We Study Billionaires - The Investor’s Podcast Network - BTC146: Broken Money 2/2 w/ Lyn Alden (Bitcoin Podcast)

Episode Date: September 6, 2023

In the part two of a two-part discussion with Preston Pysh and Lyn Alden, they talk about the merging of a credit based money ledger system with a commodity backed money system into a single new technology, which is Bitcoin.  IN THIS EPISODE, YOU’LL LEARN: 00:00 - Intro 01:22 - Why money has been at the crux of global conflict since time immemorial. 16:08 - Why can't a government entity just fire-up 20,000 nodes and try to fork the code? 33:41 - Lyn's thoughts on Gresham's law and Bitcoin. 41:23 - What would a bitcoin would look like with no unit abstraction? 47:13 - How do Taxes change in a bitcoin world? 49:04 - Does Bitcoin need smart contracting to compete with other protocols? 57:43 - Why couldn't Adam Back improve the Bitcoin code? 01:02:25 - The privacy trade-off is something that many want, what is Lyn's point of view? 01:06:02 - What is the fundamental trade-off between PoW and PoS? 01:06:02 - Lyn's discussion of volatile vs non-volatile computer memory when trying to understand PoS and PoW. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Lyn Alden’s book, Broken Money – Read reviews here. Listen to Part 1 of the discussion with Lyn Alden about Broken Money, or watch the video. Listen to our interview with Lyn Alden about How the Fed Went Broke, or watch the video. Tune into our interview with Lyn Alden about Macro and the energy market, or watch the video. Listen to our interview with Lyn Alden about Money, or watch the video. Tune into our interview with Lyn Alden about Gold and Commodities, or watch the video. Listen to our interview with Alex Gladstein about issues with fiat currencies, or watch the video. Lyn Alden's free website. Lyn Alden's premium newsletter. SPONSORS Support our free podcast by supporting our sponsors: River Toyota Range Rover Briggs & Riley American Express The Bitcoin Way Public Onramp USPS SimpleMining Sound Advisory Shopify AT&T BAM Capital Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. Today's show is part two of a two-part discussion with the incredibly talented macro investor, Lynn Alden. Lynn recently published a book titled Broken Money, and if you haven't heard the first part of the conversation, I would highly recommend you go back into your podcast app and find the episode that precedes this one. And if you've already listened to that first part, well, welcome back. And we're getting ready to talk about the merge.

of a credit-based money ledger system with a commodity-backed money system into a single new technology, which is Bitcoin. During this conversation, we talk about many different technical tradeoffs that Bitcoin makes, such as privacy versus auditability, scripting and smart contracting, why many people look at Bitcoin as old technology relative to many of the other crypto projects and what they're missing with that point of view, along with many other important topics. So with that, here is part two with Lynn Alden on her newly released book, Broken Money. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right, so I'm back here with Lynn Alden talking about her

brand new book, Broken Money. For people that are just joining us and haven't listened to the first part, I highly, highly recommend that you go back and listen to the first part with Lynn, Stig, and myself, where we talk really about the first half of the book and the history and the technology of money and how we've kind of come to this third phase. If you listen to the tail end of the last conversation, Lynn talks about there being like basically three phases. We're getting ready to go into a deep discussion on this third phase. And before we go there, Lynn, as I look back at the conversation that we just had in the first part, and you did such a great job talking about how money kind of is at the center of all these conflicts throughout history. And I think a person who might be hearing some of those ideas for the first time are asking themselves, like, why is that the case? Or are we overstretching this correlation that money is always at the root cause of all these geopolitical. conflicts that we've seen throughout time. I guess I'm just trying to really get to the essence of

why is that? Why is that the fundamental thing? Is it because, like, if we look at it from a first principle standpoint, that money represents energy exchange between two parties, is that truly the essence of why money's always at the center of this, or is there something else that you would kind of define? I think who has the ability to siphon value from others and redirect that value is just obviously a foundational aspect of organization and ethics and conflicts and peace and that kind of thing. And as monetary technologies have changed over time, it changes the power structure of who can siphon that money and rearrange it and then also how thoroughly they can do so. So how easy it is for them to do it.

Do they have complete control over doing that? Do they have partial control? Do they have minimal control? And so these things really matter from a domestic perspective, a geopolitical, perspective. And anytime someone studies a field, they tend to believe that that thing is like the core of a lot of other things. Right. So I try to have to overstate things to say, okay, literally everything in the world can be tied back to money. And it's not really the case. I mean, we have the world's a complex place. There's human nature. There's just the rules of

physics, for example. There's just limitations for how the world works. There's always going to be conflicts and challenges and things to overcome. But money along with energy and a few other key things Things like that are clearly among the foundations of power and how we interact with each other and who really has kind of control over others. In the first part, we talked about ledgers. We talked about commodity money. We talked about why each of them exist, why each of them have benefits and setbacks in their use. We use so eloquently lay out the importance of the telegram being able to communicate and send information at the speed of light from Europe to the United States and how you can manage ledgers this way in a much more

cost-efficient way, but you're not able to immediately settle. So as we look at this new innovation, Bitcoin, blockchains, all of this, what is this enabling that has never been, like truly at the essence and first principles, what is that enabling that hasn't been able to be enabled historically. I would say two things. One would be instant settlements. Throughout human history, information, and material could only move as fast as humans. So, you know, you can't, a thousand years ago, Europe and China could not instantly send

information or value to each other. You had to move along the Silk Road to do it. And ever since the invention of the telegraph, and specifically the deployment of the telegraph throughout the 1850s, 1860s and globally by the early 20th century, we've had the ability to send information around the world instantly, which includes transaction agreements, whereas, of course, physical settlement of precious metals and other value can only happen at the speed of matter, transportation. And more importantly, not just transporting it, but also authenticing it, basically all the logistics of securing and authenticating that value. And once we had more

bandwidth, once we had more complex encryption, once we had more complex organizational structures, what the invention of Bitcoin is, in a way, is the first introduction of a credible way to settle final value nearly as quickly as we can do transactions. The kind of the first period of human history was everything's slow. And then the period of history from the telegraph

up till right before Bitcoin was transactions are fast, but settlements are slow. And post-Bitcoin, we're in a world where final value is fast as well. So transactions and settlements could all move roughly at the speed of light. The second thing, I think, is the ability to build a credibly decentralized ledger. So until this point, any ledger is controlled by humans is centralized.

So a central bank runs the monetary ledger for their country, for example. A bank runs a ledger for their clients. And we basically build ourselves with a hierarchy of ledgers. So there's like smaller ledgers built on top of bigger ledgers. And the foundation is the central bank. and it's just a centrally controlled ledger, where they get to determine how many units there are. They can determine who gets to use those units. They could take units from some others.

They could redeploy those units. And they can double the amount of units. They can triple the amount of units. They can cut the number of units in half. And what Bitcoin is interesting is that it's a ledger, but no single entities can control that ledger unless they're willing and able to expend so much physical resources that they can control the majority of the hash rate. And even then, they're still stuck by the rules of the nodes, which are themselves decentralized as well. And so it's very hard to gain even partial control over the ledger, and it's nearly

impossible to gain complete control over the ledger. So it's easier to censor transactions than it is to make more Bitcoin, for example. But that's what this kind of represents. It's a way for humanity to have a credible scarce unit ledger system backed by energy and backed by encryption and essentially controlled by a more distributed set of users rather than, say, 12 people to Federal Reserve. So you say it's backed by energy. So it's not just a ledger.

