Bitcoin as Ultimate Asset,

Hey guys, welcome to Stephan Livera Podcast episode 13. And my guest today is Fernando Ulrich. Hey Fernando, thanks for joining.

Thank you very much for the invitation. It's a real honor to be here.

Oh, it's a pleasure to have you on the show, Fernando. I'll just quickly introduce you to the guys. So Fernando is a Brazilian economist. He's trained in the Austrian economic school of thought. He has quite a large YouTube and Twitter following. He writes and speaks on Bitcoin and economics. He's also a board member at Mises Institute Brazil, and he is also a co-host of the Crypto Voices podcast, which is also a fantastic podcast. I recommend you guys go and check that out. Now, the reason I wanted- I, you know, wanted to get Fernando on today, is he wrote a fascinating five-part series on Bitcoin, and it basically crescendos into Bitcoin as the ultimate asset. but first, before we go into that, I was thinking, let's first set some of the context as Fernando, you can really add some color in terms of the workings of money in emerging markets. Many of my listeners would be from the USA, Australia, UK, Canada, and we wouldn't have really lived through emerging markets and the associated monetary crises. So, Fernando, do you have any comments or stories to tell on this?

Yeah, sure. Actually, we, we could do, we could do a whole podcast just about stories from a emerging market economy and how governments and central banks tend to mess up with the monetary system. So I, I was born in Brazil in 1980 and I grew up here, and it's, it's fascinating now that we're learning about Bitcoin, understanding how a sound money works or can work, and when we relate the workings of Bitcoin And open source software, I was reminiscing about back in the eighties when we actually had, if I'm not mistaken, we had like three currency hard forks. So my country actually changed the currency only in the eighties three times, and then in the early nineties, two times again. So twice just in the nineties. So in my lifetime, I was able to see five currency hard forks. And, and when we think about how this can work Work in a, in, in, in a nation. I mean, this is a countrywide decree by government to change a currency to re-denominate, and sometimes they, usually a currency re-denomination, they would come also with dropping three zeros or like in Venezuela, they just dropped five zeros. So I've seen the dropping of zeros at least twice in my lifetime. And even with a currency which has the privilege of legal tender And in Brazil, we actually have a forced legal tender laws, which is rather different than in the US and most Western countries, where it's not only legal tender, but it's, it is forced legal tender. And the meaning of this is it is actually a contravention to refuse being paid in the national currency. So this is a forced legal tender law. You can go to jail if you refuse, if you decline getting paid in the local currency. So what is, what is important for our discussion here with, with currency and the management of a sound currency is that even in a, in a legal tender currency, a hard fork, a changing currency can be catastrophic. Even with a currency where the users, where the citizens are obliged to use the currency, it can have catastrophic consequences. So when we talk and when we try to relate this, with Bitcoin This is why I think the way that Bitcoin Core and most Bitcoin supporters, face the development of the currency, the development of the system in a very conservative way. This is what I think it's the, the right approach. This is why I think it's the right approach, because you, you ha-- you really have to be conservative. You need to have prudence. You can't just change the currency or change the rules because it can have catastrophic consequences, even more so in a currency system like Bitcoin where it is completely It's voluntary. There's no government backing it, there's no decree, there's no legislation. Everyone is using because they see and they perceive the soundness of the currency. So that's why, this is the one of the core pro-properties that we have to preserve in Bitcoin, and that's why I applaud the way it's being developed by, by the core developers.

Yeah, sure. That's, yeah, that's a fascinating, experience to share. could you maybe share a little more on how it changes the behavior of the people in that economy? So for example, it would change the way they store their value, it would change the way contracts are denominated. Can you outline a little bit on that?

