Trace Mayer, world renowned Bitcoin investor, writer and speaker rejoins me on the podcast to talk about Proof of Keys, an annual event for Bitcoiners to withdraw bitcoins from any third parties to keys they hold. In this episode we talk about:
- Proof of Keys
- Tools and best practices
- The battle for scarcity, and the battle for privacy
- Mises’ book, Bureaucracy
Trace Mayer links:
- Twitter: @TraceMayer
- Proof of Keys: ProofOfKeys.com
- Bitcoin Knowledge Podcast: Bitcoin.kn
- Unchained Capital
- CypherWheel by CypherSafe
Stephan Livera links:
Stephan Livera: Trace. Welcome back to the show.
Trace Mayer: Thanks for having me. Glad to be here.
Stephan Livera: So Trace, I know we’ve got proof of keys, our annual community run, bank run event coming up and I thought it’d be great to get you on and talk about that. And also a couple other things. So look, let’s just start with a little bit about proof of keys. Can you just, for my listeners who aren’t aware, can you just tell them a little bit about what that is?
Trace Mayer: Yeah. So Proof of Keys. You can go to the website ProofOfKeys.com it’s very simple. On January 3rd, every year we celebrate our monetary sovereignty with the tool that Sitoshi provided to us with Bitcoin on January 3rd. And we do that by withdrawing all of our Bitcoins from any third party. And we, and we have a full node that we run and we hold our own private keys. So we do our own network consensus and we hold our own private keys, those two prongs of it. And that’s how we flex our monetary sovereignty muscles. That, how, that’s how we, we claim the crown as Kings and Queens of monetary sovereignty instead of being little slaves where someone else is telling us what a Bitcoin is and, and deciding whether or not to send the Bitcoin to us that we ask for. So yeah, that’s pretty simple.
Stephan Livera: The question that may come to mind is how bad is the problem today in terms of how much of Bitcoin supply is currently held by some sort of third party or held by exchanges?
Trace Mayer: Well, we don’t know. And when you, really dig into this, like none of the players are issuing audited financial statements. None of them are doing proof of reserves showing us how many Bitcoins they actually have control of. And this is a way that we can just prove it, send the Bitcoins to me right here, right now. And you know, it comes out of an idea from Murray Rothbard. He wanted to, he thought it would be a good idea to have an anti banking league where everybody did a withdrawal of all of their money from the banks all on the, all on the same time. So, you know, this kind of comes out of Rothbard’s idea and because it’s, it’s so easy and so cheap to do it with Bitcoin, it only costs a couple cents for the transaction fee.
Trace Mayer: Like why not do it? And it helps give some real life stress testing to the policies and procedures and withdrawal processes that a lot of these third parties have. So it’s really a win win all the way around. Whether we see more failures like Quadrigas CX and a Cryptopia last year, or whether it kind of passes as a non event, which hopefully that’s the case. You know, hopefully we can have a massive amount of transactions done on proof of keys and not have any failures. You know, having weeded out the bad actors. But you know, it’s really much more about helping the individual get the education, get the practical experience especially new people coming into the space and, understand why they should be flexing their monetary sovereignty muscles, why that’s an important thing to do.
Trace Mayer: So it’s just very multifaceted in a lot of different ways. And I think the focus is much better to be on what you’re able to do individually instead of, you know, the external factors of third parties and this and that and the other you know, focus on what’s best for you and in a lot of cases that’s developing the human capital to be able to exercise your monetary sovereignty when you want to do it. And you know, and this is a time when you’re able to ask questions and learn best practices from everybody and stuff like that.
Stephan Livera: That’s excellent. And I love that you were touching on the Rothbard argument or Rothbard idea that he was proposing. And to me it reminds me of some of the debates that we see amongst even the Austrian school of this idea of full reserve versus fractional reserve. And so some of the ideas there were around, and part of their debate for those of us who are more on the full reserve hundred percent reserve banking side is that historically there were times where there was what was known as suspension of in specie redemption, meaning you would not be able to take your gold out of the bank. And so there’s definitely some parallels there. How do you see that then in terms of suspension of in specie redemption and the parallels to today with Bitcoin?
Trace Mayer: Well, hasn’t that always been the big question when it comes to monetary sovereignty over the ages? Whether it’s John Law getting France to make it illegal to use gold and silver under penalty of death, whether it’s the bank of England collapsing because of their Ponzi scam. And then having to put an Isaac Newton in as master of the mint, or whether it’s the banking crisis and the 1840s in the United States where there’s a whole bunch of paper out there or how about out executive order 6102, where Franklin Roosevelt makes it illegal to hold gold. And you know, and directly, in harmony with what you were talking about, he actually stationed IRS agents at all the banks and you had to, if you got your gold out of the safety deposit box, then you had to leave it with the IRS agent and they would give you a bunch of little paper coupons.
Trace Mayer: So, you know, isn’t that interesting? Like when you have this really hard money in terms of a very high stock to flow ratio. Isn’t it interesting that everybody wants their grubby little fingers on it? And they don’t want to give it to you. They want to give you some paper cartoon currency instead. And that’s where you just have to flex your monetary sovereignty muscles. You know, you’ve got to do your own full node consensus and enforce that 21 million limit and you have to hold your own private keys and there’s really no substitute for it. And you learn a lot when you demand delivery of those Bitcoins cause they either give ’em to you or they don’t. And it’s very binary.
