My friend Bitstein aka Michael Goldstein rejoins me in this episode to talk about why he founded the Nakamoto Institute. We also talk through some of the highlights from the SNI Crash Course, which is a must read series of articles to improve your Bitcoin knowledge and understanding. Michael shares some incredible insight on Austrian economics, the cargo cultism of altcoins, and more.


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Stephan Livera: Michael, welcome back to the show.

Bitstein: Hey, it’s so good to be back. Very honored.

Stephan Livera: It’s been a long time since I’ve had you on, although we should admit to the listeners, there was the lost tapes episode that we had and we never released that one, but we’ve got you back now. So welcome back.

Bitstein: I still have a long way to go before I reach a Vijay level appearances on the Stephan Livera podcast.

Stephan Livera: So look, this puts you up to number two. Vijay is currently on four. Pierre is on three. So we’ll see how we go. I might get Pierre back on for another episode soon as well. But yeah, look… What I was hoping to get to today is the Satoshi Nakamoto Institute Crash Course, and the literature and just how the website came together. Because in my view, there is a lot of really high quality material on this website that a lot of newbies to Bitcoin have not necessarily read because they’re reading some of the articles that are coming out nowadays, which are in some sense downstream of much of this very foundational material that is on the Nakamoto Institute. So do you want to just give us a bit of an overview? What was your aim in setting up the Satoshi Nakamoto Institute, and setting up the mempool, which is like a blog series, and then the crash course?

Bitstein: Yeah. So I guess it all starts back when we all got interested in Bitcoin at the University of Texas, back in late 2012. And in early 2013, in that time period, I guess it was early 2012, I had started the Mises Circle at the University of Texas, which was an Austrian Economics reading group. We’d read all kinds of stuff from Mises and Rothbard and Hoppe and Hayek and everyone in between about just all kinds of random topics. It was a very eclectic mix of readings. But as soon as late 2012 rolled in, it quickly became the Bitcoin group, and pretty much every week was touching on Bitcoin-related topics. And because of this, there was a lot of discussion and there were a lot of original economic ideas coming out of the group. And I would say perfected in writing by Daniel Krawisz.

Bitstein: And we were posting a lot of articles on the Mises Circle of blog. Sometime is probably in summer of 2013, I met and Tuur Demeester for the first time. He was in town for something and we met at a Bitcoin meetup. And within our discussion, we had been joking about how there’s the Mises Institute for Austrian economics. There ought to be a Nakamoto Institute for Crypto Anarchy. And sometime in August I bought the domain and put a couple of things up in a really cheap HTML. Like it was literally like the most basic HTML page at the time, just to store some things. But by November 2013, I started the actual website and started collecting literature from the cypherpunks and crypto anarchists that Bitcoin came out of, and soon after launched the website as people see it now, which also includes the public writings of Satoshi, so that people can get the full Satoshi experience, so to speak.

Bitstein: So part of the reason why this was necessary at the time was that there was this… Well, first of all, actually, part of the reason was just because I was learning about the crypto anarchists from this hardcore Tim May perspective, as opposed to… Previously, my understanding of this cypher punks and crypto anarchists were more of the Julian Assange types, who I greatly admire. But it’s libertarian, but in a very broad sense. And when you come across Tim May, you start to realize that there’s also a lineage of crypto anarchy in the cypher punks that is extremely libertarian in the Austro-libertarian ancap fashion.

Bitstein: And so that obviously greatly appealed to me. And it was more than… I hate to use the word, but more than merely civil liberties. And there was also this understanding of how can you secure property, and all of these other libertarian principles along with the important civil liberties, using these cryptographic tools. And at the time, this was in during Bitcoin’s first, foray into the mainstream. There was the bump up to $250. And over the course of 2013, we saw it go to $1,000 twice. And I guess the second one may have been 2014. We had started to see Bitcoin reached some pretty incredible price levels, and it was getting a bit more attention, especially because of the Silk Road and projects like that.

Bitstein: And there was an element of wanting to bring Bitcoin into the mainstream banking establishment. But it was in a way of wanting to bend over for the banks. So it was wanting to say, “Oh, this is actually friendly to the bank.” So it was basically inviting them to come in and shape it to their will, rather than how it’s actually played out, for good reason, and it’s a good thing that it played out this way. That’s more the banking establishment has to adapt to Bitcoin rather than the other way around. But at the time there was this feeling among these people, that you could push Bitcoin in that direction. We remember all kinds of kerfuffles with the Bitcoin Foundation and some of these other groups.

Bitstein: So there was this element of that at the time, and there was also this drive to make it seem like, “Oh, well… ” Bitcoin has a lot of libertarian followers now. But Bitcoin really isn’t a libertarian thing, in a sense that’s true, in the sense that I think it can appeal to people more broadly than merely the hardcore Austro-libertarians. In fact, if that was the case, Bitcoin would be a failed project because we would not gain the liquidity needed to be the juggernaut it is today. However, the point that we wanted to make is, Bitcoin came out of this ethos, this very libertarian ethos… Even that term, there’s plenty of quibbles we can make about the exact nature of that. But it came out of that. And by design, it is a decentralized protocol that no one person or organization can control. So it’s effectively just by its very nature, libertarian. And the Nakamoto Institute would exist as a way to continue this, and preserve this intellectual tradition so that no matter what people wanted to believe, there was always that specter haunting of what the real crypto anarchistic vision was. And that was setting the ethos for my website.