It's also this commodity money simultaneously. And we've never seen something like that before that you're able to have saleable commodity money that instantly settles. You write in your book. and I'm just going to read this quote here. It's not an accident that it took approximately a century and a half after transactions were enabled to occur at the speed of light for bearer asset settlement to also occur at the speed of light. If I were to describe in one paragraph why money has been broken around the world for so long while almost everything else has improved substantially and you list energy abundance,

technology abundance, and so forth, it's due to this gap between transaction and settlement speeds that the telecommunication era created. Any comments on that summarization of, because really you're saying in that paragraph, this is what this is all about in the future is exactly that. Yeah, as I would say, during the century and a half where that gap existed, the problem is that the only way to fulfill the gap

is basically centralization. You know, you have a goal that doesn't move quickly. You have transactions that can move quickly. And so the question becomes, who do you trust to manage that gap between transactions and settlements? because that necessarily exists in a state of credit. So who is the ultin arbiter and maintainer of that credit ledger?

And so basically throughout human history and especially this past century and a half, most of the physical shortcomings of money, you know, whether their lack of divisibility, whether their lack of speed, whatever the case may be, most of those were handled with various technologies or new procedures that make them more efficient, but at the cost of centralization. So it's far easy to use banknotes or credit cards and things like that than it is to exchange gold and silver coins with each other, especially for operating in a complex global society. And so we give up, you know, we get all these benefits, but we give up control towards these central entities that can control that abstraction layer, which in this modern era has been nation states, nation states and the banking systems that they control. And so what's interesting is that Bitcoin is kind of this first kind of trend change, potential trend change, where it says, here's another efficient way to do it. And this is the first one that doesn't further centralize it. It actually decentralizes it while still giving you those benefits of speed and other capabilities. And I think that's kind of why so many people are interested in Bitcoin, you know, from an outside perspective, if you're in the United States or Europe and your money works well enough, you know,

You know, you're not worried about getting cut off your bank and you buy your groceries every week and it's not a problem. When you look more globally, it's a much bigger problem. You know, there's 160 different fiat currencies in the world. The long tail of most of them are don't hold their value. Don't have any global acceptance. And so it's very hard for people to save in liquid value. You know, in the United States, we think, okay, so the dollar degrades slowly. So you got to buy real estate, you got to buy stocks, you got to buy all these other things.

and that's, you know, works, works well enough. You know, I think as I cover in the book, there's downside to that whole system, but it's workable. Whereas, say, you go to Egypt, the currency degrades much quicker. The stock market is not robust enough to put serious money into. So people put it into real estate, which is illiquid. And they have all these, like, empty homes because for that, it's like if you want to save, well, go, go build a home. And maybe you'll build it out in the future. And so it's very hard for developing countries.

developing countries to accumulate liquid capital. And that is a friction that is significant and exists. And it's so, you know, literally in 2023, there are doctors in Egypt. If you ask them, how do you save money? They say, well, I go to the black market. I exchange Egyptian pounds for physical US dollars. I then hold those physical US dollars in my apartment with no interest, like liability to be stole or lost in a house fire or something. And that is the best monetary technology, they know what to save in. Wow. Because they're not going to hold Egyptian pounds. They're not going to put the dollars in Egyptian banks because Egypt often has a dollar shortage. So they're always prone to say, okay, well, you have to take these dollars and we'll

give you an equivalent amount of Egyptian pounds at the exchange rate we decide. It's very hard for them. And of course, the other option is gold. Many of the, basically, houses gold and physical dollars are there a variety of options that they have. And none of those are perfect. It just shows kind of the frictions around the world. And especially like, then if you want to send money, it's like, well, you try to send money there. And it's like, well, this service doesn't allow you to send money to Egypt. And this service doesn't allow you send money out of Egypt. So you have to like find the you try a second way. That doesn't work out. You find a third way and that one works. Right. So there's friction both in terms of saving money and in terms of transacting money globally that,

you know, 100 plus countries, billions of people in the world encounter that is kind of abstracted away from us in the United States and Europe and Japan. And, you know, we have our own problems with money, but on a global scale, the problems are much bigger. And it's in large part because of this gap between transactions and settlements. And therefore, in order to rely on a solid unit of account, you need to rely on some sort of central entity, which in the modern era is really the Federal Reserve. So you wrote extensively about Bitcoin prior to writing this book. And I would argue, understood it as one of the top thinkers in this space for quite a while. After writing a book of this magnitude and all the history and everything that you studied and then wrote about

Bitcoin there at the end of the book, what is something that you learned or that you took away that you didn't really know or think about prior to writing the book? So it's an amazing question because in broken money, I inject my own kind of thoughts and organization and emphasize key points that I don't see emphasized enough. But it really draws from hundreds of other people that have created so much amazing literature or podcasts or books or various mediums and information. So whether I'm talking about older technologies or the Bitcoin world, you know, if you look through the citations, you'll see a lot of familiar names that people that have put out amazing content. And I think kind of what sparked me to write the book was the realization of how big that,

how important that gap between transaction and settlements is. So the fact that transactions occur at the speed of light and settlements don't is like a technological accident of history that I think shaped a lot of the past 150 years. So I think that learning about the importance of that, I also enjoyed diving into the arguments between commodity money theorists and credit money theorists and to really kind of tease out those nuances. So I tried to steal, even arguments I disagree with, I would try to steal man and find out, okay, who's the smartest person that makes this claim and find that person and read what they wrote and then try to deconstruct it, you know, see where I agree or disagree.

I also enjoyed reading about the nuances of the classical gold standard because I enjoyed seeing how people like economists and logicians of that era like Jevins would analyze that current system at the time and describe their various pros and cons, which are kind of like lost history. We kind of look back, we just kind of say, oh, it was this great time of a classical gold standard. Whereas like, when you actually go back to when it was operating, this guy is like, hey, this thing's levered 20 to 1. It's working really efficiently, but we got to be careful with how we're running this thing. And it's like that kind of nuance is really, you know, it's when you go back to the initial source material, it's really fascinating. And so I would say that whole progression has been very interesting.

Also, I was fortunate to have Joaquin book serve as a research provider and editor of the book. And he is a professional monetary historian. He was got a master's in Oxford from it. And so he fact-checked everything I looked up. And so there'd be occasionally something where I didn't state it the right way or there's a certain historical nuance that he knew that I wasn't familiar with. And I would go and rewrite that paragraph and kind of. So I learned from working with great people. Wow.

That's really cool. Okay. After chapter 20, I tried to look at the introduction, because this is where you give the introduction. to Bitcoin and you kind of lay it out for a person that's maybe never even read about it. And I was just trying to think about it in terms of that person or that reader who's seeing it for the first time. And I just suspect they would be really skeptical as they're reading through it. And I would imagine a lot of it is just they just don't have the technical competence on how it all works to really have any type of faith or trust in that type of

new protocol or system. So like one of the, I'm just trying to think if I, ideas that maybe they would have and they'd look at the way that the node system works and the way that you have it laid out in the book. And I think a beginner would say, well, if I'm a government, why don't I just create 50,000 nodes and then start interjecting those nodes into the network to maybe so discourse or confusion amongst the way that the nodes coordinate with each other? Why wouldn't the government do something like that and sow seeds of chaos in the Bitcoin? Or why doesn't that work from a technology standpoint? Well, they can certainly try. I mean, there's various attacks that are possible. The question is how

powerful they are. You know, if people point out with this whole kind of recent Black Rock Spot ETF question, you know, if a ton of Bitcoin value gets concentrated, and let's say it's also concentrated in the hands of government so they can kind of impose laws on miners and stuff like that, could you have power over a hard fork, for example, or a soft fork? And could you kind of could a sufficiently powerful entity shape Bitcoin to their will? And the way I would just it. When we look at institutions, so one of the things that humans do is we abstract

things. So back in the day, if a person was king, that person is king. There's no abstraction. That person is the ruler. Whereas, for example, in the United States and other places like that, the office of the president is abstracted from the person holding it at the current time. So the president

is a powerful institution, whereas the person holding it is not necessarily so. And we build up part of the reason why the United States have been successful is because we build up these separate institutions, these divisions of powers. And so you have the Supreme Court, you have the Congress, you have the president, you have a semi-separate central bank that came up later. And then at the foundation of the whole thing is you have a constitution that is purposely very, very hard to change and gives you a foundational set of

