US Banking Crisis: The TRUTH Behind The Disaster & How It Will GET WORSE... | Robert Breedlove | Transcription
Transcription for the video titled "US Banking Crisis: The TRUTH Behind The Disaster & How It Will GET WORSE... | Robert Breedlove".
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So the SVB banking collapse, the ballogy sense that all of this is just going to keep going, keep going, and we've reached some sort of threshold moment that requires us to put the bit signal into the sky, as he said. How contained is this?
Discussion On Economics And Philosophy
Fractional Reserve Banking (00:15)
What happened with SVB? Is this going to go on? Are we at a tipping point? Like, help me understand this moment. It would be very difficult for me to tell you whether or not we've reached a tipping point. We can only evaluate that in retrospect. But I would say, you know, everything we've talked about in my first two appearances on the show, we're seeing that play out. Fractional reserve banking is a scam. It always fails. It cannot continue to support the depositor's interest over time. And you know, we had biology on for a Twitter space. I think it got attended by like half a million people. Jesus. Because he, for those that don't know, he accepted a bet that Bitcoin would reach $1 million USD price in the next 90 days. Which we're still in the middle of. So we'll see. Yeah, we're 20 days in, maybe 30 days in, something like that at this point. And although that's a very aggressive timetable in my estimation, I do think directionally he is correct, right? The same thing we've been talking about previously. The more currency you counterfeit, the more Bitcoin's price appreciates, right? You're pricing Bitcoin in terms of something. You use the word counterfeit. So really, let me give people like a 20 second primer on some of the things you've thrown out here. So I can give them the sixth word thing. Yes, go ahead. Do it. Inflation is legal counterfeiting. Counterfeiting is criminal inflation. So central banking is a coordinated currency counterfeiting cartel that runs the world. All right. The question someone asked you today is what you think the government dossier on you says, but we'll get to that later. Okay. So you've got SVB ends up imploding because of fractional reserve banking. You're only legally required as a bank to hold. It's less than 10%. So if somebody gives you a dollar, you're required to hold less than 10 cents. The rest you can invest, loan out, do whatever you want. So should people do a quote unquote run on the bank, you can find yourself in a position where you can't pay people back out. Now if you invest in dumb things, you have a real problem. And SVB, I think by most people's estimation invested in really dumb things, which we may or may not get into the specifics of, but that's how we ended up here. And then immediately after that, multiple other banks failed. I think we're up to five now. So it is scary. Now your contextualization is that this is just the nature of fractional reserve banking full stop when you have a national bank or a central bank that you're always going to have this problem. Yeah. So just to be clear, a bank run, first of all, this is when depositors come to take their money out of the bank and the bank does not have sufficient assets to meet those redemption requests. This is only possible with a fractional reserve bank. So what you just said, you give the bank a dollar, they're only required to hold 10 cents of that dollar. They can lend out the other 90 cents. And it compounds too, because once those 90 cents are lent out, those in turn become bank deposits that are in turn lent out again at a ratio of 10 to one or whatever the reserve ratio is. And this compounds, this is called the money creation process. You could look this up. In a full reserve bank where someone gives you a dollar and the bank holds the dollar, a bank run is not possible because they always have adequate assets to meet their liabilities or their redemption request. So only in the fraud of fractional reserve banking is the specter of a bank run even possible whatsoever. I think that's very important to note. Now with SVB in particular, they did something sort of dumb. They had taken a lot of customer deposits. They had bought treasuries long. So these are US debt instruments. And they were doing that because of the interest rate, right? It was yielding an interest rate. They were closed, but they needed to get some return. Exactly. But what they've done now is they've shifted their maturity out into the future. So if there is a quote run on the bank or too many depositor requests for redemption at once that they would not have enough money to meet those requests. And that's essentially what happened. Now there are ways to better manage that. They could have hedged their interest rate exposure so that it had interest rates gone up unexpectedly, unexpectedly for them as it did. They could have covered that. There's arguments to be made that their chief risk officer was put in place not based on merit, but rather based on gender or something like that, like kind of a wokest placement. So maybe that had something to do with it. She or he or they were not qualified for that position. But in general, this entire system of fractional reserve banking is not made to persist. It does not. It does not persist over time because you fundamentally have a mismatch of assets and liabilities. How long have we had fractional reserve banking? Well, there's been fractional reserve banking on and off throughout history. Why do you say it can't persist? If we've been doing it for thousands of years? Because it always leads to systemic collapse. You're saying the cycle. What Ray Dalio calls the big cycle. Yeah, the big credit cycle you'd say has a lot to do with fractional reserve banking. But if everybody knows that the big cycle happens and that it is, well, I guess let me push you on what you just said. Are you saying that the big cycle isn't just about fractional reserve banking? I don't know. So Ray, that's Ray's position about this large credit cycle. There's also like the fourth turning. There's a lot of these perspectives that humans tend to have. You know, history doesn't repeat, but it rhymes. So I'm not accrediting the entire cyclic nature of human self-organization to fractional reserve banking, but there definitely are credit cycles related to fractional reserve banking. But for that very money creation process I just described, a lot of money gets lent out. You get a lot of debt and credit in the system, which is effectively money. You've expanded the money supply significantly. But then once there's an economic shock, the proverbial tide goes out and you find out who's swimming naked. There's not enough assets in the system to meet the outstanding liabilities. So this is why you get these deflationary shocks or liquidity crises like we saw in March 2020. Everyone all of a sudden needs dollars. There's no dollars to be had. Ultimately, you get the central bank intervening saying, well, we'll print a lot of this money. And that's meant to fix the problem. But what you've actually done is just kick the can down the road, right? You've confiscated wealth from savers. Yeah, as you're going to say, it's actually a little worse than just kicking it down the road. Well, you've conducted systemic theft through inflation, right? You've robbed savers and you've pumped liquidity into the system. It's kind of like it's a band aid. You know what Milton Friedman said about inflation is that it's just like alcoholism. The good effects come early, right? You print the money, you have the drink, you feel good. The hangover comes later. The pain comes later. The next day, if you do it continually, right, the pain comes later in life. You lose your job, your family falls apart, whatever it is. The same is true of inflation. You print the money, you get this spur for demand. There's liquidity. There's a sense of confidence restored to the system. People start selling, trading. And when that goes, comes to another culmination, what you get is a larger credit bubble. So the $700 billion we printed in 2008 to bail out the financial system pales in comparison by an order of magnitude to the $6 trillion we printed for COVID. And now we've authorized, I think, an additional $2 trillion at this point for this nascent banking crisis that we are in. So we're talking about $8 trillion bailout package could be getting larger over the past three years. That's over 10 times what we did in 2008. So this is fractional risk of banking, right? Every time the crisis comes, you have to print exponentially more money because there are exponentially more liabilities in the system from the last round of printing. And so this is why it's unsustainable. And this is why it always culminates in hyperinflation because the central bank has not only the precedent but also the incentive to continue printing the money and tell the currency hyperinflates into worthlessness. And they'll also fight with every type of measure they can to try and prevent that, right? They'll prevent people from buying gold, executive order 6102 in 1933. They'll enforce capital controls to try to keep money and capital in the country. So there won't be a flight, say if you're in China or some other country in the currency suffering, people would try to fly to US dollars. China would prevent that. I think they have capital controls to the tune of like $50,000 a year that only $50,000 per year per person can leave China. So you'll see these exotic regulations trying to prevent what is ultimately an inevitability of economic reality. It's like when you print money, you're creating the incentives for people to accumulate more debt. You're injecting more fragility into the system such that when the next shock hits, you need even more exponentially more money printed. And this can only go on so many rounds when you're increasing orders of magnitude each time. So it seems like, and it's hard to say where the tipping point is, again, without hindsight, but it does seem like we are critically close to some type of systemic breakdown. Okay. So talk to me about timeline and your take on this. So I know biology has sort of hedged his bet a little bit and said, look, this is just to get people's attention. But $2 million is a lot of money to put on the line just to get people's attention. I have to imagine some part of him knows the credibility hit he's going to take if he misses the 90 days and if he misses it by a lot, then it's really going to be problematic because then it, let's say that he misses by two or three years. That's a long time for people to be just dismissive of like, yeah, yeah, you're the boy that cried wolf.
Elon Musk HCW Episode (10:21)
Now I know his background and he's very much not that. As far as I know, he's only cried wolf once before and he was right. So what's your take on that? What was that instance? I'm actually not sure. God, what was it? Did he call? I forget it was either 2008 or 2020 when he said, hey, I think it was 2020. I think it was COVID. He was like, this is going to be a real problem. And so when it played out, he was like one of the first people to raise his hand and say it. Yeah, yeah, he's got a reputation for being an early adopter of damn near every groundbreaking technology and he's not one with that one exception, perhaps typically to do something like this, right? He's not a super radical guy. But I think this is somewhat of a Paul Revere type move, like Paul Revere wrote through the town telling the Americans the British are coming before the Revolutionary War. Bologies made this bet in a way to say that the printing is coming and the printing is coming. There's no question about that whatsoever. Because you think more banks are going to fail or for some other reason. Because of economic reality and the systemic design of fractional reserve banking, you have a fundamental mismatch of assets and liabilities. But we've had that for a long time. So why? We printed money for a long time and we printed money at an accelerating rate. Look at the 1980 savings and loan crisis versus the 2008 bailout. Things in loan crisis, I think is in the tens of billions of dollars, 2008, 700 billion dollars, 20, 20, $6 trillion plus the two trillion we just mentioned. So it is happening, right? It is exponentially more quantitative easing or inflation or systemic theft each time. So long as like there's no reason to think that would ever end. Because again, the central bank not only has the precedent of doing that, but also the incentive to do that. They profit from the print, right? They earn seniorage, which is where they're creating money cheaper than its actual value in the marketplace. So I think biology's move is a Paul Revere type move. Now what other interest he may have in play? Surely he has a lot of Bitcoin. He has a super early adopter in Bitcoin. This is probably not a lot of money to him. So if I'm looking at it through the lens of his self interest, maybe it's just not as impactful of a play for him. And maybe even if he's off by a couple of years, maybe history would regard that as kind of a selfless, brave move, right? Like you put skin in the game just to try to get people's attention to emphasize this fundamental failure of fractional reserve banking to trying warn people to get their capital out of the system before it fails. None of us know when it's going to happen, right? Again, that's the ballsy kind of aggressive thing is like putting a timeline on it. That's very hard to do. It's extremely hard to do as far as I can tell. I can just look at an economic system and look how it's functioned historically and tell you what direction it's going over time, but to actually tell you specifically a specific timetable for when things will happen, that is much more difficult. So I think he's doing it for the right reasons, but what do I know? Yeah, I don't know enough about him to comment on his motives at all, but it is an important question, I think, for people to really look at. So five years ago, I did not care about finance. I didn't think about it at all. All I thought about was how to generate more money. It didn't bother me in the slightest that I didn't know how to invest it. And then the more that I started researching the whole idea of, okay, you've generated all this wealth, I honestly thought, and I know we've talked about this before, but I honestly thought that inflation was a law of nature. I didn't realize that it was happening because of human behavior. I thought it just what I just never thought about. And so it was just like everybody always said there's two percent inflation. So I thought, word, there's two percent inflation. It just is what it is. And as I was, as I get more educated on this and as I think about what it really is, I realize, whoa, the idea of sustaining your wealth, the buying power, that's a better way for people to think about it, to sustain your buying power over time, you are forced due to the modern banking system, you are forced to have an investment strategy. Otherwise you will get inflated away over a lifetime. It's not going to happen in a year, but like at times of brutal inflation, like during COVID, you were looking at 10, 15 percent. 10, 15 percent is a lot, a lot, a lot of money in terms of reducing your buying power. And so that's when I realized, oh my God, like I have to think about that. I have to come up with a strategy. So when SVB happened, it was the first time where I, because I'm very conservative when it comes to money, ironically in business, I am a hyper tolerant of risk. But when it comes to finance because I feel so ignorant on the topic, I am just super, super cautious. And when SVB went down, I did not have any direct exposure to SVB, but I had money in USDC. And so when I heard that circle had exposure to USDC and then it might lose the peg and for a while it did, it lost the peg like crazy. So that was the first time where I was like, whoa, I'm finding myself scrambling on whatever a Friday night to get all of our USDC somewhere that it's not going to just poof evaporate overnight. So that said to me, okay, I really need to pay attention. Then government steps in, cool, everybody calms down, but then really smart people are saying this is the beginning. And so I'm like, okay, the way I'm coming into this, my thesis is the government backstop did not change any of the fundamentals. All it did was change the time horizon. And so now I have this period where I can be thoughtful. I don't have to move in a scramble. And so the reason I want to have you on is so that I could really get my context right. And so where I see the sticking point here is you have the Fed. The Fed knows as much about money as probably anybody else, right? Like a lot of people on the cryptocurrency side, they want to paint them with other stupid, they don't know what they're doing brush. Look, it doesn't mean I agree with what they're doing, but I'm not going to approach them as if they're ignorant. I'm going to approach them as if they have a different take on the world than I have, but their take is going to have very sincere and potentially severe consequences. So the wall that they're backed against that I think they're aware of and thusly, I think they will try to move in a way that's thoughtful is this.