Stephan Livera: Fantastic. I love it. And I think that is, to some extent, when people are reading other articles or other books, or watching other videos, some of that is almost like watered down material back from these days. And for me coming in, that was around the time I was coming in and I was reading these articles, and they were fantastic. And I want to talk through the crash course in particular. Because this is, to this day, I still believe, it’s one of the best places that I can point a newbie and say, “Hey, read through this series of articles, and you will attain a much better understanding of Bitcoin.” So tell us a little bit about the crash course and what you were hoping to achieve with that.

Bitstein: Sure. So there’s a, basically we can call it a blog, on the Nakamoto Institute, called The Memory Pool, the mem pool. And the idea there is, stuff that we want to believe is true, we tend to think that there’s a good reason to believe it’s true. But of course, it’s merely in the memory pool. It’s not confirmed in the blockchain yet. Although, over time, I hope we can solidify that, and make it immutable. But the purpose there is just to share these additional economic insights, going forward. So you mentioned the literature section. That’s stuff that’s, generally speaking, up until the publication of the white paper, and then the mem pool is the blog of economic analysis that was looking forward past that.

Bitstein: A lot of these articles started off on the Mises Circle website. I think you can even still see them on that website. And they were republished on the Nakamoto Institute website, because I thought they have a lot of value. I think they’ve held up very well. And since then, things have been posted to that. As far as the crash course itself, that actually came out of just a totally… It was on the spur of the moment thing. I was trying to explained Bitcoin’s potential for growth, and why it’s absolutely reasonable to believe that Bitcoin will take over as a global reserve currency, to actually a rather prominent no coiner. I won’t name names. I do respect the person, but unfortunately he’s a no coiner. And I was trying to explain it and I was just like, “Look, here’s the thing… ” And I was just copying over all of these articles, because we had effectively amassed the full story of Bitcoin’s path to dominance. And I was doing an annotated bibliography of that. I was just saying like, “Well here’s our thoughts on monetary policy and why Bitcoin not only fits that, but exemplifies that.” And shared a couple of articles on that.

Bitstein: I just went through, I just laid out what we had, not necessarily in publication order, but in a logical order of, “Here’s the story from A to Z, from zero to a hundred trillion USD, how Bitcoin takes over and why we believe that to be the case.” And so it sort of just happened unexpectedly, and I thought that it was a nice way to view the bog, and walk people through these articles, because it is this giant mess when you just come to scroll down the publication. So this was a way to walk people through that story, and give it more of a logical structure.

Stephan Livera: Fantastic. I love it. And look, I think many of my listeners, you would really do well to read through the crash course articles. I know so many of them are actually written in 2013 and ’14, but it’s like a very timeless series of articles. Let’s talk about a few of them. So let’s start with “End the Fed, Hoard Bitcoins” by Pierre Rochard. Now in this article, there’s a few comments around the futility of the traditional political libertarian approach of trying to audit the Fed, and trying to push gold and silver adoption. And in this article, Pierre’s really making that point that we should instead hoard Bitcoins. And he shows the flowchart as well. Do you want to just comment on those?

Bitstein: Yeah. So this was the first Bitcoin article to come out of the Mises Circle at UT. This came out in February 19th, 2013. But yeah. I think it was very clear from a number of different angles, why traditional approaches to defeating the dollar hegemony was a fool’s errand. One of them was the… It goes from Ron Paul chanting, “End the Fed.” With the supporters chanting, “End the Fed,” to Ron Paul wanting to maybe audit the Fed. And nothing ever happens. It doesn’t matter how much political lobbying you do, they have every reason not to share that information with you, let alone just shut the thing down. And then there’s also the fact that in many ways, fiat money does represent some improvements on the legacy monetary system, by virtue of its transaction costs. That’s not to say that it’s good, because we see what happens to the base layer and its supply, but it is extremely easy to send fiat to people, generally speaking, at least in the United States itself.

Bitstein: And then there was also alternative methods of trying to fight it, like e-gold, and stuff like that, which just gets shut down because it’s centralized. And so you simply can’t use those as methods. And so it becomes clear that you need something else. And Bitcoin is obviously that technology.

Stephan Livera: Right. And also, there’s a flow chart here which shows this very virtuous feedback loop, if you will. And I think that over the years, there have been many versions of this, but I think this is one of the first ones that I saw. And essentially, it was something like user adoption. Basically all of these factors are related together. It was like hoarding, user adoption, higher price, media attention, mining profitability, hashing power, security of the network, perceived legitimacy. Did you have any thoughts on that?

Bitstein: Yeah. Well, I think this one of the first great visualizations of all of these feedback loops, because there’s very many feedback loops that go into Bitcoin. But it is interesting because I do think that this is… It’s missing a lot. So it did. This is a good example of how we can learn a lot, and in years prior, we’re not dogmatists. And in this case, something that I think we’ve learned is… There’s also… Like there’s no mention of developers in this flow chart. And so that’s actually one of Trace Mayer’s network effects, is the developer network effect. And so if there’s more of a price, it’s going to attract more people to it. There’s going to be more… That that security of the network has to happen somehow. And there’s also just a coolness factor that can be separate from a lot of it. There’s a lot of other things going on.