Stephan Livera: So Bitcoin is an entirely different beast. And part of what protects the system then is people actually, as you say, taking their own financial sovereignty into their own hands. And part of the risk then potentially would be that if there were different exchanges, without naming names, let’s just say exchange a and exchange B. And the risk then would be to the system would be if people treated what is actually more like an IOU with exchange A as the same as an IOU claim at exchange B. And then they started trading those tickets around, outside saying, Oh, I’ve got an IOU with exchange A. It’s all good. What’s your view there on Bitcoin, you know, at a macro level as an ecosystem in some sense the individuals are defending against that, right?
Trace Mayer: Well, yeah, well first like gold and silver and I would add Bitcoin as sound money. They protect us against these despotic inroads on the part of governments and then only to the extent that they’re actually circulating in daily commerce. And one of the problems with gold is the cost to run a gold full node. It’s very expensive to validate and move gold for that matter. Compared to Bitcoin, like Poland wanted, they moved a hundred tons of physical gold from London and back to Poland. And I was reading the article, they have G4S and they have police and they have this and they have airplanes. And like all this stuff to move some gold and they didn’t even verify the gold, whether it was actually gold or not, they didn’t melt it down and assay it 100%. Think about it with a Bitcoin transaction, you get to transport it anywhere in the world and verify it 100% with your full node for like a couple cents in transaction fee.
Trace Mayer: The cost to run a full Bitcoin node versus running a full gold node and the cost, of transporting value over distance or, location is just so much cheaper with Bitcoin than it is with gold. And as a result, it’s, you know, we can flex our monetary muscles so much more easily. So I think that’s a very important thing to keep in mind because gold, because you don’t have these characteristics like you do with Bitcoin, it makes it very prone to censorship. Now, don’t get me wrong, it has the highest stock to flow ratio, but Bitcoin will be higher. It’s just a matter of time with the difficulty adjustment algorithm, and gold was very censorship resistant and it’s time. And age, you know, but it still had to exist in a particular place and point in time because it was physical or corporeal.
Trace Mayer: Bitcoin not so much cause it’s math and you’ve got things like Shamir’s secret sharing and multisignature and you got a protocol and you’ve got all this infrastructure to transfer it with the internet and satellites and everything. And so because gold was prone to this censorship resistant weakness, they were able to do the gold price suppression scheme. And what they do with that, well, Alan Greenspan told us, he testified twice before Congress that central banks plural stand ready to lease gold in increasing quantities should the price rise. You know, and this was very unusual behavior. You had a price being suppressed, not supported and not by users, but by owners and not for the obvious reasons. And the reason is really twofold. One is suppression of evidence because just like a rising temperature shows that the body is unhealthy if you just destroyed the thermometer and now you can’t tell whether you’ve got a fever or not.
Trace Mayer: Right. And the other is to throttle monetary innovation and evolution. Why? Because their power to issue these little comic cartoon currencies and pieces of paper is infinitely more valuable than the price of a portfolio asset. And so that’s what they would do in order to enforce the gold price suppression scheme and economically censor the price and the interest rates. They would have paper gold and real physical gold. And because there was a very high cost to run a gold full node, they didn’t have to deliver on physical gold all that often. It was difficult for people and institutions and organizations and governments to flex their monetary muscles. And we saw some of them do that, you know, like Poland recently Germany saying, Hey, give me 850 tons of gold from the New York Fed Charles de Gaulle saying, Hey, give me a bunch of gold.
Trace Mayer: From the US and Nixon saying, you know what, we’re not going to give you physical gold anymore. We’re going to give you little paper tokens that represent IOUs for gold. And so if the same thing starts to happen in the Bitcoin industry and exchanges are issuing little paper tokens or IOUs for Bitcoin instead of actual Bitcoin, then now you’ve got an increased supply of, of what people think is Bitcoin that depresses the price and suppresses the price. And so think about it. If you can buy a real Bitcoin and a paper Bitcoin for the same price, and you can take possession of the physical, of the real Bitcoin and leave someone else with the paper IOU, that doesn’t really have the value with it, because eventually there’s going to be a failure. Why not do that? You know if people get stuck with Quadrigas CX Bitcoins or Cryptopia Bitcoins or Mt Gox Bitcoins and they get stuck with them because they’re too ignorant or they’re too lazy to prove the keys that they actually have those Bitcoins?
Trace Mayer: So be it, you know, that’s just the way it’s going to shake out. And so it’s, people flex their monetary muscles and they’re in the end declare and claim their monetary sovereignty. It helps weed out the bad actors that are issuing paper Bitcoins in the space. And in the meantime, the people who actually flex those muscles, they’re able to acquire the real Bitcoins at a lower cost, at a lower price. So it’s, you know, really win win all the way around it’s like, Oh, somebody wants to try to suppress the price of Bitcoin by, by issuing a bunch of paper IOU’s for Bitcoins. That’s great. Do that all day long and let me buy the real Bitcoins at the suppressed price and get me possession of them, by the way.
