{ "episodeId": "SLP553", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "eric_yakes": { "name": "Eric Yakes", "role": "guest", "tag": "ERIC" } }, "segments": [ { "speaker": "stephan", "time": "00:01", "start": 1.2, "text": "Hi and welcome back to Stephan Livera podcast brought to you by Swann dot com. Today we're talking about the future of Bitcoin banking. And so there's a lot of these questions floating around now about exactly what the future will look like living on Bitcoin. Will there be charmed mints and eCash? How much will the Lightning Network, be involved there? What will credit markets look like in the future? Will the system remain full reserve? As many of you know, I would like to like the system to remain full res- observe, but, what kind of controls and checks and balances could exist in the future? Joining me today is Eric Yakes. He's the author of The Seventh Property, and he has been researching and writing and speaking about some of these ideas, and we have, an, what I think is an interesting chat about where the future of Bitcoin and Bitcoin banking is going." }, { "speaker": "stephan", "time": "01:02", "start": 61.54, "text": "Eric, welcome" }, { "speaker": "eric_yakes", "time": "01:02", "start": 62.06, "text": "to the show. Thanks for having me, Stefan. I'm really excited to have this conversation." }, { "speaker": "stephan", "time": "01:06", "start": 66.24, "text": "Yeah, I think it's gonna be quite a topical one. I know you've been writing about this idea of Bitcoin and banking, banks without bankers, what does it all mean? Fractional reserve, full reserve, Fed mint, cashew, all this, all this stuff. I think it's- all really interesting, and we're, we're at this early stage, and we're gonna have a little session where we kind of, you know, think boy and theory craft a little bit about what it's gonna look like. So, a bit of background on, on yourself, do you wanna just, you know, just for listeners who don't know you?" }, { "speaker": "eric_yakes", "time": "01:35", "start": 94.92, "text": "Yeah, yeah. So, you know, I, I started off in the financial world. I studied finance, economics in college, and then I was working in, you know, kind of an interesting area" }, { "speaker": "eric_yakes", "time": "01:49", "start": 109.49, "text": "Similar group as Parker and, you know, it's, it's interesting because I got a lot of exposure at that point in time to all the malinvestment that exists within our economy. We were advisors to Caprotta to turn around bankrupt companies or, you know, solve a lot of issues and getting that kind of exposure, Paired with my in-interest in economics that I'd always had since undergrad, you, you really see where things go wrong. And, and that was something where I, you know, I misunderstood Bitcoin for a long time, and it was something where I was like, \"Oh, it's a speculative investment with no fundamental value really, or at best, it's something I just don't understand and can't really invest in if I can't put a price to it.\" And, and it took me a while before You know, I-- it wasn't pitched as something that was like this blockchain type technology, that's how I always looked at it, and I'm like, \"How do I assess this technology?\" Until somebody's like, \"Oh, no, this is an emerging monetary good.\" And once I first heard that narrative, I was like, \"Oh, that got the economic side of me moving,\" and then I got much more interested. So- You know, I was following Bitcoin for a little while throughout this process of my first job, and then I moved to a private equity fund that was buying corporate carve-outs or these declining pieces of larger enterprises. And it was kind of into that process that eventually I'd spent enough time thinking about Bitcoin, you know, I'd been kind of really interested in about three or four years at that point, and I was like, okay, time to jump into this industry. And I started with writing the book, The Seventh Property, which was just my take from the perspective of, You know, kind of the world that I came from, I wanted to write the book that I thought myself, as well as people that I used to work with in like the private equity world, would create like a really compelling investment thesis around Bitcoin. And, you know, it, it, similar to the Bitcoin standard of going into monetary history, but that's a much shorter part of my book. I get a lot more into like, the history of banking systems, which I think is really critical for getting background to understand what's wrong with, you know, fiat monetary systems today. And The Bitcoin and how it operated. I didn't, you know, mastering Bitcoin's like this expansive work, getting into like the details or programming Bitcoin is much more detailed. I focused on a few aspects that are more technical and be like, okay, here's how you understand the incentives of how Bitcoin works at a really technical level so you know that it works. And, and then I just kind of fud bust at the end of it, but that, that, that was how I started. and now, you know, I spent a little bit of time thinking about what kind of businesses With kind of like my skill set, as well as many others that are investing in Bitcoin founders and kind of building out exactly what we're gonna talk about today, all this infrastructure around Bitcoin that needs to be built so that we don't just have digital gold, we actually have an independent monetary system that people are using. so currently fundraising for a venture fund to focus on early stage Bitcoin companies." }, { "speaker": "stephan", "time": "04:44", "start": 284.5, "text": "Great, okay. And I'd love to hear a little bit on, you know, as you came from the, let's say, TradFi financial world, but I'm sure at the same time stuff as you were coming down the rabbit hole as well, and of course, you know, we've spoken about this kind of online as well as occasionally in person about what does that mean, what were guys like Mises writing about when they, when they referred to free banking, what did they really mean, and of course, the contemporary debate between the sort of full reserve and fractional reserve sides. I'm curious to hear a little bit of your, you know, basically my question is, what was your experience like? Learning a bit of Austrian economics, learning Austrian economics as contrasted with what you had sort of learned in the, you know, in your fiat job life. Yeah." }, { "speaker": "eric_yakes", "time": "05:28", "start": 327.61, "text": "Yeah. And, you know, I didn't learn much in terms of my job, it was more my undergraduate education and- I, I had a great education on the financial side. You know, I went to Creighton in Omaha and we were trained in value investing, and it's a huge Warren Buffett community out there. On the economic side, I was given a good education, but I think, you know, I, I was lucky I had a professor that was almost like, it was interesting, man, like I had this professor, who I won't state, but like, it, it was kind of, he was almost like a little bit in hiding about some of his Austrian beliefs when it would come to how we communicate in class, and like we would have some sort of Socratic seminar type discussion And I would be making an Austrian or like monetarist type angle argument or just free market more type angled, non-Keynesian, and I-- there was like a few times he'd be like, \"See, he said it, not me,\" like, you know, now we can talk about it. And he, he seemed almost afraid to like bring up some of these topics in class. And there, there were plenty of times too where I think that I would get critical of other professors that I had, of some of their takes. I think that with like, there was an development class that I took, and we were getting into, you know, wealth inequality and where it stems from, and I wasn't as well versed in, you know- Like Cantillon effect and, the monetary side of it at that point in time, I was like a sophomore, but they're, they're talking about wealth, wealth redistribution programs being run by the government and how effective they were down in Latin America, and I looked up some study that was being effectively just, you know- Given to us like the Bible in class, and I looked it up, and there is all these statistical criticisms of how the data was manipulated online about this study, and I put together an expansive email that my professor like lightly addressed in class, it was basically saying, \"Yeah, there's some criticisms, but these programs work.