Bitcoin Sovereign Individual Investment Thesis

Hi and welcome to the Stephan Livera podcast, a show about Bitcoin and Austrian economics. Today for episode one hundred and fifty-nine with Phil Bonello, we're speaking about The Sovereign Individual, which is a very well-known book in Bitcoin circles. It's very prescient, and so we speak about some of these ideas and also the related ideas around the investment thesis and investment case around- Bitcoin. If you're looking for a place to buy, sell, trade Bitcoin, you can't go past Kraken, one of the world's leading Bitcoin exchanges. They're consistently rated the best from a security standpoint, they offer high trading volume, they're very liquid, and they've got low fees. They offer twenty four seven support, it's easy to sign up and get support if you need it. Also, it's now even easier for active traders and institutions to avoid friction when you're executing orders, because they've just launched nine new foreign currency pairs, allowing you to be more agile and sophisticated. There's Kraken Pro mobile app delivering all the security and features you love about the Kraken exchange in a beautiful mobile-first design for advanced Bitcoin trading. Go and check out kraken dot com or find Kraken Pro in the Apple App Store or Google Play Store. Next up is Unchained Capital, a Bitcoin financial services company respecting the "not your keys, ethos around Bitcoin and using multisig to provide customers with better products and services. If you're bullish on Bitcoin and you're thinking about what's happening with the next ten x X or more in price, well, you, you've got to think about multi-signature. Unchained Capital make it easy for you to do a two of three vault, and this is a great option to secure your Bitcoin for the long term. It's easy to set it up online, you can use Trezor and Ledger, cold card is coming soon. They've also got collateralized loans, so you can get USD without selling your Bitcoin. Go and check out Unchained Capital, they're offering excellent services, valuable content, open source tools. Find out more at unchaineddashcapital

And you want to stack it regularly without manual processing, right? If you're in the US, look up swanbitcoin dot com. You can link any major US bank account via ACH and auto-buy weekly or monthly. The Bitcoin is delivered to your wallet or stored with a licensed and regulated custodian. Swan Bitcoin's focus is on education and Bitcoin advocacy. Jan Pritzker, author of Inventing Bitcoin, is their CTO, and Brady from Citizen Bitcoin is head of education. I'm involved as an advisor with a small equity stake also. So there's givebitcoin dot io. Your Bitcoin gifting and go to swanbitcoin dot com for your automated Bitcoin stacking. One quick note before the interview, unfortunately, I had that problem. I made a mistake with the configuration and was accidentally recording out of my webcam microphone and not my podcast microphone, so you'll notice that on my side of the audio for this interview. However, I have listened through it, I think it's fine, I think you will still enjoy the interview, so here it is. Phil, welcome to the show. Thanks, Stephen. Thanks for having me. So, Phil, I- I, I know you wrote about the Bitcoin sovereign individual investment thesis on your, Substack recently, so I thought it'd be great to chat with you and also talk a bit about the book, the sovereign individual, because I think it-- there's a lot of relevance right now, especially. So, can you just start with telling us a little bit about yourself, how you got into Bitcoin, and what's your involvement in all this world?

Yeah, absolutely. I, I originally got involved in the space, actually kind of interestingly through-- I was interested, in And, kind of the whole IoT space, and I actually happened upon Ethereum, and I thought it was, it was amazing, and that kind of, that launched me into the whole space. My thoughts have changed significantly since then, and I'm much more on the monetary side than the technology side, but I, you know, I still think there is some- there's, there's some use on the technology side of things. But so kind of in 2016, 2017, I really started getting interested in everything, and I, decided to kind of leave my full-time job completely and do research full-time. that actually led me down to, Los Angeles to join IkiGuy Asset Management, which is a multi-strategy hedge fund. so I, led research at IkiGuy, you know, going through all the different altcoins as well as Bitcoin, looking at Look at our venture investments, really just, doing research across the board. and then I left Eke in the fall, and I've just been an independent analyst for the last, few months. And one of the things that I wrote, like you, like we're talking about today, is the sovereign individual, investment thesis. you know, I, I read the sovereign individual, I almost, I, I feel ashamed almost that it took me so long to, to read the book, but when I read it, I was just like, "This It's one of those books where you, you read a page and you're like, "Was that written last week? " But really it was, it was, you know, it was written twenty years ago. And it's, it's, it's incredible in that way. And so I decided to try to make, my reading of the sovereign individual as applicable as possible by putting together this investment thesis, looking through different pillars of the sovereign individual. That's

awesome. And so for listeners who haven't read The Sovereign Individual, can you just give them a background? When book written and what's it mostly about?

