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July 13, 2019 - Freedomain Radio - Stefan Molyneux
48:45
Bitcoin Myths Exposed! | Erik Voorhees and Stefan Molyneux
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Hi everybody, Stefan Molyneux from Freedom Aid Radio.
I hope you're doing well.
I have Eric Voorhees, Bitcoin extraordinaire entrepreneur with me on the line.
Thank you so much for taking the time today.
No problem.
Thanks for having me.
It's my pleasure.
Now, a couple of questions I guess I have about Bitcoin or that at least my listeners have about Bitcoin.
But first and most importantly, I was just reading an article of yours from 2012 and First question is, how do we create a Bitcoin-powered time machine so that we can go back and buy them for the price then, which was $4 and change?
First and most important question of the day.
So I'm still working on that, because obviously, like you, I'd probably scoop a few more up back then.
When that was the case, when they were $4, of course, the same arguments happened back then as they do now.
Lots of people saying, you know, this is completely a bubble, and why would you ever pay $4 real American dollars for this silly made-up magic internet money?
You know, it was called a bubble just then as it is today, and it's been like that the whole time.
But yeah, I mean, I'm working on a time machine.
If I get one, I'll let you know.
I will go get bitcoins and hair.
Those would be the two things I think that would be most important for me.
Now, people have obviously a tough time understanding how what appears to be magic computer bits generated out of nothing Can have value.
It's sort of like getting a dog to type on a keyboard and trying to sell it as poetry.
People do seem to have a tough time but, you know, fundamentally the fact that bitcoins are limited, algorithmically limited, like you can only have 21 million and of course the last one is going to take a billion years to mine or something like that.
The fact that they're limited and the fact that they have value even outside of the fact that they're limited is something that people have a tough time wrapping their heads around.
Most people can get that it's limited, but people have a tough time understanding the value proposition of Bitcoins over and above just the fact that they're limited.
I mean, the amount of Euron I produce every day is also limited, but tends not to have a massive amount of economic value.
Yeah, I mean, for something to be valuable and to have a price, it has to be not only limited, but not only scarce, but also have utility.
And so your urine is not super useful, maybe in some circumstances.
But people first, I think, need to get over this sort of idea that just because something is digital means, A, it's not real, or B, it doesn't have value.
I mean, we live in a digital world.
We're on the internet all the time.
We all get tremendous value from things that are digital almost every waking moment of our lives.
Digital things do have value.
The amazing innovation that Bitcoin had was, it was really the first thing that was digital, but also figured out a way to create scarcity in the digital world.
You know, nothing that was digital had been scarce before.
You can always copy a computer file.
So how do you make a digital currency that is actually limited in number?
That was the great innovation that Bitcoin had.
And so now, you know, it's useful and it's scarce.
And of course, now that means it's going to have a market price.
Right.
And a lot of the utility, though, is outside the mere act of transferring data, because Bitcoin is a data transfer mechanism.
The data is restricted and it's called coins, but it's no more coins than an MP3 file is a symphony.
So what are some of the periphery benefits that people can get from Bitcoin that you can't get by hiding gold in your underpants?
Sure.
Hiding gold in your underpants might be fun to do once in a while, but ultimately money needs to be used for all the various things that we do economically every day, and Bitcoin just excels at all those things.
So transferring value to someone else instantly with no fee and with no restriction and with no geographic problems is tremendously valuable.
And that's really where Bitcoin's value comes from.
It allows people to transfer wealth between any two points in the world instantly.
So as long as Bitcoin has a price of at least one penny or more, then the fact that you can transfer that means that the system works and you should expect it, the more that people use it, the more the price has to climb to accommodate the new users.
Right.
And people say, well, Bitcoin has no intrinsic value as if intrinsic value is something that can even really be directly measured.
But I mean, obviously, dollars have no intrinsic value either.
I mean, either they're digital, in which case they're kind of the same as Bitcoins, except they can be replicated to Weimer-style hyperinflation, or they're pieces of paper and coins which have no value fundamentally as they found out in Zimbabwe or, again, the Weimar Republic where they found that the only value of paper money was to burn it for heat.
They have no intrinsic value.
They're only valuable insofar as they are a medium of exchange.
And the more people who climb on board the Bitcoin bandwagon, the more places there are to trade Bitcoins for really tangible goods, right?
I mean, Overstock.com and thousands and thousands of other merchants have come on board accepting Bitcoin.
So the moment you can start trading something for a tangible good, it has the value of that tangible good that you can trade it for.
I mean, that's the connection of money to stuff, right?
Yeah, and this intrinsic value thing is a term that I think is misused all the time.
Nothing is intrinsically valuable, right?
Gold was not valuable before there were humans walking around that found value in it.
There was no value in gold a million years ago before humans.
Nothing has value intrinsically.
It's all subjective in the eyes of the one doing the valuing.
