We Study Billionaires - The Investor’s Podcast Network - TIP259: What Bitcoin Solves - w/ Dr. Saifedean Ammous

Starting point is 00:00:00 You're listening to TIP. On today's show, we have Dr. Safedina Moose, who's a leading expert in the economics of Bitcoin. Dr. Amuse's book, The Bitcoin Standard, has been on the Amazon bestseller list since its launch in 2018. During today's show, we talk about why Bitcoin is changing the rules for hard money, why this transition is especially important in today's economy, and how current monetary policy has warped the time preference of market participants. If you're a Bitcoin skeptic or somebody who simply wants to learn more about the technology, This is a fantastic episode to glean some insights and perspectives that might challenge some of those thoughts.

Starting point is 00:00:35 So it brings us great pleasure to bring you our discussion with Dr. Safedine Amuse. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Hey, everyone. Welcome to The Investors podcast. I'm your host, Preston Pish. And as always, I'm accompanied by my co-host, Stig Broderson. And man, am I excited right now because we have Safedine Amuse here with us.

Starting point is 00:01:17 The author of the Bitcoin Standard, Safedin, welcome to the show. Thank you so much for having me. That's a pleasure to be on. I read your book. I loved your book. I've read quite a few crypto books. And my expectation before I started reading your book was that I was going to probably get a lot of similar content, kind of the same general.

Starting point is 00:01:38 idea that I've captured from many other, I shouldn't say crypto, I should say Bitcoin books. And I was blown away, to be quite honest with you. I was, I was reading things in your book that really made me take a moment and just kind of pause, because I was listening to the audio book, I was pausing the audio book and I was just thinking. And that doesn't happen too often because I go through so many different books, especially about finance. And your book really had me thinking. And I am so excited to capture some of these ideas with our audience today. So, welcome to the show. And let me go ahead and kick this off with the first question I got for you. For people not familiar with Bitcoin, which is a majority of the population, they think that this is some kind of big

Starting point is 00:02:22 online, fake money, Ponzi scheme that all these crazy people are trading this fake digital money that's not backed by any kind of government. So what are these people missing from your point of you? I think the key thing that I would say they're missing is that this is a free market. This is a product of a free market that has emerged over 10 years now. And it has grown as a neutral internet protocol rather than as a private company or someone's private undertaking. And I think this is what is truly unique from it. It's about it. It's an international global protocol that allows for the transfer of value through telecommunication infrastructure essentially without having to rely on trusted third parties. Effectively, it's it brings the form of, it's a technology for introducing

Starting point is 00:03:17 cash into the digital realm. And so it allows us to do digitally what you and I could do only with a physical bill, which is once I pay you the physical bill, once I hand over a piece of cash or a gold coin to you, you know, that payment is finished. it's settled. You know, you take the coin and then you can spend it. And, you know, that's it. The fact that you have the coin itself is the value itself and it's not in its value dependent on anybody else. It's not like a checkbook. It's not like a credit card. It's not a liability for anybody else. It's money that is a bearer instrument that carries value on its own. And Bitcoin essentially managed to do that in a digital sense. And of course, that's obviously counterintuitive because, you know, when you

Starting point is 00:03:59 think of cash, you think of cash as being physical. But there's something deeply counterintuitive. or intuitive almost about Bitcoin making digital cash. However, once you think about the implication of that, maybe the real killer app and the comparative advantage for those for this technology is to serve as the final settlement layer for financial transactions. If you think of it, it's an extremely powerful technology in that I can send a digital payment across national borders with final settlement within, say, an hour or two. That's it. You know, the payment is finalized. You send a half a million dollars from here to China and it's finalized within a day within a couple of hours. And that's it. You know, there's no way to reverse it. At least let's say,

Starting point is 00:04:44 you know, the level of finality that you get after a couple of hours is larger than level of finality you would get from a financial institution transaction over several months because, you know, there will always be clearance and settlement transactions to be done. So, things can get reversed, but Bitcoin allows you a pretty high degree of finality within a couple of hours. And then that just, that finality continues to get more and more certain with every passing 10 minute block. The power of being able to send that money across national borders, because it's such a powerful tool, I think it might end up serving as a essentially as a settlement layer for financial transactions. Bitcoin itself doesn't need to grow to handle all the world's

Starting point is 00:05:26 financial transactions, it can handle the settlement and clearance transactions at the base layer. In other words, it's not going to replace Visa or MasterCard or Western Union. It's going to rather replace the settlement systems amongst large financial institutions and central banks. And if you think of it this way, it's a neutral protocol that allows us to do with code, simply with code and technologies of cryptography and several other technologies that have emerged over the last couple of decades. It allows us using. code only to perform the functions that have required over the past couple of centuries, a very sophisticated, complicated, and fragile set of political and financial institutions to run.

