{
  "episodeId": "SLP71",
  "speakers": {
    "stephan": {
      "name": "Stephan Livera",
      "role": "host",
      "tag": "STEPHAN"
    }
  },
  "segments": [
    {
      "speaker": "stephan",
      "time": "00:09",
      "start": 9.39,
      "text": "Hi and welcome to the Stephan Livera podcast focused on Bitcoin and Austrian economics. I'm your host, Stephan Livera, and today we're actually going to do something a little different. I'm actually just gonna do a monologue. I've had a request from some of my listeners and now that I'm back from Japan, I'm ready to just Put, put some of this material together, and the idea is, this is an episode targeted more for Bitcoin newbies and Bitcoin intermediates who wanna understand a little bit more on what is the Bitcoin Austrian view. Why is it that understanding Bitcoin through this frame or prism of Austrian economics, why does that make more sense? And let me just articulate some of those thoughts for the listeners who maybe they're not as familiar with this and they've only heard Bitcoin as characterized by Bitcoin skeptics or- Or in the main, in the mainstream media or by kind of cryptocurrency generalist types. So if you're a newbie, you're probably wondering, well, okay, this Bitcoin, is it a scam? it doesn't have any intrinsic value, Bitcoin doesn't return any dividends or income. Is it just, you know, like the tulip bubble and is everyone just gambling here? won't the government shut it down? Can it get hacked? what about all these other coins? Why don't I just buy those other coins? Because I missed the boat on Bitcoin? Or what if I buy Bitcoin and then the next Bitcoin comes out and it's better, you know, in this whole kind of Facebook and MySpace example that people throw around? So hopefully in this episode we're gonna try and touch on most of those questions and how a, what I'm gonna term a Bitcoin Austrian thinks about those things. So, who are some of the, I guess, influences within the world of Bitcoin? So some of my, personally, some of my influences in how I think about, you know, this Bitcoin Austrian view would be people like Nick Szabo, Satoshi Nakamoto, Pierre Reschardt, Michael Goldstein, Vijay Bohra, Party, would be probably some of the, the main influences on my thought. And then there are others as well, so Tua Demister, Trace Mayer, Daniel Kreewis, Konrad Graf, and Peter Sutter, who- have been also, were writing about it very, from the very early days, although individuals such as Daniel Krewe, I wouldn't recommend you follow him nowadays, as he's more of a bee-catcher, but we'll get into maybe some of that later. Now, from the world of Austrian economics. Some of my influences are Karl Menger, the founder of the Austrian School, Ludwig von Mises, Murray Rothbard, Hans-Hermann Hoppe, Bob Murphy, Tom Woods, Guido Hulsman, Dr. Joseph Salerno, Huerto de Soto, just to, name a few. Now, just to be upfront with you, the listener as well, I don't consider myself some sort of thought leader or influencer or, I'm not a professional PhD economist, rather, I consider myself a student, a long time student of Austrian economics. Not to dock myself fully, but I'm in my early thirties and I've been interested in Austrian economics since I was around fifteen or so, so that's, you know, a solid fifteen, sixteen years of time. And in terms of Bitcoin, I've been interested in it since around December two thousand and twenty So as I record this now in May 2019, that's, you know, over six years of time, being interested in Bitcoin. So let me just now outline Just a few overarching thoughts around how a, what I term a Bitcoin Austrian considers Bitcoin. So Bitcoin should be thought of as a digital hard money. Essentially, it is the ultimate challenge against government monetary intervention, particularly central banking, not necessarily banking in general, correctly understood. Now, Bitcoin is extremely interesting to many of us because it has a strictly limited supply of twenty-one million. There will never be more than twenty-one million Bitcoin. coins, and this sort of feat hasn't been achieved before in history of having actually a strictly fixed supply. And we, we might get into a little more detail around that later. and it also achieves this quality because of the way Bitcoin is set up that it is extremely difficult to influence or control by any large centralized party So that's what helps it maintain its value, because other people see value in this idea of this ledger of money where it's very, what we call immutable, meaning it's very hard to sort of go back and rewrite that ledger And over time, because of the technology around it, known as proof of work, as that proof of technology builds, the analogy, made in the past is it's like amber, and, you know, the more and more amber around it, it, the harder and harder it is to change. And so you can understand that in the past, attempts have been made to decentralize or take money away out of the control of the state or, you know, any, any individual person. It's not about one person, it's about kind of the technology that we've had. And so Bitcoin should be understood as this kind of revolutionary technology that enables a new form of money that isn't so susceptible to centralization or co-opting as it has been in the past historically. So historically, what happened is if somebody got a lot of power, they tended to want to inflate the money, right? Because obviously, if you're the king and it helps you to debase the money by, say, shaving off a little bit, little bits of silver of the coins, then you can very quickly enrich yourself and essentially raid the- wealth of your whole, society. And so, I mean, there's good and bad a-around that, and some people will make different arguments around that, but essentially that's what Bitcoin That's why people see so much value in Bitcoin, but it should be thought of as a long term case, like we're talking multiple decades here, okay? So let me now jump into some specific essays and topics around Bitcoin. So I think we've got to start with Karl Menger, the founder of the Austrian school. So if you look at his essay, The Origins of Money, one of the fundamental insights from this essay is that there are differing degrees of salableness or marketability, or another way to conceive of it might be liquidity, in different commodities, and that over time, there's a tendency, because of this problem known as the double coincidence of wants, people want to sort of move towards the Commodities that are easier to market and sell, right? So, quick example, if you have a product that's not easy to sell, then you might be Without trading partners for that product, even though it might be a highly valuable product. Let's say you made, you know, whatever, telescopes, right? And, you know, the guy who makes bread, he might not want your telescope. And then there might be another problem that he might not- You know, want to give you, you know, however many lo- like, say, two hundred loaves of bread, he might only have ten to sell, but your telescope, you can't really easily cut that up, right? It's not divisible, right? So that, that's just an example, and you might not be able to quickly find that guy. And so because of that We understand money as this indirect medium of exchange, right? It's the idea that because you can't directly exchange with barter, or it's because it's more difficult to do