Sure. I mean, it's, it, it's incredible that, that everything that we- For example, what's Zayfden Eimus in his book Bitcoin Standard, something that perhaps for, for Bitcoiners is a new concept of time preference, so low time preference and high time preference. And when we're under a highly inflationary economy or high, highly inflationary currency like you, we used to have here in Brazil, sometimes, we would have sometimes double digit inflation in a single month, and in times Because of hyperinflation, this is even higher. So it's a completely disastrous environment for, for, the economy. And I remember when I was back, I used to live in Rio de Janeiro back then, and I was six, I think six or seven years old, and I, I used to receive my weekly allowance. And, and I soon realized that if I didn't spend my weekly allowance on the very same day I received it, the next weekend I wouldn't be able to purchase anything. So this is when we have the concept of time preference being, being, impacted in, in a, on a weekly basis, which is, it's, it's almost ludicrous to be able to live under an environment like this. But this is how I, how I, with a, just when I was six or seven years old, the concept of time preference was already kind of ingrained in my mind because of the inflationary environment we were subjected to as, as Brazilian citizens. So this is one aspect. The, the other one is that a inflationary currency, of course, it has also some effects on the workings of contracts, on the workings of pr- what we call price indexation. And this is one of the, the reasons why if, if we analyze currency crisis in infla- in highly inflationary economies throughout the twentieth century, Brazilian inflation was perhaps one of the longest standing ones, and one of the, the reasons that explains the- This is the, the, the one thing we economists here and the politicians, they, not only politicians, but the, the whole society started using was price indexations. So any kind of long-term contract would be indexed using a price in, indexa-- a price index. So let's say, the CPI, the equivalent of CPI in Brazil. So most contracts would be using this CPI. And once we reach The level of a highly inflationary currency, so maybe double digits inflation on a weekly basis or on a monthly basis, not only contracts were indexed, but also the bank accounts. So bank accounts, they would overnight be indexed using another price inflation index, so that we could try to not have a currency losing, purchasing power and with nothing that we could do about it. So this is another, another important aspect of how a highly inflationary currency can impact the economy, contracts, and even, even bank accounts. So the, this feature of price indexation is one of the reasons that the our inflationary environment could be so prolonged. It took perhaps over fifteen Years of high inflation here, which is, I mean, absurd.

good point. Okay. And then so when the contracts-- you had these long-term contracts in place, but then when there was a changeover in the monetary order into a new money, how did things work when they were just knocking off three zeros?

It was-- sometimes it was just be, a catastrophe because, sometimes the whole contract would be written- nominated, with no, let's say, no real problem or further problems, but of course it would impose A lot of complications for day-to-day operations for businesses, for families, for individuals. So every re-denomination would come with the knocking off of three zeros and also changing the, the currency exchange rate, the foreign exchange rate. So it would complicate matters a lot And just going back to your, to your previous question regarding the how it would affect also the story of value, another aspect was back in the, especially late eighties and early nineties, most real estate deals would take place in US dollars, so the hard currency. So be-because of the forced legal tender laws, we would use the, the, the pre-depreciating currency for day-to-day purchases, but for For storing value and for having long-term contract or a contract with a large volume, a large deal, we would only use US dollars. So we, we Brazilians have become accustomed to, to use US dollars as a store of value, at least much better than our local currency. Which by the way, still to this day, it is our inflation targeting is around four percent. That's the mandate of the Central Bank. So even nowadays, it's a, it's a not a very sound currency. At least in comparison to the US dollar.

Yeah, there's a few thoughts that come to my mind there. First of all, that four percent is pretty much double what most of the other Western world inflation targets are, and at a compounded level, over ten or twenty years, that's a huge, huge difference, right? That's the first thing. And it's, it's interesting that then you, you know, i-i-in that environment, people are effectively-- and, and that's, I mean, that's sort of everyone colloquially understands that the US dollar has kind of become this world

Right. And

then thirdly, I think the other observation I had just from your, comments there, well, first of all, I thought it's quite funny that you were actually an Austrian economist at six years old, and you had this understanding of, yeah, exactly, time preference even back then as a child. I think even the broader problem, like obviously these are all, you know, bad impacts on society, but from an Austrian econo-econo-economics perspective, and I think you have an appreciation for this as well, is that the deeper problem is that society is It's doing capital consumption, it's not doing capital accumulation. There's no savings, and as a society, you're becoming poorer.

Of course, and, and the- The habits of the people are very much impacted by a inflationary environment. So for example, another, interesting, development in Brazil back in the eighties, whenever people received their monthly wages, they would rush to the supermarket to buy as much as they could so they wouldn't lose purchasing power al-al- throughout the month. So the, the, and we even had a name for this. We would call, "hanshu," so like, like "reincho." I don't know why it was, used to be called, but this is This was the day where every single family would rush to supermarket and just pile up, foods and groceries, everything, because of the, the depreciating currency. So it does have severe impacts on these, on, on society, on our habits, on time preferences, and capital consumption, as you just, brilliantly said, that's right.

okay, cool, cool. Alright, well, let's, look, dive into some of your articles. I thought they were really a great explanation, sort of going through kind of- You know, how money forms all the way through. So let's start with Article one. So this one is "Why Money Has Value and Why Spending Bitcoin Is Senseless Right Now." And, the first point that I would like, I think, would be great to explain to the listeners is And this is a bit confusing for people, but it's basically, it's the point that money's kind of dominant defining characteristic is in its role as medium of exchange, and every other function can be traced back to this, right? So the store of value and the unit of account can be traced back to how good it is at being a medium of exchange. However, some people get confused and then put too much importance on the medium of exchange. Can you explain a little bit about that?