\" And it's like, that's not what I read, you know? So there, there was definitely a big conflict I think going on where I was lucky enough, the first Bitcoin or, the first, economics book that I was introduced to was Capitalism 18, and I was lucky enough to have been introduced to that, 'cause I had that context going into college, and that always kept me interested in reading outside of the curriculum and getting the other side of the story, and that's a largely a reason why I'm here today." }, { "speaker": "stephan", "time": "07:43", "start": 462.59, "text": "Yeah, interesting. And, I, I think one other comment I have on that is that, sometimes in high school and university, we're often sort of given a false dichotomy, right? They'll say, \"Okay, if you're a lefty, Keynesianism, and if you're It's like, it's sort of like, oh, if you're a quote-unquote free market, you know, you take, here's your Friedmanite monetarist sort of view, and they still have a very money-printing sort of view, whereas the Austrians have a very different altogether view, and so that's, kind of an interesting thing that I noticed. But, you know, nevertheless, Milton Friedman is very well known as like a libertarian guy, and, yeah, but let's, let's bring it now to" }, { "speaker": "stephan", "time": "08:29", "start": 509.26, "text": "This is the very start of your article. So there's this infamous post from Hal Finney. So he wrote this in December 2010. So context for new listeners, Bitcoin started in January 2009. So this is sort of- Call it two years almost, he comes out with this idea of, \"Hey, there's a good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency.\" So do you wanna just elaborate a bit of your thoughts on that?" }, { "speaker": "eric_yakes", "time": "08:57", "start": 536.54, "text": "Yeah, I, and, and it makes sense, right? Like, I think that, I guess the, the primary thought is that I think Hal had a really clear understanding of what problems, as well as it seems like Satoshi did as well, that we'd be running into a lot of scaling issues over time, and the question is, how is that going to emerge? And, you know, they immediately opted into this. I think what they hadn't anticipated as much at the time was that there's probably going to be a lot more innovation that's coming with The other layers that are sub-subsequently gonna be built or protocols that are gonna be interacting with Bitcoin in some form, and I, I think that my primary take is that, you know, I, I, I guess, A simple way to put it is that, you know, Bitcoin took cryptography and it took the automated functions of software and it used that to eliminate agency within the base monetary layer. And like, from like an economic perspective, that's how I like to look at one of the primary innovations of Bitcoin. And, and I feel like we're not really done yet with some of the other layers and that this whole idea of like banking and how I wrote this piece of like banks without bankers, I think that we can actually use these technologies to create things that are, while they're performing the functions of banks, they're gonna be so structurally different. Like, I don't even, maybe we need a new word for it, but it's performing the banking function in a certain form, but it's much more automated, it's much more transparent, it has properties like unilateral exit, there's things that have never existed in banking systems before that we can use the automated function of software to reduce all the friction, increase information transparency, and, you know, lower the cost of verification In some ways. So I, I, that's kind of how I look at it from this point is that, how I think like directionally and functionally really understood the problem, and that today there's a lot of really cool things that are emerging that can actually be even far superior to this vision that he had." }, { "speaker": "stephan", "time": "10:55", "start": 654.95, "text": "Right. And so yeah, as you said, so yeah, we'll, we'll do our best to try to keep this accessible for people. So as you mentioned, making it the verification easy, right? Like what we were talking about here is when you use a Bitcoin node, right? This is software that you can run on your laptop or your PC, or you can buy a dedicated Bitcoin node or, or PC to do it, and that checks all the rules of Bitcoin. And particularly in this case, you're saying verifiability, we're referring to this idea that the user doesn't have to trust the banks not to just inflate or the government not to inflate, right? Because the user can run a Bitcoin node and he can see, oh, hey, all the, the unspent co- you know, the coins, it's less than twenty-one million." }, { "speaker": "stephan", "time": "11:36", "start": 696.26, "text": "As you were saying, like we're living in a new age, and I, I believe you do comment on this later in the article as well, which is that bank runs have changed in today's age. Even in, quote unquote, fiat world, we've seen i-in early twenty twenty-three there was the SVB and, you know, a couple other banks that also went under, but it was so, so fast how quick it all happened. Whereas if you went back a couple hundred years, people just didn't find out about problems at a bank, so they didn't sort of know Money art, but now even in the fiat world, people can sort of find out, and because it was SVB, Silicon Valley Bank, a lot of the VC and founder circles, they all know each other, so they're all texting and emailing each other, being like, \"Hey, you gotta get out, get your money out.\" So it's a fundamentally different world, even if some of the same principles economically and banking-wise still apply, don't they?" }, { "speaker": "eric_yakes", "time": "12:29", "start": 748.68, "text": "Yeah, exactly. And I, I think like, you know, who, who states a lot about this is Leland of just the, advancement of technology and how money keeps up with that in different forms. And I think when you, you know, when you look at what emerged within kind of the antiquity or emergence of banking systems and paper money, and when that emerged, you know, privately within these systems Technological advancements like the printing press and, you know, double-entry bookkeeping, and eventually the telegraph, made paper money this hyper-efficient form of trade, and there was a lot of costs and centralization that occurred during that process, but nonetheless, it made it something that as a medium of exchange was far superior to lugging precious metals around in, you know, the, the older systems. And it's a similar thing today, it's like, \"What, what did we really do? We reduced the friction of, creation and transfer of information with those technologies. And like, what has, what has the internet done as well? It's reduced the friction of creation and transfer of information with those technologies. \" And that, that's kind of how I look at it with, you know, Bitcoin is just the form of money that's, Being built so that it can participate in this new technological economy and it benefits from that. And there, and there's, you know, to the point I was making earlier, I think quite a bit more that's gonna be coming out of this as well, i-i-is how the banking system, as how this banking system will start to build out." }, { "speaker": "stephan", "time": "13:56", "start": 836.5, "text": "Yeah. Okay, so let's talk a little bit. I think it, it would be good to get into this concept of federated or just even, singular Chalmian mints, because, that kind of relates to, as, as we were saying it earlier, this Hal Finney idea that you could have Bitcoin banks who issue their own digital cash currency, but it's redeemable for Bitcoin. So do you wanna just explain a little bit at a high level, how you're seeing this concept of, you know, federated Chalmian mints and how A part of Bitcoin banking in the future." }, { "speaker": "eric_yakes", "time": "14:29", "start": 869.1, "text": "Yeah, yeah. So, you know, we kind of have this question of how, what's gonna be the cheapest and best way to conduct payments? And there's different considerations that we have. What's gonna be the lowest cost form of transfer? and how much trust is that going to require? And how private will it ultimately be? And there's, there's a lot of different solutions that people are working on towards this. And I think what's interesting about- About, a Fetty Mint or a Charmian Mint is the categorical term for it, and then eCash, which is the actual means of payment that's used by these mints and created by these mints. A mint is anything. So like there's two primary protocols that exist, one is federated, one isn't. Fed mint is the federated version, where that means that the state of issuance, the ability to issue the eCash tokens and the, The transfer of which and verification of those tokens is done by a federated group, a group that requires consensus in order to, mint and transfer tokens amongst all the people that are using it So that's one model. Federated is something that is, reducing the amount of trust because you're distributing the control of the system over a group of people, and that can expand into various sizes. That can be in small amounts of, of, you know, two people, three people. That could be, you know, as high as I think that the theoretical limit, I can't remember, it might be in the paper, was, I think it gets close to about a hundred, or something, but, But don't quote me on that. And the question that introduces latency, 'cause now you have a consensus mechanism that has to occur within the federation. So that means that as you increase the size of the federation, as you distribute this trust in a similar relationship to Bitcoin, it impacts the security model as well as it impacts the transaction throughput potential that this