We Study Billionaires - The Investor’s Podcast Network - BTC120: Preston's Top 5 Bitcoin Fundamental Moments, w/ Michael Saylor, Jeff Booth, Gigi, Alex Gladstein, Cory Klippsten, & Pablo Fernandez (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. On today's show, I've decided to take my top five favorite moments and lessons learned about Bitcoin since starting the Bitcoin Fundamentals podcast in 2020. This was a really fun experience for me to go back and recapture a couple moments that really inspired and shaped my own thinking on this complex and ever-evolving journey. I'll narrate each of the clips that I play so you understand why I saw. elected it and why I thought it was so important. And I hope you guys enjoyed this one. So with that, let's get started. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right. Hey, everyone, welcome to the show. So the first one that

Starting point is 00:01:03 I have here was kind of a special moment for me personally on the show because it just helped me me wrap my own head around what the heck's going on with the global economy. And, you know, coming from a value background, a Warren Buffett style investor and always doing what we call an IRR internal rate of return calculation to figure out what something's worth, you start with this keystone of valuation, which is inflation. And since the 2008 crisis, I always, just struggled so much with the quantitative easing that was being done and how inflation wasn't showing up in the gauge. And I know since this interview, which happened back in 2020, there's been so much written. I know Lynn Alden has some amazing pieces that have been

Starting point is 00:01:58 written on that particular topic. But Michael came on the show very early on. I think this is like our fifth episode of the Bitcoin Fundamentals podcast. And he just lays out, his opinions on inflation in such granular detail. And he proposes this idea that inflation is a vector. And up until this point, I'd never even heard of such an idea. It was just CPI is this. You should conduct your evaluations as to some type of premium yield that's higher than the CPI inflation that's being published. I think everybody just was very suspect whether you know, the, the weighting of CPI is accurate. We all, we all kind of knew that. But Michael really gets into a lot of granularity as to, for each individual person, what is their CPI? And just his

Starting point is 00:02:53 whole thought process around this idea is so profound. And it's, I'd say this is like a 20 minute clip, but this is so important. And it was so early in my journey. And I just, I want to play this one first because it was really important to me personally. So here's Michael Saylor They're talking about inflation and inflation as a vector. Some of your comments around inflation, risk premiums, the impact that this has as you think about it from a business owner and the hurdle rate that you've got to achieve, talk to us in depth, don't hold anything back on this particular topic and teach people how you're thinking about things from an economic calculation standpoint as the CEO, the founder of a billion

Starting point is 00:03:37 dollar company. Okay. Look, I think we start with this premise of your CEO, your job is to preserve shareholder value, you know, preserve wealth. It's the same challenge you'd have if you ran a family office and you were responsible for the wealth of the family. The question is, how do I preserve the value of my individual treasury or corporate treasury over time? So let's say, let's, say I have a million dollars. So in a hard money environment, if the currency is utterly deflationary, if the Federal Reserve or the Central Bank was going to print no more currency for the next decade, then I've got a million dollars. Next year, I'll have a million dollars. If I'm looking at the value of my cash, my million dollars, I can presumably have it sit in an account and a

Starting point is 00:04:43 decade from now, I'll still have a million dollars of purchasing power because the currency is not being devalued. Now, if the goods and services in the economy are growing at 2% a year and the currency is flat, then a fixed amount of currency is going to be chasing after an increasing amount of goods and services, you know, in that particular case, the currency is going to appreciate and value. And so the prices are going to fall. And so that's a good thing. It means that all I have to do is just sit on the money and wait and the economy will be larger. The value of my treasury will accrete. If the banks print 2% more current, and the economy grows 2%, then you've got a net equivalence, the value of my treasury

Starting point is 00:05:41 won't accrete, but it won't dilute. So in theory, if you think about the good old days of the gold standard, if gold has a stock to flow of 50, then it's inflating at 2% a year. And traditionally, the economy of the world and the economy of most large countries grows about 2% a year. And so it's kind of ironic that the 2% gold inflation is offset by the 2% economic expansion and you have a stable gold dollar or a stable amount of value. And over time, that kind of makes sense. So what happens when I start to increase the currency, if I increase the currency 5% a year,

Starting point is 00:06:35 well, now will the economy grow 5% a year? If the economy grows 0% a year, the currency increases 5% a year, then I've got more money chasing after a fixed amount of products, therefore the price of the products have to keep going up. And they're going to go up 5%. The stuff that you're wanting to get, the scarce stuff. Something that you can manufacture infinite supply of,

Starting point is 00:07:00 a copy of a Picasso, a digital copy of a Picasso, that's not going to inflate. But the actual Picasso is going to inflate to the extent that everybody in the society wants that one painting. And of course, what you see is that as you start to print more money, inflation is not distributed equally. There's not really a single inflation number. There's a vector of inflation. In fact, I can come up with a set of products. You really need linear algebra. You need a vector math to describe this. One set of products that are information rich with no variable cost, like a digital copy

Starting point is 00:07:42 of a Picasso and there used to be a million digital copies. And now there are a billion digital copies. And even if I print a gazillion percent inflated currency, the billionth digital copy of the Picasso is not going to be anymore. expensive. In fact, what's going to happen with a certain bucket of goods that are high information content is they're just going to get cheaper over time. They're deflationary products. And what's a good example of that? Digital music, digital video, digital photos, digital services, running on networks that have a fixed price, a fixed cost. Once you've actually paid to deploy

Starting point is 00:08:26 Wi-Fi and LTE networks, and once you've built the routers, and once you've built the electrical power plants, and once you've run all the fiber optic cable, that's all the fixed cost. The variable cost of deploying a Netflix movie to a million people is the cost of electricity. And deploying the Netflix movie to a billion people is the variable amount of electricity. right so in essence that's got to be like 0.1% variable cost there is no variable cost there's no energy content in the product that is say oh I mean the the perversity right is that it's all energy it's 0.1% of the value of the product is energy I'm just shipping electrons and energy it's fairly cheap so with things like that they're deflationary because

Starting point is 00:09:23 the fixed cost was a sunk cost, which is amortized across all of the products. You've got one iPhone, you've got one television, you've got one fiber optic cable to your house. And therefore, everything I can push to the iPhone and everything I can push down the fiber optic cable, I can deliver at the variable cost of electricity, which gets, which starts to look like a, a product with a 99.9% gross margin. Okay, so what's interesting? Well, in the history of the world, if you rolled a clockback 50 years,

Starting point is 00:10:02 we didn't have any products with a 99.9% gross margin. 99% gross margin products are a product of modern digital networks. So Apple created a mobile network. They dematerialized everything you could hold in your hand, and that means that your VCR and your CDs and your cameras and your Polaroid photos, right, and your phones and your tape recorders, you know, and your weather, your Atlas and your

Starting point is 00:10:38 maps and little books and reminders and yellow post-it notes. All these things had energy content in them and they had a variable cost. I mean, traditionally, variable cost, anywhere from 40 to 60% of the value of the product. You know, you're like, you have to produce it for 60% of the retail value and you sell it down a retail distribution channel. And eventually the true margin is like 7% or, you know, Walmart, 3%,

Starting point is 00:11:09 whatever it is. And the other 97% gets eaten up. That's what the world looked like. And then what happened with the mobile wave or the last decade is, Apple dematerialized all of the mobile products or all the handheld products and converted them from 40 to 6% variable cost to 1% variable cost. And Apple then accrued a trillion dollars of value because it was that network. It's crystallization of sorts.

Starting point is 00:11:43 You're collapsing from a high energy state to a lower energy state. And when you crystallize, what energy gets given off. Right. And that energy took the form of wealth created for the Apple shareholders. Google did the same thing. They pretty much dematerialized every library and every piece of info, every book, and every piece of information, and every video and every home video and every VHS and all the music on the earth. And it collapsed into Google and YouTube and the like. And as it collapsed, right, like this is a real library behind me. Okay. I'm sitting in a library of books and I don't know it's a hundred thousand dollars worth of books in this room

Starting point is 00:12:22 worthless because because you go get yourself a five hundred dollar iPad and you can have the entire hundred thousand books and by the way the hundred thousand books on the iPad is more valuable because they'll read themselves to you and you can resize the font I'll walk past like this perfect book and it's a beautiful book and I open it up and you know it's class and it's class and it's like in a really small font. And I'm like, can't I pinch and zoom the book? And then I go on a trip and I'm like, I really want to take that book or those 10 books. They're really heavy.

Starting point is 00:12:58 I leave, you know, the books have mass. The books are static. The books have to be shelved. You know, someone can take the book. I might lose the book. Google took every library on Earth collapsed it, just like Apple's got their eyebooks, right? They collapse these things. The variable cost goes to zero.