Starting point is 00:06:09 But all of that can effectively be eaten by code. This might be really the final frontier of the internet. It's replaced everything in your home, you know, from your local grocery store to your local bookshop to pretty much everything. but now it's knocking at the door of the central bank. We can just have a piece of open source software that would allow us to perform the final settlement layer of transactions, which is traditionally the role preserved for central banks.

Starting point is 00:06:36 And that's why, you know, the subtitle of my book is Bitcoin is the decentralized alternative to central banking. Until the year 2008, if you wanted to send money from one country to the other, the only technology available for you, the only channel available for you, the only legal channel available for you, The only legal channel available for you was the use of central banks or, you know, the institutions that are regulated and that ones that settle their transactions through central banks. And now we have an alternative.

Starting point is 00:07:03 We have an alternative that allows you to use a trustless technology that can perform this function. You can send $10 million from the U.S. to China without having to go through the central bank. So functionally, strictly on a functional level, it is an alternative. Currently, Bitcoin does half a million transactions per day. it probably can scale beyond that, but you know, not by much. But still, if it does say a million transactions a day, or even if it stays at half a million transactions a day, if you think about the potential for how many institutions you could build around the world with that number of

Starting point is 00:07:36 transactions to be able to settle finally transactions around the world, we would have essentially a system of many thousands of institutions that function like central banks. And so instead of having a couple of hundred central banks that are effectively all. central bank, the whole world really functions around the US Federal Reserve, instead of having the Federal Reserve setting the monetary policy and dictating the policy for payment clearance around the world and having that be a political institution, we could have neutral apolitical code do it. And that discussion has so much relevance when you consider where central banks are today.

Starting point is 00:08:13 And one could perhaps argue that it's not a coincidence that we arrived with the issues that we now face. that in mind, could you please elaborate on what is wrong with the current financial system? So the first function of money is as a medium of exchange, and that essentially allows it to act as the coordinating mechanism of a market system. The only way that you can have an extended market system, you need a technology for indirect exchange that would allow people to perform final exchange with one another when they don't have what the other person wants, you know, when you have the problem of coincidence of once. So money is essential for a market economy.

Starting point is 00:08:51 Money is the information mechanism of the market economy. The concept that I have been strongly influenced from Australian economics is the idea of sound money being money that emerges on the free market emerges and its value is determined on the market freely through people interacting with it, which then allows it to act as an accurate reflection of market conditions. So prices reflected in the money that is determined on the market freely will be accurate prices. You know, if you think of the manipulation of, if a government tried to manipulate the price of apples, you're going to get mixed signals in the market for apples and you'll have shortages and surpluses and maybe black markets and so on. And the situation is similar in the case

Starting point is 00:09:36 of money. When you manipulate the market for money, when the government can arbitrarily decide what is money and what isn't, and then it can decide what is the supply of money. money and it can alter the supply and alter the interest rate, then you're effectively distorting the price signals. And that from the Austrian school is the root way of understanding business cycles. It's the root, both the problems of unemployment and inflation. They come about as a consequence of the manipulation of the money supply and the manipulation of the credit markets. So that's number one. My favorite is the issue of time preference. And that flows from the function of money as a store of value. Money being a store of value allows it to, you know,

Starting point is 00:10:22 is an enormously important technology for us as human beings because once we have the ability to store value into the future, we can start thinking about the future. And once we start thinking about the future, our time preference drops and we become, we initiate the process of civilization. You know, human beings start thinking about the consequences of their actions beyond just the next meal and you start thinking about your children and their children, you start acting from that perspective. And this is really the fundamental driver of civilization. And that, for me, is inextricably linked to money. And it's inextricably linked to the availability of money as a reliable store of value. And so we can think about it in terms of the impact on culture,

