TILP #7: What is bitcoin - The monetary side w/ Jesse Myers

00:01.20

ilm

All right? Jesse thanks for thanks for joining me today. Yeah man. Well ah I'm really excited for this conversation I had a conversation a few weeks back with a guy named Michael Schmidt and we talked through what is bitcoin from a technical side of things. My.

00:02.50

Jesse Myers

Thanks for having me jim.

00:17.57

ilm

Hope of that conversation is to make it make bitcoin understandable and approachable for anyone a grandparent or a college student who knows a pretty good amount about the technical side of things to someone who knows nothing and I think we did a good job in that episode. And my goal for this one is to take that same approach of what is bitcoin from the monetary side of things and help if you know nothing about bitcoin or if you know a pretty good amount. You can be encouraged if you know nothing you can walk away understanding what it is and why it's probably important. So that's the framework. We've got a lot to do in the next hour or so you with me.

00:55.59

Jesse Myers

Yeah, yeah, that is a quite a bit. We'll cover.

00:59.12

ilm

Sweet. Well let's let's get started. So Let's let's start off with a framework before we jump into establishing like why you should own bitcoin All that stuff. Let's begin with present date and then we'll work away backwards and then we'll get then we'll work our way into the Future. So Let's just start off bitcoin when it was created or present what problem does it intend to solve.

01:28.97

Jesse Myers

Yeah, so the the proximate cause ah for bitcoin like the the real innovation. The breakthrough was solving the double spend problem which is a ah, very technical thing that that basically means how do you have a ah digital system where um, you. You ensure that people can't trick their way into spending the same currency twice by you know by gaming the system in some way and that hadn't been solved in the digital arena with a decentralized currency until ah, bitcoin's breakthrough there but that's a technical. Answer really and and the the bigger um the bigger picture answer is that bitcoin solves a problem in money that we especially feel today with with ah unbacked currencies like the dollar. Um, where bitcoin. Um, has a finite amount of supply there will only ever be 21000000 bitcoin they're they're fractional so you can there's two point one quadrillion subunits but there's a finite number that will ever exist and that contrast to the dollar there. For the dollar There's an infinite number of dollars that can exist and in fact, we've seen an exponential growth of the number of dollars in circulation. Um, and so that's the problem with ah with money today is that we deal with inflation and you know people talk about how.

03:05.10

Jesse Myers

Inflation is necessary to have you, you need to have two percent inflation for an economy to work to have the incentive to spend your money but um, that is ah you know a bit of an assumption and it's actually rooted in ah, a flimsy ah flimsy study from. Australia or New Zealand in the 80 s and and and people ran with it ever since then? Um, so you know that the reality of inflation is that if you have any significant amount of of inflation whether it's 2% or five or ten percent um people's savings.

03:42.58

Jesse Myers

Are diluted over time and it's that's debased over time and and savers people who who earn their money store their money in in the currency and save it for a rainy day see their money slowly erode their value slowly erode over time. Nominal number of dollars is still there but the purchasing power of that dollar erodes over time and that's a big problem for people. That's a problem for people who want to live a life of saving which is to say that you want to work hard and put that you know put your your extra earnings away as savings. And save that for a rainy day and the the real breakthrough of bitcoin is creating a currency where you are guaranteed to not have dilution over time so you can therefore trust that the. Your units of that currency will be propagated through time as the same percentage of the total pie that they were when when it when it began and that's ah, that's just a big change in how ah money has worked in the fiat money Era with the Dollar. Um. And it even improves upon the Gold um supply dynamics from the past as well.

05:03.16

ilm

Awesome! That's ah I think that's a fair summary. That's when when someone asks me like why is bitcoin even important and without trying to give them a ear fool that they didn't ask for I try to boil it down. Basically there's a fixed unit of supply. That set a strong juxtaposition to the fiat monetary system and then also the decentralization of control again. That's another juxtaposition not only to fiat money systems but other cryptocurrencies for both of those There's an unknown supply cap or limitless supply cap. And ah centralized control. Be it a government, a individual an institution a hedge fund whoever created these things and ah those are those are truly important things and that's not even considering the technological side of things so being able to send value pretty much instantaneously. Across the world for nominal fees. So let's ah so now we've established why bitcoin. Ah let's go back in time to sort of March through like okay.

06:13.62

ilm

Historically what is established things as being good forms of money and good stores of value to arrive at why is this? Why is this relevant today though. So yeah, let's look can you can use give it a history of money and stores of value.

06:20.16

Jesse Myers

Yeah, yeah, absolutely so. This is the this is the thing that we don't learn in school and so this comes as news to everyone when they really dig into bitcoin to try to understand why it it has value so the history of money. Ah, for humanity goes back seventy Thousand plus years so there there's actually actually evidence of shell money being used and in cave sites from dating back 70000 years um and and so back then shells were money because shells were these little. These fancy trinkets that you could collect at the seashore and bring inland and they were rare and ah people realized that they wanted them. You know they they wanted to collect them these these precious little things had value to people and so. When that happens in a social group once you establish that something is a collectible That's actually the first stage of ah, a commodity developing the properties of money it needs to be viewed as a collectible that people desire then once that. Begins to happen that process takes hold then other people start to realize that this this small group treats this commodity as a valuable thing and therefore they want it to you know it becomes something more than just a collectible. It starts to become something that's valuable.

07:52.21

Jesse Myers

Valued because it's valuable as it collectible. So you know you start to have this second level. Um, abstraction of this this thing has value and then that's when a commodity begins to be a store of value asset. It's first a collectible for a small group of people. Then it becomes a store of value asset for a larger group of people because they all know that there's a group of people who value this as a collectible so I can store my value I can I can trade for it I can if I obtain this I can hold on to it and exchange that for. Value in the future because there's a group that values this then from that then the the next stages is it becomes something that you can trade in right? So it goes from a store of value to something you can use as a medium of exchange and that is fundamentally ah a social group level. Um. Treatment of a commodity as a form of money that you can use this to exchange for goods and services and exchange value and finally once everybody's doing that and it's ah then it's a unit of account then everything's priced in terms of shells. You know that's the seventy thousand years ago version so that's how money came to be in in our um in the story of our species notably It's also worth mentioning that. Um so homo sapiens sapiens is our subspecies and those are the cavesites that have shell money evidence.

09:24.95

Jesse Myers

Um, homo sapiens neanderthalensis is a subspecies neanderthals that does not have any evidence of of shell money or any other form of money being used at their cave sites at the same time so that was it that was our species that that was one of the defining. Characteristics of our species and possibly one of the main advantages that we had over neanderthals and and why we outcompeted them over time because we had a money and therefore a more thriving economy anyway, so seventy thousand years ago shell money but moving forward from there. Any any commodity can be money any physical thing that that meets the certain characteristics that you need it has to be durable. It can't rot you can't use it an orange as a form of money you need to be able to store value in that orange or whatever money you're using so it can't be oranges. It can't be fruit. Ah, it can be shells though. Um, it could also be salt or ah glass beads. So over time we saw different versions of little commodities be valued as collectibles and then. People placed their value into these things that become store of value assets and and used as money. Um, ah shell money gave way to in in different places. Different commodities substituted that in some places. It was great. Big round stones. You know that were carved the effort was put into.

10:57.63

Jesse Myers

Making a round stone and that becomes money um or in other places it's glass beads in in large parts of Africa it was glass beads that were very difficult to make um, you know you'd have to have some sort of rudimentary furnace in ah in a fire. Ah, to create glass beads. Um, but they're rare and they're precious as a result of that and they're they're they're cool. They're glass beads so you place value in them and you start to use them as money but the problem with all of these rudimentary forms of money is that fundamentally they're they're easy to make more of. Like even if it's kind of hard to make glass beads using rudimentary techniques in in Africa um, thousands of years ago it's very easy for venetian glassmakers thousands of years later who then come into contact with these civilizations in Africa who value glass beads. Ah, then the word goes back to Venice hey they seem to use glass as money in Africa Let's make a bunch of it and so and ship that down to Africa and trade for goods and services and land and resources. In the glass that it's easy for us to make but hard for them to make and so that's the process. Ah that played out over thousands of years of of civilizations would come into contact with other civilizations in each if they use a different form of money then.

12:30.11

Jesse Myers

Whichever civilization found it easier to make more of the form of money that the other civilization used would be able to confiscate the wealth of that civilization to easily purchase the wealth of that civilization by creating new units of currency. Ah, and. And totally you know, upending the the soundness of a currency system based on glass beads. So we we saw an evolution over 70000 years of human history from from shell money to things like glass beads cloth strips round.

12:49.53

ilm

And.

