Guy Swann of the Bitcoin Audible podcast joins me for a special show for Bitcoin and Crypto beginners. We talk about why Bitcoin is unique and why you should avoid shitcoin gambling. We discuss: 

• Common questions for people new to ‘crypto’
• “Won’t Shitcoins pump harder than Bitcoin?”
• Comparison of Bitcoin and shitcoins
• The problem with utility tokens
• Shitcoins are LARPing decentralisation
• Shitcoin waterfall
• “Doesn’t Bitcoin waste energy?”

Links:

• Twitter: @TheGuySwann
• BitcoinAudible.com
• “The Yield From Money Held” on Bitcoin Audible
• Don’t Play Shitcoin Gambling Games (by SL)

Stephan Livera links:

• Show notes and website
• Follow me on Twitter @stephanlivera
• Subscribe to the podcast
• Patreon @stephanlivera

Podcast Transcript:

Stephan Livera:

Guy. It’s a pleasure to finally get you on the show.

Guy Swann:

Yeah, man. Absolutely. It’s great to be here. It’s been, it’s been a while since we had our long Austrian debate at the bar. What was that, wwo years ago? Three years ago?

Stephan Livera:

Yeah, I know. For listeners, Guy and I, we were hanging out in and around the events at BitBlockBoom as well. So that was awesome. Great chance to meet some Bitcoiners in person and get a chance to hang out. I mean, the last time we caught up in person, it would have been around Bitcoin 2019. I was keen to get you on and chat because I’m getting these beginner-level questions a lot and I think it’s time to do an episode on those. So we’re getting all these questions around newcoiners who are coming in and they either have a question, or they might have an argument where they’re like, Hey man, what do you think about shitcoin-this or this other coin? And I think we’re going to try to talk through a little bit around how you and I would talk about it, how we would guide a newcoiner into this space. And just to outline some of the difference in thinking of the typical hardcore Bitcoiner as opposed to the person who is let’s say more of a crypto person. So if there’s any high-level thoughts that you have—like the typical question might be like, well, Hey Guy, what do you think about ETH or ADA or Solana or something, right? That might be a typical question. How would you normally respond to them?

Guy Swann:

Basically my introduction to those ideas is just, I try to hit a high-level analogy. I would basically say: communication protocols—like the idea of a communication medium—necessitates convergence. That’s the only reason it can be used as a communication medium, is if you’re using the same one to communicate. And a lot of people mistake that into saying, Oh, we need a monopoly. A monopoly is not, “Everyone converges on the same thing.” A monopoly is, “Everyone has no choice but to use the same thing because of some artificial mechanism.” Like street lights and stop signs don’t have a monopoly on intersections. It’s just the common communication medium we need to make sure that we don’t slam into the sides of each other, crossing an intersection at 80 miles an hour. So because of that, all communication mediums tend toward one. And when you’re talking about a communication of value, the economic and incentive pressures to converge are crazy, crazy, strong. They are way stronger than something like a language or a social network, even though those are strong. Look at the social networks: you’ve got like two, three major ones that really matter. Search engines, you’ve got basically two. Languages, you have one or two dominant languages, but they work because you’re all on the same one. You’re on Twitter because all the Bitcoin and crypto people are all on Twitter. But the convergence around money is even stronger because you can’t hold value in two things at the same time. That one unit of value is explicitly a choice to hold A or B because value is necessarily scarce. You can speak two languages, you can be on all the social media platforms, you can go on Hootsuite and you can post all of them at once. There’s no exclusivity factor of a normal communication mechanism, but there explicitly must be, in something of value. So as something becomes the dominant means of communicating and holding value, the trade off of holding anything less than the dominant gets greater and greater and greater over time. And money in itself is just a mechanism to create that convergence, to make that communication. What’s the point of having a whole bunch of monies—what’s the point of bartering tokens when the whole point of having the token in the first place was to get around barter? You’ve unsolved your problem by having multiple monies—the very problem that money solved. So when you look at this on the long-term—and it will take a long-term for this to play out. Money is a huge trend in society. This isn’t something that unravels in six months, like we’re trying to pick which app to use. Money is a massive shift in how we communicate, how we store [value] and how we think of risk and reward and trust in an economy. It’s incredibly foundational. These are 50-year, 100-trends. So look at the long game. Play out all those incentives, play out the economic necessity to converge. And at the end of the day, I think what we’re asking is: Are we going to live in a world where we want to pick one of our five favorite internets to log into, or is there going to be the Internet? And I think where we are today is a perfect example: we don’t pick which internet we want to use. TCP/IP is the foundation of global communication, essentially without borders. We now have that for money. Are we going to have a whole bunch of them? I really don’t think so.

Stephan Livera:

Yeah, of course. I totally agree with what you’re saying there Guy. To add to what you’re saying, I believe Mises, and I think it was in Theory of Money and Credit, there’s a specific saying—you can search it as well—something like, There would be a tendency for people to go towards the most saleable [good]. And I think the way he explains it there is that things would be one-by-one rejected until you’ve reached the most saleable [good]. That’s also in a sense a maximalist argument, if you will, from a monetary point of view. Now, I guess the part where people who are new to this world might get confused—and maybe some of this is just a legitimate difference of opinion. There might be people who are like, Okay, fine. I get this whole idea of Bitcoin as money, but some of these other coins or whatever—they’re not trying to be money. And so how would you rejoinder there? Do you have a counter-argument or do you just say it like, Well, you know, that’s just not trying to be money, it’s just a different thing.

