Saifedean Ammous, Bitcoin economist and author of seminal book, The Bitcoin Standard, joins me in this episode. We talk about some of his recent research:

  • How governments could try to kill Bitcoin
  • Why fiat money hyperinflation is not that likely
  • Why we can’t simply disregard gold
  • Thoughts on stock to flow modelling
  • Research Bulletins going forward

Saifedean links:

Podcast Transcript (Sponsored by

Stephan Livera: Hi and welcome to the Stephan Livera podcast, focused on Bitcoin and Austrian Economics. Learn the economics and technology of Bitcoin by listening to interviews with Bitcoins’ best and brightest. Today we have a really special returning guest, Dr. Saifedean Amouss. Now, regular listeners, I’m sure you all know who he is but just for anyone who is new Saifedean is a Bitcoin economist and he is most well-known for writing the very seminal book within the Bitcoin community, The Bitcoin Standard. Saifedean was actually the first guest on my podcast and now it’s a pleasure to have him back on the show. Here’s my interview with Saifedean.

Stephan Livera: Welcome back to the show, Saifedean. You have a special place in this show as you were my first guest so thank you very much for coming on. And now it’s like 60 episodes on, not even a full year, so I’m very happy to have you back on the show Saifedean.

Saifedean: Thank you so much, Stephan. I’m delighted and honored that I was the first guest. I have been doing my best to keep up with your astonishingly prolific output of episodes. I can’t claim I’ve listened to all of them, but I’ve listened to quite a few, and I’ve definitely enjoyed what you’ve been doing with the show so far. I like the focus of the topics and I like the fact that you get into these questions in-depth, so I’m delighted to be here again.

Stephan Livera: Excellent. Well thank you very much Saifedean. It’s very kind of you. And, look, I’ve been obviously following some of your work very closely and also… Listeners, make sure you check out Saifedean’s Patreon page because he puts up a research bulletin. I’ve been reading some of your research bulletin Saifedean and thought it’d be great to just dive into those a little bit further and give the listeners a bit of a taste on how can we think about some of these things. Like for example, what might Bitcoinization scenarios look like? I think that might be a good place to start.

Stephan Livera: In one of your recent research bulletins, number five, you talk about this whole concept of, well, what would it take to kill Bitcoin? Right? And so this question comes up and obviously some of the most common vectors, if you will, would be things like government attacks or banning. And for me, one of the insights that I really enjoyed, that I took out of this, is that were the government to ban Bitcoin that would, in some sense, force people to recognize that the money they have in their own bank account is not really theirs. Did you want to just expand a little bit around that idea?

Saifedean: The main point that I tried to communicate in that research paper, the fifth one in the series that I made… the main idea I wanted to communicate was in terms of how governments can kill Bitcoin. I think the discussion out there is completely… I don’t know how to, ass-backwards, I guess, would be a good way of putting it. Because people think that if government were to just pass a law that bans Bitcoin then Bitcoin goes away and then they get to laugh at us and that’s the end of the story. And I think it’s actually the other way around. In my opinion, if they do carry on some kind of…

Saifedean: The more restrictive governments are against Bitcoin that means the more restrictive they generally are financially and the worse their monetary policies are. Excuse me. If people are trying to get into Bitcoin and governments are saying, “If you buy Bitcoin, we’re going to throw you in jail,” then [a] number one, we can tell obviously that people have a good reason to be buying Bitcoin, otherwise they wouldn’t be risking going to jail, and that government is trying to stop them from it.

Saifedean: And the fact that it is trying to stop them means that government is imposing… The other thing that we can tell is that it is imposing financial restrictions on them. And so that ultimately is Bitcoin’s use case. Bitcoin’s use case is moving money around the world without having to report to your government. And so the more governments create restrictions like this, the more problems they create, the worse their monetary policy is. And that’s not just the governments of the western main economies. I think it applies all over the world.

Saifedean: The more bad cases of monetary policy we find, the more Zimbabwes and Venezuelas there are, the more people are going to be seeking bad currencies. And the more they try to ban them, the more they emphasize to their people that you are not really the owner of your own money. If your bank tells you you can’t buy Bitcoin with your bank account, that’s just really an advertisement for Bitcoin. Well, if it was my bank account and if I could just spend money from my bank account and use it to buy things… I am sorry, if you’re telling me that I can’t send money from my bank account to buy the things that I want, then, that’s not really my money.

Saifedean: Wouldn’t it be nice to have some kind of money that I myself own and control, that I myself can send around the world? I think that kind of thinking is the real economic incentive that drives adoption for Bitcoin. And I think if we’ve learned anything from the 20th century and from all the catastrophic attempts at making economic central planning and socialism work, is that if you’re going to fight a war against prices and against markets you’re going to lose. There’s no way around it. Nobody fights a war on prices and wins.

Saifedean: The Soviet Union tried to ban jeans pants and we can go to Russia today and you’ll see all sorts of people walking around wearing jeans and the Soviet Union is gone. That’s just how it works. When you try and make yourself, as a government, come up against the economic incentives, the economic incentives will manage to overcome whatever you try and do to them. And we see that in cases as silly as … as potentially insignificant as jeans. Well it’s not really insignificant, just silly. It’s not fair.

