{ "episodeId": "SLP402", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "pierre_rochard": { "name": "Pierre Rochard", "role": "guest", "tag": "PIERRE" } }, "segments": [ { "speaker": "stephan", "time": "00:05", "start": 5.16, "text": "Hi, you're listening to Stephan Livera podcast, a show about Bitcoin and Austrian economics. This show is brought to you by Swan Bitcoin, and Swan is organizing a conference. It's called Pacific Bitcoin, and it's going to be on this year, November 10th and 11th. But make sure you turn up into town a bit early, because there's going to be a bunch of events on during the week. It'll be called LA Bitcoin Week. Pacific Bitcoin is optimized for fun. Sports, games, music, photo opportunities, and high fives. If you've got friends or family who are interested to learn about Bitcoin, this is a great opportunity to bring them along. And as this episode is with Pierre, I thought it would make sense to point out Pierre is actually gonna be a speaker at Pacific Bitcoin, so if you wanna catch up with him in person, you can find him there. The website to get your tickets is over at pacificbitcoin dot com, and you can use the code Livera to get a discount. I'm looking forward to seeing you guys there. Are you involved" }, { "speaker": "stephan", "time": "01:00", "start": 60.0, "text": "ways to go. They have BrainzOS Plus, this is firmware that you can install on your Bitcoin mining machine and you can use it to increase the hash rate on your ASIC, improving your efficiency by, by as much as twenty percent. You can mine on any pool or you can point your hash rate towards Slashpool, which will soon be Brainzpool and get zero percent pool fees. Brains also have FarmProxy, so this can help you reduce data transmission between your farm and the pool by ninety five percent. You can configure parallel usage of multiple pools and you can even set a backup pool for the Whole farm. Brains are also pushing forward adoption on Stratum v2. This is a next generation protocol for pooled mining, and they also operate Slush Pool, the world's first mining pool. Now, as mentioned, this is switching over to become Brains Pool in September, but the pool operations will remain the same. So to find out more, go to the website, it's brains dot com, that's b r a i i n s dot com. If you're thinking about Bitcoin hardware, CoinKite dot com is the place. They have the Cold Card, my favorite Bitcoin hardware Signing device. And if you're in Bitcoin, it's always a great time to think about your security and upgrading it, because you never know after that next big move upwards, your current security setup may not be adequate. With Coldcard, you can really start off with them as a beginner and improve your setup over time. So for example, you can just get a USB-C to USB cable and plug that into your computer and just use it as a beginner. Then later, you might think about using a microSD card to move that information back and forth, and finally, you may be looking into more advanced- Advanced solutions like multi-signature, you can go and pick up your cold card and all the other associated gear over at coinkite dot com and get a discount by using the code Livera. So today, my friend Pierre Rochard re-joins me on the show and we're talking about full reserve, fractional reserve, and how Bitcoin obsoletes fractional reserve banking. So we talk about a range of issues. I wrote an article on this recently as well, which I will link in the show notes, but we talk about the current system, fiduciary media, various historical or current examples from the And how things might work in a Bitcoin full reserve context. And now onto the show. Pierre, welcome back to the show. Stefan, thanks for having me back on. So, wanted to chat about Bitcoin full reserve as contrasted with fractional reserve and all of this. But, actually, first of all, congratulations on the new role as the, VP of, research, is it over at, Riot Blockchain, right?" }, { "speaker": "pierre_rochard", "time": "03:26", "start": 205.84, "text": "Yep, that's right. Thank you. And, you know, any views expressed on this point? Podcast or mine, not investment advice. D Y O R, all, all the disclaimers." }, { "speaker": "stephan", "time": "03:36", "start": 215.98, "text": "Yeah, and, you know, we'll, we'll get into, all kinds of stuff around, I think Bitcoin full reserve, fractional reserve, I think, quite, can be quite controversial. You know, some people, in some people's views, that's seen as very, over the top or hyperbolic, as some people might think of it. But, you know, I think that is just a genuine, people should have their own thought" }, { "speaker": "stephan", "time": "04:00", "start": 240.02, "text": "View for people like, what is this whole thing about fractional reserve, full reserve? Like for people who are not really clear, people who've, you know, just using their normal banking accounts, like what's the situation today?" }, { "speaker": "pierre_rochard", "time": "04:10", "start": 250.33, "text": "Yeah, absolutely. so first off, I'd start, I mean, you, as you mentioned, there's, you know, quite a bit of energy in this debate, and I'd emphasize that, you know, if anyone disagrees, with, what I have to say today, I'm, I'm always open to counterarguments" }, { "speaker": "pierre_rochard", "time": "04:30", "start": 270.08, "text": "Learning more and refining, my point of view, because I don't think that the issue of full reserve versus fractional reserve is central to, my views on Bitcoin, you know, in, in, at a macro scale or, even at a micro. And same thing with like S2F, right? I mean, people are like, \"Oh, S2F is like a central part of the investment thesis for Bitcoin, or it's not,\" et cetera. Like, you know, I think that at the end of the day, Bitcoin is Bitcoin Right? We, we always say that. And so I'm happy to be wrong on, anything that is peripheral to Bitcoin, just like, you know, eating steaks or anything like that. It's, it's not a big deal if we're wrong, as long as we're right about Bitcoin. Okay, so with that caveat, you know, yeah, feel free to put me on blast on Twitter if I say something stupid and you have, hard facts and sound logic, to dismantle it. So in terms of where we are today, for Fractional No longer in a fractional reserve banking system, that is that, central banks around the world have, set reserve requirements to zero percent, so there's no fractional, it's just zero reserve banking. But the other, part of it too is that when you have government sponsored inv- or, deposit insurance like FDIC, arguably that itself is a form of full reserve banking. Because now, because the government can print as much money as it needs to in order to make depositors whole, there's not really any economic difference between that state of affairs and actually having already printed the money and, you know, putting it in backing every single, checking account. So, yeah, I, I would actually argue fractional reserve banking, doesn't exist anymore in the fiat system because it failed and it all-- So if we rewind, we can look at- When it did exist, you know, and I, I think that it existed as a unstable equilibrium, right? So basically, the idea with fractional reserve banking is that rather than using specie, which is physical gold and silver, whether it's minted by a mint or whether it's, you know, actual grains of gold, or silver or any other, you know, any other currency, I mean I mean, you could really talk about seashells, right? Like those are-- as long as it's physical seashells, not paper seashells, you know, the principle applies. So, you know, people found it inconvenient and insecure to hold physical, and so they deposited their physical asset at a, let's call it, warehouse or some kind of depository institution, and, you know, it, it would be really convenient because back in medieval times Rather than carrying your gold from Italy across the Alps to France, you could deposit your gold at a bank in Italy and then travel through, you know, to France with some kind of paper, receipt and then withdraw your gold in France. that, you know, it saves you the risk of, being burglarized, you know, by highway robbers or just the inconvenience of having to carry Gold across a mountain. and same thing with, you know, boats, et cetera. and so you saw the development of banking systems like that. and then the fractional reserve part comes where now the depository institution or the