Sure, and I think this is even one- Perhaps a criticism that I have of Ludwig von Mises and some other Austrian economists, because they, they rightly emphasize that this is the monetary function per excellence, so being a medium of exchange. However, what I think they missed, or perhaps they, they kind of downplayed the importance, was analyzing the evolutionary stages whereby a good or a commodity can become money, because- Even gold itself, it wasn't money overnight. It, it, it took it perhaps centuries to become a widely used medium of exchange. And when we analyze then the, the three functions, the classical functions of money, medium of exchange, store of value, and the unit of account We have to analyze how this evolutionary process takes place in reality, and this is what I think right now when we analyze Bitcoin, i-it, we can try to Better identify that at least in the initial stages of the monetization of a good, the predominant function is storing value, store of value. Because if a good isn't an adequate store of value or even prospectively perceived as a good store of value, individuals won't hoard or demand this, this good, this commodity as a cash balance or, or for future exchanges. So that's perhaps the, the main criticism that I have is Yes, medium of exchange is the, the most important and the defining characteristic of money. It's a good to be used in indirect exchanges, but the process throughout a good is monetizing until it reaches a point of being considered money. There are some, a, a logical path what I write, what, what I wrote in the article, there is a logical path where, where we can identify at least at the dawn of a- Good monetization, I think the predominant function is to store all value, and then we have medium exchange, and only after and soon after, and perhaps as, as the last stage, where good is highly liquid or the most liquid good, then it can be, used as a unit of account or the common denominator for exchanges in the markets.

Yeah, great explanation. I like that, because I think some people didn't take into account that stage growth or stage evolution, and by placing too much focus on kind of the medium of exchange now, they got too focused on things like merchant adoption in the here and now, as opposed to kind of letting it evolve. In that store of value function first.

Exactly, and, and this is precisely what we witnessed in, in the beginning of, let's say, the adoption, the, the merchant adoption phase of Bitcoin in twenty twelve, twenty thirteen, and twenty fourteen was-- I, I remember we were every week almost a new merchant being onboarded by BitPay or Coinbase back in those days when Coinbase was doing this service. But i-in reality, when we analyzed, it-it made little sense for merchants to really accept payments and hold Bitcoin, and that's why these companies were there. They were just intermediaries to facilitate payment in Bitcoin by the receipt of local currency by the merchants, and it completely defeats the purpose of, of- Increasing adoption as, as a prospectively good money or a good store of value so these merchants would not only accept payments but also hold demand and hold Bitcoin as, as cash balances.

Yeah, great points. Okay, yeah. And then the next thing I thought was really interesting from this article was how you did a bit of a, almost like a compare and contrast of the Mengerian view of money and the Nick Szabo view of money. Now, the seminal text on this would be Karl Menger's "On the Origins of Money" and Nick Szabo's, essay called "Shelling Out." Did you wanna outline a little bit on the difference in their views?

Right. So basically what Menger did was a historical conjecture of how money comes about, how come, how money comes into being. And he starts from, basically from barter, so how money starts as, is an outcome of the, to solve the double coincidence of wants. So I have milk, but the other guy has only, I want some shoes, but the, the shoemaker selling shoes wants, I don't know, meat. So the, the problem of the double- Bitcoin, Lightning, Taproot, multisig, xPub, Satoshi, Stephan Livera, Fernando Ulrich, Ulrich, Ultimate, Asset Nik Sab was able to identify objects and what he calls collectibles that were used as not only medium of exchange, but what he called medium of wealth transfer or me-- or even, artifacts to store wealth for Changing for transferring wealth through generations, for payment of reparations, so for exchanges to be used in exchanges, not only voluntary exchanges, but even in coerced exchanges, like reparations in, in wars, in, in, in primitive societies, and even for the pay-- for the payment of bride in a marriage. So he, he lists a, a myriad of uses of these collectibles as money. And what he's-- when he contrasts his, His archaeological evidence and his theory with Menger, what he says is, well, actually Menger's conjecture about how money comes into being isn't actually, isn't accurate. It's not how it really took place, and that, that's mostly how I say that Sabu in the end, ends up Complementing Menger's theory of how money comes into existence.

