Fiat Money as 'fad diet',

Hey guys, welcome to the Stephan Livera podcast. This is episode six and my guest today is Michael Goldstein. Hi Michael, how are you? Hey, Stephan, it's great to talk to you. Great, great. Alright, guys. So Michael, a.k.a. Bitstein, he is, he's a very well-known guy in this space. He is the president and co-founder of the Nakamoto Institute, which I highly, highly recommend you guys go and read. As p- and if you're new, I recommend you go and read the Crash Course in, Bitcoin Political Economy. Michael is also the co-host of Noted podcast alongside Pierre Rochard, which in my view is basically one of the best podcasts in this space. Base. So if you haven't already heard that, definitely go and, subscribe to that. And he's also the curator of JustMeat dot co. So yeah, we're very lucky to have Michael on. He's one of the top guys in this space. And what I was hoping to do today is actually basically critique a Paul Krugman article, which came out on the thirty-first of July, and it's called "Transaction Costs and Tethers: Why I'm a Crypto Skeptic." But before we launch into the detail, Michael, maybe you wanna just talk- Talk about some of your prior interaction with Paul Krugman.

Yeah, well, I mean, of course, this goes back years, 'cause, Paul Krugman is sort of the, the, the avatar of everything that's wrong, according to the Austrian economists. So by the way, you know, shout out for, to Robert Murphy and Tom Woods for, setting the stage for a good contra Krugman, episode, with all, you know, what they've done over the years, but, you know, basically this guy- He's, he's the, the establishment incarnate, and, you know, I, I, I think his first mention of Bitcoin was, let's say was it 2014? it's, it's been a while now. Meet you. Yeah, no, 2013. It was December tw- 28th, 2013, when Bitcoin was seven hundred, seventeen dollars or so, and, he titled a blog post, "Bitcoin is Evil." now, that was actually one of the, probably one of the better, Bitcoin skeptics articles, because he was completely honest about what Bitcoin represents. he wasn't trying to necessarily say that it can't work based on some like technical reason or whatever. He just understood that if Bitcoin succeeds as money, it completely obviates his entire worldview, his entire career, everything about him. And so, under- Understandably to him, Bitcoin is evil, and that's exactly why Bitcoin isn't evil. so that's been going on, and then, you know, he, he continued to go on. There was a, a, another-- I don't remember if it was a blog post or just a set of tweets, but he called Bitcoin a cult. I put out a tweet, with a damning picture of the man, that said, "This is what a no-courier looks like." not too long later, Vice had- Had interviewed me about this so-called Bitcoin carnivore phenomenon, because nothing is more interesting than my lunch, and, he- Shared that article on his Twitter, and shared a quote of mine. the, the quote was, "Bitcoin is revolt against fiat money, and an all meat diet is revolt against fiat food." And he said, "Uh, you know, when I, when I called Bitcoin a cult, I understated things." so of course, I immediately printed this out and put it on my wall, and I, I, I look at it every day, and it gives me inspiration.

But, you know, this has just been going on for years. And, let's also remember that this was the guy who, said that the, the internet-- This was back in, I think, what, '95 or so, he said the, the internet was basically gonna turn out about as important as the fax machine. he also had the whole idea of the trillion-dollar coin to solve the economy. he-- Oh, man, there was that one- One time he got on and was talking about, if only we could fake an alien invasion, it would stimulate the economy, and everything would be fixed. and my personal favorite, and unfortunately so, it, it disgusts me that someone would even have this view, but, post nine eleven he had a column that said that, hey, well at least it stimulates the economy, which is about the most egregious example of the broken window fallacy I've ever seen. so this guy, he, he is, he's a handful.

That's right. He, it, he is an avowed inflationist. so let's break down some of the comments he makes in this article. So one of, I think the headline statement is basically, he says, "It comes down to two things: transaction costs and the absence of tethering." So did you have any comments on that part, Michael?

Well, I mean, this is-- it makes sense from his point of view, sort of. I mean, the, the transaction costs, I understand where he's coming from. He's, he's trying to talk about the cost of payments. So he sees that, right now, if you want to go purchase a good from a merchant using Bitcoin, there's a lot of transaction costs. For instance, if you don't already have Bitcoins, you have to go find Someone who's willing to sell you bitcoins, you have to acquire the bitcoins, then you have to go to the merchant, you have to pay them, with Bitcoin, and you're gonna have to wait for a block, it's gonna be, it's gonna take tens- ten minutes at least, and that's just to get one confirmation. If it's a higher value transaction, the, you're, you're gonna want more confirmations. Then on top of that, You know,

sorry, I lost my train of thought. that you would have to then, you

know, go on?

Oh, well, and then on top of that, the, the, the cost of a Bitcoin transaction has just, you know, we've, we've seen it go up so high, and so it's, you know, it's not like, you know, you just, you just swipe the, the credit card and that's it. So he's thinking of transaction costs, on that. And I, this is, this is fundamentally mistaken by thinking of Bitcoin as a Visa competitor. It's also mistaken because, The, the, the costs of, basically he's viewing money simply as a, method of payment rather than, a, a generalized understanding of medium of ex-exchange. So what Bitcoin is trying to replace is not Visa, not like, which is effectively like a sort of layer three technology, so to speak, on top of The dollar network, it's trying to replace that base money. So what you really needs to be looking at, if you wanna make these kinds of comparisons, are what are the transaction costs regarding, You know, transferring on the sort of Fed wire level. and in this, it's also, you know, I'm, I am not in the banking in-industry, I can't tell you right now how much it costs to, you know, transfer, not just through ACH, but something way below, you know? But the transaction costs are, are much more qualitative in the sense that, there's trust issues involved, which have been routinely damaged, and none of these organizations, have any shred of reputation, whatsoever, if they had any ever. and there's also just the, the fragility thing, which is like, yeah, you, you might have like a low cost, but this thing might also blow up at any moment. and- And that is, that kind of uncertainty is an extremely high transaction cost. The problem is, you know, that, that's not something that you will necessarily see directly in the price of it. so I, I think he fundamentally misunderstands sort of the, the, these fragility arguments and the, the trust nature, which is why as we discuss later, he, he doesn't even understand what problem Bitcoin solves.