warehouse starts issuing receipts, not when somebody deposits gold, but rather when somebody wants to borrow, from- That institution, and so the depository, institution will create, the receipt. So in the literature, you'll, you'll hear that this practice of- kind of, creating ledger entries and, you know, to, in order to lend out, money substitutes, will be called fiduciary media. and then the idea is that, because now this financial institution is really engaged in financial intermediation, that the warehouse receipts are not warehouse receipts anymore, but rather, they are claimed- Claims on the financial institution, in the same way that they're, basically unsecured, creditors, right? That, then the value of those claims is freely floating in the market. And so what we see or saw in fractional reserve banking systems is that, the fiduciary media would be freely floating against each other. So some banks would issue, a dollar that is real- really worth ninety-eight cents, and another bank that's in a worse financial position, its dollar would be worth, eighty-four cents, right? And then these, these m-money substitutes would be freely trading against each other, and merchants would have to keep track of what the current exchange rate was, between, every bank's, you know, dollar or, every bank's, you know, liability that they had issued. Obviously, this kind of- It, it creates a situation of like barter, right? Where you've got all this additional friction, but also it's very hard for participants to be performing due diligence and credit analysis, when somebody's trying to buy a beer at a tavern, right? It's like, okay, let me look up, where this, money is trading at, money substitute is trading at. Not scalable. It, it goes back into the issue of inconvenience for everyone and- It also is just not a very stable system in the sense that you would get bank runs, right? So a bank run is where people, whether it's rationally, right, because the bank is insolvent, or irrationally because they are panicking because some other bank is insolvent, not the one that they're withdrawing from, but some other one, and so there's, there's fear of contagion, right? That everyone's trying to withdraw their money at the same time, and because the bank has only- Only a small percentage of the, assets as the actual specie that is trying to be withdrawn, and the rest of the balance sheet, assets are actually loans, that are loaned out that, you know, will have a maturity of maybe one to thirty years, that, you know, the, these are illiquid investments that, it would take a while for them to be able to sell those assets and for specie and to redeem, the, the claims on the bank, so you get a bank run. And that creates social instability, right? Now you have people who are unhappy because they can't access their money, and perhaps they will turn to violence or other things, and that's where governments, now there's, there's kind of the, I forget what it was referred to in with regards to, prohibition, but you have the Baptists and the bootleggers. So the Baptists are the, the ones that want to do good, and they say, \"Okay, well, we need to...\" Have government intervention because depositors are being scammed essentially. And then you have the bootleggers, who are the bankers, who are trying to make money and who say, \"Uh, we need bailouts, we need, we need a lender" }, { "speaker": "stephan", "time": "12:28", "start": 748.05, "text": "of last resort, you know?\"" }, { "speaker": "pierre_rochard", "time": "12:29", "start": 749.45, "text": "Lender of last resort. We need regulation, which often is a way of having a moat around their business, right? A regulatory, you know, moat so that they can keep out competitors and establish themselves because they are able to pay for the compliance costs And all of this, and they have the relationships with the regulators and the revolving door, et cetera. So both bathos and bootleggers pushed for, additional regulation of banking, and with the establishment of the FDIC and with the establishment of a pure fiat system, I would argue that that was the final abolition of fractional reserve banking, and that in 1971 we moved to full reserve banking in a pure fiat system And abandon any pretense of any of this being backed by any fraction of gold, right? So I think that fractional reserve banking inevitably fails. I think it, it has failed. no fractional reserve banking has survived. And so, and it's funny because, Joe Isenthal, as a troll, he'll tweet out that no gold currency has ever survived, and I agree, but you have to add no gold standard currency, right? In the sense of, this idea of having- A fiat currency that is backed by gold, so I w- you know, I'd, I'd argue that that hasn't survived. Gold obviously has survived, right? I mean, you can still go buy, gold eagles or whatever, and it still has, some monetary value. We can debate gold, but I don't think that's the, focus of today's podcast." }, { "speaker": "stephan", "time": "14:03", "start": 842.51, "text": "Of course. Yeah. So it's interesting you say that we are, in from a US point of view, living under a full reserve standard, because that, I Forced to sort of accept all the, the same USD across all of the different banks, you know, that, and this idea that, you know, when loans are created, that's essentially the creation of new money, and when loans are paid off, that's the, I guess, the destruction of the money supply in a, in a sense." }, { "speaker": "pierre_rochard", "time": "14:32", "start": 872.05, "text": "Yeah, I guess my, my point there is that the, when the bank issues a loan, it's, you know, the, the-- on the deposit side, it's insured by FDIC. And it's not real insurance, right? Because you actually-- I, I don't know of any example of private insurance for, demand deposits. it's always been a government construct because there's no way to have an actuarial model around it. There's no way to quantify the risk. It's actually just a qualitative uncertainty. And so that's why it has to be subsidized by the government. Now, it's, it's kind of a, a deal with the devil in the sense that in exchange- For this FDIC insurance, now those financ- those banks have the government breathing down their necks all the time, right? And this is called the stability, soundness and stability, right? They always, that's like their mantra of, you know, or, or ensuring the soundness and stability of the system. And so you have bank examiners coming into your business and taking a look at your loans and double-checking everything, making sure that you're not lending out to your uncle. At, you know, preferential interest rate or all this kind of stuff, you know, any kind of self dealing, but, you know, they also look at things like FICO scores and risk management, and so now we have a system where essentially credit has become socialized. I mean that in the sense of, one, the government is allocating credit to specific, you know, demographics or specific, industries, and it's highly political because, and- Recently, it started to get into ESG, right? Of, hey, are your loans ESG compliant? Which has nothing to do with the soundness and stability of the banking system, but once you allow political actors to en-enter into your industry, guess what? They're gonna be political. They're not just going to abide by, what the economics of the situation are, and then, socialized as well in terms of the losses, right? When the system does blow up, now the government- is going to intervene and is going to bail out, the banks, and we've seen that happen repeatedly. So that's kind of, yeah, the, the, the status quo." }, { "speaker": "stephan", "time": "16:55", "start": 1015.07, "text": "I see. So then, what about the idea of, the notion of Austrian business cycle theory, so that this idea that extension of credit, so in this analogy where we're talking about the bank is extending credit using fiduciary media, as we spoke about, this idea of issuing out tickets above and beyond what it has- As in terms of, in terms of what is, you know, an expansion of credit that's not backed by savings, to use the way Huerta de Soto might speak about it, what are your thoughts around that? And, you know, why do Austrian economists believe that this extension of credit causes or creates the business cycle?" }, { "speaker": "pierre_rochard", "time": "17:30", "start": 1049.97, "text": "Yeah, absolutely. So, this