13:07.93

Jesse Myers

Um, stones and then eventually you know civilization develops enough that there are mining operations. You start to find silver and tin and and gold. Ah and those are much harder. Ah, forms of a commodity to make more of it's not easy to go create more silver you have you have to go mine it and it's it's difficult to do that and you know you can't load up you you can't go back to Venice and create a bunch of silver and and bring it back. You have to go mine. It? Um, and so monetary. Commodities became monetary metals and and we started to treat ah precious metals as money. Um and gold was the the metal that was the hardest to make more of of any of the metals out there. It's harder to go. Mine gold than it is um, silver or or tin or any of the other metals that are mined copper um, and so so gold is in that sense a quote unquote harder money. It's harder to make more gold. And dilute the existing supply of gold than it is anything else and so civilizations gravitated through this organic free market process over time of um whoever was holding was using gold as a store of value asset as ah as a money. Um.

14:41.34

Jesse Myers

Was more protected and had better properties of money from using gold than if they had used a different form of money that could be ah, diluted more easily and so that emerged through this free market competition almost like ah like ah like a. Ah, March madness bracket of different forms of money competing against each other to see who emerges as as the strongest form of money and it's gold. It's the best physical commodity out there to use as a money and that that began about six thousand years ago and for the last several thousand years gold has been the money worldwide last several hundred years really because it took us a while to to reach the new world. Um, and that's the history of money that we also forget about and and aren't really taught about. Ah, in school that you know these are free market processes that play out in the commodity landscape that resulted in gold being the gold standard for money in the physical world.

15:53.16

ilm

I want to want to highlight a few things you mentioned there so one the the glass beads in Africa and how that was hijacked by the venetians there the difference there is. There's a ah. There's true scarcity and then there's a perception of scarcity and the problem was the africans thought they had an asset that was truly scarce but it was just their perception and the italians knew that and took advantage and you see that without getting us to the conversation where I want to be in half an hour but ah I will skip ahead right? quick.

16:12.22

Jesse Myers

Yes.

16:30.30

ilm

Um, that's similar to what we're seeing today is most people think the us dollar is scarce so there's a perception of scarcity yet. The people who are able to go easily create these things understand that it's not actually scarce. It is simply a perception of that and that that perception of scarcity. Something that they have to continue to uphold. Um, otherwise it could be dangerous for them. So there's that and then even you should mention a second ago marching into gold. Yeah, we've seen gold for thousands of years um usually when I think of gold I tend to go to the Roman Empire and even even. how these metal these metal-based money systems were still able to be debased through manipulation of different forms manipulation by individuals and by government entities. So government entities for instance, able to continue to grow the Roman Empire through expanding through conquering through wars were able to pay their soldiers. With ah diluted value of their currencies. So Roman Deary they're able to collect these and at first a fiudinary contained 100 % precious metal will by the end of the Roman Empire contained a very small fraction of that precious metal with the vast majority of it being fillers. Um, so that was a means of just debasement through the Roman Empire and I personally think that like 2 the biggest causes of the fall of the Roman Empire would be monetary debasement and then ah moral debbasement. Um I think it was a culmination of those 2 things.

18:02.28

ilm

Ah, but then you also saw the manipulation of the donary through individuals so people working you know Stan I'm here selling I don't know animal hides and you give me a denery I could just pile those up and then at night just shave down a little bit of scraps and then able to melt those scraps. And build them up again and be able to make a whole new freshman area out of that and that's really small again. That's a small debbasement over a large time and but eventually over a pro period of time you have an eroded currency that ah that has actually ah added to a a greater supply. And that greater supply than erodes the value of each individual unit. Um, okay, let's keep let's keep going so I want to fast forward, you know a few thousand years and so I think a few different interesting turning points would be world war one and ah Germany and what happened there.

18:46.59

Jesse Myers

Um, second.

18:54.48

ilm

Ah, they're very famous ah pictures of kids building blocks of money and then maybe 1934 nineteen forty the 1940 s bretton woods seventy s and then we'll be at present day. Can we walk through those as well.

19:07.60

Jesse Myers

Yeah, yeah, absolutely So so the modern history of money I Guess it's It's helpful to remind people that the the closest thing that we have ever had to you know in the modern era to like ah a true gold standard um period was.

19:25.63

Jesse Myers

You know in the us from the end of the revolution until the creation of central banking in 1913 so that's ah you know about one hundred and fifty years of ah free market money on ah on a gold standard where gold is money. Um, and you've got you've got a variety of banks competing you know promising um issuing promissory notes against gold that they're storing in their vaults. But these banks are in competition and that competition more or less keeps people honest of you have to you know. Be fully reserved. Um, full reserve banking and and actually um, yeah, do right by your promises and and what we saw during that period if you think about it was an incredible era of prosperity and and and development in the us in particular. And so that that's the context of that's what's possible on ah on a sound money standard ah gold ah gold the gold standard at that time and then in 1913 a few a few clever things happened that our founding fathers specifically warned against. And tried to stave off successfully for a century but then ultimately these forces of um, wanting to take control the the state wanting to take control of money with the you know the help and collaboration of.

21:01.41

Jesse Myers

Of of private bankers eventually won out and and that was the founding of the federal reserve in 1913 which incidentally was done over the Christmas break on short notice. Um, you know without much. It was snuck in the the the voting on the federal reserve and the and also the installment of a personal income tax. So those happened together and that which. Which at the time was just for millionaires people who would now be called billionaires because the money meant so much more back then um, that that was the the only people that were subject to a federal income tax at the time and it was like several percent were were millionaires anyway. So that.

21:58.15

Jesse Myers

That process really begins in 1913 of of central banking coming into the world and central banking then from that point forward means that the the government is in control of monetary policy. It's no longer a free market for money. Um. Because the government is is saying what monetary policy is what is money? What are the rules around money. Um, and obviously you you have this legacy of of free market money and people trust in gold and so they can't overnight change what money is but you start to see a slow. Erosion over the next century of what what is money and and what is monetary policy so you already teed up how well let's I guess talk about what happened to weimar Germany after world war one ah, they lost the war. Um. Had spent a ton of gold on the war and had borrowed a lot made promises to pay back in order to try to fund the war in order in a desperate bid to to win. Ah obviously that didn't work in world war one and. Then they were saddled with war reparations as well which was massive debts that they had to pay payback and the the way they tried to navigate that reality was by printing more money so they um.

23:28.66

Jesse Myers

Tried to pay back their debts by printing new money. Um, and some of their debts were were in all of their debts were denominated in gold so in order to print new printing new money didn't get them more gold. It just obfuscated up. Ah, remaining portion of what was left you know and in the value of the currency from the holders of that currency and siphon that into gold which they could then use to pay back debts if if yeah, if you can't tell that is a losing gambit. Um, which. Kicks the can down the road until it can't be kicked anymore and the can't be kicked anymore is is what hyperinflation looks like so the weimar Germany is the most famous example of hyperinflation where you know the the government is is trying to pay their debts in gold doesn't have the money. Um. Creates more money and a paper ah reichsmark money and and that money has some value on the market that can be you know traded for gold so they have to create a ton of it. In order to trade that money newly created money for gold in order to pay back their debts and they have to and and the amount that they have to create gets exponentially more um and so they're creating exponentially more money.

24:59.25

Jesse Myers

Paper money in order to get the gold that they are trying to pay their debts with until they finally simply can't print enough money ah in order to confiscate any more gold value out of the existing supply in order to pay those debts and they collapse.

25:16.90

ilm

It's It's just ironic that in order to be able to purchase more gold with their money you had to they had to create more money but then the creation of those new units meant that they had that took more units to buy more gold. It's this feedback loop and that's where the government the us is privileged fortunate enough right now where our debts are denominated really in in our own currency in a lot of Census so we can continue to devalue it. But yeah, we see this. Mean you're on this never ending Hamster wheel things. You just can get messier and messier as you go and it's it's inevitable that it falls Um, sorry to cut you off. It's just The. It's not humorous to the people I have I have a I have a picture in my office right by me of kids building towers with ah with their marks.

25:55.25

Jesse Myers

Out.

26:08.59

ilm

Their notes and ah obviously it wasn't funny for them at the time but looking back now hundred years it's the the irony is just amazing and and that that that escapes a lot of people and it's so simple like if if creating more money or more pieces of paper monetary units led to. Ah, led to people being well more well off and ah, a better civilization then we could simply go create a lot more units hand them out and we're all in a better spot. That's not how things work and it it overall just it bleeds a system dry. Anyways, let's let's carry on.

26:43.76

Jesse Myers

Yeah, no yeah that the lesson that you're hitting on here that that is the takeaway from the whole history of money is that when you you know you can't you the the pie is what it is like there is a pie of value. Um, and. You know in the currency. However, much currency there is each unit of currency is a percentage of the total pie of value and when you add units of currency to that pie. You're not growing the pie. You're just adding you're inserting more ah, your. A fresh slice of the pie and squeezing everything else into what remains you know you're you're redistributing the the area of that pie to to a new denominator of total units of area in that pie. Um. Units of of value in that pie and so you are yeah that that's the the lesson of monetary history is that in all of these cases whenever there's um, an expansion to the money supply. You're not creating wealth. You're just redistributing the existing wealth to a new number of total units of currency. So we we can we can jump to to finish out the the evolution of money over the last century so we had you know 1913 central bank and created. Um.