So what that means is that... Sorry to interrupt, but before the advent of the internal combustion engine, and in particular cars, oil was considered a horrible byproduct.
Like if you drilled and found oil, that was like the worst thing ever.
And it was considered to be a pollutant, and now of course it's something you cross your fingers like the Beverly Hillbillies and hope to get a hold of.
So this stuff certainly does change a lot.
Yeah, that's a great example.
And if such a thing as intrinsic value existed, the oil would have had that intrinsic value, you know, prior to the discovery of how to use it.
And I think that's kind of a silly way to think about it.
It became useful once people figured out the ways in which to use it.
So value is really always a subjective property.
And in the same way, you know, if you say that gold has intrinsic value, well, You know, what if a way to create gold cheaply was discovered?
Not out of the realm of possibility, just because it hasn't happened yet.
And if that was the case, then it became non-scarce anymore.
You would see what the quote-unquote intrinsic value of that really was.
So first, I think, you know, that's really important understanding Bitcoin.
The value of anything in the world is only a result of how useful it is and how scarce it is to people.
I think people understand the movability of the bits is very, very important.
I mean, if you want to memorize your address, your Bitcoin address, you actually can just keep your money in your head, which is tougher to do with gold, particularly lots of it.
You can snort it as if you have less.
But the fact that you can be your own walking bank that is perfectly secure is something that is hard for people To grasp, because normally, you know, you log in and something is somewhere, you know, a PayPal account, it's all in central computer and so on.
But the fact that in this distributed information exchange system called Bitcoin, that you yourself can be your bank and you can be the repository of all the value.
And again, since your brain crosses borders, the money can cross borders with you.
And that is something, again, that's really hard for people to understand.
Yeah, and this is the reason why Bitcoin on a competitive level out-competes gold in some ways as used as money, because the payment system is so much superior to what you would have with gold.
I mean, the ability to extend a million dollars worth of value between any two people instantly anywhere with no other party being involved for free and no restrictions or blocks whatsoever, Is just absurdly useful.
And, you know, all you have to do is understand that that function, that ability that lets people transact across distance like that, all you have to do is understand that that is valuable, which is obvious.
And then the fact that bitcoins are scarce means, you know, there's only so many bitcoins that can be used on this network.
So if the network's viable and there's only so many bitcoins, then of course the bitcoins have to have a value.
And you can say, you know, well, today's price is incorrect and totally inflated relative to adoption.
I've never known what people mean when they say the price of something is too high.
that Bitcoin should not have a price.
Well, I've never known what people mean when they say something, the price of something is too high.
I mean, the price is just whatever people agree on at the time.
I mean, that's like some guys in Delta's...
He's too tall, he's too short.
Well, he's just the height that he is.
Now, I can understand when the Federal Reserve is printing all this money and causing all these bubbles and these busts and so on.
I can understand when people say, well, the price of something is too high because there's been an artificial expansion of the money supply, there's stimulus in this particular sector and so on.
But that is the result of a lack of scarcity.
Those inflated prices are the result of a lack of scarcity.
Whereas each Bitcoin that comes out of the creation process is harder to come by than the previous one.
It's going quite the opposite direction.
So, you know, A, price is just whatever people believe it is in the moment.
And if price isn't driven through artificial means like an inflation of the money supply, which can't really happen in Bitcoin at all, I think it's not a valid criticism.
Right.
I mean, it would be a fair point of someone, though, to say, hey, look, Bitcoin is 99% just speculators thinking that it'll be worth something in the future.
It's really worth almost nothing.
And so the price is currently completely unsustainable, and it's in a massive speculative bubble, and it's all going to go way down.
You can have that debate with someone, and I think it's a fine point to make.
But what is not a fine point to make is that Just because Bitcoin is digital means it has no intrinsic value and means the real value of it is zero, and thus it can't be used as money.
And I think that's what some of the gold bugs, unfortunately, take a position on.
And they think that the value of it should be zero, not just that it's in a bubble, but that it should be zero because it's digital.
And I think that's incredibly backward-looking and harmful to the entire purpose of all of this.
Yeah, I mean, Kindle books are all digital.
Does that mean that they're in a language nobody understands?
I mean, you have the entire library at your fingertips and the entire internet is largely digital and it has unbelievable value.
And these gold bugs say that something being digital means it has no value and they're saying these comments on a blog, you know, where their idea is getting... Or on a digitally produced show.
Yeah, they're using digital mediums You know, which means that those mediums have value because they're finding a way to get their voice.
So it's just a big contradiction.
And, you know, I understand that argument is kind of a first initial reaction.
But after you think about it for more than five minutes, you really should understand that that's silly.
And this is what I've been disappointed with Peter Schiff on.
