{ "episodeId": "SLP185", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "vijay_boyapati": { "name": "Vijay Boyapati", "role": "guest", "tag": "VIJAY" } }, "segments": [ { "speaker": "stephan", "time": "00:09", "start": 9.13, "text": "Hi and welcome to the Stefan Livera podcast, a show about Bitcoin and Austrian economics. Today, for episode one hundred and eighty-five, my guest is Vijay Boyapati. He's one of my regular guests. He's a crowd favorite, and we're talking about what Bitcoin is, are we thinking about it in the right way? This show brought to you by Swan. If you are in the US, you should abs- Absolutely get your auto stacking on with Swan. The process is so simple even a no-coiner could do it. 1. Autofund the USD from your bank account. 2. Auto-stack your Bitcoin. 3. Auto-withdraw your Bitcoin to your cold storage. Swan doesn't charge withdrawal fees, they want you to follow Bitcoin best practices and hold your own keys. 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You can find it on the Google Play Store or the Apple App Store, or go to Bitcoin Lessons dot org. Last but not least, Unchained Capital, Bitcoin financial services. Unchained Capital offer easy ways for you to set up with multi- Multisig and their products are built based on this. So if you're sitting on a single signature hardware wallet and you're considering ways to improve your security, Unchained offer a two of three vault, so you can set up with them. It's really easy to set up on their website. You can use two treasurers, two ledgers, or one of each and set up on the site. And if you need a loan and you don't wanna sell your Bitcoin, you can put up some Bitcoin as collateral and receive USD. That Bitcoin is never rehypothecated, and even in that scenario, you still hold one of three keys. Find out more at unchained-dashcapital.com. Here's the interview with Vijay. Vijay, welcome back to the show." }, { "speaker": "vijay_boyapati", "time": "02:38", "start": 157.53, "text": "Thanks, Stefan. It's, awesome to be with you again. I, I came out of podcast retirement to defend my title of most appearances on your podcast because it's, you know, everyone knows it's the best Bitcoin podcast out there, and I didn't want, didn't want someone like Pierre catching up to me, so I'm, I'm out of retirement and, really happy to be chatting with you." }, { "speaker": "stephan", "time": "03:00", "start": 179.84, "text": "I'm very excited to have you back on the show, Vijay. It's been So listeners, I'm sure if you're a regular listener, you know Vijay very well. Those of you who don't, Vijay is very well known, particularly in the Bitcoin world, for his article, \"The Bullish Case for Bitcoin.\" So Vijay, we've got to talk a little bit about this question because people are reassessing this question of what Bitcoin is. Is it a payment rail? Is it a burgeoning new store of value and new monetary, asset or commodity, if you wanna think of it that way? Now, you posted a thread on- This recently, and, it'd be great to explore some of this question of what exactly Bitcoin is." }, { "speaker": "vijay_boyapati", "time": "03:41", "start": 221.25, "text": "Yeah, definitely, and I'm, I'm really glad I get to chat, with you about this, because the, the question of what Bitcoin is has been raging almost since Bitcoin was first created. the debate be-be-gained coming to a head in about two thousand fifteen when the two main camps, which supported two very different visions for Bitcoin, actively began to argue about The direction that Bitcoin should take, and this is, this is often referred to as the scaling debate, and it culminated in a split of the network and the creation of, B-Cash in August 2017. And I wanna talk, about this debate because the question of what Bitcoin is has fascinated me since I came across Bitcoin in 2011. So, so let me start by giving, a very broad summary of what the debate is and what the two camps generally believe. on, on the one side, you had people who believed that Bitcoin was a sort of decentralized version of PayPal. It was, it was like a payment rail that allowed people to permissionlessly transact with each other at very low cost. this group Generally believed that a lot more transactional activity should happen on Bitcoin's blockchain. Because of this, they wanted the capacity, on Bitcoin's base layer, its blockchain To be increased substantially to accommodate more transactional usage, which they thought was a prerequisite for mass adoption of Bitcoin. And this crowd Also generally subscribe to the economic view that money is first and foremost a medium of exchange. Now, the other side of the debate were the group that believed Bitcoin was more akin to digital gold. They believed that its scarcity and its supply schedule were modeled very closely on the precious metal, and that changing Bitcoin's block size jeopardized the credibility of Bitcoin's monetary policy. If Bitcoin's block size could easily, easily be changed, then so too could its supply cap of twenty-one million bitcoins. I was personally part of this second group, and I argued really vociferously against a hard fork in various venues on the internet and, you know, email lists and so forth, while this debate was raging. this side of the debate generally held the economic view that Bitcoin was first and foremost A form of savings that should be huddled, because most of these types of people, including myself, had quickly learned the downside of spending their bitcoins. I certainly learned about the downside, when I spent three bitcoins in, two thousand and fourteen, I think it was, buying a Bitcoin ATM. And I'll never forget those bitcoins, I never got them back. so, so that's, that's a, a brief summary of the two sides of the debate. The next obvious- This question is why, why did this debate even exist? and part of the problem that started this debate was the, the somewhat ambiguous use of the word \"cash\" in Satoshi's original white paper. And if you look at Satoshi's writings, he seems to vacillate about what he meant, sometimes implying that Bitcoin was like gold and sometimes talking about using Bitcoin as a payment rail. And it seems to me that Satoshi didn't fully understand the economics of what he had created. And that's, that's totally fine. He, he's, he wasn't a god, and we shouldn't treat his writings as gospel. he created something incredibly important, and it's for us to try and figure out exactly what it is. anyway, so the group that supported the, the decentralized PayPal vision took the word \"cash\" in the white paper to mean that Bitcoin was supposed to be used transactionally, because that's how cash in the form of fiat is primarily used. but really, cash, the word cash refered to, originally, refered