Satoshi Nakamoto Institute Bitcoin Crash Course

Hi and welcome to the Stefan Livera podcast focused on Bitcoin and Austrian economics. Today for episode one hundred and eleven, I've got another incredible episode with my good friend Bitstein, also known as Michael Goldstein, talking about some key articles and thought in Bitcoin from the Nakamoto Institute. I noticed that a lot of newer Bitcoin articles are watered down down takes, and there's probably a bunch of newer Bitcoiners who would really benefit from exposure to some of these articles. Michael drops so much incredible knowledge and insight in this episode on a range of topics from Austrian economics and why we hold money to the cargo cultism of altcoins and so much more. Dear listener, you are in for a massive treat. But first, let me introduce the sponsors of the show. So my podcast is brought to you by Kraken, one of the leading and world's longest standing Bitcoin exchanges that consistently rated the best, they've got an incredibly strong focus on security and acting ethically in the space. They've got high trading volume and low fees, with no minimum or hidden fees. Kraken have twenty four seven support and on the institutional and business solutions side, they are providing best in class accounting, reconciliation and reporting services for cryptocurrency hedge funds, asset managers and fund administrators. Kraken have an OTC desk for large block trades. They also offer Five fiat currencies and also offer margin and futures trading. So to learn more and sign up, go to the Kraken link in the show notes. This podcast is also brought to you by Unchained Capital. They are a Bitcoin financial services company offering a two of three keys multi-signature vault and also a Bitcoin collateralized loan. So for the vault, you can use Trezor or Ledger, there's a web interface, it's a very easy walkthrough experience, and this can help you distribute your keys. And on the loan side, you can get Bitcoin collateralized loans, so you can get USD without selling your Bitcoin, meaning you don't trigger a capital gains event. And while that loan is outstanding, your Bitcoin is stored in a dedicated multi-signature address under collaborative custody with Unchained. So to learn more and sign up, go to unchained-capital.com, there is a link in the show notes. So onto the interview. Michael, welcome back to the show. Hey, it's so good to be back. Very honor. 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 yeah, welcome back. I still

have a long way to go before I reach, VJ level, appearances on this, on the Stephan Livera podcast.

So, so look, this puts you up to number two. VJ is currently on So we'll see how we go. I might get Pierre back on for another episode soon as well. but yeah, look, let's 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 formational, formation, what's the word? Foundational material that is, on the Nakamoto Institute. So do you wanna just give us a bit of an overview? What was your aim in setting up the Satoshi Nakamoto Institute and setting up the Mempoll, which is kind of like a blog series, and then the Crash Course?