type of network could have. On the other end of spectrum, you have Cashu, and Cashu is centralized. You have a centralized method you're trusting, and that could be designed for very, specific purposes that are probably much more, that require a much lower form of latency in transactions, like if you were to have forms of value transfer amongst, you know, quantitative hedge funds, for example, where they need things to happen very rapidly and at a very low cost. it could be like more of an enterprise-grade type solution is one way of looking at it. So that's much more trusted. And it's for specific use cases. They also issue an eCash token and doesn't require consensus to occur. so I think within that world, we have these different types of eCash. And then the question's like, well, how do people pay each other in eCash? eCash is something that is, you go sign up to the mint and you send Bitcoin to it. You can do it either by sending an on-chain transaction or you can do it by sending Lightning, and they'll give you eCash in return. Alternatively, you can also just get paid in eCash for something," }, { "speaker": "eric_yakes", "time": "17:27", "start": 1046.6, "text": "Propositions, right, that people can onboard directly through something that's very low cost in eCash and that will reduce the on-chain bottleneck for onboarding people. so when you receive that eCash, it, it literally exists on your phone, and there's backup mechanisms that are in place with like Fed Mint, where you could go to the mint and you could actually redeem your coins if you were to lose your phone, phone and thus the memory that it holds. there's different ways you can back it up, but it exists on your phone, and if I were to send an eCash transaction from me to you, then I am actually sending that memory of the eCash transaction from my phone to your phone. What's really happening on the back end is I am refreshing this eCash token at the mint, and the mint is effectively issuing- It to the new person through this transaction. So it's a fresh token, and that creates this mechanism by if I were to say like, \"Okay, I'm gonna give you this eCash from my phone, \"and I'm actually just gonna copy it so that I still have it and inflate it, \"um, the mint can look at the unique IDs of the eCash and say, \"Oh, there's two. \"Once my eCash has been refreshed at the mint by the person receiving it, I can no longer redeem that copied version at the mint anymore, 'cause the" }, { "speaker": "stephan", "time": "18:41", "start": 1120.8, "text": "mint will immediately be And problem at the mint level, right?" }, { "speaker": "eric_yakes", "time": "18:45", "start": 1125.43, "text": "Exactly. So, so it's necessary. So like a lot of people refer to eCash as like a bearer asset, something that is directly controllable, but technically you have to verify it at the mint of transactions to have that form of security. So it's, it's like a bearer asset in a lot of ways, but it's a bit quasi because of that, you know, automated function. It's really instantan- instantaneous. They really" }, { "speaker": "stephan", "time": "19:04", "start": 1144.04, "text": "do need that service provider here. so let me just kind of back up and make sure everything" }, { "speaker": "stephan", "time": "19:13", "start": 1153.32, "text": "E-Cash. This is anonymous cryptographic electronic money, and it has really strong privacy propert-properties. So that part is actually really good from a privacy perspective. And so the idea is, this, as an example, a single mint or a cashew, as an example, can let-- have multiple users all on that same, you know, cashew instance, and they can all be transacting to each other using this e-Cash, but it won't even know who's doing it. And so that could be like a really cool privacy aspect of what's going- Going on. And so this can happen. Now, the way you might interact with a, with an eCash mint is you might have a wallet app, similar to how you might have a Bitcoin wallet app, but in this case, what you're trading around is eCash tokens, it's not Bitcoin. But there's like an interaction with the outside world where maybe that Cashu mint is paying another Cashu mint, or it's paying a Fedimint, a federated mint somewhere, or it's paying just a normal Lightning user, and at that point The mint or the Fedimint in this ca-in the federated case is sort of having a re-relation with a lightning gateway that does the Bitcoin Lightning payment, and so that's where we're sort of bringing in this idea of Bitcoin connected with eCash users. Now, there's certain trade-offs with that, obviously, it's custodial, but It might be lower cost and maybe very accessible. So I guess those are some of the-- I guess if I'm trying to very just put it in simple terms for a, a Bitcoin user, that's kind of how I would summarize it. Anything else you wanna add there or elaborate?" }, { "speaker": "eric_yakes", "time": "20:44", "start": 1243.52, "text": "Yeah, yeah, I-- So I, I think that it's, I, I would describe it as Not only a, a, a, it's, so it's, it's not only a natural but necessary function within a banking system, and this is what you, you need to check on the system, right? So there's ways that I think, different banks might have a, a common interest to collude with one another to potentially have some sort of moral hazard negatively impact the customers of the banks, But when you have something like a clearing house or another third party in the system with competing interests with them, now that's another check because you have these guys whose their full time job is to be like, \"Well, do I wanna be holding a balance of the eCash at this mint? And if so, how do I wanna be checking and verifying that over time?\" And I think having that dynamic within a banking system is what protects it from having some sort of fractional reserve emerging or, you know, fraud or whatever it is. so, so I think it's like really, really Critical to have those roles. And when you think about like prior, like clearing houses were effectively like, almost like, if you were a bank that's participating with the clearing house, that's like, you're in the club now. You are a serious institution that's passed a lot of different steps, and now you can participate in a much larger economy. So I think it's gonna emerge like that, and, and I think that we're gonna see a similar function being played, whether it is directly through the Lightning Network or some type of, you know, other clearing house type structure. That emerges." }, { "speaker": "stephan", "time": "22:17", "start": 1336.62, "text": "Yeah. Right. And as you say, it's, you know, you're gonna have to join this club, and as part of that, they may need to do checks on each other to sort of be comfortable with each other. And the other element you could say is that these Fedimints or Cashu mints Will need Lightning gateways, right? They need this connectivity to have interoperability with the outside world. Otherwise, it's just gonna be this little self-contained system. And you know what? Maybe for certain use cases, like I could imagine if there was like a casino use case, or maybe they just kind of only use it just for this sort of closed circuit system, and they don't need a connection with the outside world, or they just kind of have in and out, but they don't have sort of- Out to other things, then maybe, you know, that, that's one way it could work, but realistically they will need lightning gateways that connect out to, to the broader world" }, { "speaker": "eric_yakes", "time": "23:07", "start": 1386.97, "text": "Right, exactly. And I, I, I think like, l-let's assume that there was no such thing as lightning gateways, right? then what would happen? It's like, well, you'd probably have, because there's a profit motive here, if people want to conduct transactions in eCash between different mints, then you could charge a fee by acting as the intermediary and holding a balance as well. you could directly just hold accounts of eCash and accept from bank A and then send a forward of payment along bank B in eCash. part of me wonders It's just because of the capital balancing that is required of a Lightning service provider that we might actually just see direct market making in that format of, of holding directly in that, but the risk is that you probably have to end up holding more eCash than actual Lightning, and the reason Lightning gateways will probably exist is these guys who are in between will probably prefer to be holding a lot more Lightning, so yeah, that's another argument for it." }, { "speaker": "stephan", "time": "24:03", "start": 1442.83, "text": "Yeah. Interesting. And so let, let's just talk Through a few use cases that might even exist today. So as an example, I know Fedimint is the broader protocol name, and Feddy is the name of one app or one team who are building, you know, products and services that align with that, and they're creating like modules inside this app, and they're doing things, and for Bitcoiners, you might be interested to know there's different, Bitcoin conferences out there, and what they've been doing as an example