Yeah, so the book was written in nineteen ninety seven and I would say the primary thing that sovereign individual talks about is the leverage of violence and, the power shifts throughout, different periods of history. So, starting in the hunter-hunter gathering, phase, to agricultural societies, to industrial society, and now to the information age. And the reason that's relevant is because in- hunter-gatherer societies, there wasn't a need to, kind of hoard goods. There wasn't this idea of personal property. Actually, it was, inefficient to, hoard anything because there were no preservation techniques. So if, if you were to kill something, then it's probably going to rot, and you're actually just decreasing the available amount of food that you can then go out and hunt for later on, right? so there, there wasn't this idea of personal- property, and then, in agricultural societies, that's when the idea of personal property really came to be, right? And, and so with personal property, there was also, increased, leverage to violence, right? So Now everybody has goods that they're saving, and that also means that they need to protect those goods. And so now the biggest guy in town can get a bunch of his buddies and just say, "Okay, either we're gonna use this violence to just go take stuff from people, or maybe we can provide a service to all the people in town and help them protect the goods that they have." So you can kind of see this power structure, form around Violence and, and, and the power of violence. and then in the industrial age, that, that leverage of violence actually just becomes exponentially increased, right? Because now these nation states have the ability to build- Really, really destructive weapons, and the people that use those weapons to the best of their ability have the most power in the world. and now in the information age, a lot of the physical violence, that leverage starts to decrease because more and more of our wealth and power is liv-- is living in the digital world opposed to the physical world. And governments and, violence has less leverage in that physical or- In that digital world, right? so it, it's just this kind of, this shift in power structures, and especially as we kind of transform into the information age, there's this decreased leverage to, to violence, and, basically the book goes into detail about how they predict, the information age will change those kind of power structures.

Yeah, it's really relevant for us today as well. Everyone's going through this coronavirus thing, and we're seeing crazy movement in the financial markets. And I think people are now starting to question a little bit more what those preconceived assumptions were about, oh, the government will protect me. Now it's not so clear, isn't it?

Yeah, absolutely. And I think one of the most, interesting things and one of the things that I, didn't, didn't really expect when I, when I wrote that thesis is that we're seeing this shift happen very, very quickly right now, right? The book talks a lot about- protection and this idea of protection. And in, in the, in the thesis, I also talk about, the motivations for why people would adopt some of these different, investments, right? Like I think right now we're in a very consumer mindset, kind of this idea of acquire things, and we, we don't have much of a defensive mindset, people generally, right? We kind of outsource our, our protection. Yeah, I think we can, we can look at just, you know, a very simple case is most people use the password one two three four five six, like that's the most commonly used password in the world, right? It, and that's not much of a password. then we see a lot of things like these, some of these hacks that are going on in, in, centralized institutions, we're leaving all of our data to, you know, Google, Facebook, what have you, and we just really don't care about privacy protection. And any of these things, because things have been going really well, right? But I, I think this, this virus could be a kind of a tipping point in some ways, number one, because we're, we're all forced to live in the digital world if we're all gonna be locked in our apartments or our, our homes, but also And I've seen this pop up in the last, week, a lot-- there are a lot of government initiatives, that are getting pushed through, to surveil populations with the idea that, okay, this will help us, kind of stamp out coronavirus. And, and, and that's pretty scary, scary to me, but I also think that- Things kind of have to get worse in, in that direction, and there has to be more surveillance for people to realize the value of privacy and the value of their digital freedom. So really crazy to see what's happened over the last, you know, a few months, on so many different levels.

But yeah. That's right. And as, a famous saying, for all my disagreements with, Milton Friedman, he had a very famous quote, which is, "There's nothing so permanent as a temporary government program," and that's what we've seen. Seen with, you know, even if you look back to nine eleven and the Patriot Act and all the impacts of the TSA and all the security theater that we see around the world, we're gonna see another round of that with Corona as well. We're gonna see all sorts of power grabs. And people will then stop and think, "Well, hang on, how much power does the government have? How exactly how much insight or surveillance into my life does the government have now with all these new powers that are inevitably going to come down the line?" so this change in power dynamics, and I think a really interesting point from the sovereign individual, maybe you could touch on this as well, is they mention the end of nations, and maybe it's not like the end of all nations, but they at least they become a lot smaller And an interesting point as well was this idea of certain currently existing powers didn't realize that their power was fading, like the Roman Empire didn't recognize that their power was fading. Do you see a similar dynamic today?

Yes, and so I think the, the juxtaposition is kind of governments based on voice versus government-- governments based on exit, and exit cost has never been, cheaper, you know, like it's really easy to- Go anywhere in the world, specifically because you can still communicate with anybody in the world, you can still do most jobs from anywhere in the world. And again, back to the virus, you know, this is be- becoming more and more clear. We can, we can work remotely and, everybody, I, I, I really think that working remotely is going to be more of a necessity than a luxury, and working physically, like in a city or something, is going to be more viewed as a luxury, than a necessity. Yeah. So- So, so basically, I just, I, I think that exit costs are going to continue to decrease for governments, and we're going to continue to see these, big bureaucratic weights, drag down, general populations, and there's, there's gonna be a, a, a real need to exit, right? Like, I think Singapore is such a great model, and it's, it's, yeah, I, I, I think that a lot of people are just going to realize that there's, there's no reason to pay exorbitant taxes, to also their money be, devalued relative to, the supply. I mean, again, look at what's happening, looking, what's happening in the last couple days with stimulus packages.

