FFS37 - Michael Saylor

[00:00:00] Intro

 [00:00:00] Konsensus Network.

Michael: the Ultimate Charitable Act is to give all of your wealth to people that share your values forever. And the way to do that is to die with your Bitcoin keys

But at some point, ashes to ashes, dust to dust. You came into this world, you're a very inefficient energy container, and then eventually you will leave, And uh, you'll go from being pure energy to being materialized energy. To being pure energy again. Yeah.

There is no such thing as a free lunch. Robert Hyland's famous phrase.

From the moon is a harsh mistress. Yes.

Knut: Is is there such a thing as a second breakfast though?

Michael: There's no second breakfast, right? No second breakfast.

[00:01:00]

 Welcome back to the Freedom Footprint Show, a Bitcoin philosophy show with Knut Svanholm and me Luke, the Pseudo Finn. Today we have a very special episode. We host Michael Sailor, executive chairman of MicroStrategy and Bitcoin Visionary, who otherwise needs no introduction. This was extra special for us because it was our first in-person episode recorded at BTC Prague.

It was a fantastic conversation, exploring topics such as Bitcoin's, impact on violence, the meaning of maximalism, and how Bitcoin is the ultimate sacrificial act. But before we dive into all this, we'd like to quickly remind you that the best way to support the show is to send us a boost or stream us some sets using a value for valley podcasting apps.

Jazz Mountain, If you're listening to the show as a podcast, check out Fountain if you [00:02:00] haven't already. You can earn SATs from listening to podcasts and you can support your favorite shows through value for value. If you're watching on YouTube, don't forget to like, subscribe to the channel and turn on notifications so you never miss a weekly episode.

And finally, we want to thank our sponsors, orange pill App, wasabi Wallet, and Bitcoin Book Shop. All their information is in the description. We'll be talking a little bit more about them later. And now without further ado, Michael Sailor on the Freedom Footprint Show.

[00:02:28] Welcoming Michael Saylor and BTCPrague

Knut: All right, Mr. Michael Sailor, welcome to the Freedom Footprint Show. Awesome. Absolutely awesome. How are you enjoying Prague

Michael: so far? Prague's a beautiful city. It seems like it's, uh, the birthplace of a lot of great Bitcoiners and Bitcoin ideas. I've, um, I've appreciated, uh, seeing the, the city, the architecture is beautiful.

The culture is lovely. The, uh, you know, the history is extraordinary. The people are vibrant. [00:03:00] Uh, the bitcoin community here is also vibrant, and I'm at a lot of OG Bitcoiners without which I wouldn't be here. They were, uh, fighting the good fight many, many years before I really discovered Bitcoin. So it's, it's neat to meet them and, uh, and talk to them.

And of course, this conference is. Pretty extraordinary. It's just a great groundswell of energy. Really good orange passion everywhere. Yeah.

Knut: There's a high signal to noise ratio. I think so, yeah. Yeah.

[00:03:36] Science Fiction's Influence on Michael Saylor

Knut: So, uh, my, my first question is a question that, uh, my son wanted to ask you. Okay. He's 12 years old and he wanted to ask you if there's a, if there's a specific memory from your childhood, anything that made you into what you are today, like the person you are today.

Is there, is there something that comes to mind?

Michael: Um, you know, I, I, I [00:04:00] fell in love with, uh, science fiction when I was young, and I started reading a lot of science fiction books and, and, uh, one of the great science fiction authors of the 20th century is Robert Hyland, who's also a libertarian. And Hyland wrote about, um, people's need for freedom to escape authoritarian oppression.

He appreciated sound money. Yeah. He, uh, you know, the theme of his box oftentimes is, is it's just too crowded on this planet. We have to get off this planet. Right? It's like, go West Young man or go to space. Yeah. You know, and um, so I thought his books had a big impact and he had one book called Have Space Suit Will Travel.

And it's about this, uh, this smart high school senior who, who wins the competition, gets a space suit that's broken, [00:05:00] fix up the space suit, takes it out in his backyard, and he is, uh, he's talking to outer space and all of a sudden outer space starts talking back to him and aliens land and they kidnap him.

And they take him gallivanting on this, uh, adventure around the universe, and he discovers great new civilizations and some authoritarian bug-eyed monsters. And at some point, the monsters decide to condemn, uh, condemn the entire world and destroy the human race. And, and the kid saves the human race, you know, through his ingenuity.

And, uh, after saving the human race and all of earth from the bug-eyed monsters, he comes back and he is rewarded with a full tuition scholarship to m i t. And it stuck struck me that, you know, if you have the highest of aspirations, eventually you'll get around to becoming an engineer and going to m i t.

So I decided I would go to m i t. Oh, that's wonderful. So I went to m i t to [00:06:00] study, uh, aerospace engineering and build spaceships and, and, uh, you know, Use the use technology to help the human race get off the planet. And yeah, that's spread to the four corners of the universe. Funny you

Knut: should say that, but like Starship Troopers is probably my favorite movie of all time.

One of it's right up there, like top five. And I know that that movie doesn't really represent Highline's book, but you can view it in as sarcastic or as Heline intended it. It's, there's, it's so layered and so, so goofy at the same time.

Michael: I think, I think the book is a masterpiece, you know, the director of the movie says he never read the book, so Yeah, yeah, yeah.

So people that love the book kind of went when they think about the movie. Yeah. The book is, is, uh, is a detailed exploration of, uh, you know, political economy and humanity and what it means to be a citizen and, and you know, what it means to be human and, and, uh, it's, [00:07:00] you know, quite, uh, A classic for people that like Hyland, he wrote some good ones.

I mean, and that was one of them. I think they're all inspirational. They get you thinking about, about, um, humanity and government and politics and life and, and self-reliance and responsibility.

Knut: Yeah. And, and incentives. I guess why, why people do what they do.

[00:07:25] Human Action in Relation to Energy and Bitcoin

Knut: And so, so that's another thing I wanted to talk to you about.

Like, you, you talk a lot about Bitcoin and energy and, uh, the hash power and stuff in mining, but like the, the, the way I, the way I see it, there's, there's a human behind every decision in Bitcoin and there's e everything starts with the human and the computer is just a fancy abacus helping the human do the calculations.

So like, what is the role of human action in, uh, you know, um, In relation to energy in, in [00:08:00] mining, for instance, or in, in bitcoin? In, in general.

Michael: Well, I think the bitcoin system is a, the entire, the entire system is a delicate balance between the Bitcoin holders and, and, and, uh, the, the Bitcoin nodes and the bitcoin miners, and then all the bitcoin applications and all the businesses and all the services that integrate into the ecosystem.

So, so, so I, you know, I think the humans are important because they, um, they drive the innovation in the economy and they also drive the advocacy for the network and without the advocates. Right then, then we would be at the mercy of hostile [00:09:00] politicians and hostile corporate actors and hostile competitors.

But without the innovation, uh, we wouldn't have things like Cash app. You wouldn't, you wouldn't have the on-ramps for institutional investors. You wouldn't have the technology to give Bitcoin to billions and billions of people. You wouldn't have the ability to improve the products and the services in the world using Bitcoin.

So, so we need humans to, to create Bitcoin products and services. Uh, we need them, uh, to improve the protocols, especially the layer two protocols. There's a lot of work at the layer twos, and then of course the layer three applications. There's a lot of work there. There's a lot of work to, to market, build, serve, you know, distribute the, that functionality everywhere.