Consumer Spending (17:26)
They know that if you print too much that you will hyperinflate that that is just a law of nature that you I think while they won't use the word theft or whatever, they recognize that you aren't increasing the productivity. So you're not increasing the things that are available to buy or the output. And so you're just making more dollars to buy the same things, which is how you get inflation. So they know they're doing that. So they're they can only let themselves go so crazy. They know that every reserve currency all throughout history has eventually collapsed usually through hyperinflation. So they're they're going to be aware of that. Then the other thing is, okay, we know that the way to break the back of hyperinflation or inflation in general is to raise interest rates, which just slows everything down in the economy. They're obviously not afraid to do that. They've cranked up rates. But now here's where it gets tricky. As you raise rates and look, this could be my ignorance. I want to be very clear that I come into this hyper humble, but I have to have a framework to think about the world in order to make decisions. So I come into this saying, all right, what's going on right now is they've raised rates so fast that people aren't now able to make good on their own payments, which is exactly what put what put SVB into a dangerous situation is you have all this debt that you have to service. But the problem is you can't service that debt as the interest rates go up. So they know that as well. So they're going to be trying to find like some sort of balance. They I think, and this is where you're going to have to steer me, I think they know that a recession is inevitable. So it's just a question of are we going to crash and explode on impact? Or is there a miracle on the Hudson or whatever it was called where they come? Yeah, they get us a water landing. Everybody's able to come off the boats. So I'm looking at biology and I tweeted at him and I was like, I get what you're saying, but the way that they'll be able to milk the timeline on this, I think 90 days just isn't realistic. Where do you do you think that they can give us a water landing? You know, I I struggle to talk about central banking and a lot of the terms that most people use because it's it's almost presupposes that this institution is like looking out for the greater good or looking out for the common man. Like, can they give us the economy of water landing?
The Meta Fear (20:06)
Like they're the pilots. This is the very metaphor we're using, right? They're pilots on the airplane. The ships, you know, the planes having mechanical issues, maybe they can land it. That's not what's happening at all. Like they are hijacking the plane of the global economy. So I'm going to be very clear about that. I want to be careful with our metaphors. I would also I agree with most of what you said about the framework of the central bank, except one piece is that this Keynesian economic mentality is that you can spur consumption with the printing of money. And so they they have the kind of the tail wagging the dog mentality where in economic reality, you have to produce before you consume, right? You have to plant the seed and grow the farm and grow the corn before you can eat it. That's economic reality. And the Keynesian model, you can consume, you can increase consumption, which will pull up production. And this is just it's just backwards. So one of the levers they're thinking of when they print money is that they can actually spur consumption, which will pull production into reality. So that's everything you said is correct, except for that one piece that I want to be clear that they actually think that's how the world works. Now again, I don't know if that is a deep in their heart of hearts, belief, like in their economic consciousness, or if this is just a euphemistic kind of facade they put on the purposeful jargon and opacity of language that's used to confuse people, right? So they can serve their cartel boss's interest, which is to continue, continue printing money and continue people's general ignorance of economics and money. Now for you, early on too, you said you thought when you were ignorant before getting into all this that inflation was the way of nature, prices go up at 2% per year. That's normal. Nothing we can do about it. That's not your fault. You are the victim of a scyop in that situation. That's the Keynesian economic scyop that we've had going on since the inception of the Federal Reserve at least since 1913, that we've been conditioned to believe that inflation is normal, that we need systemic theft, systemic debasement of purchasing power, if you want to say it in a nicer way, to spur consumption, to get people to not save, to not hoard their money, we need them to spend the money. It needs to keep moving. But the exact opposite is what's true. By saving capital, savings is what underpins investment. Investment is what underpins and supports entrepreneurship. Entrepreneurship is what creates good and useful tools and services and increases in productivity. The idea that inflation is necessary for a healthy economy is easily destroyed if you just look at what became money on the free market historically, which was gold. Gold was the most inflation resistant commodity in the global marketplace. No matter how much human time, effort, or energy was allocated towards its production, its supply increased the least. It also, just due to its chemical nature, it's basically indestructible. It has the highest stock-to-flow ratio, which is the inverse of the inflationary. One divided by the inflation rates is stock-to-flow ratio. It's another way of saying gold had the lowest inflation rate. You have to ask yourself, why would consensual market actors across history always favor gold as becoming the dominant monetary technology if inflation is necessary for healthy economic activity? It just self-refutes. It doesn't make any sense whatsoever. I think that's why we get mired in these terms. I hate the term inflation. I'll let me push you on that for a second. It doesn't gold inflate at roughly 2%. The supply of gold does. That was the lowest inflation commodity or the highest stock-to-flow ratio commodity that we had historically to serve as money. You can reboot your life, your health, even your career, anything you want. All you need is discipline. I can teach you the tactics that I learned while growing a billion-dollar business that will allow you to see your goals through. If you want better health, stronger relationships, a more successful career, any of that is possible with the mindset and business programs and impact theory university.
Join the thousands of students who have already accomplished amazing things. Tap now for a free trial and get started today. But if we've always had a money like forever forever that inflated by 2%, is it not possible that what we think of as the normal modern economy really does need that very minor inflation rate to kick people out of store hoard mode in order to get the world that we have now? Now, people may say, "I don't want a consumer economy. That's a different debate." But to get the world that we have now, even gold has that. Here's what's different with gold though. Gold supply is inflating in a competitive marketplace. What do you mean by that? It's not a legal monopoly. There's not a legal monopoly that says we're going to inflate gold 2% per year. It's the aggregate effort of all market actors in the world trying to produce more gold. It just happened to average out at about 1.5% to 2% per year. It also varied. When we had the Bonanza in South America, well, you get a pop in gold supply for a few years and then it goes back down. Now maybe central banks chose 2% as their target because gold historically was 2%.
Productive Work (25:42)
That's another topic. Inside of a legal monopoly, you're arbitrarily inflating the supply. It's not a competition to mine fiat currency. There's no cost to mine it. This is the fundamental problem. You can produce money from nothing. At the push of a button or what used to be printing a paper, you can produce new units of currency which can be used to acquire goods and services in the marketplace that require work to produce. The currency itself does not require any work whatsoever. That's why it's a mechanism of theft. That's why only the Federal Reserve is allowed to do it, not URI, not anyone else. Political power emanates from the barrel of a gun, I think Mao said. The guns are pointed outward from the central bank at everyone else to preserve that exclusive privilege to counterfeit currency inside the central bank. Gold is different because anyone can go out and mine gold. It's a competitive market. The marginal cost to produce a unit of gold tends towards the marginal price of gold in the marketplace. If gold is trading at $2,000 an ounce, then every market actor is directly incentivized to mine gold right up until the point that they're spending $1,999 per unit of gold to mine it and going out and selling it for a one-cent profit. That's fundamentally different than a fiat currency system where you're producing a money at near zero cost and pushing it, imposing its use on a population via illegal monopoly right via the threat of force legally and physically. They're very, very different but I do grant you the 2% may have been piggybacked by central banks for that very reason. It's super interesting. Every time I meet with you, you're so good at explaining this. I admit that I am very taken aback by the idea that, "Oh, okay, if inflation isn't theft, then why can't people counterfeit money?" If it's not stealing from people, if it's not a problem, then why do we treat that as a high-promote? I have another good question to ask. If they can just print money, why do we pay taxes? Wow. Wow. If inflation's not theft and we can just print money and we don't have enough money, we can just print more money and give everyone that doesn't have enough money enough money. Why don't we just do that instead of pig taxes? Bro, bro. What a good way to ask that question. Intuitively, that smacks as ridiculous but obviously it creates cognitive dissonance for me around why a little bit is okay but then a lot would be bad. That's very interesting. All right, now I'm going to give you while I'm completely acquiescing all of your points, there is some magic to the system. Now I think I know what you're going to say that there's too much brutality as the system collapses and it collapses predictably. You can't get exact on the timeline which if you could, it would be a lot easier. It's unsustainable. But are you familiar with the little dragons policy in China? I'm not. Okay, so this is either little or small dragons. This was when they were like, okay, communism has not quite worked out the way that we wanted it to work out. We don't want to stop being a communist country but we do have to acquiesce that the US and other capitalistic societies have had a lot more prosperity than we have. So let's create our little dragons, little giants. I forget one of the two, something like that system where we're going to let them be capitalistic enough and so we're going to facilitate some of these things. We're going to let them rise. Now we all just witnessed in the last whatever five years the collapse of that, not collapse but where they re-grabbed control and reminded them that, okay, you don't get to be that big. You don't get to be that powerful. And it is crazy to me that people don't make a bigger deal out of jackmaw just like up and disappeared for two months or whatever and then showed up looking like a POW and being like, it's all good. It's just crazy to me. Anyway, but it worked. You China went on this insane tear over whatever 30 years where just by letting people go with capital markets, same I assume fractional reserve banking, like all the things that your framing is theft, smoke and mirrors, all of that, which again, I acquiesce all those points, but yet it yields China's most extraordinary boom. This is not me taking China side. I think it's insane what they do and did. And as somebody who has read Mao, the unknown story, yo, like a hundred million people has plenty of dead people for me to go bad system. But the fact that they were able to use the smoke and mirrors theft situation to yield something extraordinary and somebody that I used to know quite well built a basically a VC firm in China. And he said, Tom, it's the most breathtaking thing I've ever seen. And he was in Tiananmen Square when it popped off, watched a guy get his head blown off like 10 feet from him like there, there. And he was like, dude, what's happened in China is the most beautiful breathtaking thing I've ever been a part of. He moved there full time. It was just like, this is unbelievable. So I'm torn with like you make sense. And I can't even argue any of the individual points, but yet the system yields the world that I'm in. So I guess I would first have to say I've never been to China. I have no first-hand experience. I am familiar with the little dragons policy that you mentioned. I think it was related to agriculture originally that they were super type-fisted. No idea. Unidistically, but then some of the farmers actually defected from the Communist Plan because surprise, surprise, they weren't growing enough food to subsist, much less feed anyone else. So they kind of abdicated from that regime, started growing their own food in the capitalistic way trading amongst themselves. I've read a little bit about this and heard secondhand some of this through Jordan Peterson. And then the state actually came in and said, oh, well, this actually is more productive. They acknowledged the benefits of capitalism and allowed some pocket of free market capitalism to emerge, at least in agriculture. And then maybe they'd map that on to other industries. That's my general understanding about it. You know, so let's define these things. Just define communism. Let's define capitalism. Maybe that would be helpful.