Saifedean: Jeans is a decent technology for wearing pants that solves a problem for people around the world. But something like Bitcoin is far more significant and useful than jeans pants so the notion that you’re just going to kill the economic incentive that exists for people to use Bitcoin by passing a law that criminalizes it I think is fanciful. I don’t see that happening. On the contrary, what I argue in that paper is that the way for governments to kill Bitcoin would be to do the exact opposite of what the nocoiners want and the exact opposite of what the Keynesians and the people who hate Bitcoin think would work.

Saifedean: The way for them to kill Bitcoin is for them to make the economic incentive to use Bitcoin irrelevant, to make the demand for using Bitcoin go away at the source. They need to offer a technology that is better than Bitcoin or that can obviate the need for Bitcoin. Or at least they need to try. That’s really the way they should be going. In my mind, I think that the most effective thing that governments could do to kill Bitcoin, that’s what I argue in that piece… The most effective things government could do would be to go on a gold standard.

Saifedean: If we go back to the monetary system that we had in 1895 or 1900s, the classical gold standard where in all governments, all the main countries and central banks of the world, utilized gold as money and only had different currencies that were different weights of gold. Plus you had a much larger margin of economic and financial freedom where people could send their money abroad without their government knowing and interfering and deciding. If you had that kind of monetary system, and if you had it worldwide, I think that would seriously undermine the demand for Bitcoin.

Saifedean: Imagine if all the countries that are witnessing high inflation, all the people that are going through episodes of hyperinflation or high inflation, witnessing all of the problems and the government corruption that comes along with it and all the government spending and all the wars that come along with it. As people living in the world in 2019, if we weren’t all scarred by essentially in five years of government control of money, I would say the impetus for Bitcoin would be far weaker and I think the impetus even for inventing Bitcoin would not have been there.

Saifedean: I would argue if the world was still on a gold standard until today, I think there would have been arguably not much demand for the invention of Bitcoin. Because if you think about the political and economic institutions that existed in the 1900s, much of what is today considered radical libertarian or cypherpunk ideals was just the norm for civilized societies back in the 1900s. You weren’t expected to disclose to your accountant and lawyer and your government and everyone and essentially who can hack into your government which is everyone today.

Saifedean: You weren’t expected to disclose to them everything that you spent and earned and that was just how normal societies functioned. It’s completely insane today that we live in this world where money and wealth has to go through a central authority that dictates what’s legitimate and what isn’t rather than that just being the spontaneous order of the market itself. I think the closer we return to a system like that, the less demand we would have for Bitcoin.

Saifedean: And I think on the other hand, the more we go to a system that is restricted for Bitcoin, the more you feed the fire of Bitcoin, the more you provide fuel to this fire that continues to grow. And that’s why I think if people wanted to really get serious about eliminating Bitcoin, this is what they should be thinking about. They should be thinking of it as monetary competition and thinking that the better the monetary policy of the central banks around the world and the more financial freedom they allow their citizens, the worse off Bitcoin is and the less likely Bitcoin is to succeed.

Stephan Livera: Right. And the other component with that, and obviously I agreed very much with that… And I suppose from a government point of view, looking into their own incentives to, let’s say, spend a lot of money, they will come up between that rock and a hard place because obviously they want these deep debt capital market through which they can sell government bonds so that they can fund all these things. But at the same time if they allow this system too much, then, it drives Bitcoin adoption.

Stephan Livera: And so I suppose that brings us to some of these different scenarios that you outlined, and we might call them Bitcoin scenarios or Bitcoinization scenarios, and one of them is actually central bank adoption. Can you tell us a little about that?

Saifedean: Yeah. Some people think that it’s likely that we’ll see central banks adopt Bitcoin and I have to admit I’m generally skeptical of this. I discussed it in my book as a possibility and I discussed it as a sort of way of explaining how I think of Bitcoin eventually growing as a settlement layer similar to Central Bank settlement across the world. And that is that Bitcoin doesn’t… The main point of the book was that Bitcoin doesn’t replace your Visa and MasterCard and maybe even not even Western Union. Bitcoin is best built to replace high value transactions between large financial institutions or central banks.

Saifedean: And so having said that, in my book I don’t get into fortune telling or trying to predict the future. Generally, I try and avoid doing that as much as possible because A, I have no idea what’s going to happen in the future and B, you’re just setting yourself up to getting laughed at. But, generally, I have no strong opinions about the future. This is the way that I would put it. I’m not making the arguments. Anyone who’s read my book knows that I’m not making the argument that central banks should be buying Bitcoin. That’s their problem.

Saifedean: I don’t work for a central bank and I can’t answer that question on their behalf and I don’t really make the prediction that they will be buying it. In these bulletins is where I start to take these ideas and looking at these ideas in more detail and seeing if they’re likely or not. Looking at the question of whether central banks buy Bitcoin or not, I lean more towards thinking that they will not and I think… This is the main point from my book, why… The subtitle of the book is that Bitcoin is the decentralized alternative to central banking, that it’s going to exist as a global free market system that allows us international settlement of payments parallel to central banking.