to physical coins under a gold standard. What it that meant then is money as a bearer instrument. and what, what I mean by a bearer instrument is the money itself, rather than a promissory note or credit instrument that wasn't the money, but an obligation to give you the money later. So i-in this sense of the word cash, it's perfectly compatible with the, the, the vision of Bitcoin as digital gold. So You had this ambiguity in the word \"cash\" that caused a lot of debate. Another source of the debate was the fact that in the early days, both visions seemed to make sense. Very early on, you could transact on the Bitcoin network with essentially zero fees, and you could shoot tiny fractions of a Bitcoin around at essentially no cost. You could do this because very few people were using the Bitcoin network, and miners were happy to include zero fee transactions, because they were almost exclusively-- the miners were almost exclusively compensated by the block subsidy, and with so little usage, it didn't hurt them to add Add those transactions to a block, there was still block space to, to, you know, put in zero fee transactions. so in the early days, you saw things like Satoshi Dice, you know, don't, don't know if you remember that, but, it was a gambling website where every bet, no matter how small the bet was, was settled, on the Bitcoin blockchain. it, in a way, it's kind of insane to think about Bitcoin's blockchain being used that way, but it was possible because a community of users Which was still so tiny. the, the vision of Bitcoin as digital gold also made sense in the early days too, because those who held their bitcoins saw the value of those savings increase substantially over time, which is exactly what you would expect with a fixed supply precious metal that's being adopted as a store of value. so I like to think of the similarity, in the early days of, you know- What Bitcoin looked like in terms of these two competing visions. I like to think of it in terms of an analogy. And this, I tweeted about this, and I said, \"Uh, many animal species look very similar in their embryonic form, but encoded in their DNA are rules that will eventually show you how different these species are in the fullness of time.\" and I like to go with this analogy because I think if you look at Bitcoin's DNA, the software- That's used by nodes running on the Bitcoin network and the consensus rules that are, encoded in this software, then you really begin to understand that only one of these two competing visions actually makes sense. so, so let's, let's talk a little bit about consensus rules. these are the rules that must be abided by, by every node running in the Bitcoin network. If you don't by, abide by these rules, you get rejected from the network. And the most famous of these rules is the rule about how many bitcoins are rewarded in the block subsidy per block, which this is the way of encoding Bitcoin's supply schedule, and ultimately gives rise to to Bitcoin's, supply cap of twenty-one million bitcoins. and the thing about Bitcoin's consensus rules that make them, so unique is that they're really, really hard to change. A, a consensus rule cannot be changed unless almost every node on the network decides to change the rule at the same time. And that's a really good thing because Bitcoin is a protocol. For value transfer, and I just wanna emphasize that it's a protocol. I, I kinda like to think about it as being similar to power sockets, which are a design protocol for how e-electrical devices should be, connected to power sources. If you wanted to change the design, shape for power sockets in the United States, it wouldn't be enough to convince one manufacturer, say Samsung to make different plugs on their devices, you'd need to convince all manufacturers at the same time, and you would need to have all of the actual sockets upgraded at the same time too. And that would be massively costly, and coordinating everyone to do it at the same time would basically be impossible, it'd be very, very difficult. but this difficulty, is a very useful property because it protects Bitcoin's core value proposition, which is Is its immutability, because it's so, so difficult, so hard to change, we can really trust the supply cap of twenty-one million bitcoins is an actual cap. a-and the limited supply is really the source of Bitcoin's original value and its, its increasing price over time. The other implication of the difficulty of changing Bitcoin is that the limit on the number of base layer transactions that can be processed on the Bitcoin network means that it's eventually gonna be uneconomical to use Bitcoin's blockchain for low value transactions, such as, you know, buying coffee or buying a loaf of bread. and th-but this, this isn't a problem, I don't think this is a problem, because it's still perfectly compatible with the, the vision of Bitcoin as digital gold. It's not compatible with the other vision though, Bitcoin as, as PayPal, or decentralized PayPal. and what, what you'll see is that Bitcoin will become used for very large scale value transfers, such as settlement between financial institutions. For instance, banks today have thousands of customers who send money between these banks every day, and the banks settle the full value of these transactions with each other at the end of the day. those are the kind of transactions that Bitcoin will ultimately be used for, and this is really similar to the way gold was used to settle between banks when the world was on a gold standard in the 19th century. the, the benefit of using Bitcoin instead of gold, though, is that Bitcoin avoids some of the really big disadvantages that come from gold's physicality. So, for instance, gold has a very powerful centralizing tendency, it's very costly to store, it's very costly to secure, which is what made- Gold's so easy to be confiscated. All the gold, most of the gold that, was used as money in the US was sitting in banks, and so it's very easy for the government to say, \"Hey, all that gold is now our gold, and you can't use it anymore.