Yeah, that's a great explanation. I like the way you put that there. And, yeah, as you say, Nick Zabo comments on, you know, this concept of proto-money. It's used for things like intergenerational wealth transfer. it's not necessarily like what we use, you know, dollars and, you know, for today, but it's like an early form of money. yeah, that's a great, explanation for that.

And, and, and what is important About just, just so I can, add something, what is important, I think, for, about Satoshi's theory and reinforces our under- understanding as the store of value function being the predominant one, at least in the initial stages of a good monetization, is that all, all of these collectibles, so, beads and, and shells and whatever was used as a collectible as a medium of wealth transfer. The one of the core properties was being able also to store value. So they were also used as a store of wealth. This is the, the other term that Sabos used. And when we, when we use this understanding, this theory, it reinforces our understanding for other goods as well, and specifically for Bitcoin. It is a digital collectible, and being able to store value or being perceived as a good store of value is the most important function, at least right now.

agreed, agreed. And then I think this point that you're making now then kind of leads into the overall thrust of this article, where you're basically arguing that it doesn't make sense to spend Bitcoin now. Do you wanna outline a little bit on that?

Sure. So right now, when- Even for Bitcoiners, so all, all the hodlers out there who perceive Bitcoin as a good store of value and understand that it can better preserve value and even appreciate in value in the future, it doesn't make sense to spend an appreciating currency or an appreciating asset if we expect it to increase in value. And because Bitcoin right now isn't widely perceived as a good store of value, why would we part with our coins if we can just unload? to the merchants a depreciating fiat currency. So it doesn't make sense to, to spend Bitcoin right now. But this can change in the future, and I think it will change in the future, and just as it happens with other fiat currencies, I will, I will soon explain why I think that. Because when we-- and this is related also with Gresham's Law, something that I also outlined in one of the, I think it was the third part, of the series, where- It's not only that the, the spender, so who is paying with money, it doesn't have a unilateral decision of, or a unilateral choice which money to use. So the seller who is receiving the currency in, in exchange, he also has a say in the matter. And once a good is perceived as a good money, as a good store of value, perhaps the seller will not only want to be paid in a good money, so a Bitcoin, but also will demand being paid in a good money. And this, what I think it's also, what it's related to Gresham's Law, is already witnessed nowadays in economies where the local currency's not a good store of value or isn't a good- appreciating currency, another hard currency, currency as the US dollar, and this is the example that I gave in the article about Uruguay. So if you go to Uruguay nowadays, the local currency is pesos, but the hard currency and the currency that people want to be paid in, especially in large real estate deals, for example, is US dollars. So the seller in the end, he has a say and he may demand being paid in a good currency. So that's why even though nowadays it doesn't make sense to spend Bitcoin I think it may come a day where, we won't have any choice because the seller will demand, will demand being paid in a good currency like Bitcoin.

Exactly. And then, you know what this reminds me of? This reminds me of what I was reading in, Pierre Rochard's article, Speculative Attack. And I think in that article he outlined the concept and the difference between Gresham's Law, as in bad money drives out good, and Thiers' Law, which is like the opposite law, which is what you're kind of outlining, which is that people will eventually be, quote unquote, economically compelled to use Bitcoin.

Exactly. Yeah. And, and even, even Gresham's Law, it's, for example, when we analyze, when we go back, for example, in Brazil, well, actually not, not strictly related to Gresham's Law, but related to the functions of money. In a highly inflationary currency, in a highly inflationary economy, we can even see how the functions of money get separated. So, for example, in a highly, in a sometimes even hyperinflationary currency, especially Especially when we have forced legal tender laws, we can see that the inflationary currency is only used as a medium of exchange. It is never used as a store of value, and perhaps it may not even be used as a unit of account. So all three functions might be separated. So you, you can use the inflationary currency as a medium of exchange, it is not used as store of value, so people can use, dollars, gold, or jewelry, or real estate, and then the unit of account perhaps will be a A world reserve currency like the US dollar. So it's, it's fascinating to verify that the three functions in a high inflationary economy, with forced legal tender laws, they can be separated and can, and can be, can, can work, quote and quote, for some time.