Saifedean: And because, ultimately, that’s really the key thing to understand. It’s that today the only way that you can send money internationally is through… Well, 10 years ago there was only one way which was through central banks. Today we have one other way which is Bitcoin. That’s really the only way in which you can send money internationally without having to go through the global central banking monopoly that governments have. In this regard, I see Bitcoin more likely to emerge and continue to grow as its own ecosystem on the web primarily with many thousands or tens of thousands of nodes around the world, maybe many more over time.

Saifedean: And it’ll likely grow towards this kind of apolitical settlement layer where people can have free market transactions across the world without having to go through government. On the question of government adoption, there are several reasons why I don’t think it’s likely and I think the primary one of them is just about the mental models of people in the central banks. I think central bankers are educated and programmed to be the last people to grasp Bitcoin. And I think that’s a beautiful thing.

Saifedean: It’s a great feature in Bitcoin, that it’s always going to be the central bankers in every country who will be the last to believe that it can actually work. When 95% of society is already on Bitcoin, if we get to that point, the last 5% in every country, I am willing to bet, will contain most of the central bankers and the economists. Because if you read everything that they teach in PhD programs and economics, it’s all essentially about how your job as an economist is the control of the money supply and the managing of the interest rate. That’s the one sacred cow of all mainstream and acceptable schools of economic thought.

Saifedean: That’s the way you get a job in a university, by submitting to this idea. And so it’s extremely unlikely that these kinds of people will be able to accept even the idea that an apolitical form of money can exist and can succeed. And so I think they won’t really enjoy it. And you know people are always making noise about central banks wanting to break away from the U.S. dollar and wanting to use other currencies but I think the shelling point of the U.S. dollar is very strong. Obviously U.S. foreign policy and its influence is also quite persuasive and, to put it politely let’s say, it can have its influence on countries that think to step out of this.

Saifedean: But people continue to talk about using other currencies, but there really is no easy way to just switch to another currency. And switching to Bitcoin implies, to a very large extent, switching to a hard currency that’s going to tie the hands of central banks in some ways and I don’t think they would like that. And in general, I would just say that central bankers are more in love with easy money than they hate having to deal with the dollar. So no matter how much they make noise about hating to be dealing with the U.S. dollar reserve, they’d still prefer dealing with the U.S. dollar than dealing with hard money.

Saifedean: Because at least with the U.S. dollar they can always borrow more on the global capital markets and there’s always the IMF and the World Bank loan sharks ready to provide your president with any amount of money they ask for as long as it gets the population in debt for many generations. I think that game of international lending and Fiat money allowing governments to overspend just makes governments highly unlikely to get on the game with Bitcoin. And I think that’s a good thing. I want them to be the last thing. I want normal people in free markets and productive people to grow.

Saifedean: And that’s essentially how I see this developing most likely. It’s going to be an alternative economy in a similar way to how things used to function in the Soviet Union. There was the official economy where people had official, high-ranking, prestigious jobs that paid very well and with your salary you were able to afford all sorts of wonderful things. But, of course, if you went to the supermarket those things were never there. I mean, you could still buy them if they happened to have them, and the price was very affordable, but they were just never there.

Saifedean: So if you wanted to actually get anything, if you wanted to buy anything, you had to go to the black market. That’s how anyone in Soviet and socialist countries was able to survive. You had the black market effectively become the real economy eventually because the Soviet economy, the source of the centrally planned economy, all collapsed into this functional rust as Mises had so accurately predicted many decades earlier. Socialism would just simply lead to a collapse of economic production.

Saifedean: And the only economic system that was left in these economies … As socialism collapsed and as the national currencies collapsed, the only economies that were left were the black economies and then from that… the black markets and from that, essentially, the economic system was rebuilt. I don’t think it has to be this drastic. We don’t have a communist system. The Fiat world still has private property so, yes, they have a shitty centrally planned Soviet currency which is not ideal but it is much better than Soviet system because you still have private property and people are able to own things and invest in. So, yeah.

Stephan Livera: One interesting insight there is also just that many of these central bankers and those types, they would prefer to stay in the Fiat paradigm even if they’re not the king of that paradigm. Right? Even if you’re not the US central banker.

Saifedean: Yes. It’s still a pretty good racket being in charge of a small country’s central bank. It’s still great and millions of people all over the world dream of that kind of kleptocratic job to be able to print money and abuse it so highly unlikely that they would start thinking of things like hard money as their motivation, I would say.

Stephan Livera: And I think another area that you touch on when you go through some of these other scenarios is perhaps you call out some of the… and perhaps many of us are guilty of this in our earlier understandings of Bitcoin of like, “Oh my God, hyperinflation,” and, “Bitcoin is going to take over.” Perhaps that was a little bit early or overly exuberant and other than certain kind of euphoric periods, for example December and November 2017 when everyone thinks, “Oh my God, hyperbitcoinization is upon us.” Right?

Stephan Livera: Other than those times, I think you do well to point out that it’s more likely that we’ll see these continual waves of adoption, but it will be a parallel alternative. So rather than the hyperinflation scenario, it might be termed more like the smooth upgrade scenario. And I guess maybe you can also contrast that for us with the monetary vigilante role which is number four on your scenario list.