rules to work with. And the way I would argue it is that none of these institutions are incorruptible, none of them are invincible, but they're robust. It's very slow. to corrupt them. It's very hard to be corrupted, and that's why they've been able to last as long as they have. But it still requires some degree of social maintenance to work with these very robust systems. And I would describe Bitcoin similarly, which is similar to the U.S. Constitution, is this open source, robust, highly incentivized thing that distributes the power as much as possible. And while it may not be, it's certainly not invincible or impervious to any sort of corruption or attack, but it is highly robust and resistant to such attacks as long as there are a

sufficient number of people to do their best to try to maintain it. So it basically serves as an organizational tool that allows people to come together and the burden of effort is always on those trying to change it. And I think that part of the monetization process of Bitcoin is us testing how good it is. Right. So we throw every attack we have at it and see, can it survive this one? Can it survive this one? Can it survive this one? And what if we copy it and change these variables? No, that doesn't work. Okay, what if we copied again? And so it's like this whole series of attacks on it. And so to answer your question, I mean, you could spin up a lot of nodes, but what makes a node valuable is that it's your node. You're playing your part in saying, this is what I

accept as Bitcoin. And this person might control 50,000 fake nodes, but it's really just one person or one entity behind it. And they're not changing when I'm defining as Bitcoin. And so then it becomes how many real human actors and how much real capital is behind the ones that are not changing. And so again, I would just say that Bitcoin is resistant to attacks. It's not invulnerable to attacks. But it gives us one of the most credible set of organizational tools

to build a, what I would argue, is a very good monetary foundation. 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, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists,

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different consensus rules on those 50,000 nodes, I can look at that and say, I'm not connecting to any of those 50,000 nodes because it looks like they're a bad actor or they're trying to do something. And so they're almost immediately excluded from the network because it's very detectable. it's fully auditable. And I think the honest participants in the network are going to just identify it for what it is, just to kind of compound on your point. When we look at where Bitcoin is today in excess of 10 years of history,

and it continues to progress, the adoption continues to go up. But I think people would look at it and say, you know, it's quote unquote better money. But why hasn't it to, if it's so great, why hasn't it really? kind of taken over and they're looking at the timeline of this adoption curve and they're saying, yeah, I just, I don't think there's any way that the dollar is ever going to be overcome or beat by this thing called Bitcoin. It's already had a decade plus and it still hasn't done it yet. When I talk to people and they say like what they think is going to cause that adoption to take place, there's really kind of two schools of thought. And I know the truth is usually somewhere in

the middle of this, but I'm kind of curious to hear your opinions on these two schools of thought. One is all the developing nations around the world, they need better money because they're dealing, you gave the example of like what you're seeing in Egypt. They need some type of reliable, uncensurable money that doesn't get to base at a breakneck pace and they're going to start using it in more and more and then that's going to drive global adoption. The other side of the argument would be global credit markets are so broke. You're having this breakdown in global cooperation and inflation is far outpacing the year. that you're getting in these really large multi-trillion dollar credit markets. And because they're not going to be able to get that under control, they're going to have to turn to something that isn't getting debased because credit markets go to zero in a scenario where a new money emerges

and it's a better form of money, that that's going to be the thing that drives global adoption. When you look at these two arguments, how do you kind of shore it up as to what you think is actually going to potentially drive this new form of money to take hold around the world? So it's a great question. And I'll be the first admit I don't know the future. And so instead, I try to use whatever economic or technical knowledge I have to kind of shape or reason, kind of the general direction of the path I see. The first thing I'd point out is that Bitcoin went from a zero to a trillion dollar market cap faster than any other asset. And so it's already doing quite well. It's gone very far in 14 years. You know, Satoshi wrote 20 years,

is either Bitcoin is going to have a ton of volume or no volume. It's kind of a bullying outcome, whether or not this thing works. And I would say so far, 14 years into his 20 years, we're on the path of a ton of volume. I mean, the amount of value settled per years in the trillions. And so I would say it's on the path of being successful. Now, one of the challenges with Bitcoin adoption is the volatility. When you look at most technological adoptions, whether it's electricity or radio or the internet or smartphones. When people transition to that technology, they rarely ever transition back. You know, most of it don't get electricity and decide they don't want it and they go back

to not have electricity. They don't get a smartphone and then decide, you know what, I want to live in a flip phone world. And so you tend to see very smooth adoption curves with most technologies. And that allows it to be very quick. The problem with an inherently monetary technology, specifically, the unit of account itself is that as it gets adopted, people naturally lever it and naturally re-hypothecate it and play games with it. And human euphoria takes over, just like

the stock market. And so you get these boom-bust cycles. And that discourages a lot of people. So you actually, unlike, you know, people that adopt electricity and never go back, there are people that adopt Bitcoin and then decide, no, it's too volatile, it's dead now. I made a mistake, and they get out of it. And then it takes years to rebuild the next base for the next next larger bull market. So I think that a monetary technology inherently takes longer to, and we never really, it's not really, if we were to go back and look at the initial gold adoption, how long do you think that took, right? It's like monetary network effects just take a long time to build. You know, we're going against an incumbent tens of trillions dollar system with,

you know, a very small starting point. And so I think it's inherently understood to be a multi-decade process with this level of change. I mean, you don't rip out the base layer of money and put in another base layer of money globally in 14 years. It's just, it's not realistic. It's the disruption from that is immense. And the accounting systems, the legal systems, the human conceptions of what money is, all of that takes time and arguably generations, you know, like just newer people kind of grow up with it.

It's more natural to them. And it just kind of slowly puts itself in society over time as long as the incentives make sense, which, you know, Bitcoin's fixed supply and decentralization helps it be robust to that. process. That's my first answer to the question. The second answer to the question is that people often assume that the dollar is a steady state, that the dollar, as it looks now, is roughly going to look at the dollar in 50 years, except, of course, you know, to have gradual inflation along the way, but that it's essentially going to look the same as it does now. One of the problems you see is that if you look at developing countries in particular, Bitcoin is often too volatile than to

accept, even though they have a major debasement problem with their local currency. And so a lot of them jump to stable coins. You know, if you look in Argentina, you're a lot of you'll see someone, okay, says, why, I understand Bitcoin and I hold some of it long term, but if I want to hold money for six months, I don't want to hold in Bitcoin because I can lose value. So I'll hold it in Tether. And from their perspective, it's, you know, a dollar is way better than the Argentine peso. And even though Tether is centralized, the central hub is not in Argentina, which is for them a key thing. And this thing, well, sure, I'm not going to put my life savings in Tether, but it's like a really good six-month option. And they might, that's why a lot of them

will actually hold more value in tether than Bitcoin. So as long as the dollar itself is robust enough to work and is less volatile, a lot of people gravitate still towards the dollar rather than going directly to Bitcoin and becoming like instant Bitcoin, you know, maxis and is just only focusing on Bitcoin. And that's just a reality on the ground in a lot of these countries. Now, I think what can eventually interrupt that system. So one is that Bitcoin is going to keep, I would argue, keep getting larger and more adopted and eventually less volatile.

that's one variable that's happening. It just takes a long time. And the other variable is that the dollar is increasingly becoming less stable. You know, as debt as a percentage of GDP keeps building up, you eventually get to a point where you get some sort of reset. And that sounds like that's like a conspiracy theory. That's like a heterodox way of thinking of it. But when you look at just monetary systems throughout history,

every two or three generations, you tend to have some big depeg or devaluation or reset. It's just how things work, especially when you have such layers of abstraction and centralization. And historically, when you get developed countries with this much debt to GDP, eventually the system just breaks down. It's just that the interest expense becomes too immense. It becomes too exponentially comical.