was much clearer to analyze under a gold standard. Under a fiat standard, arguably there never is any real savings in the sense that if you were to- Try to define what is real savings in the system, you're basically just talking about people who are sitting on hundred dollar bills, you know, physical, currency. That's, that's the physical in the fiat system is hundred dollar bills, and, you know, there's very little of that relative to the number of people who are sitting on fiduciary media in the form of checking account, and, and then you get into like people using money market funds for savings and people using- The stock market for savings, people using, bond funds for, for savings and all this. So the fiat standard has been very effective at in-incentivizing people through monetary inflation to not hold money and to hold financial assets instead of, you know, varying, degrees of quality. So in terms of the, business cycle, you know, at this point, I would argue that it is entirely driven And by government policy. So it's not even necessarily private economic behavior that is driving the business cycle like it has, like it did in the past with, under a gold standard, where you would have people who would make investments using loans from banks that were creating fiduciary media. And so what this represents is that you are essentially telling the market that there is more demand for investment assets Real investments, then there actually was. And so then, as the investment, process progresses, at the end of the investment process, they find that there aren't enough real resources to complete the investment because those real resources were consumed, at an earlier point. And so for example, a, a, a, a great visual of this is building a skyscraper. So you embark on this project to build this skyscraper. Skyscraper, you know, it's eighty percent complete, and then you realize, oh, I actually don't have enough resources to finish completion of this skyscraper, and then the project has to get abandoned or liquidated at a much lower price, so that it can be recapitalized and completed, and, you know, obviously everyone who invested in that project gets, wiped out. And so that's a really easy tangible example is the skyscraper example, and there's actually a great paper, on the- This written by an Austrian economist about how the tallest skyscrapers get, you know, built at the end of the cycle, which is, you know, basically what you would expect. But that's kind of a microeconomic example. It, it happens at a macro level where the economy gets started on building massive investment projects that are completely un-just, unjustified, you know, based on the underlying real economics. At this point, you know, these cycles, in my view, are driven by monetary policy From central banks, and that is often driven by political considerations of what's going on with, you know, the election cycle. And so, one, one example of this, for example, would be when you have after 9/11, they decided to ease monetary policy dramatically, and, you know, Alan Greenspan was like being very patriotic, and he said, \"Oh, you know, I'll, I'll do whatever it takes to keep the economy afloat.\" And it's like, let's look at- Look at it from a real economics perspective. As tragic it it-- as it was, we're just talking about two skyscrapers that were destroyed, and they were fully insured, and so, really the economic damage we're talking about, you know, a, a few billion dollars in a multi-trillion dollar economy, there's not a real reason to say that we need to rescue the entire economy based off of two skyscrapers being destroyed. it's- Tragic as it is, but the politics of it were, you know, rah-rah, we have to, show the terrorists that, you know, we're stronger than they are, so let's just create a bunch of money and, let's flood the system with liquidity. And I would argue that if we look at the gold price as a proxy for how healthy is the fiat system, that is that the lower the gold price is, the healthier the fiat system is, and vice versa, that was an inflection point, and I don't think- I don't think that it was driven by kind of geopolitical risk that the gold price went up. I think it was driven by, okay, now the dollar system isn't really being managed particularly well compared to what it was doing in the eighties and nineties when it was, you know, much more tightly run. So, yeah, I'd argue that these cycles now, while they still have the same mechanics of, you know, traditional Austrian business cycle theory, I think that in terms of their timing and their causal mechanism, it's a lot more- Or tied to politics, because now the entire financial system, the entire monetary and banking system have been captured by, political actors." }, { "speaker": "stephan", "time": "22:54", "start": 1373.81, "text": "I see. And so in that sense, I'm curious where you see a legitimate role for credit to exist. Like if we were to exist under some kind of full reserve system, what role do you see for credit?" }, { "speaker": "pierre_rochard", "time": "23:07", "start": 1387.12, "text": "Yeah, so, hypothetically, I mean, it's, it's funny because one could argue that, you know, if we're already in- In a full banking system, full reserve banking system, then all we need to do at this point is to stop printing money. And so if there was no creation of new money, then, you know, we would have a functional fiat full reserve banking system today. And, you know, that's essentially, you know, Paul Volcker almost got there with his, money supply targeting at the end of the seventies and early eighties. The temptation is always, okay, well, why would the government do that, right? Because then- That, that might be fine for the first two years of Reagan's presidential term, but then he's like, \"Wait, hold on, we could actually, you know, increase our chances of getting reelected in nineteen eighty four by expanding the money supply and by loosening monetary conditions.\" So there's always going to be that temptation from a political point of view. Now, this is where we can talk about Bitcoin, right? Which is that Bitcoin is saying, \"Okay, we're gonna have a monetary system where at the base layer, it's impossible to create more Bitcoin.\" So So Bitcoin in a vacuum is a full reserve banking system, right? Where if you're holding your own keys, you know, there's, there's no way for somebody to, be, you know, creating fiduciary media. Now, you might say, okay, that's the case in theory, but what if people are using third parties to hold their Bitcoin? Aren't we-- And then those third parties are lending out those Bitcoin, aren't we entering into a case of fractional reserve banking? And, you know, I think this is an open debate. I think that- You know, we, we could argue both ways, because in my view, when somebody is depositing their Bitcoin at a third party, they, one, really are lending out those Bitcoin, whether-- regardless of what the terms of service say at a legal level, right? Regardless of what the marketing says, \"Not your keys, not your Bitcoin,\" right? Like that's, to me, the, the very clear, and I would backtrack into the gold situation, and I would say the same with Gold, I would say that when people deposited their gold with a warehouse and received a warehouse receipt, and, you know, it was all 100% reserve, et cetera, I'd say, you know, not your atoms, not your gold. so, I think that it was the case back then as well. Now, the difference between gold and Bitcoin in my mind isn't the, kind of the, the, the legal contract of the deposit, but it's really- It's really about the fiduciary media and its circulation. We still haven't seen any kind of emergence of fiduciary media for Bitcoin in the sense of saying, \"Hey, these are Blackfyte BTC,\" or \"Hey, these are Celsius BTC,\" and that these are circulating as money substitutes for Bitcoin. And I would argue that the reason we haven't seen the emergence of money substitutes for Bitcoin is because Bitcoin remains Very convenient and very secure, arguably more convenient and more secure than any kind of money substitute or fiduciary media that would emerge. And so what we see instead is that these, fiduciary media, if they circulate, it's only within these platforms. So for example, you, you can send Coinbase Bitcoin w- between different Coinbase users, right? If you have their email address, you can some-send somebody else Bitcoin within the Coinbase platform. Form, which is essentially a SQL database entry, right, transfer, and that exists today, and yet we don't really see this emerge as something that is, you know, seen as more convenient than sending an on-chain transaction. And so I think that it's, it's gonna be really tough for fiduciary media or money substitutes to compete against Bitcoin at a payments level because of the network effects, namely that Bitcoin is open source Of course, it's an open network, it's permissionless, et cetera. And so, in order to join the Coinbase Payments Network, you have to be KYCAML'd. You have to, furthermore, you, you can't run a Coinbase node, right? You can't verify for yourself. And we hear stories of people saying, \"Hey, look, I, tried transferring, these credits within this third-party SQL database, and, my recipient didn't receive it because there was a bug.