Bitstein: But I think this was… I don’t remember when the post itself was made on Bitcoin talk, where that originated. It was actually the day before, in 2013. But it was one of those things where when you look at it, you can’t forget it. And it has hoarding at the top, or you know, on the original one, it was long term investment interests. But we all know what that means. So having hoarding at the top, and seeing how everything flows through it really sets the tone for how to understand Bitcoin’s path to dominance. And so I think there was a great thing to have set in your mind in early 2013.

Stephan Livera: Yeah. Excellent. And I think that’s really the way you have to conceive of it. Let’s move to the next one, which I wanted to touch on, which is Bitcoin Central Bank’s perfect monetary policy. Now this is an infamous chart. It’s got Bitcoin’s asymptotic money supply targeting. So Pierre wrote this one as well. And this one has what I call, what I think of as one of the most infamous graphs. Do you want to tell us a little bit about what Pierre is getting at here?

Bitstein: Yes. And this was written December 15th, 2013. And, Saifedean Ammous, our friend Saifedean Ammous has said that his book is effectively just the book-length version of this article, to give people a feeling for how influential this has been. What Pierre did in this article was take the concept of central banking and say, “We’re just… Bitcoin is replacing those central banks with a brand new central bank. It’s a decentralized one, but it is a central bank. There’s a central issuer of the money and all of that.” But he describes Bitcoin as a central bank would describe their money. So he gives a fancy term to Bitcoin supply curve, which he calls it asymptomatic money supply targeting. And he shares this infamous graph, that I think originated maybe on the Bitcoin Wiki, but I’m sure it showed up at Bitcoin Talk first, at some point, where it just shows the total money supply, and the has an asymptomatic to a horizontal asymptote, at about 21 million. And then the supply growth rate, where you quickly see the inflation rate just plummeting year-after-year, but especially at those halving, to the point where it’s zero once you get far enough into the future.

Bitstein: And so this is a good way of like, if you were trying to think of Bitcoin as a central bank-issued currency, which conceptually it kind of is, this is how we can think about it. We can think about the senior edge in Bitcoin versus the senior edge in a federal reserve note, et cetera, et cetera. And it really makes you appreciate just how much better Bitcoin is than the legacy institutions.

Stephan Livera: Excellent. And the other key point I think Pierre makes in this article is that fractional reserve banking cannot develop. Do you want to touch on that point?

Bitstein: Yes. So this is a very important point and it’s come up many times over the years. So yes. So there has been a long term debate, even among Austrians about whether or not fractional reserve banking is good or not. And there’s actually… He mentions how the Chicago School also has factions that believe in a 100% reserve currency. So this has been a longstanding debate, but then it’s like, “okay. Well, if Bitcoin just takes over, well we have the de facto winner. And so you don’t even have to worry about that anymore. We just have the money that works and it happens to be full reserve.” Now the thing is, as people often bring up the idea that, “Oh, well you go on an exchange…” And Mt. Gox may have been using fractional reserves, or tether might be this fractional reserve system, or you name it. Like someone somewhere is fractionally reserving Bitcoins.

Bitstein: The point here is that, yes, that might actually be true. But you’re also looking at fractional reserve in a particular company providing financial services, rather than the system itself. Whereas, when fractional reserve banking happens in dollars, that’s the money itself. It’s not just Chase Bank doing stuff. Everyone is affected by every instance of fractional reserve banking. So in this case, you’re opting in to certain trust networks, and it’s up to you to find the good trust networks. But none of those trust networks can change the chain itself. So as long as you store your own keys, there’s nothing that any of these institutions could ever possibly do that dilutes your wealth via fractional reserve banking.

Stephan Livera: I suppose, just on that point, it might be interesting to discuss. So part of what makes the Austrian theory of the business cycle is that these paper claims to money are circulating out in the community, and that they are treated as equal to the claims in the bank. Right? And so in the Bitcoin world, when you, alone, hold your keys, and you’re running your full node, et cetera, there is that point, I suppose, where someone might argue, “Oh, but what if Coinbase Bitcoins,” which is basically like a Coinbase IOU, right? And let’s say some other company, maybe Xapo Bitcoins… I guess what you’re getting at there is that those would be treated as different claims, right? A Coinbase IOU is different to a Xapo IOU, is different to some other IOU, which again is different to Bitcoins held on your full node with your own private keys, et cetera.

Bitstein: Exactly. Exactly. I think that was very well stated.

Stephan Livera: Let’s get on now. So you touched on this earlier, but this is also an infamous article. It’s, “I’m hoarding Bitcoins and, no, you can’t have any.” Now, this is a fantastic article by Daniel Krawisz, and I think it really speaks to this concept of reservation demand. Did you want to just expand on that?

Bitstein: Yeah. And this was written on February 12th, 2014. Basically, the argument is that, what increases liquidity in Bitcoin, what gives Bitcoin value is the fact that people want to hold onto it. In fact, you can’t really have a medium of exchange, almost in any of the sense, unless it’s something that people actually demand. So the reason that you can buy a good for indirect trade is because you think that someone will be wanting that thing at the end of the indirect trade. So the more that people actually demand a good, and want to hold it, that sets the lower bounds for its usefulness. And Trace Mayer talks about HODLers of last resort, and that’s like the hardcore hodlers setting that ultimate baseline. Whereas, the price couldn’t possibly go lower than a certain level because there is always that demand for holding it, for whatever reason that might be.