And people, even something as robust as the dollar, eventually becomes quite inflationary. It's just very hard for it to use it relative to other assets. The amount of new currency creation becomes so significant. And so I would say the combination of over the long arc of time, the eventual breakdown of the dollar and the ascension of Bitcoin through multiple, multiple cycles is what can allow it to gradually compete with something as large as the dollar. And I think the variable that ties into the second one is that when the dollar system was born, so Breton Woods, the United States was like over 40% of global GDP. We had the biggest industrial base. We had the most gold. We had the biggest military.

basically we were just completely dominant. And as the world has recovered from World War II and as it's kind of rebuilt aspects of itself, we see China and India reasserted themselves as major global powers. Like they actually were prior to this past 200 years or so, they were always major economic powers, those regions at least. And they're reasserted themselves as being very dominant. And so we see more decentralization across the world in terms of where is the percentage of GDP, where's the industrial base?

Where's the gold? And it becomes increasingly untenable for the entire world to use the dollar ledger system when the United States is diminishing for 40% of global GDP to 25%. And right now when you look at it, depending on how you measure it, whether perching power parity or nominal, we're somewhere between 15% and 25% of global GDP. And as we keep slipping, it just becomes increasing untenable for that one currency has such a big lock on the world.

So I think we're gradually moving towards decentralization and I think developed market currencies are becoming increasingly unstable compared to how they've averaged of the past 50 years. In your book, you get into a little bit of Gresham's Law and Thur's Law, and you talk about how when you're looking at Gresham's Law in this money that is less desirable, the velocity of it keeps picking up as you approach almost like a terminal velocity and then a flippinging into Thur's Law. when we look at stable coins and we look at how they're immediately saleable and the desire for more, I mean, when we look at the amount of stable coins, they just keep popping up in the size, these assets that are contained inside of these stable coin markets and how large and how substantial they are in such a short amount of time. And we look at that velocity as part of the overall like global equation.

Is this something that you think could help us understand? whether that flippinging over to Thur's law is taking place is by contrasting the stable coin velocity to Bitcoin's lightning network. Is that how we should maybe look at that flipping happening and maybe where we're at in space and time by comparing and contrasting the speed of money between those two markets? Or is there some other way that you could think through understanding that potentially happening, that flippinging part? So I think monitoring both relative market capitalizations and monitoring velocity are both very useful metrics. In some ways, it's apples and oranges because Bitcoin and dollars are not quite used the same way, especially at their current level of adoption.

The larger and liquid, more liquid money is generally going to be the one that's deunitive account. And so until Bitcoin, say, rivals the dollar, it's, you know, we're going to, most people are going to sink in dollars or going to, things are priced in dollars. And so Bitcoin is the thing that's kind of volatile relative to the dollar rather than the way around. We like to say everything priced in Bitcoin. It's not Bitcoin that's volatile. So everything else is volatile. But really, your ability to buy, say, apples or copper, when you hold Bitcoin, those things are more volatile for you, not for the dollar holder. So really, you know, even as a big Bitcoin enthusiast, it's not that the dollar is volatile to Bitcoin.

It genuinely is that Bitcoin's volatile relative to the dollar. That's the larger, more liquid, saleable unit. Now, it's a worse unit. It's controlled. It's centralized. It devalues. But for unit of account purposes, that's still the one that has the power. And I think over time, as I just discussed, that that degrades, whereas Bitcoin

hopefully strengthens and has been strengthening. And when we look at Gresham's law and tiers law, so the originally way to think of Gresham is say a gold and silver ratio. So let's say you peg, you know, the United States pegs it at 15 to 1, but the global exchange rate is 15.5 to 1. and so you'll get this mismatch. And so whatever metal ends up kind of being pegged at like an undervalued rate, that's the one that's going to circulate.

Actually, no, the undervalued one's going to be hoarded and the overvalued one's going to circuit. You're going to spend the weaker money into the economy and you're going to hoard or you're going to move offshore the stronger money that's not being valued appropriately. The second way that I agree this can apply is when you have a tax on the better money. So if every Bitcoin transaction is a taxable event and every dollar transaction is not a taxable event, well, then unless you specifically need the properties of Bitcoin or unless you're so into the space that you're kind of just doing it on purpose, you want to pay with more things in Bitcoin because you want to support Bitcoin. Most people will generally pay in the units that are not taxable, right? And so now if it gets to a point where there's so many Bitcoin holders that are all talking to the politicians and say,

saying, hey, take away these taxes. That's what I want. So you have to chip away at that over time. And so I was saying a combination of existing network effects, existing size and stability, existing understanding and brand of how it works. The dollar is like, you know, like Coca-Cola is not that special, but it has a brand.

Everybody in the world knows what Coca-Cola is. Similarly, everybody knows the brand of the dollar. And that's a combination of the network effects, the liquidity of the brand. These take time. It's a gigantic ship that has to turn slowly. when you add onto that tax authority and things like that, I think either until Bitcoin gets large and stable enough,

or the dollar breaks down, or the United States decides to cut off stable coins, you know, like Argentina can't do anything to tether, but the United States could if they decided they didn't want these digital euro dollars to exist anymore. And so I think there's multiple paths where it can happen, but I think it's inevitably going to be a long one.

Doesn't the Treasury need stable coins? Like, as we go further down this road, five, ten years from now, you need a buyer for all of this stuff. And I find so miraculous as the buyer really kind of emerges as these stable coin entities that are going to be willing to buy short duration debt, not long duration, because there's just too much inflation risk there for them to squat on long duration. But I think that you have this natural relationship that the treasury here, at least in the United States, and I would argue any G7 country, needs stable coins. Do you agree with that idea? And if not, I'm curious to hear why.

We often think of governments as monolithic entities, but in reality, most governments have multiple different factions or people that understand things differently. And as an example, when it comes to Bitcoin mining, there are some government officials that say, hey, for environmental reasons, we want to kick out Bitcoin miners. And there are other ones in the government that say, no, no, we want to encourage all the mining to come here so we can censor the network with our laws, right? And it's just different priorities or different levels of understanding of what they're trying to accomplish. Those two factions do exist.

When it comes to stable coins, you know, on one hand, there's groups to say, we don't like the fact that there's this, you know, unregulated or like not unregulated, but there's like an offshore digital euro dollar that we don't have full control over. On the other hand, there are people to say, well, this is a huge new buyer of treasuries. And also, it helps extend the dollars reach globally. And it's a useful new technology that we shouldn't interfere with. That's kind of the different factions. And when you look at the concept of de-dollarization, it's in the news a lot because of the whole

bricks thing and sanctioning of Russian reserves and all this stuff. There's all these attempts at the sovereign level of various powerful countries to try to distance themselves from the dollar. But what's interesting is that there's two levels here. So there's a sovereign level and then there's the people themselves. So are people themselves in developing countries de-dollarizing? No. You don't see Argentinians deciding, you know what, I want to hold Chinese Juan now.

You don't see Egyptians saying, you know, I want to hold physical Chinese wand in my apartment as my monetary savings. You don't see that. It's not an accident that over 99% of stable coins are dollars. That's just where the demand is. You know, when you have kind of the ability to make dollars, you don't know, when you have kind of the ability to make dollars globally, people want them. You could have stable coins with other currencies and around the margins they exist, but there's no demand or liquidity or saleability for them.

Yeah, I think basically like, I think the smarter faction in the United States would basically say, okay, support stable coins, they're a major buyer of our treasuries. Even as sovereign nations try to de-dollarize, this is a way for us to keep the dollars among all those foreign people at the people level. And it keeps the dollars reach going for a longer period of time. So, yeah, I think it depends on how many orders of thought they think through this and how well they understand the technology and the dynamics involved. In one section of your book, you get into what a Bitcoinized world would look like and how it's different than what we're accustomed to today. One of the things you mentioned is no unit abstraction, no financial middleman, better global connections without the friction in between the currency exchange.