That's right, that's right. And I think he, he, he's essentially ignoring all of the, i-in making the wrong comparative. He's now, he's comparing apples with oranges, and he's not comparing, like, what would be a better comparison, for example, might be comparing the cost of a Lightning Network transaction, which can be, you know, one Satoshi, so which is, you know, a tiny, tiny fraction of a US cent.

And not only that, and not only that, with a Lightning transaction, it's way more private Private than a credit card transaction. so, you know, when you have to remember every time you swipe a credit card, in, you're giving up tons of private information. I've had, I've had a number of, you know, issues with my credit card that, you know, thankfully, you know, JP Morgan and, and Bank of America and all these guys, they're, they're pretty good at handling this stuff by now. But you're, you're putting up major risk by even engaging in credit cards. Meanwhile, when you make a lightning transaction

Send the transaction and it's done, and you, you don't have to give up any bit of information except for the money, and perhaps your, your specific address if there's a need to ship something.

Yeah, that's a great point. I think, yeah, it ultimately just comes back to Krugman making the wrong comparative and then trying to hold it to a standard that's just not reasonable for the underlying settlement layer network of Bitcoin, as Safdie explains it. I think the next thing to go into is just his comment at a broad level around what he says the absence of tethering. And I, you know, to offer some quick commentary, I think this is, this is stemming from a mischaracterization of what government fiat money is. It stems from a misunderstanding of money's purpose, you know, as described by Karl Menger, which is the most saleable or the most liquid, good. and so it's just a flawed understanding of why we use money in the first place

Yeah, no, is, is he basically trying to say, when he's saying tethering, is he saying that it needs to be backed by something or that, there needs to be a, a, a, a different use for money as well that sort of, Underplays the entire value proposition. Like when people say that, gold is good as money because it's jewelry.

Yeah, so I think he is referring to using it, like having some kind of physical, some other use for it, and I think in his case, he's, he's thinking, "Oh, the US dollar is backstopped by the fact that the US dollar government will accept it for tax payments."

Yes, yeah, so he's basically, of course, yeah, fiat guys are often just app coiners, where the, where the US dollar is their shit coin, app coin for A, a, a terribly broken governance model. It's, it's, it's, it's yet another one of these scams. Yeah, 'cause it, it would be, it would be ironic if he meant that in the sort of it's not, if it's not backed by a sort of physical good, which, although I guess you're saying it is backed by a physical good, saying that it's, you know, the, the military. Just fiat. Yeah,

so I think as I read it, yeah, go on.

Oh, let's just, you know, fiat is, you know, it's, it's, it's fiat because it's, based on decree. So it's literally, you know, back- Act so, so to speak, by nothing. yeah,

it's the charlatan, you know, state view. So he sort of puts out both of them in this article, as I can tell. So he's saying ultimately it's backstopped by the fact that the US government will accept dollars as a payment of tax liabilities, and then later on he, he tries to go on to talk about how gold, and he says, "Oh, most gold just sits there, but gold does have real world uses for jewelry and filling teeth and so on, which provides, you know, in his Cryptocurrencies, by contrast, have no backstop, no teller.

Right. Okay. So in this case, he, he is meaning what, what he's meaning by t-tethering is, the, the second one that I was saying, which is, that, yeah, you believe that a money needs some other good. But yes, this is, this is a complete affront to the sort of Mengerian view, which, as you said, is just about being the most liquid-sellable good and having some other use might be, good Of bootstrapping a currency, you know, there's, there needs to be some original reason, or, or rather, we know by virtue of something being a money that at some point someone had a reason to demand it. So likely speaking, one of the reasons they may have demand it, demanded it was, because they happened to think that it was, it was useful for something else, and then over time, as more people demanded it, it became that liquid good. But, you know, just- With, with many things, Bitcoin, Bitcoin obviates this physicality, that we so long thought money had to deal with, and even many Austrians, and it, it, it's really focused on The scarcity, that's really what, what we, what we understand now, thanks to Bitcoin illuminating, you know, or, or, or helping us elucidate better ideas, it, it really has nothing to do with anything but the scarcity, that can create, you know, something and,

create a sort of moniness, and, our, our reasons to want to hold, give, give something liquidity and salability, well, at least once it's Bootstrapped into the money.

Yeah, yeah, that's right. And then, so the next section, he says, "Okay, set against this history, the enthusiasm for cryptocurrency seems very odd because it goes exactly in the opposite of the long run trend." Did you want to comment on the real long run trend there, Michael?

Yes, yeah, this is, this is, it's funny. I think this is, you know, kind of twentieth century brain damage on a lot of ideas. There's, there's so much stuff in the modern world that we like to think of ourselves as Lied in humans because, you know, we, we use money that's apparently only good because we have people with gun, pointing guns at us to use it, and we drink soylent and all this other stuff. We think of ourselves as the, the brilliant, you know, everyone else throughout history was stupid compared to us. Well, it turns out like many things, so much of what we see in the modern world, you know, in, in, you know, the twentieth century and, and so on, i-is a- A historical aberration. And when we look at money, you know, gold has been monetized since antiquity. You know, you can find Roman coins made in gold and all throughout the world even, except for in places where it was like truly not scarce. You know, I, I think there were a couple, places in, in, the Western Hemisphere where they just had so much gold that it would seem kinda silly to, you know, monetize it for the very reason that everyone else- Wanted to monetize it, but in any case, you know, the, the history of money seemed to, seemed to point towards, you know, a, a culmination of the end of the eighteenth century, nineteenth century, where, you know, the entire world had sort of, converged on a global gold standard, and so then, you know, governments did everything they could, worked with the banks to chip away at this and create our fiat, Had,