Starting point is 00:13:17 So you have all these things that Google touched that became deflationary. Everything that Facebook touched became deflationary. Everything that Amazon touched. The part that Amazon eliminated, by the way, was like the 40% of the retail supply chain that was the storefront. Well, 40% of everything anybody wanted to buy collapsed into a mobile app on an iPhone or collapsed into a website, 40% of the cost. of the energy cost and the, you know, it's, you know, conservation of mass and energy, right?

Starting point is 00:13:54 That's, that's thermodynamics. Well, every product you buy, it either has mass, right? Like the books have mass or it has energy. I had to deliver the comic book to the news stand and I had to some, or pay, I was a paper boy, right? Preston, I was a paper boy growing up. And I sometimes I fall into that, like, what about the paper boy? And there's probably no paper boys left on the planet. That's not a job anymore.

Starting point is 00:14:21 Like who would deliver a paper? If I deliver a paper, you've got the mass, and that's the paper. Paper is made of titanium, by the way. Titanium dioxide is the primary element in paper. There's no pacifier. I got my starting business studying titanium. It's heavy. I remember carrying stacks of papers around.

Starting point is 00:14:43 You know, it's like 100 pounds worth. of information it had to move through the supply chain. And then there's the energy, mass and energy, the energy was like me with my red wagon hauling 100 pounds of papers on a Sunday morning through the neighborhood and the freezing snow. And you got to, you know, and at some point, my angelic mother at getting up at 5 a.m. to drive the family station wagon, keeping the heat on while I haul papers through the neighborhood. I delivered them, by the way, on Wright-Patterson Air Force Base. Where I grew up, I know every single street because I had to get up and deliver a

Starting point is 00:15:27 two-pound paper to every house across the entire military base when it was like 20 below zero. So mass and energy in the news business, I expended the energy. I hauled the mass around. it was quite visceral. It was expensive. It's so expensive, by the way, that no newspaper could afford to hire an adult to do it. Hence, 12-year-old to 18-year-old high school kids hauling newspapers around on their backs. That was the world that we used to live in. And of course, now it's kind of laughable. No one's going to haul that stuff. Yeah, you probably couldn't get a 12-year-old to get up during. I remember a blizzard. It got to like,

Starting point is 00:16:14 it was 60 below zero, Preston. And we're trying to figure how to deliver newspapers on a Sunday morning at 5 a.m. The wind is blowing. Mass and energy. So Facebook, Google, Amazon, Apple, they dematerialize the mass and the energy from the products. All the products are information and electricity. And that explains why they're a trillion-dollar company. and that explains why inflation as a metric doesn't work.

Starting point is 00:16:50 It might, you know, it's a, it's a 20th century idea, and it might have almost, but I'm not sure it ever worked, but it wasn't hideously misleading until the last decade. And the last decade, we got to the point where half of everything you're consuming is pure information with no variable cost. So when you say it's been a hideous metric, you're specifically talking about CPI, right? I am, yeah. You're saying CPI is just not something that can actually measure what in the world's going on right now.

Starting point is 00:17:30 I'd say it's a metaphysical metric. It has no relation to reality. It's been defined almost specifically cherry-picked to define. and define in such a way that there will never be any inflation. And so the first irony is we've decided that inflation is a bad thing. And the second decision is we've decided that inflation equals CPI. And the third, you know, irony is we can't find any inflation. But of course, in order to really understand store of value,

Starting point is 00:18:09 in order to get to the bottom of investment rationalization, now and make rational investment decisions, you have to first go to first principles. And what I find is 95% of macroeconomist and analysts and the traditional investment community, they rely upon metaphysical abstractions that they learned early in their career or that are repeated to them over and over again by mainstream media. and because they just repeat these metaphysical abstractions long enough, they kind of convince themselves that there's some veracity to them, and there isn't any veracity to them.

Starting point is 00:18:52 But the difference, and this takes me back to MIT, at MIT, they taught you to think for yourself. You're an engineer. If you're trying to solve a problem, you're expected to think for yourself. Like, for example, the first class I walked into, it was a class in material science. The professor walked out to all the freshmen. It was our first week at MIT.

Starting point is 00:19:19 He said, this is a tile from the space shuttle. It burned off the space shuttle on reentry. Nobody at NASA knows why it burned off. They're not sure what to do about it, but they're afraid the space shuttle is going to blow up if they don't actually solve the problem. Why do you think it burned off? And what do you think the solution is? and he looks at it these are 18 year old freshmen that showed up to school and you can see everybody's

Starting point is 00:19:42 looking at each other like is there some reading that we missed before this lecture and and then they're thinking i didn't read the answer to the question and then there's this horrifying realization that a guy with a PhD with 20 years experienced just asked you a question that nobody on earth knows the answer to. And he expects you to think for yourself and reason from first principles and solve the problem. That's the scientific way. And there's not a lot of science and there's not a lot of engineering in the modern macro-meconomic landscape or with mainstream media. They just repeat tropes over and over again as though they're meaningful and they're not. I mean, you couldn't provide a better example for what we're seeing right now from an economic standpoint.

Starting point is 00:20:37 It's almost like we're seeing parts of this shuttle, call it the economic machine that we're looking at, literally falling apart right in front of our eyes. And you still have many academics with PhDs going on CNBC and talking about, well, you know, we just don't have any inflation and these types of things. So this is what I would frame it for you. How would you, Michael Saylor, define inflation today because you still have to do economic calculation as a business owner. How are you looking at inflation? And how are you saying, well, I think if inflation's this, that's my hurdle rate plus whatever risk premium. Talk us through how you would define it considering CPI is so broke. I think the way you define inflation is, the rate of price appreciation and a basket of goods, services, or assets that you wish, that you desire to acquire in the future. 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 summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord.

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Starting point is 00:25:53 All right. Yeah, hard to top Michael and some of his descriptions and ability to just kind of drill down into things. There's much more if people want to go back and listen to the full one. I think it was our fifth episode. So let's go to this next one. So this isn't a real long clip, but this one really had a profound impact on me. I'm talking to Pablo Fernandez. Pablo is a super smart technical programmer.

Starting point is 00:26:21 And he's from Argentina. And so his perspective of growing up in this inflationary kind of environment really just he understands the economics of Bitcoin, which is very hard for a lot of people with this U.S., European or Japanese lens, we're not used to dealing with high inflationary prints. And so we got into this discussion about central bank digital currencies. And Pablo made this just amazing insight to me that I really just hadn't put a lot of thought into. And it was about this back and forth between net producers and net consumers. And how as they try to cram a central bank digital currency down the throats of all the citizens around the world so that they can control the duration of money and basically turn money into these short duration coupons.

Starting point is 00:27:16 he had this brilliant insight about how that's going to be an accelerant to Bitcoin. So without, you know, talking about the clip here, I'm going to go ahead and play it for you guys. But this was such a profound insight for me personally that I had never really thought about until I had them on the show. So here's the clip with Pablo. What if there was this magical button that they can tap and they say no one is physically able to trade. Fiat tokens for Fiat dollars. CVDCs allow you to do that. CVDCs allow you to say,

Starting point is 00:27:53 no one is able to spend pesos for dollars. They can perfectly do it. And it takes no effort. It just takes one button. If the Argentinian government had that power, they would do it in a split second. But this isn't good, but you're saying because they are being tempted by such a button,

Starting point is 00:28:13 and you think they'll probably hit the button, that it's just going to cause mass hyper-bitoinization. Everybody's going to run the Bitcoin because of it. I think it's going to create a natural split on the society between people that produce and people that only consume. If you look at Argentina, the producers, the business people, the people that are, the entrepreneurs, the people that are running companies, they've done everything in their power to escape being.