28:19.10

Jesse Myers

Notable example of hyperinflation in 191921 with Weimmar germany and then ah, it's 1944 the allies Win World War Ii the us is the most powerful. Um, country left standing and gets to dictate terms for a new monetary standard for the world and that's the bretton woods system that's put into place and that system says. Okay, we're going to be on a gold system a gold standard.

28:57.79

Jesse Myers

And ah the us will hold everybody's gold and ah you can all have your own currencies and your currencies will be pegged to the us dollar and the us dollar will be backed by gold. Works out great for everyone right? Well really works out for the us because the us is then able to um manipulate adjust down the peg ah of ah how much how many how many ah francs. Um. Is in each dollar and when you do that you're confiscating wealth from from holders of french ranks and so that process happened for a couple decades until in the late sixty s um. The allied power started demanding their gold back and in fact, France sent a aircraft carrier to New York City demanding their their gold out of fort knox be placed on that aircraft care and taken back to France um, and then when. West Germany was threatening to do the same in one seventy one ah Lo and behold. We're going to go off the gold standard entirely and so then we don't have to pay our debts in gold terms anymore now we can pay our debts in dollar terms and.

30:28.67

Jesse Myers

Because that that link is broken. So now we can print as much dollars as we need to and in order to pay our debts which we'd and been incurring for the Vietnam war and that's what we did and and and lo and behold. There's high inflation in the 70 s as a result because suddenly we're off the gold standard we're having to pay our our debts. From Vietnam and we create a bunch of money to do that and that creates the inflation because because now there's more money in the system. The the value the the cost of a hamburger goes from five cents to twenty cents or whatever it was at the end of the decade. Um, because there's that much more currency and in in the system and and that's you know the percentage of the total amount of currency in the system didn't change just the total number of units did.

31:17.18

ilm

Yeah, what we what happened there was just a manipulation of the numerator and denominator and we were We were lying through our teeth for decades about the the denominator in that equation.

31:24.46

Jesse Myers

Right? but.

31:34.50

ilm

And the parody between the numerator denominator then finally in 71 we got called on our math on our equation and ah said all right fine Here's the real math but then instead of having a fixed denominator. Um, we said all right? The numerator is the denominator as Well. And suddenly we're We're not even using math anymore to ah to portray and communicate value. It's like having a ruler and that's a fixed obviously a fixed distance Length. Um. And then suddenly changing the length of a ruler and saying well the length of a ruler is whatever we say this ruler is and we can. We can We can manipulate it as we go well and suddenly how are you going to measure things and it's more of a as you-go basis and you're suddenly pegging one ruler to another versus a ruler to another hard asset or a a fixed thing. So yeah, sorry to cut you off there.

32:29.42

Jesse Myers

Oh yeah, no, so so you're right that tying that back to the the history of money that we that we talked about so you know seventy thousand years ago and until 1971 were on some form of commodity money that were on a commodity money standard. Ah, sound money standard because it's hard to make more of a commodity whether that's seashells or glass beads and obviously it's easier for those to make more of it than it is for gold and that's why gold ended up the victor but you're on some kind of sound money standard for that entire time period with some. Experimentation that that always went ended poorly of like of of printing money along the way towards you know in the last several thousand years in particular. Um, so yeah 1971 we're now in a fiat money era and so we think of. You know we all grow up in this and we all grew up thinking that money is what it is and that it's always been this way but we happen to live in a 50 year anomaly right now which is the fiat money era and sorry um, and that. Is. There's no guarantee that that's going to continue and in fact, there's a whole lot of evidence that it can't continue in the same way that Weimmar germany eventually on ah in a very accelerated way ran up against reality when and you know the ill effects of.

34:03.50

Jesse Myers

Being able to print more money we are running into the ill effects of being able to print more money today and and what that looks like for us is the gradual erosion of the us as a superpower first and foremost because we are able to take on more debt. Then you know we are able to spend more than we produce and that takes the form of of debt so we are we are as a country we are running deficits. We spend more than we produce and each of those annual deficits adds up to our national debt. A running balance of how much debt we've accrued and it took us as a country two hundred and twenty five years to get go from 0 national debt to $6000000000000 in national debt and at the moment we are on. We won't end up doing this but over the last four months we have spent an annualized. We've added to the national debt an annualized rate of $6000000000000 so that is some context about what's going on for us right now. Um an important bit of. Perspective here also is that we we sort of depends on what um data sources you turn to here. But I believe we have one hundred and twenty nine percent debt to gdp at the moment. So you know our our.

35:38.44

Jesse Myers

National debt is now thirty three and a half it's um, it's almost 34 now thirty four trillion and our gdp is varies. Twenty Twenty three trillion per year. So that means we have one ah hundred and twenty nine percent debt to gdp and ah a study a couple years ago pointed out that in um and there have been fifty one cases since 1800 of countries that have gotten over. Ah, hundred and thirty percent debt to gdp and the only and and every single one of them defaulted in in either a hard default or a soft default a hard default meaning they throw their hands up and say we can't pay our debts and a soft default meaning they print more money. To pay their debts in nominal terms but not in real purchasing power terms basically inflate away the debt and so that's happened 51 times. The country has gotten above one hundred and thirty percent debt gdp in 50 out of 51 cases. They've defaulted. The only um. The only time that hasn't happened is modern day Japan because they are circling the drain still and have yet the default and that's the only reason and so we're on that threshold right now of like the point and overturn in my opinion. We've already crossed the effective event horizon where we just don't have the.

37:11.19

Jesse Myers

Ability the political will the the appetite for austerity that's necessary to pull ourselves back from the black hole that's pulling us in in terms of um national debt because we haven't balanced our budget in 22 years as a country. And we've now normalized multitrillion dollar per year deficits. Which means we're adding in the last few years on average $2000000000000 every single year to our national debt pile and then that. Keeps that not only keeps adding up with each additional addition to it but it compounds because of the interest expense that you have to pay on that national debt which for the last decade has been more or less 0% interest rates but now that interest rates have risen. It's like 5 % on that national debt which at you know $34000000000000 in total national debt means one point seven trillion dollars in annual interest expense on the national debt that's in addition to all of our already high. Um. Spending amounts you know we're already running multitrillion dollar deficits per year now you're talking about adding one point seven trillion dollars per year in additional debt. Ah, for context that's two Us militaries per year that we're spending just to service the national debt that we've accrued over.

38:42.58

Jesse Myers

Spending more than we produce for the last fifty years in particular.

38:46.61

ilm

Here. Let's ah as we March forward with with arriving at bitcoin. Um, which bitcoin bitcoin is simply money so we've talked through the history of money. But let's let's go ahead if if we could we define money itself like I'm familiar with and I know you are as well. What are the key attributes that define something being money being you know and scarcity and those sorts of things could you walk us through those those core attributes.

39:13.72

Jesse Myers

Yeah, um, so so scarcity is is the most important. Um we'll we'll talk about that more about let's t up and and Jim helped me with this list because I'll I'll hit some of them but I'll miss some of them too so you need durability. We talked about that one already. Um, you need divisibility, you need to be able to to break this down to a subunit and you can't trade in in monet paintings. Um, but you can trade in in grains of gold. Um, let's see other things you need portability so you need to be able to carry it around in your pocket and use it at the market. Which is sort of 1 of gold's limitations. It's not really good at that gold coins. Um I don't really work because the the mass there means you can't really carry around a lot of it. Let's see what what are the other ones I miss.

40:05.64

ilm

There's as you mentioned a moment ago. There's scarcity and that's when you let off with there's verifiability so verifiability the ability to verify Obviously ah that the unit is is actually what's claiming to be so ah.

40:09.56

Jesse Myers

Okay, yep, and and.

40:21.85

Jesse Myers

And and and one of the innovations in the history of of monetary metals was when we went from ah the invention of of standardized coinage which which was to say ah you know you'd have your your king would collect a bunch of gold put it. Melted into coins and then stamp his face on the front of the coin which is a way of saying the King has guaranteed that this has you know a standardized amount of gold in this coin so you can trust it when somebody offers this to you. Um, and that's a ah way of solving for that verifiability problem where otherwise you'd have to assay the purity of this gold that you are being offered and that's an impossible problem to do in the marketplace.

41:12.54

ilm

Um, here, let's camp you you mentioned scarcity being important you want just tell us right quick Why that why that one specifically is is important.