Yeah. So, I guess it, it all starts, you know, back when we all got interested in Bitcoin at the University of Texas, back in late 2012, and in early thir- 2013. in that time period, I, 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, we'd read all kinds of stuff from, you know, Mises and Rothbard and Hoppa and Hayek and, you know, everyone in between about just all kinds of random topics. It was a very- Very eclectic, mix of, of readings. but as soon as late twenty twelve 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, you know, sort of original economic ideas coming out of the group, and I would say sort of, perfected in writing, by, by Daniel Krawitz, And we were posting a lot of articles on the Mises Circle blog. sometime it was probably in summer of twenty thirteen, I met Tur de Meister for the first time. He was, he was in town for something, and, we met at a Bitcoin meetup, and, within our discussion, we'd been joking about how, you know, there's the Mises Institute for Austrian economics, there ought to be a Nakamoto Institute for, crypto anarchy, and, you know Sometime in August, I bought the domain and, put a couple 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 sort of started the actual website and started collecting, literature from, the, the cypherpunks and crypto anarchoists, that, that Bitcoin came, kind of came out of, and, so- Soon after launched the website as people see it now, which also includes, the public writings of Satoshi, so that people can sort, sort of get the, the full, Satoshi experience, so, so to speak. So, part of the reason why this was necessary at the time, was that there was this, well, first of all, actually, I mean, the part of the reason was just 'cause I was learning about the crypto anarchoists from this sort of hardcore Tim May perspective, as opposed to, previously my, my, understanding of the sort of, cypherpunks and crypto anarchoists were more of the, Julian Assange types, who I, who I greatly admire, but, it's also-- it's, it's, 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 Cypripons that is, extremely cypher, extremely libertarian in the sort of Austro-libertarian and Cap, fashion. And so that obviously greatly appealed to me, and it was, it was more than, I hate to use the word, but more than merely civil liberties, and there was also this, this, understanding of how can you secure property, and, and all of these other- libertarian principles along with the important civil liberties, using, using these, cryptographic tools. And, at the time, this was, you know, during Bitcoin's first, you know, kind of forwa- foray into the mainstream, there was the, the, the bump up to two hundred fifty dollars, and, over the course of twenty thirteen, we saw it go to a thousand dollars twice. And, or, I guess the second one may have been twenty fourteen, but in any case, we, like, we had started to see Bitcoin reach some pretty incredible lev- you know, price levels, and, it was getting a bit more attention, especially because of the Silk Road and, projects like that. And there was an element of wanting to bring Bitcoin into the mainstream, banking establishment, but it was, it was in a way of, you know, wanting to bend over for the banks. So it was wanting to sort of say, "Oh, this is actually friendly to the banks." It was, 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- And, and it's a good thing that it played out this way, that it's more, the banking establishment has to adapt to Bitcoin rather than the other way around. But at the time, there was this, there was this feeling among these people that you could push Bitcoin in that direction, you know, we remember all kinds of, kerfuffles with the, the Bitcoin Foundation and some of these other groups. So, so there was a sort of element of that at the time, and there was also this drive to make it seem like, "Oh, well, you know, Bitcoin has a lot, a lot of libertarian followers now, but Bitcoin really isn't a, a libertarian thing." And in a sense, that's true, in the sense that I think it can appeal to people, more broad, broadly than merely the hardcore Austro-libertarians. In fact, if that was the case, Bitcoin would be a failed project because it wouldn't gain the liquidity needed to- to, be such the, the, the juggernaut it is today. however, you know, the point that we wanted to make is, you know, Bitcoin came out of this ethos, this very libertarian ethos. the, even that term, you know, there's, there's plenty of quibbles we can, we can make about the, the exact, you know, nature of that, but it came out of that, and by design, it is a decentralized protocol that no one- person or organization can't control. So it's effectively just by its very nature libertarian, and the Nakamoto Institute would exist as a way to continue this, and, 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 anarchist vision was, and, and that was sort of setting the, the ethos for, my website.

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, from, you know, from-- 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 wanna talk through the Crash Course in particular, because this is, to, to this day, I still believe it's one of the best places that I can point a newbie and say, "Hey, read through 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.

Sure. So yeah, so there's, basically we, we can call it a blog on the Nakamoto Institute called the Memory Pool, the MemPool, and the idea there is, stuff that, you know, w-w-we want to believe is true. We, we tend to think that there's a good reason to- To believe is true, but of course, it's merely in the memory pool, it's not, it's not confirmed in the blockchain yet, although over time, I hope, you know, we can solidify that, make it immutable, but, The purpose there is just to, to share sort of these sort of additional, economic insights going forward. So, you know, you mentioned the literature section, you know, that's stuff that's generally speaking, up until the, publication of the white paper, and then the mempool is the, the blog of economic analysis that was, looking forward past that. a lot of these articles started off, on the Mises, Circle website. I think you can Even go still see them on that website, and they were, they were republished on, the, the Nakamoto Institute website, because I thought they, you know, they had a lot of value, and I think they've held up very well, and, since then, you know, things have been, posted to that. As far as the Crash Course itself, that actually came out of, just a totally-

like it was on the, the sp-spur of the moment thing, I was, I was trying to, you know, explain Bitcoin's Potential for growth and why it's absolutely reasonable to believe that Bitcoin will, will take over, as a global reserve currency to a, actually rather prominent no-coiner. I won't, I won't name names. I, I, 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 a, effectively amassed the full story of, Bitcoin's, path to dominance, and I was sort of doing an annotated, bibliography of, of that. I was just saying like, "Well, here's our thoughts on monetary policy and why Bitcoin, not only fits that, but exemplifies it." That and, you know, shared a couple articles on that. And I just went through, I just laid out what we had, not necessarily in publication order, but in a logical order of, here's a story from A to Z, from zero to a hundred trillion USD, How, how Bitcoin takes over and, and why we believe that to be the case. and so it just sort of, it sort of just, happened unexpectedly, and I thought that it was a, a, a nice, way to, to view the, the, the blog and kind of, I walk people through these articles 'cause it is kind of this giant mess, when you just kind of scroll down the, the publication. So this was a way to walk people through that story and, and give it more, of a logical structure.