that, that's why money, right? And so This idea of differing degrees of salubleness, now Karl Menger spoke of this through time and space, right? So he was saying things like, okay, how broad are the markets for this good that you're trying to sell or get a, a trading partner for? And also how durable is that money? How well will it store its value through time? And this is where people come up with stuff like monetary attributes, right? So they think about how divisible is it? You know, a good money should be hard to counterfeit. It should be easy to verify. It should, have a what we think of as a, well, historically, a high value to weight ratio is a good idea, because, you know, quick thought experiment, thought experiment, you know, compare gold, which obviously has a very high value to weight ratio trade ratio versus, you know, whatever grass, right? Think how much grass you would need to transport around. Obviously, it would be easier, right? Now, Bitcoin is different because it's digital, and it achieves a certain level of digital scarcity in a way that was not possible before And so this idea, really focus on this idea of saleableness, I think that's probably one of the key, key components, and many of these other attributes of Bitcoin are kind of all contributing to which one is the most saleable. And what we can understand is that there's strong tendencies there towards convergence, towards the best few that will become money. But at the same time, we have to understand it's not like there was a top-down coercion. It's not that the government had to come out and say I dictate that this particular good is the money. It's, it's more like a bottom-up view, it's emergent, it's, you know, it arises on the market just naturally, with each person acting in their own subjective interest, right? Now, some people think of it like, \"Oh, Bitcoin is a belief system,\" blah, blah, blah. It's, it's not a belief system. It's more like people are looking to, in their own interest, to find what's the most saleable commodity that they can use as money, and as we'll get into it later Later, we talk about this idea that, you know, as Saftein has pointed out, that it's the hardest money that people converge on, in historically, right? Hard-- well, things like what was the most hard money, but also what was most saleable. Now Some people think of Bitcoin as being gambling, right? Everyone here is just gambling, and it's, you know, it's just the whole thing is speculative. I think on this point, it's more like, y- well, yes, it is, in some sense, it is speculation, there is speculative demand, but there are good arguments around why it actually makes sense to speculate on Bitcoin, and those have played out over these last ten years, where we've seen Bitcoin has come out, and there have been many, many challenges, but none of them have actually managed to surpass Bitcoin. Right? So th-these are some ideas that hopefully help sort of change your view, right? And you might contrast this view, this kind of Mengerian view of money and of Bitcoin, and contrast that with, say, charlatanism, which is the state theory of money. It's like a top-down theory of money, saying, \"Oh, okay, you know, the government dictate-declares this is the money.\" And You, you have to sort of think that through a little bit further because look at some historical examples like Venezuela or Weimar Germany or Zimbabwe and so on or Argentina. It's not enough to just say the state declares it money, therefore everyone uses it as money, because what happens is if they go too far, people will switch. Right? And so that was the phenomenon as well that we've seen historically is that people, when they started to live in a very hyperinflating environment, they would quickly try to change. It became mon-- it, it became a game of monetary hot potatoes, right? So they would get their Venezuelan currency and then they would immediately go and buy something with it because otherwise it would lose, it would devalue over time. And so that was where we saw that phenomenon of dollarization, right? So people in Venezuela or wherever trying to use another harder money because they needed that as a way to preserve their value. So what we see as Bitcoin, Bitcoiners, is we think that we will eventually see this process of Bitcoinization, alright? So parallel, like similar to that idea of dollarization. another view of money that some people have is this kind of David Graeber view of debt as money, like this idea of, \"Oh, it all started as debt, and that's what money is.\" We would disagree with that, and obviously on this basis of money as medium of exchange and salubleness, right? And so there are others within kind of the Bitcoin world, so good example would be Nick Szabo in his essay \"Shelling Out.\" Now, that's a phenomenal essay as well, it's a must-read, it's available on the Satoshi Nakamoto Institute. And in that essay, Nick Szabo talks very much about this idea of proto-money, and he's talking about collectibles, and so it's very in line with the Mengerian view, and essentially he's talking about collectibles as the first secured form of embodied value. So similarly to that problem, you know, how we were talking before about avoiding that problem of the double coincidence of wants, h-his speaks about this idea of collectibles as a way of delayed reciprocation. Collectibles were like this kind of, almost like a technology that helped us to cooperate and helped set up scenarios where people could transfer wealth amongst their kin or in and amongst tribes, right? So like historically in India and so on, there's things like the dowry, where the bride's family will pay the, you know, The groom's family. And in Nick Szabo, in that essay, points out historically it actually went the other way around, that, you know, in, in any case, it existed as a way that people used to sort of help coordinate, right? And so historically in the past, you might have lived in a smaller village and people could all keep track of each other's favors, who owed what, who had done what for who. But obviously, that's not necessarily scalable, right? So as you look at, as societies grow and people talk about this idea in The Dunbar number, right? So it's this idea that a hundred and beyond a hundred and fifty people, it's difficult for you to maintain that relationship with people. And so in some sense, money is what-- is like a tool that we humans use to, in a sense- Scale up beyond that one fifty, that's one way to think about it. And I think this sort of ties in nicely with the next essay from Nick Szabo, which I wanna highlight, which is \"Money, Blockchains, and Social Scalability.