the, the, this fiat system that we live in, and I see that as total aberration. And when, when you take that out of the story, when you take this, this paper money, and, and by the way, like, you know, you, you go back a little bit of time You know, paper money was seen as such a, like an assault on, on human reason. I, I love, it's, it's of course just a, you know, a television show or something, there's a clip of, from an old Marco Polo show where Marco Polo comes back from China and shows them, you know, paper money, to the, the, the, I, I believe it was the Pope and a bunch of cardinals, and, one of the, one of the cardinals gets his hands on it and- You're just talking about how silly, like this isn't, this isn't the good, like you think this is a title to something good, but it's nothing, it's just a piece of paper, and then you light it on fire and it's reduced to nothing. and then I, there was a great quote, well, I mean, going a little further, you know, like Faust Part Two by Goethe, you know, is the, the deal with the devil, Is literally like paper money. Like, I can make you rich by giving this paper money, but you also have like made this deal with the economic devil. And then going forward, I also know there's quotes from people like Thomas Paine and other, you know, American revolutionaries and such that, you know, basically wanted the death penalty for someone who, advocated for paper money. so that seems like actually the completely normal human response, to the very notion of having a fiat currency. so take out the twentieth century, and if I see Bitcoin as the, you know, natural continuation of this progress, you know, it fits right into the story of, you know, when you see rhinestones and you see beads and you see, and, and, you know, medals and gold and all this, I, I think anyone who's, who's read Saifedean's, book, you know, ha-has, has seen this history and can easily see how Bitcoin fits right into, that story, but, for- For Krugman, the story of progress is the one in which, you know, whatever he says is correct, and so when you can create a world in which his opinions matter more, by saying, you know, ridiculous economic statements, he does prefer that and he sees that as progress, but, the rest of us either do think differently or probably should think differently.

Yeah, yeah. And it's, yeah, it's interesting. It's sort of tie-- it, you know, as you were just discussing there, it reminded me of your kind of indirect exchange there with Krugman, where he, you know, it's, it's, it's the parallel of fiat food and fiat money. You know, it's like fiat money is like the-- is, is the real fad diet here, you know?

Yeah,

exactly. That actually the long run money, yeah.

Yeah, it's kind of like, you know, how, how paleo, in general, has been, you know, maligned as a fat diet when the whole notion of it is let's eat how people have, you know, as far as we know, have always eaten. And yet, you know, you know, i-i-in that case, you know, it's more of a ten thousand year scale where they view as the aberration, but, but it's also talking about a, you know, two million, year timespan, so it's, it's, it's very much the same, yeah.

Yeah, yeah. Okay, cool. So the next section, he says, so Krugman says, "We have high costs of doing business because transferring a Bitcoin or other cryptocurrency unit requires providing a complete history of past transactions." So I think here, Krugman doesn't really even understand how Bitcoin or Bitcoin clients work. did you wanna outline a little bit about that, around maybe lite clients, prune clients, and then, some other points?

Yeah, so there, I mean, there's a, there's a couple things to, to say about this and, even some steel manning that I want to do, which is, yeah, like, you know, you and I have talked in conversation that the fact that, you know, even if you don't have a full node, you still have keys and you can still produce a transaction that is perfectly valid on the chain and can find its way into the chain, meaning that, you know, You don't, you don't need the complete history in order to simply like, produce this. That being said, to steelman it, if you actually want to know that you actually own these coins And you actually want to know that when you make that transaction, it actually makes it into the chain that everyone has consensus on, then yes, you do need a full node. there's, there's a problem, you know, SPV as, Satoshi envisioned in the white paper has just, failed to come to fruition, for a number of reasons. but that being said, like a, a lot of people are able to, interact with the Bitcoin network, perhaps in a slightly trusted manner without quite the high costs he's talking about, and even then, like really the, the high costs, like I, I've been working on, BTC Pay server, like, setting one up and stuff, and, it's extremely easy. It's, it's actually really, really easy if you have just a, a little bit of technical skills, and if you don't have technical skills, they have even easier ways that you can deploy it. so the costs of that are going to be, you know, there, there are some costs for the month Of the large amount of data because of the blockchain, it is a little higher, amount of, you know, the, the hosting cost you can expect to pay a good, you know, sixty bucks a month or, or so. so yes, like if, if you really want that, but is sixty dollars a month really that much when you compare it to the kind of fees that you have to pay with Visa? And additionally, the, the other fees associated with these things. So a business that is running that, they don't have to deal with, you know, chargebacks and, and fraud of the same sort. they don't have to be, you know, liable for the fact that they're taking people's private information. I mean, not only as a consumer Do you want to feel, you know, unsafe about giving people, you know, your credit card, even though we kind of all have to? You know, as a business, you need to make sure that, like, okay, well, am I, am I doing, am, am I doing processing with a company that's, PCI compliant and all that to make sure like my customers, you know, don't get hacked? Like, think of, you know, how, how embarrassing. What are, what are the costs for targets, when their, their credit Extremely high costs and, and these types of things, can be helped, to be avoided with Bitcoin. So once again, this is classic Keynesian thinking, i-i-in this case, by virtue of the fact that Krugman has no ability to see the unseen, costs Of the world around him. He's only able to look at something and see, "Oh, see, Bitcoin isn't impossibly free, you know? It doesn't-- it, it's not..." zero dollars, and therefore it's, it's extremely expensive or whatever when, the unseen costs, like that you deal with with using any other system are so, so much higher and so much greater, So I, I really think that Krugman needs to go back and read some Bostjan to, to kinda just get back to the fundamentals before he'll even ever possibly understand Bitcoin.