Guy Swann:

Typically those other things not trying to be money are falling into a trap of having to be money to actually maintain the security and the consensus of their protocol, but then pretend that that’s not what they are—basically marketing, I guess—or in having to bootstrap that value another way, like a yield or just speculative value in general. I think you have to go back to, What is the innovation of Bitcoin? What makes Bitcoin an absolute breakthrough? Bitcoin is a revolutionary technology because of the proof-of-work digital consensus system. Satoshi created a way to use proof-of-work as a mechanism to create an economic incentive structure so that there are no masters in a network of money. But the security and incentives of that system rely on the value of the money. And the value of the money reinforces the security and incentive of the system. It necessitates that the security must come from outside of the network and that the incentive must be able to be proven and issued within the network, which means that it must be money. It’s the only value that it can have, is a monetary value, because that’s the value that a thing has that isn’t specifically some sort of physical utility. Like when gold goes up, when gold is a $7 Trillion, $8 Trillion market, it’s not because you can use it in jewelry and electronics. 95% of that value is because it’s got a monetary premium and it’s got the monetary properties to actually hold that premium so that people don’t just produce a crap-ton more of it until the premium goes away, which is what happened with cotton, with salt, with houses, with whatever it is. All the other goods don’t manage to survive a monetary premium. The ones that are good money, do. So Bitcoin is exclusively 100% digital, pure monetary premium. It doesn’t do shit-else. That’s expressly a beautiful and amazing thing. And that is exactly what keeps that game theory alive, what keeps the incentive structure working and makes it secure. So what a bunch of these DeFi and crypto tokens are doing is they’re actually trying to fake the monetary assurances by giving a reason. If it’s a utility token, why is there any reason to hold it outside of the specific utility you want to use it [for]? So Allen Farrington’s most recent piece actually—which is in the works right now on the recording desk, if you will—he has a great analogy: it’s like a casino chip. You’re trying to create a really popular casino, and you’re trying to create a huge flow of people running in and buying casino chips. But why would you hold those casino chips outside of when you want to use the casino? And that’s why [you see] what has happened in the fallout from the ICO bubble and the new token hype and then the ICO hype and every new hype-cycle in the crypto ecosystem, why we’ve moved to DeFi and “yield farming”, because it’s a way to make people hold those casino chips for as long as possible to get the new ICOs—which are now being paid out as interest rates and yield in their platforms—it’s just a slow ICO essentially, or a really slow airdrop. It forces them to lock up the token which artificially pushes up its value so that you can get the next token. It’s like this huge circular token machine where you’re locking up token A to get token B, which you can then collateralize for token C, which gives you stablecoin D, which you can then turn back around to lock up for token A so that you can start the whole circle all over again. It’s rehypothecation and leverage all the way around. And it only keeps working if there’s another flow of a new crypto token and a new crypto lending/trading/borrowing platform with a new thing to get yield, which is just printed out of nowhere. It’s only survives because there’s this constant stream of new things keeping it alive. That’s a really long answer to that question, but that’s how I see so much of what’s going on in that ecosystem right now.

Stephan Livera:

Yeah, absolutely. Let me try to summarize a little bit. So firstly, we were talking about the economic and monetary arguments of convergence towards the most saleable aspect. But then it’s not just the monetary and economic aspect, as you were rightly pointing out. It’s also the security. It’s like a meshing of these arguments that there’s a monetary component to this, but then to also understand the breakthrough of Bitcoin is to understand that people need a reason to hold the coin. And generally speaking, you don’t need a “reason” to hold money, right? As Austrians, we understand, and as Hoppe would explain from “The Yield from Money Held” Reconsidered, the demand for money is actually because we face uncertainty in this earth. And I don’t know if I might break my arm tomorrow and I need to go to the hospital. And that’s why I maintain a cash balance. And that cash balance helps me deal with the uncertainty of the world by being able to pay for hospital bills or whatever may come my way. So that is why and how we believe Bitcoin answers this question of, Why would you hold it? Well, because you don’t need a reason to hold money. But in the case of these DeFi random coins, it’s artificial. They’re trying to create a reason to hold them, but they’re not money. They’re not trying [to be money]. It depends if they’re making the argument at all. “Okay, fine, we’re not trying to be money.” Well now you’re in the utility token trap, basically. And a utility token simply will not sustain value for the long-term. And I think that’s probably the argument there around utility tokens. How would you explain that around utility tokens?

Guy Swann:

Actually I wanted to add to what you were just saying because I think you brought up a really good point: just on the nature of money, what eventually becomes money is the most saleable good in the market. That’s how it emerges. Which from the basis of the idea suggests there’s going to be [only] one because the thing that is money is the most saleable. But you brought up “The Yield from Money Held” Reconsidered. Who was that by again? I already forgot.

Stephan Livera:

It was a speech by Hoppe, but it was actually considering this guy named [William H.] Hutt. He was essentially explaining why, but there’s an article I can put that in the show notes for listeners out there.

Guy Swann:

I read it, I’ve got an audio version on the show. A great piece, great piece. I love that one. It’s on the idea that the reason the most saleable good has utility is because it’s a hedge against uncertainty. Like you said, the reason you hold money is because it’s the one thing that you can get everything else for. So what we’re doing essentially in Bitcoin is recognizing the monetary properties as being superior, and the economic security—the lack of uncertainty in the Bitcoin system—being profoundly less than all alternatives, and speculating on the fact that in the future, this is going to be the most saleable good, that this is going to be the money. And we are even using it as our money in a subset of the community today. Like 1% or 2% of the whole world is hedged or touching Bitcoin in some way these days. So I think that’s important to recognize, just the concept that money is specifically a hedge against uncertainty. It is about security in and on its face, in your ability to store value, to keep value, when other things may rot, when other things [get confiscated]—maybe you don’t own them in the future because of your jurisdiction. You don’t know what the price is going to do to these things. You don’t know whether cotton’s going to have a good season or a bad season, etc. Money is the one thing that holds the least uncertainty of all other places to keep value. So utility tokens are just a bunch of crypto things that are going to be hyped on the next token coming into the platform or into the ecosystem. If the only reason you’re holding it is to get yield from the next token, it’s the opposite of uncertainty. In fact, I think that’s why a lot of people are in this space is because of all the volatility, is because of the lack of liquidity because of the huge price surges. It’s a speculative circle. We’re betting that the next new token is going to have the same run-up that the last hundred tokens have. And so I’m going to stake my previous token to get the yield on the new token while it’s being issued, because that’s how all these lending platforms bootstrap liquidity, is that they offer a new token. They just print tokens. Everybody rushes in to get the reward, it bootstraps a whole bunch of liquidity, and now they’re using it as a platform to stake token A, get token B to do it on the next one, to get the governance token. I mean it’s just such a huge circular mess and it’s all chasing the utility of arbitrage. Like you could argue that arbitrage is a real utility, right? Like if I wanted to steelman [the argument]: Okay, crypto is actually just arbitraging between all of these different things. And it’s producing “yield”, it’s producing interest. But there’s no productive asset here. There’s no business that’s actually [building something]. Like yield from a security or a financial instrument or whatever is because somebody spent a hundred dollars to produce a piece of electronic software or hardware or something like that and then sold it for $150. Your yield is your profit. It’s $50. So you’re sharing that as part-owner in this productive enterprise. They’re turning $100 of value into $150. That’s not happening in any of these platforms. It’s just “speculative yield”, but what are they speculating on? Various “yields”. It’s a yield that is arbitraging yield. And all you have to do is chase it back to the next token to the next token to the next yield, and what you get is token printing. You’re just printing tokens for the next new platform or the next thing. It’s like 99% of the whole thing is leveraged circular yield arbitrage. It’s crazy. I mean, there’s tons of gambling money to be made. Like, don’t get me wrong. I guess arguably in some sense that’s a value. I mean, people play fantasy football and casino.