But the one I want to hear that you cover in depth here is the idea of credit and how what we view as credit and being so abundant in our society today really kind of whittles itself down to just the pittance of the overall broader economy. People who are not bitcoiners that would maybe hear that would be like, what in the world are you talking about? The credit will always be around. So help explain to them why you have this opinion, Lynn. And I would agree that credit's always going to be around in some degree. It's just a matter of how much formal credit exists relative to say the monetary base, for example, or how much do businesses or individuals finance themselves with equity versus credit? And how long duration is that credit?

Those are things that are impacted by the type of money. And generally what we see when we look in history is monetary hardness and debt is almost like a bell curve, where if money is very strong, like let's say a gold standard or Bitcoin, credit exists. but it tends to be used judiciously because if you're a borrower, how much long-duration debt do you want to borrow in a hard unit of money that appreciates relative to most things? You want to be obviously pretty careful with that. So there's less borrower demand for a very robust, solid money.

When you look at the other side of the spectrum, if you have a very weak money, let's say Argentina, for example, nobody wants to lend in that unit of account because it's very hard for them to determine what value they're going to get back in five, 10 years. Right. So there might be people want, like if someone wants to give me a loan in Argentine pesos, I'll take it,

but no one's going to give me that loan. Whereas ironically, the middle of the bell curve, we have a gradually devaluing unit of account, like a developed market fee of currency. That tends to accumulate the most debt because it works for borrowers and it works for lenders reasonably well. And it's stable enough that it kind of builds up

this more and more and more debt to GDP, but then ironically, that becomes the source of instability. So it's owned to the bill. is in what part, you know, it kind of fine-tuned, that's like the fine-tune point for debt maximization, which inherently is its own undoing. And so what I would argue is that in a, in a world with an even scarcer unit of account than gold, so Bitcoin in this case, the incentive to borrow large amounts of it for long duration is very limited. You know,

there's still going to be various types of credit. You know, anytime someone owes someone else money to say, hey, I need some money, can you kind of lend some? It's an emergent, phenomenon credit. It just happens. And there's still high rate of return impacts where you might want to borrow Bitcoin. But the idea of just having constant debt on your balance sheet would make less sense. So we can kind of separate money, debt into two types. So there's very like highly productive debt, right? Let's say you want to expand your business. So you don't want to give up equity. So you borrow a one year loan. It's like pretty small relative to your total business value. Someone might make that loan rather than equity because they'd rather have a,

defined and lower risk outcome that's higher in the capital stack. Maybe you want to get education so you're willing to take on some debt to get like a, STEM degree, for example, whatever the case may be, because you know it's going to increase your earning potential. There's various ways where credit can make sense. Now, the less productive types of credit or debt are ones that are just kind of permanent parts and what you're primarily doing is shorting it. So for example, Coca-Cola has debt.

Now, this is like a century-old corporation. Why do they have debt? And the reason is because they choose to have debt as a permanent part of their capital structure because that debt devalues. They're basically, they're using their economic strength, their high credit rating to borrow plenty of dollars at low interest rates for long duration to basically short it. And that doesn't make sense in gold or Bitcoin. Whether it's governments running these massive gigantic debt-to-GDP ratios, whether it's people

with 30-year mortgages, whether it's corporations with debt as a permanent part of their capital structure, that's the type of debt that makes a lot less sense when the unit of account is very hard. And I'm not the first to make this argument that basically in a Bitcoin world, you would have much less debt relative to equity because the types of debt where you're practically only sorting the currency, go away. And it just becomes highly, highly accretive types of debt. And then also, when you think of fractional reserve banking, one of the reasons that fractional or banking works moderately well in the current era, you know, we have all these booms and busts and things like that. But the reason it works well enough is because if your

interest rate, you're earning on your deposits is lower than the monetary growth rate, the growth of money supply, that ends up being relatively safe. I mean, you're getting devalued. You're getting all sorts of problems. But the fact that a central entity can just create more of it means you're unlikely to lose nominally in the fall. So people kind of put up with this because it works well enough. Whereas in a world, where it's inherently unsafe to have a deposit rate that is higher than the supply growth rate of money, right? It's just inherently the case. You're either taking on serious credit risk by having that interest rate or you're taking on serious liquidity risk, one or the two,

maybe both, by having that rate of return. So in a unit where the supply rate of growth of money is zero, any interest is inherently taking on risk. It doesn't mean people won't do it. It's investing. It's investing. It's speculating. It's putting capital to work, but it's not a passive risk-free activity in a way that we think of banks today. How about taxes in a Bitcoin world? One of the, and I talk about this in the book, one of the kind of downsides of the whole fee of currency system is that when the government doesn't feel like taxes are going to be popular enough to do and to fund what they want to spend, they just print the difference. So they say, well, we can't We can't finance this as transparent as you want to.

So we're going to finance it opaquely. An example I use is that during World War I, the UK wanted to get involved, even though they weren't being attacked. This conflict's going on in, you know, in Europe. And they say, well, we want to get involved for geopolitical reasons. We don't want Germany to win. And so we're going to get involved. And so they try to, they know that taxing everyone, they're not going to tax a UK steel worker

and say, yeah, we got to go fight the Germans. in Europe. So we have to raise your taxes. That's going to be very popular. You're going to get a revolution if you tax too much. Maybe you can do a little bit, but if you try to tax a ton, you're going to, it's not going to be workable. The other option is you've raised debt. You say, well, okay, we'll pay you interest, buy these bonds and we'll use it to go do war. And those in UK's case, not enough people subscribe to those bonds.

They were like, no, I don't think that's a good investment. And so instead, the UK just printed the difference. And what they did was they devalued everyone's savings without telling them advance, without them being able to even know or measure what's happening. And it just got taken from them. And so in a Bitcoin world, if more people hold their own hard money that a government can't print, then basically all of government expenditure has to be financed by either taxation or small amounts of debt, you know, to kind of smooth things out here and there.

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All right. Back to the show. I'm going to read a quote that you put here in the book. And this all relates to tradeoffs. As any cryptocurrency blockchain is created, there's tradeoffs that are constantly being accounted for and what they're creating. And this is the quote that you wrote. Proponents of newer cryptocurrencies often criticize Bitcoin for being old technology, when in reality it's just strict about the tradeoffs that it was designed with and was built to maximize a security and decentralization over all other attributes. Why are those two attributes security and decentralization?

I think the decentralization part we've covered pretty extensively, but more on the security side, maybe talk to that and any other comments or thoughts that you have about this idea that a newcomer that's coming to this is going to look at this and say, yeah, Bitcoin's like really old. There's Solana. There's all these other things that have come out. the last couple years, how in the world are they not better is really kind of the argument that I think a newbie that would be showing up to this discussion and looking at it would be saying because technology is always better now than it was 10 years ago or, you know, you go back

historically in time. How are the new ones not better? Yeah, and I think we put ourselves in their shoes, it's very rational for them to assume that's the case. So you said most technologies are better over time, and therefore, they're like, well, Bitcoin was the concept, but it's, you know, that's clearly not going to be the end. That's the thing. They'll say, okay, what's the newer one? What's the better one? You know, it's been 14 years. Of course, there's better technology. One point of contrast is that when we look at protocols, they tend to stick around for a very long period of time. When you make things purpose, simple, and robust, the design space is very limited. And the technological growth and upgrades tend to happen in layers on and around that

very simple foundation. So, for example, Ethernet is like 50 years old, right? And it's nowhere near being out of date. You know, the upgrade the speeds over time in backward compatible ways. And it's this evolving protocol that ultimately is very slow to change. And we think, why are we still using Ethernet, a 50-year-old technology. Because it's literally still the best we have is why, and it has that dominant network effect. Even if you make something marginally better, well, you're competing with the fact that every computer has an Ethernet port and not this other protocol. And then, too, any changes you might make, future Ethernet versions could maybe incorporate. And so they just get absorbed into that dominant protocol. The same is true

for TCPIP, the same is true for USB. These protocols tend to be very long-lasting technologies. And ultimately, when we look at Bitcoin and block size wars and crypto and stuff like that, a lot of it comes down to trying to figure out what problem we are trying to solve. And so some of the initial assumptions were I want to make transactions easier. So I want to be used base layer money to buy coffee, for example. But it turns out for a lot of people, that's not the problem that they have. I mean, in the United States, I don't have a problem buying coffee. My Visa card works well enough.