\" So that was one of the big disadvantages of gold that Bitcoin doesn't have, the centralizing tendency. The, the interesting thing about the idea of Bitcoin as a monetary base in the same way gold was a monetary base is that at its current stage of adoption, you have lots of people who own like pretty large chunks of the monetary base. It's kind of the equivalent of seeing regular people owning massive bricks of gold under a gold standard, and that's definitely an anomaly that you can't expect to see going into the future as Bitcoin becomes more and more widely adopted. adopted, eventually large holders of Bitcoin will have such a huge incentive to diversify their savings into other assets like citadels and so forth, that the supply will become widely distributed. So eventually I, I believe that the vast majority of people who own Bitcoin will own it through financial institutions of some sort, and when they wanna transact with these bitcoins, the financial institutions will use the base layer blockchain to settle their obligations. And while the fees might seem quite high for these large settlement transactions, they'll be massively lower, orders of magnitude lower than if these institutions were settling using physical gold. Now the financial institutions themselves may look a lot different to what banks look like today. They'll be a lot more decentralized and they'll settle using a monetary base that can't be inflated. a-and the fact that the monetary base can't be inflated has what I think are profound consequences for how governments will need to be run in the future. so, so that's, you know, that's a, a, a long sort of answer, but to summarize, I think in the final stages of its evolution, Bitcoin will have become a global monetary base, and, and this is really the only outcome I think is possible given Bitcoin's DNA, that is the consensus rules that are built into its software. It, it's simply not possible that Bitcoin could ever have become a decentralized PayPal. It would be like an M- Embryo with the DNA of a fish turning into a horse." }, { "speaker": "stephan", "time": "17:15", "start": 1035.0, "text": "I like the embryo, analogy. I think it's a good way to frame the things that we perhaps, if we had looked and assessed Bitcoin, we could understand what would be the future outcome. And I think some people in the Bitcoin world almost look back and regret the way it was sold and talked about in the past, because people thought, \"Oh, it'll just be cheap and free forever, kind of thing.\" Now- Now, I suppose the one thing that is going to be very interesting for most listeners is the vision you're spelling out there, Vijay. It might Well, it, it seems to necessitate a large amount of custodians and custodial use of Bitcoin. Do you believe it implies a custodial future for many bitcoins held by basically these Bitcoin banks, or do you see it like there may be some, some in between where, let's say, people are able to operate in a non-custodial manner?" }, { "speaker": "vijay_boyapati", "time": "18:17", "start": 1097.12, "text": "Yeah, no, I think that's a Great question. I, I sort of see, the future as, this sort of semi-custodial, these semi-custodial relationships forming where Bitcoin is great in that, because it's, programmable, you can, you can have these relationships where you have multiple people controlling the Bitcoin, so you can, you can use multisig and you, you can do all sorts of fancy stuff that you can't do with, You can't do with gold and, and you can't really do with dollars either. so I, I don't see it, existing exactly as it does now, but I do think-- I mean, I, I, I would just say if you consider the supply of Bitcoin, twenty-one million bitcoins, and you look at the world's population, seven billion people, if, if you divide that, what you find is the amount of Bitcoin once it's, you know, if it ever gets fairly uniformly divided amongst the world's population is, is a very, very small amount of Bitcoin, and it's just, it's an amount that, it, it doesn't really make sense to be transacting on the blockchain. The fees of transacting that small amount on the blockchain would just be really uneconomical. You'd be, you'd be losing, you know, five to thirty percent in, in fees to, to transact on the blockchain. So I sort of see, these Other arrangements arising, which I, I can't fully envision, but because of, because of Bitcoin's nature, I think there's gonna be some really interesting things that get developed, and you'll have a combination of multisig and people using Lightning. but I, I do believe that there will be a lot more custodial usage, it just won't look exactly the way it does now with banks." }, { "speaker": "stephan", "time": "20:08", "start": 1208.02, "text": "Right, and I, I think just off the top of my head, I think that number is approximately, if you divided by like, whatever, seven or eight billion, I think it's something like three hundred thousand sat, sats, three hundred thousand satoshis, which I guess at today's prices is something like thirty dollars US or something like that, right? Like it's, it's tiny, right? And if everyone only had, you know, three hundred thousand sats every time you did a transaction, some transactions might well have five hundred to a thousand sats worth of transaction fee So it's just not, and that's right now. So obviously, over time it would become even worse if everyone was just, like, trying to naively transact on chain, it just wouldn't be feasible, right? but potentially, as you mentioned, there are some of these ways to- have kind of semi-custodial or other ways, and s-some of these way-methods have been discussed on earlier episodes of the podcast, but I think the I guess the, the other point is along the way there, it is possible for people today who want to use it for transactions, day-to-day transactions, they, they can still currently, and I suppose that for some people that is their focus and they want to try and build the so-called circular economy. So is, is that a realistic goal or i-i-is your view essentially that that's not a long-term realistic goal?" }, { "speaker": "vijay_boyapati", "time": "21:37", "start": 1296.56, "text": "I think it's long term realistic, I just think it's short term it's not a very realistic proposition because, you just need more of the world's savings to be held in Bitcoin. If you're a merchant and- You know, a tiny, tiny fraction of your customers actually have any savings in Bitcoin. There, there isn't any point going through all the hoops and trying to understand, you know, the go, trying to sort of climb the learning curve to understand what Bitcoin's all about just so you can get a little bit of the savings from the small fraction of customers who have Bitcoin. When a much larger fraction of the world's savings are held in Bitcoin, I think there'll be a much bigger incentive for merchants to just hop on board board by themselves. And I think, you know, the people who really focused on using Bitcoin as a circular economy now, are really ideologically driven. They're, they're doing it for kind of libertarian reasons to sort of detach themselves from the system and so forth. But In my mind, ultimately, Bitcoin can't reach mass adoption based on an ideological motivation. It has to be economic. It has to be just better to use. And it, it isn't right now for merchants, it isn't better to use because