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 twenty thirteen and fourteen, but they are, 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 Richard. Right? 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, you know, trying to Over-adoption, and in this article, Pierre's really making that point that we should instead hoard bitcoins, and he, and he shows the, the flowchart as well. Do you wanna just comment on those?

Yeah, so this was the, the first Bitcoin article to come out of, the Mises Circle at, at UT. this came out in February nineteenth, two thousand thirteen. but yeah, I, I think it was very clear from- a, a number of different angles why traditional, approaches to defeating the dollar hegemony, hegemony, was, was a fool's errand. one of them was the, you know, it goes from Ron Paul chanting "End the Fed" with, you know, or the supporters chanting "End, End the Fed" to Rand Paul wanting to maybe kind of audit the Fed, and nothing ever happens. It doesn't matter how much sort of 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, there's, you know, also, also the fact that in, 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, it's good, because we see what happens to the, the base layer and its, its supply. but it is- It is extremely easy to send, fiat to people, generally speaking, at least, in the United States itself. So and then there was also, you know, 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, you simply can't use those as, as methods, and so it, it becomes clear that you need something else, and Bitcoin is obviously that, that technology.

Right. And also, there's a flowchart here which shows this very virtuous feedback loop, if you will. And I think the, the, 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, you know, user adoption, basically all these factors are related together. It's 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?

Yeah, well, I think this is one of the first great, Sort of visualizations of all of these feedback loops, because there's, 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, you know, in, in years prior, we're not, we're not dogmatists, And, in this case, you know, something that I think we've learned is, there, there's also like, there's no mention of, developers in, in this flowchart, and so, you know, that's actually one of, Trace Mayer's network effects is the, is the developer,

network effect. And so, you know, if there's, if there's more of a price, it's gonna attract more people to it. There's going to be more, you know, that, that security of the network has to happen somehow. and there's also just a coolness factor, that can be kind of separate from a lot of it. there's, there's a lot of other things going on, but I think this was, you know, like I s- I, I don't remember when the post itself was made on

It was, it was actually the day before in 2013. but, you know, it was, it was one of those things where when you look at it, you can't forget it. And you also, it has hoarding at the top, or, you know, on, on the original one, it was long-term investment interest, but, you know, we all know what that means. so having hoarding at the top and seeing how everything sort of flows through it really sets the tone for how to understand, Bitcoin's path to dominance. And so I think, I think that was a great thing, to have set in your mind in early

2013. 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 a, it-- like, 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 wanna tell us a little bit about what Pierre is getting at here?

Yes. So, and this was written Sayfaddin Amous, our friend Sayfaddin, has said that his book is effectively just the book length version of this article, to, to give people a, 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 like 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, and all of that. But, he, he describes Bitcoin as, as a central bank would describe their money. So he gives a, a- fancy term to Bitcoin supply curve, which he calls it asymptotic money supply targeting, and he shares the, 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 it has an asymptotic, you know, to, to a, a horizontal asymptote, at, at about twenty-one million, and then the supply growth rate Where you quickly see the, the inflation rate just plummeting, year after year, but especially at those halvings, to the point where it's, it's zero, once you get to a, you know, far, far enough into the future. 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, it, it kinda is, this is how we can think about it. We can think about the, the, you know, the, the seniorage, in Bitcoin versus the seniorage in a Federal Reserve note, et cetera, et cetera, and it really makes you appreciate just how much better Bitcoin is, than the- The legacy institutions.