My cash works well enough. I don't go out every day and think, like, man, my money's so bad at transactions. Now, in certain countries, that might be the case, but even then, it's often not. What a lot of us have instead is I want to build a store liquid value and move it around globally, have nobody able to stop me, or at least it's very hard to stop me, and that I know that the rules, I'm not going to get rug pulled the next 20 years, right? That I'm not going to just, I don't have to watch it too closely because it's not just going to get change. There's no central entity that you can just double the number of units or

censor me or something. In that sense, the probably trying to solve is an immutable foundation of money. You know, basically a decentralized central bank, a decentralized ledger that is robust and backed by energy and distributed so that it's very hard to corrupt. You know, to the extent that it'd be corrupted, it'd be a very long and slow process and the burden of proofs always on the corruptor. But the whole block size wars, I think people erred in the wrong direction for trying to, you know, sacrifice that descent. to make it faster, but you're solving the wrong problem. And when it comes to crypto, a lot of it is about trying to make them more expressive and complicated.

But again, that often, that generally comes to the cost of decentralization and security. So when we think of decentralization and security, we want something that, one, the code base is as simple as possible to minimize bugs and hacks and problems and incentive breakdowns. And then two, we wanted to be sufficiently decentralized so that any entity that wants to either change the rules of the network or to sense of the network, has a massive uphill battle, even if you think out 10, 20, 50, 100 years. Because you can't transmit value into the future and it still be worth the same amount because the units are just constantly getting to base. So like, you know, if it's $100 worth of buying power today or one Bitcoin's worth of buying power today, you want to be able to transmute that 20 years into the future and it still can go out

and buy me the same amount of buying power as what I've got right now. And yeah, let me read something else here. This is a little long, but I think this is such a great quote and from such an important figure in this movement, Adam Back, you put this in your book, Lynn. He said this. There's something unusual about Bitcoin. So in 2013, I spent about four months of my spare time trying to find any way to appreciably improve Bitcoin, you know, across scalability, decentralization, privacy,

fungibility, making it easier for people to mine on small devices, a bunch of metrics that I considered to be metrics of improvement. And so I looked at a lot of different changing parameters, changing designs, changing networks, changing cryptography. And, you know, I came up with lots of different ideas, some of which have been proposed by other people since. But basically, to my surprise, it seemed that almost anything you did that arguably improved it in one way, made it worse in multiple other ways. It made it more complicated, used more bandwidth, made some other aspect of the system objectively worse. And so I came to think about it that Bitcoin kind of exists in a narrow pocket of design space. You know, the design space of all possible designs is an

enormous search space, right? And counterintuitively, it seems you can't significantly improve it, and bear in mind, I come with a background where I have a PhD in distributed systems and spent most of my career working on large-scale internet systems for startups and big companies and security protocols and that sort of thing. So I feel like I have a reasonable chance, if anybody does, of incrementally improving something of this nature. And basically, I gave it a shot and concluded, wow, there's literally basically nothing. Literally everything you do makes it worse, which was not what I was expecting to find out. I find that, and for people that don't know who Adam Back is. I mean, he's literally referenced in the in the Satoshi white paper. And for him to say that he

spent this time really contemplating on all the tradeoffs and trying to improve it and saying there was nothing I could do to really objectively improve this, I think it's just a really important highlight that you put in in the book. And I don't know if you have anything else that you want to add, but I just think it's important to kind of read that out for people. All that two things. One is that like I said about protocols, it's very if you analyze Ethernet and think, how can make this better. The design space compared to what Ethernet already does is very tight. So basically the answer is that as Moore's Law gives us better speed, we can speed it up gradually over time, and that's about it, right? I mean, there's little marginal things you can do.

Same thing for TCPIP. When you have something that's simple and at the foundation, you want that to be simple and robust, and you want complexity to be on the edges. That's generally a good design principle. And that's historically the way that the Bitcoin ecosystem has developed. And I think that's what he touches on there. And then two, I would point to the, I made the analogy on Austria yesterday about Bitcoin and the U.S. Constitution. I'm not the first one that's made this, which is to say, is the U.S. Constitution a perfect document? No.

In fact, and we might disagree what we think a perfect U.S. Constitution looks like. You know, I could probably write down 10, like a new bill of rights that are like added to the constitution. I want additional rights for citizens that I wish in my perfect world would be in the constitution. Let's say, I want the next amendment to say, you have the right to use whatever money that you deem appropriate, right? The citizens have this right. And I can picture nine other additional rights that I want included in the document. But at the end of the day, what makes the Constitution valuable is that it's very, very, very, very hard to change. You need a supermajority

in Congress and a super majority among the stage to change it. And so a document that is good and nearly immutable is better than a document that's great, but that five years from that, Now we have no clue what's going to look like because it's easy to change, right? And so that I would argue that Bitcoin is in this design space, similar to Ethernet or similar to TCPIP, where it solves a certain problem in as simple as a way as possible. And then much like the U.S. Constitution is what it tries to maximize is difficulty of change. So it's not impossible to change because that would also be a design flaw, but it's very, very, very, very hard to change.

One of the tradeoffs that you talk about in the book is privacy. And I know from participating in this community for a long time, privacy is something that a lot of people are really passionate about. They look at projects like Monaro and they're saying this is a better form of money because it's more private than Bitcoin. But I think you do a really good job talking about that tradeoff and why Bitcoin is a better solution for people and where you can maybe push the privacy into a second layer. So can you explain some of that for folks? So when you look at cryptocurrencies, a lot of them are just outright scams, but there are a handful of areas where intelligent people truly propose things, say, hey, what if you make a more private currency or what if you make a more expressive currency? And these are, you know, I think if we were to rerun this multiple times, it's natural that people are going to test all these different answers to see what works and what doesn't. There's no world where only Bitcoin exists.

No one tries any other crypto networks. And, you know, it's Bitcoin wins, right? There's always going to be these tests and these market challenges and these iterations to see what works. in practice rather than just theory crafting. And one of the downsides of Bitcoin is that it's not super private. You know, it's private enough that no one formally knows who Satoshi is. You know, if you use it very skillfully, it's private, but it's hard to use it privately. And so there's these privacy coins that makes it easier to use the coins privately.