Yeah, that's right. And so, with places like Singapore or Hong Kong, well, before some of the recent more Chinese government, interventions into Hong Kong, those were probably better examples, although obviously nothing's perfect, but they were probably better examples of city-state kind of idea, smaller government, not like- Necessarily zero. Although one thing though, it is, it is gonna take some time though, right? So because right now, and let's, let's be cognizant as well, right? Pe-people like yourself or me or probably many of my listeners as well, might be in a position where we can work remotely, but there would be, there are still a fair few jobs that can't be done remotely, right? Whether that's, you know, you're a delivery driver or you're a chef or you're, you know, you're, you're in some sort of service role I wonder what's your view on even that small percentage, or let's say growing, small but growing percentage of people who can work fully remotely, will the changes they do with their own life still impact everyone else anyway? That such, such that it brings a benefit anyway?

So I'm not sure I, I'm not sure I answered, I, I understand the question fully.

Yeah. So I'm just saying, for example, it might be that only twenty or thirty percent of society can work remotely.

Yeah.

But Could it be that even if only twenty or thirty percent of people work remotely, that's enough to still drive a change in the overall society such that, you know, we can all get a benefit, even if you don't, even if you can't work remotely, would you still benefit from the fact that there are people who can?

Yeah. So I, I think there's going to be a re-- and, and this has been playing out over the last few years as well, everybody can be educated, because information is so readily available, right? And when everybody can be educated,

Then everybody can pursue the same type of jobs. You know, you know, aga-again, physical location is, is still a barrier, but the trend is towards digital, right? And, and more and more people can do jobs digitally. So even twenty, thirty percent, whatever the number may be, and that will have a very interesting impact for society. So for developed countries, I think it probably is going to be a big wake-up call, a shock, a deflationary shock, right? Where a lot of people have gone to, university That paid two hundred thousand dollars for education, and now someone who, you know, maybe is in rural India, has done some online coding courses and can now do a similar job as someone who's living in San Francisco. And, you know, that, that's probably gonna be really tough for the person who's in San Francisco, trying to pay three thousand dollars a month for, a studio apartment, right? However, that's great for the person in rural India. Now they can satisfy jobs that are, you know, maybe five times what they would make before. And that's a really interesting dynamic. So I, I think, I think we're gonna see wages continue to trend up in kind of developing countries and probably trend down a bit in, developed countries.

Yeah, and it may also have the impact of varying the government expenditure or minimizing government expenditure even in the la-big government countries, because people have the o-the alternative of going elsewhere. So currently, you know, as you were saying, part of the- Calculus was the logic behind violence, right? And how much can you protect yourself, and versus how much is your protection being outsourced to the government? But then the, the other question that you could raise is, how much of the government expenditure is legitimately that defense versus how much of that is random offensive wars around the world or how much of that is like welfare state or random bureaucracy? Do you believe there's a case there that governments become more lean?

Yeah, absolutely. And, and I, I'd- I definitely don't think like we don't see any kind of government. I, I just think the trend is, like you said, a more lean system, maybe more localized governments. Yeah, because like you said, when you really do a cost-benefit analysis, it's like, well, what is, what is this, government actually providing me? Oh, I think they're providing me protection, okay, but what is that as an overall percentage of, of the cost, right? And, yeah, yeah.

It's funny, I saw as well some recent news, I can't remember, but there was a specific-- there was like some announcement that saying that they weren't gonna police certain types of, crimes anymore because of coronavirus. I actually think that they were still And it's like, hang on, okay, fine, well, if they're shutting down, does that mean you don't have to pay the taxes for that?

Yeah. Also, also very, also very strange that they would even announce that, right? Why, why would, why would you announce that? Why would you just stop poli- you know, I, I'm, I'm not sure what the rationale was behind that, but it's pretty strange.

Yeah, so that's a really funny thing there as well, and, yeah, I mean, it is gonna, it's Of compound interest. And so it's just a section where they're talking about here, basically they're saying, "Look, every..." So he, just creating a section, it says, "Remember, each five thousand dollars of annual tax payments paid over forty years slashes your net worth by two point two million, assuming you could realize just a ten percent return on your capital. At a twenty percent return, that balloons to forty-four million." And so- Basically, it just, the-- so another section there saying, "Compared to the Swiss alternative, the lifetime losses from paying federal income tax at US rates would be seven hundred and five million dollars for an investor who could average a twenty percent rate of return." So, I guess the question for you, Phil, is, what does it look like when people start jurisdiction shopping, because of this massive, incentive they have?