Socialism vs. Capitalism (32:50)
One is this idea, right, that we can all, what is the old Marxist slogan from each according to their ability to each according to their need. We don't need money and prices. We can all just acknowledge our fellow man and give to each person what they need and take as little as we need and we'll have this Communist utopia, right? Obviously, you could study the history of Soviet Union and whatnot. That doesn't work. It actually creates its opposite. You mentioned 100 million people dead. I think that's the number of also in Soviet Russia was around that amount. The practical implementation of this typically is called socialism. Now this word like capitalism has a lot of different interpretations. I like Hoppe's definition. He says that socialism is an institutionalized policy of aggression against private property. So it's this idea, right, that we can create one power that can arbitrate all the economic scarcity in the world, take in all the product from all the labor and capital creation and economy and dole it out arbitrarily in a way that's in accordance with the greater good, right, the ephemeral, greater good that that status always cite. Now capitalism would be the opposite of socialism. This would be, so if we maybe to simplify socialism a bit, you could say this is socialized property. Like you don't own anything individually. Everyone owns everything. And there's a great quote actually by Aristotle. He says, when everyone owns everything, nobody takes care of anything. I think that's pre-well captures one of the consequences of socialism. There's no incentive to do anything productive because you don't get to keep any of the fruits of your labor. That's why the socialist systems collapse. Capitalism is the social cooperation that occurs under the institution of private property. So that's where you keep what you earn, the value you create, the business you create, the farm you plant, the house you build, you individually or the individuals that contributed to it own that thing, right? Or if I am the home builder and I'm paying laborers, right, they're trading their time to me for money. I'm paying them money. They're trading me their time and labor to build the thing that I in turn own because I paid them. So these are the two ends of the spectrum. And if we talk about just the pure nature of justice, I mean, I don't know that you could look anyone in the face and say, do you believe human beings should be able to keep what they earn? Like do you Tom believe that a human being should have the rights to the value that they create? Like if I build your table, if I build a table, like I bring the wood, I bring the skill, I bring the labor, I bring the time, the planning, the tools, I build it, shouldn't I be free to trade this table with anyone else? Shouldn't I be free to burn this table? Shouldn't I be free to move this table into my house or take it anywhere? Like is there any other model that makes sense? Is there any reason that I build this table that you should own it? It's interesting. I can tell you what the pushback is. So first of all, let me say I am a dyed in the wool capitalist. I believe in capitalism to my bones. I think anything else violates the reality of human nature. But as you were describing that, I was like, okay, I know what the pushback is going to be. It's people that push back on the very idea of ownership. What do you mean? You brought the wood. The wood is from the earth, bro. You can't own the earth. Like that's crazy town. What are you thinking? Can appropriate from nature assets that are not being used. So if there are trees growing in the woods and no one's using them, no one's doing anything of value with them, you can appropriate them justly, just appropriation. You could read a book called People Are Going to Argue With You On That. Not me. Well, but people. You could read a book titled The Ethics of Liberty by Rothbard. And he has a very detailed explanation of what is just appropriation and what is unjust expropriation, right? We're actually stealing from people because ultimately what we're trying to reconcile here is human action under conditions of scarcity. Now we're not saying, and it's funny because you say appropriating resources from nature sounds like something that's anti ecological. Like you don't like, oh, I'm taking from the earth. I'm just stealing from the earth. So there's kind of strange paradox because under the institution of private property, we actually incentivize ecological conservation. If you are dumping pollution, if you have a factory producing widgets and you're dumping waste product into my river, right, that I own or my creek or my stream or my land, whatever it is, I have an incentive to sue you or take action against you to prevent that dumping. So if it's unknown, right, if it's an unknown piece of land or creek that you could just go dump there and there's no, again, when everyone owns everything, no one takes care of anything. There's no one there that owns that piece of that area that you're dumping into to sue you. But if someone owns it, they have an incentive to sue you. If they have an incentive to sue you, you now have to include that into your cost structure of your widget factory. So all of a sudden you're not going to just be, you know, it's very profitable to pollute, right? If you have this waste product coming out of your factory, you don't need it. You just need to get rid of it. The easiest and cheapest thing to do with it is just dump it or no one's going to mess with you. But if everywhere you dump it is owned property that's protected under private property, then the individual proprietors that hold that land have an incentive to sue you, which means you will have that encoded into your cost structure, which means you'll not have an incentive to dispose of that in a clean way in a way that doesn't damage an ecology or the earth. So you have to, like these things are not easy to understand necessarily. You can't just think one order deep because you would think, oh, well, you're appropriating from nature. That sounds really bad from other earth. But if you actually think two levels deep, maybe three, you'll and read a book like The Ethics of Liberty by Rothbard, I think you'll see that capitalism and the institution of private property is the solution to almost every problem in the world. And this is why centralized government and the central bank is such a problem because it only generates all of its revenues from the violation of private property. There is no consensual exchange occurring.
The Truth About Exit Taxes (39:30)
The government does not generate any revenue that is negotiated with its constituents. Right? When you get the bill from the IRS, you just get a bill. You can't negotiate that. You can't even leave the country. If you say, you know what, the services I'm being rendered are not good enough for the price I'm being charged, in my opinion, and my individual value judgment. I think I'll leave. I'll go to another country where I'm treated better. If you have above a $2 million net worth in the US, well, you have to pay the exit tax. Say what? That's right. So how did I not know about this? Tell me more. I know Canada has one I just found out about that. I was offended, but I didn't realize that America has one. That's right. What's the exit tax? If you have above, and you have to check me on this because I haven't looked at it in a while, but I think above a $2 million net worth in the situation I just described, you get the bill, you decide this is not a good fair price for the services I'm being provided, and I'm going to move to country X. Well, when you go to move your capital to country X, the US will, first of all, you'd have to renounce your citizenship because the US has a territorial tax system, which is one of, I think, two countries in the world that do this. You're taxed on your worldwide income. This is sort of a benefit of being the global dollar hegemon. You just get to write whatever rules benefit you the most. Whereas in other countries, you pay tax for the income earned inside of that country, but the US doesn't matter where you live, what you're doing, all of that's taxable in US. That's so amazing. And then further, if you have capital in the US and you try to move to another jurisdiction, then you're going to pay an exit tax on whatever it is above $2 million. So just to get a little more clear on that, it's like someone breaking into your house, putting a gun to your head, and you're saying, "Pay me, otherwise I'm going to steal your stuff." It's you as an individual cannot say no to a service provider. If there's a business that's trying to sell you something, let me use another example here, if you're trying to buy a car and you can't come to terms with an individual car dealer, right? You guys are negotiating back and forth. You can't come to terms. You always have the power to say no and go see his competitor next door. It's that option to say no that's keeping producers honest. It's keeping the car dealer honest. He knows you have the power to say no and get up and walk away at any time and he'll lose the business. So he's willing to deal fairly with you because you have the power to say no. So this is why, you know, competition, economic competition under conditions of capitalism is so important for keeping producers honest. When you remove that power to say no, or you can't say no to Uncle Sam, you can't even leave to another jurisdiction without paying a tax. I mean, this is, it's tyranny, basically. It is, it is less visible, less obvious, less clear. It's mired in all of this complexity and jargon and legalese, but it is tyrannical in my estimation. So the proper way to have a governance system is one in which individuals can refuse service, right? You can say no, this doesn't work for me. I'm going to go somewhere else. And unfortunately, the monopoly on violence, that is the state, has not allowed that historically. And for everything that is great in the United States, and there's a lot of great stuff here and we've come a long way and there's generally peace. I don't want to sound like a total doomsayer on the nation state. You know, I just flew back from Hawaii, like we can get around peaceably. We interact with strangers, there's not typically a lot of violence out in the world. There's still this problem, right? This problem that we've normalized and institutionalized theft. And I just think that that is this fundamental schism that we have to try and get past as a species to create something that is a civilization that is sustainable. Would you be willing to pay tax if there was no inflation? I would be willing to pay, well, this is where it's a contradiction in terms. When you have the right to say no, it's no longer a tax because a tax technically is an imposed security fee, if you will, right? The government is securing an area via the rule of law and physical force such that the market process and the division of labor can take hold. Now I am willing to pay a security fee, right? I will pay a security fee that there are multiple security providers. I can say no to them. I can move somewhere else if I don't like the level of service or the price that I'm being charged. That's fine. That's not technically a tax. I would call that a security provider fee and that, yes, I would be willing to pay. But to your question, and this is where the Bitcoiner view comes into play, it's like if we can just get the money honest, then people gain a lot of that ability, right? Again, if you're holding, if you have access to something like Bitcoin that you can move your wealth into, it's a hyper portable asset that no one can inflate, no one can counterfeit, very difficult to confiscate if you custody it properly. This gives the individual that negotiating leverage with the state that we've been sorely lacking. So now if you're in the United States and you're worth $100 million and you, you know, let's say things get worse over the next 10 years and you've just had it up to your eyeballs and you're living in San Francisco perhaps, right? You're paying taxes through the nose while you're living in like a modern zombie apocalypse. Maybe you don't want to pay that exit tax. Maybe you just want to move your wealth into Bitcoin and find another place to go to. And Bitcoin gives you the ability to do that. It would be much more difficult to make that move through traditional fiat rails. So I think the Bitcoin review is if we can get the money right that this state over time would sort itself out, it would become something, an institution that was more accountable to the preferences of its citizens. And that's something we've talked about before too.