Well, I mean, the other thing, too, is if you look at, say, I don't know the exact figures, I don't think they're knowable, but if you look at the people who say buy and hold Apple stock or IBM stock or General Motors stock, they're generally people who buy it With the hopes of it going up in value.
I mean, how many people abide with an in-depth knowledge of these particular companies, businesses, and the senior managers and the strategies?
And, you know, how many people just say, well, I think the stock is going to go up, so I'll buy it.
I mean, I think the vast majority of people in the stock market can be classified as speculators in that they're just buying it because it's going to go up.
So I don't know why there's this massively different standard for Bitcoin.
Yeah, everyone is a speculator in almost every market activity that they do.
Their antagonism toward speculation, I think, is very misguided.
Speculation is important and useful, and we all do it all the time.
That's how prices get figured out.
Those people that think that the Bitcoin price is just a big speculative mania, they can go short it.
Speculate the other direction.
If it's wrong, you can go make a bunch of money figuring that out.
Short is the process of making money if a stock price goes down, and people can look that up.
I remember when I first heard about it, it made no sense to me, but it's pretty easy to understand.
Now another objection, of course, that people have is they say there are nasty, swarthy, unshaven men with excessive armpit hair and wearing wife-beater jackets who are using Bitcoin to do bad things over the Internet.
They buy illicit substances.
They engage in extra-legal contracting.
And this is why it's bad.
And I mean, my first response to that is, do you know how much of the arms trade is driven by U.S.
dollars?
I mean, if engagement in illicit activity is a reason for banning a currency, there should be a giant smoking crater where the Benjamin Bills are.
But what are your thoughts on that?
Yeah, every useful tool is used by people.
You know, the cell phone.
How many bad guys use cell phones?
How many bad guys drive around in cars and use electricity and use computers and the internet?
Should we ban all these things?
Too many.
We must ban them all!
Yeah, it's absurd, you know.
Whenever something's useful, people of all types are going to try to make use of that tool.
It shouldn't be so strange.
I mean, the fact that the media has picked up on the fact that Bitcoin has been used by, quote-unquote, bad people, you know, that sort of guided the conversation, I think, in the public opinion, that this is something specifically for bad guys, and that's how it's framed.
But, you know, the media is just trying to get traffic on their website, and so they use They use terms and stories that are going to get attention, but you've got to look past that.
I haven't seen people say, well, we have to shut down the U.S.
mail, because some of the stuff that was ordered, say on Silk Road, was delivered through the mail, and therefore all mail is used by... Yeah, I understand.
But it is, again, it's one of these scare things that I think people are told about, that again, a moment's thought, and you realize just how much propaganda, if only a moment's thought were not so rare in their own universe.
Yeah, that's all we need.
Now, for the people who, you know, whenever I put out a video regarding Bitcoin, people are like, I'm fascinated, I'm interested, I want in!
How on earth do I do that?
I wonder if you could give people a 101 on getting into the Bitcoin world as a speculator or investor or a purchaser.
Yeah, so, I mean, you can take it from a few angles.
One of the first things people want to do is they say, well, I want to get some of these.
And my first thing I would say is that Bitcoins are incredibly speculative and incredibly risky, and you should assume that they will go to zero.
Most things in life fail.
Most projects fail.
Most businesses fail.
Most good ideas fail.
Bitcoin may well fail.
And as long as you can get comfortable with that idea and get comfortable with the idea of losing all the money that you put into it, If that's your baseline assumption, then go for it.
Then you're ready to ride this wild beast.
And if you're ready for that, you know, go learn about it.
Go figure out how to store Bitcoin safely.
Go figure out how to buy and acquire them in a smart manner.
Learn about the whole ecosystem and learn about what you're doing.
You know, whenever there's something useful.
You want to learn about it before you try it out.
You didn't just hop in a car and drive on the freeway.
You knew that cars were a good idea and you learned how to use it and then now you drive a car like it's like it's no thing.
And Bitcoin is much the same way.
It just takes a little personal responsibility and education.
And because it's decentralized, it's hard for people to understand.
If I want a stock, I call a stockbroker.
I set up an account.
But there's no central place.
that these things you can just call someone up necessarily and buy them.
And so the decentralized aspect of it is a little confusing to people because there's no monopoly on the holding.
You want to go buy gold, you can go online, you go to the mall or whatever and buy some gold.
But to Bitcoin, it's a little different.
I mean, the two fundamental ways to get them, of course, are to trade for them, either money or something else, or to mine them.
Now, mining is a kind of abstract thing.
I don't really understand it in terms of the mathematical detail, but it's applying the scarce resources of computer cycles and electricity and so on to solve increasingly complex algorithms.
And when you solve them, then you get a Bitcoin, and then the algorithms get a little harder and so on.
As far as I understand it, people can apply those resources if they want to start mining, but that's not something where you don't hold your breath until you get a bitcoin.
It can take a while.