Saifedean: Yeah, I think generally a lot of people discuss hyperinflation as being the thing that Bitcoin could do and I think this is… Having been a gold bug before or being at Bitcoin, I recognize this kind of apocalyptic doom mongering. Once you learn about to how well the monetary system works you start thinking, “Well, clearly, this is going to collapse tomorrow.” And this obviously exists a lot in gold circles and in Bitcoin circles, but I think there’s a good reason to understand why we haven’t had the hyperinflation in general over the last… There are good reasons for why we haven’t had a hyperinflation over the last few decades.

Saifedean: And for why, I’m not sure that… I think it’s unlikely that Bitcoin would cause hyperinflation. I think if we do get hyperinflation, it would be similar to the situation of Venezuela or Zimbabwe today where they have hyperinflation and some people are moving to Bitcoin but it isn’t Bitcoin that’s causing the hyperinflation of Zimbabwe. Bitcoin is just going to be there. It’ll be the Hyena that will come to pick the carcass of hyper inflating countries, but it won’t be the one that will hyper inflate them. And I think this is an important distinction because…

Saifedean: The idea that we’ll have hyperinflation, if you look at all the examples of hyperinflation that we have documented… Steve Hanke has a good project to document inflation around the world. And if you look at all these examples, in every single one, the driver of inflation was always the increase in the supply. There was always an increase in the supply and that’s really what creates inflation. Obviously there comes a point during hyperinflation where people also dump the currency and they want to sell it and then the value collapses completely but that comes after an increase in the supply had already taken place.

Saifedean: Inflation can’t happen on its own. If the supply is limited and there’s no increase in the supply, you’re not going to get hyperinflation. You might get variations in demand for the currency, changes in the value of it, but for the value to completely be eradicated as happens in the case of hyperinflation that takes some proper money supply expansion. If central banks do that, we would get hyperinflation but it would have nothing to do with Bitcoin. What I think is continuously missed, and many people miss this contention, is that while we think of Bitcoin as reducing the demand for national currencies…

Saifedean: Because we see people selling their dollars and buying Bitcoin and we think, “Oh, well, if Bitcoin goes up, everyone’s going to buy,” then everybody buys, the price goes up even more then the dollar goes to zero. But that ignores the effect of Bitcoin on the supply of dollars. And this is something I haven’t heard anyone point out before, but if you think about it the creation of the dollar… And this also helps us understand why we haven’t had hyperinflation in general. The creation of the money supply of dollars happens through credit generation, through debt.

Saifedean: When banks issue credit, they generate new money and so you have to have new borrowing take place in order for the money supply to increase. Obviously, there are other ways of increasing the money supply but the government can still print a lot of money and the Central Bank can just print physical currency. But that doesn’t really happen. That’s not really the cause of inflation. The increase in the supply of the physical currency is almost inconsequential towards the total money supply because of the majority of money is not physical.

Saifedean: The majority of the money is credit created by the banking system and that’s why when we have financial crisis and recessions the money supply collapses. Because as that debt is written off, or as these banks go bankrupt, the money supply is reduced because the credit is reduced. When we understand that money creation happens through credit creation, we need to think about what would happen if Bitcoin adoption continues to grow. Imagine, let’s say hypothetically speaking, the number of people using Bitcoin continues to grow every year for the next 20, 30 years that it becomes a significant economic force in an economy.

Saifedean: Well, as you see more and more people joining the Bitcoin economy and switching from the old economy, and you can think of it similar to upgrading from one form of technology to another… say, people went from VHS to DVD. As the number of people who move to the new technology rises, not only will there be less demand for holding dollars there will also be less demand for borrowing dollars. There will also be less demand for credit in U.S. dollars. And so people, if you’ve moved towards Bitcoin and if you’ve started holding significant amounts of Bitcoin and it has appreciated, people who have moved to this new economy where Bitcoin continues to grow and its value appreciates…

Saifedean: We know if Bitcoin continues to grow then the value is logically to go up significantly because the supply is limited and its basic supply and demand. If that were to happen, you would imagine the people who get into Bitcoin are going to be able to start accumulating savings quickly and that would eventually… on a long enough timeline that would allow them to pay off their debt and would make them less likely to want to go into debt. That applies on an individual level and can even start to apply on a institutional or commercial level.

Saifedean: Your business becomes a credit-based… sorry, an equity-based business instead of borrowing so you’re able to pay off your bank loans and then you decide why should I continue to borrow? I can just continue to accumulate and hold on to Bitcoin and move towards the new economy. As you start receiving payment in Bitcoin and are making your payments in Bitcoin, this becomes more and more of a tenable proposition and it becomes more and more likely for more people to do it. You would expect, if Bitcoin were to grow, that you would not just have a decrease in the demand for dollars, you would also have a decrease in the supply of dollars.