Starting point is 00:28:46 silo into the Argentinian peso economy. So for example, Mercado Libre, one of the biggest companies in Latin America, they move their offices across the pond to U to Y and they are operating from U2Y because they don't have this type of regulation. The only businesses that weren't able to do this are the people that worked on the fields, the companies that work on the fields. But every single producer has found a way within the realms of possibility to do that escape these type of regulations. And I think if producers see themselves being tied to remaining

Starting point is 00:29:26 on fiat rails, and like Lagarde said that we need to plug every escape ball because she said something. I don't know if you remember, maybe like a year ago she said something around, we need to prevent people from escaping, something like that. If they don't plug every single hole, the producers will escape. And as people see this type of action and this type of powers, I think the people that are producing and are using their energy and their effort to create wealth and they see themselves being cornered in a way that they are not able to protect their wealth, they will increasingly seek to escape into something. And that's something I think it's Bitcoin. This is a really profound thought right here. This idea that the money itself is going to separate the consumers,

Starting point is 00:30:18 which when you look around the world right now, they are professional consumers that are just waiting for the next government check. Their next QE, the next QI. The next QE. And I like how you throw that in there because some of these consumers are effectively Wall Street itself. they're just waiting for the next QE dump so that they can then splurge it into the market as a consumer. Right. And if you think about it, if you think about it, one of the issues of the existence of this link between Fiat and Bitcoin is that all that liquidity being just created out of thin air and pumped into Wall Street or through Wall Street. some of that liquidity is going into Bitcoin. And that means that value that was not created because of economic creation of wealth

Starting point is 00:31:23 that from work is going into the Bitcoin network. So there is misallocation, there's a distortion that is coming from Fiat and it's leaking into Bitcoin. And there are non-economical, non-producers who are playing really well the fiat game who are doing really well on the bitcoin game so we have like this this leaking of misallocation so the moment we break that the only way to get bitcoin is from creating actual value that someone is willing to do away with their bitcoin for that value all right so yeah just just awesome insight uh on this next one boy, when we went through the bull market 2020 into 2021 and things got overheated and the quote

Starting point is 00:32:22 unquote crypto tokens galore just flooded the market. And this was a this was frustrating to see how much market cap was applied to some of these these quote unquote projects and quote unquote blockchain experiments that in in my mind as I was going through it I was like there's nothing behind any of this none of this is actually decentralized this is all just marketing and uh many of us in the space knew that a lot of these Silicon Valley VC firms were behind so much of this the marketing of these of these tokens and the market cap of these tokens but nobody laid it out nearly as well as Corey Clipson did. This wasn't too long ago.

Starting point is 00:33:14 I think we were out in L.A. and then we recorded this shortly after at the end of 2022. And Corey just clobbers this description and goes into a lot of granularity that I had never thought about before as to how intertwine the Silicon Valley VC world was with all of this crap that was just piled on top. top of all this easy money that was coming out of the central bank. So listen to this clip. It's pretty powerful and definitely one of my favorite moments of doing the show. So this gets at the problems with crypto VC, right? And so now I think finally, finally we Bitcoiners and the journalists that care about

Starting point is 00:33:56 truth, just like Bitcoiners care about truth, appear to have enough of a microphone or enough of a megaphone to start going after the absolute scam fest that has been going on for the last four or five years in Silicon Valley. Talk to people about strong enough to really go out with a hard hitting thread about Andreessen Horowitz that I posted this morning. Oh. So I haven't talked about this anywhere. Walk us through it.

Starting point is 00:34:24 Yeah, we can talk about that a little bit. But, you know, and I've talked about these themes and kind of what's going on. But essentially, there's never been a better industry vertical for the venture capital business model than crypto, meaning non-Bitcoin, alt-coin scamming. Why? Because they can, they benefit from information arbitrage and regulatory arbitrage. And at the same time, and basically they can, so any crypto VC deck when they go and raise from LPs only need. two things on it. Really, it's just literally, one is short time to liquidity, and the second is we make our own weather. And these are the two things that when I came into the space, as lots of

Starting point is 00:35:10 people know, I was in Silicon Valley ecosystem, advising startups, cutting angel checks, you know, starting in 2012, 2013, all the way through going Bitcoin full time in 2018. That first 11 months from like May of getting caught up in the ICO run up and Bitcoin and everything through about April of 2018, when I decided Bitcoin was the only thing that mattered, I was heavily immersed in all aspects of the crypto space. And I heard this said over and over and over again and didn't see the obvious lie in that and just how immoral it is to hinge a business model on short time to liquidity, meaning that you don't need to have revenue, you don't need to have product market fit. None of it. It doesn't need to be real because you can just dump this token on

Starting point is 00:35:57 retail or undone institutional. And there's no market or there's no product. There's no service. There's no product. There's just literally nothing. It's just self-referential gambling and gambling tools. And that's it on something that has no inherent value or no real world use case. And then we make our own weather is that they're all just, they all are just marketers. And so this is where it becomes really important that the genesis of Andreson Horowitz is in partnership, essentially with CAA. It was basically modeled after CAA. This is the talent agency down in Los Angeles.

Starting point is 00:36:32 So Mike Ovitz, the founder of CAA, was the senior advisor to Ben and Mark when they started the firm. They kind of modeled it after CAA. The whole point was that they were going to treat the founders of these companies as talent, the same way a Hollywood talent agency would treat their talent.

Starting point is 00:36:46 It would be kind of in service of them. What it also came with is in the DNA of that firm from the very beginning was to make your own weather, to put out your own media. So this is where you see them always putting out podcasts and trying to get everybody at their firm to blog all the time and hosting conferences and just being in the media as much as possible. They even created a new media arm a couple of years ago, basically specifically to push their crypto agenda called Future. Essentially, they push out and market and make their own weather with these crypto scams that get short time to liquidity. and as long as the window is open where these things are unregulated,

Starting point is 00:37:24 and you can say whatever you want about magic bean stocks on the blockchain or whatever that will save the world, you can go over and over again and push Worldcoin, helium token, axi infinity. You can buy $300 million worth of Solana and get all your friends at CIA and the other agencies down to Hollywood to have all these celebrities go on talk shows talking about their Solana, which happened in the summer of 2021. and then they can dump it as soon as it pumps and get out of their cost basis and still let some ride. And as long as that window is open, they're going to continue doing it because you stack these funds.

Starting point is 00:38:02 You raise a fund. If you can get out of the J-curve where you've made your investments and you start to have exits, if you can start to show that you've actually returned the fund, the faster you can do that, the faster you can raise another fund. So Drayson-Horowitz is on like fund number four now, I think. It's between $12 and $15 billion that they're collecting $2,000. percent on of these crypto funds. It's so much money that they can hire people out of D.C. over and over again as partners in these funds deliberately to get around the regulations

Starting point is 00:38:29 around lobbying. So if you spend more than 20 percent of your time in D.C. lobbying, you have to register as a lobbyist. That doesn't count if you're a partner in a company. So they just hire people straight out of D.C. make them partners of these funds. And they can basically be in D.C. full time arguing for Ethereum matters or whatever it is that they're trying to get across. And, you know, the game that SBF was up to over the past year and a half, two years, was essentially trying to rest control of crypto, oversight of crypto, away from the SEC and put it under the CFTC. And they've been working on this with Paradigm, which is Fred Arsson, Brian Armstrong's co-founder

Starting point is 00:39:09 at Coinbase. This is Andreessen Horowitz. This is FTX. This is also Coinbase and obviously the entire Ethereum Foundation and Joe Lubin and Novogratzic Galaxy and all these guys essentially trying to have crypto regulated by anyone other than the SEC because the SEC obviously knows that this stuff all passes the Howie Test and these are all securities. So they've basically just been dangling millions and millions and millions of dollars in front of the CFTC and saying, if you regulate us, please charge us tons and tons of money

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Starting point is 00:43:19 All right. So this next clip here was one of my favorite moments in doing this show. We had Sam Callahan and Alex Gladstein on to talk about the IMF in the World Bank. and Alex wrote this banger of an article, just laying it out how it all works and like, what is the scheme that they're running with this? And I've struggled for years to really be able to wrap my head around like, what is it? Why is it set up? What is its true purpose?

Starting point is 00:43:54 And who's basically being exploited through this mechanism where the IMF and the World Bank are working together hand in hand to do what, right? Like that was the question. And in this show, um, and Alex's article, which we will have in the show notes and it is a, an extremely powerful article. And I would encourage people to go back and listen to this full episode. But Sam provides, I'm sorry, not Sam, but Alex provides this unbelievable example of how the IMF exploits many of these developing nation states by. getting them heavily indebted to the point where they can never repay it. And then they have these developing nations focus on one product or one service to the G5, G7 type countries.

Starting point is 00:44:48 And it's just such a powerful example and just really enlightened me personally as to how bad and how deep this scheme really goes. And I think it's important. that for people that would see this, there's a similar initiative called the Belt and Road initiative out of China that is basically in competition with the IMF and World Bank for similar type policies. So just a really powerful clip. I'm going to go ahead and play it now so people can hear it and be sure to check this out if this piques your interest. Because of central banking policies that have consolidated enterprise and there's only a few vendors that now that can supply whatever part of the supply chain you look into.