Um, Ultimately, I, I still think it's a, it's a [00:10:00] balance. It's a natural balance. It's, it's pretty important that Bitcoin consists of gigawatts of energy. We need, we need elect real raw analog energy to be, um, a basis of the network. But it's also important that we have all of the millions of asic miners and the semiconductors and that hash wall.

And it's very important that we have a very distributed set of nodes for validating the system. And, uh, you know, Bitcoin is a, in a way it's a virus, and the virus spreads mind, virus reproduces through the people. So ultimately, the reason that if Bitcoin's going to last forever, then it's gonna have to be passed from you.

To your children, to your children's children, to your children's, children's children. And each [00:11:00] generation that adopts Bitcoin has, has to adopt not just the technology, but it has to adopt the ideology right. At the point, because at the point that, you know, the future generation becomes corrupted and they forget the ideology of Bitcoin, then they will attempt to corrupt it one way or the other.

Yeah. And, uh, and that would be not good. So the, the technology itself. Can't propagate itself for the next 10,000 years without human engagement.

[00:11:33] Bitcoin's Incentives

Knut: But, uh, isn't, doesn't Bitcoin do that to people? Like, because it's because it's costlier to cheat the system or to try to cheat the system then to follow the rules?

Like, isn't that like built into the thing or do you think it requires people to act in a certain way or is the game theory just playing out there and like, is it robust enough? Have we passed some sort of point where the point of no return where this [00:12:00] thing exists now and we just have to adapt to it?

Michael: I think

Bitcoin is the most thermodynamic we sound economic system.

The human race has ever come up with. Yeah. Or encountered. So do I Right. Either invented or discovered. Yeah. Yeah, yeah. Um, and the essence of thermodynamics includes and includes this concept of conservation, of energy. You know, all things considered, you know, the world works because gravity holds you down and it's a lot harder to jump off the ground and stay off the ground for long periods of time than it is for you to stand Yeah.

With your feet on the ground. So Bitcoin is grounded in that way and the, the power of cryptography Right. Makes it exponentially more difficult to break the rule. Yeah. Or, or, or to corrupt the system than to enforce the rule. And, [00:13:00] you know, the power of Shaw 2 56 hashing makes it exponentially more expensive, uh, to interrupt the network Yeah.

Than, than to engage with the network, you know, the way it was built. And, uh, because the protocol is conservative, it's. Exponentially harder for someone to store their money in a different asset or for a different asset to compete. Eventually, all the other assets go to zero against Bitcoin because they're not conservative.

And so we could think of it as, you know, it's game theory in the sense that it's human beings self-interested, rationally expressing their nature towards self-preservation is like, but you could also think of it as just, um, [00:14:00] as just conservative in a physical form because of all the monetary systems in the world.

It's the simplest, most elegant one. Right. You can, you can enforce monetary system with a navy, with an army, with an air force, with a police force. You can have an army of stockbrokers. Yeah.

Knut: That's another Konsensus algorithm.

Michael: They're, they're all just other ways to do it, but they're all much more labor intensive, much more energy intensive, much less efficient.

And so ultimately, you know, the, the law of thermodynamics as says, you know, the most energy efficient thing, the, the lowest energy state is what's going to dominate people. People will eventually migrate from uphill to downhill. Yeah. You know,

Knut: Paul, so, uh, there was a graph in your talk here about an hour ago, about the difficulty and how [00:15:00] it has like, grown like 50 trillion times or something since, since inception.

Yeah. It's, it's pretty mind blowing. So, so it was a one, yeah. One. Yeah. Yeah, it was a one. Yeah. Even before that, I would say it was zero. That if you view Bitcoin as a new element on the periodic table, it always existed. It's just that the hashing power was zero up until 2009, but it was always there. It's just waiting to be discovered.

Do you think there's something to that, or like, that's a weird question. I know, but

Michael: I th Well, I think, uh, it's the first time in the history of humanity that we discovered, right? That absolute scarcity or the, or the ab the ability to manifest such a thing Yeah. In humanity.

Knut: So, uh,

[00:15:49] The Relationship Between Difficulty and Costliness

Knut: so what's the relationship between difficulty and costliness?

Are they the same thing? Is costliness the same thing as difficulty?

Michael: well, the cost, [00:16:00] the cost is, um, is a function of how much money, uh, commodity money you need in order to acquire the hash power to get a certain percentage of the network to generate, I guess a certain amount of revenue. So as the silicon gets more efficient, then I guess the costliness would go less.

But as the hash power increases, then you need more silicon. So, so I, I haven't calculated how much, but, but, but presumably, right. And also it's a function of, of the value of the Bitcoin. At the time, it was a lot cheaper for Satoshi to mine the first million Bitcoin. Yeah. Right. Yeah. And now divide a million Bitcoin would be, Pretty costly, I suppose.

Pretty

Knut: costly, but there, there, there is a relationship between the two. I mean, the, the costliness is sort of what secures the network in terms of why [00:17:00] miners choose to, to run their machines. Like the, the, the action that the human being takes behind the hash power is like what, what, what relation does that have to, to the energy itself?

Michael: Well, I mean, the way I think I, I'm not quite sure what you mean by costliness, but there's a cost to attack the network. Yeah. And the cost to attack the network keeps going up. Yeah. Right. Yeah. There's a return on hashing. Yeah. Which varies from time to time, depending upon the block reward, the transaction fees, and.

The hash rate, et cetera. I, I think it's, it's pretty clear that the, the cost to attack the network has reached the point where, where it's too high for any actor to attack it, right? There's, uh, 400 x a hash means that you would need 25 billion [00:18:00] worth of custom asics to get to half of the network, which means you would need 250 billion of asics in order to generate 90% of the network, but there aren't 250 billion worth.

So if you had 10 years and you could wait. For, and by every ASIC for 10 years. In 10 years, you would have the ability to grab nine outta 10 blocks or something. So, so, uh, that's kind of impossible, right? If you wanna attack the network efficiently, it takes you a decade. If you wanna attack the network tomorrow, you would have to grab every computer in the world, every cpu, every iPhone in the world, and then you would be running at a 2000 x inefficiency versus a Bitcoin asic.

So that means that you would need all of the electricity in the world Yeah. And all the computing power in the world, and [00:19:00] you would only be a quarter of the hash rate. So, so you could win one out of every four blocks if you had all the electricity and all the computers in the world. So the costliness to attack the network right now is several earths.

Yeah. Right. If you had three earths. You still couldn't stop it. You could simply attack it with three, or you could do one double spend. But if you roll the clock back to when there was one x of hash, yeah, if you had maybe hijacked the entire Amazon computer network, then you might have, you know, been able to interrupt a network in some way.

But I, I think the, the genius of the Bitcoin network is that it's not secured by energy. It's secured by digital or not, not by power, but by digital power. Analog power could be measured in gigawatts, but digital power is gonna be measured in exa hash. And exa hash is a specialty protocol, [00:20:00] and that means that if you wanna attack the network with commodity money, you need all the money in the world.

And if you wanna attack it with commodity electricity, you need all the electricity in the world. And if you wanna attack it with commodity compute CPUs, you need all the computers in the world. And I'll, if I give you all the money in the world and then you buy all the electricity world and all the computers in the world, maybe you get 25% of the hash rate of the Bitcoin network, which means that one out of every four blocks you get to control, but the other blocks still go through.

So, so I, I would say, you know, the, the genius of the network design is that after 10 to 12 years, the action of the miners and the investment that the miners have made in the asic hashing power has created a wall of encrypted energy around the network and behind that wall, everyone is able [00:21:00] to store their money, create their applications.