is having like a conference pop-up Fedimint kind of thing, and the idea would be that, you know, They set up and there may be some guardians, let's say five guardians or some, you know, I don't know the exact number, but they are sort of helping their community by operating the fed mint for that community. So I guess that these are some of the uses that we may see at least in the early days. I'm curious, what sort of uses do you see people, putting these fed mints or cashew mints towards?" }, { "speaker": "eric_yakes", "time": "25:02", "start": 1502.25, "text": "I, I think it's, I, I think that in terms of, I, I, at this point, I feel like I think about the question a bit more broadly. I feel, well, it's like, what's, what's the advantage of eCash over-- All this boils down to the idea of like, why do people wanna conduct payments in eCash? And we, we talked about the privacy aspect. I think one of the-- But there's a lot of other ways to achieve privacy, you know, and I think that if we do have, scaling layers like rollups eventually emerge that could be just as centralized as a federation, You know, there's potential there, right? And it's just like, okay, well, what, what would be the advantage over eCash of not only today, but in the future? And, and I think that there's nothing more scalable than something that's like an unbounded de facto bearer asset like eCash. I think that's going to be the blockchain here." }, { "speaker": "stephan", "time": "25:53", "start": 1552.56, "text": "So that's the biggest thing. There's no," }, { "speaker": "eric_yakes", "time": "25:54", "start": 1553.76, "text": "yeah, exactly. That's the biggest thing. Like a rollup is something that has a blockchain associated with it, so it's always going to be confined to that form of" }, { "speaker": "eric_yakes", "time": "26:06", "start": 1566.07, "text": "instrument in the digital form. And, and that's pretty cool. The only people that, you know, unless the person you're paying knows who you are, then you can conduct payments anonymously, which is great. So, so I think the question's like, for those reasons, we'll probably see demand for it in some form. And then if, if we're going to see demand for eCash in terms of payments, then the question's like, when, which is a broader question, when are we gonna see that? but I think that the ability to put eCash into smart contracts or into any type of contract really, in any, any use case I think that can emerge is something that can be pretty valuable. it's, and, and, and that's kind of how I more view this ecosystem, like Fedimint's working on modules, for example, for different things, and people talk about ideas like federated mining pools or federated stability pools, a, a, and those are all cool. I think it's a lot of these functions that we see in the economy, digital, digitally native economy today, they, they can probably be replicated in a digitally native, in a federated or e-cash based format, and it's gonna remove a lot of constraints. and, and I think that, you know, one, one of the interesting ideas is gonna be like a federated oracle. I think that that could be one of the aspects that starts to emerge pretty quickly. It's like if you're optimizing for custody at a federation, 'cause you're like, okay, if I'm gonna trust people with custody, it's gonna be these people that I know, there's some sort of social consequence associated with them rigging me, then what's the other big piece in a smart contract I have to trust in everything today in Ethereum or whatever it is Another centralized party that you may or may not know, if there is architecture to where you could have some sort of oracle infrastructure that is aligned where the control of its information is aligned with the actual federation you're trusting, That, that, that's kind of, that's a pretty interesting use case that I think can emerge." }, { "speaker": "stephan", "time": "28:06", "start": 1685.72, "text": "Yeah. So I guess it's, it's early days. I think there are a few obvious trade-offs. So obviously, as we've mentioned, right, it's custodial, there's a certain level of trust. But also massive scalability and arguably very private, depending on the exact scenario you're using it, but arguably it is very private in terms of when you are, you know, making and taking these e-cash payments. And so the other element I'm curious to get your view on is coming back to the broker LN gateway question. The, there are people trying to explain this idea of Bitcoin native money markets and capital markets, and so- So, a-and you do touch on this in the article as well, where you can sort of have a, a spectrum of, let's say, cold storage, you're not getting any, quote-unquote, yield on that, but obviously, you're hodling, and that's, you know, you're, you're comfortable with that. Then maybe, you know, there's another step out where maybe people are talking about like the amount of money that you might earn on the Lightning Network, Lightning Network reference rate, I have some podcasts with Nick Bhatia going back on some of" }, { "speaker": "stephan", "time": "29:10", "start": 1750.39, "text": "that Market making. Do you have any thoughts on where that will sit in this kind of money market structure?" }, { "speaker": "eric_yakes", "time": "29:20", "start": 1760.03, "text": "Yeah, 'cause like, yeah, to your point with what Bhatia theorized, routing fees and liquidity leasing type fees, it's like with routing fees, it's really just a timing risk that you have, and it's similar with liquidity leasing. So like, those are lowest other than cold storage, which you just have security risk effectively with, Lowest on this term structure of interest rates, it's starting to build out. E-Cash is something that's a bit more trusted, right? So like if you are earning a yield by saying, \"Okay, well, I'm going to participate as a market maker, you know, I'm a lightning service provider, I'm already running routing and liquidity leasing from the amount of Bitcoin that we own in our reserves, now I wanna start participating in the E-Cash market because a lot of people are using E-Cash, which means that there's a lot of demand for transactions and the, Valuable. now I have to play this game of being a market maker and trusting the underlying eCash of the institutions to what we're talking about earlier, so there's a bit more risk because it's a trusted type solution. It's, I, I wouldn't qualify it as risky as like a form of like necessarily credit based lending, and I think some of that comes down to just the nature of it, because I think, you know, in Batio further, When he further described this term structure of interest rates, he had, I think it was Taro asset lending and then ultimately off-chain forms of lending, just like basic credit within an economy. And, and those are much more high risk 'cause now you have credit risk, pay, payback associated with it, and Taro assets could fall somewhere in this region as well with eCash. but yeah, I think, I think it lies somewhere right there where it's like you have to trust the mint that you're issuing from, but generally speaking, the expectation is that these are scaled means of payment and there shouldn't be, the same degree of trust you ha- would have in a direct, like, lending relationship." }, { "speaker": "stephan", "time": "31:09", "start": 1868.71, "text": "Back to the show in a moment. Devices to secure your coins, and that also means generating your private keys with sufficient randomness, as well as being able to manage those private keys in a way where you're able to sign Bitcoin transactions without disclosing your Bitcoin private key. Obviously, that's, that's the whole game in Bitcoin security. And so CoinKite products suite is awesome. There are so many different products, notably the Coldcard, that's the most well known device, and that's probably the one that most people would be interested If you are a listener of this show, but there are a range of devices, such as the Tap Signer, which is a cheaper device, and also coming out soon is the Cold Card Q, which is the latest and greatest version, and that one will have QR code support. So that's really cool. I'm looking forward to getting that. I've got a few pre-orders in for that one myself. 