41:17.21

Jesse Myers

Yeah, yeah. Yeah, so it it really is the solution to the key insight in the whole history of money of why did we evolve from using shell money. Why didn't we just keep using shell money. Why didn't we keep using glass beads. Why did we end up at gold. And we ended up at gold as ah as I mentioned because it's harder to make more gold than it is hard to make you know to find more seashells or make more glass beads or anything else in the physical world in terms of commodities that can be used as a money gold. Is the hardest to make more of that means it's the scarcest and so that scarcity is really a measure of what percent is added to the total existing supply per year and it's a concept in the in the monetary metal space called stock to flow. So. So how how much stock is there above ground and how much flow are you adding to that every year and that ratio um the higher that ratio is stock to flow meaning the less you're adding to the existing supply every year ah the more scarce

42:38.32

Jesse Myers

Ah, commodity is and the more scarce a commodity is the harder it the the more you can trust that value that you place in it will propagate through time effectively because you're not being diluted by new supply coming into the market and. And diluting what you're holding so that's why gold is a better store of value than copper where copper can have a huge percentage of of new supply added every year gold on average for last hundred years has been one point 5 to 2% more gold added to the existing supply each year copper can be 10 twenty thirty percent and that would mean 10 twenty thirty percent dilution of your value if you were to store your value in copper and so that is why gravitating towards using the scarcest form of money. Is a winning strategy for storing your value and propagating it effectively through time.

43:39.66

ilm

Now Ah, a couple things there um to just reiterate stock Toflow is just the inverse of inflationary inflation rate and when you say scarcity you're meaning you're referring to not just scarcity of existing but the scarcity of of of introducing new units.

43:55.31

Jesse Myers

Right.

43:57.40

ilm

So let let's let's just play this out for just for funs sake. Um, obviously if we had so the most scarce asset there was one one item in existence that'd be a horrible form of money because how would you possibly transact with that now if we're introducing new units of that on a regular cadence we would at least have some sort of predictable inflationary rate. Now let's play the opposite. Let's say sand let's say we couldn't create more sand. Okay I'll know who knows how many grains of sand exist. But theoretically if no more grains of sand could be could be created and we were able to easily measure you know grains of Sandsand theoretically could be a decent form of money because it's it's a fixed supply and it's. Super divisible. Um, despite the fact there's a gazillion units of it. So it's a matter of the introducing of new units the inflationary the stock to flow rate mixed with the existing units for ease of transaction. Um.

44:53.89

ilm

When before as we go forward? Um, in my my simple brain I try to keep things really simple. There's enough complexities in the world. So things that camp is simplified. Let's let's go ahead and do that. So My simple brain like money is simply a means of communicating storing and transferring value across space and time the problem with. Introducing New units is it's an introduction of noise to a means of communication and if I'm trying to communicate value across time and during that time transfer ah ah transfer during that time if noise is introduced. Suddenly it's it's it is a ah the the sound the message I'm trying to communicate is suddenly hijacked by that so that is ah that's where this. Ah. Inflation or stock to flow can really come in and impact things now if we know that there is a set inflationary rate or stock to flow Rate. We can account for that relatively with the communication Factors. So Let's let's start off that as a basis now. But let's go into bitcoin specifically so we've talked through history of Money. We didn't talk through gold and like I mean yeah yeah I think I mean the us is defaulted on our debt lots in in very soft ways I think one of those being when gold was became illegal what they the Us basically made it illegal free to own Gold. Um outside of like ornamental Juules those sorts of things.

46:21.45

ilm

Um, I think they purchased it for like $20 an ounce and immediately the day after it became illegal to own. It was revalued to like thirty five bucks an ounce like if that's the one that's terrible too that is that is certainly a means of soft default. Um, but anyways, let's get to. Bitcoin because people I talk to suddenly think that bitcoin is just something used by. You know tech bros or ah, ah, people who live in their basement and like to code um or things like that which I'm not tech bro nor do I live in a basement but I like bitcoin so clearly that's not the case. Um, so. How do we get to bitcoin. Can you give us a little history of like cryptography and why we're here now.

47:01.64

Jesse Myers

Yeah, um, so it is a misconception that people think that bitcoin is just this random experiment that happened and it came from nowhere but it's actually the culmination of forty years of of people pursuing this sort of. Holy Grail in the digital landscape of creating a non-sovereign immutable hard-capped supply decentralized currency and so that that story um you know began in Silicon Valley in the 60 s and 70 s. Of ah the invention of this new form of of code ah and encryption which we now use you know the entire internet runs on on these encryption algorithms that were invented back then. And these are just incredibly sophisticated pieces of math that make it impossible to um, ah know what a message is unless you have the particular unhackable password to decrypt the message. Um, and and understand what that message says and that's why the whole internet runs on these um encryption algorithms the most commonly used is is called Sha58 and that is what bitcoin uses as well.

48:28.57

Jesse Myers

So there were ah a number of attempts over the years and decades um to try to create a digital money and and specifically you know with various flavors of ideology woven into them. Ah most notably that people wanted to have a non.

48:48.39

ilm

So.

48:48.42

Jesse Myers

A non-state based money. So ah, you know, ah an internet based money. Ah, that's a free market money in the digital landscape rather than something that is by decree of fiat money is fiat means by decree. Um, and so in the. And sort of dotcombubbleera. There were a number of of attempts at creating a cryptocurrency that failed or the government shut them down mojo nation was a popular one that started to see success and then. Government was threatened by it and they chopped its head off um and in the end those were that was all because each of these attempts had some sort of centralized entity that was administering this. Database of who owns what digital currency and in what amounts and issuing that currency so there was a centralized authority that the government was able to shut down and that's why they they? you know kept killing these these upstarts and so that was the context in which um. Creator of bitcoin knew the parameters around which he had to solve for. He knew that he couldn't implement a a digital currency that had any kind of centralized authority because that centralized authority could be shut down because it had been in so many cases in the last few decades

50:18.73

Jesse Myers

And so he knew it had to be a decentralized networking solution and this is in the wake of yeah the invention of Napster and other peer-to-peer networking solutions for you know for exchanging information and in a decentralized way and. Satoshi brought those sort of ideas to money you know so peer-to-peer file sharing. What can we can. We do that with money as well with value. Ah and through ah the orchestration of a few innovations and and just strokes of luck probably as well. Ah, landed on the system that is the invention of digital scarcity and and that's the essential piece for understanding bitcoin and understanding. Why bitcoin can't be can't be bested by any ah challenger going forward. Invention of digital scarcity and that can only happen one time that's an important part I'm sure we'll get back to um so this is a system in in the in the internet landscape you can copy and paste everything. It's just information you can copy and paste any information. Um, and so it was never possible to bring value into that landscape but bitcoin is the invention of a system of digital scarcity. So within this little system within this little little walled garden. It's impossible to copy and paste and that's the real breakthrough of bitcoin. That's the invention of digital scarcity.

51:50.64

Jesse Myers

Um, so that you you know that your unit that you hold can't be copied by somebody else. It's yours it's yours forever and you have perfect property rights around that so long as you maintain maintain security of of your. Private key which is an extremely long password that's unhackable.

52:11.36

ilm

Um, let's ah okay so we've talked through money history of it stores a value bitcoin in general so where go for it.

52:22.20

Jesse Myers

Yeah, should we should We do? Yeah okay, go well I was going to say maybe this segues into you know we talked about digital scarcity and then there's the you know the key to understanding the value of bitcoin The the attractiveness of bitcoin as an investment asset in particular is an understanding. That scarcity the invention of digital scarcity. The fact that bitcoin has increasing scarcity which is a key misunderstood bit and then finally the absolute the terminal absolute scarcity of bitcoin which the world has. Literally never seen an asset like this before.

53:02.10

ilm

Let's go in. Let's go into then bitcoin specifically for like Okay, then you we we we defined upfront like what is Ah, what's the value proposition of bitcoin. What problems is trying to solve for but let's get more specific there I think that's what obviously people. Want to really understand is the the financial side of things as the implications of this So you you write a lot you wrote article. Um that that speaks pretty heavily to this. Ah, that's um, was the name of the article with ah was it the full potential valuation of bitcoin.

53:34.12

Jesse Myers

Yes, yes.

53:36.92

ilm

So Let's let's talk through that. Ah, so yeah, the the full potential value. Um, and let's bring in like ah obviously in that we're going to talk to like okay well what is what is the value proposition more specifically what market is this supposed to be competing in is this a tech stock. How big is that Market. Um, so let's let's get into this sort this this type of conversation now.

53:58.36

Jesse Myers

Yeah, okay, so to set the stage here. First of all bitcoin right now. Well I guess right now it's about seven hundred billion but I ran these numbers when it was at five hundred billion so I'm going to I'm ah say it's five hundred billion so I can still have accurate numbers here. Um. $500000000000 total value for this for bitcoin as an asset and that is in the context of the global asset landscape. So how much how much value is out there sitting on all the different assets in asset classes. How much is out there. There's $1800000000000000 across all your different asset buckets that you know that includes money itself. Um bonds which are promises for future money. Ah real estate stocks fine art collectibles precious metals and bitcoin.

54:53.51

Jesse Myers

Ah there's nine hundred trillion across all those those buckets and bitcoin is one two thousandth of the total landscape. So that's 0.05 that's how tiny bitcoin still is so that's the context. Um, and then you know then we should introduce like what. What's what's the point of bitcoin. What is it seeking to do and bitcoin is a digital store of value and it is seeking to to be. You know a competitor on this global asset landscape for ah where people store their value and that's fundamentally it's it's ongoing. Constant competition between different asset types which are ah trying to attract ah capital based on the properties that they offer and the potential return that investors could could see if they parked capital and in that asset. And so that's an ah you know everyday competition that's constantly evolving and ah bitcoin has this secret weapon. Ah, that is that only bitcoin has because it's the only one that's digital. So all these other asset classes like real estate or fine art. Um. they're they're physical there's no there's no limitations on how much fine art can be created and in fact, there's no real limitations on how much real estate can be created like you can. You can not only dredge you know swamps to create more good land. You can also.