Yeah, well, I mean, we aren't very good at, projecting Non-linear growth, you know, so, like a twenty percent tax versus a thirty percent tax, you know, it doesn't seem to make all that much of a difference on a, on an annual basis, but then when you start to really do, do some of that compounding, it's, it's pretty shocking. But, but I'm, I'm not really sure. I, I, again, I look at Singapore and I, I've been meaning to really dig more into, the founding of Singapore and, kind of the, the thought process behind some

One comment that I will make though is, in the book, I think they tend to be pretty absolute about, like, this digital world and exit costs, but, you know, we still are living in the physical world, right? We still have to, eat, sleep, we have to have a roof over our heads, have to protect ourselves against, you know, a virus, essentially, and, there are nicer places to live than others, right? So, you know, like, currently I'm, I'm in Los Angeles, it's, it's seventy Where it's terrible in the winter, it's disgusting, right? And, and so those type of things still play in, right? But, yeah, certain, certainly, you know, topography, climate, those are, those are huge deals, and, technology is just one factor in, in, in that. I, and I still think there will be taxes, you know, probably maybe five, ten percent, that seems a little bit more reasonable.

Right. Yeah. and, I think we will see more and more people try to,

We'll see those people try to get a tax deal with a certain country, right? They may go to, whatever, the Switzerland or the wherever of the world and try and negotiate a better tax deal, which makes sense from the perspective of those other countries as well. If they can get a high earning person or a person who's producing a lot, then it's, it's worth their while to do that.

Yeah, I, I think it probably starts with the wealthy, with like the ultra wealthy, where there are either attempts to seize some of their wealth through taxation And, you know, we, we had the, had the wealth tax proposal on the board. It's like, okay, I, I have ten billion dollars, and the government's saying that they wanna take fifty percent of it. No, I, I don't think so. And then, you know, oh, you're gonna jail me? Okay, well, I'm gonna go look for another place to live, right? So, I, I think that'll probably start with the wealthy.

Yeah. And so, also, even for those people who are still living, you know

This funny dynamic of old laws versus new technology. So in the book as well, they make an example where fax machine laws in the '80s still outlawed Like use of fax machines, because they were, under the, the, these ancient laws, they were considering it like a first-class mail, which the US Post Office has the legal monopoly and whatever, but, and yet people are still using fax machines, right? Yeah. And so it's a similar kind of thing where maybe we see more and more people who have the option to set up their own BTC pay server and be a sovereign individual and receive bitcoins for their services, and who's gonna stop that and who's gonna know?

Yeah, absolutely. I mean, I, I think- Regulation is always lagging technological progress, and, and there's, there's no hope for it, to kind of get, get ahead. And, and yeah, as more people are using Bitcoin, hopefully, there will be less ability for these governments to tax and less, less ability for them to create revenue through, money printing.

Yeah. Now, one topic that I think is also important to raise is to understand sometimes we might be right directionally about the way things are going, but we might be calling it early. And And the, like, as listeners have probably seen, the big short, right? Like those guys who had to hold that position for a long time, and there were times where they were, they looked like they were wrong, but it's just they were early. And there were many who tried that trade and failed because they weren't able to hold it all the way through. So it's in the same way, do you think any of these ideas, they're right, but they're just early?

Yeah, and, and to be honest, I thought that, probably five months ago, I thought

Your timeline is maybe more like five years, and I, but I think, digital money is pretty much ready for the world and the world is ready for it, so I kind of see that as the first domino. And then I also think like dissident technology, this anti-fragile technology, distributed technology generally, like mesh computing and things like that, I think, I think that's probably maybe a little further out, but, but not, not too far out, right? Like especially again, coming back to present day, what's going on with the virus, what's going on with nationalization and I, I, I really think that we could see a, an uptick in demand for some of these services, but still probably five, five years until they're really in demand.

Yeah, and I think something for me even, I was noticing people on Twitter were much ahead, much further ahead of my friends on Facebook, for example, and I think it's a similar dynamic that we'll see in terms of people who are into Bitcoin right now, they're still, they're still very early compared to the masses, and so it takes time. For that message to percolate out to everyone. In terms of the sovereign individual book, are there any things you think the book got wrong?

So I, I mentioned this a little bit, they tend to be a little absolute, don't take into account the actual physical benefits of, of being in certain locations. where, where I think there still are a lot of, a lot of benefits to being in, in one place versus another. and then I would say they don't touch, touch a whole lot on the ability for fi-physical coercion to still exist, right? So even if I have all my money in Bitcoin and I have, you know, three or five multisig and whatever it may be, still there are ways for people in the physical world to coerce me to give up that information, give up those private keys, and then they can still take con-take control of my Bitcoin or whatever digital goods it may be. The other thing is, I, I don't think they really touch on tech conglomerates like Google, Facebook, like- How do we deal with those? And, they didn't predict kind of the uprising of these, of these big powerhouses, right? That-- And I think that's largely due to the client-server relationship, and hopefully we have new services in the coming years that kind of change that relationship, but, but still, those are, those are some of the biggest powerhouses in the world today, maybe more powerful than a lot of governments, and they don't really touch on that too much,