Stephan Livera:

Yeah, or they go to the real casino and gamble. While we’re on this point: if you are new, it’s important that you understand [that] there is an industry of people who are here to try to fleece you. And in the past, people like Meltem Demirors have coined the term the “shitcoin waterfall”. And the shitcoin waterfall is essentially this process where insiders create a token, pump it up and dump on retail. And they give this perception that there’s like a real market here, that crypto is a real thing. How would you explain this shitcoin waterfall dynamic for somebody who is new to this world so that they don’t get scammed?

Guy Swann:

This is the most nefarious part of all of it. What we’ve explained up to this point you could argue is like a good faith attempt at trying to find something that a token would be valuable for. We’re trying to build these systems. We’re trying to build financial instruments. But I think the overwhelming majority of [crypto tokens] is trying to figure out a new way to issue your own money—to print a token out of thin air that you can sell to someone. This is where all of this started from. Bitcoin is open source code. And when everybody comes in deeply ignorant of what the real innovation of Bitcoin is, which is a form of decentralized secure consensus, which necessitates—when you think about using that as a totem for value, consensus only make sense if you’re on the same consensus. So again, that deep convergence toward one, but if nobody really gets that—and this is gonna take a very, very long time to play out—I can copy and paste Bitcoin. I can copy and paste it. I can change one tiny little—I can make the block time half as long and call it Litecoin and sell it. And now I can pre-mine it. I can pre-mine hundreds of thousands of tokens on my computer. I mean imagine—even if you are trying to be honest, even if you’re legitimately trying to find a use for this technology. Imagine the overwhelming pull to be able to bring up a Google spreadsheet, punch in a hundred thousand units and then be able to go to an exchange and sell those units for a dollar apiece or a [that] apiece. What would be the pull of being able to do that? That is what the vast majority of crypto is. There was a website, there was a literal website. It probably is still out there, I don’t even know, I’d have to dig into my Bitcoin links, but literally it was just a token generator. Like you could just—I did it once. A fork generator. And you could punch in a whole bunch of different parameters of what your block size is, what your block time is, what proof of work thingy you want to use and all this stuff. And then you just print out at the end and it just gives you a client that you can run and now you’ve got your own unique token. Now imagine I can just go to Fiverr and pay $200 for a really clean, fancy looking website with all the blockchain graphics and all this stuff. And then brag about how it’s got 5x the transaction capacity. It’s more secure because it’s got two different proof-of-work algorithms instead of just the one. I mean, imagine how simple the marketing hype would be and how would you know that I just got it from the website? And what does that $200, $300 investment get me? It might be a hundred million dollars, literally in some cases, things that were straight up essentially copies and tweaks that could have completely existed on that website—made hundreds of millions of dollars. How hard would you work to try to get some marketing hype or some thing that you could just say was just enough different or had this fancy utility? And I hired real blockchain devs, and I did something really cool in this smart contract so that you could get the incredible amount of tokens that you got for free, that you can now sell to everybody who’s all excited about your new platform and your new blockchain and all that crap. There is so much [of that going on].

Stephan Livera:

Yeah. And to add to that, this whole ecosystem around perpetuating these kind of these kinds of scams, there would be at the top, the elite shitcoiners or the insider shitcoiners who make the coin, and then they might go out and get people to promote that coin. And so there’s this whole industry of YouTube—and they all say, Oh, do your own research, and really it’s like a paid interview. And basically they’re just like shilling some random coin and pretending to help “guide” people into crypto. And there’s like some fund managers who are involved and they are getting inside on the friends and family level deal where they get some coins and in the 2017 run it was [like], You’re getting in on the ICOs that are cheaper for us to then dump on retail at a later date. And then to some extent that kind of thing happens even in the shitcoin DeFi world. So there’s this whole industry around it. And I think a lot of people have created in their mind this idea that, Oh, so you’ve just got to like review the [crypto] whitepaper and this is what it means to be a crypto person or whatever. There’s this weird perception of that, right? Because these are not people who have gone and read economics and thought, Ah, okay, what makes a good money? Why is Bitcoin going to be the best money? Things like that. So there’s this whole industry and mindset that I think is very opaque to someone who’s new. And they’re just seeing it like, Oh, I’m just buying some random cryptos on YouTube because I saw the guy on YouTube [who] told me and I did my research. Right, Guy?