And the downside is that they sacrifice some degree of auditability. So it's easier for undetected inflation bugs and things like that to occur. There's a little bit more layers of trust in the code and the inclusion. encryption and the proofs compared to Bitcoin that is more inherently audible. And so if you're trying to build a foundation of money, you know, if you're trying to, if you want a network that's worth $10 trillion or more, that robustness, that audibility, that decentralization is arguably a more important component than privacy or curing completeness or whatever the case may be. And so to the extent that you can build those things on layers on top of it, I think it makes a much

better engineering model than trying to incorporate those things right into the base layer, where you sacrifice some degree of decentralization or robustness or audibility in order to achieve something that, sure, might be useful. Privacy and turning completeness can be useful things. But if we're kind of getting down to the very base layer, you know, down to Ethernet, down to TCPIP, down to the Constitution, we want something that's easy for us to all agree on. And then when we build these little silos or complexities on top of it, we can kind of pick her own paths that all tie into this very simple and audible and robust base layer. And so the problem with

Monero is that it generally degrades in value versus Bitcoin. It's hard for it to establish the same level of trust and adoption. And so you might get more privacy, but you don't want to hold your value there long term. And then when you get in and out of Monero, that's where the privacy breaks down because there's not a lot of liquidity there. Privacy is limited by liquidity, especially the entry and exit points. And so you're still somewhat stuck. Whereas I think there's a lot of good tools on the horizon that can make Bitcoin more private. We already have coin joins that are significant. Lightning Network is relatively private for the sender,

and over time gets generally more private. There's more proposals to further fix some of its privacy issues. We have fetidiments. We use a 40-year-old Charleman Mint technology that works quite well to make it hard to, you know, it's near complete privacy as long as you have sufficient liquidity. And so in general, I think that while privacy is a very important tool, I think so far the market and just engineering design observations have shown that it's not the best for the base layer. You get into a thorough discussion between proof of work and proof of stake protocols and the advantages,

the disadvantages. I mean, you just do a really fair job kind of laying them out. But with that in mind, Lynn, I just want to emphasize your discussion point. around with proof of work that you lay out in the book, how there's this, you can leave the network, you can come back and you can get basically back up to date, but in proof of stake, that's not necessarily the case. I think this is really important when you have a newcomer that comes to the space, and they come with this pretty common question or concern when they come into Bitcoin. They say, I see Target and I see these large companies that you would think would have really superior cybersecurity in place, and they all, every one of them always get hacked. And the

information is compromised. How in the world do I, do I know that something like that will not happen with Bitcoin? And how can I place trust that this thing could literally be the global settlement layer for the whole planet when the targets of the world are getting hacked all the time. Yeah, so that goes back down to keeping it as simple and auditable as possible. And then the other available is why that proof of work, that energy component is so important because you're tethering it to real world resources. And I use the comparison between volatile and non-volatile memory. So with volatile memory, it's faster, but if you lose power and turn it back on,

you've lost all your data. Whereas non-volatile memory, it has limitations, but if you deep, power it and turn it back on, the data is still there. And so with proof of state, the complication is that there's no immutable. The network itself does not prove that it's the original. You know, Satoshi originally pointed out the reason he picked proof of work is because you don't have to trust who sent the information to you. The information itself is self-identifiable, at least once you've gotten past the bootstrapping phase. So the proof of work speaks for itself. You don't have to trust whoever sent it to you. The problem of proof of state is that there is no

inherently, there's no foundation that speaks for itself. So the person or entity that sent that information to you is an important variable to consider. There's no immutable history there. And so if you're a node that leaves and joins the network and a proof of work system, you can pick up where you left off, whereas as long as there's been no hard fork. So anytime there's an inception or hard fork is a little bit of a bootstrapping phase, but other than those, it's self-evident. Whereas in a proof of stake system, if you're a node that leaves and comes back, there's no immutable proof of what happened while you were gone. All you can do is look around to the current validators that are saying this was the objective history.

And you have to trust them. There's no proof that that's actually what happened. That's just proof of what the majority is saying now. Because they can go back and they can create alternative histories nearly costlessly for what transactions were signed and where. Another way of putting it is that the coin holders determine the state of the ledger and the state of ledger determines who the coin holders are. So you have this circular logic system. And the problem of the circular logic system is that if there's a critical issue, a governance problem or imagine something crazy, imagine a solar flare shuts off most of the global internet for a period of time. And it takes us a week to get back online.

The problem with proof of stake system is that the network shuts down, Solana shut down, finance chain shut down. If these systems shut down, either because of an internal bug or because of loss of internet and power, when they restart, there's no no node that's always been online. There's no objective and mutable history of this network, whereas it literally, if you somehow shut down the Bitcoin network, like with a bug or the entire internet just goes off for a week and comes back on, we can reconstruct what the objective history of the network was because all that proof of work is still distributed among the nodes. So as the nodes come back online and start trying to communicate with each other, there is an objective source of truth they can find for what is the longest chain that meets the rules

of the network. Yeah, I would generally argue that proof of work is a more robust system. It's less corruptible. And it's something that, you know, I think is very important, you know, despite any costs or benefits it might have in terms of its energy usage, it's totally worth it because what you're trying to replicate here is a system that relies on something, you know, it's not circular logic. At the end of the day, transaction ordering is not based on the amount of coins you hold, which is determined by the ledger. Transaction ordering is determined by your ability to put external energy into the system. Wow. So well put. Let's talk about, you have another section in the book where you're talking about how proof of stake is inherently a centralizing force with enough time.

Talk to us why that's the case. If you look at Bitcoin miners, even though mining pools can get pretty big, individual miners generally don't. And of course, miners can always redirect their hash rates for another pool, should a pool be giving a problem. So what we really care about is minor centralization. And mining is inherently a, and this is true for physical mining, like if you're a copper miner or a gold miner, there's never really like a copper monopoly or a gold monopoly because you're expending almost as much of resources to get the commodity as you're earning revenue from the commodity. You don't really control your expenses.

You don't really control what your commodity sells for. And so other than trying to make sure you execute well and, you know, make good kind of countercyclical decisions, it's very hard to run a commodity miner. And the same is generally true for Bitcoin mining. It's inherently distributive. Coins tend to distribute over time. And the initial proof of work, the whole point is it's a bootstrapping mechanism. Whereas if you start a proof of stake system and you say, well, okay, the existing coin holders

get to determine, you know, what new transactions get added in. The question is, who are the initials coin holders, right? So then basically you have to kind of do some sort of like ICO. Basically, you're making your project into a security, a capital race. So you're starting out with that. And then two, you know, validators, they earn revenue over time by validating, but they're not really expending almost any resources. So as you have more money, you now exponentially grow your money.

And there's no cost to maintain this. Over time, that's a system that's likely going to centralize the validating power, whereas Bitcoin tends to inherently stay more distributed. Now, we still have to monitor kind of incentives of the network to make sure there's nothing that changes about Bitcoin that might make miners more centralized. That's kind of at the heart of some of these discussions around possible soft forks and stuff like that. But basically, as the systems are laid out fundamentally,

proof of work is inherently a more distributive type of system, whereas proof of stake inherently tends to exponentially accumulate coins in basically a more and more powerful set of validator hands. All right. This is my last one because, Lynn, we could go for hours here. I'm trying to wrap it. There's so much content to cover here, but this one here is, I'm curious your opinion. So when we look at the rise of stable coins, and we're not even getting into the CBDC stuff,

but just stable coins like Tether and all these others. And the fact that they're all being stood up on top of Ethereum and Ethereum like protocols that are proof of stake protocols, which are what we just talked about as far as centralizing forces and how the people with the most amount of coins on these networks are the ones that are validating in it. It's this self-reinforcing or circular loop type system. When we look at that and we look at the sheer velocity of fiat that seems to be accelerating and the use, is Ethereum and these other protocols that are proof of stake a necessity for this legacy system to meet Bitcoin where it's at as the proof of work, energy-backed,

system that it is and that the world is, and this is just through proof of the adoption curve, more and more demanded of the global population, is something like that needed because government bureaucrats aren't able to keep up with the speed of technology that's happening with the legacy financial system. You understand where I'm going with that? I don't know that I phrased the question all that well. I'll try to see if I answer the question, if I go in a different direction. Yeah, let me know. So I think. Again, stable coins serve a demand. There's a demand for stable coins, and therefore supply is made to meet that demand.

It's a market demand that exists. We talk to people in Argentina, they say, here's why I want stable coins, and there are people that are happy to issue those stable coins to them. Now, in general, because the stable coin is centralized, you know, so we're talking about traditional fiat collateralized stable coins, the issuer is centralized. The issuer can freeze certain addresses, for example. they tend to not care too much whether the blockchain

that those stable coins are issued on is centralized because the stable coin itself is centralized. So stable coins started out on Bitcoin. You know, a turn-complete blockchain, like Ethereum, was naturally a little bit easier to do them on.