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

Yes. So this is a very important point, and it's come up many times over the years. So yes, so there's been a long term debate, even among Austrians about whether or not fractional reserve banking is good or not. and there's actually, he, he mentions how, the Chicago school also- Also has, factions that believe in a one hundred percent reserve, currency. So this has been a long standing debate, but then it's like, okay, well, if Bitcoin just takes over, well, we have the de facto winner, and so we 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, is people often bring up the, the idea that, oh, well, you go on an exchange, and, you know, Mt. Gox may have been fractional Reserves or, you know, Tether might be this fractional reserve system or you name it, like someone, someone somewhere is fractionally reserving bitcoins. 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, that's the money itself. They're not, it's not just Chase Bank, doing stuff. Everyone is affected by, by every instance of fractional reserve banking. So in this case, like you're opting into 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.

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, 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 kind of like a Coinbase IOU, right? and let's say some other company, maybe Zappo, Bitcoin- Coins, 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 Zappo IOU, is different to some other IOU, which again is different to Bitcoin held on your full node with your own private keys, et cetera.

Exactly. Exactly. I think that was, very well stated.

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 To this concept of reservation demand, did you wanna just expand on that?

Yeah, so and this was, this was written in, on February twelfth, two thousand fourteen. Basically, the, the argument, is that what sort of 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, in the, 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 sort of sets the, the lower bounds for, its, its usefulness. and, you know, Trace, Trace Mayer talks about, hodlers of last resort, and that's, that's like the, the hardcore hodlers setting that ultimate baseline, where it couldn't possib- the price couldn't possibly go lower than a certain, level, because there, there is always that, that demand And for holding it, for whatever reason that might be. So, yeah, the argument is that there needs to be real demand, to hold, to really, you know, bootstrap this. And this, this is in this stark contrast to the arguments about, spending bitcoins, in that you, you need to spend bitcoins at a store to really get the, get the economy moving or, or whatever. 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 just-- you've actually decreased liquidity in that case. there, there's, there's plenty of reasons to want to spend bitcoins at a Bitcoin only merchant, aside from that, but if your goal is to, you know, take Bitcoin to the moon, you're not, you're not really helping at the mar- Margins, by doing that. there's also, you know, 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 onto. You know, if you're just, if you're giving away free stuff, people, people kind of assume some, some things. And I'll tell you, from personal experience, I stupidly thought that in twenty thirteen, you could stand outside and, you know, give out paper wallets or something, and that'd get people interested in Bitcoin. No one cares. you, you just stand out there and look like a dork. so, you know, y-y-you have to, you have to give people a reason why they would actually want to demand this thing. a-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, a self-fulfilling prophecy. finally, hoarding has always been used as a term by Keynesians and other economists to, to, to sort of 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, is, on net negative for them, and you're actually, in a way, investing in the economy. You, you- You take money out, that increases the value of every-everyone else's money, and then as more people do that, and that adds up to, you know, an appreciable increase in the, the value of the, the money, then suddenly people have enough capital to take on investments that they didn't previously, have the, have the ability to take on, and so they can go out and do that, and if they had a good idea and they, 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 purch-purchasing power 'cause 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, this sort of, process writ large. And so, it-- you are taking on risk, and you're getting benefited by having sort of invested in the economy as a whole. So hoarding shouldn't- Not be seen as this, this evil thing, you know, we take on the word hoarding 'cause, you know, just like maximalist or toxic or whatever else, you know, we like, we like taking on the, the hater's words, but, saving should be seen as a good thing, not a bad thing, and this is a, this is a great argument against that, that mindset.

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 Hopper. There's a, I think it's a lecture, but you can find it, written as an, an article on the Mises website. It's called "The Yield from Money Held Reconsidered." And also check out some of Guido Hulsman's work around deflation and some of his talks around why hoarding isn't 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

But, Bitcoin maximalism, at least how I espouse it, is literally nothing more than, the exact same economics I was espousing prior to Bitcoin, now with, new and improved magic internet money. So, and yeah, I think, that, that Hans Hermann Aapo article, I think I was, I think I was one of the ones who kind of, you know, brought that back, 'cause it was one of those things that just like, I just remembered having read something back in the day, and you, you, you dig up Dealing with no corners, that is, that is the real benefit of no corners. And, but I think that actually came from, I, I think that may have been originally, or not originally, but it was, 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.

