Bitocin savings tech talk

Brady Swenson, Pierre Rochard, Michael Goldstein

The Satoshi Nakamoto Institute is obsoleting the Cato Institute at very marginal cost. We will have Brady Swenson MC this talk on bitcoin as a savings technology. Brady is the head of education at Swan Bitcoin and he also formerly had a podcast, and now he runs Swan Signal Live which will get going once he gets through some of his work up here first. Pierre Rochard is the lead bitcoin strategist at Kraken, and he was a co-founder of the Nakamoto Institute, and he did a podcast with bitstein who is a developer at Unchained Capital. Their sseminal pieces is that everyone is a scammer, and Pierre's is speculative attacks. Both locals at UT Austin here. Looking forward to this talk on why bitcoin is such a great savings technology.

PR: First of all, Cato Institute obsoleted itself. It wasn't us that did that.

BS: I want to acknowledge something. These guys in 2013 started the Nakamoto Institute here in Austin, Texas. I want you guys to reflect for a moment about the beginning of the Nakamoto Institute which was the beginning of bitcoin education. You guys started the schelling point that is Bitcoin Austin.

MG: At the time in 2013, there was a lot of bankers starting to get interested in bitcoin and wannabe bankers trying to get higher in the ranks. One of the tactics they were using was to make it seem like bitcoin was something other than what it was, like saying it's not really libertarian and they wanted to whitewash it and make it this nice thing that would fit into the regulatory body and we're going to be good boys and bend over for the banks. The purpose for the Nakamoto Institute at the beginning was to have that specter just haunting the internet in Tim May style just reminding everyone where bitcoin came from and it's a principled piece of software and there's nothing you can do to change that. We don't bend over for the banks, the banks bend over for us.

BS: It's not enterprise blockchain for medical records. The union of you guys on stage... a lot of people are excited to see you together. What about the risk versus savings spectrum a little bit and how the financializaiton of the American economy has pushed American savings way on the risk spectrum?

PR: That was a great intro. Huge fan of Nakamoto Institute. We don't know what savings are anymore. Essentially we live in this fiat world, we have fiat rot. What we have been trained to believe is that, and if you ask any competent financial planner about this, they will tell you cash is trash and don't hold cash. They will tell you to invest in stock and bonds because of inflation. You won't earn a yield on holding cash, and your purchasing power will be eaten away by dilution so you need to buy stocks and bonds. Saving is just a fancy word for saying holding cash. That's all it is. How do we get into a world of savings? Well, you earn more money, and then you spend less money. That's also a foreign concept. In our world, it's all about how much can you borrow? Low interest loans, refi, cash out, credit cards, your mortgage, your 5 year car loan, your 0% interest rate.... We have a world where nobody is saving, and holding cash is insane. Bitcoin is the diametric opposite of that. I want to point out why in theory why would we hold cash? In theory, the reason why one holds cash is to hedge against future uncertainty. That's the sole economic purpose of holding cash, and it's clearly explained by the Austrian economists. I am wearing a tie from Ludwig von Mises Institute which is the only other institution I respect.

MG: It was my inspiration. Nakamoto Institute for crypto anarchy.