Saifedean: And that’s why I think we’re not likely to see hyperinflation happen because these two forces can largely cancel themselves out. Obviously it’s not going to be smooth witnessing all of these changes, but it’s never smooth with Fiat money. That’s why you don’t do Fiat money. It’s always bumpy and messy and volatile and requires central planning and that never works. But these kind of central banks, as long as they can…

Saifedean: The modern central banks, as long as they can keep credit creation within the banking system, within some sort of tolerable levels… And generally they can because banking is a centrally planned government run industry everywhere in the world… As long as they manage to do that, they can prevent hyperinflation. I would expect it would be more likely than in the modern Western economies that have had central banks that have managed to prevent hyperinflation over decades. I would expect that the growth of Bitcoin would not lead to hyperinflation and I don’t think that it is necessary that it would lead to hyperinflation.

Saifedean: In fact, you can just see those two economies continue to grow in parallel to one another like two separate ecosystems and, eventually, Bitcoin just continues to grow further and further. The other economy, you can see it’s becoming more and more as a sort of centrally planned, decentralized economy. It’s the Fiat economy, so it’s Fiat… It’s Fiat money and Fiat Food and Fiat jobs and everything and Fiat news. And, basically, that world of government money is going to become more and more centrally planned because it’s inevitable as we see all over the world.

Saifedean: Central banks effectively now run their economies because they’re owning more and more of the stock market and the bonds and everything. These economies are heading towards central planning and they’re heading towards low real productivity and they’re heading towards inflation masked through reduction in the quality of foods. And I think on the other hand you’ll have the hard money economy, that is the Bitcoin economy, grow independently and that is being that there is no parasite on the top of it that is constantly skimming the value created by the value creators in that economy.

Saifedean: That would be more productive of an economy and I think it’s going to be the free market. It’s going to be the Internet’s free market and we’re more likely to just witness slow declines and the slow decline… slow orderly decline as we retire the old manual monitoring systems away and the move towards our futuristic utopian digital monetary system running on electricity and no human intervention.

Stephan Livera: Yeah, that’s great. I think there’s a lot in there. And one of the key insights that I think you’re right and not many other people have spoken about is this idea that we will see less credit creation like we currently do right now. And credit creation in the commercial banks is actually how a lot of the money is created in a fractional reserve banking system. Now, we’ve spoken through some of the different scenarios and spoken about what’s a little bit more likely as a scenario, so as we were saying the smooth upgrade.

Stephan Livera: But another concept you touch on in your research bulletin is this one around why gold should not be completely discarded or disregarded. Do you want to outline some of your thinking there?

Saifedean: Yeah, this is… I’m afraid this is going to make us slightly unpopular with some Bitcoiners but, yeah, I think the schadenfreude and the obituaries that you hear about Gold’s eminent death, they might be highly premature and exaggerated. I think Bitcoiners might consider having a little bit more humility against the monetary asset that has had a 10,000, 6,000 year head start over our little lines of magical internet beans. I think the key thing to understand is that gold has enormous liquidity all over the world even today, even after people think of it as having been demonetized.

Saifedean: But still we have many trillions of dollars’ worth of gold, locked up in volts all over the world and locked up in jewelry all over the world, used as a store of value. It’s a significant amount of wealth all over the world. And in situations where a monetary system could collapse, people will resort back to trading in gold because it has an enormous amount of liquidity. Now the question is if… I think… Another way of thinking of bad scenarios for Bitcoin, the other bad scenario for Bitcoin that I discussed is imagine that we have the other extreme, which is that monetary policy continues to go really badly. And with we did have hyperinflation all over the world.

Saifedean: As Venezuela grows, it stops being just Venezuela. It becomes Venezuela and Turkey and Argentina and then soon enough Europe and then soon enough the U.S. dollar and all these currencies all over the world are collapsing. Assume. I don’t think it’s going to happen but I think it’s useful as a thought experiment. Imagine all of the world is falling into hyperinflation. Imagine this happens tomorrow. Now the size of the global liquidity of Bitcoin is still nothing. It’s still about 80 billion dollars or 100 billion dollars which is effectively nothing. Arguably, it’s less than 1% of the world’s population.

Saifedean: Some people estimate a little bit more than 1%. I would say for Bitcoin, it’s arguably less than 1%, but it’s within that range. It’s definitely no more than 3% to 5% of the world’s population but that’s nothing. If you think about gold, on the other hand, the liquidity for gold is about seven trillion to eight trillion dollars. In other words, that’s about 100 times larger than Bitcoin’s liquidity. That’s 100 times the possibility of being able to make a trade with somebody with that currency. And I think this is the way to think of it.

Saifedean: Yes, you and I know a lot of Bitcoiners because we’re obsessed about it but when we want to eat tomorrow and I want to buy my steak and the government’s shit coins in my pocket are no longer working, I need to find something that I can give the butcher so that he would give me the steak to buy. I need to find things that are valuable for me that he will find valuable. And when I want to sell my labor or my services or my goods, I also want to find somebody who’s going to give me something that’s valuable to me that I think others will accept.

Saifedean: What really matters the most in that decision is what has the most liquidity. What am I most likely to pass on to others? And in that case, gold still wins hands down because it has about a hundred times larger liquidity than Bitcoin. In the other example in which we move towards a world in which… I think the way that I would explain it is in a world in which governments are no longer intervening in money because they have destroyed their own currencies, in that kind of hypothetical world… And, again, this is not an argument to say this is happening or this is likely.