Yeah, that's a good point, and I think that actually touches on another point which you go into, and I think, I think it's in article two, where you're basically talking about, okay, I'll, I'll quote the section. So it says, "The truth is money is indeed, MOE, and so is the dollar, but that doesn't mean every and any transaction in an economy should occur with paper currency directly or with gold or on chain. And here, the way I read that is that you're actually helping make the difference, or helping make that argument or the

Medium of exchange and merely a method of payment, right? So in your example there, where you were saying that, you know, this, in this hyperinflationary, you know, economy, that people might use the very bad money purely as a method of payment, but there is a conceptual distinction there between that and the medium of exchange.

Exactly, a-a-and, and this is what we, we, w-we can be verified. This is the, the usual custom already in virtually every economy. So this is the, the point that I try to, I try to highlight in the article. So nowadays, the dollar or even gold, in, in the past, they were unscalable by design. So the monetary base, the base money or high-powered money, it can't scale to make, to, to accommodate every single transaction in an economy. So we, in- Inevitably needs payment networks or payment systems like the banking system itself or like Paypo to make, to, to enable a, an exponential use of the currency. And this is the point that I try to make is even though Perhaps most payments aren't actually affected with actual currency, with the physical currency, or in the past with physical gold coins or bullion. It doesn't mean this, the, the currency, the dollar or gold wasn't used as a medium of exchange because it wasn't physically handed over or exchanged between people. I mean, it doesn't make sense to make this distinction. But And in this way that I, that I compare Bitcoin being scaled, scaling with secondary layers or secondary protocols like the Lightning Network and the payment systems in the traditional mon-- to the traditional monetary paradigm, i-they are comparable just from a functional point of view. So we will have a monetary base, and what I, what I compare is the base protocol, on-chain transactions and monetary base or- High powered money on one side, and on another side, all the secondary layers or the outer protocols or outer, outer layers or payment networks, and then we have the banking system, PayPal, and the Lightning Network itself. This is how I say they are comparable, but only from a functional point of view, not from a security one, and that's the key distinction and the, the fundamental one.

agreed, agreed. Okay, so I think we've sort of covered off Article two. Let's go into Article three now, where you talk about how Bitcoin attains the status of a good store of value. And I think the point you're making there is that this base money, the marketplace must understand and they must trust the soundness and the resiliency of it as laid out by the protocol properties and the rules. So in this article, you mention the concept of strict rule adherence. So what does Does that mean to you?

It means that the rules cannot be out, cannot be changed at whim or easily. It means that the rooms, the rules must be preserved and must be perceived as what I call socially unalterable. Because when, when we compare, this is why I, I always, I always like to compare with gold and try to understand how gold was perceived and adopted as a good money, because gold was It was also unchangeable. It couldn't be changed, and alchemists they tried for centuries to replicate, gold in, in, in a lab, and of course, they weren't never able to do it. But this The property of being unable to change it, so being really, immutable, I think it's one of the, the essential features that may enable people to perceive this as good money. Because, we're not just talking about any software that can be easily changed and we upgrade it and if something goes wrong, oh, it doesn't matter, we can start anew. It doesn't work like this. If this really is money, it is, is a prospectively good money, and for it to become a, a good- Money or a good store of value, it can't be changed at will, so making it immutable and hardening protocol changes or, what I call the, at least on the consensus layer, is, it is paramount to be able to To be able to make Bitcoin grow into a good store of value and be perceived and adopted as such.

yep, yep. And then so with that in mind, what are some favorable qualities in a Bitcoin protocol developer?

So I think one of, one of them is, conservatism and conservatism, conservatism for protocol develop- i-is also a very important, trait for developers and what I called in the article the su- the primacy of status quo. So that means in face of I wouldn't even say contentious changes, but even some improvements that might affect the consensus layers or might affect some rules, if they're not widely or universally perceived as beneficial and without any, let's say, secondary effects or, or collaterals. Collateral damage, let's say, if, if a change is not perceived as unanimously beneficial, it shouldn't be adopted. So we start to score should remain. So that's, that's one of, one of the main features that I think Kind of describe the current developments in, in Bitcoin. So being conservative with prudence and in face of contentious changes, status quo remains

Yeah, I like that. And I think the other point that's interesting is also just around the predictability, right? So it's important that people who are buying into Bitcoin can, you know, it's, it's actually really cool that people can predict what the money supply-- not perfectly, but with a reasonable guess, they can guess what the predictability, they can predict what the supply will be. So I think that's also another important factor.