Stephan Livera: Fantastic. And then once people have taken possession with those real Bitcoins, as you say, then they are now free to transact within the Bitcoin economy and world free of that kind of fear hanging over the top of their head that they’re actually trading with IOU’s. Now one thing with proof of keys and just in general is that there are a lot of people who are unaware. So because Bitcoin is a new thing, it’s an entirely different beast. They typically, and this is again for the more beginner level people who are getting into Bitcoin, they don’t understand that this is a new thing and that they can take it out. And so then potentially there’ll be a lot of people who don’t understand that this campaign is going on. And obviously we’re here to bang, we’re banging the drum about it, but there is, there, there will be a significant population of Bitcoin holders who may not be aware of the campaign.
Trace Mayer: Yeah, and I think you should make the distinction, they’re not Bitcoin holders, they’re holders of Bitcoin IOUs. And those are different, right? Like if, and they might find out one day that those IOUs aren’t worth anything. Mt. Gox Cryptopia, Quadriga CX, et cetera, et cetera. And so this is one of the reasons that I started perfect keys as an annual celebration is as we decentralize and have more people performing economically substantive transactions where those individuals are running their own full nodes and holding their own private keys, that helps strengthen the Bitcoin network. It helps entrench the ethos to don’t trust verify, right? And so all of this is very helpful and there are a lot of subtle financial interests that are pitted against people claiming their monetary sovereignty. In fact, a lot of these third parties in the Bitcoin ecosystem don’t want you to move out your Bitcoins.
Trace Mayer: You know, they’ll probably just remain silent. You know, but they don’t want you to do it. You know, let’s see how many articles and tweets come out from CEOs and from the official Twitter accounts of a lot of these exchanges. Let’s see if they send emails out to all their customer base saying that they promote proof of keys that they want to help strengthen the Bitcoin network by promoting it and that their systems are ready and able to serve their customers who make the withdrawal requests. You know, I don’t know that we’re going to see much of that. And yet it’s a very helpful opportunity for them to be able to stress test their own policies and procedures around their withdrawals and, their withdrawal processes and tests or cold storage’s and all of these types of things and their AML KYC procedures and their withdrawal limits and, and all of this stuff.
Trace Mayer: So, you know, because Hey, you might not be able to withdraw your Bitcoin because there might be an AML limit that’s been imposed, because you don’t have your account verified to a high enough level or whatever it is. Whatever excuse it is that they’re not going to send you your Bitcoin cause, cause that’s really what we’re talking about, right? Like, if you’re monetarily sovereign, then you get to make the decision on whether Bitcoins gets sent or not because you hold the private keys. But if you’re in the slavery relationship, then you’re relying on someone else’s full node and someone else’s exercise of the private keys to determine whether or not to send the Bitcoins that you think you may or may not own. And so it’s very important, for individuals to understand what the relationship and what the power structure really looks like. And the private keys, that’s where the rubber meets the road. You either you’re either in possession of the keys or someone else’s, and if you’re in possession of the keys, then you’re the King or the Queen. And if someone else is, then you’re the slave asking for permission to get your Bitcoins.
Stephan Livera: Yeah that’s certainly not a position we want to be in. And we want to obviously be in the position where we hold the keys. Now in terms of recommended tools and best practices, are there any suggestions you have for the listeners Trace?
Trace Mayer: Yeah. So on proof of keys.com. We, have some guides to help people learn how to do all of this. Cause yeah, I understand. There’s some education that people need to do. They need to develop the human capital. You know, and this is great. Let’s do it when it’s not an emergency, let’s do the fire drill. Well, let’s learn where the escape route is and go through the process when there’s not a fire because then, you know, if there is a fire, we’re that much more competent. We know what we need to do and we can do it quickly because we’ve practiced it and done it before. So proof of keys. I have you know, there’s Bitcoin core to run your full node.
Trace Mayer: There’s Armory for private keys. There’s Glacier Protocol and Smart Custody written by Christopher Allen where we talk about you know, different best practices on how to secure those keys and everything. Purism laptop. I like that. And then we have links to different people that support proof that keys and different articles of failures. Because, remember last year I announced proof of keys and within a couple months Quadriga CX and Cryptopia both failed. I mean, they got decapitated by proof of keys. So, and people lost hundreds of millions of dollars being at the end of the line. You know, they should have flexed, their monetary muscles a little earlier and they wouldn’t have had those losses. Leave those paper Quadrigas CX Bitcoins with someone else. You get the real Bitcoins, you know, and, and that’s the thing, if you want it, come and claim it.
Trace Mayer: This is completely voluntary, just like Bitcoin. So people get to choose the degree of sovereignty that they want. Do they want none as a slave? Do they want full sovereignty by running a full node and holding the private keys and then everything in between? Because there are lots of different ways that you can hold those private keys. I mean, you could go full bore, have a computer that never touches the internet. You’re running a satellite, your ISP doesn’t even know that you’re running Bitcoin. You know, or you could be, using a Ledger or Trezor where you’re broadcasting your address list all over everywhere letting people know that you got Bitcoins. And so there’s lots of different ways lots of different privacy implications all different types of stuff like that. It’s just, now’s the time where we can have that discussion as an industry and those of us with experience can help the new people that are coming in because it’s very daunting. And, that’s another reason I started this so that we can stir up the discussion and help those new people. And that way we can, we can all as an industry get that monetary sovereignty benefit and strengthen the Bitcoin network as a whole.