Bitstein: So, yeah, the argument is that there needs to be real demand to hold, to really bootstrap this. And this is in stark contrast to the arguments about spending Bitcoins. And that you need to spend Bitcoins at a store to really get the economy moving, or whatever. And it’s like, yeah, you could even convince a merchant to start accepting Bitcoin, but they might just turn around and sell it. They really just wanted the dollars. And so you haven’t created additional liquidity in Bitcoin. You’ve actually decreased the liquidity in that case. There’s plenty of reasons to want to spend Bitcoins at a Bitcoin-only merchant, aside from that, but if your goal is to take Bitcoin to the moon, you’re not really helping at the margins by doing that.

Bitstein: There is also the fact that if you are willing to give away Bitcoins, you’re not signaling to people that this is a thing that they want to hold on to. If you’re giving away free stuff, people assume some things. And I’ll tell you from personal experience, I stupidly thought that in 2013 you could stand outside and give out paper wallets or something, and that would get people interested in Bitcoin. No one cares. You just stand out there and look like a dork. So, you have to give people a reason why they would actually want to demand this thing. As we all know, number go up is a very compelling reason for people to want to do that. And it happens to be a self-fulfilling prophecy.

Bitstein: Finally, hoarding has always been used as a term by Keynesians and other economists to demonize the act of saving, because they view that as withholding money from the economy, and therefore it’s not put to any use. However, when you hold money, it is a productive action. Otherwise, you wouldn’t be doing it. No one does stuff that they think is on net, negative for them. And you’re actually in a way investing in the economy. You take money out. That increases the value of ever everyone else’s money. And then as more people do that, and that adds up to an appreciable increase in the value of the money, then suddenly people have enough capital to take on investments that they didn’t previously have the ability to take on.

Bitstein: And so they can go out and do that. And if they had a good idea and they have entrepreneurial profits, then that comes back. And that’s a increase in the wealth of society. And therefore your money also has more purchasing power because there’s just more capital out there for you to purchase with it. So in a sense like the hoarding is a productive act of hedging against future uncertainty, such that you can… There’s nothing you want right now, but perhaps in the future there would be. And so far as you’re making any money by holding a currency, it is because the economy had grown, thanks to this sort of process writ large. You are taking on risk, and you’re getting benefited by having invested in the economy as a whole.

Bitstein: So hoarding should not be seen as this evil thing. We take on the word hoarding because, just like maximalist, to toxic, or whatever else, we like taking on the hater’s words. But saving should be seen as a good thing, not a bad thing. And this is a great argument against that mindset.

Stephan Livera: Excellent articulation. I don’t think I could have said it better. And for listeners who want to read more into the background of some of Michael’s comments there, I recommend you check out Hans-Hermann Hoppe. There’s an… I think it’s a lecture, but you can find it a written as an article on the Mises website. It’s called, “The yield from money held, reconsidered.” And also check out some of Guido Hülsmann’s work around deflation and some of his talks around why hoarding is not so bad. And these are some of the, in some sense, our intellectual forefathers who helped us explain and understand this in a more clear way.

Bitstein: Yes. Which to bring up, I’ve said this many times, but a Bitcoin maximalism, at least how I espouse, it is literally nothing more than the exact same economics that was espousing prior to Bitcoin, now with a new and improved magic internet money. And yeah, I think that that Hans-Hermann Hoppe article, I think I was one of the ones who brought that back, because it was one of those things that just like, I just remembered having read something back in the day. And you dig up all these classics when you’re arguing with no coiners. That is the real benefit of no coiners. But I think that actually came from… I think that may have been originally… Not originally, but it was included in the economics and ethics of private property, which I also highly recommend just as a whole, to Bitcoiners and anyone interested in Austrian economics.

Stephan Livera: You touched on… You made this point earlier about how now we’ve got this new magic internet money. And part of that is the open source ethos. So that is a good segue into our next one, which is another article from the mem pool, or the crash course as well. It’s called, “The correct strategy of Bitcoin entrepreneurship.” So we’re all in this together. What was the plan of this article?

Bitstein: Yeah. And so, for the timestamp, this was May 16th, 2014. The point here is that it’s something that I’ve articulated as, if you have a Bitcoin business, and basically you run into an issue with a Bitcoin, the problem is likely your business not Bitcoin. And in a more abstract economic sense, Bitcoin has a better return than pretty much any Bitcoin business you’re going to be able to create. And so, whether it’s technical or economic, businesses are going to run into this issue, and have to contend with that fact. Why would I bother to do anything if I can just hold the Bitcoins? And the reason is because you actually just want to make your Bitcoins more valuable. The correct strategy of Bitcoin entrepreneurship is to devote some of your resources, let’s say like 10% or something, towards making Bitcoin more valuable as a whole.

Bitstein: Now, the thing is, because this is a high-growth environment, and because Bitcoin is so trustless and trust-minimized and for enemies, and all of that, it’s imperative that as much be as open-source as possible. And so with this, we can think of Bitcoin entrepreneurship not as this… It’s a little in contrast with the Peter Thiel vision of startups that he lays out in Zero to One, which is viewing startups as a cult, where you have secret knowledge of something, and you’re arbitraging on that fact, that you have a deeper understanding of that than everyone else. Now, you could say that that’s what we’re doing as a Bitcoin cult, as a group. But it’s also important that within that cult, we’re sharing these ideas.