\" Plug in the software or whatever. And so I think that fiduciary media, in the context of Bitcoin, it's always going to have more risk, more uncertainty than actually using real Bitcoin, right? And that wasn't the case with gold. I'd say the reverse was the, was the case with gold, where in practice, you had less uncertainty, less risk by using a gold bank than by actually using physical gold, because you couldn't do a multi-sig with gold, because you couldn't dematerialize gold in the same way way that you can with Bitcoin in the sense that, you know, the reason you, you would deposit your gold in Italy and withdraw it in France is because it allowed you, allowed you to travel with a piece of paper, right? And dematerializing it made it far more convenient. Bitcoin by default is dematerialized, right? That you can write down twelve or twenty-four words and you can travel across the Alps, with your, mnemonic. And on top of that, you know, if you have a multisig, you could maybe have a key In France, a key in, Italy, and now you're still full reserve, you're still self-custodial, and so you're really holding the physical Bitcoin, right? But you're able to travel with the same level of convenience that you would have with fiduciary media under a gold standard. So all this to say that I argue that Bitcoin really did make fractional reserve banking obsolete, and that we won't see the emergence of paper Bitcoin like we saw with paper gold where- Where people were actually, using, circulating, the paper version as kind of a, a substitute. Now, we could get into Lightning, right? I think that, you know, w- there's, people who will say that, \"Oh, you know, look at Lightning, it's like, fractional reserve banking all over again.\" I think that's utterly false. I think that, in today's, in today's Lightning network, maybe in the future things will change. I can only speak about what it is today, assuming your Lightning Bugs, and that you are connecting your lightning node to your own Bitcoin node, you can verify that the entire lightning network is a hundred percent reserve, in the sense that every lightning channel is anchored in the Bitcoin blockchain by a, an output, and that, on top of that, you know, the transactions that have updated the state, you know, with your peers, that you're able to hold those pre-signed valid Bitcoin- Bitcoin transactions, and that if there's any kind of dispute, you can broadcast that to the Bitcoin network, and that, you know, it will settle and it's 100% reserve. Now, I think that what is fractional reserve in Lightning, and, you know, we can, I'm sure people will, will, get into semantic arguments about this, but whatever, is the block space that is that if we wanted to all close our Lightning channels at the same time and go to the- The Bitcoin blockchain, you kinda have the same dynamics as a bank run, right? Where everybody is trying to, settle on chain at the same time, but because of the block size limit, they will have to wait, and that can introduce some corner cases of, okay, what if an attacker gets their transaction in, but the justice transaction is stuck in the mempool very far behind, and it takes so long to settle that the attacker actually outruns the time lock? And, you know, I think those are great avenues of research. We still haven't seen any, kind of bank run on Bitcoin's, Lightning Network yet. But I, I, I would argue that there's lots of reasons why it might never happen, you know, knock on wood. But, yeah, that, that's kind of something, if we're gonna accuse Lightning of being fractional reserve, it's not at the Bitcoin level, it's at the vBytes level." }, { "speaker": "stephan", "time": "31:39", "start": 1898.8, "text": "interesting. Yeah. and of course, there are areas and avenues of research here Research and ideas like this. But I think to bring it back to the frac-- no fractional reserve, you know, this concept that Bitcoin obsoletes fractional reserve banking. Now, there are others who, let's say notably, people like Kate Long, who've made the argument that perhaps there is some form of fractional reserving going on at, now we're not gonna point the finger at specific exchanges and things, but hypothetically, the argument, as I've seen her put it, is this idea that during this recent bull run in twenty twenty-one and early twenty twenty-two, that There were fractional coins or paper Bitcoin, let's say, and that some people's demand for Bitcoin was being satisfied by the paper coin on some of these unspecified large exchanges, let's say. So I'm curious, what's your view? Do you agree, disagree with that?" }, { "speaker": "pierre_rochard", "time": "32:29", "start": 1949.43, "text": "Yeah, I guess, I mean, maybe we get into a semantic debate, but in, in my view, you can have excessive leverage without calling it fractional reserve banking because there's no fiduciary media that is, you know, circu- As, money substitute. And so, yeah, you can have a situation where a business has borrowed too much money, pledged the same collateral to multiple lenders, and the-- that would be problematic. And if the business told one lender, \"Hey, this collateral is unencumbered, and I haven't used it to secure any other loans, but that they have,\" then that's just fraud, right? Like, that's not-- Yeah. But that's not fractional reserve banking, that's just, it's- Somebody defrauding a creditor by pledging the same collateral twice, you know, despite their representations. Yeah." }, { "speaker": "stephan", "time": "33:21", "start": 2000.52, "text": "Back to the show in a moment. If you're building on Bitcoin and Lightning, Voltage dot Cloud can help you. They can help you by easily spinning up Bitcoin, Lightning, or BTC Pay server nodes for you. 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Now they have a concierge onboarding program to help you with this, so don't feel afraid, they can help you do this even if you've never held your private keys before. They will ship you the hardware, they'll do a video call with you, help you withdraw from the exchange into keys that you control. Unchained dot com slash concierge is the website to go to, and if you put in the code Livera, you'll get a discount on your concierge onboarding program. And finally, mempool dot space is the Bitcoin explorer built by By Bitcoiners for Bitcoiners, it features real-time transaction tracking and mempool visualization so you can quickly get the information you need about your Bitcoin transactions. It's available over Tor and also completely open source so you can run your own mempool explorer at home on a Raspberry Pi with just one click. Over one million people use mempool dot space every month and the project is operated freely for the benefit of the Bitcoin community without ads or third-party trackers of any kind. Go try it out today at mempool. Dot space. And now back to the show with Pierre. I see. Yeah. And just, just while we're here, on that same topic, could it also be, like, here's the other way that people are, let's say, alleging that this could be occurring, and maybe this is fraud, maybe that's your answer, but let's say hypothetically, exchange ABC has, you know, a million customers, and each of those customers believe they have one Bitcoin on the platform, but actually the exchange only has a hundred thousand Bitcoin. You know, you, you get what I'm saying? Characterize that." }, { "speaker": "pierre_rochard", "time": "35:45", "start": 2145.14, "text": "Yeah, I mean, I think that, those, those people lent their Bitcoin