it's much easier to go with other solutions. So, you know, we've talked about this, a few times in, in previous podcasts, I really think it's putting the cart before the horse. We need to focus on how do we get the world's savings into Bitcoin first. and, and to me, that means focusing on, on ramps that let people- Exchange the savings that they have in the form of fiat into Bitcoin. and once we have enough people who've done that, I think the merchant side is gonna take care of itself." }, { "speaker": "stephan", "time": "23:31", "start": 1410.57, "text": "Got it. And another implication as well is the world's current taxation laws, right? So CGT, capital gains tax laws, often for people who are operating on their real name, now it's a different story if somebody's operating in a more private way, but if somebody's operating, operating on their real name, CGT laws arguably stop that person or make it more difficult for that person to spend. And Now, in our, one of our recent episodes or our, our most recent episode, I think you were talking about this concept that essentially that, in some ways, drives the price even higher because less people are spending, pulling away the available supply of Bitcoin, and so I guess that thesis and that idea is that Bitcoin price will rise eventually and then over time, a longer-- this is a longer term thing, that it may essentially deny the state the ability to have cheap debt funding. So do you agree that that's potentially the way that thesis plays out, or do you have another idea on how that would go?" }, { "speaker": "vijay_boyapati", "time": "24:41", "start": 1481.02, "text": "Yeah, I think the, you know, the pool of savings moving into Bitcoin really does deprive governments of, of their ability to fund themselves. And I actually, I kind of wanna talk about that a little bit because I feel like that is kind of an esoteric- economic term, and I, I, I feel like I, I think your, your listeners would be interested in sort of diving into that. So the, the question I'm gonna pose is, what is the pool of savings? And, and the way I like to, to think about it is, you start by thinking of Robus-- Robinson Crusoe, on an island by himself, and he goes fishing, he, he collects coconuts, he makes salt by boiling water, and, and Crus-- Crusoe consumes most of what he gathers Because he's in a, a primitive state living hand to mouth, but whatever Crusoe is able to set aside for future consumption, or use is his, wh-yeah, so whatever he's able to set aside, for future consumption or use for investing is his savings. And savings are, are very, they're super important because they allow us to deal with an uncertain future, and they also allow us to, invest in bettering ourselves. So, for example, if it happens that it rains for a week and Crusoe can't go fishing or collect coconuts, his savings allow him to survive. Or alternative- Alternatively, he might choose to stop fishing for a week to invest that extra free time to building a fishing net, which will increase his productivity in fishing and his, and his savings really gives him the extra freedom to do that. Now, in, in a modern economy, we typically don't hold our savings in the form of fish or coconuts, we hold it in the form of money because it's the most liquid and easily tradable good, which allows us to prepare for many kinds of uncertainty and invest in many kinds of- lines of different in-vet-endeavors. so, so the pool of savings is just the aggregate of all the savings in an economy, and it needs to be pointed out that money is really just a representation of the underlying pool of savings. Or said another way, when you have savings in the form of money, the money represents the ability to control the underlying pool of savings in the economy, you know, things like factories and farms and restaurants and technology and so forth. Now, the problem arises when governments take control of money. Governments have the ability to create new money through inflation. which is really no different to transferring the pool of savings from the hands of the population in general to those who get the newly created money first. And inflation is really an insidious way of pilfering people's savings because it's largely invisible and most people don't perceive it's happening. Taxation, on the other hand, is, much more akin to openly putting your hands in someone's pocket and taking away their money. And because it's out in the open, it has a limit because people See and they understand that they're being robbed and they push back politically, and it's always placed a limit on how much kings could appropriate from their citizens because they needed to tax when the world used gold and silver as money, because those metals can't be inflated. Although, you know, you, you can chip them away and debase them a little bit, but nowhere near like what is possible today. And it's really, it's no coincidence that the growth of the state has accompanied the century in which governments replace sound money with fiat money. So, so to summarize, money is a representation for the pool of savings in an economy, and when money can be inflated, those savings can be appropriated by the state and used for things like war, war and Welfarism, you know, both of which are economically very harmful. a-an interesting thing is, is that money, i-it has different uses. It can be used as a store of value and it can be used as a medium of exchange. And you actually see in some countries, two different goods taking these separate roles. So for example, in Argentina, the peso is used as a medium of exchange, but most people prefer to save in US dollars because the rate of inflation is much- much higher for the peso. So this, this presents a problem for the Argentinian government that is trying to fund itself using inflation, since, since the pool of savings has shifted Into dollars, which they have no control over, they have a lot less power to appropriate savings by inflating the peso. So I really think the store of value use of money is by far the most important, because it's the w- it, it's the role that repres-represents where savings are kept, and it's, it's the use of the pool of savings in an economy that gives both political and, and economic power. So from the state's perspective, it doesn't Matter what people are buying coffee with if they can't fund a war. So the state really wants the, the, the store of value used to be the currency that they control because it gives them that power to appropriate savings from the population." }, { "speaker": "stephan", "time": "30:08", "start": 1807.99, "text": "That was a great, explanation there, Vijay, and I think it really goes to the importance of savings and capital, which is in, in, in