\" So again, you can find this one on the Nakamoto Institute, and it's also on his blog, I think it's called Unenumerated. So This one is a fantastic essay as well, and what he's trying to point out here is that Bitcoin is incredibly computationally inefficient, right? So he's saying the secret to Bitcoin's success isn't certainly not its computational efficiency or its scalability in the consumption of resources. Instead, the secret to Bitcoin's success is that its prolific resource consumption and poor computational scalability is buying something even more valuable, social scalability, right? So here, again, so similar to that point we were making earlier Social scalability is like this institution, right? So it's like the rules of the game, the customs, it's the things that constrain or motivate people's behaviors, and in some sense, like we were saying with the Dunbar number, it helps us overcome certain shortcomings in our human mind. And so in that, understood in that way, we should be skeptical of some of these people who come out and promise the world with so-called blockchain technology, right? So they say blockchain, not Bitcoin, and so on, when really They're not appreciating that it achieves a very specific purpose. Blockchains, as used within Bitcoin, is designed to, you know, at it, at this incredible, incredible cost, give a certain level of assurance to people around what are the rules of Bitcoin, right? There will never be more than twenty-one million coins, you can't double spend somebody else's coins, things like that that are certain rules that we understand within Bitcoin. And so in that sense, as Nick Szabo says, blockchain technology, which implements data integrity via computer science rather than via \"call the cops,\" has so far made possible trust-minimized money. And so understood from this, I would say people should be more skeptical about so-called blockchain technology as applied to things other than money. It's, it's a very, very high bar, and we should, we should be incredibly skeptical about this because for at least four or five years now, this narrative has been going about, \"Oh, blockchain, not Bitcoin,\" and yet They have really struggled to find any profitable use cases, and even where they are profitable, they might be easily disrupted by using a different technological approach, perhaps even using cryptography, but just not using a blockchain so to speak. And so I guess, you know, the skeptic in me thinks that some, business executives who maybe aren't as tech savvy, they might be using it in some sense for marketing or they need to do a trial with it, and then some IT staff might be cool with it. Because it helps them get more budget that they can just use to do things, even if they're not necessarily the most efficient way to do things. I, I'm not-- it's not clear, but at this, at any point, I think it's quite clear that we should be skeptical about blockchain technology. And for further discussion, see my earlier episode with Jimmy Song and also with Udi Viteiner. Now, next essay I wanted to touch on is Hans Hermann Hoppe's essay, \"The Yield from Money Held Reconsidered.\" Now, this one's available on Mises.org and The context of this essay, I think, as I understand it, it was a response essay to some gold skeptics, right? And so the idea is people are saying things like, \"Oh, but isn't holding money unproductive? Like, why would you hold that money?\" And this comes to that question of why do we hold a cash balance? Now, to explain that a little bit deeper, there are different, let's call it three different categories, and I think Rothbard makes this point in Man, Economy, and State, and I'm sure basically all the most Austrian economists would agree with this point, but essentially, think of it like there's three categories. You've got either consumption, right? Let's say you've earned some money, and you've got three possible choices. You're either gonna consume something with it now, you're either gonna try to invest that money"
    },
    {
      "speaker": "stephan",
      "time": "17:49",
      "start": 1068.84,
      "text": "Right, with that return, there's risk, or you've got a cash balance. And what Hopper is driving at within this essay, is he saying, \"Why do we hold that cash balance? Ultimately, it's because of uncertainty. \" And I, I-- To be fair, I think even Mises makes this point as well. But essentially the point is, think of this thought experiment. Imagine if there were no uncertainty, we may not need a cash balance. We could simply invest or loan our funds such that we receive them back at precisely the time we need them. So, for example, You, okay, in six months' time, I need to pay one thousand dollars to buy good X. Well, I might not necessarily keep that in my cash balance right now if I knew exactly, and I had, you know, no uncertainty about it, then I might simply put that away in a six month- Term deposit or in some kind of bond or other instrument that, can be redeemed at six months exactly, such that I don't have to hold that. Ultimately, what Hopper is driving at in this essay is he's trying to explain that the unique productivity of money, so to speak, is like a yilder of un- of certainty in an uncertain world. And the reason is because if you hold cash, that's the most liquid, the most saleable asset or commodity, as we were speaking about earlier, this is the thing that enables you to buy pretty much anything else at the least possible, slippage cost and the least kind of trend, you know, efforts of trying to find somebody right? Than having to barter and do double coincidence of wants, you just use money, right? So that's, that's really the main point. Now, another concept to consider here is And, and I think this is where people sort of fall into a bit of a category error. So some of the, you know, more aggressive anti-coiners or mainstream financial analysts, they sort of look at gold and Bitcoin in similar ways and say, \"Oh, well, look, isn't gold just this dumb, unproductive rock? Why would you hold that?\" Ultimately, that's a category error. They're trying to think of it like it should be held in that investment category and that it should throw off dividends, right, like a stock does, or that it should throw off interest payments like a bond does. But that's, that's not why we hold it. That's not why people would hold cash or, sorry, gold or Bitcoin. It's held more in the sense of being a cash balance. Now, we can-- Another thing we can layer on here is this concept of speculative, speculative demand. Now If one, well, one legitimate reason that you may increase your cash balance is if you believe that holding money would result in your greater ability to command non-money wealth. So for example, if you, you know, back in the older days, if you thought the gold price is essentially going to go up And then if you held gold, that you would have more command over being able to buy more houses, cars, food, clothing, et cetera, then that is a-- that's a good reason in terms of speculative demand. And so that's one way the Bitcoin Austrian would probably respond to this idea of, \"Oh, Bitcoin doesn't throw off any returns.