Are you an anarchist? (46:21)
Okay, so are you an anarchist? I would say if you properly understand the term anarchy, which is not, it was another one of those terms that we think you say the word anarchy, you think it's chaos and lawlessness and everyone's eating each other and killing each other. That's not what it means. And arky means an arcan. So no ruler, not no rules, no ruler. We can have consensually agreed upon rules, all that we need. But what we don't have is the asymmetry of one individual or group of individuals ruling over another group. And again in that book, Ethics of Liberty by Rothbard, he draws that line between the tax payers and what he calls the tax consumers. So there are those productive economic entrepreneurs creating wealth, right, increasing productivity. They're paying a portion of that productivity in the form of profits to the state as tax. The beneficiaries of that taxation are not, it's a non-productive enterprise. Stateism is not creating anything of value. It's just extracting from things of value that have been created. The individuals that benefit from that, right, the shareholders of central banks, politicians, etc, they are tax consumers. So I think what we need, and I've said this on your show before, is to abolish inflation and taxation so we don't have this fundamental schism. It's a level playing field for everyone that we're all interacting under conditions of actual capitalism that does not involve taxation or inflation or central bank. Okay. So very interesting. I will say though, I'm going to try to leverage your own logic against you here for a second. So earlier when I was pushing on gold, you said, "Hey, I think the thing you need to look at is there's a reason that every society, overtime, all went to gold, they're just natural properties of this thing that people gravitate towards and that you should take it seriously that that emerges over time." I would say the same thing about governments. While we don't pick the same style, that's quite clear. Everybody does ultimately create some state, whether that is a monarchy or whether that's a representative democracy, but they create something. And a couple of things I was thinking about while you were talking are, "I'll pay a price, a pretty hefty price for cooperation and stability." And to get cooperation and stability in all the crazy little nuanced ways, they're really does in my estimation need to be something. And I think that something pretty reasonably is the state. And so when you said that the state doesn't create anything of value, my push back on that would be they create something that is of tremendous value, which is they create stability, they facilitate cooperation, they allow for a mechanism by which we create very formalized rules, which I can tell you even as a company, I came up with a line that I repeat to my team all the time, which is you're only as good as what you write down. Because even when you tell somebody like, "This is a rule," unless it's in cold, black, and white, there's just no way. And so meaning people will be like, "Wait, that's a rule?" You're like, "Yo, I've said that I'm not joking 150 times. How the fuck are you confused that that's how we do things here?" And yet that's happened to me so many times that I recognize it really just is true. So you have to write things down. And now once you write things down, then people start interpreting it different ways. And so then you need a body, a legislative body. That's going to be like, "No, you should interpret it this way." And you need case law to back it up. And so all of a sudden you're like, "Oh, we're back at the state." And so I'm operating from the belief that just like gold will constantly present itself as hard money because it's created in an exploding star and those don't shower things on us very often. So it's like it's super limited. And that's what makes it amazing. And if people could just for a second realize, "That's no different than glass beads." Right? Like if you hear glass beads as money and you're like, "Aha, ha, ha, ha, these primitive fools," we just got glass beads that rain down when a star explodes. And it's just that that's way harder and more rare than the glass beads. But it is just a shiny trinket that we say has these properties that we all go, "Hey, hey, hey, if I have this thing, can we all just agree that's valuable?" And that way I can trade you for cereal or a TV, whatever. So I think that thing is just going to constantly rear its head that whatever is the very hard thing, which is why I'm PS. I'm a huge believer in Bitcoin. I have a very substantive amount of money in Bitcoin. So I think that gold-like things will always become the quote-unquote hard money. But I think that states are always or state-like things are always going to pop up and be like, "This is the only way to aggregate a lot of people." And then, "May the best style win." And that, okay, there's still a lot of arguing to be done there about what the best style is. I mean, China has seen us in full view for a very long time. They're like, "No, that's not the way." We've seen China in full view and we're like, "No, that's not the way." So it's like different cultures are going to argue, but everyone has a state. And so talking to Ray this morning, he was like, "Basically, anarchy would be the only mistake because you're atomizing things down so far." Like, I think he would far faster sign up for China's style. I'm putting words in his mouth. I want to be very clear you did not say that. I am extrapolating. But my gut is that he would be far more likely to go with that system because at least there is God consistency. People are not going to like that word in relation to China. Even I'm a little uneasy using that word. But there is enough stability that you can get things done. Where in anarchy, though I'd love to talk to Michael Malice about this, in anarchy, you're atomizing things too much. I don't see how we get enough cooperation to create stability and all of the modern miracles that we see around us.
What is the state? (52:53)
Yeah. So this is a great question. The name of my podcast, The What Does Money Show, it's like a rabbit hole question. One of the first rabbit holes it takes you into is what is the state? What is government? Now, we use these terms as if they're the same. They're interchangeable. The government equals the state, the state equals the government. And it took me a while actually going down this rabbit hole to learn that they're not the same. So what I just said about anarchy means no rulers, not no rules. Government is rules. What you just described, you need to write the thing down. I assume this is had to do with your employees, all of whom are consensually employed and can quit at any time as you can fire them at any time. You are free and to establish these rules, they are free to abide by them or opt out. They could leave and go work for someone else. That's government, these, this consensual nexus of rules that people are abiding by. You get industry coalitions coming together saying, here's the things we think we should do. That's all, that's even acceptable within the sphere of anarchy. Anarchy doesn't mean no governance whatsoever. It doesn't mean no rule of law, it doesn't mean no arbitration. All of these things can exist in a free market environment. They don't. What's different about the state is the state is that monopoly on violence, that's extracting wealth non-consensually and also passing legislation by fiat. This is not, if you contrast it to something like the English common law tradition, which is we see people having disputes over time, we see how they've resolved them over time, we start to codify these things. And it's like, however, wherever we've seen this instance occur before, or something similar, we codify it into law. So it's legal discovery, we're discovering laws that naturally emerge from dispute resolutions over a long period of time. That's English common law. You can contrast this with legislation by fiat, which is just a legislator saying, here's the new rule. I wrote a new rule. If you don't abide by it, here's the penalty. You know, pay the tax or pay the fine, whatever it is. Very different, right? It's antithetical in many ways to English common law. That's the purview of the state. So when I'm speaking about the need to mitigate stateism in the world, that's what I'm trying to speak to. It's this non-consensual aspect of human interaction. It's not necessary. Now, the the retort would be, well, what about when someone breaks into your house? That's not consensual. You need to respond non-consensually, right? Kicking them out. That's the right to self-defense. So in natural law, libertarian philosophy, there's, there's two sides to this coin. There's the non-aggression principle, which is, you know, do no harm to anyone. But the flip side of that is if someone does do harm to you, well, you have the right to defend yourself, right? Someone breaks into your house. You have the right to kill them in certain states, in certain states. The, the state view though is that there, there are people in power and people out of power, right? The people in power, whether this is central bank shareholders or politicians or whoever, have rules that they promulgate and impose on the citizenry. And it was that classic saying rules for the, not for me, right? It creates this schism, this, what do we call them? The elites. It's silly, right? They're just human beings. But because of the existence of this monopoly on violence, you can position yourself inside of it and use it to cater to your own self-interest at the expense of those who are forced to comply with the rules. That's the schism that I think is so harmful to humanity. But to get, to answer your question, it's not, again, anarchy is not no government or no governance. All of these things can exist in an anarchic world. What should not exist in my estimation is this active non-consensual exchange, which I typically call theft, because I don't know what else you would call that. If you take something from someone and they don't want you to take it, that means it's theft, right? Or if you don't give an individual the ability to say no to a transaction, any type of interaction, by the way, right? What's the difference? People hate when I say this. What's the difference between sex and rape? It's consent, right? What's the difference between a transaction and taxation? It's consent. It's the same thing. What's the difference between slavery and employment? It's consent. Do they have the right to leave the job and go elsewhere? Or are you forcing them to work at the point of a gun or the threat of coercion? This is that element of human socioeconomic reality that I feel strongly, we need to evolve beyond, and I think it is core to natural law philosophy, which is core to Bitcoin philosophy, right? This idea of do not steal. And when you understand that to kill someone is to take their life, right? You're stealing someone's life or to the more commonly understood version, to steal someone's property or things, or to incarcerate someone, or to force someone to comply with a rule or regulation under the threat of harm, right? That's stealing. You're stealing their freedom. So if we have to crystallize it all down into those three words, I think that's what we're going for in this new Bitcoin paradigm that we're trying to articulate and actualize. The truth is hitting your career goals is not easy. You have to be willing to go the extra mile to stand out and do hard things better than anybody else. But there are 10 steps I want to take you through that will 100x your efficiency so you can crush your goals and get back more time into your day. You'll not only get control of your time, you'll learn how to use that momentum to take on your next big goal. To help you do this, I've created a list of the 10 most impactful things that any high achiever needs to dominate. And you can download it for free by clicking the link in today's description.
The Bitcoin Paradigm (59:13)
Alright, my friend, back to today's episode. So then talk to me about the paradigm. What is the Bitcoin paradigm? And do you think that why did gold not give birth to the same paradigm? Yeah, it's very interesting. And I've talked about this before, but you know, the what is money question? The properties of good money, which I won't elaborate here. I think we talked about the episode one, the visibility, durability, recognizability, portability, scarcity. Gold was the best tool for the job. But gold being just this glass beads that rain down from stars on high, it's physical, right? It's not if money is just an agreement, which it really is. It's like this socially emergent agreement between people that we all agree. This thing is going to mediate exchange. Again, not something that was imposed by any ruler. There was no committee that came together and said gold is money. We're all going to use it for trade. There was no meeting. It would just emerged as at the end of a long sequence of consensual transactions among market actors that gold became the thing because it best satisfied these properties. But being physical, it's obviously not an ideal money. If money is just this agreement, right, it's just a just an informational structure, if you will, like a database of who owns what, right? Who has rendered, you could think of the purchasing power in my money as a representation of how many favors I've rendered to the market, right? I've built a business or done whatever to earn these profits that I'm storing in money as purchasing power. I can now take that purchasing power into the market to have to redeem favors from the market, right? And go to the restaurant and get food. I can travel. I can buy a house. It's that fundamental agreement that makes capitalism and peaceful human interaction work, right? Not only does it allow us to overcome conditions of scarcity optimally and that we can create the most wealth when we have a sound agreement, like sound money, but it's also preventing us from violently fighting over resources because we have that agreement to fall back on, right? Like, just do your job, earn the money. You can save and you can buy the things you want rather than trying to go out and fight and kill and take from other people. So the Bitcoin paradigm, I think, is, well, first on the gold, because it's physical, it lacked portability, right? This is like one of the main drawbacks that you can't move gold over space easily. So really, so states could still hem people in. Well, so it's really good. What you have in gold is an instrument that's really good for conserving purchasing power over time, right? As we've touched on, it's inflation resistant, all these things. Very bad at moving purchasing power across distance, though, across space. So what did we do as human beings is, well, we centralized the custody of gold into one place. We issue a token on top of it called a banknote, which was really originally a warehouse receipt. These are called money warehouses. Put your money in the warehouse, you get a warehouse receipt, you can trade the warehouse receipt with others as if it is as good as gold, because indeed you can take it back to the warehouse at any time and redeem it for gold. That was the original banknote, and this is the genesis of banking and ultimately central banking. So it was that technological flaw, let's say, of gold as money that led to the centralization of its custody in bank faults. And when you put that much power in one place, right, the institutions that grow up around it, what's Lord Acton's infamous dictum, absolute power corrupts absolutely. Well, money is damn near the closest thing we have in a technological sense to absolute power, right? So the institutions that have grown up around these centralized gold hoards are, unsurprisingly, the most corrupt institutions in the world, specifically the central bank, the one that I hammer on all the time. And the reason I hammer on it, again, a book, which I've mentioned before, The Creature from Jekyll Island. Go read this book. Like, you may not know what central banking is. You may wonder why I'm so motivated to talk about it. This book is a free, there's a free audiobook version on YouTube. If you listen to it on 1.5x speed, you can get through the whole book in five hours. I promise you it will change your life. So that we're living under that paradigm, right? That gold became money because it was the best thing we had, but it lacked portability. So there were economic advantages to be gained from centralizing its custody in one place. Surprising, unsurprisingly, the institutions that came up around that are extremely corrupt because humans are corruptible, frankly, right? We're sinful. We're fallen creatures. Specifically, I just want to make sure that I'm understanding the what the cause and effect here is because it is aggregatable and we need it to be protected, it gets centralized and that gives birth to central banking. Correct. Okay. So the paradigm of gold is central banking. That's basically gold's legacy. It culminates in central banking. Okay. Yes. And again, not by design originally, it's just people trying to overcomergent. It's emergent because gold had this technological flaw that was not very portable. We couldn't move purchasing power across space very easily. So we needed some institution or mechanism on top of that to augment that shortcoming. That's what the bank was. That's what bank notes are. That's what currency is, right? At least when it used to be pegged to gold. So that's the situation we're in, right? So it's interesting and deep kind of to think about it this way. Like we are living under a very certain socioeconomic and even political paradigm because there's a technological flaw in the golden glass beads that rain down on us from heaven that just happened to be the best thing we had to embody this agreement we call money. Now enter Bitcoin. What has Bitcoin done? It's taken those five properties of money and perfected them, right? So it's better than gold in every conceivable dimension. But the one that's really of note is that portability, right? So not only is Bitcoin perfected at holding purchasing power over time and that has a perfectly fixed supply. It cannot be debased, counterfeited, or inflated. So you know, if you have a thousand Bitcoin, you have a thousand out of a possible 21 million forever. That agreement will never be broken. It cannot be changed. But also it's fully dematerialized or digitized or informationalized that you can move it at the speed of light. You don't need a bank. I don't need to stick it in one centralized custodian because it's trivial to custody at myself. It's just information, right? I can store it in my brain. I can store it in hardware, I can store it on a computer, I can write it on paper. Any information-bearing medium can be used to custody Bitcoin. So now all of a sudden, all the institutional realities we've built on top of gold are called into question.