yeah? Yeah, I think that makes a lot of sense. I think that those are things that late nineties to understand how things could have played out that way, that now we have big companies like Apple and Facebook and Google and Amazon who, in some ways, have powers similar to a nation state. They're not quite the same, but they, they can have a lot of influence. Let's bring it now to the sovereign individual investment thesis, right? So what are some of the ways, let's say we've accepted the thesis, the underlying thesis of the sovereign individual as a book, and we are, you know, we're committed to that idea, we think that's, that's, that That's correct, and it's gonna play out that way. How do we then act as investors? And you start off with this Jeff Bezos quote, can you tell us a little bit about that?

Yeah, so I, I start off with the Jeff Bezos quote, specifically because I, I think we, we try to focus a lot on how things are going to change, and, and Bezos has this great quote, which is, "I'm more interested in, I, I'm gonna paraphrase this here, but I'm more interested in what's not gonna change over the next Times, they're never gonna say that, that they want higher prices for, you know, basic goods. And so I think that's really interesting, and I, I use that kind of as the beginning way to think about different angles of demand for all of these different, and, and for how these shifts are actually going to take place.

Yeah. And so then we get into some of these theories of change, and as, as you spell out, you have a few different ones. One of them is globalization as an equalizing force. This idea of having low cost jurisdictions, remote work, online education

Yeah, you know, so I touched on it a little bit. I think education is such a massive part of this. Churches really controlled, information for a long time, and then printing press came along and people were able to print books really efficiently, and that changed the way that education could be, information could be disseminated and education as a result of that, right? And, and right now we see really, really expensive education, huge student debt, and it's just completely unsustainable. I think some of the really interesting things are like, so, something like Lam- To school, Code Academy, Udemy, those are really interesting products and, they allow people to really learn probably just as well, if not better, than traditional education institutions. Like I, I love going on Code Academy and just messing around a little bit and trying to learn some Python or, C plus plus or, or what have you, you know? And it, it's, it's almost agreed upon, at least in, in my circles, that you go to hi- get higher education mostly for, for the credentials, for the network that you create and for Those, you know, two, three letters, right? And so I, I think education is a really important part, and I think we're gonna see a huge uptake in online education. And then the follow-on to that is credentialing, right? So if, if people are still going to traditional institutions mostly because of, the credentials that it gives them, how do we, how do we replace that, right? There, there is-- they are useful, credentials are useful, but is, is a social graph of some sort maybe more useful? Like, Torrenberg has been working on something called Cosign, which kind of creates this, this social graph where you can endorse, someone that you've worked with or someone that has inspired you, and, you only-- there's a scar-- scarce amount of endorsements that you can make, every month, and that's really interesting. And I, I'm not sure if that'll work or if something else will work, but those kind of experiments, I, I see, having a big impact in the coming years.

Yeah, that kind of reminds me of like LinkedIn That became a bit of a farce, right? Because it was just like, whatever. But, yeah, maybe it could be done better, but we'll see some of these ideas of, quote, unquote, unbundling of the credential from the university experience and unbundling the educational content from the university experience and putting it into the Coursera, Udemy, Codecademy's of the world and Lambda Schools of the world. Yep. and so when it comes to things like media, do you see changes there as a result of this? Sovereign individual investment thesis.

Yeah, I do, and I think again, you know, with the, with the virus, it, it's been incredibly, eye-opening. From probably late December until now, I've been following on Twitter what's been going on, mostly because we have this distributed media coming at us, right? We follow all these people that we, we might respect, and, we see some, like someone's retweeting a really good piece of information that may or may not be true, and then someone's calling- Calling out certain pieces of that and, you know, what is, what is true, what's false. And Bulaji, you know, he's been kind of this hero of the coronavirus kind of uptake, right? Nobody was talking about this. mainstream media was actually making fun in Silicon Valley for, being worried about the coronavirus. And even when I, when I was talking with friends and family, and I would text, I would text someone about coronavirus, I'd be made fun of, right? Like for weeks, and it probably until last week. And- And that was o-the only reason I had any kind of education and, that was non-traditional was because of Twitter. I was receiving such great content from so many people that I'd, that I respected and that I, that I knew, and they're, they're consistently being fact-checked, right? On Twitter, someone posts something and everybody else can say, "No, this is false, this is true," and I, I think that's really interesting. And it's the same, it, it goes along the same lines as like the social credentials, right?

Yeah, because you've got that sort of social graph of who follows who and companies like, like that website Hive dot one. So I often recommend that for newbies as well to go and find, okay, here are some good people in the Bitcoin world. It's not perfect, but it's at least a good indicator of who follows who. That's kind of a social graph in that way. And so that's an interesting thing as well, like rep-- new versions of reputation systems, if you will.