to the platform and that, you know, it just depends on what the terms of service say, you know, of whether, there's fraud or not. And I also, I would argue that, you know, I, I'm, I'm not a lawyer by any means, but I, I do, you know, if I put on, kind of the product, hat, that if there's a disconnect between the client's expectations and what- The website says and what the terms of service say, then that's going to cause problems for all parties involved, right? Because the expectations aren't aligned. Now, where that will end up in the legal system or in the economics, you know, the devil's in the details, but that's really where I argue that like w-we have, we have an obligation to tell retail, our, our retail audience, right, that, hey Hey, look, on any of these kinds of products where you are putting your Bitcoin and, and sending it to somebody else, you know, you're entering into an investment, right? You have a cash outflow, and in return, you are receiving an investment product, and that it's going to require some research on your part in order to see if this is an appropriate investment for you. But just because the website says that, you know, there's one- Bitcoin, right? That's where it's like you're creating a false expectation for the user that is the-- what the website should say is that you have a note, right, a, a receivable that has a nominal Value of one Bitcoin that is redeemable for one Bitcoin under these certain conditions. And, you know, that's a lot to put on a website, on a webpage, but, if you, if, if as a business, you want to maintain your client's, expectations aligned with your own, then that's what your website should say. It's, it, it certainly shouldn't just say one BTC, right? And because now you're creating a false expectation with your client. And, you know- So that would be appropriate if perhaps you have collaborative custody, right? And so, you're like Casa or something where now you can put one BTC on the website, because there is actually a Bitcoin output, that is non-custodial that is one BTC, right? Or it's like a watch-only address or something. That, that's a situation where it's appropriate to put one BTC, but if that person actually deposited the Bitcoin with you and now it's, terms of service Bitcoin Well, you have to clearly communicate that with the client, to not get in trouble later on. Just not even with the lawyers or anything, but just in terms of your business with the client. Yeah," }, { "speaker": "stephan", "time": "38:42", "start": 2321.97, "text": "I love the framing there, the terms of service Bitcoin, because this is the one thing that people talk about Bitcoin colloquially, they may say, \"Oh, I have...\" Now, of course, we always recommend, you know, not your keys, not your coins, you should self-custody, but I can imagine people saying, \"Oh, look, I've got three Bitcoin" }, { "speaker": "stephan", "time": "38:59", "start": 2339.38, "text": "So whatever, whatever exchange. And, this is a, this is probably a time, an opportunity for people to speak more clearly about things. And there have been moments in Bitcoin's history where people were very clear about this. So, the obvious example is Mt. Gox coins. So there was a time when Mt. Gox was undergoing stress, and this was sort of late twenty thirteen, maybe early twenty fourteen, I can't remember the exact time, but there was a different price for Gox coins than there were for coins on other exchanges, and that was very clear. And it That's, that's just a, a thing." }, { "speaker": "pierre_rochard", "time": "39:31", "start": 2370.64, "text": "Yeah, and we didn't see those Gox coins circulate as money substitutes, right? I, it's not like you, you'd go to a merchant and they'd be like, \"Oh, do you wanna pay us in Bitcoin or in Gox coins? And here's the exchange rate.\" Like, so I, I think that, you know, those clearly didn't devolve into fractional reserve banking, even though people said, \"Oh, now Gox is a fractional reserve bank.\" I'd argue, no, it's just, it's Where, the creditors are trading, you know, the liabilities at a discount, and that's not fractional reserve, and there's no, ambiguity in, in, in my mind at least. Sure. So" }, { "speaker": "stephan", "time": "40:13", "start": 2413.11, "text": "then" }, { "speaker": "pierre_rochard", "time": "40:14", "start": 2413.51, "text": "maybe" }, { "speaker": "stephan", "time": "40:14", "start": 2414.19, "text": "let's throw a few other examples out there just to clarify for people. So then the way you're speaking about it, so as an example, if let's say, okay, let's take the example of El Salvador. So El Salvador, population of about six and a half million, and let's say three or four million of them are using Chivo Wallet. And let's say, you know, people are depositing coins and they're doing internal transfers, so I guess it's the same kind of thing like you were saying, right? They're just doing internal transfers, that could be a SQL database operation as far as we're concerned. But I guess to your point, it's that, it's not that Chivo Bitcoin are circulating outside of the Chivo ecosystem, or if they are, they're just, you know, it's a Lightning transaction, then, then, then it's just hitting the normal standard Bitcoin Lightning network and therefore not" }, { "speaker": "stephan", "time": "40:59", "start": 2459.4, "text": "Review. What would it take then for it to actually be, like, for someday, hypothetically, fractional reserve-- you know, fractional reserve Bitcoin?" }, { "speaker": "pierre_rochard", "time": "41:08", "start": 2467.73, "text": "Yeah, so I mean, they would have to build a payment system that competes with Bitcoin and Lightning, and that's really challenging. The, the network effects on that are really hard. You know, we, we could see them try to leverage, for example, maybe they could try to leverage like Visa and Mastercard, right? And we do already see some cards Where it's like you can, spend your Bitcoin, but I haven't seen any where it's like you can spend your Bitcoin, but the Bitcoin value is, terms of service Bitcoin that's freely floating against Bitcoin, right? It's, it's generally like pegged like a gift card, and I wouldn't call a gift card a money substitute per se, it's, to, in my mind, the, in order to be fiduciary media, it has to be freely floating. The value can't just, Be, you know, one for one. Something's odd there if it's one for one. Either there's some kind of, government backing or it's a hundred percent reserve. right, that's, the, the alternative there. Sure." }, { "speaker": "stephan", "time": "42:11", "start": 2531.09, "text": "probably another interesting example might be, let's say, Binance Pay. Now, I don't know the full details of how Binance Pay works, but as an example, I know they have a merchant solution and you can pay, and I believe it's like some kind of custodial system where, again, a Binance" }, { "speaker": "stephan", "time": "42:30", "start": 2550.08, "text": "But maybe that's kind of like a similar idea to what you were saying there." }, { "speaker": "pierre_rochard", "time": "42:34", "start": 2553.5, "text": "Yeah, and going further, I mean, there's also Binance Smart Chain, right, where they actually, or, wrapped Bitcoin. so you could imagine a situation where, I think that it's BitGo that's the custodian for Wrapped Bitcoin. Now, to be clear, I don't know anything about the situation with Wrapped Bitcoin, so I'm not, trying to defame them or anything, but one could imagine that if there's a custodian for a Wrapped Bitcoin It is, and that custodian is actually holding less Bitcoin than they are representing or that, you know, that, then they have issued on the other chain, then now we're, we can be talking about fractional reserve banking, right? Of this wrapped asset would be trading at a discount versus real Bitcoin on the Bitcoin network. And then in my mind, whether it's successful fractional reserve banking or not would really depend on, is there adoption of this? you know, Binance Smart Chain, Fractional Reserve, Wrapped Bitcoin, are people actually using it? Is it circulating as a Bitcoin substitute? You know, haven't really seen it so far. we've seen hundred percent reserve Wrapped Bitcoin on Ethereum, you know, circulate as collateral for some of these DeFi protocols. But yeah, I, you know, economics aside, it's obviously a problem in the sense that, it's centralized, right? That you're trusting, BitGo with the wrapped Bitcoin, you know, cust custodianship, but it's still a hundred percent reserve, so I don't, I wouldn't call that fractional reserve, Bitcoin." }, { "speaker": "stephan", "time": "44:09", "start": 2648.57, "text": "Of course. And probably another interesting example, although I would categorize it's probably more like a full reserve, is Liquid. Liquid is, a federated sidechain, Blockstream and, a bunch, I think it's fifteen functionaries. And so the idea is individuals can peg in a Bitcoin and take one Bitcoin and peg that into Liquid, and now it becomes an L Is, you know, equivalent, okay, they've got this many Bitcoin that was packed in and, here's the however many LBTC exist when you're running a full liquid node, let's say. So I'm curious your view on the economic character of an LBTC. Would you characterize that then as a, you know, as a substitute?" }, { "speaker": "pierre_rochard", "time": "44:46", "start": 2685.54, "text": "I mean, as far as I know, it's still 100% reserve. Yeah. And so I, I, I wouldn't, you know, say, \"Hey, this is, this is, fiduciary media.