Centralized Institutions Called Into Question By Bitcoin (01:06:29)
It's like if we don't need to centralize the custody of Bitcoin and Bitcoin, for reasons I won't go into here, but basically when it's better across all these properties of money, the Bitcoin thesis is that it will out-compete gold for those reasons. Everywhere humans have come into contact with a superior monetary technology, they've gravitated towards that superior monetary technology over time. It's not by choice necessarily, because you could study China and India staying on the silver standard longer than countries in the west moving to a gold standard. They were impoverished as a result of that decision because we had harder money. We had more ability to conserve purchasing power over time. That led to the colonialization of India, of China and all these things. So it's an outcome that almost gets imposed upon you. It's not just an arbitrary choice of are we going to use silver or are we going to use gold. It's what is the best tool for the job, right? And so if you bring a proverbial knife to a gunfight, you're going to lose. So when you look at gold versus Bitcoin, gold is bringing a knife to a gunfight. Bitcoin is the most superior monetary technology we've ever had. So the larger thesis is people discover that over time in waves. And we've seen that play out and we joke in the Bitcoin community, the Bitcoin is an IQ test because you have to figure out all of this interdisciplinary, chaotic history. You also have to figure all of that out, which is like reading a lot of old esoteric books and listening to a million podcasts and getting into natural law and libertarianism, none of which are taught in mainstream curriculum. So you also have to you have to unplug yourself from the matrix over here. And then you have to go down all these rabbit holes over here. The number that's thrown around in Bitcoin is a minimum of 100 hours of studying just to start to really grok Bitcoin and then like 1000 hours to be like, oh my God, this is the greatest innovation in human history. And everything now that gets built on top of it looks different. All right. So that's why simultaneously very optimistic for the future of the world, but also it's so disruptive. Right. All the institutional realities that we've come to accept are now called into question. Their utility is called into question. So it can be scary at the same time. Very, but give me, so I understand the paradigm of gold. Gold gives us the paradigm. It's it's emergent. It took time, but it gives essential banking. What is the paradigm of Bitcoin? Like, what does it give us? Like I get it. It's all an individual. And what does that look like? Sovereignty is the authority to act as one sees fit. Governments become service providers that I can opt out of. I think this state goes away. Government becomes a local affair once again, fully consensual, right? Just a nexus of rules and regulations that we still geographically bound. I would say more geographically bound right now, like how many decision makers in Washington, D.C. as we sit here in Los Angeles are influencing our lives. Right. We're just rose on a spreadsheet to them. We don't have many face to face interactions with them. Yet their decisions and their actions have a lot of influence and impact on our lives. I don't think that's the case on a Bitcoin standard. I think government becomes something much more like the post office. The way it should be, right? Just a local little service provider that you can use or not use. And it doesn't have any undue sway in your life. So and in that world, you've now, sovereignty is no longer aggregating at the state layer. Right? Well, the state would go away. It's not going to aggregate at the government layer. It aggregates at the personal layer, the individual level. So and that way, you could say that Bitcoin is the ultimate realization of that old adage power to the people, right? It's giving power to the people by enabling them to conserve purchasing power over time, which is in a nonviolent world, which I know we're in a violent world. But purchasing power is the most important form of power there is to the extent that physical power cannot be used to steal purchasing power. So if I can't, if you hold gold and you've got a treasure chest of gold over here, I can just shoot you and take the treasure chest, right? Because it's physical. Very easy to do. But in a Bitcoin world where you've custody this thing in your own secret, collaborative custody arrangement, you've got the key chopped up, you've got a circle of trust, there's a protocol, right that even if I kill you, I'm not going to get your Bitcoin. That's a huge disincentive to violence. So this whole world looks fundamentally more peaceful, more wealthy. You would assume there'd be more flourishing of the arts and culture and all of these things that we've seen under the classical gold standard. And you could study periods like the Gilded Age, which we called it in the United States in France, they called it Lebel-e-Poch.
Insights On Society And Government
A World With Bitcoin Will Be More Peaceful &Artistic (01:11:41)
These were periods of artistic and cultural flourishing. At the same time, you could travel anywhere in the world and use gold as currency, right? It could be used anywhere in the world, like something we can't even do today. So that's the hope, you know, is that we can, we finally in Bitcoin created an agreement that none of us know how to break. And since it can be used to conserve purchasing power, that's very hard to steal through coercion or violence, that eliminates or at least mitigates the carrot, the proverbial carrot that exists today for violence and coercion. So calls a lot of things into question. And I think tomorrow looks much different from today on a Bitcoin standard. Okay, so talk about something that I only have an intuition and I mean, I always tell people not to trust their intuition.
The Problem With Trusting Your Own Intuition (01:12:36)
And I know there are a lot of people that say you should. I think that's a fool's errand. I think your intuition has to be trained. I don't think any of us have training on what a hyper individualized world looks like. But there's a book called Infomocracy, which basically plays out that idea. What happens if I apparently the state goes away and it's just governments in the way that you've described it. People that are hyper regionalized and they create their own rules. And when I was reading the book, I was like, this is a nightmare. So it, you would go in that book from block to block rules or change, you basically get an update on your phone that's like, Hey, you've entered a new area here are all the rules here. And I just thought, Oh God, that would be so tedious. Like having to figure out like, Oh, what can I do here versus here? Like that just really struck me as something that would not be fun. There, to your point, like, Hey, theoretically, the way that it would play out is well, people are going to go aggregate to the places that have the best rules. But what what I'm trying to convey is there will be a human desire to be a part of a larger group that has some shit figured out. And I have a feeling that the thing that gives birth to the state is not gold. The thing that gives birth to the state is human nature. And that human nature is going to force us back into these moments. So I am, I am just guessing again, and please I'm thinking out loud. I am not trying to put forth everybody needs to agree with what I'm about to say, but this is me exploring the idea. I think that in a world where Bitcoin ends up taking over for gold, I think it will get folded into the systems that we already have. I have a very different intuition around how easy it would be to get somebody's gold or Bitcoin as so we know that gold has been confiscated. I think it will be very easy for the state to do that. And people that love Bitcoin better pray that Bitcoin is not an IQ test because most people will fail that IQ test.
The Alpha Male of a Wolf Society (01:15:00)
And so the reality of being a human is just intelligence is distributed the way intelligence is distributed. We have seen for millennia what ends up happening. And I think the state is the weak man seeking protection from the strong man. And I don't see all of a sudden everybody becoming strong. Even if you look at Viking societies, like now we have to get into defined strong because you had the berserkers who Lord knows I would not want to come up against in battle, but I might be perfectly fine going up against them in an intellectual challenge. And when you look at and I'm starting to talk in fractals, forgive me, I will try to make sure I bring this all back together. If you look at wolf societies, this is really shocking to me. I always thought the alpha male would be the biggest and the strongest, but that isn't true. The alpha male is the one most willing to make decisions and that the pack believes is going to make the right decisions. And so when I saw a beta male, which we all think of as, Oh, that's the weak guy, whatever, in this wolf pack, and it was the big fuck off wolf, and it would stare everybody down, rally them. And it was like, I have the chills right now remembering how tough that fucking wolf looked. And he told everybody else to fuck off. And then the alpha male came in an eight, not the beta male, not the guy telling people to back off the guy he was protecting. And I thought, that's nature. That is one guy goes, I'm the big strong guy, but I'm not the guy that makes the best decisions. And I know that. And I'm better off playing the role of the enforcer so that this guy that's better off making decisions can come in and do that. Now what ends up happening when that sort of the law of the land is the head guy ends up getting killed so fucking off. And everybody's like, Oh my God, like this is getting so tedious. So you only get so many years where that guy is able to keep all the sort of dangerous things at bay. And so and when I say weak, like, I'm not even saying I'm not the weak guy that wants the protection. So I should probably move away from a derogatory term. But it's somebody that goes, I understand that I'm way stronger as a part of a collective than I am off on my own. And so I think human nature is going to force us to go back into these groups all the time.
Govt won't let capitulation happen without a fight (01:17:19)
And so if anything, maybe Bitcoin creates this world where we accordion and we get big and we shrink back and we get big and we shrink back and it creates its own sort of loop. It's a different loop, but it's a loop nonetheless. And let me get back now to coercion. So I hear people talk about this a lot. And I think those are people that have never had the eye of Sauron put upon them, which is the state. And when I watch what Jordan Peterson is going through, I'm like, Oh my God, people can turn against you. And he at one point, I think he said he has 10 lawsuits going like they'll just pack him to death. And as tough and amazing as he is, I'm really worried that just the relentless nature of that kind of oppression of the nameless faces, I got it. I don't even know who's coming after me anymore. It's just these constant like attacks. So anyway, I think the government as it stands today, there is no universe in which they let capital flight happen, just go into Bitcoin. And I get the argument, it's going to be, well, the US government might not or maybe Canada doesn't or maybe China doesn't, but somebody does. And so then you're going to see competitiveness. And I want to ask you about China's recent reversal, because maybe that is the argument against my own argument. But I think that Bitcoin is going to get regulated. They're already going after NFTs, other what I think you would call shit coins, with a vengeance. And I don't think they leave Bitcoin alone, even if they go, okay, this is digital gold, we're on board with that. But we're going to regulate the shit out of it. And just like I'm guessing, given that you just broke my heart about a $2 million cap on if I wanted to leave, that they're going to be like, yeah, you can't just leave with that. So you might want to. And then Bitcoiners are going to say, yeah, but I don't have to give them my thing. Yeah, true. But how long are you going to stay in solitary confinement before you go, just take my fucking money. I don't care anymore. It will happen. Everyone has a breaking point. And if you don't believe me, read the Google archipelago. If you put me into a Gulag, how long before I go? Yeah, no amount of money is worth this. You can have all my Bitcoin. Well, it is a grim future repaint. And there are some Bitcoiners that see something similar, right? They think that the Gulags are coming regardless with or without Bitcoin, because that's the natural trajectory of stateism. But with the introduction of Bitcoin, yeah, it could be about that could be putting people in very coercive situations in an attempt to extract their purchasing power, which is what the state does. That's the that's the really good description for its business model, actually. Now, my question would be, though, if the state as a going concern, now, maybe early on, you're right, maybe there are these Gulags and maybe they throw all the Bitcoiners in there and try to get their purchasing power, whatever, right, the Bitcoin gets confiscated. Let's assume all Bitcoiners capitulate everyone all the Bitcoin ends up in the hands of the state. How does the state then continue to generate revenue, though, because it needs to in that world, right, where fiat currencies have presumably failed, right? That's why everyone's in the Gulag and they're taking Bitcoin.