Starting point is 00:45:35 You talk about this idea of monocrops, which you were just talking about, right? What I find so fascinating is what we're seeing at a company level inside of unique supply chains, you're talking about at a country level that because of the manipulation that was happening through the IMF and the World Bank has caused these nation states to have a monocrop, like they're just exporting shrimp. And this is all through, and I think this term is really important. And as I look at your entire article, I'm saying this idea of structural adjustment, loans that have these ties back to things that your G7 nation states,

Starting point is 00:46:27 want into the global economy. And I really want to go down this path of the first example you have in the story with shrimp in Bangladesh. Tell people this story so they can really wrap their head around this idea of structural adjustment, the damage that it does to the nation state because now they got this monocrop and they have no robust biodiversity of enterprise and business inside of their organic country. and they're relying on everybody else and they can't be self-sufficient. Tell us the story of the shrimp.

Starting point is 00:47:03 Yeah, I wanted to start with Bangladesh. I just was so moved by this story. I came across it in a bunch of books written in 1994 because that was the 50th anniversary of Bretton Woods. So there was a lot of retrospective material written at the time. And I just came across this story. It wasn't super fleshed out, but it was kind of a testimony of a worker in Bangladesh. And again, this was 94.

Starting point is 00:47:26 so a long time ago, but talked about how, and I quoted from her, and it's just her testimony of how her life has changed because of the shrimp farming. And that was so powerful. So I wanted to open the essay with it because it's kind of this like grimly perfect, you know, example of structural adjustment. But basically, like, here was a country that, again, poor country, but pretty independent, had a very rough history in the 60s, 70s. Not only did it suffer enormously at the hands of colonialists, basically the British, you know, around pre-World War II, World War II, I learned in my research that in what is now Bangladesh, the British basically took all the wheat from the local population to use it in the war theater in World War II and ended up

Starting point is 00:48:14 starving millions of people. And Churchill and Keynes, John Maynard Keynes, were responsible for this. I learned about this. I did not know this. So Keynes was literally, you know, an architect of a massacre, you know, a mass atrocity of killing millions of people. It's crazy. But, you know, these are people who had constantly been under foreign pressure. In the 70s, they had a huge, you know, war. I mean, there was a breakaway of what was then called East Pakistan. And people suffered again. And they had another famine where the U.S. government was involved, actually. And, you know, it was all Cold War politics, right? So Bangladesh had been selling stuff to Cuba and Saudi Union.

Starting point is 00:48:57 America didn't like that. So we when this was all Kissinger's stuff, like we withheld grains from them. You know, by this time, by the 70s, we had been pretty effective at becoming kind of the dominant like kind of controller of a lot of the world's food. This was obviously a strategy we used

Starting point is 00:49:13 in the Cold War, but you know, they were like, they were in a top place and they were running out of food and the U.S. just like did not let the food in and this killed like another million people in the mid-70s. So this society was have been through a lot. And to make matters worse, they always were hit by these crazy cyclones.

Starting point is 00:49:30 So there's one cyclone in the 70s that killed a million people. It's like a deadly storm ever. And this is a low-lying country on the coast of the Bay of Bengal. And it's kind of the Bay is shaped like a tunnel. So these storms come in and they gain power as they move north. And they send these massive waves out over the population. A third of the population lives along the coast. So in the 60s, the authorities built like these big dikes to protect people.

Starting point is 00:49:54 And then they had these like mangrove forests which were the natural protection. So, you know, this was all they had. These were the defenses they had. And what ended up, ends up happening is the World Bank and IMF, you know, kind of take a look at Bangladesh in the 70s. And they basically say, you know, you're not exporting enough. They had started to lend the lot to the country's autocratic rulers. And they would send teams of analysts and try to figure out, well, how can we just generate more exports for this country so it can pay its debt back.

Starting point is 00:50:28 Basically, that was sort of a deal. So they said, look, let's do aquaculture, let's do shrimp, because you guys have a lot of shrimp off your coast. So World Bank loans financed this in Bangladesh at the same time that the IMF was extending these structural adjustment loans, which were also sort of targeted at shaping the economy this way. What ends up happening is you have all these farmers who traditionally grow, again, like rice, cattle, et cetera, they're on these low-lying parts of land near the ocean.

Starting point is 00:50:57 A lot of it had actually been reclaimed through the dike system. And now they're being incentivized to take out loans to upgrade their farms, quote-unquote upgrade, by drilling holes in the dikes to let water in and they make ponds. And then they go into this often freezing water and they spend all day catching little shrimp, they call it shrimp fry. And then they bring the shrimp into these ponds and then they wait for the shrimp to grow. and then when they get big enough, they sell them to these like shrimp lords who then sell them to the government, and then those go out to the international markets.

Starting point is 00:51:28 So this is the change that that happened in the 70s and 80s, 90s in this area, did a couple of things. It really impoverished a lot of people because, again, these people had very little, and they borrowed the money to change their farm in this way. And in many cases, like, it took them a long, long time to even pay back that initial loan. I have some data in my essay about this, but it's like in some cases, essentially they were experiencing wage depletion. Like they were just sort of getting poor over time. And they were also depleting the environment around them. Like not only were the mangrove forests that protected them getting cut down, about half of them got cut down as a result of shrimp farming. And the dikes were getting damaged.

Starting point is 00:52:13 So this left them really vulnerable to these storms, which keep happening. But also like the farmland itself became super salty because of the dixs were, of all the water coming in. So rivers were destroyed, you know, a lot of like crop animals died. Like so, so basically this is like a, this is like an environmental disaster now. It does one thing. It raises shrimp and, and shrimp is the second largest export today in Bangladesh. I mean, it's gone from something that was like a couple million dollars a year to, you know,

Starting point is 00:52:40 an industry where it was like 80 or something, 80 million or. Yeah, no, I mean, I, I, um, it grew, National shrimp profits grew from 2.9 million in 73, which is when these things to start, these loans, to 90 million 86 to almost 600 million in 2012. So it's sort of an exponential rise in these profits. And again, after textiles, it remains the second largest export of this country. And again, these loans were taken by autocratic governments for the most part, who were not accountable to the people. And I just think that this is a really vivid example of what structural adjustment is. Now, that's kind of like a detailed example of one country. Now, Alex, people would

Starting point is 00:53:21 hear these numbers. This is important. People would hear those numbers and say, well, what's wrong with the numbers going from one million up to these really high numbers that you just said? Now, you talked about the damage that was done to the farmland and everything else, but I think for a listener that would hear that, I don't think that they understand that you're just talking top line. You're not talking other impacts and the payback that's associated with the interest on these rolling loans, right? Like there's a whole lot more to those numbers. Well, so first of all, like, well, let me just do a brief overview of structural adjustment. Then I'll explain why those numbers sound a lot more rosy than they really are, right?

Starting point is 00:54:01 Okay. So structural adjustment, again, are loans given out primarily by the IMF ever since its inception and then since 1980 by the World Bank. Before 80, the World Bank largely gave project and sector-specific loans that didn't really have conditionality. But since 80, these structural adjustment loans have been a big part of the World Bank's policy as well. So these loans are attached to conditions. So basically, classic example would be a country like Indonesia in the 70s would have balance of payments crisis. The dictator would call the IMF. IMF would fly in first class, business class.

Starting point is 00:54:36 They never flown to the economy. They always had a lot of perks. They came in, they'd iron out a deal, and they would say, okay, you can have what was called like a standby agreement, which is like a line of credit, and you can draw that down at certain milestones, but you need to, like, fulfill these conditions to do so. And these conditions were basically things that, like, would never fly in a Western country, right? Would never fly, like in a democracy where people could actually protest.

Starting point is 00:55:00 But they'd be like, for example, currency devaluation, total kind of abolition of foreign exchange and import controls, shrinking of domestic bank credit, jacked up interest rates, jacked up taxes, and any sort of subsidies on food and energy, ceilings on wages, restrictions on government's spending and health care and education, favorable legal conditions for multinationals, and then sort of selling off state enterprises that cheap prices. Now, some of your listeners may say, well, some of those things sound really good, like we're free market people, but the problem is that is the double standards. Like, you have Britain coming into a country like Sri Lanka, for example, which used to give free rice to its people. Now, is giving free rights to your people a good economic idea? No, probably not.