the Austrian economic, if you read Austrian economics, that's a very important concept and very foundational to how an economy grows. so I, I, I'm with you there, Vijay. I think the point where maybe some Bitcoiners might disagree, and I, I'm curious to hear your thoughts, is the more people go towards a custodial vision or perhaps, let's say, it's a highly regulated environment, let's say it's, you know, the KYC environment And people might be wary that government may co-opt Bitcoin, let's say. So in the same way that, say, gold became very centralized into certain vaults, and then it became more easy for the government to try and, co-opt the function of gold and eventually transition people off of gold into, you know, fiat money and remove the any kind of tether between gold and, the US dollar. Do you see any sort of similar risk there with Bitcoin if many people use custodial services or use highly regulated services?" }, { "speaker": "vijay_boyapati", "time": "31:25", "start": 1885.11, "text": "Yeah, absolutely. I mean, I'm not gonna, I'm, I'm not gonna sugarcoat this. It's definitely a risk. Anytime you have savings being managed by a custodian in some way, it, it presents the risk of appropriation because governments, you know, have guns and they can knock on the door and say, \"Give us the savings.\" Mitigate this a little bit, like you can, you can sort of distribute control much more easily with Bitcoin So a custodian only has a part of the control. So I, I'm not gonna, I'm not gonna deny that this is a risk. I just sort of look at what Bitcoin is and I look at its fixed supply cap and I look at the, the eventual increasing cost of transacting, Bitcoin on the blockchain, and I, I kind of think that it's, it's inevitable that Bitcoin fills this role as a monetary base. Now, given those downsides that I acknowledge, I still think it's incredibly important. If Bitcoin becomes, the world's monetary base, I think that alone, a, a monetary base where people can keep their savings that can't be inflated away, I think that is so, so important. It, it's, it will literally change the way the world works. And the ability for governments to fund warfare and, and like I said, welfareism and things like that. So, you know, in the beginning, people thought of Bitcoin as this really cool tool to anonymously buy illegal drugs, and, you know, a lot of them were disappointed because it- It, they've learnt that it doesn't really fulfill that, anonymous medium of exchange role with this very sort of hyper-libertarian cypherpunk, ideology. It doesn't satisfy that very well, but I think it-- I personally think it, it, it satisfies something much more important, which is that savings, savings of people around the world can't be debased as easily, and that really-- that, that filters on to so many different aspects of, an economy and culture and, different aspects, societal aspects that, are very, very important. And so I think Bitcoin becoming, a global monetary base doesn't remove all risks, but it does something very, very good for the world." }, { "speaker": "stephan", "time": "33:53", "start": 2033.37, "text": "Right. And so I guess put in other words, and I think I saw an interesting hypothetical by Safteen a little while back, he mentioned this idea of, \"Well, imagine every Satoshi in the world was KYC'd. In that world, would you still accumulate Bitcoin?\" And for me, I think I still would accumulate Bitcoin because I think even in that world, it would still deny a lot, it would still basically enable people to save outside of- Government influenced money or government inflated money. And so I guess what I'm kind of going to there is that for some people who want to be part of the so-called Bitcoin circular economy and they want to earn Bitcoin and spend Bitcoin, you know, fine, you can do that right now. But even if you are merely holding Bitcoin, that's still part of this overall journey and transition away from fiat money, wouldn't you say?" }, { "speaker": "vijay_boyapati", "time": "34:50", "start": 2090.27, "text": "Yeah, I absolutely agree with that, and I agree with That proposition that Safe made, that even if it was known to governments that I, what my, the number of bitcoins I have, was known to them, I would still save in it because I'm saving it in something that they can't insidiously steal from me, they can't print Printed away and, it, it loses its, value because of that, because there are a whole bunch more of them created. and it still, even if they know that I have it That doesn't prevent me from, for instance, leaving the country and finding a new home. So if I find that I'm in a, an oppressive regime, imagine if I was Chinese and I wanted to flee China, maybe they know I have Bitcoin, but, if I can, if I can manage to get out of the country, I'm able to take my savings with me, which is a very, very important and valuable thing. And, and whenever I think of that, I always think of the, the great Austrian economist Ludwig von Mises, who fled the Nazis, during, I think it was before World War II, right before World War II began, he fled the Nazis, and came to the United States, but he didn't have any savings at all. He was penniless when he arrived in the US and had to start his life again, because it's just impossible when you're fleeing across Europe and you're trying to avoid detection, you, you just don't carry anything with you And, and, so yeah, it, you know, hearing that story makes me really sad to think of all the people in history who've had to escape, but they just ended up in the next place with nothing and had to restart their lives. Bitcoin, even if it's KYC, solves that problem." }, { "speaker": "stephan", "time": "36:40", "start": 2199.94, "text": "Right, and nowadays in the Bitcoin world, it's, it's a matter of, having twelve words written down or memorized potentially, or having a friend overseas that you send it to, if, if you, you know, trust that person more, or having some kind of complicated multi-signature setup where you distribute the keys across different geographies. I mean, these are all possibilities and things that people can explore when they're in Bitcoin land or Bitcoin world. I guess the only other challenge that may present itself here is If Bitcoin, well, let's say we're all right about this and Bitcoin does go massively higher and eventually it becomes less and less feasible for people to access the chain, access Bitcoin's blockchain and transact i-in an accessible way, because basically you have to be really, really rich to be able to do that on-chain tr-uh, transaction. Does that also present a, a challenge in your mind, in terms of access to Bitcoin and potentially if it all does end up going into kind of Bitcoin banks that you can't control, and then, is there like an angle there for inflation there? Or do you see it more like, I suppose the, the counterargument that I'm thinking of would be something more like, \"Well, they'll...