Saifedean: But in that kind of world in which governments are no longer intervening in the market for money, and we go back to having a free market and money, Bitcoin loses its most important feature. Bitcoin loses its most important value proposition which is resistance to government. For all of its values, Bitcoin ultimately is optimized for one thing. For all of the things that it does, Bitcoin is ultimately optimized for moving value around the world without government intervention, without government control, without governments being able to co-opt it.

Saifedean: But if governments aren’t trying to co-opt Bitcoin or gold or any other kind of money and they’re allowing people to experiment freely with all kinds of commodities as money, in that kind of world I’m not sure Bitcoins’ value proposition is enough to overcome the 6,000 year first mover advantage that gold has. I’m not entirely sure that it would be enough for people to switch to Bitcoin because the liquidity is a sticky thing; because it’s not easy for people to transition from one liquid asset to the other. There is no orderly way of doing it because as you start transitioning the value of your asset declines and so the later you are in the process the worse off you’ll be.

Saifedean: Generally once a Schelling point has been agreed upon monetarily, it’s not easy to switch to another one. There has to be a very strong and compelling reason. Fortunately for Bitcoin, that reason exists because these governments aren’t going away anywhere. My libertarian fantasy of governments just dying and disappearing, I would not bet on it happening anytime soon. Governments are still going to be around for the foreseeable future, trying to manage their monetary systems and continuing to force their people to use their stupid shitcoins and I think that’s great news for Bitcoin.

Stephan Livera: Exactly. So, yeah. Look, I think you make some great points there that it’s a little too soon to call it in terms of gold has no role or that sort of thing. I think that you’re right to point out that we should consider that. And I think this also brings up another point that I’ve seen you touch on before and perhaps it is relevant around this idea of custodial wallets, custodial banking, fractional reserve. Now, you and I are both full reserve guys. We favor a full reserve system. And to achieve that, one concept you’ve touched on is this idea of the cost of running a Bitcoin full node versus what we might call a gold full node. Now, that changes the decision. It changes the calculus around monetary intervention. Can you outline some thoughts there?

Saifedean: Yeah. I think this is possibly the one idea that I would like to… If I had a time machine, I wouldn’t change anything in my book other than a bunch of typos here and there and I would add this one idea that I think would have really capped off the book excellently. But it really only occurred to me after we went to print. It’s just the idea of once you’ve understood Bitcoin’s decentralization and how Bitcoin functions and how Bitcoin is able to continue to operate, and if you remember the 2017 scaling drama, you see how important the concept of running a full node is to the operation of Bitcoin.

Saifedean: I don’t think I need to explain that to you. And your listeners should probably be very familiar with how important the fact is that Bitcoin runs because the nodes decide that they want to run Bitcoin and the Bitcoin consensus and code is determined by what the nodes decide. That’s ultimately who controls Bitcoin. The only thing that keeps Bitcoin decentralized and that maintains its monetary policy at the trustless and immutable is the fact that nobody is able to just go and change the code willy-nilly. We can’t just have a popularity contest and decide that we want to make more Bitcoin. Bitcoin is just…

Saifedean: As long as you want to run your own node, you could continue to run your node with Bitcoin according to the consensus rules and anybody who doesn’t want an inflationist Bitcoin is free to continue to run the old Bitcoin with you. Bitcoin is essentially inflation as to proof because you can always run your own node. That’s what it really ultimately comes down to. And the reason you can run your own node is because it’s pretty cheap to do so. It’s relatively easy. It takes a little bit of time. But, effectively, when people compare it to downloading an app in terms of… well, you download an app like Venmo, let’s say.

Saifedean: It takes three minutes and now you’re hooked on to Venmo but downloading the Bitcoin blockchain takes a lot longer. Well, yes, but it’s a very different thing from Venmo. You can’t compare it to Venmo. You can compare it to shipping a gold bar halfway around the world. That’s the real comparison for Bitcoin because Venmo you’re sending an email effectively, or a message, to someone, at a bank and they’re sending a message to someone and they’re crossing out entries on other people’s ledgers across the world.

Saifedean: And there’s nothing wrong with that but that’s a very different thing from final settlement of hard cash and that’s what Bitcoin basically does. The fact that Bitcoin allows you to send money halfway around the world for, relatively, maybe a few hundred dollars cost in Internet connection and hardware or whatever, the fact that it allows you to do that and send money around the world is what allows us to have a network of thousands of nodes that are very difficult to co-opt. And on the other hand, the fact that gold is… it’s analogue Bitcoin, it’s dumb Bitcoin effectively.

Saifedean: It’s Bitcoin that can’t be digitally sent around the world and you have to put it in a box and get it on a car and then get it on an airplane and then fly the airplane or fly the ship and pray that the plane or the ship doesn’t sink in the ocean and then hope that it gets to the other part of the world and avoid the risk of being stolen. That’s really the alternative for what Bitcoin does. Now, the reason that gold lost its monetary role, and I discuss this in-depth in my book, of course is because it was centralized effectively. And this is the point that I missed in my book, it’s just explaining that just using the metaphor of gold’s…

Saifedean: It’s really expensive to run a gold full node. That’s really, I think, the key point. The nature of gold clearance meant that the economies of scale were always going to lead towards people wanting to… The economies of scale meant that you were always going to have settlement become more common so you had more and more transactions being settled within the bank. More and more people would have their money in a bank and then you’d have more and more money in a central bank and then by the end of the 19th century you effectively only had one central bank around the world.