PR: So now let's get into risk vs uncertainty. Bitcoin is the least uncertain system in the world. This goes back to what Marty and ODell were talking about. By being decentralized, running your own node, and mining, it's very surprising to us because when I say hey bitcoin is a sure thing your natural reply should be well look at how volatile the price is. What are you talking about? Bitcoin is way too volatile to be certain? This is where we get into uncertainty vs risk. Uncertainty is whta is unquantifiable. Uncertainty is qualitative. Risk is quantitative, and you can hedge it. You can go buy futures, sell bitcoin futures, you can go buy bitcoin options and sell bitcoin options. You can hedge bitcoin's exchange rate risk. But that's different than the uncertainties, which you can never hedge. Uncertainties by definition are unhedgeable. Quite often, uncertainties are we don't know what we don't know type stuff. But if we look at the engineering fundamentals of bitcoin, it is the least uncertain engineering system in the history of humanity. I'll refer back to what Odell was talking about with the bitcoin nodes. It's all grounded in actual tangible software. If you have a hardware wallet, that's tangible. Back to savings. Bitcoin is the best savings technology in the world because we're talking about transaction censorsing, right? Transaction censoring happens in the fiat world, it does. Does it happen to everyone all the time? No. Generally, it's for, for us normies, it might be a nuisance every once in a while that our transaction is declined or reversed but in general payments don't get consensored otherwise nobody would use the fiat system. But savings are censored 24/7. Everyone is getting censored out of saving money because you don't want to be exposed to the inflation. Thta's where I see censorship resistance is not just about being able to send and receive bitcoin, but it's also about your ability to hold bitcoin and make savings. I can keep going for a few hours.

BS: Clearly the noded podcast needs to come back.

MG: For a long time, people were laughing at us about inflation saying well it's only 2%. Today, it's only up to 7.9%. That's the CPI, man. It's clearly like 20%+. The problem is that even before you get to 20%, that 2% is an attack on the entire economy and anyone who is earning USD. Every time that value gets chipped away. 2% doesn't seem like much, until it is when you wake up a handful of years later and you have half the purchasing power just by virtue of inflation. Now with bitcoin, you can just hold and know you're going to have the same amount as long as people keep demanding it it will be reasonable that the price increases because it's more valuable to the economy. You get value by holding it. You don't need to get ahead of inflation, you can just wait for better things to invest in. You don't have to play this game of trying to get ahead of inflation.

PR: Keynesian economists say you should go out, consume, stimulate the economy, go out and invest in productive businesses because holding cash is unproductive. The reality is that there isn't always something that we need to consume. There isn't always a good investment opportunity. If you're saying we need to be investing 24/7, then you're forcing people into bad investments. Then of course it won't work out well because it's a bad investment, and they will be shocked that wow why did people buy all these subprime mortgages? It's so irrational.

MG: Keynesians have it backwards, they believe economic growth comes from spurring people into investments. By contrast, the Austrians believe that you need to earn capital and then spend less than you earn, and then that's where investments come from. People will argue that oh are you just saying people aren't going to invest at all? That they will just go hungry because they want to hold bitcoin? But we also don't argue there is a correct balance between investment and saving. But the balance we have argued has been incentivized and biased towards investing at the expense of being able to engage in savings, which has made our economy fragile. A lot of the things we have in this world are fake and not based on what people might otherwise value. That's speculative and I can't say it with uncertainty. But people invest in things that they-- they rennovate their home because they want to increase their property value of their home, not because it's a home for thier family but because they view it as a savings account.

PR: It's abusrd that people argue that you need to be incentivized to go spend money and consume. People have infinite wants and desires. It's very hard to restrain your apetite both literally and metaphorically. I make this point often that bringing up absurd ways that one might save money, like not buying chairs. Or cutting your own hair. There's lots of ways to save money, but at the end of the day you need to spend money.

MG: There's no such thing as a time preference of zero. You have to spend at some point. But in order to be able to spend, you need to earn something and have resources available to do that. Bitcoin gives you the ability to carry the resources you acquire into the future indefinitely in a really certain way.

PR: When you do save money, it's amazing because you're freeing up resources for everyone in the economy that wants those resources. You increase the purchasing power of their money and enable them to fulfill their projects that in that moment they believe is rational, rather than holding their money. I see holding money as perhaps one of the most interesting forms of charity where you are being philanthropic in the sense that you are not consuming, you're putting your wants and needs aside and put that money away, and you're essentially donating purchasing power to anonymous people throughout the economy that you've never met. You don't know them, they don't know you. That's the ideal form of charity.