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Okay, so as you were saying, there is this question around Bitcoin's evolution and when it's gonna transition from, you know, collectible store of value, medium of exchange, unit of account, and arguably today most people are still in the hodling and store of value phase, and we don't know when. Of course, there are some of us who are transacting day to day. I personally do use the Lightning Network regularly, but, in terms of when are the, when are serious numbers of people going to start doing that? It could be another cycle or two before But, one other question that, you know, might be out there is, what about just regular old custodial, you know, say wallet of Satoshi? Or another example could be Blink. Blink is another one where the backend is done by Galloy. They were famously behind Bitcoin, you know, previously named Bitcoin Beach Wallet in El Zonte in El Salvador. So where do you see that sort of interacting in with the Mint, Charmian Mint system?" }, { "speaker": "eric_yakes", "time": "35:35", "start": 2135.23, "text": "So I think that what we're doing is we're taking Being something like, so fundamentally what's happening here is like, what is a federation? It's a multi-sig of control over an asset, and the-- I, I think that we're just scratching the surface over the use cases and the expansion of- Being able to own, have shared ownership that we can adjust to different scales over different assets, and, and that's what we're effectively doing here, that's different from like a normal custodial type operation, which like you might have distribution of different keys and control policies over an asset, but fundamentally, you know, you have a single custodian and you have a feasible asset that's pushed into one area. Federations don't necessarily have that property, and they can be structured to be either geographically distributed Or, you know, distributed within different jurisdictions at least that are of legality. And, and that's like a really interesting property. So I think that when it comes down to, You know, how people are going to be comparing this to custodial markets, it's that we're creating this really cool way of optimizing for custody, and I think that as more and more people come into Bitcoin, as we have just general people who don't really care about the trust aspects, they're just like getting in for number go up and the convenience of actually using it and not having to-- I, I, whenever I have people and I send them lightning and they set up an app, the first thing that they always say to me is, \"Wow, \" I didn't even have to sign up with, you know, KYC banking information. This is cool, and they really like that. And I think that there's all these reasons people are gonna get, start getting on board, a lot of that's not gonna be associated with like how they wanna run custody. And the question is, how many people are gonna start onboarding towards Coinbase Custodial Wallet or whatever it is, and all these custodial solutions, or is it better that they can onboard to a shared custodial solution? And I think that's, that's one of the primary value propositions here, Custodial functions. That hasn't happened, like, since custodial functions really emerged. I mean, there's been digital security that's evolved over time, but the actual function of custody hasn't really changed. If you wanted to go set up what would be effectively the same concept in the banking system today, I don't think you really can, unless you're probably like really wealthy and you had to sign a bunch of legal documents to create these shared structures of asset ownership. So like, we've, we've pushed this marginal cost of shared custody to, you know, really, really low, and that For a vast group of people, and, and I think that there's a ton of potential that that can unleash, and it's gonna protect custodial operations from any sort of centralized party trying to seize wealth over time, and that's huge." }, { "speaker": "stephan", "time": "38:20", "start": 2299.52, "text": "while we're on this point, we did have a follower ask a question, about the regulatory roadblock, so this might be a good point to bring that question up around commercial mints. So the question is basically, how will commercial mints overcome any regulatory roadblocks? Is, is there a point at which you hit a certain scale, let's say this Fed implement becomes a certain size, does that then invite, you know, the eye of Sauron, the government, to come after you?" }, { "speaker": "eric_yakes", "time": "38:48", "start": 2327.6, "text": "Right. It, it's-- I'm not a regulatory expert. I think that there's kind of two parts here. One, regulatory regimes are gonna develop in different ways all around the world. I think that things like Fedimint have the ability to operate in regimes that are open to their operations and allow them to function. And then two, there's a big difference between having a Fedimint that works as a financial intermediary and charges a fee and is regulated as such, and one that-- Would just operate as, some sort of like passive custodial vehicle. So like a good example is how are bank accounts run by families today? And well, you all are trusting this one bank, and, you know, maybe at a certain age, like the children will get a credit card or there's going to be cash given to them or something. And I think that there's gonna be a communal level of fund control that's going to exist in a very similar way to where there's actually no fees being charged, but everybody involved in this mint has a shared interest in it working. And then people chosen to run that, like I'll run, I would run a FedMe for my family, for example, and, you know, we can distribute keys across me and my sister or my wife or whatever it's gonna be. And then I think where I see this happening today is, you know, we're, our BitDev's meet up out in Denver, you know, we're starting a, you know, our own common area like a Bitcoin park, and, you know, we're fundraising for that. We have different operations that we're running right now, and we would love to have a federation set up. We're effectively creating the exact same operation just using Bitcoin and Lightning, and having something like eCash and a federation would actually be a little bit cooler. So we're, we're kinda- We're waiting to the point where we can do that in a simpler way." }, { "speaker": "stephan", "time": "40:31", "start": 2430.93, "text": "so the other big question I think, you know, a lot of people will have, and I will be interested to hear how you see this as well, that future world with Fedimint and Cashu and fractional reserve and full reserve, right? So there'll be this question of, will there be mint operators who issue a lot of tokens and basically debase the user, because that's the other big thing that you're giving up, right? Whenever you're giving, giving up custody, you are basically trusting That custodian not to debase you, not to, you know, pull a Mount Gox or an FTX, et cetera. So, do you have any thoughts on, controls that the system could have to sort of mitigate that risk? What do you think there?" }, { "speaker": "eric_yakes", "time": "41:11", "start": 2471.42, "text": "I got, I got a lot, Stefan. I think that this is, you know, pe-people are turned off to Fediments because it requires trust, and the question is, is we deal with these practical real world realities and people, we-- well, if we look at consumer behavior, and every successful company or project always has to look at what their users are doing and how to respond best to it, If we look at consumer behavior, this is a very real problem that we have to tackle, and we have to find the ways to, to operate within these constraints. So, number one, what we're doing by using federated technology is we are optimizing custodial operations ideally, and we're giving people the option to be able to do that, whereas today it's more like, \"What bank is in my area? What's the most convenient? What did my friend use?\" and that's all well and good until it's not. And That's, that's, that's point one. Two, what are we protected by? There's natural market dynamics and incentives, in the same way that you trust that the baker is going to have a bagel for you in the morning and they're not gonna poison it, you're trusting that people who have incentive alignment with you aren't going to rug you over time. And by optimizing your custody, you're increasing that, making it more communal, having some sort of social risk, or the ability for them to easily be caught doing so, significantly deters whether or not you're gonna have any Or debasement over time, but I think the risk of debasement is a little bit harder because that can be done gradually, it can be done, particularly with something like eCash, it's something that's harder to monitor. But The most, like I, to my point earlier, like the broader theme I'm getting at here is that there's a lot of new things that we see emerging that are gonna continue to emerge, and there's some really good examples of how we can protect against this right now. So going back to this idea of like, Bitcoin lowered the marginal cost of verification for base settlement type money to like zero. So that changed how we can use money in a very significant way. Same thing with the ability of, you know, lowering this Within, like, these Chime and eCash minutes that's very valuable. I think another thing that we can use software and cryptography to lower is verification of bank runs. Like, at the end of the day, in a banking system, how do you verify that the money's there? You have to execute a bank run. There's no, there's no way that that would work, and to the point you were making earlier, we even saw in the past year that a lot of these bank runs of Silicon Valley Bank and, Signature Bank and the like, they were blaming them on mobile" }, { "speaker": "eric_yakes", "time": "43:47", "start": 2626.84, "text": "to be able