Yeah, and the way to think about that, you know, when people first hear about bitcoin and that they're so valuable and they're like, wow, I can make these things on my computer and I can be a miner and I can make all this money.
Well, okay, step back for a second.
When you were first hearing about gold and why gold is a good money and why you should care about gold and store your wealth in gold, was your first instinct, oh, I should run out and go get a pickaxe and go into the mountains and start mining this stuff?
No, of course not.
Mining in gold as in bitcoin is a specialized... Strangely enough, I did actually, after high school, I did go out into the mountains with a pickaxe and try it.
But as a result, I ended up as a podcaster, not as a gold magnate.
But anyway, I just want to mention that, but go ahead.
Yeah, if you want to do it, go for it, but realize that it is an industry and it's a competitive industry.
And just like you're not going to get rich mining for gold yourself, you're going to need millions and millions of dollars in capital equipment and all that kind of thing to mine gold these days.
It's the same with Bitcoin.
Don't worry about the mining unless you want to be in the mining industry.
If you want Bitcoins, just go buy it out of the market price just like you would do with some gold if you wanted gold.
Go buy some Bitcoins or sell some things in return for Bitcoin.
You should probably just think of it like any other currency, right?
If you're an American and you want some euros, what do you do?
Well, you go to an exchange and you go buy some euros at the current market price of euros.
Or you could sell things to someone who is willing to pay you euros.
The same dynamic is that work with Bitcoin.
Yeah, I think that's, and it can take a little while for some of the exchanges.
You may have to provide some personal information and so on to verify identity or you can of course do it in person.
That is someone I met recently who actually came to the Science Center with my daughter and I for the day.
He basically goes and meets people.
He just works with people locally, goes and meets people, they tap phones and they do what they need to do.
So there's lots of different ways of doing it.
But I think it's the important point.
Yeah, don't just rush out and buy them.
You've got to study what's going on.
You need to be a knowledgeable investor and you can get the basics of Bitcoin in a day or two.
I mean concentrated study enough to be, I think, fairly secure in what you're doing.
The degree to which you wish to be anonymous is something you need to explore and be comfortable with technology.
To do that, the degree to which you want to have one address or as many addresses as you want, all of that I think is very important and can be understood.
I mean, I've got, you've certainly got articles and stuff.
I've got videos about how to understand what Bitcoin is and how it works and what its value is.
But, you know, don't just grab them and think you've now become an investor.
Knowledgeability, I think, is really key in these areas.
Yeah, and you know, really, I know a lot of the people that listen to your show, they like to learn about ideas.
When people are first learning about the ideas of liberty, they tend to go out and buy books and read entire books that take days and days to read and learn.
Why you wouldn't apply that same standard of self-education to something as important as Bitcoin?
That wouldn't make any sense.
So, Bitcoin is a big and very important and powerful thing.
And you owe it to yourself, if you care at all about it, to learn about it.
Spend some time.
Alright, so the topic I think that is on everyone's mind, particularly since China acted against banks trading in Bitcoin recently, which caused the recent dip in the price, which is now to some degree recovered, is that Bitcoin obviously represents a threat against, you know, one of the great curses of the modern world, which is central banking.
Actually, the ancient world too, I guess.
And if governments feel that the value of their currency is going to be undermined, by bitcoins, then they may try to act against them.
Now, first of all, of course, exactly the same thing is true of gold as well.
And historically, there have been tons of precedents of governments just seizing gold, telling you you can't own gold, you've got to turn it in, as FDR did when Nixon suspended the convertibility of dollars into gold in 1971, causing this stagflation and all that.
So governments, it's not like if you're in gold, you're immune from all of that.
It's just that the governments actually know where it is and can usually target it.
But what would you say to people who are concerned about risks of statist currency monopolies acting against this as China did and what might happen?
So I fully expect that one or many governments of the world will come down hard on Bitcoin at some point.
Currently, most have been pretty open and, dare I say, welcoming, or at least tolerant.
They are watching it and they're seeing how it can be used for good and for bad.
And primarily they've concerned themselves with things like money laundering, tax evasion, drug trade, terrorist financing, those kind of things.
And so I think the government is concerned about those activities.
And so that's why they care about and watch Bitcoin.
I do not believe that they yet realize the actual existential threat that Bitcoin poses to their own money.
And I think that is halfway because of hubris.
Um, you know, you can't challenge the U. S. Dollar, especially a stupid, made up magic Internet money could never challenge the mighty greenback.
Um, and the other half is just a terrible misunderstanding of how money and economics works.
And I mean, you can see the type of economists that run in the political circles.
They would would never tell you that that something like Bitcoin, with all the many flaws that they will point out in it, could ever Come close to being an actual challenger to the dollar.
I mean, they don't even think in those terms.
They don't realize that money is a marketable good like anything else and that money competes with other money in the marketplace.