MG: When you hold money, you're not investing in one particular company, you're investing in the economy as a whole. People get upset about deflation. Over the past 100 years, economists have-- there's a certain amount of deflationary event in the economy, but it gets translated to prices going down in general. But prices going down is actually good, and it shows that the economy is growing, more wnats and needs are being filled in the economy, and the increase in purchasing power that you receive is because you made an investment and now you're seeing a return on your investment in the economy. The only reason you earn purchasing power is because you helped the economy find the productive resources that helped increase the value of the economy.

PR: The feared deflationary spiral is because of fractional reserve banking and excessive debt. There are no reasons why those activities shouldn't be protected and subsidized; I believe they should be discouraged. Deflation is an excellent way to discourage debt. It would be good if the economy would be financed by equity. I'm not sure why not everyone says, hey if the economy is not credit based, and we don't have lots of debts, then we can't finance projects. My background is accounting. Say there's different ways of financing your project- debt is the worst, but retained earnings is the best way, and raising equity. That's only three ways, I was going for four. Sweat equity, manifestation? I don't know. Use this secret method: just visualize the financing.

BS: We talked a little bit about individual savings, how it effects the economy and how it affects individual. We see bitcoin on the global monetary and geopolitical stage now. How can savings and bitcoin change our geopolitical organization and the way that nation states run their economy?

MG: I will give an answer that is not the easy answer which people are going to jump on like Canada or Russia. Something I think about often is the way that the relationship between federal government and state government works. One of the things they like to do is push a federal regulation and get the states to go along with it, but what they do is they dangle federal funding in front of them as an incentive. So this is how they raised the drinking age to 21 by trying to withhold highway money, and there's more to that story too. The point is that this is a trick that the federal government does to weild power over the state governments. State governments, we're supposed to be a collection of independent sovereigns working together for common defense and stuff like that. But when you do that, it centralizes power into the federal government. We see that with lots of activities. However, up the road in Leander is the Texas Bullion Depository of gold, silver and other resources. If they came to ask me, I would tell them ot sell everything and put it into bitcoin with multisig. The point is, they could be holding on to that. Wyoming is another example of a state that takes its sovereign wealth fund very seriously. Then state governments are able to say no to federal legislation that they don't want to be a part of, because it's not the federal government's place to step in with federal highways. This allows more political entities of many different sizes like the State of Texas, the nation of El Salvador saying no to the IMF, and then people have this money at the political level. Rothblardian form- it goes down to the individual level where individuals are no longer swayed by a carrot being dangled in front of them and they can operate on their own sovereign wealth.

PR: The reason why the Federal government has that money is because they have the money printer. Whenever there is a money printer, there are strong centralizing forces at the political level. This applies nationally as well. The Federal Reserve is a powerful entity on an international level because the entire financial system until very recently was purely a US dollar reserve system. Then we see fiat organizations like the IMF metaphorically put a gun to country's heads saying hey adopt these policies and then we will lend you money, but they will lend them fiat that they just printed. At an international level, getting your country on to the bitcoin standard and getting your reserves into bitcoin and getting your payment system into bitcoin like El Salvador is doing, allows you to tell the IMF to take a hike and insulate yourself from external pressure to be a sovereign country where the voters get to decide about policy not beauracrats on an international level deciding whats best for you or your country. If your country is not using bitcoin, then it's not a real sovereign country. You're a vassel state of the United States. In the EU, it's even worse. In the EU, you're very much at the mercy of the ECB if you're not on the bitcoin standard. There's an international movement towards more sovereignty and less foreign intervention, and bitcoin is a critical piece of that.

MG: Not your keys, not your coin, not your country.

MG: Exactly.

Q: Bitcoin is not under any sovereign control. How do you get around the fact that banks are the gateways to get on and off? Coinbase just froze a whole bunch of Russian wallets.

PR: On the question of the banks, this one is pretty nuanced. If we take the extreme example of countries where that has happened, and bitcoin exchanges are banned and you're not allowed to use the fiat system to buy and sell bitcoin, then you see the emergence of peer-to-peer traders. Have you ever purchased illegal drugs? Just because something is illegal doesn't mean it's not readily accessible.