Yeah, yeah, agreed. It's like, that concept that the, the cost of one money standard, the opportunity cost of one money, money standard, is not using another more sound money standard, and in, in neglecting this comparison, that's where Krugman is basically making the error. Yeah, okay. So the next- Okay,

you're gone. I'd like to point out, it's, it's something that, you know, I'd, I'd, you know, reach back in my mind thinking of, stuff I've learned from, you know, the Mises Institute, going to Mises University and such. there's a concept in economics, and I mean, you can apply it elsewhere than just economics, but here we see it a lot, of things like the Nirva- what's called the Nirvana fallacy.

Does not match your own sort of, preconceived almost utopian vision of how it ought to be, and therefore it's flawed. the most Common place you'll see this in economics is just the fact that neoclassical economists in general, will use economic concepts and constructs such as, perfect competition. And so they look out in the world and they see that there isn't perfect competition, and therefore anything that happens on the market or, you know, the market, you know, someone isn't able to buy something at the price that they wish they could buy it at. Well, there wasn't perfect competition. And therefore there is some kind of market failure. and so likewise here, you know, if you think, you know, what does he think? Does he think that Bitcoin needs to be absolutely costless? Because that's, you know, is, is long as we're dealing in a universe that has, you know, matter and energy and time, nothing is costless. And so, it's, it's really disingenuous and it's, it's a nirvana fallacy to compare, you know, Bitcoin to this as opposed to, what you should be Doing in economics, which is, looking at a choice and comparing it to its alternatives.

Yeah, that's a great articulation there. yeah, I totally agree with that. okay, and then the next section he says, "Governments have occasionally abused the privilege of creating fiat money." I mean, occasionally? Let's try all the time, eventually. and then it does-- this is not even considering the impact of the, you know, the boom-bust cycle that inflationists cause. Did you have any comments on that?

I mean, it's a good standard bit, I, I suppose. that, that idea, it's- But like, yeah, so first of all, it's, it's hilarious to think that, it's, it's only occasional abuse, because, I mean, obviously this is an audio podcast, so we can't just, you know, show a bunch of graphs, but I, you know, want anyone who's listening to go look at, you know, maybe a, what would you say, like M3 money supply graph would probably be the best to look at, just, just see the, the incredible rise, especially, especially at, in the- The '70s after closing the gold window, but then especially when you get to, you know, two thousand seven, two thousand eight, when the government had to put out, you know, trillions of dollars, to deal with the mess, the housing bubble that Krugman, was asking for and pushing for. So Yeah, the i-the idea that governments only occasionally abuse this privilege is, absolutely ridiculous. throughout history, banks, have always tried to, fractional reserve money and inflate the money supply at any chance they got.

There, there's, man, there's also, there's so much to say about this. Like, you know, even if the government was, you know, able to restrain itself, the imagine, the, the way he imagines they can't, so 'cause what he says in this was something about how, You know, when you look at, Fed bankers and stuff, they actually usually are, are restraining themselves 'cause they don't wanna go out of business or whatever. and I actually don't even think that that's necessarily wrong. Like, you do, i-if you want to keep up this con for the long run, you do have to- You have to boil the frog slowly. you can't just print all the money now. You have to make sure that you kind of keep everyone from, from noticing a problem so that there isn't a crack-up boom and you have hyperinflation. so, so I kind of believe that. But Even if they're doing their jobs perfectly, they like to speak of one or two percent inflation, being a sort of target goal for society. They'll use reasons about like the growing economy and all that. I think it's really just they, they, they looked at the charts and decided that two percent of the, you know, economy should be their paycheck. But, in any case, like even if, even if they only had one percent inflation, you know, any- Everyone needs to remember that that means that fifty percent of your wealth has been devalued after thirty-six years, and that is incredibly bad for acting as a savings vehicle. You can't put your money under a mattress if in fifty years you expect it to just-- I mean, in, in thirty-six years expect it to be fifty percent worth fifty percent less. now perhaps- Perhaps if, if we at the end of this found that there was literally no way, better way to do money, then perhaps that's an okay trade-off. but I have zero reason to believe that's the case because of what we understand about gold and Bitcoin and all these alternative monies, and therefore I, I don't see that as an argument, and I just see that as a sign of, you know, really, really bad shitcoin. So, and on top of this, it means that Krugman has no sense, once again, of the fragility of the system, because even if they're trying to restrain themselves, when you are trying to play God and control the economy, because this is basically the, the Fed is effectively like the wizard in the Wizard of Oz, behind the curtain, it's just a, a person trying to pull all these levers because they believe that they know the economy And they can control the economy to their will. Now, this is, this is an affront to, you know, what we know about, you know, what the economy really is. It's a, it's a very organic process and it's a very complex process. So when you're trying to pull all these levers in such a complex process, you are creating a much more fragile system, and this is where black swans will kill you. So, you know- Plenty of people saw the housing crisis, you know, that, that bust coming. plenty of people saw many other crises, crises, coming to an end, but these people don't necessarily, which is, you know, why, why they are okay with pumping it in the first place. and so without that sense of the black swan events, these, these fat tails, you know, everything that Nasim Taleb talks about You, you, you actually have a harder time putting that restraint on yourself because you, you, you don't fully understand the, the possibilities of just how bad things can go wrong. And Bitcoin thankfully obviates all of this, because you just-- it, it already has the perfect monetary policy, and it has one that can't be messed with, but unfortunately, you know, the, the bankers and, and Krugman are-- do not play, by that, which is why we need Bitcoin in the first place. The other, of course, you know, as, as a sort of Keynesian and stuff, he believes that, You know, monetary policy is a tool to mitigate the effects of mis-business cycles and other, economic shocks and stuff like that, while Monetary policy, poor monetary policy, is actually the cause of these business cycles. So they don't understand that when you're back there pulling all those levers, you're actually setting the stage, for these, for these, business cycles. you know, I, I of course recommend anyone go read, you know, Rothbard, what's it, what's it called, Economic Cycles, their classic What has government done to our money?

that one. Oh, yep, Economic Cycles before the Fed is a good- Talk by Tom Woods on that as well.