\" Well, it's, it's not designed to in that sense. It's, it's more-- it should be thought of more like a cash balance, and as we'll get to later, it's more around this idea that society sort Towards the best or most hard or most saleable money. Okay? So another really key essay is by Hans Hermann Hoppe, it's called How is Fiat Money Possible? So again, you can get this on Mises.org if you Google that. And some really cool points in this essay, and I think Hopper reinforces a few points that we learned even from Karl Menger in, on the origins of money, right? And so Here again, there's this focus on self-interest as what drives this emergent behavior, right? It's not that there was some top-down organization, and it's not like even there needed to be one person out there advocating for gold or Bitcoin. It's each person in their own self-interest. You know, wanting to hold this because they believed it would be a better store of value. And so the point Hopper is making here is that it's beneficial for any individual to select a medium of exchange that is already being used by other people. And so rather than this idea of, hey, what, you know, some people in the crypto world, they talk about this kind of, they won't call it this, but essentially they, they have this kind of multi-coin worldview. But essentially, this is reintroducing the problem of barter, and really, we should be thinking of it like one dominant money, which means there's less indirectly useful media being used, and that's more optimal for calculation and just less wasteful. And Hopper, in this essay, he also makes the point around how accounting in a world with one dominant- Foreign and money is a more accurate expression of opportunity costs, right? Because there's less and less people trying to fiddle around with foreign exchange markets and dealing with things like presentation currency, transactional currency, and the different things associated for accounting for that as well, and then all the people who are doing FX hedging and so on. It, it just, it's absurd. It's, the whole thing just, it sort of becomes an absurdity. And another point he makes there is around this idea of, so some people talk about trading zones and they say, \"Oh, but within this trading zone, you might use this sort of money,\" but there can be no better, like, if people-- as long as people prefer more wealth to less, they're gonna prefer the, the, the global trading zone. And well, what, obviously, in, in, in an increasing age of internet commerce, why wouldn't Bitcoin be that or be-- and essentially, it can't just be the US dollar because the US dollar can- More easily be shut down and stopped or censored. There are economic sanctions, there are financial surveillance controls. What we're looking at here is which kind of of the cryptocurrencies would be the most global, and I think the argument can be made here that Bitcoin is exceptional, it is special, it was the first one, and, well, in some sense, it wasn't the first one, like if you look back at some of the prior efforts and attempts to make digital money, there are many prior attempts, right? So if you look at BitGold and where- B-money and there have been kind of non-crypto versions like Liberty Reserve and eGold that got shut down, and you can sort of understand here how Bitcoin is special in that sense So anyway, back to this Hopper essay. He actually quotes a section from Mises' Theory of Money and Credit, and he's talking about how there's this convergence towards the single most easily resold and readily accepted commodity, right? Because he's saying one by one, less saleable, commodities get knocked out until finally you're left with the most saleable one, right? And so in some sense, they're very-- it's a very maximalist argument within kind of Bitcoin and this idea of monetary maximalism. It's this idea of convergence towards the best one. So another good essay that you, you know, you really should read is Vijay Boyapati's \"The Bullish Case for Bitcoin.\" So you can find that on his Twitter real underscore vijay, and if you just Google that, you'll see that. And also, I have interviewed Vijay, so, check out some of those interviews with Vijay. And obviously not gonna recapitulate the whole essay here, but some of the key points that I drew from that essay were some of these concepts around monetary properties. So coming back to what we were saying about what, what is something that makes it more saleable? Well, it's these concepts around how durable is Bitcoin, how easy is it to backup, how easy is it to send, how easy is it to verify, but how difficult is it to counterfeit? And so Bitcoin does this through software, and so it makes it very easy for people to verify so long as they're run their full node software. And you can compare this to things like gold, where in the past there actually have been historical examples of people trying to coat the outside of a gold bar with tungsten and make it way more, it seem- or rather, sorry, the inside of it with tungsten and then the outside with gold to, to try and trick people, obviously. So there are some difficulties associated with verifying the correctness or the, soundness of that gold, right? So that's one example. and while we're talking about some of Vijay's contributions in Bitcoin, I, I really like one of the points he makes here that some people, they fall into this trap of thinking, \"Oh, I want the next Bitcoin,\" but he actually explained, and as Vijay explains, Bitcoin is the next Bitcoin. It's extremely difficult to dislodge the network effects, and we should also understand that there are strong opportunity costs associated with holding any particular money, right? And so as you can see in some of the writings on the Nakamoto Institute in the mempool, it's, it's It's not just like switching between social networks or and having multiple accounts. If you hold more of currency A, that means you necessarily can hold less of currency B. And so over time, you-- we would, again, like, like we've been explaining, there's this tendency there towards convergence of the, you know, the best one. And as my friend Pierre Rochard, also a prior guest on the show, has explained many times, many times, you'll see him explain on, on Twitter, this idea of liquidity begets liquidity. So even a small incremental diff- difference in liquidity in one, in currency A over currency B will kind of tend to reinforce itself such that currency A, kind of all other things equal, tends to win out in that market for money. So now another good resource that you, you know, if you wanna learn more about Bitcoin, you can't go past this one. It's Safety Namuses the Bitcoin Standard. Now, Safety is also a past guest on my show. He was the first guest, so episode one and episode sixty-nine off the top of my head. And in, so he makes many contributions and many, explanations within the book, this, the Bitcoin Standard. And I think for a newbie to money, really a lot of the discussion is around the history theory of money. And also another key focus of his is this focus on this idea of stock to flow ratio. So some of the points around history of money are just around this idea that It, it took certain government interventions to make fiat money work, and some examples that he brings up around stock to flow really should be considered like this point of what is the inflation rate of that money? So quick examples, if you think of most fiat monies, they might be inflating at five, six, seven percent or even more per year, whereas gold historically has inflated at one point five to two percent per year. Then Bitcoin, on the other hand, had most of its inflation at the start, and every four years the new incoming supply halves. So this is an event known as the halving or the halving, where the block subsidy halves in Bitcoin, and what this means is that over time, its inflation rate will drop far, far lower than anything else we've ever seen. And this is important to understand because, again, going back to that point of w- salableness through time and space. Well, if you know that the supply of this cannot inflate beyond any-- beyond twenty-one million, what Bitcoin software does is it algorithmically determines the supply such that it can never go more than that. And Then what we'll see, and I guess where, where we are today, technically Bitcoin's inflation rate might, might be around four percent now, but if you account for lost coins, it might be five or six percent. But then after the next halving, obviously, that'll go down to somewhere in the two to three percent range, and then after the next halving after that, it'll go down to, you know, one and one to, one to two percent, and then next halving, it'll be even more scarce than that. And so then you have to consider what are people going"