Q: Yeah but that's not the same thing as going to the drug store and buying over the counter.

PR: You don't go buy illegal drugs every time you toke up, you buy a stash and then you take a little piece out of your stash every time... maybe I'm being too specific here. But, you know, you got your bitcoin guy, you got his number, and when you get your paycheck you go hit him up.

MG: The longer that happens.. this is only true so far as anyone has any belief in USD. The only reason I pay rent in USD is because my landlord for whatever reason believes that USD is the best tihng they can be accepting. They want dollars for some reason. As people grow less and less enamored with the US dollar, that problem goes away. You only have to render unto Caesar what is Caesar's, and his legitimacy is crumbling.

PR: There's also a game theoretical view of.. well, is this the equilibrium balance that banks ban bitcoin? I think the equilibrium balance is- sponsored by NYDIG-- commercial banks want to make money. One way to make money is to enable a way for people to buy and sell bitcoin. Instead of banning bitcoin, why not integrate bitcoin into their business so that they aren't left behind? The other threat that commercial banks have looming over their heads is CBDCs. Not to be confused with CBD. Central bank digital currencies. The federal reserve wants to issue its own cryptocurrency that would bypass the entire commercial banking system and essentially go directly to consumers. This is a huge threat to commercial banks because commercial banks thrive on the fact that you need to use them for payments. If you don't need ot use commercial banks for payments, then that degrades the relationship and they will be the number one opponents to CBDCs will be the credit unions, community banks, and these others that are providing a local service. Could you imagine the Federal Reserve like national DMV style payment system? It sounds awful. I think banks have an incentive. We're not anti-banking, we're putting an end to central banking but banking is a legitimate business. Financial intermediation provides a real service to the economy. If you have savings that you want to lend out and take some risk but earn some yield, then it makes sense to lend it to a financial institution that is going to pool it with other people's money and then they will go lend it out to borrowers who have financing needs. In a bitcoin world, I think we will still have debt, but I think it will be smaller than it is today. There will still be a need for local banks with local interests. I think their interests are far more aligned with bitcoin than CBDC.

MG: ... services will continue to operate and offering these, you just won't be plugged into a spiggit of free easy credit.

PR: These banks are heavily regulated because they get special privileges like printing money when they lend it out. This means that they are very much a part of the political process. If politicians have the view that their constituents or donors like bitcoin, and that it would be, any kind of regulation that goes against bitcoin would hurt their chances of being re-elected, then we might see things going into the opposite direction where commercial banks are forced to provide services to bitcoin companies. As a libertarian, I am against that, but the political reality is that this happens. In France, there is a law that says banks must provide services. They can't just let someone be unbanked. That's the other outcome that I foresee, unfortunately.

MG: When the BSA was passed, as being able to push onerous KYC things into banks, that's a cost on banks to have to track all this extra stuff on their customers. The banks don't necessarily want to do it, but it's forced upon them by the fiat system. The Keynesian need to track everything, to increase GDP instead of providing real monetary services.

PR: This ties into the GDP question of, why do central banks want to have everyone consume and invest today instead of tomorrow? The reason why is because they are looking at GDP today. Because they are appointed by politicians, and controlled by politicians trying to get re-elected soon. So they need to get the GDP number up as soon as possible, not in 10 years. So there's a perverse incentive that promotes inflation and short-term thinking. Not only does bitcoin have a long term monetary policy perspective, where we don't care whenyou spend your money- if you want to spend it today fine, or in 20 years, also fine. The engineering supports that. The engineers are always careful about making sure bitcoin is forward and backward compatible. If you put bitcoin on your private keys today, then you don't have to worry about it for decades. You can just let it sit in your safe.

MG: Your node could keep running, like an old version from 2015, and when you wake up from a coma in 20 years, still in your bunker, it will take a while to sync because you have 20 years of blockchain data to validate. At the end, you will know that you still have the bitcoin and you're still part of the network and everything is backwards compatible. Bitcoin is the most certain asset in the history of the world.

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