Stephan Livera: Excellent. And do you think that there’ll be some people who go early because they’re worried that something might go wrong and I want to get my coins out early.
Trace Mayer: I suppose that’ll happen in some cases. I mean, really, you know, this is a best practice to be doing on a regular basis. You know, not hold it, not, not letting other people hold your private keys unless there’s a particularly compelling reason for that. So not your keys, not your coins. The January 3rd just happens to be a date that we can all rally around and have the discussion and have some fun with. But if you’re particularly worried about your exchange or your third party that’s holding them yeah, do it early. You know, I definitely recommend like being extremely cautious and skeptical of any third parties that, you want to entrust with holding keys. It should be a great privilege for them to be entrusted with your Bitcoin. You shouldn’t just bestow that on any institution or organization for just willy nilly for any reason. Because a lot of them just have really grubby fingers and they think that they matter because they get to hold private keys. No, like the valet driver, it’s a privilege to get to go park the Ferrari, and that’s what you pay him for, you know, to take very good care of your car, you know. But at the end of the day, he drives home in his Honda civic, right?
Stephan Livera: Well, yeah, they are a service provider and it’s up to Bitcoin holders to make sure they are Bitcoin holders, as you say. I’m also interested now to discuss around privacy. So there’s been some discussion around Bitcoin privacy and some different implications of this. Potentially we could start with talking a little bit about on chain privacy. Now, part of that involves the use of techniques such as coinjoin and there are analysis and surveillance companies performing analysis on the blockchain to try and understand the origin of certain Bitcoins, where possible. Obviously it’s not always possible. What’s your view on whether people should be doing coinjoins and using those sorts of techniques or whether they should be looking to other coming technologies for that sort of privacy?
Trace Mayer: Well, my short answer is like, I don’t necessarily think it’s a very good idea to be doing coinjoins and stuff. You know, you don’t necessarily know who your coin joining with what if they’re like a North Korean or a or a terrorist, right? And now you’ve mixed your UTXOs with them, then you try to deposit your UTXOs in the exchange and now you’re a person of interest. Like under investigation. Like that wasn’t a very good idea. So, coin joining, I don’t know that that’s the best idea. But this raises a much larger question and much larger debate and which is the privacy, anonymity, fungibility debate. And the way I look at it is when claiming our monetary sovereignty, we have two massive theaters of war, like Europe and the Pacific. Europe, that’s scarcity. That’s having the hardest money ever in Bitcoin.
Trace Mayer: You know, we’re winning that battle. You know, we’re winning that war, that particular theater, the privacy anonymity fungibility that has take place over in the Pacific, it’s a different battle and there are going to be different tools and stuff that people are gonna have to use when fighting that battle. And even Satoshi himself in the, in the white paper acknowledged that Bitcoin had a very problematic technological hampering when it came to privacy. Reading from section 10, he said, quote, “The necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place by keeping public keys anonymous”. End of quote, like that is not a potential solution at all. The whole point of the public key is to be able to make it public, right.
Trace Mayer: And if making the public key spoils your privacy and your end, the only way that you have to be able to get privacy or anonymity or fungibility is by keeping the public key private. Well, that’s just not gonna work. And we’re seeing, that getting massively attacked with AML KYC, with the financial action task force. And there are rules for VASPs virtual assets service providers, the travel rule under the Bank Secrecy Act all of this. And at a technological level, if you have to trade between scarcity and privacy, well you need to go with scarcity. That’s more important. And, that’s the trade off that’s been made with Bitcoin. And so the privacy, like on chain, it’s just going to be very, very, very difficult to get true privacy and anonymity and fungibility especially in size and scale on chain with Bitcoin.
Trace Mayer: And, and even then, I wouldn’t recommend doing it for the reasons I mentioned about coin join. You don’t know who you’re coinjoining with. That’s a bad idea. And so then it leaves, okay, well now we got layer two solutions, not to jump too far ahead, but you know, we got layer two with lightning network or side chains, we’ve got onion routing in there. Okay. So we’re getting more privacy and fungibility opportunities there, but not necessarily in size because you know, lightning network has a limit and and there’s still a bunch of chain analysis that’s going to be done. Well what about other coins? You know, other coins can definitely focus on serving this particular niche. And in some cases they might be able to do it in a superior way to what Bitcoin does. We’ve got Monero with ring signatures.
Trace Mayer: We’ve got Charlie Lee talking about implementing Mimblewimble via an extension block into Litecoin. Monero wants to do a Mimblewimble. As a side chain, we’ve got Zcash that, is trying to use homomorphic encryption with ZK Snarks. But that’s problematic because what about hidden inflation and not to mention all the problems with trusted setup. Then we’ve got Mimblewimble you know, that paper came out in 2016 we’re able to have provably scarce limited in amount, but at the same time we’re able to remove all of the data in the blockchain, you know, in terms of addresses and amounts. So Mimblewimble could be a solution but not in Bitcoin because I just don’t see it being feasible to have Mimblewimble in the base layer of Bitcoin. And even if we did, we would be starting, 11 years after the fact if we started now, and it’s not going to happen for a decade, at minimum, right.