Right. Secure, secure their products and services and build that economy. So we're, we're building an economy in cyberspace secured by, uh, a cryptographic wall or a d

a

wall of digital power that's, that's secure enough that there's no force on earth that can really break through that at this point. Yeah.

Knut: Um,

[00:21:33] You Are Your Bitcoin

Knut: so I had a thought like, uh, a year back that, um, I can't stop thinking about. And that is, if, if you memorize your seed phrase your 12 words, and you destroy every other location that your seed phrase exists in, then you effectively are your Bitcoins because the only place they exist in is your mind.

Right. And then I, I, I expanded on that thought. And the, the, the more I think about it, uh, The realization is that [00:22:00] this is true for every Bitcoin because if you are the only one with the information about how to unlock them, it doesn't matter if you memorize a seed phrase or if you know the location of an open dime or whatever it is, it's still all just keeping a secret.

So do you think there's something to that, that all bitcoins live inside the head of a person or

Michael: what? Yeah. To, I mean, to the extent that Bitcoin is secured by a, a password or by a, by a secret of some Yeah. Sort. Right.

Knut: And there's like no other assets that can be stored that way. What are

Michael: the nuances?

People sometimes write down their secrets. Yes, of course. So if the secrets are stored in your head, then yes. But if the secrets are stored, you know, on a computer or Yeah, but even on, on something else, then, then the Bitcoin exists wherever the, the information is.

Knut: Which means that an inanimate objects can ho Bitcoin.

I guess a piece of paper with a seed phrase is, is, is a ler in a sense then, [00:23:00]

Michael: or an AI program? Yeah. Or a computer program. Yeah. Yeah. Um, what I mean is the first property, which is information. Yeah. And I,

Knut: I think we've only begun to explore what that implies because it's so different. Um, and, uh, to the point of.

[00:23:20] How Bitcoin Discourages Violence

Knut: Like, I often think about like violence and, um, people, people spread a lot of thought about $5 or $10 ranch attacks. Well, it's about $21 ranch attacks now, I guess after the inflation. But, uh, they're afraid that someone will come to their house and take people's Bitcoin. But the way I see it, it's like, uh, I can put a gun to your head and say, give me all your Bitcoins, but I can never truly know how much bitcoins another person has.

Like, there's no way for me to know the exact amount so I can give you a fraction of your Bitcoin. So, uh, and I think what people don't realize is they, they are [00:24:00] being attacked with a $21 wrench at the moment, and they're paying for the wrench via inflation of the currency. So, uh, So, yeah. What, what's your stance on that?

How does Bitcoin make violence so much less profitable? That we are incentivized somehow to, to, uh, interact peacefully rather than

Michael: violently? I think Bitcoin is the first perfected digital property, and all the other property, all the other wealth we have in the world is, uh, analog wealth. So all analog property can be confiscated, seized either by violence or by corruption.

So the so analog properties encourage corruption. They encourage violence, either state sanctioned violence or criminal violence, and they encourage politics and legal manipulation to steal your [00:25:00] property or confiscate it one way or the other. And that's been the case for all of human history. So to the extent that you convert property into a digital form, and that digital form can manifest itself on a hardware wallet or a seed phrase plate, or in your head, however it's manifested you now, you now have the ability to destroy the property by destroying the information.

Yeah. Which you can't do with analog property if you, if you own a vault of gold. Yeah. In fact, you can't destroy it. So if you owned a building or a company or even a bunch of bonds, you know, that give you a claim on a government, you can't destroy them by destroying the information. Eventually, a custodian or a government can reclaim them.

So, In that sense, [00:26:00] the human doesn't really have the power over their own property. They don't have that property. Right. They have a conditional property, right, based upon their political standing or their physical strength. Mm-hmm. Bitcoin gives the human being an unconditional property. Right? Because the power to con, to destroy something is the ownership of the something.

It's a line from Dune, by the way, if you remember Frank Herbert, where they talk about the spice and they said the power to destroy the spice is it's power over the spice in this case. Um, the power to destroy the property means you have an unfettered right to the property. The power to transport or convey the property is another, right.

All these other properties, you don't have the right to convey, and you don't have the right, uh, you don't have the power to convey the power to destroy. So I think Bitcoin is a breakthrough. In those two ways. The third way it's a breakthrough is, [00:27:00] is it's immortal property. So you can, in theory, accumulate a massive amount of property and find a way to convey it 10,000 years into the future.

You can't do that with even a pyramid. You can't do it with a building. You can't do it with any stock or bond or piece of land. But, you know, you can entrust the Bitcoin to an AI program, put it in a satellite, maybe time lock it. Yeah, yeah. And it'll still be there. So I think the, the implication of that is that in a world of digital property, there's an, there's a disincentive to violence and a disincentive to corruption.

For lots of reasons. Um, there's always an incentive to negotiation because you're on, you know, you're negotiating to get some instead of none. Yeah. [00:28:00] If you don't know how much someone has, then uh, that shifts the balance of power in favor of the property owner. Yeah. If you did know how, if I knew you had a hundred Bitcoin and I had a gun to your head, you know, we still end up with a, you know, uh, a game theory that suggests I'll get half, but not all.

Cause if I pull the trigger, I get none. Yeah, yeah, yeah. So

Knut: the game theory is 50%,

Michael: we split at 50 50. Yeah. You might well give me half or gimme a fraction. Yeah. If I'm not using a gun, but I'm just threatening a lawsuit, maybe I'll just take the 10%. Same thing. Now you can shift the balance of power on that, because if I have a gun to your head, but you have the ability to.

To transfer the Bitcoin telepathically or, or you have a little device, a kill switch in your hand and you can punch the button and transfer it to someone else somewhere else. Time lock it. It's like, okay, can I pull the trigger before [00:29:00] you push the black switch? In that case, maybe I'd only just take 10%.

Yeah. So, right. So I, so I think that there's technology that can be constructed that, that at this point we'll shift the balance of power away from the authoritarian with, with the physical power and put it in the hands of, um, of the person with the digital power. So

Knut: it shifted to the individual, basically to the individual property owner?

Michael: Well, to the corporation, yeah. I mean it could be to, to whatever entity. Yeah, yeah. Basically, whichever entity has the property, for example, not just an individual. Let's say that I'm, um, I'm a country. And you're the country next door, and all my property is land and gold in my bank. And so you show up with tanks and you roll over the border and murder all of us and take the land and the gold.

So the country that's more violent gets the property. The country is less [00:30:00] violent. Yeah. But if the country's 95% of the, the property of the country is in Bitcoin and you show up with tanks, the country can just say, well, we're just gonna destroy the property, or we're going to teleport it into outer space if you attack, or we'll give you 5% of it.

And so a country could do the same thing that a person could do. A company, a company could too, as well. If a company has a big building in the middle of a city and that's their property, then the city can claim it. But if the company's property is sitting in, in Bitcoin and they can move into a different country or a different city, Then the city can't claim it.

So I think in all cases, all entities, whether they're individuals, families, companies, agencies, or countries, there's a, there's a disincentive to physical violence and physical force, and there's a benefit conveyed to that. The, the entity with the digital [00:31:00] property and the digital capability. And so that, that, uh, what is the word?

It, uh, it encourages, uh, the migration of, uh, of your property and your wealth from the physical sphere to the digital sphere.

[00:31:17] The Nature of Custodians

Knut: But is that true even for custodial? Uh, you know, if the company or the country uses a custodial solution, because like, doesn't it require like the board of a corporation or the parliament of government to do, uh, some sort of multisig solution?