Saifedean: The Bank of England was effectively the world’s central bank and everybody was running accounts with the Bank of England, almost. That’s just the nature of centralization with gold because it’s just much cheaper than continuously moving and lugging physical gold bars around. And it’s much cheaper than setting up a central bank that is able to clear gold and secure it. And, of course, today that no longer exists because even if you tried to build one of them, your main problem is that the FBI will shut you down or the US government will take exception to that kind of business model as they have with e-Gold.

Saifedean: I think that’s a very interesting story that people who are interested in Bitcoin should look at. I found once you explain e-Gold, it becomes very easy to understand Bitcoin because e-Gold is just essentially Bitcoin but instead of digital magic currency in the sky we have an actual physical vault of gold. That’s their business model. But that was not allowed and they were shut down. That’s really the cost of running a gold full node.

Saifedean: If you wanted to set up a gold central bank for clearance of gold and you wanted to create a monetary system around the world that runs on gold, you need to factor in the cost of keeping the US army at bay and preventing them from stopping you from doing that. So good luck on that one. But with Bitcoin, you need a few hundred dollars of hardware to do it and that’s ultimately what I think is Bitcoin’s killer edge. It’s just going to continue to be decentralized because it’s relatively cheap to keep it decentralized for a global system of clearance.

Saifedean: And we’re going to get more and more people with skin in the game, hopefully, who are going to run more nodes. And if we maintain that, Bitcoin continues to be decentralized and it resists government caption. That’s ultimately, I think, the most important thing for Bitcoin.

Stephan Livera: Excellent. Yeah, I couldn’t summarize it better really. Another question I was keen to ask you, Saifedean, was around obviously stock to flow. For better or worse, you’ve popularized that concept within the minds of many Bitcoiners and you have spawned many derivative works and one of which was this anonymous account or pseudonymous account on Twitter, PlanB. I believe you might have had a chance to listen to the episode with him. I’m just curious to know your thoughts on his modelling of the idea.

Saifedean: Yeah. I just also… I saw his blog post, he wrote it about this, and I listened to his interview with you. He seems like a quite an interesting fellow. What he’s done is that he’s clearly more into mathematics than I am but you know the old joke about Austrian economists. There are three kinds of Austrian economists, those who can count and those who can’t. Obviously, it’s not entirely fair but we can laugh at ourselves so that others don’t laugh at us. It’s not entirely fair, Austrians don’t have a problem with Math, it’s just that we understand where it applies and where it doesn’t.

Saifedean: I’m generally a little skeptical of the over-use of Mathematics in economic questions and I think generally Mathematics are most useful in terms of accounting. If you think of most of the Mathematic analysis that is done in the university economics today pertains to measuring things that do not exist in real world, things like utility. You’re looking at a bunch of imaginary people and measuring their imaginary utility and that’s how you get your degree in economics these days. You do a bunch of imaginary Math on a bunch of imaginary people with numbers that don’t really exist.

Saifedean: We don’t even have a unit for utility but that doesn’t stop us from issuing entire degrees based on the concept that we can measure this thing. Having said that, clearly there is value to numerical indicators and so my entire book discusses the stock to flow number. And I think it’s useful as a metric to think about that because it expresses economic reality in a clear way, independent of how people act around it. So you can see this force acting regardless of whether people know it or understand it.

Saifedean: In other words, we don’t have to have people study economics and study the mining economics of gold, silver, platinum, palladium, copper, zinc, titanium and decide that gold is the one that’s going to be the most suitable as money. The market on its own decided that. The market on his own did that without anybody needing to understand that. And I’m sure some people understood it, but the vast majority didn’t. It was just a brute economic reality enforcing itself because whenever any of the other metals, that are not as rare and not as hard to find and that are destructible and consumable like copper and zinc… They are continuously getting consumed. They are commodities.

Saifedean: Whenever these metals are used as a store of value, their price goes up, that just incentivizes more production and all of these metals have a high elasticity of production. They’re easy to increase the supply on them because the scale of production is always very large compared to the existing stockpiles and so small increases in production can result in significant increases in supply. That doesn’t exist in the case of gold and so, over time, what happens is that people make investments in all kinds of metals and in all kinds of monetary assets and as a result there is an increase in the production of all of these assets as a response to people using them as monetary assets.

Saifedean: However, gold resists that because no matter how much people want to make of gold, no matter how much people want to make of zinc or silver, gold continues to have an annual new production that is very insignificant compared to the total existing stockpile because that stockpile has been accumulated over thousands of years. I definitely see the value in looking at the numbers but he is more brave than me in trying to make a model out of it and to model the Bitcoin price as a function of the stock to flow.

Saifedean: From the Austrian perspective, we are skeptical of the idea that you can place numerical constants on human action to predict a human action. Because ultimately, even though this kind of force exists, it is ultimately humans that are buying and selling Bitcoin and that’s… or all the other assets. I would not bet on these numbers being correct but I think the trend that he identifies, to a large extent, is correct. If Bitcoin continues to operate, Bitcoin continues to function exactly as it says it does and the money supply continues to increase in the same way it’s has been, I think we’ll likely witness the value of Bitcoin go up in a way similar maybe to what his model predicts.