Trace Mayer: If ever, it’ll probably never happen. But another coin that has Mimblewimble in the base layer. Like now you’ve got a bunch of privacy and fungibility enhancements that you could potentially do there. Even though there are potential attacks on the privacy of people have enough nodes, you could still be broadcasting a bunch of transactions to other trusted nodes that you’ve verified. Like say you ran a node and, other people I trusted ran a node and I broadcast it through dandy lie in that way. And we were doing valueshuffle and coinshuffle and all of this process and, and stuff like, you know, and that happens all out out of band before it gets into the mempool. And you know, so Mimblewimble at the base layer could be a very helpful feature set for the privacy and anonymity.
Trace Mayer: Fungibility service. But, you know, what do we have there? We’ve got grin and beam and now there’s a Mimblewimble coin that just got launched. So, people are working on this problem they’re working on, on trying to solve this particular threat to our monetary sovereignty. Because, look at, they’ve already wielded the financial system to attack political speech with the banking blockade on WikiLeaks. And so the, you know, the regulators and other people don’t want to do it if they can. And so we need to be proactive and be building the solutions that we want. And so I see that debate being an entirely new front where the war is going to get opened up and we’re going to have a lot of stuff happening over there that isn’t going to be happening on the scarcity front with Bitcoin.
Trace Mayer: So, you know, Bitcoin maximalists good luck. You know, because you’re going to need to be open minded. Your parachute’s gonna have to be open to work. Your mind’s going to have to be open to work and you’re going to have to be able to look at the different things that are coming out of that. And the, in my opinion, the more options we have the better off we’ll be, you know, let, the more, the more privacy anonymity fungibility options we have, the better you know, doing Monero side chains with Mimblewimble being able to atomic swap into one of these Mimblewimble in the baselayer coins and also be doing atomic swaps back and forth into Bitcoin. You know, and then you don’t have to rely on third party exchanges to be swapping for all these Bitcoins.
Trace Mayer: Yeah, I mean, I think a lot of this could be be very helpful for just making, raising the cost on breaching privacy and look. Chainanalysis just laid off like 39 people. That’s great. You know, let’s make it more difficult on them. Raise the cost or breach the privacy. And remember, it’s a pure cost center. The governments aren’t paying they aren’t paying the, the exchanges and all the actors to be doing this compliance work. They’re just threatening them with fines. And so, you know, we can, we can just raise the costs in order to do that type of work. And that’s another way we can fight in this monetary sovereignty war in the privacy front.
Stephan Livera: Understood. So on the privacy front then, Trace, you mentioned earlier that you didn’t believe coinjoin is a good idea because that might mean you’re mixing your UTXOs with some kind of nefarious party. But by the same token, wouldn’t that also similarly be true for swapping into and out of other coins? Is there a reason you distinguish between coin joining Bitcoin and atomically swapping two other coins?
Trace Mayer: Well, with Bitcoin, you’ve got the blockchain record, right? So all those, all those transactions and amounts are in a public immutable blockchain record. When you’re doing atomic swaps, well you don’t have as much data or record that you’re leaving behind, especially if you’re going in and out of Mimblewimble coins in the base layer, you know, because everything in a, in a Mimblewimble, that’s all coin joined. And then there are cut throughs. And the only thing that remains is an excess value that’s kinda like a hash and is unintelligible. Looking in at it. And, and then there’s only one transaction in the block. So there’s just way less data that’s there, especially after the fact, a few years after the transaction happens. Like if you weren’t there, like monitoring all the transactions in the mempool. And even then you, you know, I, I talked about doing stuff out of band and, and you know, and it with dandelion and, and other ways that you can broadcast the transactions and be doing cut throughs and value shuffle and coin shuffle and stuff like that.
Trace Mayer: I mean we could just make it very, very difficult for there to be any records of the footprints, you know, like, and, but Bitcoin man that blockchain’s immutable, there’s no rolling that back and it’s public and available to everybody. So that can leave a lot of threads that investigators can pull on, especially in the future. Cause we don’t know exactly how much data or information they’ve got or will have. So it’s better to just not even leave any of that data or information at all if we can, in my opinion.
Stephan Livera: Right. But I suppose then for Bitcoin users who wish to transact without necessarily letting the other party or an outside observer cluster their balances, if they don’t use some of those privacy techniques and that leaves them a little bit more vulnerable to an outsider knowing what their wallet cluster is and potentially knowing what their balance is. For example, if I send you a transaction and then you could then, try to trace that back on the chain and try and figure out what my balance is. Without the use of coin join techniques that becomes a little bit more easily possible for you or an outside observer. What’s your view on that?
Trace Mayer: Look, Satoshi put it in section 10 of the white paper. A Bitcoin is not very good on the privacy side of stuff. It’s got seven network effects. It’s the scarcest money, like it’s winning in that particular front of monetary sovereignty. Sometimes you want a fork, sometimes you want a knife and sometimes you want both in order to accomplish something and trying to use a fork to accomplish something where a knife is a better design tool to accomplish what you’re trying to get done. Why are you using a fork? Like, are you just being dogmatic? Are you not being open-minded discounting that forks even exist or that forks or knives even exist or that knives could even be useful? You know, we need to be in my opinion, we need to be flexible and open and use whatever the best tool is for the job.