Bitstein: And so on the flip side though, from like that sort of extreme, just imagine like a single business as that cult. Instead, we have the whole Bitcoin economy as that cult. And you actually, just by nature of the economics, you’ll make more money just by helping number go up, and helping make it… I almost want to say make it safer for number to go up. Improved custodial solutions for yourself and for institutions so that when it does go up, people don’t lose their coins, and this sort of stuff. Now, he talks about labor being scarcer than ideas. And this is another problem in Bitcoin, and what became the cryptocurrency space where everyone has a lot of ideas, and they just want to roll their own thing. Like, “Let’s just create a new money.” Every time. It’s like, “I have a new idea, let me create my own money for it.” And it’s very easy to start coming up with these ideas. It’s extremely difficult to be able to put the labor in to make them work, especially when the ideas are doomed from the get go with a lot of those. But that’s another story.

Bitstein: So the point is, like when we look at entrepreneurship in the Bitcoin space, I look towards stuff like BTCPayServer, and things like Trezor or Coldcard, which is Bitcoin-only, so that that has a major advantage. But it’s these enterprises where… Now, BTCPayServer is being sponsored by individuals who are… If I want my Bitcoin to be better, that’s going to require having a world of BTCPayServers running. It’s in my interest to want to help that process along. With Coldcard, I’m sure Rodolfo is actually making… Maybe he’s making good money selling these devices, but it’s also because he’s just being… He just happens to be the one that has the hardware, and is selling it. But the knowledge itself is completely open-source. And there’s actually even an encouragement, if you can make your own Coldcard, you should do it. And people are very welcoming of that in the Bitcoin community.

Bitstein: So yeah. You want to think of Bitcoin as an open-source thing in the fullest sense. And in entrepreneurship, this means maybe looking at profits, not so much in terms of the total returns, because you’re simply like… Look, like if stock-to-flow ratio is correct, for instance, like you’re not going to be 10 X on your coins now through 2021 with some business. But you can think of it in terms of the actual human and technological capital surrounding Bitcoin, and how that only makes that liquidity even more valuable. And you can make it more usable for more things.

Stephan Livera: It’s also interesting to understand that not many Bitcoin businesses have returned, in Bitcoin terms. They have won, they might have profited in the fiat terms, but not in Bitcoin terms.

Bitstein: Right. Which if you’re a future-oriented company, you’re going to be wanting to think in Bitcoin terms. But it also shows why it’s important to have to think about your unit of account and all of that. But you know, the thing, just in general, I think what we’ve seen is a move towards what Daniel was writing about here. And all of the companies that we actually cherish tend towards this open-source model. And at the very least, open-sourcing as much as they can. Except for like core business ideas that might involve like customer secrets and stuff like that, which of course you wouldn’t want open-source. But as far as like storing coins and stuff like that, the hardware wallets where that knowledge is becoming more open, all of these things are becoming more open. And those are also… They’re the most well respected people, and there’s plenty of places to make money in it.

Stephan Livera: Yeah. Right-

Bitstein: In the meantime-

Stephan Livera: Not just that. Yeah. Right. Yeah. And it’s not just that. I think, I guess the way Daniel expresses it in this article as well, is he’s saying, “It’s not that much about making the direct profit, it’s more about turning Bitcoins into money.” Right?

Bitstein: Yes. That is a much more succinct way of describing the article then all the rambling I just did.

Stephan Livera: No. Well, I think it’s very useful context for the listeners as well.

Bitstein: Yeah. Excellent summary.

Stephan Livera: Yeah. Let’s talk about altcoins now. So there’s a few articles in the crash course talking about basically shitcoins. So there’s the problem with altcoins, the coming demise of altcoins. What are we getting at here? Are they basically just cargo cults? Are they not recognizing that liquidity is king?

Bitstein: Correct. That is it. So basically, this was coming out… So let’s see. The problem with altcoins, was written in August 22nd, 2013. So this was after the first… I lose track of the history at this point. I need to go back, but I think this is about the beginning of the Scambrian explosion as I’ve called it. I think 2014 was the real move into that. But we were starting to see Litecoin gaining prominence again. There was PPCoin, which I forget what that later became. Peercoin, I believe. I think they realized that PPCoin was not exactly the best branding for something. There is that Primecoin, Auroracoin, you name it. There was all these different coins that were coming out, and for the most part, a lot of them you’d, go on Bitcoin Talk and there would be a announcement thread and it would basically be a template where someone would say, “Oh, well this coin, it has this logo, it has this name, it uses this hash. It has this many coins, and this block time.” And everyone was just differentiating each other based on those same variables, which in a sense, none of those matter.

Bitstein: Like a lot of those are either arbitrary in Bitcoin, or Bitcoin, whether purposefully or not, optimized for a given thing. Like 21 million… I forget the details on how Satoshi picked that. But it was, for the most part, it’s just like a random number. It was 50 over that… It starts at 50 and goes through that geometric series and you end up with 21 million. It could have been something else. It really doesn’t matter, as Rothbard talks about. Any quantity of money is suitable for an economy. We could have one Bitcoin, as long as we have that way of dividing it into more, it’d be fine.

Bitstein: In fact, you could think of the 21 million as one, conceptually. It would just be different in the code, or it would have different numbers. It doesn’t matter. The hashing, it only matters in so far as the reliability of that security. Do we expect it to break? Or stuff like that. Block times, you know… 10 minutes was good because light needs to travel around the world, and you don’t want orphan blocks. But I don’t know, could nine be better? Is nine really going to make a difference? And the point is like, no. This is all just cargo cultism. It’s taking the shell of what Bitcoin is, and trying to just slap a different branding on it and throw it out there, and somehow think that that’s going to do just as well, when it’s missing these key elements of what Bitcoin is, which is money, and creating the network effects of money.