Starting point is 00:11:02 on the impact on morality, the impact on family, as well as economic impact on things like saving versus borrowing. Do you think about 19th century culture when everybody's used to save much more versus culture today where everybody's borrowing. And I think that's also inextricably linked to the fact that money is not a good store of value anymore. And people don't have this technology that has been developed over thousands of years and has continued to improve. We continue to improve the choice of the thing that we use for this, the thing that will hold on to value the most into the future. And by the beginning of the 20th century, we'd had something that was pretty good at it, which was gold. But then, you know, we uninvented to that. You know,

Starting point is 00:11:41 And we had one global monetary standard that saved value well and was neutral and was used well for, was allowed for coordination of economic activity. And we uninvented it. And we went back to a system of partial barter of a system of hundreds of currencies around the world. But the inefficiency of it is quite astounding to think that in the 19th century, everyone in the world used gold as money. And the different currencies were just different units of gold, different measures of gold.

Starting point is 00:12:07 And today we have an absolute mess, even as the world is. growing more and more globalized, where you just have an enormous complication with that and totalitarianism. And I think the link between having a money that is controlled by government, whose supply and value can be manipulated easily by government, has heavily swung the pendulum in favor of the collective management of the individual's affairs. If you compare the era of liberalism in the 19th century to the 20th century in terms of the restrictions that governments placed on their citizens and the kind of economic controls that they had, I think that the There's an enormous difference.

Starting point is 00:12:43 I don't think it's a coincidence. So, yes, you're right. It's not the usual Bitcoin pitch. It's not what people usually think of when they think of Bitcoin. 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 00:17:04 So my question for you, because you've studied this just at an extreme level, as you look at Bitcoin specifically, what is it that you find most impressive about the technology? You only really understand something when you try and teach it or when you try and write it. Then you have to really lay out how you think of it and then you get to understand it. And I've come to the conclusion that maybe the magic glue that holds Bitcoin together, the singular technical advancement that Bitcoin introduced. Because if you think about all of the constituent pieces that make the machine work, most of them or pretty much all of them were around before Bitcoin came about.

Starting point is 00:17:44 What Bitcoin added, the magic ingredient that was added to it was the difficulty adjustment. And that's what I find the most interesting thing about it, because it makes Bitcoin truly unique as a monetary asset. For any other kind of monetary asset, for anything that gets used as money, its supply is always increasing, and the producers are always doing their best to try and introduce a new supply, you know, because the thing is highly valuable and it is demanded massively. That just leads to more and more of an incentive for people to produce. If you see it with gold, you see it with people digging for gold treasures and looking for old

Starting point is 00:18:18 sunken ships, you know, people are always trying to find a way to make more gold. You see it with mining any metal that gets used as money. You even see it, you know, and if you think of today's financial markets, the reason we get bubbles in real estate and in stocks is largely because these assets are being used as money. People are using stocks as a store of value rather than, you know, in the sense of an investment because they don't have a store of value. You can't just put your money in, you know, in dollars and, you know, have, say, two years expenditures stowed away in dollars safely, not for investing, not to take in a risk and hoping that they just maintain their value over the next couple years. You can't really

Starting point is 00:18:54 do that. So you have to be investing. And so effectively, the monetary premium that goes to making stocks or real estate or art a monetary store of value leads to the appreciation of of the prices of those things and then results in the overproduction of those things. And so those things end up being not very good money in the long run. But of course, you know, we don't have any good monies now. And that's why everyone is struggling to find a way to just preserve value. You know, we're looking for, the whole market is paying governments because their bonds are less likely to lose value than other things. But with Bitcoin and of course with government, money, we see that politics is just the game of printing more money and finding excuses and ways and

Starting point is 00:19:34 justifications and alliances and reasons to print more money. And so government money is always being inflated. So there's always this mechanism that leads to an increase in the supply that makes a money not very good. And gold, obviously, historically was the thing that could resist this the best for chemical reasons which I discussed in my book. But Bitcoin has found a much better way of restricting the growth in supply, which is to program it. And the, The way that this is a pretty difficult point to get across the people, which is Bitcoin is really stuck on a supply cap of 21 million and it's only going to be 21 million. It's not very easy to explain why it won't change, but ultimately it has to do with the