56:25.75

Jesse Myers

Build skyscrapers to create more built square footage. Um, so bitcoin is the only asset that because it's digital. It has and it has this um immutable supply schedule which is the heart of it all where there's only going to be 21000000 bitcoin and. How you get from 0 bitcoin in existence on you know, bitcoin's launch date in 2009 to the eventual terminal amount of 21000000 bitcoin in existence. How do you do that? So what Satoshi implemented is a very clever system that in the first four years Half of the bitcoin that will ever exist were were released through bitcoin mining and so that's a process that happens every 10 minutes um it's ah, a lottery basically um of a computational power on the bitcoin network. Um. Trying to win the the lottery for that 10 minute period and get the right to um, create the next block in the bitcoin blockchain and so each block happens every 10 minutes in the first four years each block. Ah each. Block came with 50 new bitcoin being issued to the minor of that block that the the computer that creates that block or gets the gets to create that block and so that's how you you go? That's how you issue supply but the genius part about is that.

57:59.80

Jesse Myers

In the code in the bitcoin protocol that that everyone's agreeing to when they participate in the bitcoin protocol and that's why it can't be changed because nobody has authority to change it. Everyone has agreed to this consensus standard set of rules. Ah in that code it says that after 4 years the amount of new bitcoin issued with each block will drop be cut in half down to 25 and then after 4 years cut in half again every 4 years cut in half until it reaches 0 and so that means that if you if you add up the total supply of bitcoin in the existence over time. It creates a bit of a. Asymptotic curve where it starts at 0 and rapidly goes up and then it starts to level off as it approaches that hard cap total supply. Um, what's incredible about that is that is a system of increasing scarcity. So. You know the amount being issued relative to the existing supply in the first few years was huge and then as every 4 years the amount being issued at each 10 minutes gets cut in half over time. The amount being issued per year relative to the existing supply becomes. Nothing and so you you go from high inflation to 0 inflation and it's.

59:21.73

ilm

Yeah block block one to block 2 again. The first four years the the block roar was 50 bitcoin so block 1 to block 2 the inflation rate in that 10 minute period was 100% block. Whatever 210000000 or two hundred or nine million ah from all the ones that created that point was relatively large now where we are today. The mining reward being about 6 bitcoin versus the existence we're at a really small inflationary rate and as you're aware ninety but just over 93% of bitcoin that will ever exist. Has already been created so as we introduce, new units ah bitcoin. We could make debate semantics in a sense is still being inflated because the units that are actually out there to be traded ah is going up. Um, but it's being inflated at a minuscule rate.

01:00:15.61

Jesse Myers

Yeah, yeah, so.

01:00:17.51

ilm

And at a ah at a rate that we can calculate and foreseeing the future for forever.

01:00:21.62

Jesse Myers

Right? Yeah, yeah, and it's a good bit of context here that right now the annual inflation quote unquote inflation rate for for bitcoin is 1.8 and that happens to match gold. Right? Gold's one and a half to 2% per year we're we're at parody with gold right now. Um, so each of these times that the and the new supply the supply issuance rate gets cut in half that's called a halving. It's just the term that we landed on to describe it and there have been 3 halvings. Um. 202012 2016 2020 and in 2024 each each of these 4 years apart and 2024 we're going to have the fourth having so supply issuance is going to get cut in half suddenly our annual supply inflation rate is going to drop from one point 8 0.9 suddenly it's much better than gold in terms of storing value and propagating it into the future without dilution. So that's that's how the process by which bitcoin slowly becomes a better store of value asset. Better and better and better and better every 4 years and doesn't get any worse at being a store of value asset with regard to scarcity specifically which is the most important property of money.

01:01:47.89

ilm

The wild thing with this is we have this? ah ah, collision of increasing scarcity with increase adoption rate. So the new units being introduced are being suddenly. Ah.

01:01:58.26

Jesse Myers

Yes.

01:02:04.38

ilm

Distributed amongst the larger population right now. Very very small 1% or so of population actually understands and owns bitcoin. So yeah, we have these things colliding that that really make for an interesting environment and that that is that is constant but is but is ah.

01:02:14.88

Jesse Myers

Um, yeah.

01:02:23.15

ilm

Highlighted emboldened every 4 years at this having cycle because most most normal people like you and I are weird but most most normal people right now think the bitcoin's dead. So there's we've reached a supply demand relative supply demand ah equilibrium and then in whatever five months

01:02:25.99

Jesse Myers

Yes, yes.

01:02:33.83

Jesse Myers

Yep.

01:02:42.14

ilm

Ah, that Equilibrium will be impacted by this having event. So Suddenly the new supply will be suffocated and the demand will stay relatively the same assuming there's no new adopters at that point and when we have a reduced supply and increased in and a steady demand like causes. That should cause price to go up and that's what happens every 4 years. The price goes up and then everyone who thought the bitcoin was dead so that look hey I thought thing died then to go down 80% like I have friends who lost a ton of money. Well I guess I should go buy a little bit because it went up some well then you have again this reduced supply met with an increased demand which causes.

01:03:03.20

Jesse Myers

That's right.

01:03:19.48

Jesse Myers

Yep, so.

01:03:20.25

ilm

More euphoria and so on and then we then we reach the place where people go do stupid stuff. You know they're you know getting kidneys taken out and ah doing all kind of doing and doing dumb stuff to to building a lot of leverage and goofy things come along with other cryptocurrencies and a lot of speculation and then it reaches euphoric high then something happens. Ah, you know a domino falls and it goes down There's like a seventy eighty percent drop and then people think that I knew that was a ponzi I shouldn't have trusted in the you know in the first place I was right? Um, and then it goes back to this hibernation in a sense where weirdos now the weirdo population grows every 4 years. Um, but.

01:03:53.57

Jesse Myers

Yep.

01:03:57.79

ilm

But nonetheless weirdos continue accumulating for a few years and then it pops back up and that's that's what we've seen. That's why there's this I thought this thing died this seems familiar now because we've seen this multiple times and I I strongly assume that we'll see this again in the spring of next year

01:04:13.64

Jesse Myers

Yep, that's right, you you hit on a bunch of key points here in In fact, my earliest bit of analysis that you probably haven't seen because it was I was less well-known three years ago was I bitcoined at. Adoption adjusted scarcity and where I combine the adoption curve um in the amount of people competing for new bitcoin versus the increasing scarcity function of it and that results in you know as sort of amplified. Um.

01:04:48.47

Jesse Myers

It that yields ah, based on depending on the assumptions you put into it. It makes sense based on those mechanics that the price of bitcoin would go up 5 to 10 x every 4 years during particularly during this stage of the adoption curve where. It's exponential in terms of the amount of New Adopters coming in per per unit of time.

01:05:12.99

ilm

We have this introduction of computing stuff that's beyond me. We have the monetary side of things and then we have game theory that makes us really interesting So you choose the game theory part of it which comes in with conversation. We'll have in a minute about whether there are cryptocurrencies.

01:05:25.59

Jesse Myers

Um, yeah.

01:05:30.53

ilm

But also we look at adoption rates I view I view the adoption rate of bitcoin very similar to the internet's adoption rate I would say that right now bitcoin's adoption rate is probably in the mid 90 s maybe like ninety five ninety six ninety seven as far as the internet's concerned, but it's being adopted. More quickly and more distributed than the internet was which is really interesting to watch I mean heck just think about the internet just even the last fifteen years I remember my my sophomore year of college in 2009 when my roommates would buy his doritos on Amazon and I couldn't understand what like what is Amazon. You know that that I I feel stupid saying that but that that wasn't that long ago and at that point the internet at that point was was really adopted but it's just come so much further. So that's that's more of how the adoption curve is working so you wrote another article. It's is sort of fun and it's the yuppy elite. Article can you can you talk to us about that right? quick.

01:06:23.50

Jesse Myers

Yeah, ah so so everyone who gets into bitcoin has this pretty classic arc of you know everybody First of all everybody thinks it's stupid at first everybody writes it off at first. Because it it sounds stupid. It sounds like internet monopoly money. So why should I care about that and then for various reasons people take finally take serious interest in it and and start to actually do their homework and then in doing that you realize ah, many of the things that we've been talking about over the last hour like oh wow like I didn't know the history of money I didn't know the properties of money I didn't know that scarcity was so important important and I certainly didn't know that bitcoin is a system of money where there will be a finite amount of it and I kind of want to own a piece of that before the rest of the world catches on. And I also didn't know that bitcoin has increasing scarcity such that it's easier for me to obtain a ah unit of this currency now than it will be in the future when they're issuing less of it and so those those things when they start to make sense. You start to get excited about it and want to. Want to own some of it. Um, and yet everyone in your life is not there with you right? everybody in your life is still viewing it as stupid and writing it off because because it sounds stupid and and and so that that was my experience. You know i.