Starting point is 00:55:45 But, you know, you have a colonial power coming in or a former colonial power coming in and they give all kinds of free crap to their people. Not only do British enjoy free health care and all its other stuff, but a lot of their agricultural policy and stuff is basically subsidized by the government. So you have a total hypocrisy. You have a government that uses a lot of central planning to protect its economy, coming into a poor country and saying you can no longer do the same thing. And on top of that, you have all the policies that Bitcoiners would find, you know, horrifying like, you know, again, raised taxes, raised interest rates, currency to valuation, et cetera, et cetera, et cetera. So essentially, the structural adjustment policy was meant to

Starting point is 00:56:20 squeeze the poor country and to reduce consumption at the prioritization of exports. So when we go back to those numbers from Bangladesh, now that we know this, we're looking at, oh, like, there's a lot more exports happening. There's a lot of. lot more shrimp being sold. Well, what you don't realize, unless you dig into it, is that at the same time, there is a tremendous amount of debt being incurred. And the debt service is just getting bigger and bigger and bigger. So, for example, in the Bangladesh case, I'll just want to.

Starting point is 00:56:52 Because this up here. Go ahead. What a people, where I think what people don't see is there is how many times the debt keeps getting rolled over. So it's almost like the first step. You had 10 structural adjustments. Yeah. Again, 10 times the government got a bailout essentially and then agreed to restructure its economy by the IMF between 72 to today.

Starting point is 00:57:12 There's 10 times this has happened. So the debt, the foreign debt has gone from 140 million and 72 to almost 100 billion today, almost 100 billion. So yes, on one part of the balance sheet, you're seeing, you know, more profits from exports. But what you're not seeing if you just look at that is that a country is slipping further and further and further into an inescapable debt trap. And dependence on foreign imports for most depends on foreign imports. All right. So some really powerful stuff. Make sure you guys dig into this more if you did find that interesting.

Starting point is 00:57:51 Okay. So the last thing that I'm going to play here is actually three different clips. and something that I think is just insanely important for people that are coming into the Bitcoin space and just trying to wrap their head around everything. And it's this idea of proof of work versus proof of stake and also how energy is required and you should want energy to be a part of Bitcoin. And then you wrap the whole ESG, big, big, banker narrative piece that is all intertwined with this. So I have three different clips that I'm

Starting point is 00:58:32 going to play. The first one is from Gigi talking about the importance of proof of work and what it is. Michael Saylor talking about how important it is that energy is injected into the money. And he also covers some of the ESG pieces that are intertwined with some of this. And then for the third clip, I have Jeff Booth talking about the same stuff, but from just kind of a different angle. And I think all three of them do such a profound job of describing what is proof of work, why proof of stake is different, and why Bitcoiners at large and people who just want free and open money really, really need to understand these ideas. So this goes pretty long. but I think it's so important for people to get this on your journey. And that's why I'm going to go ahead and play these three clips.

Starting point is 00:59:30 So let's talk about proof of stake versus proof of work. This is, in my opinion, one of the most important things. The difference between these two is probably one of the most important things for somebody that's new coming into this space to fully understand. So if you are going to characterize the two of them, please do so. and then talk to us about the concerns that you have for proof of stake, because I know you have quite a few. Okay.

Starting point is 01:00:00 I try. I'll have to collect myself. I did not anticipate this question. I have to be honest. So, okay, proof of stake is basically a scam, period. Like, it doesn't work. It cannot work. Just in terms of timing, proof of stake systems always need to do some proof of work in secret to

Starting point is 01:00:20 fight off these race conditions and so on. Like, okay, where should I even start? Well, not explain that because I've never heard that. I've never heard that point of view before. Explain that. Either they're doing some proof of work secretly, just a little bit, you know, so as an anti-cheat mechanism, or they have a centralized timing server. There is no other way.

Starting point is 01:00:39 There is no global time on Earth. There is no global time in the universe. You know, there just isn't because of relativity. So a light signal takes like 50 milliseconds. to travel from one place of the earth to the other. And that's not like an arbitrate, like, that's not, that's, so there is no global state, you know, like you cannot snap with your finger and decide this is the global state of the world because you will always have like a 50 millisecond fuzzy period where it's indeterminate.

Starting point is 01:01:09 You cannot like, signals need to travel back and forth. There is no global state in the universe and there is no global state on Earth. And so if you reduce the block time to lower than 50 milliseconds, for example, it would be absolutely impossible to find consensus. And that's also why chains that have slower, shorter block times, they have more orphan blocks because it's, you know, like the risk of running into consensus problems is higher. And Bitcoin's 10 minutes is just like, okay, that's good enough. Even if you have latency issues and so on, 10 minutes is long enough for the earth to agree on a state. And this is like a physical problem. And proof of stake cannot solve this problem, period.

Starting point is 01:01:51 You need to have timestamps service that are centralized, two or three of them, that tell you the time. Because for transactions and an order of transactions, you need to know the time. Because otherwise, you would be able to spend money that you do not have. You would be able to spend money that did not arrive yet. For consensus to rise, you need an absolute order of events. and in the universe there is no absolute order of events. It's all relative. And that's why you kind of need to build up your own era of time and so on. And proof of work is the only thing that works.

Starting point is 01:02:21 All right, that's one thing. That's just the time aspect. With the proof of stake, who, like, one of the biggest problems that be solved was how, who gets the tokens, who gets the initial supply? How do you distribute the money? First of all, who is allowed to print the money and how do you distribute it? How does proof of stake solve it? Who decides who can print?

Starting point is 01:02:44 Who decides about the money supply and who gets it, you know? And if you don't have, like, are you aware of the term stage grinding and validator selection and all those kind of things? I've heard some of it through the Ethereum. Yeah, that's a big problem. You know what solves this? Proof of work, you know? Like, if you're a validator or if you control most validators, you are the one who selects

Starting point is 01:03:06 the next validator. So who gets the money next? And if you control all of it, then you just give yourself the next slot and you and so on and so forth and so on and so forth. And the systems that run into that, do you know how they solve it most of the time with something that's truly random, which is proof of work? You know, like, it's all stupid. Like, it's why are we playing these games? Bitcoin exists. Bitcoin works.

Starting point is 01:03:27 Bitcoin is fair. Why are you trying to print your own money? Why are you trying to print your own money into your own bucket? It's all unethical. It's all very, very unethical. And I'm starting, you know, I'm starting to lose my patience because Bitcoin has been around for a very long time. And your proof of work, your proof of stake, shit coin token, that you mind yourself or pre-mind

Starting point is 01:03:49 yourself, most people don't know, Ethereum had a 70% pre-mine. 7-0, 70% pre-mine. Very few people, like 5 or 6 people have had 70% of the Ethereum supply before it launched, you know, and all the other projects are very similar, you know, like there's always a few select people that print the money because it's a hard problem. How do you generate money fairly and distributed across the earth, just like gold was distributed, you know, distributed fairly all around the earth without anyone deciding who gets the money? It's a really, really hard problem.

Starting point is 01:04:24 And Satoshi solved it, and he didn't take anything for himself and he disappeared. And that's why Bitcoin can't be repeated, you know? Like, it's the immaculate conception of sound money. So why do people continue to, like, improve upon that? And they don't even know the problems, the proof of work solves. That's the thing. The proof of stake people have no idea what kind of problems, proof of work solves. And so they are not even understanding the problem correctly.

Starting point is 01:04:52 And they are trying to come up with a solution. And all the solutions are flawed. And you always, as I said in the beginning, you always have a certain quorum of people that decide what the truth is. And in summary, in like one sentence, proof of work relies on physics to tell you what is true. And proof of stake relies on human judgment. And I will tell you what is true. And that's the big difference.

Starting point is 01:05:16 And we want to move away from human judgment. And we want to remove humans from the equation when it comes to the very moral and ethical question of money production and who can control the monetary flows. we have to remove humans from the equation. And proof of stake does not remove the humans from the equation. It reintroduces that. And that's why I'm so worked up about it. And I'm apologies to all the listeners. I'm ranting so hard on that.

Starting point is 01:05:48 But it's a moral and ethical question. Who should be able to print the money? And who should be able to de-platform you? Who can stop the money flows? Who can freeze their accounts? Who says what is true and what is not? And Bitcoin and proof of work, it uses physics and mathematics and something you cannot cheat. And all the other systems like proof of stake and also the current Fiat system, it's all the same thing.

Starting point is 01:06:10 It's a quorum of people that decides what's true. It's the central bank. It's like the 12 people in the room that decide on monetary policy. And we see this all the time. Just look at the proof of stake systems that exist. It's human judgment all the way down. And that's why these systems, they pause and they restart and they change the monetary. supply and they blacklist people and the platform people and blah, blah, blah, blah,

Starting point is 01:06:33 blah. We're back to the old system. Proof of stake is the system, the central bank system that we currently have. And it's immoral. It's unethical. And proof of work is a safe and secure and fair system that is based in reality, that is based in mathematics, that is based in physics itself. And it actually solves these problems all the other people try to solve. Okay, so here is Michael talking about some similar ideas, but from a different vantage point. When you say conservation of energy and you talk about how this is so important to the physical universe, is it possible to create a digital money without injecting energy into it that is sound? It sounds like you're saying that's impossible. Is that correctly summarized?