Because if it's custodial, then it's, you know, not your keys, not your coins. Then that, that's some guy who's the cus the custodian.

Michael: Like, I, I, I don't think of it like that. I think that if you're Switzerland and you have, uh, a hundred billion in Bitcoin and the custodian is the Bank of Switzerland, and then if Germany attacks Switzerland, [00:32:00] then Switzerland controls their Bitcoin and the custodian is Swiss and they're better off to have Bitcoin, right?

I mean, this issue of what is the custodian is like, okay, well if you're, if you have a family and you have multisig and there's three people in the family, how is that different than you have a family bank? That's the custodian with the multisig. Right. At the end of the day, you know, um, a city can have a city bank.

Yeah. You know, by the way, you know the name of the Rockefeller Bank? It was called National Citibank, and you know what the name of the bank is today? It's called Citibank, and it was a bank for a family. You know, who was the CEO of National City Bank? John d Rockefeller's brother William Rockefeller was the ceo.

So there's a family bank. They didn't trust the other bankers. They had their own bank. Eventually it became Citibank. If the United States of America has a trillion dollars of Bitcoin in Citibank, when they get in a fight with the Russians, they're better off than [00:33:00] if they don't. Let's reverse this around.

If you're Russia and you have your gold and your money in a Swiss bank. Yeah. Then maybe the Swiss or the, or if it's an American bank maybe, and you get in a fight, they take it. But the problem wasn't trusting a custodian. The problem was trusting a custodian in the political jurisdiction of their enemy.

Yeah. If their money was actually in a Russian bank. And of course the other problem is their money was not a bearer instrument. Right. If, if their money was gold and it was in Moscow, then they wouldn't have had all their assets seized. If your money is debt, if it's French debt and you're gonna fight with the French, and if the French debt is in a French bank and you're gonna fight with the French, well, you've made a double error.

Right? Yeah, yeah. You've actually used credit as your money and you've custody it with a, with a, uh, custodian, a foreign custodian. So foreign money that's credit and a foreign custodian is not a good thing. But [00:34:00] if it's domestic money, With a domestic custodian, the issue really is, are the Russian people better off with the Bank of Russia than with Putin?

Carrying it around all the money on a hardware device on his neck is like a tradeoff. I, I don't think,

I don't think, um, there's any black and white here. I think that an individual could decide to be their own custodian or could engage in multisig. A family could decide to be their own custodian or engage in Multisig, a small company, a big company, a city, a state, a country. They could all make different decisions, and the decision is how will they custody their assets?

And the answer is you don't really want the mayor of your city to have all your money. No. And then leave. Like does the mayor get to keep all the money when they get unelected? [00:35:00] Like would you be more comfortable? I mean, the point really is no. And now do you wanna live in a city that doesn't own any Bitcoin?

No. Let's say you live in a country, they don't own any Bitcoin, but they have all their wealth and gold, and then you're, and then the people living across the border decide to come and murder you all to take your gold. Were you better off if the country didn't own Bitcoin and they had gold and that way you didn't have this issue?

I mean, the truth of the matter is you're better off to live in a country that has all their money in Bitcoin so that your enemy doesn't cross the border and murder you. Yeah. So when the country owns the Bitcoin, how will they custody of the Bitcoin? Well, when you actually implement multi sig with seven guardians, that's called bank, a national bank.

You know, and now you'll have this political process of who are the seven guardians you trust.

Knut: Yeah. And what your jurisdictions

Michael: are they in, which is, uh, but you know, families have politics, right? Yeah. You have a distributed family and there's five brothers and there's, and the question is, which of the five brothers get to control the family money?

[00:36:00] If you don't have any money, you're lucky you don't have a problem. But when you actually inherit a lot of money from dad and his five brothers, are three of the five brothers the ones with keys or all, what if one of them's an alcoholic drug addict? Does that guy get the keys?

Knut: I would vouch for the older brother, since I'm the

Michael: older brother, you know, everybody ends up having to deal with the issue and there's, and, and I don't think there's one simple answer, which is why I don't preach one answer.

Because the answer is different for a city than a company, than a family, than an individual. No. Okay. Like you're engaged to the woman. Do you share the keys? You're married to the woman. Do you share the keys? You have 16 kids, which of your kids get the keys? Like, I mean, how long do you have to be married before you share the keys?

Yeah. Right. I mean, so these are all interesting questions and there's no answer. I don't opine on it. What I think is digital property is good and digital, digital property is [00:37:00] better than physical property. And, and Bitcoin solves half the problems in the world, but not the other half, right? There's the other half are still there.

You have to, you know, Bitcoin won't solve the problem of how you have heavy marriage or how, you know, or politics or how you deal with issues with your kids in school that teaches them stuff. You don't want them to learn all that stuff. You still have to struggle with what Bitcoin does, is it disincentivizes, physical violence and, uh, physical power, um, in order to seize and confiscate physical assets.

And it incentivizes cooperation and it, uh, it, it allows you to construct elegant and beautiful structures in cyberspace that, that, uh, will be valuable to the human race.

Knut: So, I mean, every Bitcoin faces these dilemmas, I guess. [00:38:00] Like how, how deep uh, am I going to nerd into this knowledge and like how, how, how secure do I want my Bitcoin to be?

And am I going to use a custodian or like, and including corporations and nation states and whatever. And, uh, we talked about time locking a bit. Like there, there is an incentive to time lock in the sense like Bitcoin could be a, uh, retirement fund in that sense.

[00:38:23] How Much Bitcoin Will Make It?

Knut: So when we see this playing out over like, say two generations from now, to what extent do you think this generation we're living in now we'll just.

You know, fuck this whole thing up and lose their bitcoins. How many, how many stats will there still be in circulation, two generations down the line? Like, will will people take the required measures to, to, to have an inheritance plan and to store their bitcoins in a secure way? Like I, I know if it's divisible, it doesn't really matter because if it's divisible enough, the, the, the total amount doesn't really matter.

It's the [00:39:00] absolute scarcity. That's the important

Michael: part. I think it's, I mean, uh, right now, um, a fraction of people with Bitcoin do self custody and, and they're fairly focused on that. And that's a commitment. The majority of people at Bitcoin don't. I think that, uh, some Bitcoin has been lost. I Bitcoin is naturally deflationary because over time there'll never be more, but there'll be a little bit less for reasons.

That's entropy in a way. Yeah. Yeah. It's like, Um, there's a free market. There's gonna be a hundred thousand different companies that will offer a hundred thousand different solutions. And I could think of, uh, a hundred different variations right now, and there isn't an answer because some people are untrustworthy.

Like, for example, I've noticed you, you know, you, you yourself at, for example, if you go out and you're drinking heavily on a Saturday night, some [00:40:00] people shouldn't take their phones with them. Yeah, yeah, right? You may be untrustworthy at certain times, and certainly if you get to a later stage in your life and you have Alzheimer's and you're the one that owns the keys, you will be not qualified to be your own custodian.

So sometimes people are untrustworthy, sometimes counterparties, right? Yeah. Companies can be untrustworthy. Governments can be untrustworthy, right? So the promise of, uh, Bitcoin is not a simple solution. Uh, that is easy to implement. The promise of Bitcoin is you have the option, right, to take custody or to change your custodians or to change your custodial protocols from time to time over the course of the next thousand years.