Guy Swann:

Yeah. And one of the big things is people don’t realize just how staggering the amount of money [is] being pushed around to promote these sorts of things. I mean, if you talk to people who have been in crypto like the Shitcoin Insider, my co-host on the Shitcoin Insider has been working in crypto and DiFi for a long time. And he says even some of the stuff that he’s embarrassed having done in the past, he talks about just the massive amounts of money to get paid for almost nothing—just to market, just to go into a Telegram group and start shilling it and just like, No, you guys, y’all don’t even know, have y’all not heard about Crapcoin 13? Like, Oh Crapcoin 13 is the bee’s knees. It is absolutely revolutionary. And just whole armies of these people going onto social media and Telegram and getting paid good money to do this. And then you have all these ICO trackers and journalistic websites. There’s a great piece I read on Bitcoin Audible, actually like “I Worked Full Time in Crypto for Two Years and Didn’t Really Like What I Saw”. It’s by [Matt Crook]. It’s a really great piece and he just talks about basically the mess, like how he was bought into it for a really long time, but then he just started to see how dirty all the tactics and all the marketing and everything was. But you’ll get like these crypto journalists or whatever, you’ll regularly get these like, Oh, these are the Top 10 crypto to look at right now! And then you’ll get all the big names, right? Ethereum, Solana, Cardano—whatever is the big thing happening right now on Crypto Twitter, but somewhere right in the middle for no reason whatsoever, like number seven, it’ll be some dogshit token that nobody’s ever heard about like Zencoin. And it’s like number 583 on CoinMarketCap or something. That whole article is paid for by Zencoin. The whole reason that exists is because Zencoin just printed themselves a shit-ton of tokens and they offered up a hundred thousand of them or they sold a hundred thousand of them on some garbage exchange for ETH, paid them $30,000 to put that article up, and everybody’s going to read that and it’s like, Yeah, yeah, all of these coins, I have all of these—Zencoin? What’s Zencoin? Oh my God, I’ve got to get Zencoin. It’s just above Solana! And it’s this huge cycle. It’s an absolute mess of conflict of interest and just people paying—like when you can turn $300, a fancy website and blockchain graphics into millions and millions of dollars, how hard is it to split that 10% with your journalist? That’s how all of them survive. None of them, none of the big ones don’t do that because that’s the way they get big. They have to. Like, it’s where all of the money is, is in “crypto journalism”. It’s a mess.

Stephan Livera:

Yeah it’s a shame. And it’s like this whole industry of people supporting each other in awkward or weird ways, right? The rumors around exchange listing, the idea of, people might create a shitcoin, as you said, and then pay a bit of money to try to get listed on an exchange, because they’re hoping that brings in some retail liquidity, meaning they want to be able to dump on people. And then people don’t understand that there’s actually not as much liquidity as it seems. So then they think, Oh, I’ll buy it cheap and I’ll be able to sell it. But the reality is that the liquidity is simply not there at the time that you’re trying to dump. Like theoretically, if you’re going to be this whole shitcoin gambler. Let’s bring it back to: what would a typical new person into this world be thinking? And they might be thinking, Oh, altcoins have better gains. Right? They might be thinking, Okay, Bitcoin, it’s already gone up so much. It just doesn’t have that much upside. Let me gamble on some shitcoins and that will then allow me to try and trade back into Bitcoin. And of course you and I, we’ve all heard this argument many many times over the years, but how would you explain that for somebody who’s new because in their mind, if they’re not as well-studied in this world, they could easily think that.

Guy Swann:

Yeah. So the reason altcoins have better gains in the short-term is because they’re illiquid, is because nobody owns them, is because they’re not used for anything. If you’ve got a hundred thousand dollars in volume for a day and somebody invest $10,000, you make a massive move in the price. [On the other hand, if] the market liquidity is $8 billion a day and you put in $10,000, it doesn’t move it all. You barely soak up a single market order. You know, maybe you move it a penny for a second and then it goes back down to 10 or whatever. You were inconsequential in the realm of the greater market. Of course shitcoins are going to move faster—that is the nature of liquidity. If there are few market orders and you put X dollars in, it’s going to eat up more market orders than one that has a lot of market orders.

Stephan Livera:

Right. And as you were saying, Guy, that point about how shitcoins can pump harder than Bitcoin, but it’s important to note: a lot of them won’t. And if you know a gambler or if you are a gambler out there, oftentimes if you speak to them, they’ll always tell you about their big wins. They won’t necessarily tell you about all those times they did it and lost money or went breakeven on it. So what happens in practice is that people might “diversify” into a basket of shitcoins, and then think that just because one or two coins might’ve pumped well, that they’re a genius trader now, and unless, really—like you were saying with the shitcoin insider aspect—unless you’re an elite-tier shitcoin insider, you are mostly losing money. You are generally losing money on average, especially once you consider the tax impact of trading around, once you consider the liquidity aspect of trying to trade around. I’ve written an article about this, about why we shouldn’t be playing shitcoin gambling games. Here’s what people do, right? They think, Oh, what’s the next Bitcoin? Or, What’s the next Doge, SOL, or ADA? Because these coins have pumped a lot recently. But here’s the other aspect to consider, is: What’s your denominator? Because people like you and me and others, we are denominating in Sats. What is important to us is how many [sats]. At the end of the day, we’re playing this game of musical chairs. And in 10 years, 15 years time—who knows—the music is going to stop and it’ll matter how many—you want to hold the chair, right? Despite our friend Pierre Rochard. The point being, we have to measure things in Sat terms. And so, as an example, Ethereum the all-time high in sat terms back in 2017 was around 15 million sats for one ETH. A couple of stats, as an example: SOL right now it’s around 330,000 sats, but that came up a lot off the start of the year when it was around 7,000 sats. And so people are looking at these and thinking, Oh, look see, if I just managed to ride this one up, then maybe I can flip it to Bitcoin. But the reality is you’re just cherry picking the ones that did pump really hard and not understanding that there could be a lot of coins that just go nowhere or just go down.

Guy Swann:

Yeah. The vast majority of them go down and the longer the time-span on any of them, they’re increasingly just down, measured in Bitcoin. And you also end up in a situation where you’re just chasing green candles. There’s 10,000 of these things. So sure, Solana went up 5,000% or some stupid shit. But guess when you’re going to notice it? After it goes up 5,000%, everybody else is [seeing it] too, which means they’re going to be running in, chasing those green candles. And that’s exactly the liquidity of the guys who did the pre-mine and the guys who’ve been orchestrating a Telegram pump-and-dump in their private groups and paying for the journalist to stick Solana in their “Top 10 most interesting crypto’s right now”, and paying for social media bots to remind everybody like, “Yeah, these are cool. I like this. But have I ever talked to you about Solana?” like, who’ve been laying the framework for six months for this pump. You’re the liquidity. You’re their liquidity to get the hell out of it. As soon as those green candles look good enough to make you go, “I can’t believe I missed this”, is when they put in red candles. That is the reason they need you, is so they can exit. And you see this all the time. If it can go up in green candles a whole lot, very, very fast, it’s going to come down just as fast. And you are going to be absolutely miserable. You’re going to have your ass handed to you over and over and over again. I promise you every Bitcoiner who tells you this knows it personally. I know it personally. It is a nightmare. It is not fun. It does not come with nothing but gains. You will feel good when you get your big green dildo. And you’re like, Yes, yes, I finally did it! And you will tell everybody about it. But it will be after you already had five big red ones and you’re too embarrassed. You’re just finally feeling like you’re making some of it back. It’s a job. It is a full-time, miserable, stressful job. There are nights where you cannot go to sleep where you wake up at three o’clock in the morning because you’re like, Oh God, oh God, what is the price doing? You have a dream that it went down 50% in Zencoin, crap token 13. And it’s just—you do not want to be there. If you want to do that, if you want to daytrade, if you want to watch minute-long candles and stress, day in and day out at a job that is a full-time job where sometimes you make money, most of the time you lose money, go to town. But if Bitcoin’s gains aren’t good enough for you—I don’t have to [worry]—all of that stress is out of my life. I don’t do any of that. And I still make what, 100%, 200% a year. Bitcoin is nowhere near done. Not even close. Bitcoin is just getting started. If 200% a year gains are not good enough for you? I don’t know what to do. I don’t know what to do. Okay. Good luck. Good luck. You want to get 200% in a week? Lose it all next week? Okay. That’s it for some people, but I live stress-free. I get other shit done. You know, I record stuff. I make a podcast, I’d start a family. I ain’t staying up three o’clock in the night, worried about whether the price is going up or down in the next hour. No, fuck that. That sounds awful. No!

Stephan Livera:

Exactly. And I love that point you’re making there that, listeners, if you are trying to play that game, you are their liquidity. You are the one they’re dumping on. There’s a good chance that you are in that position. And here’s the other aspect as well. You have to consider longevity, right? Because it’s relatively easier for a coin to have a good performance over a 1-year time period or a 2-year time period. But here’s an exercise for the listeners out there: use the Wayback Machine or the Wayback Archive or one of those things, and look at the top five shitcoins of 2016, or the top 10 from then. And compare, what is the top 10 now? How many are the same? And which coin stayed number-one all of that time, right? I think that’s an important exercise for people out there, wouldn’t you say, Guy?

Guy Swann:

100%, because you get survivor bias. It’s similar bias to looking at 10,000 coins that are plummeting or doing nothing interesting at all and seeing the two that just shot up with green candles. If you’re just scrolling through CoinMarketCap looking for the one that’s really fricking green while everything else is red, it’s like, Guess what? You’re going to find one. You’re always going to find one. But if you look at anything that has any amount of longevity where you can invest in it and go to sleep at night and actually get some restful sleep, that list is almost non-existent—like it’s basically Bitcoin. And if everything is traded against Bitcoin, if you’re worried about how much Bitcoin you have, it’s basically nothing. It’s just gonna be pain, in my opinion. And I think when you look at the long-term and we talk about convergence and which one has the most profound security and settlement assurances—which is the value of this thing to begin with—the reason it is sound digital money is because you own it without anybody else’s permission, because you can transfer it without anybody else’s permission. There are no masters, there are no dev keys. And it provides an economic incentive, a game theory incentive structure, so that there just will not be masters. It’s secure from having a master. When you look at [what is] the most secure and you put this on a long enough timeframe, I just don’t think these other things [compete]. And I fully admit, I fully accept that I might be wrong about this. I’ll let that go. I’m not trying to be an ass, even though I probably sound pretty direct about this. And in the context of—I know your mission, I know my mission is about freedom—this is about ending the state monopoly on money. So there are plenty of cases, I guess you could say, to be made for, “Let’s just make as many cryptos as possible!”. And if we accomplish that goal with 10,000 cryptos, and I’m totally wrong about the game theory and the incentives around convergence on a single money, and that maybe we are just going to barter tokens endlessly and we’re going to “yield farm” and arbitrage between “yield farmings”? Okay. I don’t really care. I’m not going to be butt-hurt and I’m not going to hate you for doing that. I don’t care—if we get rid of the state monopoly on money? Perfect, perfect. We do it with a bunch of crypto? Whatever. “Crypto is life”. I don’t give a shit. Like, that is the mission. But the reason I sing the tune that I do is because I think everybody else is going to get clobbered. And they are specifically getting rug-pulled. They’re playing a game of one rug-pull after the other to people who are making enormous amounts of money and exiting and just walking away. They have no longevity. They don’t care about the system. They’re here for fiat gains or Bitcoin gains. And they will gladly walk away from [their project] because it’s not secure. It’s highly centralized. Like those lending platforms they have—like I mentioned dev keys? You know, if you’re talking about security and decentralization, if somebody can go to the developers, if a police officer, an enforcement agency, the IRS, the SEC, can go to the developers and tell them, “You’re liable for everything that happens on this platform, you are going to be punished unless you shut this down.” The question is: can they? Yes. Yes, we’ve seen it over and over and over again. I don’t know of a single one that does not have developer keys, which means that they can just go in and just shut the whole thing off. How is that meaningfully decentralised? What’s the point of decentralization if it just costs more and you still just need to call a couple people at AWS to shut the thing down. It’s a facade. It’s theater. It’s theater for the sake of making it look like there’s something of value here that is external to the explicit group that holds the keys to the kingdom. And so maybe, maybe—I think there’s a very small chance that I am wrong about this and I fully admit that. And if I am? Cool I have an altcoiner, shitcoiner friend who I said, If 10 years from now it still looks like this and it’s become the dominant form of finance and money? I said, We’re going to sit down and I’m going to say, You absolutely told me so and I owe you a beer. Cool. Maybe that happens. I really don’t think so. And I would never advise anybody to take that route because I think this is just regurgitations of the 2017 ICO Bubble. It’s just looking for the next hype, because there’s always new blood. There’s always fresh blood. And everybody has to go through the same painstaking mistakes and learning process. And that learning process is profoundly profitable to people who can take advantage of the information asymmetry. People come in deeply ignorant. Everybody does. I don’t mean that as an insult. Everybody is deeply ignorant of money, of what these technologies are, what the value proposition of these things are. They are insanely different. It’s a very novel technology. There’s no easy thing to analogize to, like the framework for understanding these things is essentially nonexistent. You have to build it from scratch. That information asymmetry is gold to the people who are here and know how to sell you bullshit. And there’s mountains of it. There’s absolute mountains of it. If you want to investigate “crypto”, understand Bitcoin first, get some Bitcoin, sit on it, learn about it, figure out how Bitcoin works, why Bitcoin works, what made Bitcoin unique previous to the world where Bitcoin didn’t exist. Then look at crypto. Then branch out and see what you learn. You’ll probably reach the same conclusion I did, I feel like—maybe not. Who knows. But you’ll at least protect yourself a little bit if you just start with Bitcoin and branch out from there. That’s where it was all born. That’s where it all started from. That’s where you should start, too.