Saifedean: But I don’t think it would necessarily be because the stock to flow is necessarily dropping, it’s just the general aspect of the fact that the money supply is restricted. That’s why the relationship may well break down but of course it is a log relationship which makes a positive correlation. Well, the log relationship is about the percentages of increase so you would expect as long as there are percentages of increase in both… And Bitcoin stock to flows is programmed to increase and the value is likely to increase over the long runs…

Saifedean: If that happens, you’re likely going to continue to get a pretty strong correlation and you could see that. Having said that, I’m not entirely skeptical of these things and I think, as Austrian economists, they reject the use of these things. Not these things. I shouldn’t be more specific, I have to say. Austrian economists will tell you there are no constants in human action, that there are no ways that you can quantify economic value because value is subjective and interpersonal so you can’t really work out utility.

Saifedean: However, entrepreneurial judgment because an entrepreneur has to make the judgment and they have to use their intuition and they have to use their hunches and they have to use their Math. And they have to use every way they can to try and get a better approximation of the world in order to be able to make better predictions about how things will function in the future. I see no problem with the use of those things from the perspective of the entrepreneur or the investor trying to understand these aspects of how [inaudible 00:56:25] will behave. But I’m likely a little bit skeptic that we have hit upon a theory or the model that correctly describes.

Saifedean: Maybe I’m a little bit too skeptical or maybe I shouldn’t be because this turns out to actually foretell the future accurately. I would definitely jump on the bandwagon back then when that happens. I’m obviously not going to turn it down. I’m not sure that we can make models with such precision and predictive power for the future but I’m happy to be wrong about that. We’ll see.

Stephan Livera: Yeah, look, you’re right. And for listeners, if you’re interested, I recommend Hans-Hermann Hoppe’s Economic Science and the Austrian Method. And one of the points that he makes is around truths as a priori synthetic truths and it’s a deductive method. However in this case, Saifedean, as you point out it’s not correct to say that this relationship will hold true in every case. And it may be that people can compute a certain relationship at a certain time but we would not say that this is economic law.

Stephan Livera: But there is potentially some value to it from an entrepreneurial or an investing or what we might call speculation in that sense. So, yeah, thanks for offering your insight there Saifedean. And, look, I think we’ve also got to talk about your research bulletins so tell us a little bit about what you’re doing with these and what’s the plan with that going forward.

Saifedean: Yeah, so I’ve decided to start dedicating more time towards writing about Bitcoin because people seem to be liking that so I’m making this subscription research bulletin through Patreon, or you could also subscribe through my blog. And you can sign up and get a monthly essay or a chapter of a book, you could say, on a question related to Bitcoin. If you remember the Bitcoin Standard, it was mostly about our history and economic history leading to the creation of Bitcoin. And then the last chapter we started discussing the economics of Bitcoin but that was already enough for one book. I couldn’t get much deeper into these questions.

Saifedean: This is what I’m doing right now and I’m doing it initially as a subscription service and I’m going to turn it eventually into a book. If you really would like me to write more, if you value my writing, feel free to subscribe. If you can keep your time preference low and are willing to wait, you should be able to get these in a book form. And I make no promises, but in a few months or several months you should have this out in digital and the paper book form for you to buy or pirate as you see fit. Yeah. And if you’re interested in looking into that, you should check out or if you’d like to buy some of the earlier reports you can just go to

Stephan Livera: Fantastic. And, yeah, I’ll just point out to the listeners that personally I am a subscriber of Saifedean’s Patreon page and I get the research bulletins. It’s fantastic value. I personally think the analysis and the quality is really just unmatched at this level or at this point because there’s just so few people who really are right at this intersection between Bitcoin and Australian Economics and just generally analyzing Bitcoin from this point of view so definitely one to consider. But look, Saifedean, I know we’re getting close to time so that’s pretty much it but just wanted to say thank you again for coming on and also just thank you for supporting me with this show.

Saifedean: Thank you so much. It has been a pleasure as always and I look forward to doing it again.

Stephan Livera: I hope you guys enjoyed that chat with my friend Saifedean and let me know your thoughts, as always. You can DM me on Twitter or you can find me on my contact page on my website, A quick reminder also about Bitcoin 2019 conference. The website is and that’s on June 25th and 26th. I’ll be there in San Francisco so it’ll be a good chance to meet some of you guys if you’re interested.

Stephan Livera: Also, just wanted to give a quick shout out to some of the guys who left me some five star ratings and reviews Stacy, Murray Rothbard’s Dog and Lisp Master. If you guys wouldn’t mind, just take a second, give me a quick review on iTunes or whatever platform. I really appreciate the support. It helps new people find me. Thanks very much guys. That’s it from me and I’ll see you next time.

Comments (3)
  1. I wonder what his opinion is, that governments are trying to get you or actually scare you to pay taxes over your bitcoins…
    I personally think; the he|| with the governments… earn your taxes legitimate… I won’t pay for your bombs and cruise missiles.

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