to withdraw funds from is changing the dynamics of how quickly bank runs can occur. That changes the incentives of the institutions that are providing a fractional reserve for you. not in a fiat system, 'cause there's always a backstop, but in this type of a system that's digitally native, there's a lot more automation, there's a lot more efficiency, and there's a lot more information transparency that's going to exist. And a really good example Of, you know, what's been hypothesized today is with, what, what Calais created, and, and I can't say like completely created, th-this scheme, I think, I first read about it in Skrill, which was a very old eCash type project from, well, very old. I think it, I think it emerged in, twenty fourteen, but ended in like twenty seventeen. But they had this idea of refreshing your eCash at the minute. If we design these tokens so that they're naturally refreshing, within, you could set whatever frequency, say a month, and every time it hits that date, like I, I refresh it for a new one, that's something that is going to create a degree of information transparency of how much eCash has been issued at the minute. It doesn't mean it's going" }, { "speaker": "stephan", "time": "44:54", "start": 2693.78, "text": "to go fractional, right?" }, { "speaker": "eric_yakes", "time": "44:56", "start": 2695.9, "text": "Exactly. It, it means that we can create numbers and actually look at how much eCash was issued within these periods of time at the consumer level. So what Kalle proposed is he took this idea and he kind of expanded it to a new level, and I know the Fed is considering similar things, They took, it's basically like, if you have a mint that is issuing eCash that is refreshing, and they issue the amount of eCash, they issue a report, say every month, saying, \"Here's how much eCash we issued, here's how much eCash we burned when people have redeemed it,\" then there's a lot of ways where consumers can prob-probabilistically verify that the mint is cheating, and you can do that in an automated way through wallet technology, or you can have third parties that are full time doing this, like a- Lightning gateway or some of these other like clearinghouse type functions that would exist. So I think between being able to automate the ability to say like, \"Oh no, in this report of eCash issuance, I don't see my token,\" and I could verifiably prove that, and every time they're running by either issuing more or, sorry, not issuance in the report of amount burned, You can verify that you're missing, and that means they're conducting some form of fraud. And if you have a thousand people participating, the probability increases as you scale. So what I think's important is that you, you won't be certain with these forms of verification that you can catch 'em in, but you can basically be probabilistically certain that on a long enough timeline they will get caught, which changes the idea of fractional reserve from being a business model to being a form of cheating, and eventually you're gonna get caught. That changes the incentives of how the system's structured And that's one of like the big key themes that I wanna get out of the writing for people, is that I think creating perfect technological solutions isn't always the answer. I think creating really cleverly aligned incentives, which is what Bitcoin did too, is gonna be the answer to a lot of these problems in different ways. And like, this is a great example of how I think eCash is gonna have checks for a very low cost on its system." }, { "speaker": "stephan", "time": "46:58", "start": 2817.94, "text": "Interesting, yeah. And I think it's also worth pointing out that, From an economics perspective and a history perspective, really one way that the state was able to push us down this pathway of fiat currency is they legally prefferenced fractional reserve banking. They started to do things like saying, \"Hey, you bank, you are allowed to not-- they, you're allowed to basically suspend redemption of specie.\" In this case, like the customer's got gold in the bank, and the government is saying, \"That bank, you're allowed to not pay the customer that gold.\" Gold, right? You're, you're, I legally allow you to do that. That's one thing. Another aspect is this legal tender laws. So what they're doing is they're sort of trying to force everybody to treat all the IOUs the same. Rather than letting each of these IUs float at their own true market rate, because if you thought that Bank A was legit and Bank B was really bad, Bank B you would price it down a lot. You, you know, and so part of this market mechanism that you were talking about wasn't allowed to apply because the government legal tender laws sort of forced everybody to take them as though they were the same thing. And so that is another angle that without that, it, you know, should theoretically make it a lot harder for the fractional reserve, people to, to, to commit that kind of fraud" }, { "speaker": "eric_yakes", "time": "48:22", "start": 2901.75, "text": "Totally, yeah, that's massive, and I think on that point too, there's, there's so many examples I think when it comes to the, where government or centralized parties were influencing or manipulating these systems either to their advantage or somebody else's advantage that would ultimately create these massive misalignment of incentives. Like I think when people talk about the wildcat banking system in the US, there were a lot of these states were only allowing people to have banks if they used the state bonds as collateral. So they're already saying like they're bond collateral laws where, okay, yeah, you guys can do fractional reserve, but use our bonds as collateral and, you know, we both, we both can get embedded on this. And it, and it screws with all the market incentives. Like the wildcat banking system was a complete shit show, and, and that's because all these market mechanisms get, played with. And that's kind of like the primary criticism against free banking is like, will there actually be able to be a system that can sub-- is efficient enough and transparent enough to avoid the influence Of centralized parties. And, and, you know, I, I have a whole nother writing trying to like dig into some of this stuff too, 'cause, that, that, that's a huge question." }, { "speaker": "stephan", "time": "49:29", "start": 2969.49, "text": "Yeah. And the other aspect here is There will be, you know, and, listeners, you might have seen my recent episode with Ben Carman where he spoke about this idea of having Fedimint support within the Mutiny wallet app, and not just that, multiple mints. So this user could have one app, and I, I believe even the Fedimint guys' app will allow this also, which is that it allows you to have a balance at multiple mints. And so this way, even if one of them goes down You, you haven't lost it all, so that way you can sort of spread your risk as well across different mints, so maybe that is another mitigating factor here that people can sort of say, \"Okay, I might keep a small spending amount in this particular federation that I have less trust in, but maybe it's more private, and I'll have, you know, bigger balances in these other federations, and maybe...\" If I have a larger amount, I keep that in my own hardware wallet, my own multisig, etcetera. So there's kind of, there's, there's levels to what people will naturally choose, right? Like you don't walk down the street with your life savings in your back pocket, right? Like most people don't do that. So it's kind of, I think it'll be a similar concept there also." }, { "speaker": "eric_yakes", "time": "50:35", "start": 3035.35, "text": "Yeah, yeah, 'cause the technology can scale and collapse for all different functions. It could be a federation for your family, it's something where you can have a scaled federation, similar to how Liquid is run, of a bunch of different companies that all have a stake in this system working. And that's a more, much more commercial level, that's probably a regulated type federation and they have a profit motive associated. So it's like you can create streets and you can create highways and you can create all these different fun-- you know, you can optimize with this technology. It's really just a technology that" }, { "speaker": "stephan", "time": "51:06", "start": 3066.01, "text": "Yeah. And so I think the other point that makes it quite topical now is people are having the conversation about Should we have soft forks to enable more people to self-custody? And I think that's where maybe people are coming in with the conversation around things like covenants, things like cTV or a specific proposal by Brandon Black, aka Reardon Code, known as LN-Enhanced, and the idea being, could you enable more people to self-custody? Because with Bitcoin as it is today It, you know, ballpark figure, somewhere between ten to one hundred million people can self-custody Bitcoin, and then above that, we don't-- it's probably not gonna work, at least with current technology, without a block size increase, without a covenant self-fork, without some kind of