\" There'll be enough Bitcoin banks and there'll be enough distributed around the world such that people can always access at least one kind of honest or true, way of interacting with Bitcoin." }, { "speaker": "vijay_boyapati", "time": "38:07", "start": 2287.24, "text": "Yeah, I really, I strongly agree with your second proposition. I think there'll be a lot more financial institutions. Anyone will be able to set up their own financial institution if they want, it'll, because it's just something you can do on the internet, and so, so I think it's gonna be a lot more decentralized than the current system, and there'll, there'll be banks overseas that can't be regulated by the US for, you know, people in the US, and you could keep your savings with those banks, for instance. I, I do really believe though that because of the nature of what Bitcoin is, it just, you simply cannot expect everyone is gonna hold their Bitcoin on chain, and this is, I think, a controversial, perhaps unpopular opinion of mine. That the vast majority who own the-- people who will own Bitcoin will not own it on ch-- on chain. It just, it doesn't make economic sense for them to do that. so yeah, the-- these people are gonna, the, the financial institutions we're talking about could be, you know, you, you with a node, running Lightning, allowing people to buy some Bitcoin from you at some fee, and then they can transact and buy things on, on- Online merchants like Amazon, because you have a, a, you know, a, a lightning connection to Amazon, so that, that's what a financial institution could be. It doesn't necessarily have to be, JP Morgan Chase or something gigantic like that. So I think we're gonna see a lot more, decentralized financial system with a, a lot more custodians, and the custodians may not have full control of the, the funds, like I said, it might be, m-many of them might use multisig or arrangements so that people who use the custodian can feel safe that the custodian isn't gonna just steal their funds." }, { "speaker": "stephan", "time": "40:00", "start": 2400.21, "text": "Excellent. And I think the other interesting element is this concept of what we might term a Bitcoin electorate. So over time, as more people hold Bitcoin, they-- well, it starts to become a part of their own portfolio, part of their own net worth, then now they have an incentive to go and try and influence the government and the, the rules and the- laws, they may lobby for better Bitcoin laws, they may try to lobby to remove capital gains tax laws. What's the potential that you see there around a Bitcoin electorate?" }, { "speaker": "vijay_boyapati", "time": "40:35", "start": 2435.33, "text": "Yeah, I, you know, I, I think the term I would use is something like political capture. And there's an interesting theory, I can't remember if it was Talib or someone else that sort of said that When you have a large enough minority in a population which is really strongly motivated by something, they can have a very powerful influence. And, and I think of, something like Uber, the ride-sharing company. you know, what they would do, and often in a, a lot of the cities that they came into, there were regulations about how you're supposed to run taxi business, and Uber would basically ignore these rules. And, and they would start their business, and they would grow really quickly because the, the service was so much superior to the, the status quo taxi system. And, and eventually they'd have this pool of drivers who are incredibly motivated for Uber, Uber to exist and would start lobbying on its behalf. And I, I, I think you really have something similar with Bitcoin as well. What you need is more people owning Bitcoin, and you want people, especially people in positions of power in Congress or, you know, in, in financial institutions who have savings and can agitate for be- for a better, political and economic environment for Bitcoin. And, you know, I think that there are companies like PayPal and JP Morgan, if you listen to their CEOs or, you know, people senior in these companies, just a few years ago, they were very, very hostile to Bitcoin. But I think what h- probably happened is these companies had people working at the company who were passionate about Bitcoin, who owned Bitcoin, and probably agitated over time to- Have the company, like, have a company like PayPal actually enter the market? and, you know, and the combination of that internal pressure, From the people who have been captured by, owning Bitcoin, plus the financial incentive, if you're a, a financial institution, you're someone like PayPal, you're sitting there looking at Square Cash, going, \"Holy smokes, these guys are making tens of millions in profit by allowing people to buy and sell Bitcoin. Why aren't we not doing that? There's this obvious profit opportunity sitting right here. We should be doing that as well.\" so I think it's gonna be a combination of political capture and also- So, eventually once Bitcoin, there's enough savings in Bitcoin, the, the profit opportunities of building businesses around Bitcoin will be so obvious that, it's just gonna suck people in, suck businesses in" }, { "speaker": "stephan", "time": "43:22", "start": 2602.22, "text": "I was listening to your recent appearance on Tom Woods, which was a great show, by the way. Excellent, explanation and articulation for, libertarians who maybe they're not as into Bitcoin as you and I and, and my listeners are. I was just wondering, are there any other areas where you believe we could simplify our message and communicate more simply about Bitcoin?" }, { "speaker": "vijay_boyapati", "time": "43:47", "start": 2627.26, "text": "it's, it's really, to be honest, Bitcoin is a complex top-topic. It, it really is a-- I think if you're, if trying to explain Bitcoin to someone who's a layperson, it's really important to try and understand at what level you should approach them. Like the ten-thousand-foot view or you-- are they already ready to dig into the weeds a little bit? And I find that often people don't calibrate the message that they give to what the person is willing to receive. And it's not just level of understanding, the other thing is how interested is the person who's, you know, receiving your spiel about Bitcoin if you're the person giving it. and I have a thread on, on Twitter about touch points and how often it takes multiple touch points for people to really appreciate that this thing is significant. They need to have heard about it You know, three or four times before the light goes off, and they're like, \"Hey, I've, you know, three or four of my friends have told me about this, maybe you should actually think about it.