Starting point is 00:20:13 difficulty adjustment, which makes the mining of new Bitcoins something that happens network wide and so something that is part of the consensus parameters of the network. So you have to agree to the mining schedule to be part of the network. and the difficulty of the mining is also part of the parameters of the schedule. What the difficulty adjustment does, it raises the cost of mining Bitcoin to ensure that the output of Bitcoin stays roughly according to schedule. Astonishingly, it has worked over the last 10 years. If you had started, the day that Bitcoin had started, if you had actually projected

Starting point is 00:20:49 how many Bitcoins would be out there on this day, you know, 10 years and a half later on, it would be, you know, within the 3% or 5% or so a range of the exact number of Bitcoins up until then. So this is not exactly precisely. It's a calibrating process. It's not meant to be an exact estimate, but it calibrates at it pretty well. And it basically makes mining more expensive when more people try to mine. So with every other kind of money, when more people try and make the money, the supply inevitably increases. With Bitcoin, when more people try and make the money to print more of it, the mine, the mine,

Starting point is 00:21:23 the mining becomes harder, which because of the way Bitcoin works, effectively makes Bitcoin more secure. It's an astonishing rig of the way that money technology works that basically supercharges the process of monetizing Bitcoin because as demand for Bitcoin increases, there can be no extra supply. Instead, you get extra security, which makes Bitcoin harder to attack, which makes Bitcoin more reliable, which makes Bitcoin start looking more attractive as a store of value, which generates more and more demand. Another thing that Preston and I came across in your book was the term stock to flow. And to me, that was like, wow, I never really thought about it like that before.

Starting point is 00:22:04 And since the publication of your book, it has really caught on in the Bitcoin community to say the least. And it seems like everyone is now studying this in detail. So could you please explain what stock to flow is and why that is so important to understand for us as investors? I found it to be the best way of explaining why it is gold, that is money. You know, some people think it is because it is scarce, but that's not entirely accurate because actually, you know, there are other metals like platinum and palladium that are also pretty scarce, but they don't have a monetary role. They haven't been used as money and they've not acquired a monetary role and they don't look like they're likely to acquire

Starting point is 00:22:44 a monetary role. And in fact, people try to monetize platinum in Russia in the 1820s and it failed, even though it's rare. And I think the reason why, the best way of understanding it is because it's not about the rarity or the scarcity, it's the stock to flow. Or effectively, it's a ratio of the existing stockpile of all the production that is existing on the market right now that can be sold, the ratio of that to the production that comes out of the mines every year. Gold is a prime money in history because it is the one commodity whose stockpiles, whose existing stockpiles, are much larger than the new supply that is being made every year from gold. That's ultimately what it comes down to.

Starting point is 00:23:28 And that's because gold has been mined for thousands of years by people all over the world because it does not rust or decompose or ruin in any way. It just continues to accumulate. And so we continue to add up more and more gold. And so even as we continue to get much better at digging for gold, Every one particular year is just one year's production compared to thousands of years of production. This year is also the most advanced of all the years. So generally, it's not one out of a thousand.

Starting point is 00:23:59 It's about one to 60. In other words, it's always around 1.5%. Every year, gold's supply grows at 1.5% roughly. So the stock to flow is roughly around 60 to 1. And that's really why gold was money. And that's why platinum can't be money, because platinum, even though it's rare, the stockpiles of platinum that we have accumulated have only been accumulated over a couple of centuries. And it's a couple of centuries in which platinum has had very little use in industry compared to gold's demand as money and for industry. So therefore, the entire production of platinum that we have is pretty small.

Starting point is 00:24:37 And if somebody were to go and declare platinum as currency and start using it as money and start putting value in it, if 10% of the money, mining and capital that goes into gold would switch towards prioritizing the mining of platinum, then you're going to get a massive increase in the supply of platinum and the price of platinum is going to come crashing down. Bitcoin finds another way of reaching a higher stock to flow than gold. In a few years, Bitcoin will overtake gold in its stock to flow. Right now, the Bitcoin supply growth rate is about 4%, or 25 to 1 stock to flow. But in a few years, it'll drop or grow beyond golds. And then eventually it reaches infinity. So I think this is ultimately what makes something a good money.