And, and you don't have that option with a building. No. And you don't have that option with many other [00:41:00] assets or property rights. So Bitcoin gives you the option. I think the custodial options get, keep getting better, I think to keep getting easier. I think there will be continual debate in the community about

what's

Michael: the right one.

Yeah, I don't think there'll be a right one. I think that, uh, I think that there may be a right option for you at a point in your life. Like, let's say, let's say, uh, you're young and you're single and you're very intellectually capable, right? You'll, and, and you need to be mobile and you're a refugee from a hostile regime.

Well, I mean, that's sort of, it implies self custody or brain wallet. Yeah. But there'll be another stage in your life when you have 37 family members and grandchildren and great grandchildren, and then you would like to convey some of that Bitcoin to some of them on your [00:42:00] deathbed. And you'll probably change your custodial structure at that point.

Yeah. Or maybe you'll, uh, you'll decide you wanna endow an institution or a corporation or, you know, there's, there's all sorts of different views. And there's also a point, you know, I said, well, you know, for the next 10 years, I'm, uh, I'm gonna need to rely on an institution for some other reason. So, so, uh, I think everybody needs to have the option and they need to have lots of different options.

The one thing you can expect is that the technology will improve. Like, let's take multifactor authentication, right? Yeah. The way that Apple computer does it between your iPhone and the iCloud has gotten to be pretty good and a lot of people rely upon that. And if you [00:43:00] consider how it worked a decade ago, it didn't work so well.

No. So I think, I think you'll start to see Bitcoin and private key management built into all the big tech companies. All the big tech devices. You know, maybe, you know, you have a ring, maybe on a ring, maybe a ring will be one of the factors that you use. You know, maybe it'll be

Knut: something else. It'll be like Power Rangers like putting the rings together and unlocking the Bitcoin.

Michael: And humans are very ingenious. So the goal will be to come up with the thing that is, that is best, but there won't be a best one. Right. If we insisted on everyone do the most rigorous degree of self custody, you wouldn't onboard a billion people in a year. No. So if you wanna onboard billions and billions of people, you'll need easy on-ramps.

And then over time, some people will want to be able to escalate up to greater degrees of self sovereignty. Yeah. [00:44:00] And when you get to the issues like communities and families and corporations and governments, now, now you enter into this, this question of do I use something like ment or do I use more sophisticated multisignature or do I use other custodial solutions from third parties?

And who do you trust and. Not, and uh, that's fine. Right? That's, that's the free market functioning. Yeah. Yeah. That's what we want. And there'll be a very vibrant, free market competition. And some people will try things and they'll overthink it and they'll lose the Bitcoin. Yeah. Yeah. Like, or the time lock thing.

I'll time lock my Bitcoin and then, oops, I needed my Bitcoin and now I'm bankrupt. You know? Yeah. Yeah. And my business is destroyed and the Bitcoin's still time locked, but mean at some point you can get too cute by half. And so [00:45:00] ultimately I think that, uh, there is no right answer. And, uh, that's not the, that's not the part of, of property rights that Bitcoin makes Simple.

In theory, actually, Bitcoin makes that a bit more complicated. Yeah. If you buy a house, there's kind of one way to buy a house and hold a house, and it's all regulated. The government tells you how to do it. Yeah. But if you buy Bitcoin, there isn't one way to buy it and one way to hold it. And so that's indicative of the fact that we're earlier stages and, and also just as technically much more functional.

Yeah.

[00:46:00]

[00:46:53] The Meaning of Maximalism

Luke: in your talk yesterday, you, you, you're a panel, you, you, you mentioned these kind of five [00:47:00] types of investors and going all the way up to the technocrat and the, the maximalist.

And I have a question about your view on, on what the Maximalist means, uh, in the sense of. When someone becomes a maximalist and understands the proposition of Bitcoin. Okay. That's, that's an idea that's changed in their head. So what do you see as the result of people adopting maximalism? The change in people,

Michael: just to review that quickly. A Bitcoin investor is someone that believes it's an asset and they may either buy it and go long, or they may go short, they may trade it. It's just a, it's, it's, uh, an investment idea that sometimes as good as sometimes bad. And that's kind of like you looking at a retail company and saying, the stock is undervalued.

I'm gonna buy it. The stock is overvalued, I'm gonna sell it. You're just an investor [00:48:00] and you don't have a particular love or long term opinion. There are plenty of investors that just trade things. They're traders. A technocrat is someone that believes that. That, uh, that investment is inevitable. Like Facebook will have 2 billion users one day, or Microsoft is going to dominate business software for a long time, or Apple is going to deploy billions and billions of mobile devices and they've got this incredible monopoly deadlock.

So technocrats tend to te they tend to say, I'm just buying it and holding it forever. I'm not gonna trade it. It will never be overvalued. Right? It's you, you have basically the lock on all mobile devices for the human race forever. Long term. A maximalist is someone that looks at the investment and says, well, not only is it a dominant network and inevitable and, and in essence a digital [00:49:00] monopoly or monopoly source, but it's also an ethical imperative.

It's a, it's good for the human race that this is happening. Right. Um, You can be a technocrat and believe that something is inevitable, but then be ambivalent about whether it's good for the human race, right? Maybe it is for some people, but maybe it's used as an instrument of authority for other people.

And so you're not quite sure, um, a person that's a electricity maximas believes that electricity is good for the human race, saves lives. Kids don't die so soon, right? A fire Maximalist believes that fire is good for the human race. There are Tesla Maximus that actually are so fanatic, fanboy about Tesla that they, you know, it's like Tesla at all cost, right?

I mean, not so many, but there are some and, and they are very hardcore. Um, so Bitcoin Maximalist is a Bitcoin investor that believes it's not just a [00:50:00] digital monetary network that's going to win because it's overwhelmingly powerful, but also that is a utilitarian entitlement. It's an instrument of economic empowerment for 8 billion people.

And everybody has an opportunity for property rights and freedom and sovereignty because of Bitcoin. All they need is a $50 Android phone, and they have that opportunity. And the, the reason that it's, um, it's a ethical entitlement or an ethical, um, um, imperative versus simply, uh, a technocratic likelihood is because there's no company behind Bitcoin.

The thing that actually, the corrupting attack surface for technologies is when a company controls the technology because the company has a headquarters and the company has officers, and the officers can be subpoenaed, [00:51:00] right? And so, The thing that that is special about Bitcoin is it's not a security, it's commodity.

And by not being a security, it means there is no controlling set of officers that can be corrupted. And ultimately anything that's controlled by people will be corrupted. It's no, that's, it's inevitable. If you're not corrupted politically in the near term, you'll be corrupted by aging. Eventually you will die and someone will inherit.

And they will inherit. And you're, and can you promise me your grandchildren's grandchildren will be just as virtuous as you are in the, and the answer is no. If you list study the history of the Roman Empire, you find there's always a bad emperor and sometimes there's a string of bad emperors. And the greatest Em Emperor Marcus Aurelius was succeeded by his son, who was an awful emperor.

Yeah. Yeah. Um, So the implication here is, uh, of [00:52:00] maximalism is it is as people get educated on Bitcoin, once they understand it's a commodity, not a security, and once they understand that it's an open conventionalist network that offers property rights, and once they understand that digital property rights are really the only property rights that you can protect as the individual against the overwhelming force of the collective digital property is in essence the only property you can take with you to the grave.

If I gave you a billion dollars and you wanted to dispose of it in any particular way, or if you wanted to give it as a gift to the other people that have the same values you have, the only way you can do that is with Bitcoin. The only way, there is no other way, right? A billion dollars of any other sort of property I can take from you either in your death.