Trace Mayer: I gave a presentation a few years ago, why hire Bitcoin? It was based off of Clayton Christensen. Why hire a milkshake? And cause he had done, he’s a professor of marketing at Harvard, a great thought leader in the space and, he was going in and consulting for a fast food company trying to figure out how they could sell more milkshakes. And so what he decided to do was to try and figure out why people hired milkshakes. And it was very interesting why people hired milkshakes, you know, and, and it was counterintuitive to why you might might think people were buying milkshakes and it’s the same type of thing. Why hire Bitcoin? Well, Bitcoin has got the network effects and it’s got these HODL characteristics but it does not have these privacy characteristics and fungibility characteristics, you know? So if you’re hiring Bitcoin for privacy and fungibility reasons, you might just be using the wrong tool to accomplish the job. You know, that’s kind of the point I’m getting at.
Stephan Livera: Yeah. Got ya. So as I say it then, given the need for confidence around Bitcoin’s total supply, potentially, then that points towards a tension there between the scarcity front and the privacy front, if you will. And so that might eventually resolve out, and well, it’s unknown how that resolves.
Trace Mayer: Yeah. I mean, yeah, there’s usually always a trade off in life. You know, and that’s why humans have become the dominant species on this planet is because we have been able to be more successful at using and inventing tools to accomplish ends or means or purposes that we’re trying to get done. And so, Bitcoin doesn’t have to solve every single problem. You know, we can use other tools to solve different problems. And we can use those tools in conjunction with Bitcoin to solve problems. We need to be very creative in how we do that. And anything that could potentially jeopardize those seven network effects, especially the scarcity and the limited amount-ness, a Bitcoin that’s going to be viewed as an attack on Bitcoin. You know, especially this fifth net network effect of developers where we’ve got, and I’d put not just developers, but accountants, attorneys, lawyers, regulators legislators. Bitcoin, in order for it to be integrated into society and the social system in a big way.
Trace Mayer: All of these things in the legal code are going to be happening around and outside of the technical code of Bitcoin. But there’s a lot that they can do to hinder or hamper Bitcoin’s development or introduce a competitor that, you know, might have a very hard money emission rate schedule and stuff like that. You know, that, and raise the cost on using Bitcoin. And that could just further delay Bitcoin integration into society. Cause even though Bitcoin is censorship resistant, you know, if the costs to use Bitcoin are raised too high, then different institutions and organizations won’t interact with it or, operate with it, like look at getting bank accounts for the early Bitcoin businesses, like very, very difficult, still very, very difficult. Why? Because the, the legal structure has raised the cost via bank secrecy act laws and AML KYC laws and stuff like that.
Trace Mayer: And that’s hindered the development and growth of that network effect on Bitcoin. And so, there’s definitely this tension and if Bitcoin, if like the privacy coins were, we’ve already seen that they’ve started to get delisted from different exchanges and stuff. You know, because of the FATF and the travel rule and stuff like and stuff like that. So, you know, we live in a very complicated world and there are lots of different ways that we can accomplish what we’re trying to accomplish. And the technology might get something there, but it’s going to take the political will to keep it there. And just getting, just keeping Bitcoin’s scarcity there might require all the political capital that we as an industry are able to muster. You know, we might not be able to muster enough political will to have both Bitcoin and privacy fungibility characteristics.
Trace Mayer: Right. And so that stuff will have to happen in the censorship resistant way out of band from the Fedwire system or the Euro system or whatever. You know, we don’t know how this is going to turn out. That’s why this is going to be a new front in the battle for monetary sovereignty. And that’s why the 2020s are going to be so exciting because, we’re going to get to build a lot of these solutions that don’t even exist yet and, and it’s going to be fun to be participating and watching, and theorizing and talking about all of this stuff.
Stephan Livera: Yeah, I think you’re right. It’ll be a very interesting, and it’s going to be wild. I’m looking forward to seeing how that plays out. And also Trace, I know you were just recently reading Mises Bureaucracy, and I was keen to discuss, to understand some of your thoughts on that. I think it’s a fantastic book for listeners who haven’t, you can get it at Mises.org but Trace, do you want to just open up with some of your thoughts. High level, what was your view on the book?
Trace Mayer: Oh yeah. I mean, anything Mises is a lot of fun, right? And, I thought it interesting just how much respect Mises has for the entrepreneur. One particular section, he said a true genius is barely recognized as such by his contemporaries. It takes some temporal distance, to fully appreciate the creative genius. And isn’t that the truth? It takes a while usually to recognize just how much foresight, the true geniuses really have, whether it’s Bezos or a Steve Jobs or Isaac Newton with the gold standard, any of these people that look far into the future and then like literally move the world to carry out their vision. And then how stifling bureaucracy is just how stifling it is to the human spirit. Just how deadening it is in terms of turning people into just stamp people with stamps, you know, that just stamp papers.