01:07:50.00

ilm

Ah.

01:07:53.66

Jesse Myers

I went to I went to Stanford to get my Mba which is a fantastic school and I went to school with incredibly smart people and they're all very resistant borderline hostile towards bitcoin um because it doesn't make sense. It sounds stupid. So why won't Jesse shut up about bitcoin and this is an experience that everybody everybody who gets into bitcoin deals with and so I ah tried to articulate what I think is going on here and ultimately in part of this is that. You know we see how um out of there's all types of people who who are into bitcoin and yet there's ah, there's kind of a particular archetype of people who dismiss bitcoin and the people who tend to dismiss bitcoin are very smart. So. What is that is it is it that the smarter you are the more you think that bitcoin is stupid because you know that would make sense right? that that which that would line up with our expectations of reality. But then when you get into bitcoin you find out that there's a bunch of nerds like you and me who are pretty damn smart. Who think that this thing is incredible. So how do you reconcile that and I realized that for me the the major driver of that gap is how much you trust the existing system and and I think that is helps explain why so many people who are very smart.

01:09:27.30

Jesse Myers

Think that bitcoin is a stupid idea because they trust the system they trust the Us dollar um they trust what the government says ah in general and and bitcoiners tend not to and so to to understand bitcoin to see the point of it. You have to be. Have to be coming from a place of of not entirely trusting the dollar not entirely trusting ah that the government's going to. You know, not ah debase your savings and dilute you or soft default on its debts or any of these other things. Um, and I think that's the big driver.

01:10:07.55

ilm

That's that's why I like to lead off conversations with establishing historically what are stores of value and forms of money because that that's how we have to arrive at why bitcoin. Um, if you don't understand those things the history then you think you're going to solve for a non-problem. And bitcoin is certainly not is not trying to solve for a non-issue. It's solving for an issue. It's existed for thousands of years the issue I I interact with a lot of financial planners and yeah, a lot of people a lot of financial planners but me most of think I'm stupid. That's fine. My mom thinks I'm smart and ah, that's all I need. Thanks mom now we ah.

01:10:42.25

Jesse Myers

Um, yeah.

01:10:45.34

ilm

The problem is most financial planners I interact with are really smart and their issue is they're really good at managing money. They're great at helping people with stock options and tax planning and all these fun things managing Moneywise but most of them what I've recognized have never actually stopped to ask. But what is money. And if you don't go there then you'll be like a fish that is swimming in water all day and maybe you're a great swimmer and you're good at interacting with the water but you never stop to think but what is this substance and as that substance begins to change. You're not recognizing that change itself because you never put thought of what is this thing I'm in anyways and that's that's something we have to start. Pulling the current back on is what is this or else you're you will think that you're solving a non-issue. Let's go there I I do want to talk through the where do you think bitcoin is going but let's let's confront some stuff there while we're at it first like we need to pull back these things ask the hard questions. I get asked a lot of questions by clients by random people because I talk about bitcoin a lot and by financial planners I regularly. Ah probably quarterly prod the prod the bear trying to get financial planners to at least look into this and they all think I'm an idiot. Um, and I get a lot of questions by these people and so it's okay for to sit you up with some common questions I get speed round all right? Ah, why would I buy bitcoin versus another cryptocurrency.

01:12:01.20

Jesse Myers

Yeah, we'll do the speed round.

01:12:11.35

Jesse Myers

Yeah, this is where the ah bitcoin. Ah, digital scarcity is a 1 ne-time phenomenon comes in because once you create that system of digital scarcity. Um, where you cannot copy and paste within that system. The problem is you can you can take that system that circle. Ah, is how I conceptualize it and you can create a copy of that. Um, and so now you've created a new system of digital scarcity. But it's a copy of digital scarcity and that you can create infinitely more copies of that system of digital scarcity. And that's what we've seen. There's 30000 copycats of of bitcoin's invention of digital scarcity and then if you think about it those copies inherently are not scarce because they're all there always being more new copies created so there's no scarcity. For a copy of digital scarcity. Ah and and therefore you can't you know be storing value in in one of those copies. It doesn't make sense because they're going to make so many more new copies of that of a new form of digital scarcity system that you're.

01:13:26.14

Jesse Myers

Your copy isn't special. It. It doesn't make sense to to store value in overtime and in fact I I call this the crypto catch 22 where to catch bitcoin to catch up to Bitcoin. You need a marketing budget and. And a leadership team to guide the development of your project. But if you have a marketing budget and a leadership team to guide the development of your project that means that you are a centralized entity and you cannot compete with a decentralized open source protocol like Bitcoin. So It's It's a losing game from the get-go.

01:14:04.92

ilm

What about the volatility. Um, it's it's too volatile and yeah, it's dangerous.

01:14:05.52

Jesse Myers

Yeah.

01:14:12.50

Jesse Myers

Yeah, it's it's too. Volatile it's too volatile ah it's It's very volatile because that's how you experience it? Um, because the the. You know the thing that's not volatile is the supply of bitcoin and what's volatile is the rest of the entire world adjusting to this changed reality of like okay this thing bitcoin How much do I value it and it goes through and it's also experiencing these periodic Um, having events. Upend The equilibrium that's been established and supply and demand price Equilibrium and ah results in ah in a bubble as you described well earlier. You know the the history of bitcoin is the is a history of miniature bubbles. Not so miniature bubbles These are these are Bona Fide bubbles that. That develop for for real reasons for positive reasons which is the halvings causing the price equilaorium to be Upended. There's not ah as much. Um, New supply being created going out to meet ah the unchanged demand.

01:15:25.96

Jesse Myers

And so the result is the price has to drift upwards but people get too excited. It turns into a speculative mania you create a bubble the bubble pops ah on the backend of that and you know it crashes. There's big drawdown but stability reestablishes. Itself over that 4 year period from having create upending that equilibrium until the next having four years later so what we see is this sort of sine wave effect um like a heartbeat. Um, every four years following the halving. And the key is that you know each of these bubbles each of these sine waves these heartbeats has a higher high and a higher low at the back end of it and that's the key is that every ah post bubble bottom. Is higher than the one four years before it significantly higher than the than the one four years before it and that's that's how bitcoin grows grows through this these ah periodic shocks of volatility. But if you can hold for more than 4 years. You see the value of your the purchasing power of your. Stored value grow.

01:16:44.80

ilm

Um, what about I mean just going do classics. Um, it's funny. The same things come up over and over again. So what about it's It's just a. It's just a shiny rock. It's just Beanie babies. It's just tulips. It's just speculation.

01:17:00.40

Jesse Myers

so yeah I love this one ah so the tulip mania the Dutch Tulip Mania was a four month period and people forget that you know when they talk about this is this is a tulip bubble. Um, and you know that. For each of those examples beanie babies. Let's talk about that. Um, who was there any sort of finite supply of beanie babies was there any sort of like reliable um supply constraints on beanie babies. No not at all it was all Manufactured Hype um you could create however, many be babies you wanted and that's not true of bitcoin bitcoin has this increasing scarcity that is completely indifferent to how much bitcoin we would like to create and in that sense you know it's it's truly different because you know. I would love I would love to get my hands on a whole lot more bitcoin than I than I have but I can't I can't do anything but buy it on the market from people who already hold bitcoin or compete for the small amount that's being issued today via mining those are my only options. And that makes it fundamentally different from beanie babies or Tulip Tulip mania or anything like that and you know the the other thing to think about here is that we've now had 15 years of bubbles a whole series of bubbles and each bubble.

01:18:30.96

Jesse Myers

Ends up with a higher base than the one before it and that is not how beanie babies or tulips or any other classic bubble works out those bubbles. Go back to 0

01:18:42.94

ilm

What about another oldie but a goodie I get regularly primarily from financial planners would be um I'd rather own companies that cash flow. Um, or I don't invest in non-producing assets.

01:18:56.72

Jesse Myers

That yeah that's a great one. Ah and this is a school that thought we were all brought up in in in in terms of investing you want yield you want yield you want something that generates more dollars but um, but why you know like the assumption there is that. Ah, the dollar is money. Um, and there's no other form of money that's kind of baked into that you're sort of assuming that there's no money competing with dollars that could possibly outperform holding dollars. So you know if you want to think about it in that sense. Over the last ah gosh I mean if you go back for a decade and bitcoin is returning 100% annualized average growth in terms of value appreciation. It's not yielding any additional units of bitcoin by holding it. But you're. Growing your value by more than you would generate a nominal yield by holding any dollar based asset dollar generating asset and then the other thing to think about there especially with regard to bonds is you know a bond is a promise for future dollars. So. You know if you hold a ah ah 5% bond which is sort of the you know what bonds are trading at right now. Um, you get 5 % per year for holding that bond. But what's inflation you know it is is is inflation 3% like.