\" but, in, in terms of specific things that we could improve upon, you know, I, I don't, I don't have one in mind. I, I just think we've got this army of people who are so passionate and so motivated, about Bitcoin that you have people, explaining various aspects in In their own way, and so there's this division of labor of people just putting out fantastic content. You know, I've only written-- I'm a little embarrassed, I've only written one article about Bitcoin. actually, that's not true, I wrote a second one about Bitcoin and taxes, but no one has read that one. but, but you have all of these people out there, you've got people writing children's books, you have people writing, you know, Austrian treatises on, on Bitcoin like Safe's incredible book, and you have everything in between. So I, I'm not, I don't have any advice, for people. I, I think you should take whatever aspect of Bitcoin you're passionate about and whatever level you think is appropriate to explain it, and go with it. Go and write an article or, or write a short book, like Jimmy Song wrote a short book, which is a great introduction for beginners. I think he wrote it with Alex Gladstein as well. so yeah, I, you know, when people- People come to me with specific questions, I might try and approach it with an analogy or something like that, like Tom Woods on his podcast asked me about B-Cash and, I, I used an analogy of Twitter, a, a sort of uncensorable version of Twitter. I gave him a thought experiment and tried to explain what B-Cash was. It was, you know, these people coming along and saying, \"Actually, the, the uncensorable part doesn't matter. What matters is the, the size of the Twitter post needs to be increased from two hundred and eighty characters to three fifty.\" And sometimes thinking about it in terms of an analogy like that, you say, \"Well, that's pretty absurd. Why would you give up such an important--\" Important property, this uncensorable property, just to increase the, the size of the Twitter post. so I don't know, maybe that, that's one that I- I, I wanted to tackle, which was why, why is Bitcoin superior to Bitcoin Cash? I was so passionate, during the scaling debate about Bitcoin not increasing its block size, because I personally would have abandoned the whole thing, I wouldn't have wanted to be part of it, I wouldn't wanna keep savings in Bitcoin had there been a hard fork and, you know, consensus moved to, a larger block size. I, I think the whole- value proposition of Bitcoin would have been completely torpedoed. so that's, that's the area that I wanted to dig into, and it's also why I wrote this recent Twitter thread on what Bitcoin is, because I, I've had a strong, vision for what I think Bitcoin is from pretty early on, like I came across Bitcoin in 2011, and it- Almost immediately struck me as, hey, this is gold except with teleportation built in. I didn't, I didn't fully grasp all of the different aspects. I think by 2013, I had a, a pretty full picture of what I thought it was. It basically what I wrote in my article, The Bullish Case for Bitcoin, I, I understood That perspective since 2013. And there's been a few extra nuances that I've, I've sort of learnt since I wrote that article, and I think Saf's writing has influenced me a little bit, to think of Bitcoin as a, a really great vehicle for settlement. and a, and a really great collateral asset, like something that you post to a financial institution as collateral to be able to do other financial transactions, is really, really good for that. Yeah. So, sorry, that was- No, that's great. I think the rambling-" }, { "speaker": "stephan", "time": "48:55", "start": 2935.01, "text": "I think, I think for me, I would summarize that the main lesson for listeners is essentially calibrate your message for the person you're speaking to, right? Meet the other person where they are at, right? Like if they're not a tech-savvy person, don't- Launch into some super technical explanation about blocks and whatever, just give them a simple high level. Okay, hey, this is like digital money, right? That's, you know, a digital gold is a helpful analogy, essentially. Right. Yep. I'm also interested to ask, so listeners, check out, if you haven't already, check out episode forty with Vijay where we explore, one of Vijay's earlier articles, why credit deflation is more likely than mass inflation. Wondering Vijay, if you have any updated thoughts on that, in, in our current environment, which scenario is more likely? Are we likely to see a similar story in terms of asset inflation and not much in terms of CPI, consumer price inflation?" }, { "speaker": "vijay_boyapati", "time": "49:54", "start": 2994.34, "text": "Yeah, you know, there's this, I, I wanted to do a, a tweet thread on this actually and sort of bring out my old article which I wrote in 2010. And there's this, this meme that's been going around, very, popular meme that I think is really cool, meme, you know, \"Money printed by Burrrr.\"" }, { "speaker": "vijay_boyapati", "time": "50:16", "start": 3015.65, "text": "but I, I actually think, to be honest, I think that, that meme is really misleading about how, Inflation works and what the Fed is doing. And if I was to say anything, I, I would say that we are in a massively deflationary environment right now, and the Fed is doing everything it can to prevent, massive, large scale deflation. Because if, if you think about how money is created in our current credit money world, money only gets created when banks lend, into an economy. When they lend and they create a loan, if that loan gets defaulted on or, or doesn't get paid down, that is a form of deflation because, i-i-number one, it causes, a capital loss for the bank which makes the bank less likely to lend, it reduces their lending power And banks, if they have a reduced, desire or capacity to lend, that's, that causes deflation because as people are paying down loans, that's sucking money out of the financial system. So there's this natural tendency for deflation to occur as, as loans get paid down, people take money and they pay down the loan, it goes back to the bank, and if the bank doesn't lend it back out, then money is pulled out of the economy. So what you see is that given this, virus situation, there are so many businesses that don't have income streams anymore and which, who can't pay down their loans, and so are defaulting in some way or another. a-and that's, that's a really, really deflationary force. And so, so the Fed is trying to step in and, make these, loans whole by giving people money and, and