Yeah.

One question I guess that comes up there is, does that only work for people You're not in the top two hundred or whatever of a certain field, how are you meant to get known and how are you meant to get employed that way?

Yeah, I, I think it allows the, it allows the cream to rise to the top, and it, it doesn't always happen immediately, right? But you, you see sometimes someone just- Has a thread on Twitter that goes viral and, you know, hundreds of thousands of people like it or retweet it or, or whatever it may be. And you, you, you compare that to going to four years of, of university and then maybe going into a job and then you're, you work at that job for ten years and then you maybe get title of vice president and then someone starts to listen to you, right? Well, you don't even have to go to college, you don't have to go to high school, you could just start writing, online and sharing that. And on Twitter, and that's a great way to, gain, gain credibility. Yeah,

yeah, for sure. and so we're moving into this more digital world, and we need ways to protect our money, For be- for want of a better word, so what are some of the companies and some of the products that we will need to do that?

One of the most interesting things that I've been thinking about recently is the idea of digital insurance, and, essentially, if more value is now living in the digital world, and, and I mean digital world, as naturally digital, not, not just a copy of the physical world, right? So something like Bitcoin and some, something like non-fungible tokens, or these things that are actually- They're, they're digital goods. They're not, they're not available in the physical world in any, sort of way. And they're, and they're immutable. So if you lose them, that, that's it, right? And I think that, these key management systems, like something like Casa, is really, really interesting because that essentially serves as a type of insurance against you losing, your private keys. And I think there could be multiple, multiple tiers of, key management systems, and we see this starting to, you know, come up For your really, if you have, you know, millions and dollars of Bitcoin, then you're probably gonna wanna use the top tier of Casa, right? And then if you, just have something that you wanna use on a day-to-day basis, you're just gonna keep it in your hot wallet on your iPhone, and so we'll have different, different kind of tiers and, key management system seems like this killer use case where it's going to mirror the insurance kind of insurance business in the physical world.

Yeah. And in terms of Bitcoin investment, we have to- And think about, the split between businesses that work for speculation now and defense later. So I think you, you spelled out a little bit of that, for example, with companies like Secasa and Unchained, who that are there to offer like multisig as your defense for the future. But, what about some other Bitcoin businesses that might be warrant-- that warrant consideration?

Yeah, and, so I, I think in, in, in the post that I wrote, I, I probably called out, you know, Bit, BitMEX and Binance because they've, Essentially been able to kind of skirt regulation, but also offer like this g- this great gambling product, right? So they're able to, at the same time satisfy, this speculation need, but also, satisfy the defensive need in being able to kind of skirt, government regulation. but also companies like, you know, Grayscale or lending businesses like Genesis or BlockFi, you know, those are, those are satisfying demand right now. I think that some of the stuff that's going on with Light- Lightning is really interesting and, like something like Strike, OpenNode, I mean, those are, those are really important. Yeah, you know, I, I'm, I'm really curious to see what other types of businesses are built around Bitcoin because, yeah, it, it, it's kind of hard to imagine what a free, you know, a free money can do. we're, we're bounded a little bit by scalability issues right now, but Lightning may open that up a lot. And, and so I think one of the questions that I, that I frequently ask myself Killer, killer use case because of censorship resistance, or will it become a killer use case because of usability? Right? Like, will Lightning applications or a Lightning wallet be able to be integrated with a game, right? And now you can monetize all sort of gameplay. So will it be on the usability side, or will it be just the censorship resistant aspect of, of money and trying to use Lightning in that way?

Yeah, there's a lot in, in that. So there's a lot of examples I can think of already, like, so things like LightNight, for example, the- Attempt to make a kind of Fortnite-style game, but with Lightning, payment. that's just one example, and it's early days still. There's a lot of development still to make the Lightning network more private, and that, that will come hopefully over time. I'm, I'm optimistic on it. but, even, even just Bitcoin without Lightning, right? Like if you're just using, say, CoinJoin and, you know, Samurai Wallet or JoinMarket, there's, potential there as well for people to use these kinds of, as you say, dissident technologies to give themselves an edge or to give themselves some protection. so do you have any thoughts around, that pathway as well of people using, privacy techniques and privacy-

You know, I, I think it's, again, one of these things where it's not in, in demand right now because of this whole, this whole idea of defense versus acquire, this defense versus speculation, and most people don't have a defensive mindset. You know, you frequently hear like, "What do you have to hide? " You know, "Privacy? Why does it matter? " I think that's pretty absurd, but I don't think we're gonna see a huge uptake until things get worse, right? Like things are gonna have to get, get worse before people

Or why protection is so important, like personal protection, and bring it into your own hands. And, yeah, it's, it's unfortunate that things have to get worse before, people realize that, but it's kind of analogous to people buying a ton of insurance after, like an earthquake, right? Like that, that's a, that's a common thing that happens, but obviously, not very intuitive.