B- because this is on the back of the minds of, of everyone nowadays that uses gold, for example, as a- Store value as a safe haven asset. They know that if they buy a gold coin or a gold bullion and they store it on their, in their house, in, in a vault, under the mattress, whatever, they know that in ten years from now or twenty years or fifty years, they will still have the same gold with the same density, and they will know that this gold will be just as scarce as it is right now. So the same understanding and perception we must imbue in Bitcoin Bitcoin, so people can have the same level of confidence and comfort to be able to store value for two or five or fifty years and not have any concern that perhaps in twenty years some group of people or individuals will think, well, maybe twenty-one million is not a good idea, let's change to fifty million. That's, that's perhaps a, or maybe we need perpetual inflation. So this, that's why I think the, this level of immutability is, is paramount to be able to have confi- Confidence in a privately produced money like Bitcoin.

Yeah, great point. Okay. let's move into Article four. Now, I, I thought this one, oh, sorry, the article is titled, "Can cryptocurrencies perdure solely as payment networks?" And I thought this one was a nice intellectual thought experiment because you open the article with this argument that any cryptocurrency solely designed to function as a medium of exchange with no consideration of the overall scarcity will fail Because it's unsustainable over the long term. So maybe, can you outline a little bit about some of the fallacies of the medium of exchange only crypto?

Sure. So this goes, actually, goes back to the, to the theory of money and what gives money value, which is the, the act of holding money, the act of demanding money as cash balances for future or deferred exchanges. Because if, if money is, is only used, or if a good is only used for a momentary or a transitory exchange, so let's say for milliseconds, if money isn't actually demanded and ho- and held as cash balances, money wouldn't be able to- sustain any value or it would have very little value. And I actually, I actually use a quote by Murray Rothbard, which goes along the same lines. So if people doesn't really demand money as cash balances, it wouldn't have any value at all, and money wouldn't even be necessary. So this is a point that I try to make where, when people try to, when some, projects, they, they are- created to work as a payment of, a means of payment or a means of exchange only. I don't think it can actually sustain value because the, the, the paramount property for it to be able to have value and be sustainable is to be perceived as a good store of value, so people would be willing to actually hold it. Because if, if you only use a money to, as a payment, let's, let's say like Ripple for example, and it's, it's the example that I gave Give in this, in the fourth part. If you only use an asset as a transitory means of payment, somebody on the other end must be willing to hold it. We need somebody to, to provide this cash demand, this cash balance demand. Otherwise, how can it sustain value? So that's why I, I think it's a payment, a- Cryptocurrency designed solely as a medium of exchange, it, it defeats the purpose. we don't need a, a, a cryptocurrency or let me rephrase it, a payment system We don't need a cryptocurrency designed to be solely a payment system, because a payment system actually doesn't need its own currency. We can have payment systems as we do today, and as the Lightning Network is one example, it is a payment system, but it doesn't need its own cryptocurrency. And there's, there's a second complication that I outline in, in the article, is that if we have another currency, another good to make payments, it's, it's kind of defeating the very concept of money, the very foundational concept. Of money as a intermediary good, because we are introducing another intermed-intermediary good, so a secondary intermediate good. So wh-what's, what's the reason for this? It completely defeats the purpose of, of money as being a medium for indirect exchanges. It's pretty much the, the The environment we have nowadays in international payments. So we, we have our local payments, our local currency, and when we need to make an international payment, we have to make a foreign exchange so we can acquire another currency to make payments. this is another problem I have nowadays in, in, in the monetary order. We don't have a global unified currency any longer since Nixon closed the gold, the gold window. It's a kind of internationally, it's a kind of semi-barter, economy because we- We need and we have to change currencies to be able to effect payments.

Yeah, yeah. And I think the other point that you make, so yeah, first of all, I think it's a good point you make that some of these, you know, like XRP and so on, they are interposing an unnecessary currency, and in doing so, they are sort of reintroducing the problem of barter, or, you know, they're reintroducing that problem. Precisely. the next, yeah, and the next point I think, is quite good is that, People have tried to comment that, and they say, "Oh, Bitcoin's innovation is peer-to-peer value transfer, not limited supply." But I think you have a really good response back because you're basically saying, "Well, what is the source of that value, right? I.e., the limited supply is an integral part of that equation in it having value that you can transfer."