allowing people, g- you know, giving people some of their income back. It's actually a relatively small amount that the federal government's giving out, but they're, they're creating all these, loan systems to, to, to backstop these loans which- Which there's no income stream anymore to back these loans because the people who are paying off these loans don't have jobs or don't have an income. but, you know, the, the way I like to think about it in terms of an analogy is that you have this gigantic balloon, which is the economy, and it's, it's burst in multiple places and there's air just like flowing out of this balloon, and this, this air flowing out of the balloon is kind of all the income streams that are no longer being paid And so it's contracting incredibly quickly, and the Fed is like blowing into one hole trying to keep the balloon inflated, but that's really, really hard to do. and, you know, it's, it's a little bit confusing because the stock market has been just- increasing like crazy since the Fed created all of these programs, but I think that's kind of misleading. I think if you If you look back at this a year from now, if this virus is still, causing governments to shut down populations and there's still, you know, large scale unemployment, I think we're gonna fall through the floor. I think this environment is as deflationary as, or close to as deflationary as the Great Depression was." }, { "speaker": "stephan", "time": "53:49", "start": 3229.35, "text": "So we've got a lot of actual credit deflation on, on the horizon then?" }, { "speaker": "vijay_boyapati", "time": "53:55", "start": 3234.55, "text": "Yeah, that's, that's my view. Yeah. Yeah, and, it really, honestly, you know, I gave that analogy of the Fed blowing into a huge balloon trying to keep it inflated. It really depends on, on whether they allow the economies to open worldwide, and if they don't, then I think it's gonna be very hard to avoid massive credit deflation. So it's, it's really a question of political will, and, you know, in democracies, it's very hard to do the right thing because you have this short-termism where people- People don't wanna be perceived to do the wrong thing, so they do what they think is the safest thing, even if that is long term harmful. And, and if it means like, hey, I wanna be the person who doesn't get people killed, then I'm gonna shut down the economy, even though a year from now that means that, all of these people are gonna have no savings and aren't gonna be able to pay down their loans, and I'm gonna have to deal with mass un-employment, I'm gonna do it now because if I open up the economy If only a few people die, then I'm gonna look really bad. So it, it really is a matter of how governments around the world handle this. I, I get the sense that This i-is, this is gonna play out for a lot longer than people think, and that we're gonna be in this sort of semi-depression for at least a year or two years more." }, { "speaker": "stephan", "time": "55:19", "start": 3318.57, "text": "That's unfortunate. And also I, I know, we've only got about an hour, we've only got a little bit of time left, but I thought just while we've got a few minutes, I think, it'd be good to get your thoughts on this whole Chaz, this, so-called Capitol Hill autonomous zone. as I know, it's, it's, it's in your area, right?" }, { "speaker": "vijay_boyapati", "time": "55:39", "start": 3338.9, "text": "Yeah, I actually live in Capitol Hill." }, { "speaker": "stephan", "time": "55:43", "start": 3343.12, "text": "So, look, has it been, has it been very confronting? Are you concerned about it, or is They're often doing their own thing." }, { "speaker": "vijay_boyapati", "time": "55:54", "start": 3353.59, "text": "Well, the neighborhood I live in, Capitol Hill, is a pretty large neighborhood. I, I live on the more suburban side, which is mostly just houses and, and a park and, and families. The other end, which is a bit more, built up and commercial, is, is where the chas is. And, you know, so honestly, it doesn't affect me personally too much, but it, it is very jarring and the ideology of, of the people who are, who created the Chas and, who, who, you know, protesting police violence. You know, obviously I sympathize with that as a libertarian, but their economic ideology is so, extreme and left-wing and Marxist that it's, it's really troubling. And, I, one thing I posted on Twitter was I went for a walk with my kids a couple weeks back and I saw, a po- A poster posted on, a light pole that said \"Wealth is Murder,\" and that, as a, a father of three children, that's a really troubling thing to see, and it had a picture of just a house, a regular house, not a mansion or anything, a house. and, you know, my parents escaped India to escape that kind of ideology. They were looking for opportunity, and they, they moved to Australia in the '70s because India was an incredibly socialist place with very little opportunity back then. and to see that ideology in America and, and that close to me, just, I, I, I find it very, very troubling, and, and I really hope that, people- Well, e- eventually learn the lessons of history and learn that you can't have prosperity and you can't have freedom without capitalism." }, { "speaker": "stephan", "time": "57:55", "start": 3474.56, "text": "That's excellent. But unfortunately, that's all we've got time for, though. So listeners, make sure you follow Vijay. You can find him on Twitter. His handle is at real underscore vj. is there anything else? any other, anywhere else you'd like listeners to find you, Vijay?" }, { "speaker": "vijay_boyapati", "time": "58:10", "start": 3490.37, "text": "yeah, Twitter, I'm, I'm real underscore vj at Twitter. That's where I, I put most of Content, like I mentioned, I have three kids, so I, I find it hard to do long form stuff. I wish I could, so many different articles I'd love to write, but I, I tweet threads, periodically, so find me on Twitter." }, { "speaker": "stephan", "time": "58:29", "start": 3508.72, "text": "Awesome. Well, thank you very much for joining me, Vijay, and I look forward to next time you join me on the show." }, { "speaker": "vijay_boyapati", "time": "58:34", "start": 3514.04, "text": "Thanks, Stefan. It was great hearing from you." }, { "speaker": "stephan", "time": "58:36", "start": 3516.19, "text": "I hope you enjoyed the show. I really enjoyed chatting with Vijay after a while. Find the show and subscribe by searching" }, { "speaker": "stephan", "time": "58:46", "start": 3525.65, "text": "Or you can find me on YouTube also. My website is stephanelivera dot com and the show notes will be stephanelivera dot com slash one eight five. That's it from me, thanks, and I'll see you guys in the citadels." } ] }