They don't see the world from that perspective.
So I think ultimately Bitcoin is just going to blindside them as far as replacing fiat.
But they're not worried about that right now.
They're worried about the little petty crime stuff.
Yeah, and one of the markers of significant value in Bitcoin is that governments may act against it.
I mean, if governments don't care about an alternative currency, that's one way you know that the alternative currency has no value.
And I was greatly encouraged by the Chinese government acting against Bitcoin because it reaffirms that this thing has value, that it's got to the attention of governments, that they're concerned about it.
That is great.
I mean, one of the great values of Bitcoin is everything that fiat currency can't do or won't do.
And so for me, one of the best tests of it actually being valuable is that governments will act against it.
I wish more governments would.
act against it to reaffirm its value.
But I think, yeah, I mean, they're obviously dealing with day-to-day concerns and any significant threats of Bitcoin to fiat currency is a long way away and way beyond the radar of most politicians who are just concerned about what's in the paper this weekend.
So I think it will happen.
Of course, the hope is that it will happen at such time when there's so much invested value in bitcoins that either the money classes and the political classes already have bitcoins, in which case they won't act against the value of bitcoins significantly.
Or there's just so much value embedded against it that there's so much value embedded in the population as a whole that to act against Bitcoin would cause significant political problems like no re-elections and a significant reaction.
So yeah, I think the goal is to keep building the value.
At some point it's going to run up against the state, but hopefully it's going to run up against the state when either the politicians have them or the general population has enough of them that it would be political suicide to act against them.
Yeah, I mean, that would be great if that's how things play out.
I, you know, I think that at least as far as the US government goes, it's going to be pretty tolerant of Bitcoin for a while.
And of course, in Bitcoin time, a while is not that long, you know, maybe the one to five year horizon, I think they'll be pretty accommodative.
Um, primarily because they don't want to be seen as just squashing a brand new technology when the economy is not very good and when there's obviously benefits to using the system.
But then I fully suspect after that, you know, as Bitcoin gets strong enough and as it stabilizes, which it will.
People will just start preferring to use it instead of dollars.
And that's a very scary proposition to a organization whose power comes in large part from its ability to control and manage and create the money that not only its own country uses, but around the world.
I mean, the reserve currency.
And as they realize that, whatever it is, they're going to come down hard.
And everyone in Bitcoin should probably be aware that that's likely.
And that's just going to be part of the experiment to see what happens when that occurs.
Yeah.
And I guess the last question I have, Eric, is the deflationary aspect of bitcoins.
People are so used to inflation that deflation is something that a lot of economists decry as some terrible thing.
Because deflation basically means the prices are going down.
And, you know, That is bad for some people in the economy, i.e.
the money classes, the creditor classes, but it is not bad for the general population.
But how do you respond?
I guess this is a two-part question.
The first is the volatility and the second is the inherent deflationary nature of bitcoins because they are limited and as they continue to represent more and more goods in society, then they are inherently deflationary.
So my first point of contention is that bitcoins actually are technically not deflationary.
They're actually inflationary, and according to some metrics, you could call them in a period of hyperinflation.
I mean, the proper way to define inflation is an increase in the money supply, and deflation is a decrease in the money supply.
Now, 90% of the mainstream world has changed that definition, but I still am a stubborn one who sticks to the traditional way that it was defined.
So, you know, bitcoins are currently released, like 25 new coins every 10 minutes, roughly.
And I think if you do the math on the currency base, you know, there's like a 16% inflation rate this year.
And each year that rate goes down a little bit because more and more coins are in the base.
But Bitcoin is inflationary.
It is inflating right now at a rate of about 16% per year, and in some economies we call that hyperinflation.
Hang on, hang on.
Sorry, because I think, not to be overly wonky, but I think it's important to differentiate.
If the population expands by 5% a year, it's not necessarily inflationary to expand the money supply by 5% a year?
Right, so if the rate of... Well, I think if the supply is increasing, that is inflation.
If the money supply is increasing, that's inflation.
Now, what the population is doing, if it's also increasing, that will have interesting effects on prices, but it doesn't change the fact that the money is inflating.
Okay, but just again, people's general notion is that inflation, they mistake it for the price going up.
Inflation in the money supply does not necessarily mean that prices go up.
In fact, you can have an inflation in the money supply and prices can decrease.
Which is exactly what's happening in Bitcoin.
Right.
And so I just I really want to sort of tease that out for people.
Inflation in the money supply does not necessarily result in inflation of price.
Inflation of the money supply, if it outstrips economic growth, population growth, goods and services production, worker efficiency, if you get, you know, twice the worker productivity, but 10 times the increase in money supply, then you will get inflation of prices.
is what people like, it increases in prices.
But if you get, I don't know, a doubling of economic activity and the money base doubles, then you don't generally get inflation.
