probability of going through and being made, you know, even if it was against the, you know, the consensus, the majority of users. But because, you know, with Bitcoin's design, it's, you know, the nodes really have kind of the final say on a lot of things, you know, that, you know, despite the fact that you kind of started with a pretty significant consensus as some of the power players, they were not able to push those changes through.

Starting point is 00:52:33 And so that's, in my view, one of the big tests of decentralization and proof of work and why there's a big importance of running a full node accessible and making that a widely distributed thing, because otherwise what you're basically building is a PayPal, right? We already have that. And so that's how some people are thinking about it, whereas if your starting point is you want to make decentralized base settlement layer, right, a truly decentralized one, then, you know, Bitcoin pretty much nails that and all these other ones in many ways are missing the point and they're replicating these decentralized things that we already have.

Starting point is 00:53:11 So, Lynn, at that point, if you're trying to compete against Bitcoin and you're an entrepreneur that wants to do something else and so you've had a whole bunch of, you see Bitcoin's success, you spin up with something else that looks different that uses different energy that you convince people that this is a better mouse trap. That's actually the exact point. That's what you would do as an entrepreneur. That's what all the entrepreneurs in that are doing. But the problem is it's all centralized. It all become centralized. Hey, guys, what were your thoughts? So, Stanley Drucken Miller had a massive CNBC interview last week. I think most have forgotten about it because of all the Elon stuff.

Starting point is 00:53:57 But this was a massive interview and the stuff that he was saying, I mean, Joe Kiernan on Squawk Box, he, like, stopped. He's like, are you really saying what I think you just said? And he's like, yeah, I am. So I'm kind of curious to hear some of your thoughts on that one. I mean, so for people that aren't familiar with Stanley Drucken Miller, because he's not as much of a household name to say Warren Buffett is. But for anybody in macro, Stanley Drucken Miller is the Tom Brady of Macro, right?

Starting point is 00:54:24 I mean, he's, he's the goat of macro. He's the guy of like the 30 year track record of, of like no down years, right? Just insane kind of macro forecasting. And he's really good with currencies and bonds are kind of his main forte, but he dabbles across multiple asset classes. And the reason he's got such strong reputation is he can trade multiple types of markets, bull markets, bear markets, different currency regimes, all sorts of stuff. And, you know, he's not, you know, as an older investor now, he's not.

Starting point is 00:54:54 one of the people that has said been been on Bitcoin from the beginning, but he was kind of like Paul Tudor Jones, one of these, you know, one of the macro people that were open enough to, you know, have a non-zero allocation of Bitcoin fairly early for someone, you know, with with billions of assets to manage, where once became big enough to be on his radar where he could, he could buy a little bit without moving the price too much. And actually even when he bought into it, he, he still found that he basically said he was still moving the price. And he, you know, and so that actually kind of limited how much he could do.

Starting point is 00:55:24 But overall, yeah, he gave a really good interview where he talked about the changing of the dollars reserved currency status. He talked a lot about the fiscal issues that we're facing kind of right out of the Luke Groman playbook, you know, coming from Stanley Drucken Miller on a kind of a bigger stage. And he also, you know, he gave an interesting comment about Bitcoin's network effect compared to some of the other tokens in the sense that he's undecided about which blockchain. will win some of these, you know, smart contract or payment platform things that are happening. And he thinks there's a good chance that some of the current leaders get displaced by newer entrants at some point. But he was also firm that he thinks as a store of value, that it's really, really hard to unseat Bitcoin. And I think he's done, you know, pretty good research on Bitcoin's network effect in that area compared to, you know,

Starting point is 00:56:19 the whole array of, you know, all coins out there. How about his comments on the dollar, Lynn? I mean, it's one of those things where I suddenly like it because it's stuff I've been talking about for the past, you know, a few years now, which is essentially that, you know, with with the current fiscal situation of the U.S. And the fact that they, you know, they don't really have much of a choice other than to maintain negative real interest rates on their on their debt under the current structure of how much debt is in the economy and, you know, how default works and things like that. where they're kind of trapped in that system. And he's, you know, he's inclined towards thinking that we're in a major dollar bear market. He sees a more, you know, somewhat inflationary outcome. And he thinks that, you know, as we look out 15 years or so, you know, the current reserve