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 segue into our next one, which is another article from the Mempoll or the Crash Course as well. It's called "The Correct Strategy of Bitcoin Entrepreneurship." So we're all in this together. What was, what was the point of this article? Yeah,

and so, for the timestamp, this was May sixteenth, two thousand fourteen. the point here is that, It's something that I've articulated as, you know, i-if you have a Bitcoin business, and basically you run into an issue with, 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 like- Contend with that fact, like, why would I bother to do anything, if, if I can just, you know, make, yeah, I can just hold the bitcoins. the reason is because you actually just wanna make your bitcoins more valuable. The correct strategy of Bitcoin entrepreneurship is to devote, some of your resources, you know, let's say like ten percent or something, towards making Bitcoin more valuable as a whole. Now, the thing is, is because, because this- This is a high growth environment, and because, you know, Bitcoin is so trustless, and trust minimized and, for enemies and all of that, it's, 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, like, i-it's a little in, in contrast with the Peter Thiel, vision of startups that he lays out in Zero to One, which is viewing startups as a sort of cult, where you have secret knowledge of something and you're sort of 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, as a- Bitcoin cult, as a group, but, you know, it's also important that within that cult, you know, we're sharing, these ideas. and so- On the flip side, though, from like that, 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, helping make it-- I almost wanna say, make it, safer for number to go up, you know, improve custodial solutions for yourself and for institutions so that, you know, When it does go up, people don't lose their coins, and, and this sort of stuff. Now, he talks about, labor being scarcer than ideas, and this is another problem in the Bitcoin and what became sort of the sort of cryptocurrency space, where everyone has a lot of ideas and they just wanna roll their own thing, like, let's just create a new money. Every time, let's like, I have a new idea, let me create my own money for it. And It, it's very easy to start coming up with ide- these ideas, it's extremely difficult to be able to put the labor in to make them work, especially when the ideas are kind of doomed from the get-go with a lot of those, but that's another story. So the point is, it's like- When we look at, entrepreneurship in the Bitcoin space, I look towards, you know, stuff like BTC Pay Server and,

you know, things like Trezor or, Coldcard, which, you know, is Bitcoin only, so that, that has a major advantage, but, It, it's these, these enterprises where now, you know, BTC Pay Server is being sponsored by, by individuals who are, you know, I, if I, I want my Bitcoin to be better, so I, that's going to require having a world of BTC Pay servers running, it's in my interest to want to help that process along. with Cold Card, I'm sure Rodolfo is actually making, you know, 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 hardware, and, and is selling it, but the knowledge itself is completely open source and there's actually even a, sort of, encouragement, if you can make your own cold card, you should do it, and people are very welcoming of, of that in the Bitcoin community. So yeah, like, you, 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, in terms of, the, the, total returns, 'cause you're simply like, if, look, like, if stock to flow ratio is, correct, for instance, like, you're not gonna beat, you know, ten x, on, on your coin Now, through twenty twenty-one with some business, but, you can't think of it in terms of the actual, human and technological capital surrounding Bitcoin and how that only makes, that, that liquidity even more valuable, and you can make it, you know, more usable for more things.

It's also interesting to understand that not many Bitcoin businesses have returned in Bitcoin terms. They have won They might have profited in fiat terms, but not in Bitcoin terms.

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

Yeah, right. And in the meantime, anyway, not just that. Yeah, right, yeah. And, and it's not just that, I think, I guess the way Daniel Much about making the direct profit, it's more about turning bitcoins into money, right?

Yes, that is, that is, much more succinct way of describing the article than all the rambling I just did.

No, well, I, I think it's, it's a very useful context, for the listeners as well. Yeah. excellent

summary.

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, what are we getting at here? Are they, are they basically just cargo cults? Are they not recognizing that liquidity is king?