Starting point is 00:25:19 In other words, the size of the liquidity on the market is large enough that whatever happens in the production of the new mines doesn't really affect the market much. That's what makes a good monetary medium. You know, gold was the best thing that we had, but with Bitcoin, it's going to be, I think, even better. Let's say that we warp ourselves into the future and Bitcoin is actually adopted and widely used. And then I think you kind of run into a concern in the future that Bitcoin could become more deflationary than a flat surface as far as like the coin's not expanding. But because people

Starting point is 00:25:59 losing their private keys, you could see this deflationary piece kind of taking hold. At the same time, we talk about the existing financial structure of inflation and how time preference is totally warped, people just wanting to spend their money as fast as they can get it. Could we see the opposite playing out in the long run where people don't want to employ capital? People don't want to make capital investments, which would slow down productivity throughout the world because we're using a deflationary currency? Yeah. So I think the issue here is that people miss the point that investment is secondary chronologically

Starting point is 00:26:35 and logically, even conceptually in the mind of the investor. It is necessarily secondary to the saving. specifically, you know, the deferral of consumption, the delay of gratification has to proceed saving, which also has to proceed investment. So I agree that, and I think for me, you know, one of the most interesting things about Bitcoin is the issue of time preference and something that I think has massive consequences. And I think, yes, if we move in a world in which we use Bitcoin, you know, the fact that money appreciates over time means that any dollar that you earn or any amount of value that you earn, you can keep into the future and expect to grow in

Starting point is 00:27:15 value. So therefore, if you're going to part with it and spend it today, you're going to want to spend it on something that is going to better be good because, you know, it's going to be worth more next year. You're more likely to be buying durable stuff. You're more likely to be thinking in the long term in all of your kinds of decisions. And you're more likely to save first, you know, in terms of saving as in delaying gratification. And then it is from saving that an individual is then able to begin investing because investing it requires taking on risk and only after you've saved the specific amount are you able to start taking on risks with the savings so I think the impact is that people would save more but people would also invest more and the notion that people wouldn't invest

Starting point is 00:27:58 because the value of money appreciates I think is false I think the just like people if the money loses 3% people are going to want to beat the 3% and still if the money gains 3%. people still are going to want to beat the 3% that it gains. People are always going to want to gain from investment. And the difference is that when the value of money is depreciating, effectively it is economical for you to make an investment, even if the investment is destructive of capital for society overall. You know, as long as your investment doesn't lose 3%, it's okay.

Starting point is 00:28:34 Even if you're actually destroying capital in real terms by 1% or 2% because of this, a lot more malinvestment gets undertaken, a lot of more projects that shouldn't be undertaken that aren't profitable get undertaken. And these are only profitable under manipulated interest rates. And once the interest rate manipulation subsides, these projects fail. And that, of course, is the cause of the recessions that we mentioned. The point I'll say is that with the money that holds value and appreciates in value over time, you're going to get a lower time preference. You're going to get more saving. And that's going to result in more. available pools of funds for investors and that results in a lower interest rate.

Starting point is 00:29:15 You know, if you see the process under the gold standard, as the hardness of money increase, you know, as gold became better money and harder money and we moved from silver and copper and other forms of money, and as the capital structure became more and more developed, savings continued to increase throughout the 19th century and capital stock continued to increase and investment continued to increase and interest rates decline. That can only really be understood as first, you know, people drop their time preference. That leads to more savings being available for lending. And that leads to a lowering in time preference and then it leads to, sorry, a lowering in the interest rate.

Starting point is 00:29:54 And it leads to an increase in investment and therefore an increase in productivity for society. And, you know, there's more of a long-term horizon when money is harder and when money is expected to hold on to value. And that leads to more capital accumulation and more investment. A lot of people in finance suggest the end of the Fureen currency system. We hear that so often, but don't really talk about how it would materialize. Like how would we as consumers and citizens experience that in a daily life? Where do you see the system go in the future and how would it materialize? I mean, you know, people have spent the last 50 years predicting the death of the dollar

Starting point is 00:30:31 and the old bastard continues to survive. I think ultimately the strength and the reason that it continues to survive is that the clearance mechanisms around banking are just so essential that their control is so important that whoever runs them can continue to have a lot of leeway with their inflationism because that stuff is just so valuable. The theory that I have about Bitcoin is that Bitcoin might just be the technological solution to the political catastrophe that is fiat debt monetary system could become money. And I think generally most Bitcoiners will tell you the idea of the world's going to be one big Venezuela and Bitcoin is going to be the only thing that is left standing.