Yeah, that, I mean, this, this is, this is the whole point. I mean, how can you, how-- So when people say that Bitcoin or blockchain is, is a method of value transfer, it, it just, it has the implicit idea that value just comes into existence and it's, it's, it's just lying there. And this isn't true. So what is the source of this value? That's, that's the, the question that we have to answer. Why does a Bitcoin have value in the first place? And that's why I relate this to the Supply. It is an integral part, it is part of this equation, and the only, the only reason we are able to exchange the, quote-unquote, value on Bitcoin's blockchain is because people perceive it as a valuable asset, and this is related intrin-intrinsically related to its limited supply, to its scarce supply.

yeah, yeah. And now I think maybe some people contend that Bitcoin may not be able to become a sound base money, and they argue that perhaps Bitcoin will just end up becoming co-opted, just like gold was. But I think to me this seems a little all or nothing, when in reality it's, it's easier to defend Bitcoin against central confiscation, and, you know, for example, people could try to claim back Bitcoin back on chain. Do you have any comments on that?

Sure. I, I think it's a misplaced fear that if we have secondary layers, if we have payment systems, even, even, payment systems that are, based on third, trusted third party arrangements, so let's say like exchanges right now, even if we have this kind of payment systems on top of Bitcoin, I don't think this, this translates in Bitcoin being more easily confiscated Or controlled as it happened with gold or with base money in the past. It's specifically because of what you, of what you said, Bitcoin is not only a sound base money, but it's uncensorable sound base money. So it's much harder to confiscate because it's much easier to secure it, to store it, to protect it, and it's much cheaper than it was with gold. So for this reason alone, even though we may end up having trusted third-party payment systems on top Of Bitcoin as we already, already do, it doesn't translate into being easily or more easily controlled or just as easily as it was with gold. I don't think this is the case at all. And because this won't be the only arrangement or the only, form of payment systems on top of Bitcoin, because we will be able to have, or we already have, we are already testing the Lightning Network, which is a trustless or trust-minimized payment system. This, i-i-it's another argument that makes, makes me- Not have this fear at all of Bitcoin being controlled by governments or by corporations.

Yeah, agreed, agreed. Okay, and then in the final, in the finale, your article is basically around Bitcoin as the ultimate asset. And so you mentioned some factors setting Bitcoin apart from the rest. So what are some of these factors?

So the, I, I think I outlined two points. So why, why Bitcoin stands apart from all the rest of the cryptocurrencies. I think it's, two, two main factors. First one is the easier, the easiest to describe is the first mover advantage. It, it was the, the first one, the pioneer, it has the largest network effects and all the conse- the consequences of Mad Caps Law. So this is, I think, it's the first reason. And the second reason, which is related, is only in Bitcoin we can actually see this attitude, of from a protocol development stance, that the main utility or the, the core properties that must be preserved and maintained is the store of value properties. And for any current cryptocurrency to be able to defeat or to overcome Bitcoin, the battle isn't actually in as a payment system, the battle is actually as a store of value. And the, and Because most cryptocurrency projects, perhaps all of them, they haven't yet, they haven't even gras-grasped this idea as a store of value and not a payment system. Bitcoin is not only way ahead in the competition because it was the first, but it's also the-- it is alone in the competition. It is alone in this competition.

yeah. It alone has that focus on preserving the store of value.

Yeah, and, and this concept as a final asset, just me-- so I can better explain this. So the, the ultimate asset nowadays in our current monetary order, and since the closing of the gold window by Nixon We are living under a debt-based monetary system. So all the, the reserve assets in that central banks hold in developed countries in Europe, in Asia Pacific, in Brazil, everywhere, they're liabilities against somebody else. So the dollar, it is a liability against the US government or the US Treasury or the Federal Reserve. And every paper currency is a liability of its central bank or its- Its governance. So today we don't have the final settlement asset, we don't have the final asset for final, for final liquidation, for final, for finality of payment. We're still using a debt-based money. We're still, we still have liabilities that are never settled. So every dollar lying around under, as reserve, on a central bank balance sheet, it is a liability that is never settled. And the last ultimate asset that we had was gold, and it was, it was used as a final settlement asset. That's why I called it the ultimate asset. And now with Bitcoin, this is the role that I think it can actually play. It can be a new- form of ultimate asset to be able to clear liabilities, to clear payments, even among nations, something that we, we don't have anymore since gold was, was severed from the monetary order. But I mean, it's, it's a long journey as I, as I end the, the, this series, in terms of monetary maturity, I'd say Bitcoin is around three thousand, before Christ. I mean, it's, it's a long way there. But it's, it, it grows much faster, so it grows exponentially in comparison to gold, but it, it takes a long time. It is a marathon. It's, it's certainly not a sprint.

yeah, yeah. And then finally, you mentioned this concept of Bitcoin forking gold. Can you outline a little on that?