Stephan Livera:

Yeah. And it’s important to remember that a lot of the coins are laughing about decentralization. The reality is somebody out there could stop that platform or try to roll it back. Whereas in Bitcoin it just doesn’t exist. In fairness, we should say there’s maybe one or two instances in Bitcoin’s history—I think in 2010 there was a famous [inaudible] buffer overflow incident. So someone made, I think like 84 billion Bitcoins, something like that. But it’s also important to remember: Bitcoin was the first and it was different then. Back then in 2010, before there was this whole cottage industry of shitcoin people who were doing it to make new money, back then it was truly more like a project. The price was far lower. It was just a different beast back then. And the world was a different world.

Guy Swann:

It was also deeply centralized because there was only like a hundred people. When it was born, it necessarily is centralized because everybody’s running the Satoshi client. It’s only decentralized as a maturity process. Necessarily, everything else benefits from Bitcoin having had that bug before everything else even existed. It was an experiment. It didn’t even have any value. It was worth literally $0. It was just people running shit on a computer and wondering if this thing was going to actually survive. “Can we keep running this system?”

Stephan Livera:

Absolutely. It’s important to point out the distinguishing factors there. And it’s also important to remember that there are hacks on shitcoin DeFi almost every week. We see some new hack sometimes in the hundreds of millions of dollars range. And then what happens is they might end up handing it back or something because they thought, Okay, well, there’s no way I’m going to be able to exit liquidity out on an exchange because of all the KYC. It points out to you how decentralized are these ecosystems if that’s how they feel about these things, right? How really decentralized all these things? And here’s another aspect: with a lot of the shitcoins, people just treat it like numbers on the screen. It’s like, Oh, I just go to my exchange or broker and I buy it. How many people are actually running a node for this shitcoin? How many people are using a wallet and self-custodying for that shitcoin? These are all questions that—as a new person to the space—we have to consider, don’t we?

Guy Swann:

Yeah, 100%. Like I just mentioned with Bitcoin, decentralization is something that you earn. It’s not copy-paste. It’s a maturity process. I use an analogy on my show is that Bitcoin—when Satoshi and Hal Finney were the only ones running it—was clearly highly, highly centralized. They could have hard-forked in an hour to change something. Satoshi just hits Hal up and is like, Dude, update your client. And he’s like, All right. You know? It was necessarily centralized. It’s like an infant. The code of the protocol itself is just the DNA. So when you copy paste it, you can say, Oh, our protocol is just like Bitcoin because we literally copied Bitcoin’s code and then we changed parameter A, B and C. But you didn’t copy its decentralization. You didn’t copy all of the nodes, the hundreds of thousands of nodes all around the world. You didn’t copy the Lightning Network. You didn’t copy the growth and the ecosystem and all of the exchanges and all of the relevant interests and the social defense mechanism and the precedents that had been set over Bitcoin’s lifetime. You [only] copied it’s genetics. So just like you could watch an infant grow into a young man and get strong and they learned a lot of skills and they’re able to survive out in the wild on their own and then they grow up into a lumberjack and your mission is to cut down trees—you’re going to get the lumberjack. Somebody else can copy that genetic code and make a new infant in a womb and they’re going to say, Look, I’ve got a lumberjack! But they don’t have a lumberjack. They don’t have one. You have to wait for years and years to see that precedent. They still might die as an infant due to some disease or because they didn’t pass some test or because some bug entered the system and they decided to fully centralize as opposed to actually take the hard route of undoing the bug, of reversing it to keep consensus. That’s the beauty of Bitcoin’s “rollbacks” or whatever it was, is that they didn’t break consensus. Almost all the other—like Ethereum or whatever—they specifically broke consensus to follow the most powerful—the leaders’ interests of the platform. Bitcoin did not do that. Bitcoin actually, specifically from the beginning, did everything they could to make sure that wasn’t [going to] happen. What they did was [they] saved consensus. They rolled back so that the fork did not happen. And this is multiple times. Every bug that has happened in Bitcoin since has gone about it the same way. The 2013 rollback was the same. And in doing so, it prevented a fork. So that consensus remained secure, consensus remained trustless, so that the people who were on the “outdated” system were not put at risk. They weren’t forced to update to some client that they didn’t trust. They could still 100% validate the Bitcoin system that they were part of and their money was still valid. And what you see in these alternative systems in like Ethereum or whatever is essentially the opposite being the trend. Rather than toward more decentralization, less trust in some central party running things and the attempt to keep it as fully backwards compatible as possible and as broad as the ecosystem can manage, as you see this trend—whether slow or incredibly fast, or [it] just starts out centralized and never goes anywhere—towards centralization, towards more trust. Ethereum is a great example because now they’re going proof of stake. And proof of stake has never actually worked in practice for distributed consensus on any of these major things without signed checkpoints. And they even admit, like there was an episode [of a show] with one of the Ethereum developers [where] they even specifically said, “Oh, well we’re specifically making this trade-off for more centralization so that we can have all these great features.” These features are only features because they’re decentralized! DeFi is not a feature if it’s just Fi. If you build it on a centralized base, how are you getting around regulatory anything? If AWS, if Bezos can shut you down and make the whole ecosystem scramble to even keep the connection alive, what’s the value of paying $50 fees on Ethereum to yield farm something that somebody can just cut off? Just use Google, like just use a centralized service. Just build it centralized, for crying out loud. But I lost my train of thought there.