\" You know, there you're trusting the federation to be able to peg out. but, yeah, it, you know, maybe, I, I, same thing with, with Wrapped Bitcoin. I mean," }, { "speaker": "stephan", "time": "45:07", "start": 2707.26, "text": "I, I" }, { "speaker": "pierre_rochard", "time": "45:08", "start": 2707.52, "text": "think that, you know, there, it's a different trust model economically. Yeah, I'd Same thing with, FedMeant, right? you know, we could talk about FedMeant as well, it's been in the news. I know you've done some podcasts on it. And then, now, what I like about Lightning is that it's at this, opposite end of, you're, you're not trusting anyone, other than, you know, your own software and how you've configured it with the right time locks and all of this. And then of course, on chain, right?" }, { "speaker": "stephan", "time": "45:35", "start": 2735.26, "text": "Yeah, of course. And so we would say Speaking, that's the most trustless or most trust-minimized, let's say. So I'm curious as well then, because people might be thinking, \"Okay, Pierre, like if we're accepting this idea that, okay, Bitcoin is obsoleting fractional reserve, what does that mean then for business? Because again, people might be, again, they've grown up in this world of, you know, of the system where we have this fiat money, and they're used to business funding itself through debt or expansions. So how does that work in a Bitcoin world, in your view?\"" }, { "speaker": "pierre_rochard", "time": "46:15", "start": 2774.96, "text": "Yeah, so first of all, they could still borrow Bitcoin, and we do still see a very active borrowing and lending market for Bitcoin. Now, I, I would always caution people that even the people who are borrowing and lending Bitcoin full time as their profession have had issues with, credit going bad. And so if you're trying to survive in this crazy- Crazy, Wild West. Not your keys, not your Bitcoin, right? Don't lend out your Bitcoin. You should put them in cold storage and let the professionals try to work out, you know, how does lending and borrowing work and, you know, getting wrecked and all this. so I'd really caution people to, to, you know, be very, very wary of any kind of product where you're gonna send your Bitcoin to somebody else, versus, holding it in cold storage. So there's that. The other part of it is, you know, if it's the case that the professionals are getting wrecked on credit, is it because it's impossible to have any kind of investment where the return of the investment is greater than the cost of capital, right? Of, the interest rate paid to, the lender? I think maybe that's the case while Bitcoin is still so volatile, because of where it is on the adoption curve, and that longer term- When things settle down, that there will be, you know, investment opportunities where credit will make sense. But I also think that, you know, this idea of putting your money to work and investing is very fiat, and that people have been forced into it, as I mentioned earlier on the pod, due to inflation, and that perhaps not everyone should be investing. And in fact, I would argue that what makes sense to me is that investing will be driven by utility. And what I mean by that is, okay, what's, what's the utility of investing if we remove kind of the speculative, okay, I'm gonna earn a financial return on this? Well, for one, if you are looking to make income, right? It makes sense to own your own business, so that you can control how you do your work, and that's the utility of owning equity in your business. It's not that you're trying to make money off the equity, it's that you're actually trying to control your own destiny. And, do things your way. so I, I would argue that that's a fine reason why you would wanna own the equity in your business instead of owning Bitcoin, right? Because the alternative is you, you could sell your equity to others who aren't, you know, not smart enough to realize that Bitcoin is a better, allocation of capital. So I think that there's that aspect of it. there's also like, same thing with real estate, the reason that you would want to own your own house and own the equity in your house instead of rent- Renting your house, for example, is because you don't want to get evicted when the property developer decides that instead of renting, they're going to knock it down and build a skyscraper, right? So, again, it gives you control. And controlling an asset is utility, right, beyond just, the question of are you going to be able to sell it for a higher price in the future or are you gonna be able to earn, a cash flow on it. So that's where I think I think that investing will go is that either you'll have, people who are investing their own time and money into building up equity, and, you know, equity is like, even if the value of the equity goes down long term, you still derived the benefit of controlling the, the economic entity, the corporation or whatever it is, the partnership, and so it's not like you actually had a loss because you have to add up the intangible- Utility of having been able to make the decisions, in addition to kind of the salvage value of the economic entity at the end of the period. So, yeah, that's, that, that would be my argument for why you could even have negative returns, and, people would still wanna own equity." }, { "speaker": "stephan", "time": "50:32", "start": 3032.48, "text": "You heard it here first, everyone. Pierre says, \"Uh, your house is a utility coin.\"" }, { "speaker": "pierre_rochard", "time": "50:37", "start": 3036.82, "text": "It is. It, it absolutely is. And that's why I, I, I really think that it needs to be demonetized, right? Now people are owning real estate In order to, sell to the greater fool, who will pay a higher price. And in my mind, this is all driven by the fact that the government is subsidizing the, the, the mortgage market, right? That thirty-year mortgages and interest rates are, set by government policy." }, { "speaker": "stephan", "time": "51:01", "start": 3061.21, "text": "Yeah, I definitely agree that there's been a lot of institutional subsidy or just the way people think about it. It's cultural as well. Different countries around the world, Australia has a strong, very strong property cult. Yeah. And so I think, yeah. Well, I was," }, { "speaker": "pierre_rochard", "time": "51:15", "start": 3074.98, "text": "I just, the thought popped into my head with regards to, you know, the issue of monetization of businesses, it's the same as with, real estate, where, you essentially have, large corporations are subsidized by the money printer. they get preferential access not only to bank loans, but also to equity markets, and this actually is a problem for people who are trying to start their own business, because now you're competing for- Labor for capital, for, you know, real resources against people who have an artificially lower cost of capital. And in my mind, that's why the entrepreneurship and being able to start a small business has gotten harder over time, or versus under a Bitcoin standard, it'll actually be very, a lot easier than it is today, right? Because one, you'll be able to work for somebody else, save up money, not have to invest it, right? Just save up money for a few years, and that'll be enough to capitalize your business. You won't have