    },
    {
      "speaker": "stephan",
      "time": "29:25",
      "start": 1764.97,
      "text": "They may well prefer to store value within Bitcoin because it's better than their alternative of keeping it in some other money. So that is one key concept to understand around that. And so The other thing is, Safdie raises some historical examples in his book, so you've got to go through that book to understand them. But a couple, just a quick example is, you know, European settlers who came to Africa, and there were certain African groups using glass beads as money. But then the thing is, the European settlers had glass-making technology, so they were able to just go home, produce glass beads, bring them to Africa, and then essentially get African, the African, African people's wealth. At, you know, pennies on the dollar essentially, because they were able to make that money. So the lesson then is, as Safety and says, it's difficult to, insulate yourself against the risk of somebody using a money that's harder than yours So this is also, again, going to this idea of you wanna be using the hardest money, and if you're not using the hardest money, you might be susceptible to having your wealth essentially raided from you at pennies on the dollar. And there are multiple examples there around, I think Yap's, the island of Yap, the rhinestones as well. So you can have a look at the book for that. Next one is Murray Rothbard, and so Murray Rothbard obviously has many, many contributions, probably one of the best from a Bitcoin point of view is this booklet called What Has Government Done to Our Money? So in this book Murray Rothbard talks about monetary history and how banking got corrupted and centralized, right? So you can understand a little bit further around how, how it came to be, how we ended up in this scenario that actually the, the world that, you know, the money that we're using now is more like an aberration, right? So for thousands of years, people used gold as money. W- how was it that we got onto this system of using paper money that's actually not backed by anything, right? So when people talk about this idea of all intrinsic value, really we should understand And from an Austrian point of view, is value is in the eyes of the beholder, right? It's subjective value. Another way to think of that would just be, well, what's gold backed by? Right? It's not, it's ultimately it's those monetary characteristics and that concept of salebleness that matter more. It's, you know, so in that sense, it's not a belief system, rather it's more like what is most saleable, what's most liquid, what has the best, you know, properties around it. And so I think that is one way to think about it, right? And so another kind of idea that you see from Austrian economics is that it's not necessarily the money supply that matters, right? So you, think, quick thought experiment, if you, if we had one thousand monetary units in our little economy and then, you know, I click my fingers and then Tomorrow, there's two thousand monetary units, but everyone who has whatever money, it just got doubled overnight. Well, would our net wealth change? No, it's just the monetary units that have changed. I hope that's clear. And then what we're trying to underst-get to here is just to explain that inflation in the way it's done today by the fiat money and as enabled by central banks, by legal tender laws, capital gains tax laws, et cetera, what-- the real problem is what's called Cantillon effects. And so the Austrians explain that as well, obviously it was named after this guy, I think his name was Richard Cantillon, and the point is to understand this, the, those closest to the monetary spigot, as in those people who receive the new money first, get to benefit because they are spending the new money at today's purchasing prices, and before it's kind of flowed out to everyone else and those effects have properly reflected in the prices of everything else. So what typically happens in this case is In the fractional reserve banking system, the banks and the people getting loans and the governments, those are the people closest to the monetary spigot, so they are the ones benefiting. And so a good essay, actually, if you're interested to understand a little bit more on this, is, Daniel Sanchez's, \"Inflation Is Sipping Your Milkshake.\" And so that's a really great explanation of how it's kind of like constantly causing that, difficulty for people because it's, it's quite difficult for someone who's, say, on a fixed wage to account for that or to kind of stop the effects of that on their own spending power Whereas other people, depending on where they are placed in relation to the monetary spigot, the creation of the new money, they can better insulate or themselves from the negative effects or even benefit from that. And so in some sense, the people who, you know, the occupy Wall Street and so on, some of those people, there's some kernel of truth in that, that there is, the system is unjust. It's just that it takes a certain level of economic knowledge and understanding to perceive that really the problem, one of the big problems of Inflation is this Cantillon effect, and another point that Austrians would raise is around this idea of the Austrian theory of the business cycle, which maybe we'll get into that later. so another few points that I wanted to touch on is And some of this comes from Murray Rothbard's Man, Economy, and State. So in that tome, there's a discussion around this concept of reservation demand, right? So understand it's that people The value of something comes from when people are hoarding it, in some sense, right? The fact that people wanna hoard it is kind of what gives it more value, right? And so one of the essays from, the Nakamoto Institute also has something like, \"Well, I'm hoarding bitcoins and you can't have any.\" And so- That hopefully helps people understand that really that's where the value of something comes from. It's not just the pass-through, pass-through value of people using it as a transaction, because then they could just pass through it and not store any value in it So, and that kind of brings us back to some of those points we were making before as well around, you know, consumption right now versus investment and cash balance. Also in Man Economy and State, there is some discussion around this idea of money prices can pre-exist. so that one essentially means that So, so some people bring up this idea of, \"Oh, well, you see, at least gold can be used for other things, and so even if the monetary value of it went down, there would still be like industrial use of gold in jewelry and computers and other technology.\" But The point I think Murray Rothbard makes within Main Economy and State is that actually money prices can, you know, people can use the day before as a reference point, if that makes sense. So we could understand it more like Bitcoin just has more of a What we might call monetary premium. So in the early days, people might have bought it just as a bit of a cool nerd value, \"Oh, okay, it's this digital money.