technology increase, that's probably where we're gonna be. But the question that might be interesting, and we don't know exactly where this all lands, right? Because again, it's very early. It could be that we have, you know, five million Wales who can transact on chain and everybody else has to sort of work with some kind of protocol coordinator, arch service provider, LSP, Fed mint sort of thing, or is it more like, you know, maybe we have like You know, a hundred thousand rich whales and a million or five million Bitcoin banks, right? Fiddy mints or cashews, right? And it's sort of-- we don't really know exactly where, you know, what pathway things are gonna go, but, you know, we could be living in a world where there are millions of these things, millions of banks." }, { "speaker": "eric_yakes", "time": "52:37", "start": 3156.97, "text": "Yep. And, and that's, that's, I think, one of the primary areas to like think about and dig into as this grows. I think, you know, later this year, we're gonna start to see a bit of a emergence of eCash and use cases around that, and it's something that I wanna watch is What, fi-finding different ways of monitoring the system, number one, and similar ways that we can monitor what's happening on the Lightning Network for various metrics, you know, finding ways of monitoring what's emerging, you know, having, who are the Fedimins? What kind of balances are they issuing that we know of and they're reporting? And that'll allow us to see like how it's scaling over time, because what I, what I try to touch on in the writing is that I think that there's some, a lot of fundamental incentives for why you would use this technology and how it works that would reduce the incentive to create centralization over time. Like that's one of the arguments against Lightning is that scale begets, Capital, which lowers that constraint of managing liquidity within the Lightning Network for centralized service providers, more and more is gonna-- there's a natural incentive to scale over time, and the question is, will that exist within a federated eCash system? And it's like, well, i-i-in some ways perhaps, on the business model angle, but I think the fact that having the ability to optimize custody for small scales and- You know, be able to do that effectively is something that can mitigate the risk of it. And also to your point, like with what Mutiny's doing, if it's easy enough for us to hook up to Fetid Mints like it is to hook up to Relays with the Nostr, then the switching costs between Fetid Mints is gonna be very high, and that's probably gonna create a lot more, fractured system and slow switching costs," }, { "speaker": "stephan", "time": "54:27", "start": 3267.25, "text": "low, not high, yeah. But go on." }, { "speaker": "eric_yakes", "time": "54:29", "start": 3268.91, "text": "Oh, sorry, sorry. Yeah, yeah, yeah. Low, low switching A much more distributed system over time as well. So it's like, I, you know, I can intuitively think of different ideas for why, how the system will merge at scale. I think there's always a risk in any sort of trust-based model, and it's a price we pay to participate in free markets, things will go wrong at the unit level, but I think it's really at the systemic level that we wanna be looking at how these things are, are growing over time. And I think that there's a lot of incentives within eCash and federated systems to where that could naturally produce" }, { "speaker": "stephan", "time": "55:03", "start": 3303.03, "text": "Yeah. So let's, let's put it this way, there's maybe-- I'm kind of zooming out and summarizing a little bit, but we either have this kind of more Bitcoin-centric And let's say distributed way of Bitcoin banking and people use these mechanisms at a system level, right? or, you know, the unfortunate pathway will be people don't have enough trust in those things and they sort of revert back to the fiat legal system method, right? They start saying, \"All right, I'm just gonna use a fiat bank with the fiat legal court system to protect me if something goes wrong,\" right? And they sort of- Maybe that's the fork in the road that we're looking at, right? That we either manage to get enough people into the Bitcoin world comfortable with using, let's say, not just Bitcoin itself, but let's say cypherpunk e-cash kind of technologies, and they're comfortable in that world using apps and things like that. Or people sort of come back to the more statist way of, \"I want, I want the statist legal system,\" and maybe, you know, maybe that's, that's where it comes down to" }, { "speaker": "eric_yakes", "time": "56:09", "start": 3369.19, "text": "It, it, yeah, I, I, I agree. I think a lot of that too is probably gonna be generational. you know, it's like we're not gonna be onboarding boomers into FedPayments really, but, millennials who, and Gen Z who trust online economies much more, in, Gen Z in particular as they start to become a significant proportion of the population You know, they're, they're, they're gonna trust systems like this quite a bit, maybe, maybe that won't be good, maybe they're gonna have to learn a few lessons and, you know," }, { "speaker": "stephan", "time": "56:37", "start": 3397.22, "text": "burn their fingers on the way, right? But as you said, it's about the system level, not kind of individual rugs and people getting rugged. but anyway, let's-- There's one other question, we got another listener question from our friend, Joe Burnett. His question, well, two part. First part was, \"Will there be any role for passive" }, { "speaker": "stephan", "time": "57:00", "start": 3420.48, "text": "Expect the stock index, say S&P 500, to trend in Bitcoin terms sideways, up or down? What do you think?" }, { "speaker": "eric_yakes", "time": "57:08", "start": 3427.94, "text": "Yeah, so those are, those are big questions, but like really, really simple answers, I think. On the passive index side, I think that there's a lot of criticisms out there of, it's just like, \"What is capital allocation anymore?\" And this is kind of the best way to invest in a fiat-based economy, and it's like, \"How, how is that gonna change on a Bitcoin standard?\" Well, it's like, I guess going back to the idea, at a systemic level, I think it's naturally going to shrink. If we're not in a fiat economy, passive type capital allocation isn't gonna be the most desirable way of conducting it, But I think something else that's really interesting that Joe actually exposed me to was, and i-it's always been something that's like intuitive in my mind, but I've never really seen the data, but it was, and- the, the precise numbers are escaping me, but it is effectively like, from the average lifespan of a company, the effectively like company life cycle, is starting to decrease pretty rapidly, and that's intuitive, right? Like, as technological change progresses, as this, this exponential relationship continues to go, creative destruction, becomes a more significant aspect of our economy. And you might have a valuable business today, but how long until some new technology- Is gonna uplift your business model. And, it, one thing I think is interesting about that when it comes to like passive investing is, I, I, I think, I would assume that a lot of passman investment vehicles, as that continues to grow, even still in a fiat economy, they're gonna have a natural bias towards owning dying companies over time. Like these, all the wealth is gonna get created on the way up in a lot of ways, and then once it hits maturity, the death is probably gonna get shorter and shorter and shorter, and passive vehicles are basically gonna be vehicles that are kinda like Buying the bags of the guys who are making money on the way up, and they have a much shorter drop off of, you know, profit or wealth extraction or dividends before, you know, it ultimately concludes. So it's gonna have a natural bias towards that side of the industry, which is gonna be a more and more challenging form of investment over time." }, { "speaker": "stephan", "time": "59:09", "start": 3548.57, "text": "Yeah, interesting. So then the question is, would the stock indexes, the S&P five hundred as an example, in Bitcoin terms, where do you see that going? You know, stable, up or down?" }, { "speaker": "eric_yakes", "time": "59:22", "start": 3561.72, "text": "like, yeah, I mean, starting today, down, I, for sure, but I, I don't think we're really gonna see anything outside of, you know, potentially smaller use cases and early stage type companies that are like outperforming Bitcoin, then it's a question of for what period of time. I, you know, I, I guess like I do wonder, like, Bitcoin's gonna hit-- there's some sort of, it-- I guess this is actually a really good broader point to hit, too. Like, why, why am I researching all this stuff? I think the biggest point is that If Bitcoin just becomes digital gold, you know, we're kind of looking at somewhere around a ten x from here on USD value, but if Bitcoin becomes something broader than that, as it should, and becomes a freedom enabling technology and a new financial system, it's really hard to quantify