And so they gravitated over there. When Ethereum got kind of expensive in terms of transaction fees, they would gravitate towards an even more centralized system like Tron where the purpose is just, you know, keep minimizing fees. And people are sitting around these stable coins and you have multiple layers of centralization that you have to worry about, which is why

no one should put money in a stable coin and expect that it's going to be fined for 10 years. That's too risky an assumption. There's too many points of centralized attacks and rugpoles compared to Bitcoin that's much more likely to be robust 10 years from now than any of these other systems. But it's serving kind of that intermediate demand. And if you're a government or an enterprise, a banking enterprise of some sort, one option is they can develop their own in-house systems. So like, you know, kind of close central bank digital currency type of things.

And another option is they can look at these, you know, kind of open networks that they have all these centralization problems, but there's a workable enough medium there that they can issue their money on top of it. Like we just saw, for example, PayPal is interested in using Ethereum to launch stable coins, right? It's just this is a substrate that they're finding useful this period of time. Yeah, I wouldn't be surprised if that becomes a tool that governments and banks use or these different types of tools.

and it's hard to say where it ends up because it's like, do they want a theorem? Do they want Solana? Do they want Tron? It'll vary. We'll see where it goes. But in general, I think that as long as the dollar network is as big and robust as it is, it's going to enter all these different technological areas.

Whatever technology is available, dollars are going to leak into that technology. That's just how it's going to go. These are just new ways to deliver dollars. And so it should be expected that that's going to be a thing. ultimately, I would say that Bitcoin is competing against fiat currencies and ultimately the dollar, and that all these other technological layers are just extensions, really, of those fiat currencies, especially when it comes to stable coins. And so I think Bitcoin, long term, is the most robust thing, but it does have that volatility.

People have to build, absorb the volatility to be able to hold it. And, you know, you have a bank account in dollars. I have a bank account in dollars. There are people in Argentina that can't have a bank account in dollars. And so their bank account in dollars can be tether, right? And there's pros and cons with that. It's kind of like how our dollar accounts have risk. Their tether exposure has risk.

And that's the tradeoff that they're making. I think it's important to educate people on the risks, the very centralization risks that exist in these other networks and that exist in stable coins. And I also think, like I said before, eventually the dollar itself becomes unstable. That's a long-term outcome. It's something that's a process rather than an event, but it's something that I also think is a long-term option to consider that, sure, right now, from many economic perspectives in various countries,

the dollars attractive to them, at least as an intermediate term instrument, you know, like the Egyptian doctor might say, well, maybe it makes sense the whole stable coins instead of physical banknotes in my apartment, like subject of theft and stuff, right? So there's various, you know, and maybe they don't. I like the fact that I directly hold the bare assets that only the Fed can devalue, right? So there's various tradeoffs for how they might want to hold some of their liquid money. But as long as the dollars the unit of account for the world, it's natural that it's going to leak into various technology protocols to extend its reach.

And it really de-risks the government by having these entities stand up and do this because it really kind of, they can put their hands in the air and they're like, well, this wasn't our fault. we're not controlling those rails. These are independent companies that like tether that are buying treasuries or buying dollars and they're custodying them and then they're doing all these swoopy things with technology on whatever protocol in order to put it out there. That's not on us. That's on anybody who was trusting them. And I think they can just kind of wave their hands and wash their hands of any type of responsibility as the demand for dollars and immediate settlement of dollars continues to pick up because of the velocity of dollars continues to pick up around the world. Yeah, and it's hard to say what the U.S. government will eventually want to do.

I mean, it's possible that they eventually want to go after the stable coins. But like we discussed before, it seems to be in their best interest if they're intelligent to let those stable coins proliferate because they basically, that's a way of increasing demand for treasuries. Because if you're an Argentinian that holds tether, in some ways what you're holding is treasuries. Yeah. You're basically making treasuries more fungible as a savings instrument. or more liquid, more spendable, you're kind of turning treasuries into a medium of exchange in a way. And because money is often an emergent phenomenon, you know, this demand for dollars

emerges. Now, the demand for gold exists for long-term savings. The demand for Bitcoin exists for long-term savings, and they have to deal with the fluctuations of these assets. But in the intermediate term, there's a demand for dollars in many countries. And it's just one of the ways that that demand is met. And it's from the government perspective, they monetize treasuries. Now, people argue that stable coins slow down Bitcoin adoption, and that's probably true. But I would argue that the existence of the dollar, ultimately, is what challenges Bitcoin adoption.

That as long as the dollar is a larger network effect and less volatile, that's the 800-pound gorilla in the room. It doesn't matter if stable coins are just an extension of the dollar. The dollar is going to use whatever technology is available to it to extend itself. stable coins are just one arm of the final boss. You're thinking about Bitcoin adoption, and ultimately that is the dollar. Is that the only value that you find

and a lot of these other, quote unquote, proof of stake blockchains is basically stable coins? I think that's been the killer app. I mean, ever since I began covering the space, I kept saying it's Bitcoin and stable coins. What is blockchain good for money?

And that's, you know, just kind of seeing how it plays out. Now, I always try to steal man. I think of like, what else could this technology be used for? You know, we see with Noster that you don't need a blockchain to make something that's reasonably decentralized. Generally, when you need a blockchain is two things. You want it to be decentralized, but also you want to build to monitor the entire ledger. Right.

You want it to be a bounded system. So with Bitcoin, we care about that because we want to be to monitor the entire supply. Whereas with something like Nostr, we don't care the fact that we can't necessarily say how many messages exist in Noster. We care about the part of the network that we want to see. Right? So we want decentralization, but we don't want audibility of the entire network. And that's why we don't need a blockchain for Nostr. Now, Bitcoin makes Noster better by being the money of Noster and help trying to finance some of these relays and keep the system operating.

But it's not like Nostra has to run on a blockchain. So I think that the technology of blockchain is over-applied because you need a lot of trade-offs to run a blockchain. and most things don't need a blockchain, and therefore a blockchain just adds expense to whatever you're trying to do other than money. I try to think of things like crypto gaming or digital collectibles, and I generally, my steelman argument is that these things

are basically just tech layers. They're competing for a market that I'm just not as interested in as the market for money. Because as I talk about in broken money, one of the biggest problems in the world is that vast swaths of people around the world don't have good money. Right. So those of us in the United States and Europe, we have like, you know, it's decent money. It's not good money, but it's like decent. It causes all sorts of problems under the surface that are subtle. When you go out to the developing world, those problems are more obvious. Right. So one of the biggest problems that humanity faces, like the $100 trillion problem is lack of good money. Right. So that's the market that I care about. And so I don't, I kind of just don't even care about most crypto unless they're trying to say that they're better money. Then I'll examine that claim and say, well,

well, here's why I don't think that's the case. Right. So other than if they're trying to compete for like base layer money, arguing that they're more robust or something, I'll explore them as like little technology projects. But ultimately, I think that the, when we think about this whole space, we're thinking about what technologies are robust and powerful enough to try to fix this problem we found ourselves in. We have a world with 160 different fee of currencies. Like, clearly this is a local maximum.

It's not the best of all possible worlds of money. this system we've had in place for the past 50 years. There's clearly a lot of improvements to make. And I would argue that out of all the technologies that exist, Bitcoin is the most powerful tool we have to keep building on and proliferating and adopting in order to try to solve this problem of bad money around the world. I cannot tell the audience enough. You guys got to read this book.

Lynn, where can they pick this thing up? I'm assuming it's on Amazon, anywhere else that you want to point people towards. So broken money is on Amazon and over time it'll appear in other stores as well. It's a process of distribution, but yeah, check it out. Awesome. And we'll have links to Lynn has an amazing newsletter that I personally subscribe to. I'll have links to that. We'll have links to the book.

Lynn, thank you so much for making time and coming on the show. This was just an incredible discussion and just really appreciate everything you're doing for the Bitcoin space, for the finance. space and wow, what a book. Thank you for having me and I appreciate that. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires.

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