Yeah, and then there, I think it's, economic cycles, the cause and cure or something like that. Is that what it's-- Can't, I'm, I'm totally blanking on it. Yeah. And then of course, there's, Money, Bank Credit and Economic Cycles by Harter de Soto, which is sort of, you know, the Bible and long enough to be so on, on this topic. So anyway, the point being that, you know, a-all the problems that they're trying to fix, you can just avoid in the first place if you don't act like you can be pulling these levers at all. And Bitcoin, Pulls the, pulls the, you know, guy, the, the wizard from behind the curtain and puts up an iron curtain so no one else can go in there and touch anything.

Yep, yep. Yeah, that, that's, and that's kind of ultimately, that's really what the problem we're solving. We're solving, you know, the inflationist ideology that by simply creating more tickets to money that we can become richer, which is just wrong. By returning to hard or sound money, the world will become more prosperous.

Yeah, there was a great, okay, let's move on,

go on.

There was a great quote, from the Property and Freedom Society where Hans Herman Hopper is trying to talk about how you can explain these things to people To Krugman and he says how, how you just have to, you have to talk to him like he's a kindergartner and just ask him polite, like just slowly and quietly, how does producing more Paper dollars increase your wealth, and when you really--

anyone who stops and thinks about that can, can, should hopefully quickly understand why that makes no sense. But unfortunately, that- People don't seem to do that because they have, they've benefited from not understanding that.

Yeah, great point. I, I remember, I know that video, I know the one you're talking about. I think it's like a very short-- there's a two minute clip on YouTube. I'll find it and I'll put it in the, show notes for this episode. okay, and then, so the next point here is, I mean, he's sort of going into the typical kind of canards that people, people who don't like Bitcoin, you know, predictable, orders of magnitude more predictable than that of a Bitcoin. So, ultimately it's just a big straw man. He's just basically critiquing Bitcoin because it's new, it's only nine years old, and it's a drop in the bucket compared to everything else in the world, you know? So it's only going to seem You know, unstable for the-- in this short period of adoption. Well, it, it might take a while, but did you have any comments on that, Michael?

Yeah, I mean, that basically, that, that, covers a lot of it. It's just the fact that, you know, once again, it, it-- I, I don't know if this would be a Nirvana fallacy per se, but it's basically like, you know You, you think it has to have already succeeded to have succeeded. and yeah, these things take time, you know? It's actually, it's actually, when you really stop at, step back and think about what Bitcoin has achieved, it's absolutely amazing. Someone, someone created, you know, digital internet money. On scratch, in an obscure corner of the internet, and now it has a market cap of one hundred fifty billion dollars, and it's a worldwide phenomenon that gains headlines and, and Nobel Prize winning economists feel the need to comment on it. Like that is That, that, that's incredible, you know? So to think that, you know, because right now it's a little volatile is somehow a problem. If anything, it means you should invest, because, you know, if you're someone like me who thinks, you know, Bitcoin has, a long ways to go, then the volatility is good. If it wasn't volatile, it would've mean-- meant that it already reached its equilibrium. I don't believe that's the case, and so it has so much room to grow, and investors can profit off that. You know, it's, it's so, it's so small, you know, it's very illiquid. This thing, the- I don't even know when Bitcoin will stop being volatile. People use this as an argument all the time, but

Look, like right now, like given this, this fact that we think that it can, it can be hyper-monetized, you know, as we're, you know, you know, hyper-bitcoinization and all that. That moves us from a hundred forty billion dollars to what, ninety trillion or something, in terms of kind of relative purchasing power. so it has to get there, and, and then we don't even know if it'll stop there, because, you know, Pierre, did a great job of really pointing this out. When we compare the potential of Bitcoin to gold or fiat, we're underselling it, because gold was, you know, only So good as a money, it was a very good money, but, you know, it, it has its flaws, like it's, it's, you know, it's not as scarce as, as Bitcoin, and has extremely high storage costs and all this. fiat money, I mean, need, need I go on about all the problems with fiat money? But, you know, clearly, Bitcoin is a better money, than, fiat money. I shouldn't say clearly, 'cause apparently it's not to some people. But, you know, if, you know, I believe Bitcoin is a better money than fiat, and thus, why should I expect that a world powered on Bitcoin would only be as wealthy as a world powered on, fiat? So if that's the case, like, I don't even know where the upper bound of Bitcoin is. I actually think that, you know, with the, the, the fiat comparisons and gold comparisons, that's, that's more of a lower bound of what Bitcoin is possible. So we're talking about like a, a massive, amount of economic growth, to be found. And,

To get from here to there, it, it literally has to be un-instable. You, you can't have a stable jump. There's not gonna be Nothing, nothing is going to act in such a linear fashion, that's, that, that's going to, something, anything, anything in the real world would go in a perfectly linear fashion. yeah, yeah. Oh, oh, did you have a point? No, no, go on. No, I mean, I'm interested in what you have to say, but, okay.