Starting point is 00:57:10 structure, you know, basically the foundation of our monetary system is going to shift, you know, away from the dollar to the sense that it's not really the epicenter of the system that it, that it currently is now. And I think there's nuances where him and I might see things a little bit differently. But overall, he's, you know, he's kind of on that, that, you know, that dollar bear somewhat inflationary outcome, which is the way I've been seeing things for a while. And, you know, he gave an interview a little while ago, I think it was two months ago. And I included some of his quotes in my, I think it was my February newsletter or March newsletter because, you know, I think he's been doing really good commentary on some of the things we're seeing in terms of fiscal policy, monetary policy. broad money supply growth, the inflation versus deflation debate. I think he's been,

Starting point is 00:57:56 he's been pretty sharp on that in the past, you know, six months or so. So guys, Caitlin Long, I don't know if you guys saw the post that she had recently on Tether. Do you guys have any thoughts on some of her comments there? I didn't see that one for Preston. Lynn, did you happen to see it? I think I saw a part of it, but I had so many things my plate. I know that, you know, one of the concerns with tether is that it's you know they they released documents about its backing uh and it's it's still rather opaque uh and kind of unclear backing you could say uh and and so it's one of those

Starting point is 00:58:34 things where you know i i've used stable coins uh but i personally don't use tether just i i prefer some of the other stable coins the more kind of you know regulated stable coins you know for four periods of time where i use stable coins um uh i kind of I put out a tweet that just kind of indirectly mentioned kind of referenced Heather where I pointed out that, you know, if you deposit money in the U.S. banking system, it is 46% backed by treasuries and cash. And then the other 54% is a variety of loans and things like that. That's basically how the U.S. banking system works. And that's actually above average. So, you know, over the past several decades, the average cash and treasury backing was more like 30%. and the rest was a variety of more risky loans because that's what banks do. And so things can always be phrased or kind of framed in negative ways where you make something sound scary. You know, in Tethers case, I, you know, I've never been on the board where I fully trust

Starting point is 00:59:34 what they're doing over there. But at the same time, you know, I think it's some of the concerns are overblown in the sense that, you know, what is really structurally moved markets is big pools of capital, buying Bitcoin, moving it off exchanges in the cold storage, and kind of just causing a supply constraint, whereas Tether is heavily used in the day-to-day trading of it as a unit of account. And so basically, if we were to see a problem with Tether, I think it would turn out a lot like this Elon event where you'd have these periods of volatility and periods of big problems and structures and markets, but it doesn't change the underlying, you know, kind of

Starting point is 01:00:18 technology and network effect of Bitcoin itself. I totally agree with that. So here's a question for you, Jeff. This is from Lloyd Robinson. He asked, I heard Jeff on salt talks a few months ago. He was asked several times how Bitcoin fixes our inflationary monetary system. I don't think the interviewer got a satisfactory answer, and neither did I. I would love to understand how Bitcoin fixes this so I can explain it to others.

Starting point is 01:00:43 So again, technology is, it provides efficiency and in a normal world that would be deflationary. So a free market and technology would equal deflation. The only reason it doesn't equal deflation is because we have a monetary policy that won't allow it to. That monetary policy that won't allow it to. And that's actually that in this inflation debate all the time, we live in a macro war, in the overall macro backdrop is deflationary, exponentially deflationary. And so when people ask, well, when is it going to be inflationary? When's it going to be?

Starting point is 01:01:22 Because that's not what they experience. Because they experience the system that is printing more money that's making prices go up. So if you, and when I say Bitcoin isn't deflationary in itself, it allows for the free market to work. which would allow deflation. So, so it would, so and they, and as that is it allows deflation. So it is allowed, if there were growth, if there were more real jobs, if there, if there were more, more growth of things without monetary policy, then you would grow, right?