Or in your incarceration or using a political process. But, um, the, the Ultimate Charitable Act [00:53:00] is to give all of your wealth to people that share your values forever. And the way to do that is to die with your Bitcoin keys. It's to do what? Yeah. Yeah. If you have all your Bitcoin and you take them to the grave, right?

You, you could say, oh, they lost their Bitcoin. They didn't lose their Bitcoin. They contributed their Bitcoin, or they contributed their economic energy to everyone else on the journey with them. It's, it's the ultimate selfless act. Yeah. Yeah. It's much more selfless than to say, give your Bitcoin to a charity.

Yeah. Or give your Bitcoin to your own charity, or give your Bitcoin to your family. Right. I mean, When you actually accumulate this wealth and then die with the keys, you have pro rata enriched everyone else who's lived a virtuous existence that shared your values, right? And so there could be no more charitable act, right?

In fact, Bitcoin it [00:54:00] de it dematerializes money. It dematerializes property, it dematerializes charity. Like you don't need a charitable foundation. You don't need a 5 0 1 You don't need the Gates Foundation. You don't need all of these ch, you don't need the church, right? All of these institutions that are nonprofit institutions that purport to do good for the world, ultimately they end up scraping off some percentage of the money they raised to pay, and they're oftentimes corrupted.

Like there are things the Rockefeller Foundation does today that Rockefeller wouldn't have actually endorsed when he was alive. And then people blame him for the things that happened a hundred years after he died. The Hughes Foundation exists. Howard Hughes is gone in a hundred more years. The Hughes Foundation will do things that maybe he would or would not have agreed with.

And even if you're the perfect God king and you actually know what's good [00:55:00] or bad while you're living, mm-hmm. Right? Show me that person. Like, that's, that's hard. Um, you can't guarantee it for the next a hundred years or a thousand years, but let's actually, let's actually think about the reality. The reality is every human being is imperfect.

Bitcoin is a perfect machine made of imperfect parts. The Bitcoin ecosystem is a perfect ecosystem economy made of imperfect actors. The theory of Austrian economics free markets. Are, are the optimal economy made of imperfect economic actors that are messing up all the time. So you're a human being. You don't actually know what's, what's right.

You think you know what's right, but you have imperfect knowledge. And so if I give you the money and say, give it away in the right way, you'll make mistakes. No. So actually what's, what is the [00:56:00] economic solution to do the most good with your money? And in the free market, it's let the free market flourish and let competition flourish to grow the economy the fastest.

But in the charitable market, the answer is just destroy your Bitcoin keys. Because if you just destroy your Bitcoin keys, you have gifted your money to the virtuous. And the way that they get funded is they have to be virtuous and only the virtuous. Well, can, can ever benefit from your charity, right? You can never benefit the vice.

Knut: So is that what Satoshi did? Yes.

Michael: And, uh, that's, that's, that's exactly what Satoshi did. Satoshi set the ultimate example by, by in essence, burning that 1 million Bitcoin and gifting it to the Bitcoin ecosystem in perpetuity for the next a hundred thousand years. Everyone, people that are [00:57:00] not born, people that are gonna be the children of the children of the children, yet unborn will benefit from the charity of Satoshi, but only to the extent that they deserve to benefit.

Knut: That's so fascinating. Like,

Michael: and, and you didn't need any people to do it. You didn't need a government 5 0 1 to do it. And there is no grant review process, right? I mean, that, that is the alter ultimate natural act of charity. Just like Bitcoin is the ultimate natural economy, right? Anarchy, right rules without rulers, subject to the force of nature ultimately.

Fair, fair to everybody. Everybody on earth is subject to gravity. No one ducks it. Everyone is subject to the passage of time. Nobody gets out alive. Everyone gets to decide how they'll use gravity and use time. Right? No, no. Free lunch, [00:58:00] right to Stapel. There is no such thing as a free lunch. Robert Hyland's famous phrase.

From the moon is a harsh mistress. Yes.

Knut: Is is there such a thing as a second breakfast though?

Michael: There's no second breakfast, right? No second breakfast. So, uh, yeah. Um, the Hobbit

Knut: Well,

Michael: uh,

Knut: yeah.

[00:58:22] Satoshi's Coins

Knut: So if, if Satoshi's coins, like these are, these are all assumptions, they're, they're plausible. But if Satoshi's coins should start to move one day, and it turns out Satoshi wasn't this altruistic Messianic figure.

It's just a guy, a very, very, uh, a very good hobbler that's suddenly decides to move his coins or that the, the, uh, private keys are hacked. Someone finds the keys to Satoshi's coins and they start moving. What happens to Bitcoin at that point, in your opinion?

Michael: It's like a, it's a short term negative, but long term, it doesn't matter.

[00:59:00] Bitcoin is a perfect system from imperfect components. And people do imperfect things, even up to including an, an imperfection in the keys. That's not what matters. What matters is the protocol. You can audit the protocol eventually. Like for example, people take their Bitcoin and they loan into ftx and Ftx reys it and then loses it and they panic sell the Bitcoin.

And in the near term it's, yeah, in the near current term, it drives the Bitcoin price down. And the person that was the imperfect hot made a mistake and they, they actually kind of, what is the word? They created a nuisance for the rest of us through making an unwise custodial decision. But ultimately the market resolves it.

Someone bought that Bitcoin and that someone probably won't loan it to one of the exchanges, the replicates it and Bitcoin, you know, uh, resets and rebuilds from there. [01:00:00] So what does nature do when you set a forest fire? The forest burns down. Yeah. Few years ago, by nature rebuilds itself. Yeah. That's kind of the way it works right there.

Yeah. I

Knut: saw a forest like that in Australia, not long back. And it's, it's, it's mind blowing how fast it, like the forest fire was like, what, four or five years ago? And the forest is just back because it's built to resist

Michael: that. Over time in 2022 we saw a lot of

Knut: crypto fires. Yeah, yeah, yeah. And the SSE clamping down on, on, uh, Coinbase and uh, and Binance and all this stuff now and FTX falling.

Could you call that a shitcoin purge? Like, is that what's happening?

Michael: Yeah. It's a rationalization of the industry. It's a, it's a bunch of irrational structures collapsing. They say don't build a house in a floodplain. Yeah. People go and they build a house in a floodplain anyway, it rains, there's a flood.

The houses get swept away. Yeah. They say Don't build buildings on sand. People build on [01:01:00] sand. The sand sinks the building collapses, it gets taken away over the course of a hundred years. Time is a volatility machine. It's gonna shake apart irrational structures. Terra Luna was irrational. FTX was irrational.

Celsius block five. They're all irrational. People build, I, you know, they build poorly engineered buildings or bridges. You know, you build a bridge and the natural frequency of the bridge is equal to the frequency of the wind and the bridge shakes itself apart. Yeah. Everybody looks at that and says, we, we probably don't want to do that again.

And so, yeah, the, all the problem with all these systems is their natural frequency is too short. Yeah. Right. They're, they're poorly engineered. For example, the natural frequency of Bitcoin, it's like, is, is somewhere between eight and 16 years. Somewhere eight to 16 years after the entire Bitcoin market crashes, [01:02:00] the security starts to bleed off.

Like, like people, people bought billions of dollars of Bitcoin mining equipment in the year 2020. Mm-hmm. And a bitcoin went to a dollar, that equipment would still be running and it would still be operational till about 2030. And what would happen is the price, uh, the price of Bitcoin, ASIC mining chips would just get reduced, right?