01:20:32.60

Jesse Myers

They you know like they say it is do you when you go to the grocery store this year versus last year do you feel like you're spending more than 3% more is it 7 % more what's the true cost of inflation and if you're the bond that you're holding is generating less than the true cost of inflation. Then you are losing in real terms just by holding a dollar yielding asset that is not yielding enough to make it worth your while.

01:21:01.51

ilm

Yeah, our our inflationary rate at the ah inflation rate at the grocery store is certainly more than three percent or 5% and based off of the the gaffes gasps and groans that I hear in line at the grocery store I think other people's wallets agree that they're experiencing far more than that.

01:21:19.00

Jesse Myers

Yep.

01:21:20.12

ilm

What what about this one? Um, if the government bans it. It's all going to 0 Anyways.

01:21:25.37

Jesse Myers

Yeah, this is an interesting one because it's a very compelling point right? like that makes a lot of sense. But then you have to think about how this is this is a an international money. It's ah it's a non-s sovereigneign money. It is a super national money it it's the. It's money for the internet and the internet is a global thing. Ah and this is where game theory really comes in um, one of the one of the best things that the us did with its with regard to its ah policy on internet innovation in the ninety. S. Was to allow innovation to develop because they knew that they wanted that innovation to happen in the us to be the home of this industry and that worked you know Google Amazon these are us companies. So the the home of the internet is the United States and fundamentally and. That has accrued a ton of value to the us. It's been very strategically smart for the Us to embrace the internet and and bring adoption and capital to the us. Ah, and so every country knows that and every country wants to be that for cryptocurrencies. Um. Every country has that incentive at least to be that for cryptocurrencies and some will not do that like China has been kind of increasingly negative on allowing this stuff because it's sort of incompatible level of freedom with what they generally go for. Um.

01:23:01.49

Jesse Myers

But every other country has this incentive El Salvador has made bitcoin legal tender and has seen a huge influx of of capital and talent flowing to El Salvador and it's been an ah, extremely successful initiative in just 2 years every country on earth has that incentive in the game theory to be to embrace bitcoin and want it there and so unless you get every single country on earth to ban bitcoin then the innovation flows somewhere the capital flows somewhere. And that means that you know when you think about it from the game theoretic point of view. It's kind of the only losing move is to you know ban bitcoin and instead you want to embrace it.

01:23:47.67

ilm

Yeah, the the classic meme of you. You can't what you can't ban bitcoin. You can only ban yourself from Bitcoin Um, who you brought the internet a second ago I think this is really important and something that stops financial advisors from understanding why you should own bitcoin and only seeing it as a speculative.

01:23:51.39

Jesse Myers

Yes.

01:24:04.31

ilm

Like speculation versus investment is because what they're viewing bitcoin as is a competition or competitor amongst like tech stocks or something like that if you and as another company or trying to value it as a bond. But again bitcoin is not a company There's no free cash flows. Doesn't have a dividend. Ah it's not growing in valuation based off of taking over market share because it's producing a new good. It is money itself and the way it's going to grow is by adoption rate. So I'd put that as ah, bitcoin is not Facebook or my space bitcoin is the internet and um.

01:24:39.40

Jesse Myers

Right.

01:24:43.50

ilm

Bitcoin or the internet's adoption rate grew um, and as that the the internet itself became more valuable now you have companies that's built on the internet that come and go um, that's that's um, that is wildly important to understand that. That's important in a lot of ways again from evaluation perspective like what market shares is' trying to take but then also as an attack vector you mentioned earlier ah mojo nation I think I've never heard of mojo nation. It lost its mojo um, that was like perfect time I would assume that came out like right around. Ah Austin powers times too.

01:25:17.50

Jesse Myers

You have probably.

01:25:19.90

ilm

Ah, but okay so mojo nation like you mentioned like all these other cryptocurrencies had were wereep it to these state attacks because they had a centralized authority and ah bitcoin doesn't have a president of Nava Cdo Ceo it doesn't have a marketing team. Um, it's it is money that's out there. It's it's wild to think through. Okay, a couple last things that I think are important. You can answer these real quick. Um, one. It's primarily used for illicit activities and 2 it's bad for the environment.

01:25:48.83

Jesse Myers

Yeah, the illicit activities one is is just totally ah, totally wrong. Um, you know what? what currency is best for ah illicit activity one. That's not trackable. Um, like ah like the Us dollar like physical. Ah, notes. That's what you want to use for for illicit activity. In fact, there's a real example.

01:26:11.80

ilm

Was I saw I'd be making up a number. But I think it was like 90% of us dollars can ah contain traces of cocaine on it.

01:26:19.80

Jesse Myers

Right? I've heard that too. Yeah I believe it? um and and some tiny tiny portion I forget if it's like half a percent or less something tiny of um of bitcoin activities is illicit. Um. And there's a recent example here of um of Hamas um, having to tell its supporters to stop sending cryptocurrency because the cryptocurrency is trackable. And so you know they they may they don't want forms that that form of donation to their cause because it's more easily ah shut down so you know that's just entirely wrong. Um, but ah, you know I guess it's rooted in. You know the very early days of. Of bitcoin were um, some of the earliest adopters were were these online drug bazaars where you could go buy drugs anonymously over the internet using this form of currency and I think it you know that it's vestigial from then and and that's really not. How bitcoin is used now. The other thing you you asked about was ah well was it energy. Yeah so I would actually take the completely opposite stance. Um, that bitcoin is.

01:27:32.88

ilm

Yeah, it's bad for the environment. Its energy uses waste.

01:27:45.37

Jesse Myers

Possibly the single greatest tailwind for um, the adoption of renewable energy. Ah in the world. Um, and and I would also include in that nuclear power. Um, to be fair which is not all. Commonly thought of um and and and I say all that because um, one of the problems with like hydro power is a great example. Um, let's talk about we'll talk about Africa. Ah. There's a lot of places in Africa that have abundant water and therefore lots of rivers and hydropower potential. Um, and they simultaneously don't have any electricity. They don't have a grid um because there's not enough industry to justify creating. You know a coal-fired plant. That would create electricity for the surrounding area. Um, but they have all this hydropower. that's that's unused but there's not even enough of a business case to put in a hydropower facility. Um, until bitcoin and and that's a pretty. Radical change because bitcoin is what's the phrase that people like to use. Ah, ah, it's always willing to purchase electricity any spare unused.

01:29:19.24

Jesse Myers

Excess electricity bitcoin will take because all you need to do is plug in a computer. Ah a bitcoin miner and use that electricity to generate new bitcoin which is money and so you know all you need is electricity to generate money. Just by plugging in a computer ah a piece of hardware and that's a super low barrier in terms of infrastructure necessary. So suddenly we're seeing um communities that don't have electricity in Africa.

01:29:53.73

Jesse Myers

Ah, get micro hydro power installations put in There's a cool company called gridless compute doing this for example and now that that micro hydro power facility is generating electricity. That's being used first. For bitcoin miners. But it's actually available to the highest bidder. So if you know the local community wants to buy that electricity. They can um and so suddenly you've bootstrapped part of what's necessary for um, development to occur in an area. Now. There's electricity that's available if you want to build some kind of plant. Well you can plug into the microhydropower facility that's spitting off electricity now. Um, and so in that sense that that renewable energy installation becomes possible because bitcoin is the. The buyer of last resort is the phrase that I was thinking of um and and that's true across all types of of renewable energy. Um, and you know in particular one with regard to like intermittent energy like solar power where half the day solar power creates too much energy and that energy goes unused. But if if you have bitcoin miners there they can use that energy and turn it into money. Um, and so suddenly the business case for when you're evaluating whether or not to put in that renewable renewable energy installation makes more sense.

01:31:28.63

Jesse Myers

Because you're going to get more revenue than you otherwise would have if you had wasted unused electricity and so that helps justify from an ah economic point of view adding more renewable energy to a world and so and it's actually a tailwind. And not only is it a tail when it's it's helping to um to incentivize more efficient forms of of energy installations. It's also helping to ah balance the grid to load stabilize so in like in Texas Texas has a problem with. Intermittent energy. Um, occasionally, there's you know too much demand for energy and not enough being created ah and in and in that those scenarios any bitcoin miners in Texas can actually just switch off. Um and the. Energy grid incentivizes them to do so and pays them for for not using electricity for that period of time. Um, and so that way becomes ah a way to load balance to stabilize um an energy grid just because there's bitcoin miners who are happy to switch off at a moment's notice.

01:32:43.39

Jesse Myers

To stabilize that that energy grade. So when you dig into it. Basically there's a lot of reasons why bitcoin mining is one of the best new variables in the future of energy for the world.

01:33:00.55

ilm

That even with all that if we if we put aside like well Jim if you create 1 unit of waste that's unnecessary. That's still waste. We still have to consider what is bitcoin doing anyways. And again we have to consider the the alternative so of having sound money.

01:33:16.20

Jesse Myers

Right? right.