Tax collection prediction (01:20:58)
The state now has all of its Bitcoin. We're now in a Bitcoin standard. How would that institution the state be a going concern as a business from that point forward? Because you're now on a monetary standard that it's very difficult to tax and confiscate. So, you're saying we'd be in a world where the state just keeps throwing new people into prison to extract their purchasing power? They won't need to. Like, if you just think about the way the state works, they're just going to say, "Hey, look, totally fine with you guys storing your wealth in Bitcoin. We love it the most." But you are going to pay tax. And so, of course, everyone starts paying tax on that, and whether it's treated like a property tax and it's like a house, and you just, this is how much Bitcoin I have, which by the way, it's an open ledger, so everybody can see it. You're going to pay your money on that. In the beginning, people will try to hide it. They'll try to be, they'll try to chuck and jive, and then ultimately, over time, maybe 10 years, maybe 100 years, but the government will figure out, "Okay, this is who has what? We're going to tax it, and when they catch somebody, they're going to penalize them just like they would penalize people now for tax evasion." And enough people go, "Ma, I like the system is good enough that I'm going to pay that tax." And, bro, if you don't think people will capitulate to the state, real fucking fast, read "Ma" it dood. What they got people to accept is terrifying. And so, let's say that even though I think this is a very problematic aspect, if Bitcoin is an IQ test, and now you have the smartest people, the most hardcore people, they're like, "There's no way. I'm not going to capitulate. I'm going to find a way. I'm going to get out of this country. Whatever. I'm going to read the tea leaves. I'm going to move before they get into capital controls." All that word. What's that? 1%? Half a percent? It certainly isn't 5%. So, now you've got, be generous. 90% of people are trapped. Now, that may make the ultra-intelligent Bitcoiners be like, "We're a dude. I'm going to be in the 10% I literally don't care." That grosses me out in a way that I can't even say. And I want to know what we do for everybody, how we find a way, and I get it. It's super Pollyanna. But I want to find that thing where everybody is able to maximize their freedom, to maximize human flourishing, to minimize human suffering, so on and so forth. I just don't see a way. The maximization of human flourishing is found in the minimization of the state. That's your... Will you say, "Minimization?" Well, I can get in minimization to... Ideally, to zero. Zero percent state is where... Again, that's not no government. Still have government and rules and regulations and all these things. The word "regulations" is a little tricky because we consider that today regulation by fiat, right? Someone writes a rule. If you don't abide by it, you're in trouble. That's not what a regulation could be, should be, could just be a consensual agreement you make to live in a place. We seem to be hung up on this IQ test. Maybe I should try to decompose that a little bit. If you go into the global south today, the two billion people living in the global south that are unbanked or under-banked, we don't need to talk about the value of Bitcoin at all. They get it like this, all of them, instantaneously. I'm not saying... The IQ test may have been a bad analogy because I'm not saying all these two billion people have 150 IQs. I'm saying that they have firsthand experience of the pain that can be inflicted through the monopolization of currency and through the predations of the state on their purchasing power. This is a repeat offense in the lives of many people living in developing economies. They have nowhere to store purchasing power. They have had nowhere to store purchasing power ever. They're in a... Is there a lot of blockchain Bitcoin at a faster rate? Yes. Are there stats on that? I would defer to the work of Alex Gladstein on this. I'm actually talking to him tonight at the Swan Event. He works for the Human Rights Foundation and they do a lot of work in the global south, encouraging Bitcoin adoption. But it's happening naturally. It would be the point. I don't have the data off the top of my head. But again, there's a saying I use a lot on the show is that pain is information. People don't really change their ways or their mode of being until there's a there's a motivational force encouraging them to do that. Literally, pain is that thing that puts you in a new formation. It is equal to information. This is also something that Telub's work goes into a lot. So IQ tests may be about analogy. It's wherever people are suffering the most under statism. They are going to be the ones that are most inclined to quickly understand Bitcoin and adopt Bitcoin as a means of necessity. Whereas here in the west, whatever, for a rich guy, you can get by and you're not feeling the pain day in and day out. Maybe you can take a flyer on Bitcoin. If you're not ideologically committed or care about any of these things we're talking about, I'm not talking about you specifically, just some rich guy in LA. That's not the case for people in the global south. It's like, do I want to eat next week? Well, then I better figure out how the fuck I'm going to store my purchasing power over time. Bitcoin is more obvious to people living under those conditions. It's not a matter necessarily of IQ. It's more a matter of circumstances. So that is my hope. It's paradoxical in a way because now what we get is this state and the final analysis. If what I'm saying is correct, sorry about that, in the final analysis, the state will do more to orange pill people, which is to educate them about Bitcoin than anything any of us educators, content creators, whatever can possibly do by inducing pain, by inducing pain. They're actually creating the motivational force for people to learn and move purchasing power into a form that cannot be as easily preyed upon. So that is the course that I think it takes. And I think that, I mean, I do agree with you, human nature, there are these recurrent patterns, but we, I think the way I see it is that human nature takes the shape of its container. There's an old saying is like, human nature is like water, it takes the shape of its container. Those containers, in my estimation, are the incentive structures that we inhabit. People will tend to do whatever is profitable for them. Now, profit and pure economics is a psychological phenomenon, right? Whatever you think is more valid, we've said this before, right? To walk from one side of the room to the other, I have to value being on the other side of the room more than I value being where I'm at currently. But there's a very strong connection between psychological profit and financial profit. And I think when we make coercion and violence less profitable activities for humans to engage in, right? By virtue of having confiscation or seizure, seizure resistant money as we do with Bitcoin, that the businesses that specialize in coercion and violence will start to go away over time. You know, we, I'm trying to think of another example, we used to hunt whales in the ocean to harvest the oil from their blubber to make candles, because that was the most efficient form of lighting we had, right?
Destroy coercion by changing profitable action (01:28:44)
So there was a lot of violence and coercion being perpetrated against those whales because it was profitable to give people a means of artificial lighting. Well, once we figured out electronic or electric lighting, we stopped predating on the wells for that reason. So it's this matter of shifting the profit incentive, pouring people into a new incentive schema that changes human behavior over time. And I think ultimately leads to the dissolution of central banking and stateism more generally. Now, could I be wrong? Appisomfucking lutely. This is a monumental change. I'm just one guy trying to pull the threads together, looking at where we started, how we got to hear and where we're possibly going as a result of this momentous monetary innovation we call Bitcoin. Please help me look at it from other perspectives because the change is so radical and it's happening so fast in the digital age that there's no one person that's going to get it all. The best thing we can do is assimilate the viewpoints of others. And so that's what I'm trying to do as aggressively as possible. I'm trying to read as many relevant books as I can and talk to as many smart people as I can on the show about these very topics. And this is where my current viewpoint is. But I will reserve the humility to be quite wrong about all of it. But I do think where my view is today that incentives are the ground stuff of human action.
Technology And Bitcoin Advancements
Bitcoin seizure resistance (01:30:35)
And I think when you have a fundamental change of the base layer incentive structure, which was gold and now I think becomes Bitcoin over time, you see fundamentally different patterns of human action emerge from that change in the base layer. Okay, Canada's and the freedom convoy seemed like a pretty good dry run for Bitcoin's seizure resistance. I don't know that it was seizure, but what happened? Were did Bitcoin rails get disrupted in any way, shape or form? Were they monitored? Did people get blocked? Because I know they were blocking they were freezing accounts of people that had donated to the freedom of money, which I still can't believe that people just like let that one go. That's pretty terrifying. Yeah, it's terrifying. And the silence of Western leaders during that saga is equally terrifying. You know, blatant violation of private property rights for, you know, leveled against peaceful protesters in a one of the most liberal democracies in the world, I think by by many standards, it was not Bitcoin that was confiscated. It was people were allocating, actually Bitcoin is what got into the hands of the protesters successfully. The big and I had BJ Dictor on the show to talk about this. He was one of the main participants in the freedom convoy. I think it was close to $10 million raised via a GoFundMe, which is a centralized fiat based service, much like what's the other competitor of a similar name? Yeah, I know it's a company, right? You send people start a campaign, you send money to the company, they dole it out to the campaign campaigners. That was seized, basically, that was stopped, right? The bank accounts were frozen of the contributors and the protesters. I think a few hundred thousand dollars got through, but the bulk of the $10 million was frozen. They initially said they weren't going to return it. I think they ultimately ended up returning most of it. At that time, people started using Bitcoin as an alternative. I want to say, and I have to check the numbers on this, but I think a couple of million dollars actually got through to the freedom convoy via Bitcoin because it's an unstoppable payments channel in the same way that it's an unseasonable money when it's custed properly, etc. That was a good instance of Bitcoin functioning as an alternative to traditional fiat rails, but also highlighting the unstoppability of it. Once you send a Bitcoin payment, it's like sliding a glass or a gold coin across the table, there's no authority in the world that can reverse that transaction. Now, something you said earlier, I want to be clear, yes, Bitcoin is a public ledger, but the privacy tools are improving day by day with Bitcoin. There's a way to use Bitcoin now that's super anonymous. You could check out with Sabi Wallet. They've done a great job. What's that? How do they work? I'm not going to speak to the technical details because I'm the wrong guy to talk to you, but essentially, it's a Bitcoin wallet, has privacy built in by default. Full disclosure, they are a sponsor on the show. They have a wallet, privacy features built into it. I think we used to have to do coin joins manually. It's like a VPN or something. Again, it goes there. It's like my rough, non-technical guy description of a coin join, but you're basically putting unspent transaction outputs, which are actually what you're spending when you use Bitcoin into a... You're grouping them together. Multiple participants are coming together, and then they're mixing the transaction outputs. So whatever goes in, you don't really know who it comes out to or how much. So it's a way to anonymize your Bitcoin stash effectively. That used to be a manual process, and companies like Sabi have now built this in by default. So you can just put your Bitcoin in the wallet and it's mixing behind the scenes. So, where do you think that goes from a regulatory standpoint? Do you think they tolerate that? It's open source software. How does that help? It's protected under the freedom of speech. And how can you stop it? It's just information. Free and open source software. And so with Sabi, it doesn't make any money selling software. They make money on the actual mixing. So when they actually provide... And again, all of this check me on, because I'm not exactly sure. I'm not affiliated with them other than they are a sponsor on the show, nor am I a technical expert on Bitcoin. But the point is privacy technology is improving drastically day by day. So although Bitcoin is a public ledger, there is a way to use it anonymously. And that's the fundamental war that I think the state loses. You're not going to outpace the innovation that's occurring in cryptography. You're just not going to do it. Like the state is not, let's say, very innovative. For all the things they do really well, like stealing and killing and destroying, they're not particularly innovative. And as we talked about in our first episode together, the way the printing press was disruptive to the medieval church, I view cryptography as disruptive to statism. Cryptography as a much broader idea than just Bitcoin. Well, putting Bitcoin is a big piece of that. But other things like now, Noster is becoming a very popular tool. And this is a... What do you do? You know, again, I can't speak technically to this, but I heard of Noster. But I couldn't tell you if that's a new AI video program or... It's a decentralized relay service that lets you build unstoppable communication channels. So there's like an unstoppable Twitter now, basically, is the first... One of the first instances. Bitcoiners will go crazy on me because they... It's a very big deal. And now, what I say that, and that the people that I trust in the space technically are telling me it's a very big deal, I just signed up for Noster. I've barely used it. But the point being that cryptographic tools, and this is something the cipherpunks have been writing about for decades now, give the individual unparalleled negotiating leverage with all collectives.