Yeah, yeah. Sure, sure. Okay. Well, the next thing, Paul talks about is, how he's saying, "Okay, look, it's been eight years after Bitcoin was launched, and cryptocurrencies have made very few inroads into actual commerce. Few, only a few firms will accept them as payment." I think this just fundamentally is misunderstanding the hyperbitcoinization thesis. Why would people want to spend their Bitcoin now anyway? It only makes sense to really do this post-hyperbitcoinization. So I think ultimately he's just putting the merchant adoption and acceptance, you know, ahead of everything else, and he's basically putting the cart before the horse.

absolutely, and this ties into that, that other thing too is, you know, the, this is also part of why, you know, Bitcoin will, will sort of see that That, that growth is more people, you know, demanding it as store of value that lower, you know, increases that sort of lower bound by hodlers of last resort and such. but I think the, the, the Keynesian thinking that's shining through there is the idea that, you know, money needs the sort of circular flow, and so if you don't have people accepting money as payments, or rather, you know, I- Actually, I mean, here I would say, I don't even think the problem, I, I, I think, you know, if he, if he wants to steal money, he shouldn't be focused on the fact that, firms will accept them as payment, because I think firms would accept Bitcoin as payment if people wanted to pay in Bitcoins, you know? It, it'd be silly for a, a company to have- People wanting to give them, you know, like, "Oh, we can make millions of dollars in revenue, but we have to accept Bitcoin, so we're gonna only accept a couple thousand dollars in revenue by accepting fiat." Like, no, no firm would do that, right? So what you should really be looking at is the fact that it's like, "Well, no one wants to spend their Bitcoins, and that's where the lack of velocity is coming from." v- The problem is, it's like that doesn't actually tell us whether or not a currency is going to succeed at becoming money,

because that's not something that comes now, you know? Of course, people don't want to, to spend it, they want to use money as a medium of exchange, where medium of exchange is over the long run, they want to trade future value for present value. That is, they believe that in the future Bitcoin will be widely demanded, and so they want to- Profit off that instead of just giving up their bitcoins now, and they wanna put money into savings, but, you know, I, I know Saf has gone on, a lot about the sort of differences b-between, you know, savings and investments and all that, but, you know, basically this is what it is, is, you know, because everyone wants to just hoard, Keynesians don't understand that that is a productive act, to, to Save money is a-- and, and they call it hoarding, it's really just saving. to save money is a productive act because you're, you're hedging against a future uncertainty. and, you know, even, even at the fundamental level, just like going back, you know, to the, to the, you know, fundamentals of, Austrian economics, you have the action axiom, you know, humans, humans act purposefully. Well, if someone's saving money, they're not trying to do that just because they're-- they, they think it's fun or whatever, it's because they think that it, it brings a, a profit to them. They think that, there will be future opportunities that give them more than whatever they can, spend that money on now. So it's a, it's a completely productive thing, but they view it as, not productive because if you're not putting the money into the economy, so to speak, then, you know, people, there's, people aren't investing in, in jobs, and then everyone goes hungry 'cause they don't wanna spend money on food, and that's whole, that whole deflationary spiral argument, spirals out of that. so, once again, yeah, it's, it's basically he thinks there needs to be circular flow and velocity, and we say There's a productive reason why people want to save, and it's that very fact that more and more people want to save, that shows us that Bitcoin has a very strong future

Yeah, no, great articulation there. It's around basically having a sufficiently developed theory of capital and understanding that capital accumulation is how civil civilization grows and prospers rather than being consumption driven, which is that sort of Keynesian Krugmanite mindset. And then so the next topic is basically Krugman trying to smear it again, smear Bitcoin and say, "Oh, what's all that cash holding about?" We all know the answer, it's tax evasion and illicit activity, and cryptocurrencies are just competing for some of that same business. So again, this is just some of the old sort of smear arguments and not paying attention to the superiority of Bitcoin's monetary policy.

Yes, although at least I'm, I'm happy here that he admits that, holding cash is a productive activity, it's just that he doesn't like, some of the productive things that it brings people and, and productive in this case, I'm not arguing for tax evasion General illicit activity, but people do it because it, it brings them some sort of profit, but so he's, he's admitting that. but yeah, I mean, I, I, it's, it's weird to say this in twenty eighteen, when the Silk Road was taken down in, what was it, late twenty thirteen, you know? And when the Silk Road was taken down, we had a flash crash, and then we saw Bitcoin quickly rise to its all-time high at the time, which to me Was a strong market signal that Bitcoin's use in drugs was actually like marginal. so it's actually very strange that's, that's, I think an empirically false statement to make. and it's, you know, Bitcoin's, I, I, you know, if, if you do decide that, Certain activities that are either frowned upon or not, legal in certain jurisdictions, if that's what you wanna use Bitcoin for, you might, you might want to look into, you know, other methods such as using the United States dollar, like it's traditionally done, because of the public nature of it, Although, you know, hopefully Krugman will help out with, you know, some coin join tech-schemes and technologies to, you know, help with these things. But, yeah, once again, he, he doesn't understand that maybe you would just want to save money for the future. That's actually a, a perfectly reasonable thing for any decent human to want in life, is just to be able to save money for the future. And, that, that doesn't seem to make any sense to him.

Yeah, it could just be that he is unable to relate to the average man in the street, so to speak, you know? Where everyone else in the world, most people feel some level of uncertainty. They don't have sort of this very highly paid, prestigious position and a certain position in society that other people don't have, and that, you know, really we need to save money because we face uncertainty in this world, and we need it to help us deal with that. so yeah, I think we'll, we'll sort of, sort of wrap up the, the last segment of the Krugman, article, and basically he says, "Oh, so that's why I'm a crypto skeptic. Could I be wrong? Of course." And, I think we both would agree that he, he is wrong, and he has been wrong, as you said, since December 28, 2013, when the price was seven hundred and seventeen dollars. And as we make this, podcast, the price is 7,446. So we're talking over ten times what he said.

Yeah. Oh, one, one last thing that I'd like to mention about Krugman is this whole point about, you know, we, we touched on this, but the whole "men with guns" thing. He thinks that that's a viable backing for a currency, but I'd like to point out that there have been many fiat currencies in jurisdictions that have had, you know, armies, and yet it still collapsed. You know, the system is- It's still fragile, no matter how you look at it. It doesn't, it doesn't matter that there's a guy with a gun, you still need to pay that guy with a gun, by the way, with something. That guy's gonna wanna save money for future uncertainty as well. So, you know, we've seen Weimar Germany hyperinflate, we've seen Venezuela hyperinflate, we've seen all these places hyperinflate, and have their currencies collapse, and they have, they have plenty of men with guns there. So, I, it, that is That is a, a poor backing for the app coin that is the United States dollar.