You may get it in specific sectors temporarily, but there's no overall inflation.
And there can, in fact, be deflation, as there was throughout the 19th century in America.
So the money supply is inflating for sure.
Anytime you add one penny to the money supply, you're increasing it.
But that doesn't necessarily translate into inflation in prices.
Correct.
And so, yeah, the problem with these terms is Is really one of the world's, you know, ills right now because so much could be fixed and understood better if people knew what these terms were.
But let's use the popular term instead for a minute because that's sort of where the interesting parts of the conversation are.
So you can call Bitcoin deflationary because even though it's actually inflationary, the usage of it is growing so much faster than the money supply that the prices of things Priced in Bitcoin will fall.
And so that looks like deflation and so people call it deflation.
And people use that to explain why Bitcoin will fail and will never work and can never be used as a currency.
Because, of course, if it's deflationary, the price of something tomorrow is going to be less than today.
And the argument is that that will lead to this scary thing called a deflationary spiral where no one spends anything and the economy goes into collapse and it's apocalypse.
This was something that has been discussed in sort of the academic world all the time, and pretty much, you know, I'd say most normal mainstream economists are all in agreement that this deflationary spiral thing is real and that it is absolutely dangerous to the economy.
But I've been living in Bitcoin world now for a while, and I've noticed that people do not, you know, not spend just because the price of something will be lower tomorrow.
In fact, they sometimes will spend more because they are getting increasing purchasing power every single day.
Things are looking cheaper and cheaper and cheaper and ultimately people need to buy stuff you know money is not money has no value until it's been exchanged for for something real and You know you need to eat you need to you need to buy clothes you need to have Entertainment and go do things and all these things cost money and people that live in Bitcoin world spend their bitcoins on these things They're just a little more careful about their consumption.
I don't think that's a bad thing at all I think that's one of bitcoins greatest attributes and Well, it is mind-boggling to me how academics or other people or people in the media can talk about, well, if it's deflationary, then it's bad for the economy, which they type on computers and send over emails and print on color laser printers and so on.
And computers and software are insanely deflationary.
You know, a computer that you buy for $2,000 this year, you'll be able to buy for $1,000 next year.
Does that mean that nobody ever buys a computer?
No, at some point you just have to get your sweet spot and buy something because you need a computer.
And so, it just, there's almost been nothing more deflationary.
I mean, even according to Moore's Law, right, the processor's power doubles every 18 months.
There's nothing more deflationary than the entire hardware and software industry, particularly the hardware industry.
And yet, people think that somehow they use computers to say, well, deflationary means no economic activity.
Well, then you'd be typing on a dust bunny, not a... Anyway.
Yeah, and it's not like everyone rarely ever upgrades their electronics, right?
I mean, we always buy new electronics as soon as we can.
That's the typical tendency.
You see people lined up, you know, out the door for waiting in line for two days at the Apple store because they've released a new iPhone.
And they know that in, you know, 8 to 12 months there'll be another new one, which will have better features and cost less and all this stuff.
So there's been that sort of hint that this deflationary spiral argument was maybe not true.
But I think Bitcoin is showing that that hint was actually correct and people absolutely will spend when they want stuff.
And so that's not going to make people like Paul Krugman very happy.
It's not going to make most of the Keynesian economists very happy.
But sorry, I mean, reality doesn't really care about their feelings.
Well, and also nobody knows what the future price of Bitcoin is going to be.
If we knew, we wouldn't be having this conversation.
We'd be fiendishly buying or selling Bitcoins.
So the reality is that people may buy things using Bitcoins on the assumption that it's the peak.
And so the fact that it's deflationary doesn't, even if it were true, it doesn't mean that it's deflationary in a straight line down.
It's not some mathematical curve.
It's a jagged curve.
It's a jagged line at best.
That's a really good point.
And even if people don't say, I think this is the peak, I'm going to buy something, they don't know what the price will be.
And so in their mind, they can say, well, I don't know if it's going to be higher tomorrow, and I need this thing now, so I'm going to buy it.
And I've had that in my own thought processes.
I mean, no one knows that Bitcoin is going to be higher tomorrow.
If you did, you'd just buy Bitcoins and wait till tomorrow.
People may say, oh, the Chinese government has done something about Bitcoins.
I better buy a bunch of stuff with Bitcoins now before the price goes down.
Anyway, it's just something that you have to, forget theory, look at your own experience is generally the best way to approach economics, at least from the beginning, and then work your theories out of stuff that actually happens in the real world.
Go ahead.
There's, I think, one more really important point about the deflationary nature.
Oh, sorry, lost my train of thought.
Go ahead with what you were saying.
Oh, sure.