Yeah, I, I think this is also related to even Nick Szabo's idea of bit gold. what, even Satoshi Nakamoto confessed in one of his posts on BitcoinTalk dot org, where Bitcoin is an implementation of B-money by way die and also bit gold. By Nick Sabo. Because I think it, it has, it displays most of the same properties as gold. So it's a scarce supply, it is limited, and even, even though we may find new reserves, i-it does have a finite supply, just as Bitcoin. Perhaps we're, we can't predict, when it will be finished, but it also has a finite supply, just as a Bitcoin. But the main difference and the crucial difference is that Bitcoin is- A, an electronic form when we, we analyze gold and we compare with Bitcoin, it has the same properties, but with this distinctive feature of being immaterial, so it is intangible, and that's why it makes it much easier, much less costly to store, to transport, to, to transfer, and that's why I think it's a, we could say In a kind of, funny way, it's a, it's a fork of gold itself.

Yeah, yeah, yeah. Okay. And then finally, sort of culminate in that idea of Bitcoin competing to become the ultimate asset, as, you know, basically like the global money, which is, yeah, fascinating article series. I think, the other question that might be an interesting one, and it's quite topical at the moment, is all this news around Bact, and, as I'm sure you might have seen, the- There has been some chatter about potentially Bitcoin becoming, well, a risk of there being paper BTC versus, you know, full reserve BTC. Do you have any comments on how that might play out?

Well, I- I think it's kind of inevitable that we see this kind of, what Caitlin Long termed a fractional reserve Bitcoin, and it's, and what she, she fears that it may undermine Bitcoin's, its scarcity. And this is a very complicated subject, and I think it's one of the long-lasting debates within the Austrian, within Austrian economics. Which is fractional reserve banking? Is, is it fraudulent? Is it inflationary? Does it cause economic cycles? This is perhaps the background for this fear of- entities such as Bect issuing claims on top of Bitcoin and not fully reserved. I don't think it is actually a problem, at all, and I'm only-- perhaps we can do another podcast regarding this topic because perhaps I'm in a minority which thinks Fractional reserve isn't fraudulent, it isn't, it isn't inflationary and doesn't cause economic cycles. But this is a whole, a whole new podcast. But I mean, yeah, that's, that's another

whole podcast. Haha.

But, I mean, I don't think it's a systemic risk for Bitcoin, for, backed existence. And the point that Caitlin makes that, undermines Bitcoin's, its scarcity. Even though it may, a fractional reserve system on top of Bitcoin may issue claims, more claims than underlying bitcoins, it, it can only go up to a point. I mean, you can't infinitely issue claims, so you can't just, have- We have increasing claims on top of, increasing claims on Bitcoin f-forever. There comes a point where it stabilizes and so- This undermining of scarcity argument, I don't think it actually sustains over the long term. It may at, it may, let's say at one shot, but it stabilizes and doesn't undermine any further. So I don't think it's actually a problem. But, but I do concede it's another podcast, perhaps even a debate.

Very nice, very nice. Yeah. Okay, cool. alright, well, I think that's probably the, the key points that I was interested to cover. did you have any closing thoughts, Fernando?

Well, no, I think, well, first of all, I, I appreciate your, your job as a, now a, a new podcaster, and, and I congratulate you by, for your work. It's, it's been very impressive, the quality of guests you have on the show. It's, it's, it's really, really great. And as I told you prior to the show, if you keep up the good work, perhaps by year end, you'll be interviewing Satoshi Nakamoto himself. Hahahahahahahahahahahahahahah

Very nice, very nice. thank you very much, Fernando. I really appreciate that. you know, I've obviously got great respect for your, Crypto Voices podcast as well. So, alright, well, I think we'll start wrapping it up then. So, guys, follow Fernando on Twitter. His account is Fernando, is at Fernando Ulrich. I'll put a link in the show notes page, as always, and he's, I'll put a link to Fernando's YouTube account and also obviously to Crypto Voices, which is well worth, subscribing to and listening to the Crypto Voices episodes as well. but, okay, otherwise, thanks very much, Fernando, and, appreciate you coming on the show today.

Thank you very much, Stefan. Was a pleasure.

Okay, so that was my conversation with Fernando Ulrich. You guys can find the show notes on stefanlivera.com, just search s l p thirteen. And as always, please remember to share the podcast with your friends and come find me on Twitter at stefanlivera. That's it from me. Thanks, guys, and I'll speak to you next time.