Starting point is 01:02:02 You wouldn't, like, the, that would, that would expand. But if more things went to technology essentially saving our time, that would naturally be broadly shared with humanity instead of concentrated. So the same thing why Google, Facebook, Amazon, Apple, everything else are able to concentrate the gains as much as they are besides the network effect. Or the concentrate is the same reason that the billionaires concentrate out of the printing of the money. And so what's happening is in a free, if I just, if I simply said, even a free market, a free market is long as you're not continually making mistakes, unless you're growing huge new industries that are replacing more jobs than are lost,

Starting point is 01:02:59 then then that free market must essentially if you said human innovation is, is getting better all the time and you're adding more, then that must equal deflation over time. We don't see it normally because we never lived in a world that's moved as fast as it's moving today. And so you could hide inflation and the policy response to what we're talking about didn't have to be as big. Today, the policy response on where we are on this train has to be, it has to agree, and that's what I talked about in my book, It has to grow exponentially to offset what's happening with technology. One more thing.

Starting point is 01:03:47 So when we used to measure economists models and everything else, when you'd say deflation is made up, and it is true of demographics, that would be a big part. There's deflationary pressures. or that when you offshore all your production to China. And so all of these things matter in the overall, but they matter less and less compared to technology. So as technology is exponentially increasing its impact in our world

Starting point is 01:04:18 and more and more of the base layer is moving to technology, that base layer requires a natively digital currency that won't allow for manipulation. because otherwise the manipulation equals more control, more centralized control, a centrally planned market. So, Lynn, you came out with your article on Ethereum and it had a lot of readership. I think you laid out some amazing things in there that would take a, we could cover that for an hour and a half.

Starting point is 01:04:54 In fact, I reached out to Vitalik to come on and have the discussion. We didn't hear anything back from them. and maybe we need to just do a whole episode on your Ethereum article. I'll have it in the show notes for people to look at and read because it is amazing. But with all that said, when we look at the price action of Ethereum compared to Bitcoin, over the last, I'd say two months, it has aggressively outperformed Bitcoin. What do you think's going on? And do you see a situation where even though you're making all these things,

Starting point is 01:05:29 these fundamental arguments, which I completely agree with, do you see this having the capacity to achieve a higher market cap in the coming six months or year moving forward? I'm kind of curious to hear if any of your analysis has changed based on how the market's valuing it and just some of your thoughts. Yeah, that's a really good set of questions. And so, you know, for people I'm aware of it. I basically analyzed Ethereum. It was somewhat of a critical analysis, so it wasn't super favorable towards Ethereum. There was a couple points where I was, you know, I try to be fair as possible, right? So if it was doing something interesting, I said, okay, this part is interesting. But, you know, kind of the net overall case was was rather critical

Starting point is 01:06:17 in why I prefer Bitcoin as an investment. And it really comes down to decentralization. that, you know, I ultimately view a theory more like an equity where you're, in a sense, people that are buying into it are betting on the development team being going to push out updates and structure to how they want to basically make this system that they envision, rather than a decentralized, you know, digitally native form of money, which is what Bitcoin is. And, you know, historically, whenever we have these alt seasons happen, you know, generally there's, There's, you know, one big alt season per Bitcoin halving cycle. And he started to get this inverse relationship between quality and price action, where,

Starting point is 01:07:00 you know, literally the worst coins do the best, the best coins do the worst. And so the funny thing is, you know, you can characterize this Ethereum bull run as, you know, though it's basically some people are saying, does that mean it's fundamental improving? And it's one of those things where even though Ethereum outperform Bitcoin, if you go down the quality spectrum, you have even smaller coins outperforming Ethereum, right? So the fact that Ethereum Classic outperforming Ethereum year to date, does that mean that Ethereum's network effect is gaining on Ethereum's network effect? I would say probably not, right? I mean, for anyone

Starting point is 01:07:34 those technical details, I mean, the network effect is on Ethereum, not Ethereum Classic. And same thing with, you know, you have Dogecoin, right? So does Dogecoin, it certainly had a surge in popularity, but for anyone who knows kind of the, what is, you know, people that have shared their experiences is running a full node for Dogecoin where how the actual network functions or what kind of development, you know, crickets have taken place for the past couple years. Basically, what we've had is kind of an inverse correlation between price action and quality year to date. And that's happened in previous, you know, kind of bull markets. And, you know, it's one of those things where I, you know, after I wrote my Ethereum article, I mean, I even wrote