Starting point is 00:31:14 And out of all of the rubble, you know, the bitcoins will build civilization. While certainly plausible in a sense that national currencies could in fact collapse, I don't think it's that likely because, first of all, inflation, I believe, is a money supply phenomenon. It's not a collapse in demand. You know, the Venezuelan people didn't suddenly drop their demand for their national currency to a billionth of. what it was 10 years ago, leading to the currency dropping a billionth of its value. It's always the supply. That's the issue. And so what's ignored about the rise of Bitcoin is the impact of Bitcoin on the dollars. And that's where I think it's really the technological solution to the

Starting point is 00:31:53 problem of debt money and fiat money, because as Bitcoin grows as a hard monetary asset, rather than a debt-based monetary asset, it is an asset that can grow without needing to generate more debt. And it is an asset that can grow and appreciate the value without the people who hold it getting into more debt. And therefore, people who hold Bitcoin while, you know, in the mind of the Bitcoiners generally we think of, if you start holding Bitcoin, you're going to want fewer dollars. And so demand for the dollar collapses and then dollar hyperinflates. The demand isn't going to collapse that fast because, you know, people still need to pay taxes and bills and whatever. But also, more importantly is that as those people start holding

Starting point is 00:32:36 Bitcoin and they can use it as a store of value, they no longer need to live off of debt. You know, you no longer live in a situation where you don't have money and you spend all of your money and you get into debt and you're constantly paying off debt until you die. Instead, you save up capital and you spend from, you know, you pay your major expenses from the saved up capital. You know, you accumulate wealth and a capital over time and accumulate savings and therefore you don't get into debt. So now what happens if Bitcoin actually grows and people stop getting into more debt, you know,

Starting point is 00:33:09 people appreciate, people get Bitcoin and then they can start paying with their homes out of their Bitcoin savings instead of taking out dollar loans. You know, they start paying out for, paying for their houses. And then businesses start running on Bitcoin capital rather than running on borrowed fiat. So what we witness is the decline in the decline in the, creation of debt and credit and dollars, which is essentially the same thing, because the fiat monetary system is creating dollars every time it creates debt and vice versa. So we're effectively deflating that debt bubble slowly, or you can say, you know, the house of cards is being undone. Bitcoin is a technology that takes out the cards two at a time,

Starting point is 00:33:55 you know, the supply and the demand of new dollars. It takes out demanders of dollars and suppliers of dollars from the creation of loans and therefore can allow for an orderly unwinding of this dollar catastrophe house of cards. Two cards at a time. The value of the dollar doesn't have to collapse. The dollar economy, it's just going to be an upgrade, you know. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why Vantza is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform.

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Starting point is 00:37:36 All right. Back to the show. I was listening to a conversation between yourself and Trace Mayer about the energy consumption associated with Bitcoin. I found this discussion just awesome. because I believe in the coming three years, this is going to be a major, major discussion point and a political narrative that's going to come to the forefront of a lot of the discussion around Bitcoin. Tell us what the concern is going to be that I'm kind of describing here. And then tell us your thoughts on energy consumption and mining. Bitcoin is always going to be very harsh on Bitcoin miners.

Starting point is 00:38:21 It's sort of like with gold. Gold mining, one guy makes a fortune, but 100 people ruin their lives digging for gold. It's always been a story like that and it continues until today. Generally, the reason that gold, as I was mentioning earlier, works as money, is because mining is largely insignificant. In the case of Bitcoin, difficulty adjustment does something similar in that as to as soon as the rewards of mining are profitable, more people enter into the mining and then the difficulty of mining goes up. So the difficulty adjustment increases and therefore

Starting point is 00:38:53 it becomes more expensive to mine and therefore the profitability margin starts requiring a cheaper price of electricity. What Bitcoin mining does, what Bitcoin's difficulty adjustment leads to, is that every few years you get a culling of miners. You get so many mining projects that go out of business. And it gets brutal. And this was, I think the bottom in this last cycle was in December of last year when it was, it also coincided around the time of the Bitcoin price bottom. At that point, you know, many mining businesses. And effectively, any mining operation that was mining, I would say above five cents for sure, probably even above three cents, stopped being profitable at around that time. You had to have three cents per kilowatt hour or less