Right. Yeah. It's a, it's like an availability heuristic. Sometimes we only think of things once they've been on the media, and now you think, " I, I agree with you that, and the same thing with inflation as well, right? So we're seeing, you know, all this crazy stuff from central banks, from the Fed, doing all these just things that would have been unheard of twenty years ago, ten years ago even, some of them, and so that will- I think push people into Bitcoin and the use of some of these techniques, right? So, I, so I agree with you that many people need to feel the pain before they care. So they need to feel the pain of negative interest rates, of bail-ins, capital controls, and just general inflation in general, to, before they really get more into it. But when, once, once they do come in, it's like a gradual and then suddenly moment, right? And at that time, only even small changes- in the population, even if only five percent of the population started to go hardcore into Bitcoin, we'd see massive, massive changes in our world in terms of what services are available, what products are available, the price of Bitcoin, the development of Bitcoin.

I mean, right now we're in such an interesting time for Bitcoin. This is literally why it was invented, right? If, if it can stay alive through this period, this is, this is the time that Bitcoin reaches its, its inflection point. banks are doing everything they can Possibly can to prove out its use case.

Yeah, that's right. And so, this is a funny thing as well, because you see some of the more anti Bitcoin, the no coin, position is, "Oh, look, I thought you guys were saying Bitcoin is a safe haven. Why isn't it? You know, why isn't it rallying up during this historical financial crisis? You must have been wrong about your Bitcoin thesis all along." How do you respond to that kind of idea?

Yeah, I mean, everything, was down, I don't know, I don't actually know too many Bitcoiners that were saying like, you know, Bitcoin's gonna do well in a, in a recession. I don't, I don't think that was ever the case. Bitcoin does well in the face of, really money printing and, monetary and fiscal irresponsibility. And I think that is al-- that has kind of always been the case, right? for most people I talked to, anyway.

Yeah, I think so. and, yeah, so I think it also relates to having the ability

Going to see more and more financial controls coming in, into the legacy financial system. So I think really the case for it will really get proven out over the next few years. But I can appreciate how, from an outsider perspective, obviously we're in this Bitcoin game, we're, we're bullish on Bitcoin, but an outsider might think, "Oh, you guys are just shifting the goalposts. You just think it's happening, you're always saying it's around the corner, and maybe you're just like those perma bear gold people who are always doom-saying and whatever." But, I mean, Personally, and I'm curious what you think as well, but personally the way I would respond on that is more like, look, we really can build a parallel or just an alternative, right? So right now, I, I have a BTC pay server, I can set up and take payment, and anyone, doesn't matter what country you're in, if you can do online services, you can do web design or programming or whatever online service, and you can set up and take payment right now, it works right now, you don't need to trust anybody else to be able to do that, and you And you go to Zimbabwe or wherever, only, only with Bitcoin is this possible?

Yeah, you know, there's, there's that, there's that aspect, and there's also just the fact that you don't have to watch what the Fed's gonna say, you know, during a, during a crisis like this. You, you know, you know what the monetary policy is, and I think that's really important. Like the last couple weeks, if you're a trader, you have to be, you have to be watching exactly what, what's going on during all these Trump press conferences

Of fiscal or monetary stimulus, and that's, that's pretty ridiculous, I think. So the, it's, it's just this, this idea that you can, you don't have to be a trader, you can actually keep most of your wealth in money, right? What it was, what it was, what money's supposed to, rather than trying to find all these different places to protect your wealth. And that's, I think that's one of the biggest, worries that I have right now. You know, so many people have or are trying to retire or have

Be a macro investor in order to pro-protect their wealth, when, when really it would be great if, if there was an asset, you know, that has a, predictable monetary policy and that everybody accepts as, a good store of value and a good medium of exchange and a unit of account. And I, I think that, that asset could very potentially be Bit- Bitcoin.

Yeah, and we are also seeing, a-alongside this shift towards Bitcoin as the money, we are seeing Perhaps more of a shift towards the idea of self-hosting. So instead of trusting Google Cloud, Apple Cloud, whatever, whoever else cloud, potentially setting up your own. So I think a good example would be something like NextCloud, right? You can set up your own document server and, and have it as like a private Google Docs and so on. Now, it's not easy to run these things yet, it, it still takes some technical competence, but I think, again, aligned with the Bitcoin sovereign individual thesis and inv- investment Investment thesis, we, should see a shift towards that kind of, way of operating. do you have any thoughts on how that space evolves?