There is another aspect to the deflationary nature of Bitcoin which has people concerned which is if over the long run Bitcoins are deflationary and certainly as you start to get that asymptotic approach to the 21 million and almost no new Bitcoins are being created and as more and more economic activity centers around the Bitcoin ecosystem
Then each Bitcoin is going to be worth more and more, because it has to represent more and more economic activity.
And so the argument is, as the economy grows within the constraints of Bitcoin, it is going to be quite deflationary towards the end, or at least as you get closer to the end, and therefore it's going to be tougher for businesses to engage in things like a 99-year lease, or to engage in selling bonds over 30 years through Bitcoins and so on.
Because it's going to be very hard to know what the future value of things are going to be.
I understand that this argument can be made significantly more powerfully with fiat currencies, which have lost 98% of their value over the past 90 or 100 years or so.
But what is your argument about business people want a stable currency?
In other words, I know what it's going to be worth in five years, more or less.
And if Bitcoin, since it's going to be mathematically deflationary relative to economic activity, what would you say to people who say it's going to be an inappropriate currency for longer term business planning, for B2B transactions?
Well, I agree with the idea that as long as Bitcoin is very volatile, People will not use it as the unit of account, meaning they will not price things natively in Bitcoin.
They will price it in something that's more stable.
So even though dollars are consistently losing value, they are much more stable day-to-day than Bitcoin.
So people that are involved in Bitcoin, you know, that have businesses and sell things, as much as they love Bitcoin, they don't necessarily price the things in Bitcoin.
It'll be priced in dollars, or if they're in a different country, in the stable asset of that place.
But, you know, computers are really good at doing calculations, and so you can very easily price something in dollars and then your software is converting that at the constant market price over into Bitcoin.
And thankfully, this stuff is all very easily taken care of through programming.
So it doesn't really need to interfere with actual business as long as you don't assume that you must price things natively in Bitcoin.
As it stabilizes, you might find people doing that more and more, but that's not a necessary condition for Bitcoin to succeed.
Okay, but I mean, we can understand that let's say everybody converts to Bitcoin tomorrow and the entirety of the world economy is run through Bitcoin.
The world economy is going to grow while the value of – sorry, while the number of Bitcoins relative to that world economy is going to shrink, right?
And so I think that argument, which is to say that Bitcoin Can't expand to create a stable currency because the world economy is going to expand whereas the supply of bitcoins is going to diminish Sure, okay, so let's look at let's look at the 19th century.
You know America that was For the most part throughout most of that time was on a metal standard Gold and silver were money bank notes were often used, but those were always convertible into into gold and silver so the economy ran on a gold and silver system and And, you know, especially, you know, in the U.S.
economy, that was a period of tremendous growth, entire industries rising, a whole continent being explored and business growing all over the place.
Now, business and commerce were growing far faster than the supply of silver and gold.
And while sometimes it'll create little frictions in the marketplace, it's not like that prevented This huge explosion of economic growth.
I mean, if it's true that money has to expand at the same rate as the economy, then the 19th century in America couldn't have happened, because metal was not expanding at the rate that the economy was.
Right, right.
Okay.
So there will be, I mean, ways of converting, as you say, ways of projecting the future value of bitcoins.
Now, I'm right out here on the edge of my bitcoin understanding, But my understanding is that Bitcoin is very democratic.
In other words, if a significant majority of people adopt a new standard, then the new standard will be propagated throughout the clients and through the blockchain.
Is that fair to say?
Again, I'm right at the edge of my understanding of the technology.
That is true with a very important caveat.
Unlike a country that is democratic, and if they vote in a certain way, everyone has to be using the new system.
You know, so 51% can now vote the 49%, and now all of them have to use the new rules of the country.
This is one of the great evils of democracy.
Now, Bitcoin is incredibly democratic as well, and if 51% of the people using it want to change the rules in some way, They can, but what will happen is what's called a fork, and two Bitcoins will sort of exist simultaneously after that.
So the people who wanted the new rules will have their Bitcoin, and the people who liked the old rules will have theirs.
Now hopefully the two groups will, you know, someone's going to need to call one of them something else.
Either one will be called Bitcoin 2 or Bitcoin Old or something.
Then you'll just have two different forms of money and two communities using each one.
So it's a very graceful way to do it and no group can tyrannize the minority.
Right and I could, again this is very theoretical and should not be any kind of description of the present, but I could certainly see in the future Bitcoin's splitting into those who required extreme long-term stability, you know, for significant capital-intensive projects, you know, massive dams being created, you know, 50-year leases or something like that.
It might be valuable to have a B2B Bitcoin, which would be more stable for longer-term purchases, which would then have to expand relative to some metric that was agreed on by the majority, and then a consumer Bitcoin that, you know, we all like it when they rise Again, that is completely theoretical, might be complete nonsense, but as a guy, you've been an entrepreneur, I've been an entrepreneur, having the longer-term stability of the currency might be worth it.