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 this was after the first, actually, I, I, I get, I, I, I lose track of the, the history at this point. I need to go back, but I think this is about, you know, the beginning of the sort of Cambrian explosion, as I've, I've called it. I think 2014 was the real, the real, move into that, but we were starting to see, you know, Litecoin gaining prominence again. there was, PP Coin, which I forget what that later became, Pure Coin, I believe. I think they realized that PP Coin, was not exactly the best branding for, for something. There was a Prime Coin, Aurora Coin, like you, you name it, there was all these different, there's 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 uses-- it has this many coins and this block time." And everyone was just differentiating it-- each other based on those same variables, which in a sense, none of those matter. Like a lot of those are, either arbitrary in Bitcoin or Bitcoin whether purposefully or not, sort of optimized for a given, thing. Like twenty-one million, I, I, I forget the details on, on how Satoshi picked that, but it was, for the most part, it's just like a random number. it was fifty over that GM-- like it starts at fifty and goes through that geometric series and you end up with twenty-one million. it could have been something else, it really doesn't matter, as, as Rothbard talks about, any quantity of money, is suitable for an economy. We as long as we have that way of, you know, dividing it into more, it would be fine. In fact, you could think of the twenty-one million as one conceptually, it would just be different in the code, it would have different numbers, it doesn't matter. the hash, the hashing, it only matters insofar as, the reliability of that security, you know, do, do we expect, do we expect it to break or, you know, stuff like that? Block times, you know, ten, ten minutes was good because, you know, light needs to travel around the world and you don't want orphan blocks. but, you know, I don't know, could nine be better? Is nine, is nine really gonna make a difference? And the point is, it's like, no, this is all just cargo cultism. It's taking the, 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 sort of key elements of what Bitcoin is, which is money and creating the network effects of money. his, his other article was, the coming demise of, of the altcoins, and that came up out in March fourteenth, two thousand fourteen. I think this was sort of in the height of the Scambrian explosion. This, this was really driving home the arguments about liquidity, which is you can put out any feature you want. This is, a, Ethereum was being talked about at this point, and, I, I, yes. 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 like we've, there was, like, I mean, 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 the, the need to have, you know, a saleable good in order to be Trading it as money, and a lot of the other arguments around network effects just didn't hold up very well, and that alone, you know, it, it shows us, when we, when we think about liquidity And, and network effects, the, the competition between them isn't sort of this, i-i-i-it's almost zero sum in the sense that, and it's, it's also exponential in the sense that, as w-as a person leaves one monetary network and goes to the other The, the one they just went to grew exponentially, and the one that they left shrank exponentially. So this is a very, a very, non-linear 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, is, it's just ridiculous, and you might as well treat it as one hundred percent. In reality, it might be like eighty percent or something, but all, all of those extra, you know, shit coins in the, in the fat tails of monetary networks, that's just like they're gonna come and go and whatever, it doesn't matter. What matters is what is that one that dominates the power laws of monetary competition?

Yeah, I don't think I could really say much to add to that really.

well, one thing to add to that is these discussions, so- That 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 just rebutting, Vitalik's response. And, it was kind of around this that, Vitalik and, and company, started using the term "Bitcoin maximalist," as, as a straw man saying that we wanted all of, of these ideas to be put on the, the Bitcoin, Bitcoin blockchain only, when it was more like, no, we just expect all of the money to be on the Bitcoin blockchain only, and, you know, who cares about the rest? I mean, 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.

Fantastic, yeah. I think there were just too many, there've just been too many charlatans over the years selling you, pe-- selling people this kind of false hope of, "Oh, buy this thing and it might be, you know, it, it does more than Bitcoin, you see?" Yeah.

Yeah.

"My, my shitcoin does not, you know, money and some other random other thing, so why wouldn't my thing be more valuable?"

This is something that I like about Trace Mayer's, seven network effects, 'cause it kinda gives you a whole, a whole tally. It's Edge on this network effect, but what about these other six? You're, you're totally getting wrecked on those other six, so you're really not special. You gotta, you gotta be killing it on all of them to really, you know, want to catch my attention.

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?

Yes, I think it sort of gives birth to the other ones because it, it gives reason to be looking at the other ones. Like, why a, 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, you know, a payments network to be using a money that no one touches. What would be the point of incorporating that? So, yeah.

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, you know, these are the people who use Bitcoin. And then to counter that, there's this article, "Bitcoin has no what are we getting at here?