Technology giving the individual negotiating power (01:37:10)
It's very empowering to the individual that you can anonymize your identity, your purchasing power, etc, etc. That gives you a lot of leverage to negotiate with any collective whatsoever. The largest and most dangerous of which is the state. So that is the war that I don't think the state is going to win. It's the technology war. Technology is that mega political variable that no one can control and really seems to dictate how we spend our time and what we do every day. And all the institutions we build, like we described, all the institutional realities that occurred on top of gold had to do with the technological properties of gold. And I think for similar reasons, the technological properties of cryptography also influence all of the stories and social constructs that we create. Man, that's interesting. I haven't thought at all, basically, about technology outpacing the government, where it goes beyond, I mean, I thought a lot about AI, but where it goes from that perspective, to your point about a Bitcoin paradigm where the individual is more sovereign. I don't think any of this happens maybe quickly, but I could see that gives me the first glimmers of a path to where it's like it will just become uncontrollable over time, where people do more and more of their living anonymously. That's really interesting. Or selectively, you can selectively disclose your identity. That's the great power of it, is you have the freedom to selectively disclose whatever you want, your purchasing power, your identity, etc.
Outspeeding the government with technology (01:38:56)
Or to not disclose. Let me riff on something for a second. Did you read the sovereign individual yet? I read a large enough chunk that it was disrupting my sleep because it's so terrifying. That's not that terrifying. Well, I think this is where you and I disagree. So this brings us back to what do you think the government's dossier on you says? On me? I have no earthly idea. Do you think you have one? I don't know. I guarantee you have one. I would assume we probably all do in the content creator space above a certain number. But yours of content creators might be thicker than the next. Yeah, maybe. You were the first person when I talked to you, I was like, "Hey, don't keep saying these things." Shut the fuck up, breed love. I was just like the implications of what you're saying are so radical that so Andrew Bustamante, who I recently had on the show, you have them coming on? Yes. I was literally just going to say you have to have one. You're going to love him, eh? Because he's utterly fascinating. But he made it very clear that, "Oh, yeah, yeah, the government keeps dossiers on people like you." No, they may not be like in your business, but they're like, "Okay, we're aware of you. Somebody that has a powerful voice, somebody that refers to all of this stuff, then all that." They're certainly not going to be blind to that. So that is very interesting to me. All right, here's the idea that I want to run by you.
How re amateur online (01:40:25)
So we build, we are building, what will one day be a metaverse? I think people leap to that too quickly, but just for simplicity of conversation. So we're building a metaverse. So I think a lot about, "Oh, people are going to live their lives increasingly online." This is the silver bolt that I always talk to people who are like, "Crypto's dead." I'm like, "Do you think tomorrow will be more or less digital than today?" I have yet to encounter somebody, no matter how skeptical they are, that things that we're going to become less technological tomorrow than we are today. So, okay, cool. If we're going to be more digital tomorrow than we are today, what are the odds that the next generation will have an affinity for digital things? Oh, it's going to be more. Okay, cool. What do you think then are the odds that people will want their digital items to have more of the properties of the physical world? Oh, yeah, that makes sense more. Okay, cool. So, now you've just come to the blockchain. So you realize the blockchain is the thing that gives the physical properties to digital items. So I know where it is. I know who owns it. I know what it does. I know how many there are. So, okay, cool. We've now been able to give digital items these things. So, that's going to give people the ability to really invest in themselves inside of the digital world. Because all of the ways you like to flex in the outside world, you're going to be able to do in the digital world. So it will just matter. I think it was Michael Saylor that said, "For virtual things to matter, they have to have the property of matter." And so it's like, we can actually do that now. So, as people begin to spend more time in the digital world and they have the blockchain, and so they're able to invest in themselves, and each generation is going to be more and more comfortable inside of these digital spaces, in there is where it becomes way easier to anonymize yourself. And so, as an Oscar or something else allows you to, from the moment you come on for that to get, you know, muddied up. So it's like, "Oh, you saw me go into the ecosystem, but you have no idea who I came out as." And so once that moment gets anonymized, now you can build a persistent identity in the virtual world that has many of the characteristics of the physical world, but now I'm able to abstract myself. So let's say that for me, 80%, 90% of my economic activities are all online, and they are that one step removed. Now, which was my big hang up with the state, is they're always going to have geography over you. They're always going to be able to say, "Well, you're in my jurisdiction, and therefore you would have to up and move," which is like the ultimate pain in the ass, not that some people won't do it, but the vast majority of people won't do it, especially if they make it incredibly difficult. But if there is an unbreakable, and that's where I get very dubious about the state, as you would call it, brings out a bigger and bigger hammer when they need to. And so you can look at how hard China has been able to clamp down on their people. But let's just pretend for a minute that there is a way for the technological advances to outpace the state so grossly that people are able to get into a completely virtual economic stream and lifestyle in a completely anonymous way that I could see breaking over a generation or two really beginning to soften the grip that the state has on people. That could get interesting fast. Yeah, so agreed. We are definitely on a trajectory that is increasingly digital. I think the hardware is going to transform significantly over time. So right now, we're all kind of trapped within the windows of the smartphone or the laptop. I do subscribe to the view that we're going to get the hardware more and more out of the way. So it starts to blend more seamlessly with reality, whether that's augmented virtual, some confluence of the two, I'm not sure. But we're going to start in. Physical reality is going to start to be more of a data rich environment. The thesis I've had about this is the world's becoming a video game, you know, like it's more video game like this, which is very fascinating. Like what that's a very radically new world. I'm interested to see how that plays out. I would push back though on the blockchain, just like crypto and other crypto assets, right? I put them all under this rubric of shit coin, because I really do think that the only proven use case for what Satoshi actually called the time chain, which somehow got converted into a blockchain because it's a chain of a block of transactions, is this state resistant digital cyber cash that we call Bitcoin. I think that's the only utility for the whole construct. Everything else, I think, is kind of like a liquid venture capital with low to no due diligence and largely just gambling devices. Now those gambling devices, which is kind of interesting, when you're the more rapidly you debase a currency, when I study hybrid inflation historically, people increase their tendency to gamble. Everyone's trying to scam everyone else and outpace inflation. So maybe some of these things will do really well, financially, they'll perform really well in bull markets and they'll go to zero in bear markets. That could persist for a long period of time. I'm not sure. There is a major crackdown on them as you just alluded to the SEC is coming down on shit coins hard. They issued a notice even to Coinbase, right, a publicly traded company that a lot of these things are unregistered securities. I think that whole process will continue. The blockchain, though, I think it's just a buzzword.
Bitcoin as the one use (01:46:29)
It's a marketing buzzword. It does not like the way you describe it to make things in digital reality matters to give them the properties of matter. That's only one instance. That's Bitcoin. That's proof of work mining is what cements Bitcoin, a digital construct into physical reality. Now you can have other proof of work chains that do this similar thing, but I think in the long run, Bitcoin outcompets all those other proof of work chains because again, the one use case for a time chain is money. Money is a network that tends towards one, as we saw with gold, right? Gold outcompets all the other monies in the world to become the one free market money. I think we have a similar set of dynamics at hand with digital gold, which is Bitcoin. So Bitcoin is the one time chain to rule them all. All of these other consensus mechanisms, proof of stake, proof of space, proof of this, proof of that, it's all bullshit, bogus marketing nonsense. It all goes away as it's hackable. It is not embedded in physical reality through the expenditure of energy. So it's not thermodynamically connected. You have to have a bridge between digital and physical reality. And that bridge is a thermodynamic bridge called proof of work mining. If it's anything but that, there's no bridge. So there's a great book actually that I don't know if you've seen Jason Lowry's work going around on Twitter. He's the US Space Force guy, wrote a thesis on Bitcoin, which he calls software. Very interesting. But he's arguing that Bitcoin brings physics-like consequences into digital reality. So it's one singular, unique invention, something that can't be replicated. Another way that I've heard this said is that the innovation of Bitcoin cannot be replicated because resistance to replication is the invention. The fact that no one can make more than 21 million Bitcoin is the big deal. We have fixed supply asset. That's why you can't replicate it. Despite all these shitcoin attempts of copy paste, start new coin, start Tomcoin, stop Robcoin, blah, blah, blah, sell it to the public, they're all just unregistered securities at that point. But the one unique phenomena that you get is Bitcoin. You get that one connection between digital and physical reality. So I think the word blockchain goes away eventually. In Bitcoin circles, it already has gone away. We call it a time chain. It's Satoshi's time chain. It underpins Bitcoin, which is the one true digital asset. There's no counterparty risk associated with it. It has a perfectly fixed supply. It's got a proven record of resisting social attacks on it. You can study the block wars of 2017, where people tried to change the consensus rules of Bitcoin and failed. And I think there's just full consolidation at that base layer over time. So eventually, after the gambling allure of shitcoins goes away, probably with the collapse of fiat currencies, that shitcoins go away. And the term blockchain goes away. And we just have Bitcoin. I do, again, I subscribe to that view of the future where you see the world becoming more of a video game and all of these things. But I think it's going to be denominated through Bitcoin. Bitcoin is that fundamental connection point between the digital and physical world. Other things that are built on top of Bitcoin that a lot of, you know, you've probably had Raoul Powell on the show, right? He thinks all the shitcoins are going to provide all these different utilities. I think all of those utilities get built on top of Bitcoin. So there's full consolidation at layer one. And then all of these ancillary utilities that all these shitcoins claim to do will be constructed in higher order protocols on top of Bitcoin. And that view is just really informed by, you know, the monetary history of gold, the nature of proof of work itself. And I guess you could say culturally, like a cultural observation, just Bitcoin maximalism in the present that you see these other projects are basically all scams.