Trace Mayer: I mean, how deadening of a job must it be to work at customs and border patrol, right? I mean, like, man, that takes a lot of, man that’s really rewarding. And, the book just gives such a great insight into how bureaucracies think versus how the market thinks and why bureaucracies have the problems that they have. You know, that they’re not using economic calculation to figure out how to allocate the factors of production so they’re not serving the consumer. And instead you get currying of favor with whoever the dictator is. You know, no matter what type of bureaucracy you’re dealing with. So it was a very interesting book. I had a lot of fun kind of reading it. I like to read different, different books by Mises and Rothbard and another Austrian school economist just to kind of learn new things cause we, we need to always be learning new things. That’s for sure. Especially as the competition in this space continues to heat up. And, being open minded, learning new things, it’s very important.
Stephan Livera: Absolutely. And I particularly love the points Mises was making in the book around the structure. Right? So he makes a point in the book around how even if you talk an ex businessman and put them into a bureaucrat role, that still wouldn’t fix it because it’s, about the position they have, they occupy in the framework of a market society. Did you have any reflections on that idea?
Trace Mayer: So talking about orange hair man, right? Yeah, cause you might be good in business but, but you’re good at satisfying consumer wants and needs, right? Which is being done in a voluntary context and in the market structure, you’re getting signals via economic calculation, via prices and all of that stuff to help you understand what it is that you need to do, how it is that you need to best serve your fellow man. Whereas in a bureaucratic structure, you’re handicapped because you don’t have those pricing signals to determine how to allocate capital. And instead, you just have to deal with, with the, with currying favor, with the dictator, or the other people in charge of their little fiefdoms and just the amount of waste and lack of production and stifling of the human spirit that results from that. You know, it’s no wonder that, that we have so many zombie movies cause so many people are zombies living, these dreary lives of existence in a bureaucracy because they’re not actually serving other people. They’re just currying favor with whoever the next person up on the ladder is.
Stephan Livera: Yeah. That’s a great way of putting it because really if you’ve got a King or a dictator and then they’ve got a big enough area that they need to start having delegates or somebody to command a certain area, well then now they need to restrict the way they control that. And then that’s where they have some of these rules and regulations and so on. And there’s no room for, there’s little room for improvement and innovation because coming back to it, as you were saying, even before, in the master and slave analogy and so on, you’ll, you’re always going to be there asking for permission as opposed to being an entrepreneur where your main goal is to make a profit and serve the consumer. And you will try to find ways to serve the consumer demand. And that may force you to innovate.
Trace Mayer: Yeah. And Mises talks all about that. And I think that’s one of the reasons we don’t see a lot of innovation come out of these highly bureaucratic institutions. You know, North Korea is living in typewriter error era, right? Like I mean we, it’s the entrepreneurs and the innovators that forever change markets and our lives. I mean, the whole reason we’re not continuing, to live in little mud huts is because somebody innovated something better. And, so, you know, these bureaucracies, they just strangle the life, blood and the creativity out of the human soul. Because, you know, what really is going to add a lot of happiness and value to, the individual is, you know, serving other people and being useful and being helpful. You know, and in a bureaucratic institution, you’re not able to do that.
Trace Mayer: And because since you’re not able to do that, you’re not going to be happy because you’re not being obedient to the laws that happiness are predicated upon. And, and so is there any wonder that as bureaucracy has increased, happiness is decreased and anxiety and depression is increased and people are just not happy anymore. Why are they not happy? Because they’re not serving other people and being useful and helpful. They’re just being bureaucratic lumps on a log stamping papers, right. Currying favor with someone higher up on the rung instead of figuring out how they can serve somebody and fulfill their wants and needs. And so, yeah, I mean, it’s very deadening to the human spirit that the bureaucracy and just how it, how it all sets up. I don’t understand why humans are, seem to be so drawn to it. You know, it’s just, it’s not gonna make you happy. So like, I mean, why do humans get drawn? I don’t know. That’s kind of an interesting question.
Stephan Livera: Yeah. Right. And at the start of the book, I think Mises points out that nobody refers to themselves as a bureaucrat. It’s an epithet or a put down term. But nonetheless, that is what a lot of government controlled industries end up becoming or government controlled enterprise or government controlled organizations can end up becoming, and another point you were just, you reminded me there was also in the book, so Mises wrote this book in the forties, and he was commenting about how when American entrepreneurs went to Europe to try and be successful there, some of them had problems because they were applying more of a market view and trying to be serving the market. When they realized they were playing the wrong game. They weren’t trying to play the game of pleasing the politicians or the people higher up to have them permit their business to operate. Whereas people from some of the European businesses were already accustomed to that as well.
Trace Mayer: Yeah. It’s shows just the difference in culture, how’d the Americans get here in the first place? Right. Well, they, they fought against the King with with the bill of rights and with the Magna Carta, they fled to Holland, they fled to the UK, they fled to the United States in order to have freedom of speech and freedom of religion and really to just go to the wild West, they wanted to live their own life and do their own thing. And so we, you know, and everybody who was left, you know, they were the drudgery, you know, were all the people that were left in Europe. And so, you know, it’s not of course the Americans, they, they want to serve everybody, were consummate traders.