Stephan Livera:

Actually one point I wanted to add to what you were just saying is: now, let’s contrast with Bitcoin. Bitcoin just recently went through an instance where one of the largest states on the world, China, went and said, “No more Bitcoin mining.” And there was a significant portion of the Bitcoin network in terms of mining that had to come offline. Those miners had to shift, and what you and I saw and what we saw, is that obviously there was an initial drop in the hashrate as we would expect, but that hashrate rose back up very, very quickly. And so I think that’s a genuine and objective example where we can point out here that, actually, Bitcoin is a lot more resilient as a system because it is more decentralized. These miners had an incentive to get their equipment out or sell it to somebody else who can run it. And it’s brutal, right? Mining is a brutally hyper-competitive environment and the system remained robust to this kind of shutdown. And we could not say the same for altcoins.

Guy Swann:

It was actually really, really amazing. It’s incredible how robust the system has become during the last five, six years against so many different potential problems that—had I not specifically been following it, had I just been using Bitcoin regularly—I never would have known. It was arguably like 50% to 60% of the fundamental security infrastructure of the Bitcoin network. What other service or system or platform could possibly shut down 50% to 60% of the entire infrastructure, keeping it running and have zero interruption in service and no fundamental change in how it actually operated? And migrated halfway around the world! Literally, you’re talking about massive amounts of hardware that just picked up shop, unplugged, and dispersed to like 20 other different countries and found a new spot to plug back in and get back up and running. And there was zero network interruption.

Stephan Livera:

Exactly. And just for context listeners, we’re talking literally about hundreds of thousands of mining machines here. It’s no small feat to achieve that, and every person involved had the incentive to do it, because if you’re a miner or a mining pool, you have this incentive to get out there and help make this happen because there was so much money on the line for you to do this. So that is also an important point, is that the incentives of Bitcoin are a bit more better aligned for the system to operate into the longer term. And I think that is an important point, that people only come to understand this once you’ve done further study. You’ve listened to Guy Swann, or you’ve listened to my podcasts, you’ve done your reading, you’ve done your homework, you’ve been discussing, or maybe you go to the Bitcoin meetups and you talk with people and you learn. That’s really what it is. That’s actually doing your own research, right? Instead of the shitcoiner version of that. The other thing people might have as a concern, if they’re new—they might be thinking, “Oh, Guy, isn’t Bitcoin old technology?” What would you say to that concern?

Guy Swann:

Okay. So is TCP/IP. So are traffic lights. So is English. How often do we update English? It’s a communication medium. It’s a protocol. TCP/IP really has been unchanged since 1978, I guess probably like the formalized version for the last really significant update was ’83, ’84, something like that. But it’s like 40 years old! Isn’t it the MySpace of the internet? Isn’t it old technology? The whole point of a communication medium—add to that a system of cryptography and a game theory and incentive structure to it, which is whole levels of extra complexity and risk involved in doing something wrong—is the fact that it lasts for a long period of time and does one job profoundly well and reliably. You don’t just, like during the days of the cypherpunks leading up to Bitcoin, there were tons of people who would “roll their own crypto.” And they were considered morons and cranks and they would go on like [inaudible] and they’d be like, I’ve got a new cryptographic algorithm, and it’s super unbreakable. And Andrew Poelstra in A Treatise on Altcoins has a great line, it’s like, “Anybody can create a cryptographic protocol that they can’t break.” Of course you can. If you’ve got any sort of game theory model, it’s limited to your own ignorance. So if you make something that you can’t break, it just means that you don’t understand it well enough to break it. That’s the best thing that you can design. And they have an incredibly short lifespan. The number one rule in cryptography and cypherpunks is: don’t roll your own crypto. Don’t do it. Use the one that is trusted. Use the one that has survived for 10 years, 12 years, because it has the Lindy effect. We know that it actually works. We know that it reliably does its job. And these things are completely based on that security. That’s where their value fundamentally comes from. TCP/IP does a single job, and it does it incredibly well. It does it more reliably than anything else does and it is that fundamental communication medium that everybody has adopted. Trying to change that, like “hard-forked TCP/IP,” would be a freaking nightmare.

Stephan Livera:

That point is correct. Don’t roll your own crypto. There are all these aspects that only become apparent once you’ve done the reading and research. The other big one that we get from newcoiners and people who are new to the “crypto world” is they say, Oh, but Guy, doesn’t Bitcoin use too much energy? I heard there’s these other, more energy-efficient coins. Why don’t I use those?

Guy Swann:

Ooh, this is a two-hour long conversation. Probably the easiest way to explain this is that the use of energy to secure the system is the innovation. It is exactly why Bitcoin is a breakthrough. Proof-of-work is what is fundamentally a breakthrough in creating a system that does not require trust. You can verify its assurances. For just a simple analogy without really getting into the heart of mining is: the security of Bitcoin is the inability to edit it, is the assurance that you know just how much it costs anyone to try to reverse something that happened in Bitcoin’s history. That cost is explicitly defined in the proof-of-work. That is how you know the thing is secure. That is how you define and measure its integrity. Without it, it has nothing. It’s essentially like a force-field. It is a pure energy force-field around altering or editing the history of Bitcoin so that you know it only moves forward. To say, “I’ve got a system that doesn’t use any of this energy” is to say that I have a system that is not secure, that has no force-field around it, and is vulnerable to just a huge subset of problems. Or it’s just highly centralized. And in the context of proof of stake, an analogy I like to use is that if Bitcoin and proof-of-work is a force-field around everything and everyone who has money and capital within that force-field—and economic activity within the Bitcoin ecosystem—then proof of stake is having the five dudes who have the most money tied up in it and giving them guns and having them stand around it, and believing that they’re not going to turn the guns on everybody else’s money. Because they can. And this is explicitly why you see proof of stake almost universally has—as soon as it’s big enough to be viable or to be economically important—they have developer checkpoints. Most of the time they have developer checkpoints from the beginning, which just means that you have a trusted third party deciding what the truth is. Why are you decentralized? It doesn’t matter if he’s like, Oh, it’s a hundred blocks decentralized and then there’s checkpoints. It’s like, What are you wasting all this time on a hundred blocks for? Why don’t you just sign? You still just have a centralized party telling you what the truth is. Fundamentally, the way to think about proof of stake and why I think it isn’t real security and what they end up doing is just trying to obscure and hide where the vulnerability is, is that what you are doing in proof of stake—the reason proof-of-work actually works is because the energy cost and the security is provable outside of the network. What you’re trying to do is define the truth of the system’s history. So if you use its history to define the history, you’re begging the question. In proof of stake what you’re doing is you’re saying the person who owns the most stake is the one who decides how much stake other people own. You’re using its history to give proof of its history and necessarily that means you still have the question of, Okay, well, what’s the valid history to decide who’s deciding what the history is? So what you end up doing is just this really convoluted, overly complex mechanism of punishment and separation and time-delay and all this stuff that routes all the way back around to checkpoints by the developers. And almost universally, I think there’s something fundamentally broken about the concept of proof of stake. If you’re using the history to define what is the valid history—we can get into a hundred different ways that this could be attacked but I think it’s all just unnecessary details—there’s just fundamentally something wrong with doing that. If there’s no proof, if one person doesn’t have to go through the force-field—because they are the ones who define what the force-field is—there’s no force-field. It’s just a lack of security.