Starting point is 00:39:43 in order to be profitable at that time. That's an extremely cheap rate. Nobody has that commercially anywhere. And so what ends up happening is that now as mining Bitcoin continues to grow and the amount of electricity goes into it, the only kind of serious facilities and the serious operations that can go into mining in any kind of meaningful sense, all the real capital that's going to be dedicated into mining is only going to go into operations that have to pay less than six cents per kilowatt hour or so. And that effectively excludes all kinds of hydrocarbon burning, power generating grids. So the thing about energy generation around the world is the real value of hydrocarbons is the fact that they're inert, relatively inert, easy to transport

Starting point is 00:40:30 and extremely cheap ways of transporting energy. You know, the reason they're so valuable is that their cheapest way of moving energy around, as opposed to, you know, building wires and moving electricity, which carries a lot of loss or pipelines, which also are expensive to build. So oil is, you know, you don't need to build massive pipelines and you can move it anywhere in the world, anywhere a car or an airplane or a helicopter can go, oil can go and you can build a civilization around it. It's extremely valuable because of that. That's why it's always in demand from residential and industrial and commercial applications. So the energy sources that will end up being sustainably mining Bitcoin will be the ones that don't have to compete with civilians and commercial and industrial residential areas.

Starting point is 00:41:17 And I think this is why the kind of environmental movement and the people who already hate Bitcoin, they are the ones who bring up the issue of Bitcoin energy mining and power consumption. But in reality, you know, there are, you know, people say Bitcoin consumes as much energy as Switzerland or Ireland. or Denmark or something like that. And that may well be true, or if it isn't, it might be true in a few months or years. But it's besides the point, let's put it this way, Ireland is far more visible in its energy consumption than Bitcoin. Where are all the giant factories that are making the bitcoins out there? And it's not easy to pinpoint any kind of large-scale Bitcoin mining operations in any one particular location. That's why all of this anti-bitcoin energy stuff has failed to pinpoint good pet noirs, if you want, you know, just Cape Goat. So just going to some

Starting point is 00:42:08 power plant in the States or Russia or endpoint at it. And the reason is, you don't have giant petroleum or natural gas plants pumping out Bitcoin because I know people who work in that business and, you know, they can sell that electricity at 10 and 15 and 20 cents, depending on where they do it in the world. And that's just not going to compete with the Bitcoin. On the other hand, where Bitcoin mining is going is to all of the energy sources that are isolated and stranded. Energy sources that are practically cheap or practically free because they're away from residential and commercial areas. And so where you have large waterfalls or hydroelectric plants, you would have massive amounts of energy there that's extremely expensive to transport

Starting point is 00:42:51 because you don't have expensive infrastructure to send it halfway around the world. And so Bitcoin allows for a way of developing all these resources because you don't have to export the energy itself. You can use the energy effectively to hash Bitcoin, and you will be exporting the energy through hashes. And so that really is where all this Bitcoin mining energy is growing. And that's why we don't have these poster children for how horrible Bitcoin is, because Bitcoin's massive mining capacity is mainly being built on things like hydroelectric dams, particularly in China where, you know, the government has overinvested in so many of these dams over so many years and now the people who operate them are using many of them for mining Bitcoin because it's

Starting point is 00:43:34 to all spare capacity. For me, the astonishing thing to think about this process five, 10 years later is to think about how much capital infrastructure is going to go toward stranded energy sources around the world and then imagine the kind of development that will come from that and the kind of extra energy production and decentralization in energy production and the reduction in reliance on national grids and just how much more decentralized and robust. bust human societies will become when we have so many more energy sources all over the world. Anyone anywhere in the world who can sell energy for less than four or five cents, you know, anywhere in the world, you just need a small kind of internet connection

Starting point is 00:44:15 that doesn't even need massive bandwidth and you can turn that energy into Bitcoin. That is very interesting and not an argument we normally here because the media focus on absolute electricity usage and not relative. The way the electricity works, and I'm completely looking away from Bitcoin here, is that there will need to be a balance in the power grid. If not, the light would literally go out in your home. And you can't predict the supply in advance. For instance, you cannot control how much the wind is blowing for windmills to generate electricity in that second. So the excess electricity would very often literally be sent to a hole in the ground. So keeping that in mind, it's very interesting