Starting point is 01:08:12 in the article that I wouldn't be surprised to see it, you know, outperform Bitcoin on the bull leg of the market. I'd be more concerned about how it does along with other alt coins on the bear market portion of the cycle. And because I have a research service, I, you know, I cover Bitcoin frequently, but I've occasionally touched on Ethereum for a broader picture. And I keep reiterating, you know, for a while now that I was like, okay, it breaks over this level. That's very bullish for the price action. And I would, you know, a couple weeks later, I'd give another update and say, yep, it still looks, you know, bullish for the price action. And I kept reiterating why, you know, personally, I think Bitcoin is the more structurally sound protocol, but that you can separate fundamentals

Starting point is 01:08:54 from price action and say, you know, for people that follow Ethereum, here's what the price action looks like. It's bullish. But just be if you want to go that route, be really careful because there's, you know, I kept reiterating that I have concerns about decentralization and, you know, kind of the underlying use case or the kind of the reason for existence of the protocol compared to Bitcoin, which I view is a more. more sound investment. You know, some, can I build onto that?

Starting point is 01:09:21 Yeah. I think there's an important part. So, so today, a network effect is when the value to each user gets stronger and stronger from a network effect. There are a lot of people in the 90, late 90s, early 2000s that mistook network effects for eyeballs. So they were buying more eyeballs thinking it was a network effect and that growth would always be there.

Starting point is 01:09:43 But if it's not making the network better for, all users, then the network effect doesn't exist. So now let's look at a time period and say lightning wasn't there five years ago and Ethereum was there. And so Ethereum kind of, and then the whole NFT craze came on. So there is actually as value and people think there's value on Ethereum because NFT is driving as a whole bunch of more people, more people, on it. So let's examine that for what it is. I totally agree with Lynn, by the way, on it could outperform in the short term, but not in the long term. And this is, now let's, let's look at the NFTs, which is driving a whole bunch of the rate of growth on Ethereum.

Starting point is 01:10:33 I look at the NFT market like I would look at Groupon from a business. Remember Groupon? Mm-hmm. So Groupon created an incredible business by getting everybody to buy the one thing. And so they had one great deal that everybody bought. But the only way to scale that business was to add more things. And as they scaled, it just became noise, more and more noise. And then nobody cared about the one thing anymore because it was noise. And then there was so many other competitors that did the exact same thing. When I look at NFTs on top of the primary source of value in the growth rate today of Ethereum, that's how I that's what I look.

Starting point is 01:11:20 So I discount that growth because it's not a stable business over time. I'm not questioning the NFTs can't have value. I'm questioning how much value compared to what they will have if everything is digitized and I get to buy something that I get to say it's mine. And so today there's a whole bunch of people thinking, wow, that's going to be this staggering business. And I think they're overvaluing it like they overvalued coupon that then fell to the floor. And apart from that, and this is where Dr. Meyer and agree, that technology

Starting point is 01:11:59 might just be built onto Lightning Network on the Baseport Protocol or something else kind of based on it didn't exist before, but now it's starting to emerge. And so what's being built on top of Bitcoin on the network is just in its infancy. And we're going to see a whole realm of things tied into the base protocol. Yeah, one thing I was going to say is the example of stable coins. And that's something I've covered a little bit in my theorem article and elsewhere, which is that some of the earlier stable coins were tied to the Bitcoin network. And then when you had Ethereum, you started to have them move over to Ethereum, right,

Starting point is 01:12:39 because it was cheaper and kind of made for that sort of thing. And then now, as Ethereum's gotten more expensive, you've had stable coin usage spill over onto Tron of all things. And so the problem with utility protocols is that when you start sacrificing certain variables, basically you're making things more efficient in exchange for centralization. Then another protocol can come around and make things even more efficient, but with more centralization, where basically until it just approximates the database. And so that's what we're seeing in the stable coin space where it started out with, you know, the smaller transactions, you know, they have more incentive to move to a cheaper chain because if you're doing a $100 transaction, you can't pay $50 for a transaction.