Starting point is 01:07:21 I don't think you can. I don't think you can. I think that we only have to discovered one way that is settled and universally agreed upon to create digital energy or a digital commodity. And the one way is proof of work. I take electricity and I run it through some kind of hashing algorithm. So you could do it with Shaw 26. I mean, you can probably come up with another hashing algorithm. You can go with certain other algorithms that do it, but I'm modulating electricity to do work. So I'd say Bitcoin. is an example of the creation of a digital commodity. As I said before, if you took away the difficulty adjustment and you took away the

Starting point is 01:08:06 halbings, you could have a commodity more so than a scarcity. The brilliance of Bitcoin is not just that it's a digital commodity, but that it's a digital scarcity. If I uncap the amount of Bitcoin or I just let you continue to create it, well, I've got a digital commodity. Well, I mean, oil is a physical commodity. And so it's uncapped. So, I mean, the reason that oil is not necessarily as good in investment as Bitcoin over the long term is, A, it's not digital.

Starting point is 01:08:33 And so I can't carry $10 billion worth of oil on a USB stick, right? And I can carry $10 billion worth of Bitcoin. And the second reason is it's not a scarcity. You know, 100 oil miners or oil refiners can produce 100 times as much as one. Whereas with Bitcoin, 100 Bitcoin miners can't produce any more Bitcoin than, one Bitcoin miner can produce. So oil is not a scarcity. It's a commodity and it's a physical commodity.

Starting point is 01:09:02 Bitcoin's a digital commodity. Now, other people have launched, I mean, other groups have launched crypto networks that use proof of work. I mean, you know, Ethereum was a proof of work network. You know, you've got the Bitcoin forks, a handful of other cryptos that are proof of work networks. That might make them, what would I say? It might make them an ersatz or an architecturally, an architectural digital commodity.

Starting point is 01:09:30 It doesn't guarantee their specialty, it doesn't guarantee their digital scarcity. Like, for example, Dogecoin keeps increasing its supply, right? So it's not a scarcity. It's a proof of work protocol that creates more and more and more, right? So it's commodity in the same way that someone creates more silver or more soybeans. every year, right? It doesn't necessarily make them regulatory commodities or ethical commodities. And the distinction there is, if Apple Computer launched a proof of work network tomorrow and it kept half the coins, it wouldn't be an ethical commodity. It would be an architectural digital

Starting point is 01:10:14 commodity, but Apple Computer makes it a security because there's a pre-mine. And so if there's a pre-mine, or if there's an ICO, or if I created a protocol where 10% of all the coins that were mined, were funneled to a wallet that I control that I use to pay developers, right? All of those things make it more of an investment contract or a security, even though it's using energy. So the use of energy doesn't guarantee that something is a commodity. The use of proof of work doesn't guarantee it's a scarcity, right? Because the protocol is what makes it a scarcity and the providence is what makes it ethical and a commodity. So Bitcoin's special because it has a provenance of Satoshi disappears. Satoshi coins never move. There's no ICO. There's no central development organization. There's

Starting point is 01:11:08 no protocol that funnels energy to developers. And there's no pre-mine. So the ethical launch of a digital commodity, could create a regulatory commodity or an ethical commodity, which would be deemed as an asset without an issuer. Right. An asset without an issuer is a technical definition, the regulatory definition of a commodity. So the oranges, wheat, coal, steel, soybeans, oil, natural gas are all assets without an issuer, but they're not kept. Bitcoin is the asset without the issuer because of the ethical provenance. And the way that it becomes without an issuer is you have to have a consensus mechanism that doesn't require the coordination of engineers. So the problem with proof of stake is that proof of stake is a simulation of the universe or an imaginary universe.

Starting point is 01:12:08 You're imagining energy and you're cutting a virtual machine. They literally call it a virtual machine. a virtual machine with virtual energy in the form of virtual tokens for virtual security, all manifested in software code. Someone has to write that software code. And if you write that software code and you keep changing it over and over and over again, then you've got this problem, which is, how can I continually change the software without someone having influence over the software?

Starting point is 01:12:39 Yeah. You, in essence, have created a software company. So with Ethereum, the Ethereum Foundation is a software company. There's a lot of software engineers that have to write the software. They have to be paid. Someone has to budget for the payment of the engineers. The only hope you have of something based on software becoming a commodity is you write the software once you gift it to the world and then you stop changing it and you distributed across

Starting point is 01:13:09 20, 30, 50, 100, 1,000 different parts. and if everybody can run the software, and if there's no need to change it, and if no one organization controls it, now it becomes sufficiently decentralized. So you see, that's the fact pattern with Bitcoin. The reason it's important for Bitcoin to be simple is the software and the protocol needed to be substantially finished when it was first released by January 3rd, 2009. They kind of needed to have it done. They couldn't keep changing the protocol. because otherwise you end up with a software company. So proof of work allows you to place the consensus and the security and the integrity of the

Starting point is 01:13:51 network in the hands of Bitcoin miners and Bitcoin node runners. So you're using electricity and you're using 256 ASICs in order to create the security and the integrity of the network. And that's generally thermodynamics bound and it's open and everybody can participate and anybody can create their own Bitcoin miner, anybody can mine Bitcoin, anybody can, you know, electricity is broadly found in the universe. And you're not waiting. You don't need the permission of anybody to allow you to get on a network and mine. Nor do you need the permission of anybody to run a node. It's permissionless. And that's what makes it without an issuer.

Starting point is 01:14:29 As soon as you decide that you want to get rid of the energy, then you've decided to create a virtual machine, virtual energy. And when they create the energy and a proof of stake now, network or any other non-energy protocol. You're not just getting rid of the electricity. You're also getting rid of the material energy, which is the Shaw-256 mining ASIC. So the application-specific integrated circuit is matter. The electricity is energy. You're limiting the matter and the energy. And the hardware is important here, just as important as the energy, because the electric. electricity is a commodity, whereas the thing that creates, that makes this a specialty or makes it a scarcity, is the fact that you're modulating the energy through a Shaw 256 mining chip.

Starting point is 01:15:27 And that mining chip is a special purpose. That's important. It's not a general purpose chip. And it's also getting exponentially more efficient. So the genius of the Bitcoin Protocol is that the hardware is proprietary, there is no other use for it, and it gets exponentially better over time, such that the energy efficiency of the network is improving with Morris Law and with the having protocol. So that makes this an increasingly efficient security protocol, and it protects the protocol from someone that has a huge amount of commodity computing power, or a huge amount of electricity power. It doesn't matter that you build a fusion reactor that generates thousands of terawatts because it's not the pure electricity that secures the network. It's the encrypted energy.

Starting point is 01:16:22 It's the Shaw 256 hashes that secure the network. So if it was only the electricity, it would be vulnerable to an attack from someone that harness the power of the sun. I think what you're talking about is one of these questions that I have coming up here. And I'm going to just read this because I think it ties into what you're saying here. In 2017, the World Economic Forum posted an article that said by 2020, the Bitcoin mining could consume the same amount of electricity every year as is currently used by the entire world. This is the World Economic Forum, just a couple years ago. Well, as we know, that calculation was grossly misstated, but that doesn't stop other experts

Starting point is 01:17:01 from still stating such salacious headlines right now that we're seeing in 2022. too. What is it that these experts fail to understand about Bitcoin's energy consumption that I think you're getting at with what you were just talking about? I think what they're missing is that the efficiency of the network is improving with Moore's law exponentially. Yes. Yeah. That's what they're missing. The other day I walked through one of these Newport mansions and now you can actually download a mobile app to your phone and then you can download the audio for and you can listen to the tour guide, you know, using AirPods walking through a mansion in the year 2020.

Starting point is 01:17:38 Well, I watch this. I'm downloading it and sometimes the audio tour is 80 megabytes, you know, and sometimes it's 160 megabytes or something. And then I thought back to when I was at MIT, when one of my classmates had a 5 megabyte hard drive or something. And if you simply took the, and then I thought about the efficiency of audio in the 1980s. And you could have easily said, if people continue to use. computer music or if Napster spreads computer music by the year 2010, all of the hardware and all of

Starting point is 01:18:15 the electricity in the world will be sucked up listening to rock and roll music. And it would have been true if you extrapolated the efficiency of music compression and the cost of hard drives. You know, you pretty much would have said that we can't allow teenagers to listen to music on a computing device because the world will come to an end. You could have said the same thing about like digital photos, right? If this keeps up, then teenage girls taking selfies will suck up all the electricity and all of the minerals that the earth's crust by the year 20 something or other.