Yeah, well, so, yeah, so it's supposed to be bad because all the, you know, drug lords are getting into Bitcoin. this was written February 25th, 2014. honestly, it was the Silk Road that got me, that, that sort of piqued my interest in Bitcoin and made it sort of, a, a real thing. And that's coming from someone who, I, I don't do drugs, I don't con-condone drug use, but I can't 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 in, into Bitcoin in the first place? if it was just, you know, another PayPal, like, "Cool, it's an app I can download," that's not, that's not special. what's special is that you have a, a good that's so interesting that people are willing to commit crime to get their hands on it. You know, 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 a, that's an exciting proposition, and everyone should take note. and I'm, you know, I'm glad that it's mostly peaceful people, acquiring bitcoins, but that is, that is a mindset to, to consider. and we just look at-- this, this was one of the first, you know, the, the meme didn't exist yet, but this is one of the first Which is, yeah, that's very nice of you to think that Bitcoin has an image problem and somehow, the, the drug markets will keep people away, which, by the way, I mean, right a couple months before this, the Silk Road had been taken down and Bitcoin was reaching all, all-time highs, showing that the Silk Road wasn't as vital as they thought. But it's like, you know, you're, you're saying all these negative image problems, but it's been up five hundred times in two years, so- I, I, I first of all, it's not stopping anyone from adopting Bitcoin, and it's, it's not gonna stop me from adopting Bitcoin. So, it, it's just, it's just not a good empirical argument at all. It's usually just, you know, this is people like Jeremy Allaire who wanted to, bend over to banking regulators, rather than adapt to, Bitcoiners.

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

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 Everyone do your part, buy Bitcoin. I, I'm a Bitcoin hodler, I'm on a moral crusade.

Okay. Alright, now, so let's move on. So there was this whole argument of, "Oh, the government is gonna 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?

Yeah, so this was written in June of twenty fourteen, and yet people, 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, you know, what, how will the government shut it down? You know, and you'll get everything from, you know, something about the exchanges to like the real paranoid type saying like, "Oh, an EMP attack," and it's like, "Well, that's..." I don't think the government's gonna do that to themselves, but, you know, there's this whole spectrum of just sort of paranoia around the government shutting it down, and this article was, you know, giving an alternative perspective, that I think We're thinking about, which is, in order to attack Bitcoin, you need to know what Bitcoin is capable of doing. You know, if Bitcoin is just some, like, you know, toy thing that causes a nuisance in the drug markets, I, I mean, i-it's hard to find the need to go destroy it, especially when traditional, criminal investigation, is able to do what you wanna do as the government. if you, if A-as far as like shut it down because it's a competition to the US dollar, even today, the government doesn't view it that way. You know, 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, 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, "Hmm, We really do need to stop this thing before it takes away our, government, you know, faucet, that, that, you know, gives us, you know, all the, all the ability to expand the warfare and welfare state. However, there's also this problem of the government isn't 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, this is at multiple levels, 'cause you know, you can think of some government, organizations as some, sometimes going rogue, and so you can't even rely on a, a particular inst- organization within the government to be in line with the government, and then down onto the individual. 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, you know, a million dollars 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 gonna wanna destroy it. And so this principal-agent problem is that, no You know, the government will all just be a bunch of bitcoiners because they'll, 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, you know, just a regular guy that worked in the government, I would explain to them, it was like, "Look, do you really think you're gonna get your pension? I don't know, but do you think number gonna go up? Yes. So there's your pension. and you're gonna have much more loyalty to a decentralized Perfect central bank, than to our own central bank, here in the United States.

Excellent, I love the ex-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. H-how does that work?

So this, 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 twenty-one million bitcoins, and if you send them somewhere, there's no guarantee you'll 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, 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, a seemingly charitable reason, you know? You know, you know, donating somewhere that, you know, perhaps you don't fully, you know, appreciate enough to wanna give up that much of your future opportunity cost, 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. you know, there's, there's a lot of explicit scams out there. additionally, people who are- Trying to get you to spend bitcoins, or trying to scam you out of, out, out of, out of your money. And here, it's not saying that it's bad to spend money ever. It's not saying that,