Exactly right. Yeah, so I think it's basically that the charterist view is only, you can only go so far with that "men with guns" concept. Eventually, you've gotta pay the postman, and that's what happens in many cases, as you said, with Venezuela, Argentina, Iran, Zimbabwe, Germany, all, all big, prominent examples in history. And from modern day. okay, so I think let's, just touch on a couple other topics. I think one thing that's, happening now with, in the Bitcoin space is a lot of the altcoiners come out and say, "Oh, you guys, you Bitcoiners, you just call everything a scam." Like, not everything is a scam. And I think this is, a, a topic we've discussed, which is around the scammer heuristic with crypto. You know, that not-- maybe not everything is literally a BitConnect scam But many things are scam-ish. Do you wanna comment on that?

Yeah, well, I mean, I, I wrote an article that's literally everyone's a scammer, so when people say, "Oh, well, not everything's a scam," I said, "No, literally everything's a scam." and I highly recommend people read the article and, and try to read it carefully because I, I think it actually is one of my best, sort of, elucidations of sort of the maximalist position on these things, and apparently in a, in a way that a Probably because of the, you know, they, they think the title's hyperbolic, whatever. But, you know, the, the key thing in this case, you know, when, when people say that they need to understand about this scam concept, is just the fact, first of all, when I speak, I'm assuming that hyperbitcoinization is a, a sort of reality, like it's happening right now and it's, it's going to continue happening. So given that, what are the ways in which you need to approach the- World. And one of the things is, well, you have this, you have this resource that, in your opinion, is extremely undervalued. So if anyone is trying to get you to give them up, perhaps they're trying to scam you out of your, future, future wealth. And so- The, the scammer heuristic is basically saying, you know, treat everything as a scam where someone is trying to trick you out of your long term, potential wealth because they want it. And until it's proven otherwise, I'm not against people spending their bitcoins if there's something they really want. If all you wanted in life was a Lambo and you have enough money for a Lambo now, go get the Lambo. There's nothing wrong with that. but if after this whole process, you know, for a- A lot of us, I think, Bitcoin has really made us think more about our own time preferences and adjust accordingly and think about our, our future selves and what we truly want in life, what we truly value. And because of that, like, there's actually a lot of things that, It's much harder to sell me things, quite honestly. even, even if,

sorry, I lost my train of thought, a little thing popped up on the screen.

Yeah. Like,

you know, even if I wanted to spend my bitcoins, there's not necessarily as much, stuff that I actually want, to do. So, and of course, when it comes to these altcoins, they really are scams because nothing, none of them are offering me, a sound money alternative to the US dollar that's quite as powerful as Bitcoin is. They're not, yeah, strong, strong monetary policy, etcetera, etcetera. They're just not Bitcoin, so they're scams.

yeah, yeah. So, I think, and then that's, that's the other thing that comes up, I think, online, there's a lot of discussion about, oh, Bitcoin maximalism. Is Bitcoin maximalism descriptive or is it prescriptive? Do you have any comments on that?

Yeah, so, I believe, I, I think of Bitcoin maximalism is first and foremost a descriptive- statement about monetary economics. It looks at the world and we're, we're trying to make an honest assessment of the nature of monetary competition and network effects and what our conclusions are and it's one that's been around, like this is no, no new idea. It's not like Bitcoin Maximalist made up this idea, but it's basically that, one currency, one good will tend to dominate. The whole point of money is you want the most saleable and liquid good, and so one, one currency, one, one good will, Gain that spot as the most saleable and liquid good, and, everything else will at best be sort of niche. this is sort of given, given free market, conditions, which because Bitcoin is as it is, legal tender laws have, you know, no ability to stop it, so it creates its own free market conditions. So because of that, w-we look, and we also look at, you know, the importance of monetary policy and all the stuff that Safe talks about. Stock to flow ratio, the scarcity, et cetera, and because of that, Bitcoin has the best monetary policy, and thus we come to the, you know, sort of positive economic conclusion that Bitcoin, is, is likely the best, you know, money And Bitcoin will be that thing. Now, where the prescriptive stuff comes in is related to what I was saying is once you've come to that conclusion, how do you, how do you go about looking at the world? And one of the things is, you know, you start thinking, "Well, everything's kind of a scam." And so you, you start sort of developing community norms around like, hey, don't scam people, you know? Don't, don't. one, one that's coming up is, you know, don't- Concerns for Bitcoin, or if you have, if you have a, a problem, people expect you to come up with a solution, or, you know, pr-p-present your, present your criticism in a constructive manner, as opposed to, Having this sort of, winking, you know, tone where it's like, "Oh, let's throw away everything and come up with our better scheme, "which also happens to give me a founder's reward or, you know, premine or whatever, whatever scheme there is that, that enriches you. " so a, a lot of sort of different norms, come up around this. I think, I think Giacomo, is really good at, enumerating all these kinds of stuff, but- That's where the dichotomy is, our, our economic statements about, what we believe in terms of Bitcoin winning, that is totally-- We're, we're trying to be descriptive. If you, if you have, you know, disagreements with our logic, you can, you can say that, but it's not meant to be a sort of prescriptive. We're not against other currencies existing. We're saying that because of how monetary economics works One will win, and we happen for these reasons to believe that Bitcoin will be that one that wins.