Starting point is 01:18:51 And of course, what happens in all cases is the efficiency of computer music and the efficiency of storing files and the capacity of memory, the capacity of computer memory, the capacity of computer drives. These things are increasing exponentially such that it turns out that people can listen to music on their phones and take photos and the world doesn't come to an end. And so when people make these statements about Bitcoin, what they're doing is the same thing. They're missing the point.

Starting point is 01:19:22 It's not secured by energy. It's secured by digital energy or encrypted energy. and the efficiency with which that encryption is taking place is improving somewhere in the range of 36 to 40% a year. Ironically, you know, Moore's Law is every 18 months to double. So if you have an 18% improvement every year, do the having protocol. And if you have an 18% improvement every year because like every four years, the A6 double. Okay. You got 36% a year, you know, and when you start to buy,

Starting point is 01:20:00 that into 70 with a few twists, you realize in about 18 months, you double the efficiency of the network and you keep doing it, you know, for the first 30, 40, 50 years. Maybe you continue to do it for a long time to come. So, you know, as of today, as far as we can see, we run the numbers, Bitcoin is taking up maybe 15 basis points of the world's energy. And it's not clear to me that it's going to grow that much more. At some point, it has some maximum, and it actually starts to decrease because the proprietary protocol is such that ultimately in the year 2100, it won't matter whether you have harnessed all the power of a star. It won't matter because that won't allow you to build, to create hashes. I could give you all the electricity, the powers New York City tomorrow,

Starting point is 01:20:54 but you can't generate hashes with it, unless you can get your hands on 256 mining rigs, set them up in a world-class mining center, get the Transformers, and turn it on. So you can see there's already a limiting factor there. And on the other side, if Google and Microsoft and Amazon, they all decided tomorrow

Starting point is 01:21:16 they're going to turn all of their data centers into Bitcoin mining data centers, their cost, you know, to generate a Bitcoin would probably be like a million dollars to coin, if not $10 million a coin, because they don't have ASICs, right? And the ASIC isn't a thousand times, a million times more efficient. So it's this specialization of labor, you know, like the driving of the tractor is a better idea than a hand plow, right?

Starting point is 01:21:44 In every field of human endeavor, everything humans put their mind to, we find when we create a specialized machine, and then we power that specialized machine, then we overcome any generalist who's well-intentioned. I toured the DuPont gunpowder factories, right? So the DuPont showed up. They set up a factory on a hill where the Brandywine River runs down it. And the reason they wanted this creek is they had to harness the creek for hydropower to turn their water wheel, to turn the mills, to grind the gunpowder.

Starting point is 01:22:20 And so here are some smart immigrants. They use the power of gravity, the power of water. Then they mix, you know, three elements together. They create gunpowder. They hand you the gunpowder and you blow your way through the mountain. Okay. And someone starts by saying, I have this idea. I'm going to build tunnels through mountains, you know.

Starting point is 01:22:40 And some non-technologist says, no, no, no, we can never build tunnels through mountains. That will take every single human being in the world. And we will all starve to death because it's too expensive. using our little rubber mallets or our little chisels to chisel our way through the mountains. Exactly. Right? And the point is, we're not doing it that way. Yeah.

Starting point is 01:23:03 We're going to use our brains and technology. If you actually back calculate, someone says, okay, I'm going to connect San Francisco to New York. And you back calculate, well, how much energy is going to take to a whole a bucket of water on my back, you know, 10 million times? Like, well, we can't do that because the human race will. suffocate trying to connect New York in San Francisco. And then if you calculate what it costs to build the railroad, you would conclude it's too much.

Starting point is 01:23:30 And if you calculate the maintenance cost on wooden rails, that's too much. And the answer is, I invent explosives. I invent steel. I come up with some, you know, technique to get through. Then I create a locomotive. Then I go and I'd throw for oil. Then I put the oil into the locomotive. And I drive the train back and forth.

Starting point is 01:23:51 every single one of those things would have used all of the energy in the world. If you were to attempt, we can't give public transportation to people. It will use all the energy. All of the ox carts in the world will be allocated to letting people commute back into work. We can't let them live in the suburbs. This is hard, I think, for a lot of people to wrap their head around because the examples you're providing are physical examples that people can relate to. and it makes sense to them when you describe it in that way.

Starting point is 01:24:24 But when you think about A6 and you think about Moore's law and you think about how these things that people can't touch or really kind of understand at the level that you understand and that many people in the space understand, it's just completely lost on them. It's intangible. It's not something they can feel or touch. Yeah, Bitcoin Miner is it's a machine to create security and cyberspace.

Starting point is 01:24:49 That's what it is. You have to see it. as a mechanism. A digital vault, if you will. Is that how you'd describe it or? I would almost describe it as a transmitter of encrypted energy. It creates a wall of encrypted energy, right? You're feeding electricity into one end and out the other end comes a hash wall.

Starting point is 01:25:13 Like a bank vault. Like a bank vault, but virtual, right? Yeah, that's probably an energy vault. You're putting electricity in and you're creating a wall. vault of encrypted energy, and that's what you're using to build as your foundation to build civilization and cyberspace. And a lot of people can't figure it out. They can't work it out. But you ever cross a bridge and you look it down at, you know, at the cations or the structures the bridges are built on? And the bridge is resting, resting on these, what are the caissons,

Starting point is 01:25:45 I suppose, resting on these structures and they're buried 30 feet down into the East River. or the Hudson River. And the average person can't figure out how to create that bridge. But that doesn't mean that the bridge doesn't work. Yeah. In this particular case, I see the Bitcoin miners as the foundation to hold up the entire digital ecosystem. And we're feeding them electricity.

Starting point is 01:26:09 And then we're running them through an ASIC. And the ASICs just keep getting more and more efficient. And just like, you know, you take a history of civil engineering and you look at Greek architecture and they're using stone architraves, architraves, those things crack, and then they replace them with some wooden beams and they kind of crack, and then they come up with the idea of a trust. And a trust creates, this dramatically increases the strength of the beams,

Starting point is 01:26:36 and now things stop cracking. And that works well for a while, and then they come up with, you know, arches and then buttresses. And of course, ultimately, they solved the problem when they figure out how to put enough energy into iron to create steel. You know, iron works and steel works. And steel is a material energy. It's massively dense energy.

Starting point is 01:26:57 And if you want to build structures, you have to create the steel. I think about a steel refinery. And I think about how much energy goes into the refining of steel and the heat and the energy. And then you think about what comes out. And then if you want to build any structure in the world, right, that steel is the material to build that structure. Bitcoin miners are energy refiners in a way, right? And what they spit out is digital energy. They not only create it, but they secure it. You can also think of them as supporting the railroad in cyberspace, right? Like, it's a railroad and there's a fixed cost

Starting point is 01:27:34 to build the railroad. And there's a fixed cost to maintain the railroad when something breaks. But once you've got the railroad and it's properly maintained, now the cost to move tons of cargo from one end of the line to the other in the line has decreased not by a factor of 10 or a factor of 100. It's probably decreased by a factor of 10,000 to 100,000. It might have decreased by a factor of a million. If you did the energy calculations, you know, try to move 80 tons of coal from New York to Chicago in one day without the risk. railroad without the road on an ox cart. I mean, it's such a silly comparison, right? Because no one would ever think to do it because it's almost impossible to do.

Starting point is 01:28:18 But when we created the railroads, we created this extraordinarily expensive upfront engineering project. They required a lot of capital investment, very capital intensive. But then after you've created it, then you've got a moderate maintenance cost. And then you get this superconducting, where you're able to move material at orders and orders of magnitude less cost. Michael, I have a friend that has sent me an article, kind of getting at some of the things that we've been talking about throughout this interview.