It's hard to say, but this is the answer which we've come up with, which is Yes, it can be there if enough people feel that it adds value.
In other words, if some deflationary aspect of Bitcoin was causing huge problems, then the majority of people would want to save the value of their Bitcoins by agreeing to some rule that dealt with that particular issue, whatever it might be.
So it's not a fixed thing.
This is why I call it an ecosystem rather than like TCPIP, which is a protocol.
It's an ecosystem in that lots of things can exist within that ecosystem.
that can solve any number of problems.
So whenever people throw problems at the Bitcoin system or the ecosystem, my sort of answer is, well, there'll be lots of people who will be working to retain the value of what they've got invested in it.
And don't bet against a 10 million fold army of self-interested, highly intelligent geeks It doesn't tend to work very well to bet against that.
But the system can accommodate an almost infinite number of solutions, providing enough people agree on them.
Yeah, another important point here.
People yell and scream about the volatility of Bitcoin and how much it goes up and down and how crazy it is.
Of course, money can never work when it's so volatile, but let's remember how new it is and how small it is still.
And also, it is stabilizing.
It is less volatile than it was at the beginning.
It is slowly getting more and more stable.
And you would expect that to happen as it becomes wider spread, as it's used in more and more places, as more and more money goes into it, it becomes a much larger thing that does not rock back and forth as quickly.
I mean, you could look at normal currencies run and managed by governments and you would find that smaller currencies tend to be more volatile than the larger ones.
That's just, you know, that's totally understandable how that all works.
So, that's an important point, but let's say for a second that the volatility never ever died down.
Does that mean that Bitcoin is going to fail?
Of course not, because you don't need to store your value in Bitcoin in order to use it to a benefit for you.
So, for example, let's say you really love the idea that you can send value anywhere in the world instantly, and who wouldn't?
But you really are risk averse.
You really don't like holding Bitcoin.
So fine, don't hold Bitcoin.
Hold your wealth in gold.
Or if you like the governments, hold your wealth in fiat.
And then at the points where you need to move money quickly, you enter the Bitcoin world instantly and send the money, and then the person on the other side connects to it instantly.
This is all digital, so it can all happen very, very quickly.
So you can use Bitcoin as a payment mechanism.
You can get that value from it without risking any value in the holding of it.
And this is a very important point.
Yeah.
And I think the volatility, for people to understand how the volatility has diminished.
So the article I mentioned that you wrote in 2012 had a Bitcoin price of four bucks and change.
Now, Bitcoin went to like 12, 1300 bucks.
So, you know, let's just round everything off and say Bitcoin went up in value 250 times in a year and a half or whatever.
So that would mean that the thousand dollars would have to go to a quarter million dollars per Bitcoin, you know, in order to replicate that volatility.
And that is not happening, sadly, tragically.
Uh, That is not happening.
And so, the volatility is diminishing.
And again, this is penny stocks versus IBM stocks.
Penny stocks are highly volatile.
I know, I've been one.
And so, yeah, the more capital goes into something, the more stable it's going to get.
And, you know, the more people who hold it, the less buying and selling there is.
And so, the price will settle down and stabilize.
You know, how well was any new currency doing a couple of years after it was introduced?
Usually they're fluctuating wildly.
Yeah.
And to the extent that they're not, it's because governments are going in there and coercing people to buy or sell at certain exchange rates.
You can hold a gun at someone and tell them to sell something at a certain price and achieve what looks like stability doing that.
But Bitcoin does not have men with guns behind it.
And so it will achieve stability over time through a very grueling process of proving itself in the marketplace.
And it doesn't mean that you won't get burned as this thing stabilizes.
But that's the alternative.
That's what freedom looks like.
It's messy.
Yeah, we have the choice of men with guns or geeks with glasses.
I will go with the bespectacled every single time.
Well, thanks so much for your time, Erica.
I want to make sure that the listeners who want to follow what you've got to say about the subject, which I strongly, strongly recommend, where can they find you on the web?
Where can they read what it is that you've got to say?
Well, I mean, I'm on Twitter, you know, fairly often.
Eric Voorhees, just at Eric Voorhees is my Twitter handle.
You know, I hang out on the Bitcoin Reddit a lot.
You know, Reddit is a really great place to see all the news that's happening in the world.
And there's a special board for Bitcoin news that uses like 95,000 subscribers.
And that's really the best place to watch what's going on in the community.
And I'm there all the time under my username, Evorheese.
So, yeah, I mean, that's sort of how it goes.
All right.
Well, thank you so much, Erica.
I really appreciate it.
I hope that we can help get the word out.
I am massively enthusiastic about Bitcoin as I've been since I guess I first talked about it in 2011 or something like that when I have sent an email message back to younger staff to buy more.
But I really appreciate your time and thanks so much for all you're doing to help to get the word out.
My pleasure.
Thanks a lot.
Take care.
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