01:33:20.43

ilm

Um, versus a fiat standard. Um, and again I would I would argue that our current monetary system creates much more wasted energy both human energy and also energy energy. Um I don't know the word. Um, but actually you know the energy people get mad about and so there's a lot of wasted energy there.

01:33:27.20

Jesse Myers

Yes.

01:33:34.28

Jesse Myers

Um, yeah.

01:33:40.38

ilm

Um, that people don't account for.. They just see the surplus of energy created by bitcoin or utilized by bitcoin without thinking of the opportunity cost of bitcoin not existing so we have to consider that as well. Aside from the the opportunities now presented through bitcoin all right?? um. I've kept you for a really long time. Would you have a moment to talk through. Okay I think we should own bitcoin but where's this going Again. We talk to like having cycle adoption rate game theory history of money. Um, really small adoption right now most pretty smart people don't own it The having cycles.

01:34:04.36

Jesse Myers

Yeah, yeah.

01:34:17.96

ilm

Um, all that stuff so like in the the what is what is bitcoin trying to solve for and ah the full potential valuation. So let's let's arrive at that. Finally.

01:34:26.14

Jesse Myers

Yeah, so we we set the stage for you know it's it's $500000000000 asset 0.05% of global asset value out there and. You know what is bitcoin trying trying to be It's trying to be digital gold at at minimum like that's I think the easiest mental starting point. Um and gold is a $12000000000000 asset all the gold in the world is is $12000000000000 so to get from today. To that is what is that it's a ah 2024 um, twenty four x to get to gold to to become digital gold and how does it become digital gold just by the march of time just but by increasing scarcity continuing to play out. And people and at the same time. The adoption curve of people realizing the properties of bitcoin um, leading to increased demand. That's all that's all it takes for bitcoin to 24 x to match gold. But that's that's the the low end of what's possible for bitcoin. And this is where it gets a little crazy and I understand this this all sounds a little crazy but with every asset in the global asset landscape. There's new supply being issued every year and that new supply sets the ceiling for the total valuation for that asset class.

01:35:59.26

Jesse Myers

Um, you know gold at 1.5 to two percent a year is a $12000000000000 asset class real estate. There's a tiny amount of real estate like new land being created every year and that's a $300000000000000 asset class.

01:36:16.94

Jesse Myers

But the ceiling is there for both of those because the the market has to absorb the the new supply created every year and um and with bitcoin obviously that new supply created every year goes eventually to 0 so. Bitcoin doesn't have like long term over yeah this will take decades to get to. It doesn't have that kind of ceiling. Um, its ceiling is therefore then based not on how much supply has to be absorbed because it's zero. But instead how much people want to hold. Bitcoin as a digital store of value versus other assets and that's kind of open to everyone's interpretation of of how much how much bitcoin do you want to hold versus bonds or versus equities that that are generating some kind of yield and. Versus how much do you want to hold a form of money. It is savings vehicle that allows you to propagate your value through time undiluted and grow at at least the rate of the economy's growth in in purchasing power every year um and you know over the next several decades as increasing scarcity plays out. It'll be yeah magnified by that jet fuel of increasing scarcity causing value appreciation to play out so how much do you want to hold that.

01:37:47.66

Jesse Myers

Versus how much do you want to hold bonds which are going to generate a negative real yield ah over the next few decades as we are forced to inflate away our national debt. There's three hundred trillion sitting in bonds ah half a trillion sitting in bitcoin. How much of that will flow into bitcoin once they realize the properties of bitcoin as an investment asset. Don't know. It's kind of up to everyone's individual assumptions about what's possible there but I I personally think the a conservative. Ceiling of what's possible for bitcoin within this framework the full potential valuation framework is is ah to be a $200000000000000 asset class and that would mean $10000000 per bitcoin in today's dollars several decades from now. And so that you know that's a 30 year prediction maybe even more. But right now you know it's ah 35000 per bitcoin so to go from there to to even a million per bitcoin would be an incredible success and you know the. Best performing acid almost in almost anyone's portfolio.

01:39:05.20

ilm

Yeah, as we think through this again, there's the adoption rate the the alluding to internet. There's the game theory involved. Um, again, how do we arrive at this like bonds real estate equities. There's all these things and Trey and I talked about this a few weeks ago on the podcast was. Ah, monetary premiums assigned to all these other assets like a house cost outrageous amount right now not because people want homes but because houses are used as stores of value assets and in my opinion. Ah that monetary premium the difference between the actual. Use case of a house and the cost of a house again. We can assign that as being called a monetary premium that monetary premium. My opinion will be eroded and put into bitcoin because bitcoin is easier to easier to hold. It's more tax efficient to hold in a lot of senses. Um, you can transact it. It. Lot more easily. Um it. It contains these these properties that we just assigned earlier as being or find earlier as being important parts of money. Um in a much more simplistic way than than ah yeah, real estate or gold or bonds. So that's where you get not just the adoption 1% to 100%. Whatever maybe that's too bullish but this adoption rate but that coinciding with ah as people start understand this they will in may may I think that they will start taking a portion of the monetization of other assets putting into this thing causing to go up further until eventually reaches equilibrium.

01:40:38.70

ilm

The goal is one day probably not my lifetime Bitcoin's really boring. It's talked about maybe I'm in a really small bubble that I hear people say like talk about fiat and stuff all the time now. Um probably just me Um, but I feel like people talking about money and what money is is actually sort of in vogue at the moment. Um.

01:40:56.30

ilm

Historically, That's not been a very fun topic for most people and my hopes is that yes I assume that over the coming decades money will be a popular conversation not money in the sense of like you know rap videos and doing stupid stuff is money but like actually the core principles of money itself. But then eventually once bitcoin is. You know, globally adopted. It should be really this should be really Boring. We don't have to talk about it. It would make financial planning a lot easier because we're not speculating with with a store of Value. We have something that's a hard asset that we can just account on pretty pretty well and ah yeah, eventually this will be a non-issue. It's something that you don't hold bitcoin in order to grow your wealth. You hold bitcoin in order to retain your wealth that is what money is supposed to do money is supposed to hold communicate and transfer value across space and time right now it's just bitcoin is been growing purchasing power. And value across space and time because of the adoption rate because of the inflows of capital to it but eventually it all Reaches Aquilob It's boring and just just own it because you want to retain purchasing power and then you'll go when you'll Buy. You'll buy other assets that have been reppriced against actually a good sound money that will cause these other assets to actually be Ah. We can actually use math again to value things versus speculation. It is like hey the opportunity cost of holding bitcoin money is boring versus if I go invest in something and actually invest. Um, if I go and invest this I can get some yield off of that it will reach this place again. Well people will be motivated to go in part with their bitcoin to.

01:42:28.44

ilm

Buy assets other assets Income Producing assets and things will be reset in a healthier way and I'm excited for that I doubt I'll see that my lifetime but is fun to see that's another thing I heard ah another financial advisor say to me is like yeah I think this is probably going to happen but it's not going to happen in my lifetime. Why would I even Care. It's like. Know Do you have kids? do you care about Humanity. Um, that's weird. Um, and yeah, I'm excited. That's just the ability to participate in this you know I was ah born way too late for the adoption for the adoption of the combustible engine and you know the internet. Ah you know we saw a rise of that in our lifetime and but I think this will be on par with the internet. The the wheel. Um, and we're right in the middle of this and it's amazing like ah maybe we'll look back as fools in 20 years and it's like dude I can't believe I put my so I stick my name to that thing I don't think that's the case I'm willing to put my neck out there because I think it's more of like.

01:43:12.15

Jesse Myers

Yeah, yeah.

01:43:20.18

Jesse Myers

Yeah.

01:43:23.72

ilm

Wow, these people saw something and I have a lot of respect like whoever Satoshi is it's incredible like they were able to build this the vision and the amount of things that he was able to understand and build together in bitcoin is astounding again from the technical side of things from computing to. The financial side of things. The game theory gets just beyond me and it's pretty awesome to to be part of that.

01:43:49.63

Jesse Myers

Yeah, ah, totally agree with all that the you know it may not happen in our lifetimes that bitcoin becomes the the unit of account money The the end state of what a money should be but we just happen to be I think. Living through the early stages of its adoption which means the most opportunity and the most upside is right Now. Um, and you know great. Ah, and so so I think it's a challenge for everybody to figure out how. How they're going to approach ah bitcoin and you know this is ah this is a problem that everybody faces every day whether or not they know it is how do I allocate my portfolio and my earnings into assets. How do I spend my money do I consume it. Do I invest it and then what and I believe we are living through the very early stages of the digitization of value and bitcoin is the protocol. The internet that all of this value will accrue to ah and. What better problem to have and.

01:45:03.60

ilm

I think on that note man we we hit a lot so I appreciate you let me interrogate you for the last almost two hours I enjoyed it. So appreciate it. Jesse.

01:45:13.51

Jesse Myers

I Yeah this was a ton of fun. We packed in a ton I Hope people get a lot out of it.

01:45:21.28

ilm

Alrighty.