it's, what, what I was really saying is that you should be thinking carefully about how much 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, it's encouraging people to think in a more low time preference way. That means 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- There's more to life that you want. You should consider the, the future, Bitcoin economy when making that decision about whether you should buy that Lambo now, later, or ever. there's also, all of the altcoin scams where it's just, you know, I, I mentioned Ethereum in there, and I have to give Ethereum credit for existing, because at the time, it wasn't even clear that it would actually exist. Now, it exists today, but- F-from an outsider's perspective, it continues to look like a mess, and I'm still not sure if it was, it was a good investment. it, to me, it seems like it's, it's sort of doomed as an investment still. Now, this doesn't mean that people don't make money in the short term, but we're weren't thinking in terms of You know, the long-term Bitcoin economy, you have to think of Ethereum not only in terms of, or any altcoin, not only in terms of its USD price, which Has gone up, or even its, you know, Bitcoin price, which we have seen periods where, they have had a significant increase, but that long-term, Bitcoin price, which when you really look at all of the altcoins, they all have like the, the big spike up and then just like fizzle out to the end, and maybe occasionally you'll get another Ripple pump, but it kind of goes through that cycle, and there has never been, as far as I can see, a, a alternative- currency, whether, you know, the, the, shitcoins or the shitcoin of shitcoins, the dollar, that's actually the worst performing, I'd say, but, They, they never show any other pattern, generally speaking. And so, when thinking about the long term, do you really wanna risk it on trading, or do you just wanna like focus on the future?

Right. And I think there are other ways to think of this as well, explain it. I think, Matt Adell talks about it, like anything other than Bitcoin trends to, you know, trends down in terms, in Bitcoin terms. I can't remember the exact, phrasing he uses. But yeah, so look, I think they're some of the key ones. 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 favorites 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?

Oh, I, I love all my babies. no Sure, for more, for more context, so, it includes the Bitcoin white paper, the, the articles that were, and, 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 kind of play into this, this, this narrative, and, I really like all of, Nick Szabo was one of the best finds. he wasn't very popular back, in twenty thirteen, when I, when I was reading into him. I, I first really got into him because I was finding his, his, 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, and, you start to learn about smart contracts, which Bitcoin is still the, the greatest This, you know, illustration of a, a smart contract, the best implementation of a smart contract, I, and, I started just, I, I went down the rabbit hole of his website, and, he is certainly one of the, greatest, public intellectuals in, in the world today, I think. so all of his stuff is fantastic. I of course recommend, Timothy May's, seminal essays, you know, the Crypto Anarchist Manifesto. crypto anarchy in virtual communities is a, 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, he also shows sort of a- path forward for people who want to be able to convene on on online, despite others not wanting them to. Hal Finney has a lot of great articles, And, oh, there's just so much. I don't know if I could touch on everything, but, I highly recommend going through that and, just kinda seeing what catches your eye.

Yeah, definitely. I think, it's, it, it would take a very, very long time to go through and read everything, but, I, I think it's one of those things where if you wanna understand Bitcoin, you sort of 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 Be what it is today.

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, a rich intellectual tradition, that Bitcoin is building upon, and I think best, Succeeding at, you know, it's, it's 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, not in all dimensions, but certainly in the monetary dimension. And, because of that, you- You really have to take it in context, and Bitcoin, Bitcoin is the culmination, as I see it, rather than, simply a first iteration.

Excellent. look, I could, I'm sure I could keep talking for hours, but, I wanna try and keep this, digestible for the listeners, so let's, call that a, an episode, but,

Hey, it's a good way to get me up to episode three and four.

Yes, that's right, that's right. We'll keep some, keep, we'll hold some SLP, guest numbers. the great

Aussie Texan feud continues.

That's right. but yeah, so look, listeners, check this stuff out. Go to nakamotoinstitute dot org. Michael, do you wanna just tell 'em, any, anything else about where they can find you or, any other things they should check out? Yeah, of

course. fol-follow me on Twitter at, at, at bitstein, B I T S T E I N. the Crash Course, there's a, there's Link on the, the homepage of the Nakamoto Institute, but it's otherwise nakamoto, nakamotoinstitute dot org slash crashcourse with a, a dash in between or a hyphen. And, also check out the literature page, which is just that slash literature. and, my DMs are open. check out the Noted podcast, at noted dot org. And, yeah, keep in touch.

Fantastic. Well, thank you again for joining me.

Yeah, thank you so much for having me.

How awesome was that episode Be sure you share this episode with your friends who are new to Bitcoin so they can think it through a little more clearly, and they too may be inspired to go read the Nakamoto Institute Crash Course. Remember, stephanelivera dot com is the website to subscribe on your podcast app, get the show notes, or the transcripts. Thanks for listening, and see you in the citadels.