Yeah, the personal server revolution, I think, is going to be massive, and it's still incredibly early days. I, I think it'll be the biggest, one of the biggest paradigm shifts, right? Like the biggest, most powerful companies right now are powerful because they control your data. Well, what happens to these companies when, everybody's operating on personal servers? You know, like, and- Th-there are a lot of questions there, because, from an economic standpoint, why do companies wanna build apps where they're not gonna be able to control your data? How is that monetization gonna work? Are users gonna have to pay a subscription fee? You know, because right now it's, it's really nice to sign up for Facebook, it's free. Sign up for Instagram, it's free. Snapchat, it's free. Ob-obviously they're harvesting your data on the back end, but this also plays into the idea of, are people going to adopt this type of A consumer application that is free, upfront, but is going to essentially be mining your data on the backend, and, and what, yeah, what makes the user switch, right? Is it a, is it a monetary thing? Like maybe, and this is something I've thought a, a decent amount about, maybe, one of these applications can help you store all of your user data, you can take that user data and then you can, encrypt it and you can sell it on some sort of marketplace, and now, the same application that you were using- Is going to buy that data in order to improve the usability of their, application, right? And, and so how does that whole data marketplace actually start to play out? I, I'm not really sure, but, and it's really early days, but I, I think that's a really interesting area to, to study. Right. And

also with the expansion in home internet connection and having more of an upload, because I think that was one of the limiting factors, at least in the past, most home connections didn't have a good upload, whereas now we're starting to get to that point Where with newer internet technology, you can do it, it's a bit slower, but you can do it. though there are still vectors or angles of censorship. So for example, if, you know, a government were to try and identify, okay, who's out there using Bitcoin, who's out there, you know, doing, these kind of self-hosted things, could, could that be something where depends on who, depends on what kind of actor you're talk-- you're talking about or thinking about that might represent a risk? Or another way to think of it. But as well, is not everyone is qualified to run their own server, right? And you might screw up something about the security of it, and you might accidentally open a port and accidentally open yourself out to all the hackers of the world who start, you know, taking your data. So there are legitimate questions there around defense, security of it, backups, all of those things that you now have to manage for yourself if we are gonna go personal server revolution.

Yeah. Yeah, and I, I think it, it's kind of analogous to what we see surfacing in Bitcoin right now, like some people wanna Be completely self-sovereign, but, you know, my parents aren't going to be, on, on that, on that kind of line of thinking, and they're probably going to hold a lot of their, you know, stuff in Coinbase or on Square or, you know, wherever they tend to, wherever, whatever service they want to use in the future, but I, I kind of doubt that they're going to ever adopt like a fully self-sovereign model. So like, there, there are just tiers of sovereignty that you can kind of opt into. But I think Actually exit the system. And, and really that is, that's kind of what the sovereign individual, the book is largely about, right? lower exit costs.

Yeah, and, maybe there's also a role there for culture as well, right? That Bitcoin, we have a culture of self-custody, and we always, where possible, teach people, hey, you need to self-custody, you need, you must self-custody. and what role do you see of having a self-custody culture that pushes people to try and take, take Nobody else.

Well, I mean, I, I think it, I think it's really important to continuously try to get people to take defense, this protection into their own hands. But there are inevitably going to be people who, who wanna take different layers, right? You know, I'm, I'm sure the younger generations will be masters of self-sovereignty, right? Like it'll be, so easy for someone to actually adopt a self-sovereign model for their Bitcoin wealth or all their digital wealth. But again, like my parents aren't going to, they're never gonna learn how It's just, it's, it's a big technical lift, it's also a big risk.

so look, did you have any closing thoughts for the listeners on, the sovereign individual and, and the investment thesis around it?

The one other thing that I wanted to mention was, Sovereign Individual talks about Y2K, a little bit, and I, I, I meant to mention that as one of the things that obviously didn't play out the way that they, that they, discussed. Like when I rec- when I recommend the book to, to friends, I kinda have to say, "There's a whole chapter on Y2K, you can kinda just skip past that," you know? 'Cause, like, yeah, obviously, like, they go into detail about Y2K, and We know what happened in, in two thousand, but it's, it's still kind of interesting to, to read through some of those chapters. But no, you know, The Sovereign Individual, I think, is such an important book to read. not necessarily to, to construct a top-down model, but really to understand, just to understand the possibility of these things to kind of happen and just open your mind up to, some of the ways that, the world could kind of unfold. I, and I think there's a decent probability of a lot of these things Sovereign Individual talks about Bitcoin really, you know, they, they talked about, they talked about more of a-- it's a gold backed digital currency that they discussed, but still, you know, the way that they discussed it is, is pretty amazing, right? So prescient. So yeah, I had a fantastic time reading it and a fa-fantastic time, writing, writing the Sovereign Individual thesis, and, it's been great talking with, with you and others on, on the thesis. Awesome. So Phil, where

can listeners find you

online?

I, and I think it's probably the same for, Substack, that's the easiest, easiest way to get in contact with me. Awesome. Well, I'll put those links in the show notes. Thank you for joining me, Phil. Yeah, thanks a lot, Steven.

So if you haven't already read The Sovereign Individual, I recommend having a look. It's very much worthwhile for a Bitcoiner. Check out the show notes for this episode, StephanLivera dot com slash one five nine. Stay safe out there, and I'll see you in the Citadel.