Starting point is 01:13:27 But if you're if you're doing a $10,000 transaction, then you can, right? So smaller. But as the fees get higher and higher, a bigger chunk of the uses spills over onto that other protocol. And same thing's happening, you know, with Binance. It's another kind of, you know, decently sized network effect that is kind of coming into that space. And this was outlined in John Feffer's paper several years ago where utility protocols essentially have to compete on price. And so the network effects are not going to be as strong there as they will be for something

Starting point is 01:14:02 like Bitcoin. And, you know, I've spoken with John before. And, you know, he's certainly, he's paying pretty close attention to this industry. I think he has really, really good points on that. And I generally agree with that paper where, you know, even if you do get some degree of network effect in the utility protocol space, which, for example, Ethereum has for a number of years, that doesn't necessarily translate into long-term token appreciation because your reason for existing is going to be constantly threatened by cheaper, more centralized competitors. And whereas Bitcoin doesn't really have that problem because the entire point is to just be a decentralized store of value. And then you can build other things on top of it to make it a better and better payment network and a smart contract network and whatever the case may be if people want to add those features. So for example, the lighting network is obviously a really good use case there that basically strengthens Bitcoin.

Starting point is 01:14:59 But that the underlying protocol has a lot more defenses against competitors compared to those utility protocols. in your article you were talking about infura with your Ethereum article and on the website for infura this is the quote that you put in the article it said it can get expensive to store the full eth blockchain and these costs will scale as you add more nodes to expand your infrastructure as your infrastructure becomes more complex you may need full-time site reliability engineers and devop teams to help you maintain it And that's today, right? Like those statements are being made today. And that's why they're saying that a person should outsource that to them to manage. And I'm just thinking to myself, like, how is that something that in the long term is going to remain decentralized? And yeah, go ahead, Lynn. Especially as you move over to Ethereum 2.0, because they're running into scaling issues, just like, you know, Bitcoin Wood without lightning, for example, where.

Starting point is 01:16:08 you know, they can only handle so many transactions. Fees get very high on Ethereum. But unlike Bitcoin, I mean, Bitcoin, the average transaction size is pretty big. So it can withstand pretty high fees. And, you know, when you need smaller transactions, smaller fees, that's what Lightning Networks for. Whereas in Ethereum, you're doing more complex transactions. Like, for example, if you're doing different swaps and things like that, you're paying

Starting point is 01:16:32 a very, very high fees. And so there's a strong incentive to spill over onto cheaper. chains. And then so Ethereum 2.0 is trying to scale, right? So it's trying to do more on the base layer. And so, you know, they've changed the roadmap a number of times. But, you know, basically you can have different types of nodes and different types of, you know, you're basically almost like an army of different nodes where, you know, certain things are kind of validating certain parts of the blockchain because nothing is big enough to validate the entire blockchain unless you're running a data center. And so that just, again, it becomes a

Starting point is 01:17:08 rather a centralized entity. And there's really, you know, when it comes to blockchain, there's two types of centralization to worry about. One is the technical decentralization, which is what you get, for example, if in Fura goes down, you run into kind of blockchain-wide issues, for example. That's kind of a technical centralization issue.

Starting point is 01:17:28 And then two would be developer centralization, where, you know, say, you know, one foundation or one team has the capability of push through changes more easily and change monetary policy or change designs. Whereas if you're something that's more inherently decentralized, it requires true consensus to support. And so they overlap certainly those two types of centralization, but they are slightly different and kind of the risks involved.

Starting point is 01:17:59 Guys, that's all I have for tonight. And I know we went late, Lynn and Jeff, both. You guys, I reached out to you today to record this. and you both said yes, and I can't thank you enough. Give people a handoff to where they can learn more about you and some of the links and all that stuff we'll have in the show notes. But, Lynn, go ahead and fire away. I'm at Lindelden.com. I'm also active on Twitter at Lindelden Contact, and a lot of my work's public so people can check that out.

Starting point is 01:18:28 And I cover Bitcoin. I cover a bunch of other asset classes. They cover macro in general. So basically whatever asset class you're into, hopefully my work can help people out. And my best place for me is at Jeff Booth on Twitter. And Jeff has an amazing book. The Price of Tomorrow. We'll have a link for that in the show notes as well.

Starting point is 01:18:51 Guys, thanks so much for making time. Thanks for having us. 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.

Starting point is 01:19:10 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 - BTC026: Bitcoin Mastermind w/ Lyn Alden & Jeff Booth (Bitcoin Podcast)

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