Bitcoin maximalism, shit coins, and scams. (01:50:44)
I mean, I'm painting with broad strokes here. I'm sure there have been some real genuine projects in the space, but it's such a preponderance that I've gotten to the point where I may have shared this with you before, but you've heard of the useful fiction, right? We treat every gun as if it's loaded. Obviously not every gun is loaded, but we pretend as if it is so, so we don't hurt ourselves or others when we're using a gun or cleaning a gun. I've adopted the useful fiction of all non-Bitcoin crypto assets or shitcoins and their scams and to be avoided at all costs. And maybe I'm wrong to one or two percent, perhaps, but in general, I think it's a useful fiction. You have the right rubric, I think, for anything passing itself off as this is the thing of value that's going to go up. And I think that that, so I was screaming that from the rooftops. So to create the next, what we call borderless entertainment, what you're saying life becomes a video game, I think it's an emergent property that is the marriage of AI in the blockchain, time chain in your language.
Blockchain Developments And Restrictions
AI in the blockchain, or time-chain in our language. (01:51:43)
I don't care. I would say marriage with Bitcoin. Yeah, I don't care if it's Bitcoin, whatever. It's that that innovation brings the elements of physics to the digital world, which is absolutely important. Yeah. Now, I'm going to say, as you were saying that, that we're talking past each other a little bit, in that we have different base assumptions. So my base assumption is that for all of the world to become a video game, you're going to need scarcity just to give you a really, it's not the only thing, but you're going to need scarcity for sure. I also control, I'd say scarcity and provable control. Who's is it? Who can do what with it? Those two elements at a minimum, you're going to need for the digitization of real life or something that is so like real life, that it has stakes and it matters to you and you emotionally invest, physically invest and certainly financially invest. So that's absolutely required. But when you're talking shit coins, you're speaking to the part of human beings that want to gamble, that want to speculate on it, all that. What I'm trying to give people to understand in the land of entertainment where I play, don't think of it as an investment. Drives me fucking crazy that people think of it like an investment. It's utility and it lets you do something and if you don't bring the properties of matter into the virtual world, then it will never be engaging. It will never be the thing that you want it to be. But now understanding that I need the, I mean, I'll just, for the sake of the argument, I'll just completely adopt it. It's all going to be Bitcoin. Cool. I need the time change, time chain in order to bring all of that with me now into this virtual experience that I'm trying to build so that you can have a far deeper experience than you would be able to have if the virtual world didn't exist. Everything is going to be on some level of that chain. Now games are never going to survive on the kind of throughput that you get in the base layer. Just can't. You have to be able to transact so rapidly. Sure. But now you're, I don't think people should try to make money off of playing video games unless you're trying to be a professional athlete. Then word, cool. Yep. Love it. But like the idea of playing to earn, that's, that's enjoyment suicide. Like, really? You just, you're going to rob all the fun out of it. For sure. Like they've shown this, if you pay a kid to get good grades, their grades end up tanking because now they're just doing it for the money. They're not doing it for an intrinsic motivation. Anyway, I'll set that aside. So, I, there, there is going to be a just deep, deep, deep stack of things that people want to exist in the virtual world. The easiest one is close. Okay. You're going to want to present yourself in a way that communicates something about who you are. For that to be meaningful, it has to be a finite supply. I have to know that it's yours. Boom. Now we're back to time chain. I think that is the tip of an absolutely gigantic iceberg of things that people will want in the virtual world. I assume you've read Ready Player One of the book. Now, just what? Wow. The great news is you have a wonderful book to look forward to. But that really paints the picture of the intimate experiences that become possible in a, I won't, I don't think it's going to be trapped in VR. But when everybody can create and put it up into this shared virtual world, it will ultimately fragment into these deeply personal experiences. My favorite example from the book, I don't know if you know who John Hughes was, but he was a filmmaker, really prolific in the 80s, made a ton of movies that just felt some kind of way he did Home Alone is probably to this generation, his most famous film. And in the book, somebody made all of his films are set in Chicago, much like all of Stephen King's stories are set in Maine. And somebody built like a town that included Ferris Bueller's house, the Home Alone house, the Pretty Impienk house, like all of his famous movies with all of his characters and they were all run by AI. So you could like go and meet the characters and interact with these things like they were a movie. Anyway, all of that requires the time chain for all of that stuff to matter for the things that you have in that world to have significance. So yeah, I see, I see that technology as being critically important to the future, I imagine. I agree with that wholeheartedly. And if I'm hearing you correctly, which I would also agree with, that you if we assume the Bitcoin, if we assume what I'm saying is correct about the time chain being the single kind of bridge between the two worlds that Bitcoin ends up being the base money of not only physical reality out here for all the reasons I've highlighted again, assuming I'm correct, but it would also be the base money of this new emergent digital reality, right? But also the thing that makes a shirt valuable. Yeah, well, it's giving emergence to the digital reality by virtue of bringing physics like consequences into the digital world, which don't exist before Bitcoin, irreversible transaction. Exactly. Yeah, so you're you're bringing the irreversibility of time or the time chain into digital space, which is very interesting, right? Creates economic scarcity, creates the possibility for all these virtual worlds that have some tangible meaning, I guess, you might say that you can't just create them at an infinidum, right? A shirt could be a unique luxury shirt and that if I wear it in a dungeon and I lose and that shirt gets destroyed in that battle and it's now actually gone, actually on all of a sudden it's like, whoa, right? I'm going to stop and think about this stuff. And so it's like, if things come too easily, too cheaply, they're too instantaneous. There's no cost whatsoever. The human condition is such that you won't be immediately engaged with it. Yeah, yeah, yeah. So what you said too, that you needed scarcity and control, right, over the actual assets to for it to work, right? For it to work like the real world. And I think Bitcoin does provide you both. I would say the control elements a little bit more interesting though, because you're right. These aren't all going to be Bitcoin, base layer transactions occurring in game, right? You're probably going to put post some Bitcoin in the game and then you're going to get some in game tokens to go out and buy the shirts or weapons or shields or whatever it may be. You would then be, I don't know, I guess you'd be trusting the in-game world to honor the scarcity of that item, which has historically not been a good bet, right? Sometimes either players hack it and they start duping the items. I cut my teeth on digital assets, by the way, in Diablo 2 back in 1998. Maybe I think this one that game was out. So I was just a kid and you traded these unique items in digital space, but then eventually players cracked the code and started duping them, right? And you had hyperinflation of all the items. Yeah, I mean, look, I don't know enough about the technology, but this is my whole point about the blockchain.
Keeping count through the blockchain. (01:59:26)
So when we create items, the way that we think about it is you're actually putting that item in a box. And so somebody could come in and steal them all if we're not careful. And so obviously we have to be very thoughtful about that. But if the blockchain only acknowledges there are this many in existence, unless you can hack how many are in existence, the game would say, nope, that's not a real item. So that is a layman's interpretation of what's actually happening under the hood. Or unless you can fork the chain or roll back the chain, which that's the key property of Bitcoin. Even Ethereum, right, has been rolled back, has been forked. Let's get, you know, check out the Dow case study in 2016. Bitcoin's the only one that can't be rolled back, probably ballistically. So that's why I mean, that what you just hit hit on there, it's like, you need to be able to trust that these things are for all. Intense in purposes in digital reality, they are physical, right? Even though they're non physical, they are as if they were physical, as in if you lose the shirt and battle, it's gone for good. So I do think that's a unique property that only Bitcoin can provide through the bridge of thermodynamic proof of work mining. And it's going to be fascinating because I think in that world, you end up with a lot of little games, right? People play all kinds of different games or I'm using the word games, but these could be virtual environments of any sort, right? It could be virtual concerts, whatever it may be. But Bitcoin is going to be the main medium of exchange between all of them. So if you go and put up some Bitcoin to buy some in game tokens to play game A, well, when you're done playing game A, you might sell the tokens to buy Bitcoin back and then take the Bitcoin over to game B and buy the same game token, something like that. So it's simultaneously catalyzing a new digital economy that was not possible prior to Bitcoin's existence, serving as the base money for that new emergent digital reality and out competing gold in traditional physical analog reality to be base money in this world. So this type of dialogue gives you some inkling of just how profound Bitcoin really is. The possibilities are hard to imagine, let's say. No doubt. One thing that I want to better understand is I think about where this is going, regulatory, all that good stuff is China's about face.
China Drops the Ban Hammer (02:01:47)
So China basically outlawed mining. As far as I know, their hash rate dropped to zero. But now my understanding is that it's back up to like 21%. Yeah, I don't know that it ever dropped to zero. But I loaded it go. First of all, I'm not sure how reliable the data is. And again, this is another one of those areas I'm not super certain on. But my understanding was it was at 50% and it dropped to 20%. Okay. So even when they said no more, when they outlawed it, it never went below roughly 20%. Again, I'm not sure the volatility in a room, but it went from basically 50 to 20. Now was there interim volatility closer down to zero, perhaps? We've talked about this a bit before, but ultimately these miners, you know, they're this big, there's shoe boxes. You unplug them from one place and plug them in another place. So there could have been a brief period where a lot of miners came offline and were shuffled into other places. But ultimately, you know, I go back to this idea that humans follow incentives and not laws. So if there is a way, and in China specifically due to all the central planning, they have this huge excess energy production capacity, right? These giant dams and whatnot. And they have these ghost cities. So there's not a lot of grid to sell that energy into. Well, that's a huge incentive to just plug in a miner and turn that excess energy capacity into money. I think human beings are going to follow that incentive no matter what. And again, it doesn't matter if the state says, no, well, the state's probably going to do it itself, even if the state outlaws it. Well, the people that are inside the state and can go plug in those miners to turn that excess energy into money will do so. So it's, it's, it's, we're highlighting that amorphous kind of network dynamic that Bitcoin has, even in the physical world, like you try to whack the mole, right? And it's like a, it's like a hydra, right? You cut off one head and seven more pop up in its place. And that's just a property that makes it extremely anti fragile and difficult for regulatory bodies to deal with, because they're accustomed to dealing with centralized organizations, right? One building, one CEO, one guy, one team, you can just stop it. You can cut them off from the fiat rails, etc. But, but Bitcoin, something fundamentally different, right? It's just these, again, little shoeboxes plugged in all over the world, performing computations and giving rise to this incorruptible monetary structure. So very difficult for even the most authoritarian regime, probably in history at this point, right? We got 1.3 1.4 billion people in China living under an iron fist, we should probably mention all of the human rights atrocities that are occurring in China. I'm not sure the your friend that started the VC company there, he said it's been great and all of this, but they have gulags active now, right?
Human Rights Issues
Human Right Atrocities in China (02:04:44)
People are getting black bagged, there's social credit score systems. Again, Alex Gladstein, who I'm talking about tonight, he's done a lot of good work on this. China's a nightmare. If you're a civilian, especially you're an outspoken civilian. So for whatever veneer of success they may have, there's a dark abysmal underbelly of fundamental human rights violations and anti-human freedom. All right, man, this is a crazy future to be looking into. I am sure you will be at the cutting edge of all this stuff as we move forward. So where can people follow you for the latest info? Yeah, I'm at what is Moneypodcast.com. And then my biggest social platform is Twitter at breedlove22. All right, everybody, if you haven't already, be sure to subscribe. And until next time, my friends be legendary. Take care. Peace. Most people will lose everything unless they're prepared. Check out this interview with Ray Dalio and learn how to protect yourself financially. A lot of these things happen once in a lifetime, you know, and if you don't go back and see how they worked over time, then you're in trouble. So.