Starting point is 01:28:54 I'll have a link to that in the show notes. He goes by Baseload BTC. And he made the comment to me. He said, Bitcoin is basically the best ESG investment vehicle in tech ever invented. And so I think for people on the outside, they might hear, that statement, they might laugh hysterically and say, how in the world could that possibly be true? It uses energy. But when you look at the incentive structure of what Bitcoin incentivizes, especially on the long tail, 10, 15, 20 years from now, how do you envision Bitcoin miners

Starting point is 01:29:30 being integrated into the grid? And do you agree with his statement that it's the best, quote unquote ESG investment vehicle in tech ever invented? I do agree with a statement. I think that it's pretty clear that environmentally it's the most efficient use of electricity to create value that the human race has come up with. And so on the energy side or the environmental side, it seems to me pretty obviously clean and useful. If you look at the other two, the S and the G, from a societal point of view, you're giving

Starting point is 01:30:05 economic empowerment to 8 billion people, you know, digital money to the human race. So it's obviously good for the society. You're banking everybody. And then from a governance point of view, it's a digital asset or a digital network without an issuer. Yeah. So, you know, corporate governance or governance normally is all about fair governance. And this phrase popped up because there were companies that were thought to be poorly governed, maybe for the benefit of the family or for the benefit of the community to the detriment of the shareholders, etc. Bitcoin is literally without a CEO, without a board of directors. It is the most fairly governed thing in the universe. It's more fair than any country, any city, any state, any company.

Starting point is 01:30:55 So in terms of ESG, it definitely checks all three boxes. In fact, it hits home runs out of the park on all three. I probably just make one more point here, which is, like, if you're concerned about ESG, right, you really ask the question, what is a universal entitlement to the human race? Like, the most ESG-friendly stuff is clean water, power, bandwidth, like, internet access, steel, functioning materials, transportation, and just pure energy, food. So these are the things that life is based on. And so if you want to create a civilization, the Romans knew this, you know, a famous historian,

Starting point is 01:31:46 he said, I admire the Romans for their aqueducts, their roads, and their drains. And you think about this, oh, really drains? Well, the aqueducts bought water, brought water to the city. And the normal consequence, of course, is the city population grows by a factor of 10. And without the water, you can't flush away the waste byproduct. And so everybody dies of typhus or, you know, some cholera, some national, awful disease. So you need the water and then you need the roads to be able to move. Right.

Starting point is 01:32:19 And then the drains carried away the waste and they carried away the waste water and also shed water so that the buildings didn't collapse and kill everybody. So if you think about that, an aqueduct is ESG friendly. It's very expensive to build the first one. And Lord would help you. And it's hard to build the first one. I mean, no one else could figure it out. That's why the Romans dominated because no one's could figure it out. And then after the Romans disappeared, people forgot how to do it.

Starting point is 01:32:51 And the civilization collapsed. And, you know, 90% of the people died in some of these cities because you run out of water three days and you're dead. So I think if you think about Bitcoin in the same framework, it's a digital energy network. It is providing, you know, the ultimate gift, which is clean money. Yeah. clean money to go along with your clean air, clean power, you know, clean food, clean water. And what happens if the water is dirty, we die? If the air is dirty, we die.

Starting point is 01:33:31 If the food is dirty, we die. If the money is dirty, it kills us, right? The money is dirty right now. And you want to see what happens in an environment where the money is dirty. just go to any economy where the currency is collapsing, like all those people in Lebanon that are robbing banks to try to get their own money back. They don't count the number of people that commit suicide

Starting point is 01:33:55 probably after they got wiped out from that, but it's quite a lot. So I think anybody that really cares about ESG ought to care about a fair, equitable monetary network and establishing a stable financial foundation or monetary foundation for the human race to stand on. There could be nothing more important at this stage, I think. Okay.

Starting point is 01:34:19 And here is Jeff Booth, taking it one step further. I'm going to read a quote out of your article here that kind of hits at some of this is what you're talking about right now. Because the existing system is credit based, it cannot allow ongoing deflation without collapse because the credit would wipe out and the credit is the system. society would never vote to have their entire way of living collapse, which means a paradox exists where society will always eventually insist on manipulated growth for fear of the consequence of collapse. And that manipulated growth is the primary source of the problem that society is dealing

Starting point is 01:34:57 with, including environmental damage. So this last part, this last little note that's kind of slapped onto the end of this, is where I want to go next. And I got into this a little bit with Michael asking him if there's an interconnection between energy not being infused into the money and all of this propaganda, narrative control around environmental narratives that are out there. How is this interconnected, Jeff? Many understand kind of methane reductions of Bitcoin, gas flaring, where this moves. And they fight head on at why we should use Bitcoin and why it's okay to use energy.

Starting point is 01:35:50 Now, number one, and by the way, and by doing that, they miss fighting on the higher ground. And Bitcoin owns the higher ground. The higher ground is this. That human coordination requires and what we call that trust, linking the supercomputer requires more energy, not less. It's a race for more and more energy. And every developed nation in the world uses more energy for a living standard. So unless you want living standards to collapse completely,

Starting point is 01:36:19 we have to find a way to increase energy a lot. But the higher ground to that is you need a free market function to be able to do that. Because if you could just print more monetary units to create global wealth, And don't you think in the last 3,000 years, 5,000 years, societies would have figured that out? And what you see is you see those ideas driving us to more energy, better energy, better sources of energy, are best left to entrepreneurs in the free market that are driving that. And misallocating through misallocated resources by printing money creates the exact opposite. It drives energy scarcity. It drives confusion.

Starting point is 01:37:02 It drives polarization of society. where you don't get that drive for more productive energy because it has to be centrally controlled. That central control makes terrible decisions because they can't see all of the ideas in the free market. And so the higher ground is if that worked, then if these policies worked based on manipulated money, more manipulated money for more growth.

Starting point is 01:37:27 And remember, that growth is defined as GDP growth. And it's largely defined as GDP growth, because you have to pay back the debt. And what's happening against that growth is you're getting a different type of growth. The growth that we really haven't seen or haven't seen at this scale is the productivity is typically negative GDP.

Starting point is 01:37:50 Where does all your extra photos you take today show up in GDP? Where does all the extra music you consume today? Where does your calculator app that you get for free show up in GDP? those productivity gains are so profound. They drive down GDP. That's what productivity is.

Starting point is 01:38:10 And so now you have less and less components of GDP that are able to pay back the debt. And it relies. And so the entire thing and the credit that you have and you have this credit problem that's growing exponentially that presupposes you could grow forever like the world's talking about now, grow forever on a finite plan.

Starting point is 01:38:31 And the result of that is more and more people working harder and harder on one side, two jobs, three jobs, hamster wheel, trying to race to buy more things to say it's in a system or to save enough money to escape the system, only making the system worse. And every single thing that you're doing on the other side on the free market, because the free market is trying to drive price down and your productivity up. And when you see those ideas, you use them fast. Why you use Google, it gives you more value. Why you're using Zoom as it gives you more value.

Starting point is 01:39:06 It connects us. You use them fast. And then what ends up happening is because those drive price down so much or air drive kind of, you have to inflate worse. You have to or you have to drive more credit to keep up that Ponzi scheme. And that Ponzi scheme has diametric. So many consequences for the world we're in because we measure that world from the system. And it says we could grow forever. We could keep on doing this forever.

Starting point is 01:39:34 We could manipulate money forever, which is not just higher consumption. It's higher production, fire consumption. Most people need two jobs in their family or two people working to have the same thing that one person working 30 years ago would require. My first job as a lifeguard was, I think, I paid $20 an hour. That was in 86. That $20 an hour job as a lifeguard, it would in adjusted, in adjusted terms would be $60,

Starting point is 01:40:07 $70 an hour today. What lifeguards making, my kids were lifeguards this summer. They made $16 an hour. So they made less that many years later in real terms. And what you can see is why people are so frustrated by the system because they're racing harder and harder. based on a based on something and they're objecting from the system so they're saying well i can't make that work so i'm just not going through i'm going to trust the state to give me more money

Starting point is 01:40:34 and the system gets stronger and all of that is a system that can't solve if you believed in climate change is actually the creation of that climate change because it presupposes misallocation of capital and monetary growth forever in a system that just wastes our time All right. So that wraps up my top five favorite moments throughout the podcast. I know I played more than five, but five main ideas, I guess is what I was shooting for. This has been such an honor for me to have these conversations with these folks. And hopefully people listening have learned some things along the way right there with me as I'm learning. And just plenty of other powerful moments throughout the 100 plus episodes that I've done on Bitcoin. But these five here, I think we're just

Starting point is 01:41:29 really, really important for people to kind of wrap their head around. And so just want to thank everybody for listening and supporting the show. And yeah, I look forward to 100 plus more as we keep going and hopefully we can continue to get great guests on the show to help us learn more about this wonderful thing called Bitcoin. So thanks and we'll see you guys next week. 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.

Starting point is 01:42:12 I don't know.

We Study Billionaires - The Investor’s Podcast Network - BTC120: Preston's Top 5 Bitcoin Fundamental Moments, w/ Michael Saylor, Jeff Booth, Gigi, Alex Gladstein, Cory Klippsten, & Pablo Fernandez (Bitcoin Podcast)

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