Bitstein: His other article was, “The becoming divisive of the altcoins.” And that came out in March 14th, 2014. I think this was in the height of the Scambrian explosion. This was really driving home the arguments about liquidity, which is, you can put out any feature you want. This is Ethereum was being talked about at this point. And yeah. So Ethereum was being talked about and yeah. Like these features of smart contracts can be very good for attracting a certain kind of investor, but they don’t necessarily create liquidity. And how many episodes are you up to now? By now your listeners, I think, are well aware of various ideas around this. But it was driving home that the need to have a saleable good in order to be trading it as money. And a lot of the other arguments around network effects just did not hold up very well.

Bitstein: And that alone, it shows us, when we think about liquidity and network effects, the competition between them is not this… It’s almost zero sum in the sense that it’s also exponential, in the sense that as a person leaves one monetary network and goes to the other, the one they just went to grew exponentially, and the one that they left shrunk exponentially. So this is a very nonlinear competition. And on top of that, there’s no reason to actually believe that there’s any sort of equilibrium between two free market currencies. And so trying to determine where that equilibrium would be is, it’s just ridiculous. And you might as well treat it as a 100%. In reality, it might be like 80% or something. But all of those extra shitcoins in the fat tails of monetary networks, that’s just like, they’re going to come and go and whatever. It doesn’t matter. What matters is, what is that one that dominates the power laws of monetary competition?

Stephan Livera: Yeah. I don’t think I could really say much to add to that really.

Bitstein: One thing to add to that is these discussions. So Vitalik Buterin had had a response, in Bitcoin Magazine, to the first article. And this article, the second one, the coming demise article, had responses to Vitalik’s responses. So it was just rebutting Vitalik’s response. And it was kind of around this, that Vitalik and company started using the term Bitcoin maximalist, as a straw man saying, that we wanted all of these ideas to be put on the Bitcoin blockchain only, when it was more like, “No, we just expect all of the money to be on the Bitcoin blockchain only. And who cares about the rest? Maybe someone will figure out a way to tie it to Bitcoin. Maybe it’ll just… Maybe it’s not even necessary. Maybe there’s some other method. But as far as money goes, Bitcoin will have everything.

Stephan Livera: Fantastic. Yeah. I think there were just too many… There have just been too many charlatans over the years, selling people this kind of false hope of, “Oh, buy this thing. And it might be… It does more than Bitcoin.”

Bitstein: Yeah.

Stephan Livera: You see?

Bitstein: Yeah.

Stephan Livera: “My shitcoin does… money and some other random other thing. So why wouldn’t my thing be more valuable?”

Bitstein: This is something that I like about Trace Mayer’s seven network effects, because it gives you a whole tally. And it’s like, “Okay, perhaps you have an edge on this network effect. But what about these other six? You’re totally getting wrecked on those other six. So you’re really not special. You got to be killing it on all of them to really want to catch my attention.”

Stephan Livera: Excellent. And I think we could also express it like the HODLer network effect, is probably the strongest one out of all of them, right?

Bitstein: Yes. I think it gives birth to the other ones, because it gives reason to be looking at the other ones. Like, a developer, it would almost seem like a waste of time if you were working on something that no one cares about. And it would be weird for a merchant to be… A payments network to be using a money that no one touches. What would be the point of incorporating that? So, yeah.

Stephan Livera: Yeah, exactly that. So look, let’s proceed on now… So there was some discussion, and I remember during those days, there was always a lot of conversation around, “Oh, Bitcoin’s got a bad image problem. Oh no, it’s used by the drug dealers and terrorists and money launderers and you name it,” right? Anything bad, it was a Bitcoin, that was, these are the people who use Bitcoin. And then to counter that, there’s this article, “Bitcoin has no image problem.” So what are we getting at here?

Bitstein: Yeah, well… It’s supposed to be bad because all of the drug lords are getting into Bitcoin. This was written February 25th, 2014. Honestly, it was the Silk Road that got me, that piqued my interest in Bitcoin and made it a real thing. And that’s coming from someone who, I don’t do drugs, I don’t condone drug use. But I can’t help but like libertarian, free markets. And so seeing the Silk Road actually excited me. So how could that possibly be a problem for its image when it was the thing that was bringing me into Bitcoin in the first place? If it was just another PayPal like, “Cool, it’s an app I can download.” That’s not special. What’s special is that you have a good that’s so interesting that people are willing to commit crime to get their hands on it.

Bitstein: It’s like, “What would you do for a Klondike bar?” Like, “What crime would you commit just to get your hands on another Bitcoin?” That’s an exciting proposition, and everyone should take note. And I’m glad that it’s mostly peaceful people acquiring Bitcoins. But that is a mindset to consider. And we just look at… This was one of the first… The meme didn’t exist yet, but this was one of the first, number-go-up arguments. Which is, “Yeah, that’s very nice of you to think that Bitcoin has an image problem, and somehow the drug markets will keep people away.” Which, by the way, right? A couple months before this, the Silk Road had been taken down, and Bitcoin was reaching all time highs, showing that the Silk Road was not as vital as they thought.

Bitstein: But it’s like, you’re saying all these negative image problems, but it’s been up 500 times in two years. So first of all, it’s not stopping anyone from adopting Bitcoin, and it’s not going to stop me from adopting Bitcoin. So it’s just not a good empirical argument at all. It’s usually just… This was people like Jeremy Allaire, who wanted to bend over to banking regulators, rather than adopt to Bitcoiners.