Yeah, great way of explaining it. I like that. That's great. and then I think the last thing, the other thing around developers and the philosophy of development. So you've previously commented about the Unix philosophy, which has a few principles. Did you wanna outline some of those? Yes, well, I think,

the Unix developers were sort of the The, the stoic philosophers of the twentieth century, you can, you can gather some brilliant thinking from these guys, but, yeah, I mean, I, I highly recommend people, you know, check out, Eric Raymond's The Art of Unix Programming, it's on, it's on the Nakamoto Institute. some of the stuff, there's, there's things like, you know, about keep it simple, you know? everything is, is,

Meant to be sort of lightweight tools. actually, probably a more important, more famous thing is like, you want to write programs that do one thing and do it well. So in Unix, what this means is that you don't have a giant program that does literally everything under the sun. What you have instead are little utilities that other programs can chain together to do other things. So it's very modular. You have, you have Have, you know, a program. Just giving some very, very basic examples, but like, ls, actually, that's what you would type into the, the command line, like ls and then a directory, and it just lists the files in the directory. Then what you can do is use a pipe character and pipe that output into another program that maybe parses it and looks for, you know, a, a certain pattern that you're looking for. You have like a different tool for that, and that pipes into another one, and you keep, keep kind of this chain of tools, with inputs and outputs, and each program itself is focused on doing nothing but that one thing the best it can. And What this means is there are programs that were written in the 70s that everyone still uses today, and they're still like the best way to do, a lot of things, and I actually see it as a I, I, I feel like a failure when I realize that I, I, you know, wrote a whole Python script that I could have d-just done with a couple bash commands. So what does that mean for what we're talking about? Well, a lot of people want Bitcoin to include everything under the sun. so this is the original Bitcoin maximalist straw man was, oh, they want every app to be on Bitcoin. But that's actually not at all what we want. I don't want Bitcoin to be bloated with a bunch of, you know, decentralized apps Filling up block space with its data. You know, I don't wanna wake up in a world where I have to pay for the world to stream Netflix using blockchain data. instead The idea here is that the tool that we want is digital cash, and I want Bitcoin to zero in on that and do that one thing really, really well, and it does, you know. So, so Bitcoin doesn't spend its time, you know, working on, on Netflix on the blockchain or all, all these other things that Ethereum people-- and, you know, I shouldn't just pick on them. There's a whole bunch of other people who, who fall down this trap, including- The Bitcoiners, you know, let's put social media on the blockchain, et cetera, et cetera. You know, instead, the, the, the Bitcoin investors have chosen a path, and, and the developers have taken up the cause of zeroing in on what do we need to do to secure Bitcoin, Bitcoin's ability to be a scarce digital money, and everything else is superfluous and should just be rightfully avoided.

Yeah, great points there. And I think maybe you could just comment a little on how the modularity of development really helps developers who are just in their Say they're developing on one particular piece of software, they don't have to worry so much about what's going on in other parts of the program or other parts of the stack, so to speak.

Oh, exactly. I mean, to, to bring this to even a lower level, when you create an app coin or an ICO or whatever, you have to think about not just, you know, providing your, your product, whatever it might be, you also have to think about being the Federal Reserve. You know, by, by coming up with the, the money rules, and it's, it's absurd. Like you don't, you shouldn't be putting that work on yourself. So instead, yes, it's very good to have, you know, modules and layers such that, you know, a person just working on the UX layer for a wallet can just interact with a, an API so that they can, they can sort of put everything, they can abstract everything away and put it into a black box and just focus on On the one thing that they want to do well, and, yeah, I mean, that's, that's very important, and, you know, if you're doing lightning development, You don't have to think about making sure the Bitcoin protocol is working as, as, you know, perfectly or whatever. You're just connecting to Bitcoin Core or, some of them do BTCd, and, you just assume that to be going well. Then if you're making a Lightning wallet, you don't have to know, you, you don't have to worry as much like, is LND doing its job with, actually handling the HTLC contracts or, or Or see Lightning or whatever you're using, instead you can focus purely on, okay, now that we have this thing, you know, now that we have programmable scarce digital money, now we can think about creating time, hash time locked contracts. Then you can go to the next thing. It's like, well, now that we can assume we have working hash time locked contracts, what's the thing we can work on? and you can, you can abstract these things away and, and focus on, on your little- Part of the, your, your little garden in the, the ecosystem.

Yeah, fantastic points. I think the listeners will really get a lot of value out of that, especially the ones who aren't as technical, and they can help, hopefully understand the difference in the way Bitcoiners and people building on Bitcoin approach things versus some of the altcoins and why, you know, the contrasting philosophies there. Okay, so I think that's basically all we've got time for, so we might, just, wrap up the discussion Discussion, guys. So you can find Michael on Twitter, his account is bitstein, b i t s t e i n. He is a highly recommended follow. Definitely go and check out the Nakamoto Institute, particularly the Crash Course in Bitcoin Political Economy, if you're new. Michael is also available for consulting, so look him up, bitstein dot org slash consulting. Have you got anything else you'd like to bring up at this point, Michael?

not really. I'm just, I'm, I'm so honored that you brought me on. You know, it's, it's been a pleasure being, Bitcoin friends with you for, many years now. you've been putting out great content for years, especially from, you know, the accounting front, and all that. So, you know, it's been real great and- I'm, I'm, I'm-- this podcast has, has already become one of the best podcasts, in the space, competing with my very own, and I'm, I'm honored to say that, So you, you've just been doing a great job, and I'm, I'm so glad that you invited me on. I've, I've had a real blast. it's amazing how quickly time passed while we're having this discussion.

Yeah, agreed. it, it was, it was an honor to have you on, Michael. I think you've, offered some really fantastic insights for the listeners. And, yeah, definitely I'll get you back on sooner or later. We'll try and, make this a regular thing. okay, guys

Look up this page on my website stephanlivera dot com. This episode will be SLP six, and I'll put all the links, the relevant links, such as the Krugman column, Michael's article on scammers, the Nakamoto Institute, Michael's Twitter, a few other bits and pieces as we've discussed. And just lastly, if I could re-re-request that you guys, if you've enjoyed the discussion, please do give me a good rating on, iTunes and on Stitcher and share the podcast with your friends. That's it from us Thanks very much, and we'll see you in the next one. Bye!