Trace Mayer: You know, Americans really are like, when you look at it, Americans, they just have this burning desire to serve other people. Look at Microsoft, look at Amazon, look at Ford. Look at GE. You know, we brought electricity to the world. We brought oil to the world. We brought the airplane to the world. We brought the internet to the world. We brought so many of these innovations to the world, like figuring out how to serve other people. Americans just, they really want to serve and lift the standard of living, of everybody, you know, not just Americans. They want to go figure out. They go, they want to go find other markets. They go want to go find other people that they can, you know, bring these products and services to, and you know, so they, they run over there to Europe and they run into this like bureaucratic morass.
Trace Mayer: But you know, we, we figured out our way around that. Right? it might’ve taken a little bit of bombing, and whatnot to, so that everything had to be rebuilt. But you know, Americans are very creative in that way. And it’s really the only country that has been built around an ideology or around ideas, whereas all of the other countries in the world that’s just, where people happen to be born right. America, people had to choose to go there. It was the new world, a world of opportunity, a world of rugged individualism and opportunity to make your way and you know, come over here and figure out how you can serve people. Was the siren call of, of America. Whereas you didn’t have that with other, with other places. So, you know, there’s definitely a culture difference.
Trace Mayer: Cause w, you know, we got lots of, we got billions of people on this planet. There’s a lot of different cultures and the cultures are a result of millions and millions of people making billions and billions of choices over a lot of years. So like culture doesn’t just get built all at once. It takes a long time for that to happen. And that’s why, you know, another reason why I think that it’s bureaucracy is just so deadening to a society and to a culture because it, you know, it just, it just enervates the human spirit, and the willingness to serve other people.
Stephan Livera: So bringing it back to Bitcoin then, are there any particular traits that are applicable as lessons for Bitcoiners, and is there such a thing as a Bitcoin culture?
Trace Mayer: Yeah, I mean, I think that monetary sovereignty being one of our Lodestars that’s definitely very Bitcoin.Don’t trust, verify, run your own full node, hold your own private keys. Don’t inflate my money, don’t steal my money, don’t steal my money through inflation. You know, private property rights, these are all right in there with the Bitcoin ethos. And you know, and, and then a lot of people that have that have those values in common tend to have other values in common. Also you know, property rights and whatnot. So, you know, breeds a certain type of culture when you have sound money, because now you’re able to have a change in time preference. And so you think a lot more about the future. And so you don’t want there to be a bunch of pollution and externalities and costs that they get offloaded. You want, the environment to be taken well care of because you’re going to have to be around in it for a lot of years, you know.
Trace Mayer: So you know, when you change that time preference which sound money really gives people a tool and a reason to have that time preference change. You know, that begins changing a whole bunch more of the culture. You work hard, you’re thrifty, you don’t spend as much, you don’t waste it on stuff, you know that is, just an erosion of your health because you know, if you’re gonna, if you’re going to have a lot longer time preference, you might as well be healthy during, for a longer period of time. Right. So, you know, I think I think Bitcoin has this natural disciplining effect on people to take better care of themselves, both mentally and physically and emotionally to have a longer time preference you know, just begin to changing a lot of the culture because you’re not, you know, not going to be able to free ride off other people’s money. When you’re making poor choices with your health, you know, with the universe, with all these like different health care plans and whatever garbage that are all funded because of fiat currency, you’re going to have to be able to pay for your healthcare cause where’s the government going to get the money to pay for it for you instead? So I think, you know, we, we have so many changes that come when we change the money and sound money, sound society, Fiat money, Fiat society. Right?
Stephan Livera: Yeah, absolutely so I guess looking out to this coming proof of keys event on the 3rd of January and potentially even for 2020, do you have any predictions or thoughts on how you think it might go?
Trace Mayer: Oh, I think it’ll go well, you know, I think we’re going to have a lot of individuals, especially new people, maybe it’s the first time they’ve heard about it. They’re going to take some action. They’re going to develop human capital, they’re going to run their own full nodes, hold their own private keys, claim their monetary sovereignty. I dunno if we’re gonna have any more fireworks and popcorn entertainment value with like a Quadrigas CX or a Cryptopia it sure would be nice, you know, if we had something like that, but, I don’t know that we will. But you never know. And that’s another reason why it’s important to participate. So that you are able to learn these types of things. Largely, who’s actually got the Bitcoins and who doesn’t? Cause I mean, even like the BitLicense requires audited financial statements, but they don’t have to release them to the public, you know? And even for the audits, they could, you know, they could have Bitcoins, they get moved in or get borrowed in order to pass their audits or whatever. Perfect keys, like there’s no way to like fake that audit, or confuse the auditors cause you gotta deliver the coins. And it’s delivering the coins to somebody who’s running their own full node. So you gotta deliver them real coins, not little paper coupons or IOUs. So this is the ultimate type of test to withdraw your keys.
Stephan Livera: Fantastic. Well look, links will be in the show notes, but Trace did you want to just shout them out now for the listeners as well for how they can follow you and find out more about Proof of Keys as well, obviously.
Trace Mayer: Well sure. I’m on Twitter at trace Mayer I run the, I host the Bitcoin knowledge podcast. That’s bitcoin.kn and then proof of keys.com. You know, and that’s a public service, altruistic purpose there to help strengthen the Bitcoin network by helping everyone claim their monetary sovereignty if they want it. And thanks so much for having me on and supporting the initiative.