Stephan Livera: Right. And as I think, I might’ve mentioned this on the podcast with guests like Vijay before as well, but this idea of the payment system of Bitcoin, and that’s the significance of that. It really… It only matters after lots of people already have it. And so I think he’s saying here as well, the benefit is marginal to most people, of having a payment system, especially back in those days.

Bitstein: Yeah. And finally I would argue that if you were worried that bad people are going to get their hands on Bitcoin, then it is your moral duty as a good person, to get your hands on as many Bitcoins as possible to keep it out of the hands of bad people.

Stephan Livera: Everyone do your part. Buy Bitcoin.

Bitstein: I’m a Bitcoin HODLer. I’m on a moral crusade.

Stephan Livera: Okay. All right now. So let’s move on. So there was this whole argument of, “Oh, the government is going to shut down Bitcoin.” And perhaps in response to that, there’s this article, “Bitcoin’s shroud of subtlety and allure,” where there’s this discussion on the point of principal agent problem. So what’s going on there?

Bitstein: Yeah. So this was written in June of 2014. And yeah, people will say, “The government will shut down Bitcoin.” And they’ll just say it without giving a real explanation of how that will go about. How will the government shut it down? And you’ll get everything from, something about the exchanges to like the real paranoid types saying like, “Oh, an EMP attack.” And it’s like, “Well, that’s… ” I don’t think the government’s going to do that to themselves, but there’s this whole spectrum of just paranoia around the government shutting it down. And this article was giving an alternative perspective, that I think is very much worth thinking about, which is, in order to attack Bitcoin, you need to know what Bitcoin is capable of doing.

Bitstein: If Bitcoin is just some toy thing that causes a nuisance in the drug markets, it’s hard to find the need to go destroy it, especially when traditional criminal investigation is able to do what you want to do as the government. As far as like shut it down, because it’s a competition to the US dollar, even today, the government does not view it that way. We had the Fed chairman himself say, “Oh, well Bitcoin’s more like gold. It’s like a store of value thing. It’s not really a money.” Which of course is funny from our perspective, but they don’t view it like that. It would take someone to actually have read the Crash Course and come to this full understanding of what Bitcoin is capable of, to be like, “Maybe we really do need to stop this thing before it takes away our government faucet that gives us all the ability to expand the warfare and welfare state.”

Bitstein: However, there’s also this problem of the government is not just this one large entity. The government is made up of many organizations. And in those organizations, it is made up of many individuals. All of those organizations, and all of the individuals within them have their own personal needs and desires. And this brings up the principal agent problem, which is, how do you get an individual in the government to be operating in a way that actually benefits the organization as a whole? And this is at multiple levels, because we can think of some government organizations as sometimes going rogue. And so you can’t even rely on a particular organization within the government to be in line with the government, and then down onto the individual.

Bitstein: So if someone is able to come up with the idea that Bitcoin can take over everything, it’s like, “Oh, we’re going to like $1 million a coin or whatever.” Well you have to sit there as like, “Okay, well I could be investing in that.” And so I as the individual have actually an interest, if I understand that this is the case, why don’t I get in on this? And the more you get in on it, the less you’re going to want to destroy it. And so this principal agent problem is that no, the government will all just be a bunch of Bitcoiners because they’ll just submit to the fact that Number Go Up, and what it means for them. If I worked in the government, and if I was talking to a government employee, just a regular guy that worked in the government, I’d explain to them. It’s like, “Look, do you really think you’re going to get your pension?” “I don’t know.” “But do you think number going to go up?” “Yes.” “So there’s your pension.” And you’re going to have much more loyalty to a decentralized, perfect central bank than to our own central bank here in the United States.

Stephan Livera: Excellent. I love the explanation. Let’s talk about your infamous article, “Everyone’s a scammer.” So you’re telling people here, “Look, everyone, literally, even yourself, you, yourself are a scammer.” How does that work?

Bitstein: So this is the full culmination of appreciating that Bitcoin is going to happen. Hyperbitcoinization is imminent, and you must prepare. Now, if it’s imminent, then you have to reckon with the fact there are only 21 million Bitcoins. And if you send them somewhere, there’s no guarantee you will get them back. There’s no guarantee that the price will be down long enough for you to recover that amount of Bitcoins denominated in Bitcoins. Therefore, you should be hodling with a vengeance, and you should be extremely careful when listening to anyone trying to pitch you on a reason why you should part with your Bitcoins. This could be for everything from like a seemingly charitable reason, donating somewhere that perhaps you don’t fully appreciate enough to want to give up that much of your future opportunity costs, to straight up Ponzi schemes, where there’s a vanity address, one Ponzi, that will send you back more money if you just send it some money. I know there’s a lot of explicit scams out there.

Bitstein: Additionally, people who are trying to get you to spend Bitcoins are trying to scam you out of your money. And here it’s not saying that it’s bad to spend money ever. It’s not saying that… What we’re truly saying is that you should be thinking carefully about how much do you actually value the things you’re acquiring, compared to your future potential wealth, given that you hold on to a number of Bitcoins? That’s the real thing. It’s encouraging people to think in a more low time preference way. If really all you want in life is a Lambo, you should go buy a Lambo. But if you have any sense that there’s more to life that you want, you should consider the future Bitcoin economy when making that decision about whether you should buy that Lambo now later or ever.