\" But then over time, people came to perceive value in Bitcoin and it became more and more liquid as an asset. And so- That is probably one rejoinder that I think a Bitcoin Austrian would have to this idea that, oh, okay, but you can't actually do stuff with Bitcoin, so it might, it's all resting on a sham and it's all gonna collapse. Well, not quite, because the money prices can pre-exist, if that makes sense. And then I think another thing, just while we're on this idea, I wanted to just touch on some of the ideas around salableness, right? So it's not just the pure market price of the money, but rather how salable it is, and some That we've seen in terms of real world empirical, validation of some of these ideas. There was recently an analysis done by a fellow named JP Thor, and he wrote it up basically talking about the true dominance of Bitcoin. So, people like Vitalik of Ethereum would sort of criticize Bitcoin, saying, \"Oh, the Bitcoin dominance is falling,\" but actually, if you look at the real liquidity of how many people are trading into and out of Bitcoin, it's over eighty percent, and that sort of aligns with this- This idea of the Pareto rule, the eighty twenty, and so that's one way to conceive of it, is that actually what matters more is the salubleness, not just the straight up value of it, at-- although obviously over time, because Bitcoin is just so, so scarce, and it is so, so small in the global sense, right? So Bitcoin now is whatever, like a hundred billion, whereas global markets, let's say M3 broad money would be ninety trillion. Global wealth, as measured by Credit Suisse a couple years ago, would have been in the two hundred and seventy or two hundred and eighty US trillion dollars. So Bitcoin is still tiny, tiny, tiny drop in the bucket compared to the globe. And so because it is so, so scarce, we anticipate that if we're right about all this, that the price will dramatically rise because that's the only way so many other people can come into it. So moving on now to Huerta de Soto's book, Money, Bank Credit, and Economic Cycles. So this one's a fantastic book. It really just delves deep. So it's a long book, so you've got to work your way up to some of these longer texts. I'd recommend just checking out some of the shorter essays and working your way into some of these bigger texts like Money, Bank Credit, and Economic Cycles, Murray Rothbard's Man, Economy, and State, Ludwig von Mises' Human Action. They're, they're some, they're some of Whoa de Soto talks about this concept of expansion of credit beyond the amount voluntarily saved. So what he's trying to explain here is that that is the true driver of credit, you know, fiat money, economic boom and bust cycles. So this is the Austrian theory of the business cycle. Now, what that's doing is essentially drawing together all these kind of disparate threads and weaving it together in a, in a really cohesive way. So it requires you to, to understand Understand things like consumer goods versus capital goods, capital structure, interest rate theory, and the way that this causes a certain malinvestment, right? So it causes a distortion in the capital structure and it causes a cluster of entrepreneurial errors, right? So it's not just like in the normal market where entrepreneurs will make mistakes and we expect that. What this is doing is it essentially it drives a cluster of entrepreneurial errors and that is what we perceive as the economic Boom and bust. So Huerta de Soto basically prosecutes the full reserve Austrian Bitcoin banking case. That is essentially the case that banks should be fully reserved. Now, this doesn't mean there would be no credit, it just means the accounts would be distinct. So it means, let's say I have a demand deposit account, that, you know, should be fully accessible to me at any time. But if I ha- if I go to the bank and put a term deposit or some sort of time deposit, then that isn't available to me at any time. And so you can see with banking, they give you this sort of interest account and in the current, you know, fractional reserve world They, they do give you access to that at any time because they're using sort of probabilistic models based on, you know, how likely are people to go and do a bank run or pull out their money, right? And What the full reserve Austrians would say is that essentially this expansion of credit beyond the amount voluntarily saved and the amount kind of foregone in terms of foregoing consumption, that is what drives this overall cycle. And so that is why Huerta de Soto believes, you know, fractional reserve banking is fraud and that it drives these economic boomerbus cycles. Now There, personally, I'm not as sold on the idea that, oh, it's necessarily fraud. It could be openly disclosed. However, I do believe it does drive e-economic boom and bust cycles. And further discussion around this is also going into like the history of money and banking and how it was, as Murray Rothbard explains and also as Greta Hallsmann explains, that it was really government interventions that made this fractional reserve banking all possible. So things like legal tender laws, things like the existence of a central bank as a lender of last resort, which existed to basically help prop up these banks whenever they weren't able to meet their actual liabilities to their customers, and a range of other things, so things like implicit and explicit bailout guarantees, bail-ins, what else? various other laws, things like financial surveillance laws, all of these things kind of help Push the system into the way it is now, which creates all this kind of moral hazard risk, rather than individuals actually scrutinizing their banks and saying, \"Oh, hey, if I put my money in ABC Bank versus XYZ Bank, well, I think ABC are more likely to be a, you know, good, good stable bank, whereas, oh, maybe XYZ, I think they're doing fractional reserve, I wanna be more skeptical of them.\" Whereas what the government does is it comes in and tells people, \"No, we'll just make you whole, so don't worry, just put it So what happens and what that does is it drives an overall system risk, right? So rather than letting isolated banks fail, they sort of try to save those banks, but then at the risk of making more of a systemic risk, if that makes sense. And so even in that book Who wrote to DeSoto even talks about examples of credit expansion even pre the Federal Reserve, so there are a few examples in there. And also if you're interested, there's a really good talk by Tom Woods if you Google it or YouTube it, I think it's called Economic Cycles Before the Fed. And so it all comes back to that point that they're making, which is always look for that expansion of credit. that was the fiduciary media, the amount of credit extended to the people, to entrepreneurs in the economy beyond the amount voluntarily saved, which is what drives that boom and bust cycle. So I'm not gonna go too much more into depth on that. I mean, you can do entire episodes on that, but I'm just giving you hopefully a flavor of just a way to understand what are some of the key points the Austrians would consider on this. Now, also consider Gert O. Hulsman. Gert O. Hulsman's a fantastic, economist, and he has, he is a past guest of my show, roughly, I think, episode fifty or fifty-one, and So some of his big contributions, I mean, he's written many things and done many talks, I'd recommend looking him, looking him up online as well on YouTube. but from a writing point of view, \"Deflation and Liberty,\" which was this excellent, excellent essay, and his phenomenal book, \"The Ethics of Money Production.