For a bitmain, we're selling them for $9,000 a machine, and then $1,500 a machine, and they will lower the price and run it at a variable margin of 1%, and they will sell you these chips. Like, what's a 3 86 chip cost or a 46 chip? Nothing. A dollar. Yeah. So there's a bunch of inertia in the system such that the hash rate of Bitcoin is not going from 400 x a hash to four x a hash overnight, just as because the price [01:03:00] crashes.

No, Bitcoin has a very long natural frequency in the security of the network because the network is secured by energy and hash rate and custom silicon. Now let's take, uh, CARNA or F t ftt. There was the, the, the security was based on state tokens, and you could remove the token in anywhere from one to 30 days if the price crashes, so it's built in a swamp, then 95% of the tokens get withdrawn and converted.

And pretty soon there is no security. Right. It's like they built on a sinking sand swamp and uh, the thing was gonna shake itself apart. And if you were an engineer, you would've looked at it and said, this is just poorly engineered system. There's, it's like, it's not just that the natural frequency is, is high, but the other problem, it's like Bitcoin is [01:04:00] made of, of billions of dollars of crypto steel and these other things were made of a few hundred dollars of like drywall paper.

Yeah, they're paper structures. Yeah. Yeah. And the guys that made the paper houses said, Bitcoin's too expensive. Bitcoin, you remember the, it's energy intensive. Yeah. Yeah. All these narratives, you know, and, and it uses Asics. Well, asics and energy is the equivalent of using money and concrete and steel to build a building.

And if you're an eighth grader, You would build your building outta card. You know, you ever see eighth graders with their little, uh, toy corvette's and they build them from cardboard? Yeah. Yeah. And they're much cheaper. Yeah. It's like I have a cardboard card and I use poster board in order to create my own airplane.

And you're right. If you're living in an imaginary world and you're [01:05:00] imagining it's, I have imaginary cardboard gun and you have a really expensive gun, but my cardboard gun is much cheaper, I'm gonna give cardboard guns to all my friends, and we're gonna play cowboys and Indias with cardboard guns. And it's fine as long as you're playing games in the imaginary cafeteria.

But when you go out into the real world, your cardboard guns don't work and your cardboard cars and planes don't fly and drive. And when it rains, the cardboard gets soggy, it all falls apart, and you come home soaked in the rain. You know, and your parents look at you like, what the heck were you thinking?

It's like, it's not a tank. That's a great analogy. Don't fight a war with it. And that's, that's the difference between Bitcoin and crypto. And you know, we'll live to just see all the crypto people, see all their cardboard toys just fall apart. But you know, you can't tell [01:06:00] the kids that while they're playing with their cardboard toys, because they're just so much in love with them.

Yeah. And they can't afford a real plane. Yeah. And they can't afford a real car. So if the best you can have is cardboard, imaginary toys, then that's what you give yourself. Yeah.

[01:06:20] Will Shitcoining Get Harder?

Knut: So, um, if you've been to Bitcoin for a while, you know that these things have played out before. Like there was a small, there was an alco boom in 2014.

There was a big alco boom or, or all the forks and stuff of Bitcoin and, and all the ICOs and stuff. That was in 2017, and then it crashed again. And many of us thought that after 2017 these things would be way harder to pull off these scams. Like, but then, then you have 2021 and, and now you have all these ftx and Luna and all of what that is.

So it feels like these, these things come in waves and there's always, uh, another idiot to fool into, into playing [01:07:00] these games. So, so how do you think, see that playing out? Will there be more waves of shit coiner? Will it be harder over time? Like how do you see that playing out?

Michael: Well, I think, I think the first 14 years or so, you probably had two or three waves of entrepreneur.

Creating all these, you know, crazy crypto tokens. Yeah. And, and, um,

we're going through a massive rationalization here. What's different each time is a Bitcoin is like an order of magnitude bigger each time. Yeah. Right. So, so Bitcoin now is a 500 billion asset. And so this wave was big enough that it attracted the attention of all the regulators and, and adults. So this brought adult supervision.

I mean, they took it more seriously. Yeah. I think that in 2016 it was like the [01:08:00] kids are playing with their things. Yeah, yeah. You know, I, I think, I think the s e C and the CFTC and the big, uh, nation states kind of thought it was. More like the teenagers, you know, having a food fight in the cafeteria. And they said kids stopping.

And then they went back to focus on other things. But this time around, I think when the entire crypto ecosystem got more than a trillion dollars, they started saying, okay, well then they said, well sort of stop it. But it really wasn't until the FTX meltdown where they said, okay, well now we have to pay attention.

So now I think what you're gonna see is that, um, they're really gonna settle the matter of. No digital securities or no unregistered securities. Mm-hmm. And, and so the crypto exchanges, the cryptocurrencies and, and the form of stable coins. When I say cryptocurrency, yeah. Yeah. Stable coin, I don't mean Bitcoin.

So the crypto securities, the cryptocurrencies, the crypto exchange, the [01:09:00] crypto tokens right now, they're all gonna be regulated and probably mostly regulated out. If at some point, uh, there may be a political jurisdiction that offers, um, uh, a legitimate route to creating registered instruments. I don't see it right now, but 2, 3, 4 years out, maybe someone will offer it.

But, um, the next wave of, you know, of craziness, shit, coiner type behavior, it won't be individuals, it will be, um, it will more likely be nation states. That will play with the game, maybe mega corpse or nation states. But I would almost believe the nation states, for example, I think that all of the, you know, all of the current crypto tokens probably go away or go to zero.

And you've got Bitcoin and you know, all the little Bitcoin forks will go to less than [01:10:00] 1% or 0.1% and they'll die off. And so we'll come out of this and we'll have Bitcoin and not much else. Then there'll be some maneuvering to create, you know, uh, a bank issued digital currency that'll have some mixture of control and availability, and there'll be a lot of jostling back and forth.

But the next interesting experiment would be Canada coin or China coin. Yeah, yeah, yeah. And so, for example, if I ran China, maybe I would say it's illegal to mine Bitcoin in China, but it's, but we're gonna fork Bitcoin and it's illegal to mine. The Bitcoin fort called China coin and it's legal and there's no tax or there's no inheritance tax on China coin and you can trade China coin.

And so maybe a nation state will create their own China coin because that would, uh, that would be kind of like I'm creating my own form of digital property, but just for [01:11:00] China. Mm-hmm. And then maybe there'll be Canada coin, you know, cuz Canada came up with this tax on bitcoin mining in Canada. Mm-hmm.

And they go back and forth. So you know how, um, you know how with debt, um, like New York City debt or, or New York State debt doesn't have any New York City tax. So they'll issue municipal bonds and they'll give you a tax advantage on it in order to get you to buy their credit. So I can imagine a state or a nation maybe, uh, trying to launch their own form of a Bitcoin fork.

So I copy it and, you know, a, a CBD C or an, or a digital currency is kind of like a fork of the stable coins. Yeah. Like the, they're gonna want, they're gonna want to have their own tether, like, you know Yeah, yeah. Digital, C n y and digital dollar. But it'll be, the issue will be which custodian controls it, and it, it makes sense.

They'll do that. They'll just fight over whether JP Morgan gets to issue it or whether a [01:12:00] nation issues it. And that's the currency. But the digital property idea is a good idea. Property is, is better than currency. Property will go up mm-hmm. At seven to 14% a year. So maybe someone, you know, will come up with a Russia coin, a China coin, a Canada coin, a a USA coin.