Stephan Livera:

Yeah. That was a fantastic explanation because ultimately there are big marketing budgets being thrown to essentially create the fear, uncertainty and doubt about Bitcoin. And in many cases, it is some of these shitcoin people who are putting money in to get a paid PR piece written up as a news article about, “Oh my God Bitcoin uses too much energy” and why we should use their chosen shitcoin. So in the case of Ethereum, there is a recent episode for listeners I’ll just point out with Alex B where we talk about some of the centralizing factors around that and how, as an intelligent critique of the system, it’s not just us saying, Yeah, it’s a shitcoin—although it is—but it’s more actually pointing out why is there a tendency towards that centralization? That’s the other thing as well, because when somebody is new to “crypto,” and they hear a Bitcoin person telling them, Just stick to Bitcoin, oftentimes in their mind, they’re thinking, Oh, hang on, are you guys just shilling your own bags because you hold Bitcoin and you want me to buy your Bitcoin? Because, although it’s not, in their mind they’re thinking, “Oh, it’s like a Ponzi scheme or a pyramid scheme or something and this Bitcoin guy just wants me to buy his bags but that’s not what’s gonna make me rich.” I’m assuming a little bit, but I think perhaps in the back of their mind that might be part of what’s going on there.

Guy Swann:

I think that’s understandable because it’s so easy when you just walk into this thing to say everybody’s shilling their bags—and basically everybody is. So before you have any foundational understanding of any of this, that’s what all of it is going to look like. And there’s a grain of truth in all of that. If I’m holding Ethereum, I want you to hold Ethereum. If I’m holding Bitcoin, I have an incentive to have you hold Bitcoin. But at the end of the day, you could also argue that me telling you to use TCP/IP and not buy this other shitty router for $500 from this random company that says they’ve got the next Internet protocol—Sure. Okay. It benefits me if you get on TCP/IP, because then we communicate, but it’s also a really bad idea to buy that other guys crap. There’s also very fundamental truths and principles that you can unravel about why these things converge and why Bitcoin is clearly the most saleable in the entire crypto space and why we’re very likely going to end up with [only] one of these things that is meaningfully used in any sense of the word. And so sure, that’s at least a valid criticism from a very high-level social “discuss nothing else” perspective. And it makes perfect sense that’s the perspective when you step into this. You go through the door of Bitcoin and the crypto world and that’s what you see. Just dig deeper. Just dig deeper, and you’ll see there are very serious, fundamental differences. There are incredibly thorough and well laid out critiques in every possible avenue, and [that it’s] not an arbitrary reason that we say that. There’s a lot of foundation for why the shortcut is “the rest of them are all shitcoins.” At least me specifically, I do not come to that decision lightly. I spent five years trying to figure out if there was something there: from Namecoin to the ICO bubble, I desperately wanted to see something else in crypto. And with all the reading, 10,000 hours of reading about all of this stuff, I came to the conclusion that it’s 99.9% a waste of time. And that something’s going to have to survive for 10 years for me to stop and take a second look and make me wonder if maybe I’m wrong.

Stephan Livera:

Yeah. So look, I think that’s probably a good spot to finish up, and listeners as I want to encourage you, make sure you check out Guy Swann, follow him on Twitter, check out his podcast. He comes highly recommended. If you are new to the space, Guy is a great resource. You can find a lot of excellent material and his explanations—as you’ve heard—his articulation is excellent of the the raison d’etre of Bitcoin. Why are we here? Why does it work the way we explained it? So Guy tell everyone where can they find you online?

Guy Swann:

The centralized center of my little internet world is basically Twitter. I’m @TheGuySwann on Twitter and or @BitcoinAudible. I do two podcasts, Bitcoin Audible, and Shitcoin Insider. Shitcoin Insider’s just kind of like my guilty pleasure. I try to be “nice” to crypto and diplomatic, but I do have my moments where I just want to go sit down for an hour and a half and rail about how stupid all that shit is. So forgive me if you’re a crypto-adjacent and Shitcoin Insider offends you, but I love the show and it’s not going anywhere. It’s infrequent but it’s there. But Bitcoin Audible, main idea there if you don’t know about the show is I read—I mean, I do Guy’s takes and interviews like this as well every once in a while—but I just make all of this stuff about Bitcoin, about this space, about the cryptography, about the history of it, about the cypherpunks, available in audio. Just like I mentioned at the beginning of this, Allen Farrington’s piece, Allen and Big Al have a new one called Only the Strong Survive. It’s absolutely gold. It is exactly on this topic. I even used a couple of things from it because it’s fresh in my mind. A brilliant piece, it’s going to be in audio probably towards the end of this week. I might have to break it up. But it’s the Audible of all the Bitcoin shit. So if there’s an idea that you want to dig into or a concept that you want to explore, BitcoinAudible.com, type it in. I’ve probably got a show on it.

Stephan Livera:

Excellent. Well, thank you so much, Guy. It’s been a pleasure chatting with you.

Guy Swann:

Yeah, dude, always man. Good chat man.