Bitstein: There’s also all of the altcoin scams, where it’s just… I mentioned Ethereum in there, and I have to give Ethereum credit for existing, because at the time, it was not even clear that it would actually exist. Now, it exists today, but from an outsider’s perspective, it continues to look like a mess. And I’m still not sure if it was a good investment. To me, it seems like it’s doomed as an investment still. Now, this doesn’t mean that people don’t make money in the short-term. But where we are thinking, in terms of the longterm Bitcoin economy, you have to think Ethereum not only in terms of, or any altcoin, not only in terms of its USD price, which has gone up, or even it’s Bitcoin price, which we have seen periods where they have had a significant increase, but that longterm Bitcoin price. Which, when you really look at all of the altcoins, they all have like the big spike up and then just like fizzle out to the end.

Bitstein: And maybe occasionally, you’ll get another ripple pump. But it goes through that cycle. And there has never been, as far as I can see, a alternative currency, whether the shitcoins, or the shitcoin of shitcoins, the dollar, that’s actually the worst performing, I’d say. But they never show any other pattern, generally speaking. And so when thinking about the longterm, do you really want to risk it on trading, or do you just want to focus on the future?

Stephan Livera: Right. And I think there are other ways to think of this as well, or explain it. I think Matt Odell talks about it like, “Anything other than Bitcoin trends down, in Bitcoin terms.” I can’t remember the exact phrasing he uses. But yeah. So look, I think there are some of the key ones. Obviously there’s many. I highly recommend listeners, if you haven’t read through the series, definitely go and do that. And then let’s now touch on some of the literature. Now, I’ve got a few favourites from here. So obviously the Bitcoin white paper itself, reading some of the predecessors, things like B-money, Hashcash, BitGold, and also some of my favorites from the literature are Nick Szabo’s articles, “Shelling Out,” and, “Money blockchains and social scalability.” Have you got any favorites from that list?

Bitstein: Oh, I love all my babies. No. So the literature for more context, it includes the Bitcoin white paper, the articles that were, and books that were referenced in the Bitcoin white paper, and then other works from the cypherpunks, crypto-anarchists, the Austrian School, and some other sources that play into this narrative. And I really like all of… Nick Szabo was one of the best finds. He was not very popular back in 2013 when I was reading into him. I first really got into him because I was finding his work through the contract page on the Bitcoin Wiki. People were talking a lot about on-chain contracts such as payment channels, and escrow, and stuff like that.

Bitstein: And you start to learn about smart contracts, which Bitcoin is still the greatest, illustration of a smart contract, the best implementation of a smart contract. And I started just… I went down the rabbit hole of his website, and he is certainly one of the greatest public intellectuals in the world today, I think. So all of his stuff is fantastic. I of course recommend a Timothy May’s seminal essays; the Crypto Anarchist Manifesto, Crypto Anarchy in virtual communities, is an often overlooked one. But it’s a very powerful essay, looking into how communities arise in cyberspace, and how they route around various censorship. And I think that’s something that’s especially useful to understand today, as we’re seeing a lot of de-platforming. This is something that Timothy May could have easily expected. And he also shows a path forward for people who want to be able to convene online, despite others not wanting them to. Hal Finney has a lot of great articles. And there’s just so much. I don’t know if I could touch on everything, but I highly recommend going through that, and just seeing what catches your eye.

Stephan Livera: Yeah, definitely. I think it would take very, very long time to go through and read everything. But I think it’s one of those things where if you want to understand Bitcoin, you need to understand where it came from. And many of these articles help articulate that pathway along which things were developed, and how Bitcoin came to be what it is today.

Bitstein: Yeah. It’s also a good argument against the claims that, Oh, well there will be a Facebook to Bitcoin’s MySpace.” Not understanding that this is a rich, intellectual tradition that Bitcoin is building upon, and I think, best succeeding at. It actually changes the entire landscape, compared to what a lot of the cypherpunks were imagining. They still imagined centralized banking institutions, and Bitcoin totally obviates that. And so we’re actually living in a world that’s something, I think, better than what the cypherpunks could have wanted at the time. Not in all dimensions, but certainly in the monetary dimension. And because of that, you really have to take it in context. And Bitcoin is the culmination, as I see it, rather than simply a first iteration.

Stephan Livera: Excellent. Look, I’m sure I could keep talking for hours, but I want to try and keep this digestible for the listeners. So let’s call that an episode. But-

Bitstein: It’s a good way to get me up to episode three and four.

Stephan Livera: Yes, that’s right. That’s right. We’ll keep some, we’ll hold some back so you’ve got a chance to beat Vijay in the all time SLP guests numbers.

Bitstein: The great Aussie-Texan feud continues.

Stephan Livera: That’s right. But yeah. So look, listeners, check this stuff out. Go to the Michael, do you want to just them anything else about where they can find you, or any other things they should check out?

Bitstein: Yeah, of course. Follow me on Twitter @Bitstein, B-I-T-S-T-E-I-N. The crash course, there’s a link on the homepage of the Nakamoto Institute, but it’s otherwise, with a dash in between, or a hyphen. And a also check out the literature page, which just that /literature. And my DMs are open. Check out The Noded podcast at, and yeah, keep in touch.

Stephan Livera: Fantastic. Well, thank you again for joining me.

Bitstein: Yeah. Thank you so much for having me.

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