\" So Deflation and Liberty is a really good book because essentially he explains why people shouldn't be so skeptical of deflation. Yes, it's true that there might be some instances of what might seem bad deflation, but Once you consider them more fully, you can understand that actually some of the reasons for that bad deflation were the prior inflation. So what people are doing is they're blaming the symptom and not understanding what was the real root cause of that inflation to begin with, which as we've explained, was around that credit expansion. So that's a really good bu- booklet to read. Now, The Ethics of Money Production is one of my favorites, and that we touched on, you know, some of the topics from that book in my interview with Guido. and in that book, essentially, Guido talks about the history of money and how, again, government interventions were what made money today what it is. And so we talk, you know, about how money quality deteriorates because of these interventions that we explained earlier that- Changed the game in terms of how people consider what money they will use. And another really interesting chapter from that book is around cultural consequences of fiat money. It drives different behaviors in the way think, in the way people think, and the way they invest, and it also drives changes in the way governments act, because governments have more easy access now to things like warfare and welfare state funding, which in turn drives changes in the way you and I think about our own futures and how we, we will either save or not save for our own future. And also what that also can do, when you think about it, is that the government can crowd out private provision of some of these things. So for example, the government provision of welfare states can crowd out the private versions of these. And so a good book, if you're interested on this, is, From Mutual Aid to the Welfare State by David T. Beito. So that's also a good one. If you're interested to understand some of that. Okay, so now moving into some of the Satoshi Nakamoto Institute material. So I highly recommend you check out the Nakamoto Institute. There's a range of good articles. I'm just gonna talk through some of the mempool articles. So there's some like Bitcoin's perfect monetary policy, which is an explanation around that curve, that al- that algorithmic curve. There's Pierre Rochard's \"End the Fed, Hoard Bitcoins.\" there's Pierre Rochard, oh, sorry, this one, Michael Goldstein's essay, \"Everyone A scammer. And so in this essay, Michael is talking about how there have been many, many hacks and scams in the Bitcoin space, some of which, you know, appeal to kind of Bitcoiners and others that just kind of appeal to people who are trying to get rich quick. But in any case, that you, you should take this heuristic that many people are trying to scam you out of your bitcoins basically. If you, once you've sort of understood some of these theories around hyperbitcoinization and future bitcoinization of the world, then it's on you to now consider and think deeply before you spend Send any of your bitcoins, whether this is truly what you really want. A couple other points, there's a really good article called Speculative Attack on Nakamoto Institute. This one's by Pierre, it's a great one. recommend reading it. It's essentially just around this idea that, over time, as Bitcoin's, returns rise by holding it, then it becomes more and more difficult for central banks because then they have to raise their own interest rates to very, unconscionable levels. Another point to consider would be Bitcoin's shroud of subtlety and allure. So this one is kind of touching on- This principal-agent problem, right? So if you work in the government, you don't necessarily have the power to just shut Bitcoin down straight away. And as you learn more about Bitcoin, you yourself as an individual might want to look after your own family and your own friends by getting more Bitcoin for yourself. And this, in fact, is what we saw in the past with things like the, some of the Silk Road investigators who got done doing dodgy things to try and get their own bitcoins, or certain, kind of stories that I've heard around Venezuelan government officials trying to take Bitcoin. Bitcoin mining equipment for themselves. There, there are all these kind of examples of people who, well, theoretically you might say, \"Oh, the government is like this big monolithic entity, \"but it's really not a monolithic entity. It's made up of individuals, and each of those individuals has their own incentive as well. Another point to touch on is Pierre Rochard's article. It's called, I think it's called Bitcoin Governance. And essentially, it's a, it's an explanation of how Bitcoin is a peer-to-peer network. It's this intersubjective social consensus of what Bitcoin is. And so in that sense, people run a full node, they run the Bitcoin software that they believe represents the transaction and block validation rules of Bitcoin that they believe to be Bitcoin. So things like, you know, no more than twenty-one million and so on. One. And through this kind of idea of a shelling point, it's this idea that people will have to try and game theoretically sort of figure out where, what sort of, what software they will run that such that other people will also run that same one, and that's what Bitcoin is. So if you're interested on more discussion for that, make sure you check out my interview with Pierre Rochard, I think it's number twelve off the top of my head, but have a look. next one is some of Trace Mayer's points around, you know, he's written many great things, over the years, but one concept that he is quite famous for is this idea of the seven network effects of Bitcoin. So we should understand that there are all these seven re-- self-reinforcing network effects of Bitcoin that make it more and more powerful and it makes it even more difficult for somebody else to make a new coin that will come out and topple Bitcoin, and that's why we haven't seen anyone topple Bitcoin in the ten years It's been around. So his seven network effects are speculation, merchant adoption, consumer adoption, security, developer mindshare, financialization, and world reserve currency. So, I think the most powerful one is obviously speculation. So as people speculate on it, it sort of drives some of these kind of virtuous cycles, virtuous, upward cycles, and We should also consider that there are very, very strong developer network effects here as well, because people wanna build something that's gonna last. They wanna, they wanna build, if they're gonna build on top of something, they wanna, they want to build on something that will last. And, and another concept that's often been used, and understood or thought of by Bitcoin is this, as popularized by Nassim Taleb, is this idea of the, the Lindy effect. The longer that something has survived or an idea has survived, the longer we should expect it to continue to survive And so these are all kind of reasons driving towards using Bitcoin and building on top of Bitcoin rather than trying to start some next Bitcoin, so to speak. Now Just gonna touch on a few problems that many newbies who come in and they start thinking about altcoins. Really, just be honest about your intentions, because many Many newbies I've spoken to were really just looking for a 10x, or they felt that they missed out on Bitcoin, and I think they weren't necessarily willing to admit that. But if you sort of reflect more deeply, that's probably what it is. And the other one is often like unit bias, right? They think, \"Oh, I can buy, you know, ten whole Ripple coins, but I can't buy a whole Bitcoin because it's, you know, as I make this episode, it's around eight thousand.\" But they don't understand that you can buy fractions of Bitcoin"