to save money for ten years or twenty years to do a startup. you can save money for a few years and do a startup because, all of the investment assets that you will be paying for, right? W-whether it's a computer or real estate or whatever it is, will be much less expensive in, real terms. And so, it's gonna be, in my mind, a much more dynamic- Economy than it is today, where you have these ossified large businesses that profit at the expense of small entrepreneurs." }, { "speaker": "stephan", "time": "52:54", "start": 3173.69, "text": "I agree with you, definitely, Pierre. And I think the other point to add would be the world today allows politically connected people to be gatekeepers of capital, and nowhere else do we see this. Now, even now, we're talking about ESG, right? So this, they are gatekeepers, and they, you know, nowadays, if you're a young person and you're trying to get capital to start a business, you have to go through the gatekeepers, and then if Then you have to kowtow to their ESG line or whatever other, you know, ideology of the day, whereas in a Bitcoin world, it's perhaps more so that you could just save up your money and just start up your business. And so I think those are some of the things that people who are listening today are thinking, \"Oh, hang on, how are we gonna work in a Bitcoin full reserve world? Like, my business relies on credit, I wouldn't be able to run it or I wouldn't be able to start a business.\" Well, I think the answer is, Decos, you know, the costs of goods, right? So this idea of growth deflation, as Joseph Salerno puts it, or let's say, Jeff Booth would call that, you know, technology deflation or the, the good deflation. We're gonna be living in that kind of world. And so I think we can summarize it a bit like that. But to, I guess, and to the, you know, as you were saying, Pierre, perhaps to that question of why aren't we seeing Bitcoin credit markets now? Part of the reason of that, at least as I Record for any person, any business to actually outperform Bitcoin returns, maybe only a very few, some of the exchanges, maybe, maybe some of the early miners have outperformed Bitcoin, but other than that, it's just incredibly difficult to actually outperform Bitcoin as a Bitcoin entrepreneur, and that's why, you know, so many have tried and failed." }, { "speaker": "pierre_rochard", "time": "54:34", "start": 3274.32, "text": "Yeah, and even if you have a situation where they outperformed on paper, you know, financially, the bottom line is that the person who was holding Bitcoin in cold storage had the u- Utility benefit of no counterparty risk, liquidity at any time, right? They could, sell their Bitcoin much more easily than they can sell private shares, for example. The, they are able to run their own Bitcoin node, so they don't have to-- they can't run a node that says, \"Oh, here's your, equity right stake on the cap table for this startup or whatever.\" So they also didn't have kind of, you know, if you're an employee at one of these companies, you can turn into like golden handcuffs, right, where Leave the business because you're tied to the exit or whatever it is. So I think that there's lots of utility arguments for why, if you adjust for the utility of having held in cold storage with your own node for ten years, that now Bitcoin has outperformed, any other, investment or any other financial return, y-uh, on the gatekeeping point too, it's like people who say like, \"Oh, I wouldn't be able to have my business without bank credit,\" well, that just means That they have a business that fits into the template of a bank loan officer and what they will are willing to extend credit to. But if you have a business that is like a crazy idea that no bank would extend credit for, right? And quite often those are like the most innovative and most successful businesses, then you're shut out of the credit market. And so I think that being able to self-finance by saving up money, is actually much more powerful because it allows people- People to pursue ideas that nobody else believes in, whereas, you know, in, in the credit system, it's like, \"Hey, you better have a, a proven idea, right? Where we, we, we've seen other people succeed with this.\" You know, I would argue this is the rise of franchising, right? Of, now we have this generic capitalism where it's just all the same, stores and all the same restaurants in every town that's also subsidized by fiat." }, { "speaker": "stephan", "time": "56:42", "start": 3402.18, "text": "And another factor to add here and just consider For listeners, is the unseen. So this is something that Austrian economists and people talk about, Henry Hazlitt, Friedrich Bastiat, and all these people talk about. Even recently, people like Per Bylund has, have spoken about the impact of regulations. And the problem being, some of these regulations and gatekeeping and things, and control are stopping businesses that otherwise would have come to fruition and we would otherwise see them today. So we, absent this fiat control over the money system, we might see a much more vibrant economy today. We might see all these Businesses and different ways of operating, and maybe technology advancements that, that we would have otherwise had if it didn't all go into financing all these random, you know, VC-like kind of failure, failed projects." }, { "speaker": "pierre_rochard", "time": "57:27", "start": 3447.45, "text": "Yeah, absolutely. I think that VCs have their, their place, but I think that they've, they've become, overvalued in a fiat system relative to what they ought to be." }, { "speaker": "stephan", "time": "57:39", "start": 3458.74, "text": "Yeah. So I, I think it will sort of bring power back to individuals who are able to be judicious and- Able to save and have that value of thrift, being able to produce more than what they are, you know, consuming, either as a business or whether they are doing that as an individual, in either case, I think Bitcoin brings a certain level of discipline to the market and to all of us, really, that we have to learn to operate within that frame, and that discipline in turn will create a much more vibrant market economy. It's, it's how I'm seeing it at least. I'm curious if you agree, disagree?" }, { "speaker": "pierre_rochard", "time": "58:12", "start": 3492.08, "text": "I, I completely agree. I mean, I think it also adds To the consumer sovereignty part, where we've seen businesses that essentially can survive off of investors, right? Where investors are, adding more and more capital because they're getting this capital basically for free from the fiat system, and that means that the business, its future isn't really tied to consumer preferences as much as, investor preferences. And so we've seen the rise of like woke capitalism and things like that, where, you know, got companies that are like insulting their- Consumers instead of, you know, treating them like kings." }, { "speaker": "stephan", "time": "58:48", "start": 3528.25, "text": "Yeah. So one other question I've got for you actually, just while we're kind of on this whole topic of, fractional reserve, full reserve, I'm curious what you make of these arguments around the Eurodollar system. So this system outside of the US, that it, you know, because I guess traditionally Austrian economists have looked at things like M zero, M one, M two and said, \"Oh, look, you're pyramiding up debt, this is causing the, et cetera, the business Dollar markets that are just entirely outside the purview, or at least mostly outside the purview of US regulators, US government, and perhaps that is also another unknown factor or unknown variable in the money supply. So I'm curious your take on that. Do you see that being, you know, part of this, I guess, sort of, how important do you think that is in terms of assessing the fiat money system as we see it today?" }, { "speaker": "pierre_rochard", "time": "59:39", "start": 3579.16, "text": "Yeah, absolutely. So I think that now, now we might be getting into actual fractional reserve banking that- That still exists today. But, you know, in financial crises, what we see in practice is that the Fed bails out the world, right? And so even if these other systems are-- and I, I would go further than euro dollar, I would say every other, fiat currency arguably is a dollar substitute, and is kind of a freely, freely floating, dollar substitute. Now, as of