what size of market Bitcoin actually has. But I think nonetheless, there's gonna be some sort of-- there is a ceiling of capture that's going to exist that's based on a lot of different dynamics, like how much credit emerges within the, this digitally native economy. what the nature of that credit ultimately is, and, and looking at these systems is a way that we can start to like look at how that might occur. So that's kind of like the big question it impacts how much number go up will be, and, And, and I think that by looking at, once we get to like this theoretical cap, Bitcoin is gonna be, you know, it should be asymptotic over time. Like we're at this industry life cycle where people think we're at the bottom of the S, as that increases rapidly, maybe in two cycles, we're hitting the upward, and then we're gonna start to asymptotically start decreasing over time, and, and from a return potential perspective. So it's like, you know, I think on like the private capital side, there's a lot of companies- Today that are valued in the millions, that are probably gonna be worth billions, if not even trillions, I see that if we're building, if the-- if Bitcoin becomes freedom money and we're building infrastructure around it, then we're just getting started, and, and there's a lot of value to be seen from that. So I think that there's, that, that's what's really cool about, you know, being involved in what we're in right now is it's kind of gonna be pretty world-changing, but, But yeah, so I think that broader stock, you know, indices of mature companies today, Bitcoin's gonna be outperforming. I definitely see scenarios where we're gonna have very fundamental, you know, the next Bloomberg's of the world or the next, you know, decentralized type exchange infrastructure where, you know, the value of these things is gonna be really, really, really high" }, { "speaker": "stephan", "time": "01:01:51", "start": 3711.97, "text": "Yeah, so, I guess l-let me phrase the question this way, sort of expanding on Joe's question. I guess if you're looking at it post-hyperbitcoinization Would you expect it then to trend down in Bitcoin terms?" }, { "speaker": "eric_yakes", "time": "01:02:07", "start": 3727.89, "text": "So I think that, like, but yeah, so like my take is that I, I don't think I agree with Joe on this point. I think that if we operate in an economy where productivity is growing more rapidly than the supply issuance of Bitcoin, and we assume that Bitcoin is the only form of trade- Transaction that exists, I guess, we kind of have to like remove assumptions about what credit or credit money could emerge at these points in time." }, { "speaker": "eric_yakes", "time": "01:02:43", "start": 3763.75, "text": "then in that type of an economy, I wouldn't suspect a capital allocation is either gonna be held in a deflationary asset," }, { "speaker": "stephan", "time": "01:02:51", "start": 3771.02, "text": "right? Or it's gonna go off, I guess, is the important point, right?" }, { "speaker": "eric_yakes", "time": "01:02:54", "start": 3774.16, "text": "What, what do you mean exactly?" }, { "speaker": "stephan", "time": "01:02:55", "start": 3775.38, "text": "So let me explain it this way. Here's how I would answer it. I would say definitely it's gonna be down until we get to hyperbitcoinization. I think everyone kind of agrees with I think pricing Bitcoin is gonna go down, but if we're thinking about accounting valuation of global wealth, that could still be going up, right? Because it's a positive sum game, there's just wealth being created. That, and so I guess this is one thing, and I think, I've mentioned this as well, it's like this idea that just because the money supply of Bitcoin might be twenty-one million, that doesn't mean global wealth might be bigger, might not be bigger than that, right? As a quick example, let's say money supply in, in the long run The actual global wealth in accounting terms could be ma- much more, could be a hundred million Bitcoin, right? And it's not, it doesn't preclude, you know, the money supply being twenty-one million or whatever, seventeen million after the lost coins. It doesn't preclude the a-accounting valuations being higher than that, I think. So, yeah, I, I, I'm not, I'm not so sure. It could actually be higher. Yeah," }, { "speaker": "eric_yakes", "time": "01:03:53", "start": 3833.45, "text": "yeah, I see, I, I see the point that you're making, yeah. let, let me rephrase it" }, { "speaker": "stephan", "time": "01:03:57", "start": 3837.27, "text": "a quick way just so people understand. Right now, if you look at global M2, broad money It might be like a hundred trillion or a bit over a hundred trillion, but if, if you look at global wealth, it's like four hundred trillion or maybe five hundred trillion. So there's already like the money supply number is different to the global wealth number. So I don't, I'm, I'm not so clear, how that boils out long term with stock index." }, { "speaker": "eric_yakes", "time": "01:04:19", "start": 3859.89, "text": "Yeah, and like that, that, that's a challenge with all these kind of questions, right? Is like, yeah, I, I agree. Like from the accounting standpoint, I, I agree. Like I, There's some sort of denomination of that balance sheet, you have global wealth like assets on one side, and then you would consider like savings and credit on the other side of the balance sheet, and there's some sort of proportion or representation that I think, Bitcoin re-represented the asset side within there, and, and I, I, I don't really know, I think it's more, I, I, I guess I like, I try to boil this question down to If productivity is, you know, if we just assume, let's remove the, the credit side of the balance sheet, let's just assume it's full equity, and then we could say like, okay, well, if, if productivity is growing, and then we view that, you know, that valuation of that productivity is at some theoretically correct number, which is another, you know, crazy thing, but, you know, let's just make, try to make some sort of assumption that there is a true value that we can get to, and it exists at that, and it's growing Growing at the same rate, then I think that we, we could see, expansion. Like I, I, I, I don't see a world in which equity investment or just investment in general isn't something that would be outpacing a deflationary asset over time. Once that asset, or, let me rephrase that, I won't say deflationary asset, a fixed asset over time, And that market is left to be a free market because it should be expanding, otherwise it would just wouldn't be rational." }, { "speaker": "stephan", "time": "01:06:01", "start": 3961.94, "text": "So with all that said, where do you, you know, do you have any closing thoughts on this idea of banks without bankers?" }, { "speaker": "eric_yakes", "time": "01:06:08", "start": 3968.75, "text": "So I, I, I think when it comes to a lot of these questions we're asking, it, like, it, it comes down to what people are expecting. What's, what's the future of Bitcoin? How is it going to exist? There's a, there's a huge spectrum of what people think. Some people think it's only gonna be digital gold, some people think it's gonna be, you know, peer-to-peer, decentralized, free to money for the world, and- It's not to really have certainty around that, but there's, there's more information that I think we're learning as it grows. And, and the point of this is that I think when people are-- a lot of this is emerging from the scaling debate, and people are talking about how Bitcoin's going to scale, and they'll talk about Fedimits because of that. I think it's really important to have an economics understanding as well in this conversation. I think you need both. And, and I think that the devil is in the details with how a lot of this is going to- Emerge. I think that when I see people on Twitter conversing about it, there's a lot of pretty black and white, simple explanations, and I, I just don't think it's that simple. And, you know, I encourage people read my stuff. I'm happy to point you to people who are also digging into this and, get more and more people. I, I feel like this debate is kind of boring for a lot of people and it's not too mainstream yet. I don't think that's always gonna be the case. I think that we're gonna Wanting to get into the weeds around this, but, yeah, so I, I just wanna encourage everybody to get a little bit more curious about this. I personally think it's like the biggest question to be digging into right now for the industry in a lot of ways, but yeah." }, { "speaker": "stephan", "time": "01:07:42", "start": 4062.83, "text": "Fantastic. Well, thanks for joining me. Listeners, you can find Eric over at yakes dot io. Links will be in the show notes. Eric, thank you for joining me." }, { "speaker": "eric_yakes", "time": "01:07:49", "start": 4069.91, "text": "Thanks, man. This was, this was a great conversation." }, { "speaker": "stephan", "time": "01:07:52", "start": 4072.71, "text": "I hope you enjoyed the show. Get the show Livera dot Substack dot com. Thanks for listening, and I'll see you in the citadels." } ] }