    },
    {
      "speaker": "stephan",
      "time": "51:30",
      "start": 3089.83,
      "text": "Bitcoin. The other problem with many of these altcoins is that they are centralized. They aren't as immutable as they claim to be. The government could, if it wanted to, You know, threaten or influence someone to try and change the ledger or to change the rules of the game. And so that is why Bitcoin is very much about running your own full node so that you are verifying. And the problem with some of these altcoins is they're essentially as like, like that, Warren Buffett saying, \"You only find out who is swimming naked when the tide goes out.\" Some of them are basically crypto larping, right? They are live action re-play, role-playing. They're not actually decentralized, and you would- We only realize this when the tide goes low, that, that the tide goes out, that, you know, these people are basically swimming naked. They're not actually decentralized. It's just that their project hasn't gotten big enough or it's not subversive enough that a government would want to shut them down, right? But- So, yeah, so there's a little bit of dishonesty out there in, in relation to how easily hackable or attackable or, changeable these coins are. So, so Yeah, so we've, we've spoken about some of the problems with blockchain technology, and that kind of goes back to that ide-idea of it not being technologically efficient. So some of that stuff is, you know, refer back to Nick Szabo, money blockchains, and social scalability. Also, there's this kind of narrative of, \"Oh, tokenize the world,\" and that alone isn't bad, but I think what some people get caught up in is they think that just because there've been massive gains for Bitcoin, that, \"Oh, there might be big gains for this tokenization project,\" when really the gains would be for the asset holders of that token, like the actual property or the stocks or whatever that's actually being tokenized. So, yeah, so look, that one, it's, it's just a- I think people are perhaps deluding themselves a little bit when they start getting caught up in some of this tokenized world and exactly how big that market would be and how important is that anyway. So yeah, that's a few things there. Now there is this question of, you know, how dominant would Bitcoin become in this, you know, world? Because, well, there is this idea of the Pareto principle, the eighty twenty, this sort of power law idea that there'd be one dominant money at eighty percent and then maybe the other twenty percent would be some of these other altcoins, we don't really know, or maybe some of it would, would be gold. But in our view, it would be, even if it was only eighty percent So to speak, it would still be a Bitcoin dom-denominated world. So people, there might, you know, who knows, there might still be altcoins and so on, but That ultimately it would just be a Bitcoin-denominated world, and I personally, I wouldn't bother with trying any of these other altcoins, because I think none of them really has the same, is a real contender like Bitcoin is. So, yeah, so hopefully that helps explain a little bit around that. Some people also talk about this idea of maybe like, \"Oh, maybe we'll find new uses for money and the old rules don't apply anymore.\" But again, in my view, I think this is, this is ignoring why we hold money. So as we explained earlier, why do we hold money? It's because it's uncertainty perceived about the future. Right? there are other people who sort of raise concerns that, \"Oh, Bitcoin's not being used directly for transactions right here and right now.\" But the Bitcoin Austrian view would be, \"No, well, this is gonna take time. It's gonna take time. It could be decades before this thing goes big.\" And you've gotta appreciate that money moves through stages as well. So Jevons wrote about this. I think Nick Szabo has written about this, and also I think Vijay Bohra, he touches on this as well. He talks about, well, they all talk about this Of money moving through stages, so through collectible, then to store of value, and then to medium of exchange, and then to unit of account. So that's one way to think of that Another, I think, insight that should be considered is Murray Rothbard's insight, and I think other Austrians have also made this point as well, but essentially Rothbard made this point that the defining and ultimate use of money is its function as medium of exchange. All other functions are subordinate to this. So some people confuse it a little and they try to disaggregate the functions of money, so talking about, oh, you know, this is the function as store of value and this is the function as, of unit of account, when Really, it's all subordinate to medium of exchange, coming back to which one is the most saleable, which one is the actual one that matters the most. So hopefully that discussion was useful to you and educational. I think the key thing, the first investment that anyone should make is in their education on Bitcoin. So rather than just running out and buying it, you've got to really read a little more deeply and understand the case for Bitcoin. And so if you only have time to read one article, I recommend my friend Vijay Boyapati's article, The Bullish Case for Bitcoin. If you've got time for a series of articles, then I recommend the Nakamoto Institute Crash Course Guide to Bitcoin Political Economy by Michael Goldstein. And if you have time to read a book, then you really can't go past Safety in Numbers' book, The Bitcoin Standard. So I'll put the links of those in the show notes, and also I have done podcast episodes with all of the above, so make sure you check those episodes out. If you're also interested to quickly onboard and understand Bitcoin, I actually recommend just binging through my podcast series. So if you're a newer listener, just go back and listen from the first episode, and I think That will actually be a faster way to quickly get up to speed on what Bitcoin is and why it's important and understand more about the economics and technology of Bitcoin. So if you're one of my more regular listeners, make sure you share this episode out with your Bitcoin newbie and Bitcoin intermediate friends, and also give me some feedback if you enjoyed this. You can find me or follow me, my DMs are open on Twitter, my handle is at Stephan Livera, and I've also got a contact page on my website, Stephan Livera dot com, and the show notes will be there. For this episode, which is number seventy one. So that's it from me guys, thanks for listening and speak to you soon. Bye!"
    }
  ]
}