late, you know, we've seen, the euro and the dollar essentially, get to parity, but, I think that- Because, and this, this gets to why the dollar is the world reserve currency, is that, the monetary policy that comes out of the United States, out of the Federal Reserve, determines the monetary policy for the entire world. And so if the US is tightening monetary policy or loosening monetary policy, that has knock-on effects for every other central bank and thus for every other financial system, every other economy, throughout the world, which in my mind is like the most- Undemocratic thing ever, because these, not only do Americans not vote for, you know, who heads the Fed, right? Because the Fed's independent or whatever, debate how much influence the president has on the Fed and whatnot. There was some interesting, back and forth with, Trump and, and Biden on that. But that aside, these people in other countries, they don't vote for the US president, and yet the US president is going to appoint who ultimately, controls, their monetary policy. So Yeah, I think that, you know, I'll, I'll let the, the macro talking heads, point out kind of the specific, tie-ins between Eurodollar, the domestic dollar market, and, all the other foreign currencies, but it's a giant, pyramid scheme, and it's all banked off by the Fed. So we saw during the last financial crisis they had these secret currency swaps worth hundreds of billions of dollars, trillions of dollars with all, all the other central banks. Now, how tightly coordinated is that? Is it, you know, the WEF or is there, you know, some kind of Bilderberg group, whatever? Or is it just, they've got some, they're on WhatsApp, you know, texting, hey, can you send me some money we're about to give us? clearly there is coordination, between the Fed and all the other central banks, because they understand that there is like mutually assured destruction in the sense that if you have one of these parts of, one of the legs of the Ponzi scheme go into a def cycle that that has a contagion effect on the rest of the system." }, { "speaker": "stephan", "time": "01:02:19", "start": 3739.07, "text": "Excellent. And, one other area I wanted to touch on, it just came to my mind now, is this question around denomination. So this is a thing, obviously, as countries get into trouble around the world, what we've historically seen and even today, what we see, some of them dollarize. Now, part of our thesis, let's say, as Bitcoiners, as Daniel Kreis, you know, all those years ago, wrote the hyperbitcoinization article, and, Conrad Graf also mentioned this idea" }, { "speaker": "stephan", "time": "01:02:44", "start": 3764.98, "text": "A problem for the Bitcoiner thesis that there's not a lot of people denominating prices in Bitcoin terms, because as we know today, there are few who would do this today. Like typically it's US dollar pricing, and then they just convert at that time, okay, this is, it's this many Sats. So I'm curious from your point of view, is that an issue, or is that more just like a, that will just come later down the track?" }, { "speaker": "pierre_rochard", "time": "01:03:06", "start": 3786.4, "text": "Yeah, so there are, I'd say there's probably like at least three demographics today that are using, Bitcoin So you've got miners, right? 'Cause they're thinking about, do I buy Bitcoin or do I buy a mining rig? because those cash flows, those future cash flows are denominated in Bitcoin. You have altcoin traders who will often look at their portfolio and benchmark it against Bitcoin and, see if their, you know, trading is outperforming Bitcoin. And then you have the hardcore Bitcoin Maxies who are really looking at everything, not just-- well, obviously they don't have an altcoin portfolio, but high- Hypothetically speaking, they're looking at all their assets, their entire balance sheet, and, looking to see what's gonna outperform Bitcoin. Well, nothing. Nothing's gonna outperform Bitcoin, and so they are selling their shares, all right, selling their cars, cutting their own hair, because they are using Bitcoin as their unit of account, and they're realizing that, it's, it's in their self-interest to maximize their accumulation of Bitcoin. So I think that as Bitcoin grows The number of, people who are using Bitcoin as their unit of account will grow. It will hit an inflection point at the same time as store value, medium of exchange, ho-- hits an inflection point because I think that monetary properties, those three monetary properties, unit of account, medium of exchange, store value, they are different facets of the same thing, of, of monetization. And so I do think that, they grow at the same time, even though you'll hear people talk about you know, which one comes first? If I were to rank order them, I would argue that unit of account comes first, because in order for somebody to want to acquire Bitcoin, they have to think about it as, okay, well, this is going to outperform. And once you're making the argument this is gonna outperform, well, now saying that you should have any other asset on your balance sheet really becomes a question of risk management, not what is your unit of account. Now, I think that by default, Bitcoin Is your unit of account, even if you're not consciously, aware of it. And then, second, medium of exchange, because now in order to acquire Bitcoin, you have to trade with somebody else, right? That you can't just, whether now, whether it takes the form of mining or whether it takes the form of going to a KYC exchange or earning it with BTC Pay Server, you're engaged in a transaction in order to receive the Bitcoin, and then you can finally use it as a store of value because you're a Bitcoiner in cold storage. So I'd argue store value comes last, and that it starts with unit of account, goes through medium of exchange, and then goes to store value. And really what we're arguing over is how conscious are people of it being used as a, unit of account, and then how often are people using it as a medium of exchange versus a store of value? Because once you're sent to cold storage, now you're continuously using it as a store of value every second of the day, right? Every day of the year. Whereas your minimum of exchange, you might only use it weekly, right? You're doing a weekly DCA. And so, it's just a question of frequency rather than a question of which comes first." }, { "speaker": "stephan", "time": "01:06:29", "start": 3989.27, "text": "I" }, { "speaker": "pierre_rochard", "time": "01:06:29", "start": 3989.33, "text": "say, yeah, and" }, { "speaker": "stephan", "time": "01:06:29", "start": 3989.85, "text": "I think definitely it's, it's an interesting exploration of the journey that a typical Bitcoiner goes on, because in many cases, people might start with, they're just dipping their toe, and then eventually they sort of up that and say, \"Oh, look, actually, yeah, I, I wanna hold more of this.\" And Where it's, okay, it's my savings. And then eventually, you know, it's your unit, you know, you're really like some, say, like Francis Pauliot is very, public about this on Twitter, he's very like, no, everything, I just think of everything in Bitcoin terms. You know, it's all about how many Bitcoin and how many Sats I can earn as probably, more long-time Bitcoiners can relate to, because that's just how they're assessing things in terms of, do I invest in this thing, do I do this action or" }, { "speaker": "stephan", "time": "01:07:14", "start": 4034.94, "text": "Spot to finish up there. So I think we've, we've explored a few of the ideas around fractional reserve, full reserve, what it looks like. So, yeah, I think we'll leave it there. So listeners, make sure you go and follow, follow Pierre, his, I was about to name your Twitter handle, it's at Bitcoin Pierre. So guys, go and follow Pierre and, Pierre, I really enjoyed chatting. Thank you for joining me." }, { "speaker": "pierre_rochard", "time": "01:07:32", "start": 4052.99, "text": "Yeah, thanks for having me on," }, { "speaker": "stephan", "time": "01:07:33", "start": 4053.95, "text": "Stefan. So what do you think? Do you agree with Pierre? Are we already living in a full reserve system or are we still in a fractional reserve system, but we're moving to a full reserve one? I'm curious to hear what you think. Find the show and the show notes over at stephanlivera.com. That's it from me, and I'll see you in the citadels." } ] }