Starting point is 00:44:56 to hear your take on the relative energy consumption. Another thing you have a very interesting take on is L-coins, meaning cryptocurrencies that are not Bitcoin. Why are you so critical about al-coins? Could you please share your thoughts on that? My problem is that we are going to get one shot at making something a neutral protocol, and Bitcoin was that one thing, and Bitcoin has grown and developed as the neutral protocol that nobody controls to a very large extent because the person who made it was interested in

Starting point is 00:45:30 it becoming a neutral protocol and that's why they made themselves anonymous and disappeared and they may still be involved in bitcoin but it's very telling that they chose an identity that was around for a couple of years and disappeared because i think the project itself can't work in any other way it has to turn into something that doesn't have someone in charge of it it has to become just code the creator of bitcoin did that because he wanted to want to to turn it that way. And then since then, after the first year or two of it surviving, it already had established our best chance at building that. And so since then, it's pretty clear that if you were interested in building something that is like a neutral protocol for the transfer of value,

Starting point is 00:46:11 your best shot would be to join Bitcoin. Anybody who built any other coin since then, Bitcoin was already there. It had the track record. It had been developed. It had many developers. It had started to build liquidity. And yet, if you started building your own, you know, you're starting from zero and all of those things, you have no chance of competing against Bitcoin unless you actually have somebody in charge of your coin trying to direct its development and growth. And that's why none of the other coins other than Bitcoin have anything close to the Bitcoin idea of true decentralization, of just not being anybody's project. All these other coins ultimately have a small group of people that to a very large extent control the majority of the supply, a majority of the mining power behind

Starting point is 00:46:55 them. They control the code and they review each other's code. So all of these other coins are more like a startup or like a group of foundation or company, whereas Bitcoin is a neutral protocol. And ultimately, if you've studied gold's monetary history and just how many alchemists and people have tried to find ways of making gold, and if you study fiat monetary history, you know that the temptation amongst human beings to find a reason to convince others of, hey, look, this cheap thing that I can make in my lab at very little cost, you should definitely be using that as a store of value. It's a pretty easy thing for you to convince yourself of. You know, you'll just, if you find a way of making something that could pass off as a store of value

Starting point is 00:47:41 for a low price, you know, you're going to have a very strong incentive of trying to get people to want to use it. And that's why these. These things, the altcoins, they grew by aping Bitcoin, which is a neutral protocol. But none of them has anything like a neutral protocol. And nothing, none of them is a neutral protocol. They're just a small group of people that are managing something that looks like Bitcoin. And ultimately, if you take away that aspect of Bitcoin being neutral, being apolitical, being not controlled by anybody, there's nothing left there.

Starting point is 00:48:11 A lot of the Bitcoin evangelists and Bitcoin fans would like to argue, you know, Bitcoin is basically Star Trek money. It's like with the iPhone of money. It's going to make all of everything else look like in the 1950s phones compared to your iPhone. It isn't. You know, Bitcoin is not pretty. Bitcoin is not optimized for your user experience. It's an ugly, clodgy piece of software that does one thing, but it doesn't very well.

Starting point is 00:48:37 And that thing is resist state control. And if it continues to grow and resist state control, you know, we can expect big things from this crazy, ugly monster. But, you know, your user experience and its prettiness is not one of them. And so the entire structure and the way it works is optimized really for that thing. And so if you take that thing away, then you're just using something extremely inefficient, extremely slow in order to pretend to be decentralized while still, in fact, being centralized. Safeedine, I cannot thank you enough for coming on.

Starting point is 00:49:11 Your book was amazing for people listening to this. I'm telling you, go to Amazon, pick up Safedine's book, the Bitcoin Standard. It is just a phenomenal read. Safeedine, do you have a website or anything else you want to hand off? Yes, my website, safedine.com. I've started teaching economics classes on it and publishing my research. I'm teaching classes on economics and on economics of Bitcoin. All right.

Starting point is 00:49:39 Well, Safedina Moose, thank you for joining us here on the Investors podcast. My pleasure. Thank you so much. All right, guys. That was all the Presta and I had for this week's episode of the Amherstas podcast. We will see each other again 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.

Starting point is 00:50:03 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. Thank you.

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