And it'll be not a global money, but it will be a national and nation state money because, you know, there, there is property in Italy that you can't leave Italy with. You know, there is property in China, buildings, property, and you can own it, and the Chinese government will tax it, and you can't take your property with you to the us.

So once they get the idea of digital property, someone may decide, well, maybe we should just have a digital property of Franco. And so you'll see this range of new coins. But, but what'll happen is [01:13:00] if they implement them perfectly as a fork of Bitcoin, then you launch them by giving preferential tax treatment or preferential mining treatment, or preferential trading treatment.

Or like, you could make Franco, um, legal tender in France, right? I mean, yeah, yeah. Like you could do that if you, if you launched the network perfectly as a fork. Yeah. And then you pushed it, well, it, it would last as long as France lasts. Like, I mean, it won't last 10,000 years, but so not as long as Bitcoin then.

But you could think of it as, think of a nation national currency that lasts as long as the nation state lasts. Mm-hmm. And think of a national property. Your property in Paris will be valuable as long as there's Paris. Right? Yeah. I would bet on Bitcoin longer than Parisian property. But you get where I'm, where I'm going with it.

Yeah. So if you implemented it [01:14:00] perfectly, you could create a Canada coin or a France coin. It wouldn't be as valuable as Bitcoin. Cuz it's not global. It's not the dominant network. Just like I would rather own, I would rather own 10 million of Bitcoin right now than a 10 million building in New York City right now.

Right. Because it's, the thing in New York is impaired, right? 10 million worth of something in Paris is impaired. So Bitcoin will be the apex. But someone may try to create another kind of digital property. And then I think the issue, then we'll get into this issue of shit coin, which is, yeah, which is, you have the, the bitcoin forks that are just inferior because you know the block sizes twice as much, but then you'll have the really grotesque monstrosity forks.

They're inferior because they're proof of stake, you know, with all sorts of yo-yo, you know, protocol adjustments in 'em and roadmaps. So probably what would happen [01:15:00] is as soon as they come up with China coin, they'll also start to censor China coin transactions, and then they'll start to put some other bell and whistle, and then they'll screw up the security of it, or, or they'll impair it further.

Just like if I own a building in, uh, in a city and then the mayor of the city passed a law rent controlling the building and saying they're not allowed to use the building for commercial purposes. You know what I mean? Like, like they can't help but first they create the property and then they impair the property.

So there'll be all of these kind of like coin wars in the next, you know, one or two cycles out. And then there'll be people saying, I live in Canada so I want Canada coin, or I live in China, like Canada, China coin. And there'll be this tug of war between Bitcoin and them. And we'll see what happens.

There's always gonna be a war, uh, between different assets, whether it's the asset cost of the s and p index or the asset cost of treasury bonds, or the [01:16:00] asset cost of commercial real estate, or the asset cost of gold. Yeah. These are just asset class wars. So I think there'll be a little bit of that crypto asset class.

I think you'll have to be a very political, there are two entities that have the power to launch the next set of crypto competitors. The Bitcoin. Yeah. One banks. Mega banks. Yeah. You know, national banks, you know, central Banks, JP Morgan, Morgan Stanley, they, you know, F D I C improved regulated banks. They may be able to issue something and maybe there'll be a digital currency or whatever, and then the other entity will be nation state's governments.

But I think that the error of the crypto bros launching the thing in their backyard and their garage, that's over. Yeah. Yeah. I mean that, that died with the failure of do Kwan and FTX and all of the crypto bros. They're, they're never gonna be able to do again what they did in the last cycle because I think every [01:17:00] single nation national regulator is engaged and you're gonna have to have the political power of a, of a certified registered bank or the political power of a agency before you can get into this business.

[01:17:14] Bitcoin is Inevitable

Knut: So how likely is it that the people will discover. Bitcoin superiority. I mean, we, we have figured it out, but, but like, how likely is it that, quote unquote, for lack of a better word, normies will figure that out before they're a victim of a CBD C like before, before governments.

Michael: And I mean, it's inevitable, but it's gonna, it's an inevitable development over time.

Yeah.

Knut: So yeah, of course it's always hard to predict the future

Michael: 1% than 2%, than 4% than a over time. More and more people will discover it, but there's going to be a never ending fight. Yeah, yeah. Right. There's, there, there's going to be a free market [01:18:00] competition and, and, and there is an equilibrium, for example.

What's the market value of gold? The right value of gold right now, it's overvalued. There's too much monetary premium in it. So the question really is how long will it take for the market to discover that gold shouldn't be worth $2,000 an ounce? It should be worth $200 an ounce. Huh? Okay. Some amount of time.

10 years, it's happening. Yeah. Right Now when gold falls from $2,000 an ounce to a thousand dollars an ounce, there'll be people that'll say goals on discount, goals on sale. When when gold falls to $200 an ounce, they'll be people saying, oh yeah, gold is oversold. Yeah. And they'll be buying it and it'll stabilize at some level.

Now what about the s and p index? Yeah. Right. That'll demonetize and then, and then people will say, well, it looks like all these stocks are overvalued. [01:19:00] Okay. So if I cut the value of all the stocks in half, You have an army of money managers saying, oh, the, the stocks are oversold. You should sell your Bitcoin and get back into stocks.

Now you see, okay, well, well what if we just take it to the extreme and stocks go down by 95% and then Apple is paying a dividend, which is a 22% a year yield. Okay. Is it not possible that someone that has a lot of Bitcoin will then say, maybe Ali should buy that stock for the income, or there'll be someone, right.

So, yeah. Yeah. So you see at some point there, there's a continual dynamic equilibrium in the free market where, where capital is being reallocated from the poorest performing asset to the best performing asset. Things are being demonetized. And then people coming along to screw it up. Like for example, the government will basically say, okay, well now all of your dividends on [01:20:00] Apple stock are gonna be tax free because Apple is a domestic, you know, company and we wanna support the national champion.

And then someone will say, well, no, theoretically, now Apple is worth 22% more than it was yesterday. Mm-hmm. And money will flow that way. So Bitcoin is gonna be in a, it's going to be in a dynamic equilibrium relationship with every other asset in the world. And there's gonna be a, there's gonna be people that are gonna continually create new companies.

Yeah. And countries are gonna create new assets. And they're gonna, yeah. You know, there's a new currency coming in Venezuela, and there's a, did you read about the currency that they're gonna issue back by gold? Wherever and Yeah. Yeah. Everybody's gonna come up with this new thing and they'll try it and it may work and it may not work.

And ultimately, if there's 900 trillion worth of, like, [01:21:00] wealth right now, it seems to me like a stable point is when Bitcoin is half,

Knut: when Bitcoin is

Michael: half, half of that, half of right. And then the economy grows by 5% a year. So Bitcoin gets to half and then it grows. But there's always gonna be a need for, you need Apple, you need, someone needs to, you need companies to make food.

Yeah. Yeah. You're gonna, you're gonna want Disney, you're gonna, you know, Bitcoin is not gonna entertain your kids at the Disney amusement park or make movies for you. So you're gonna have companies and, and there's gonna be cities and there's gonna be nations and. They're gonna do things you don't like and they're gonna do things you do like.

And as long as there is nations, there's gonna be currencies and there's gonna be sovereign debt. Yeah. And as long as there are companies, there's gonna be equity and there's gonna be corporate debt. And as long as that's the case, there's gonna be winners and losers and uh, and there's gonna be other economic instruments.

And you're gonna allocate some of your money to a house cuz you want like, [01:22:00] land on the beach and maybe your company's gonna buy a building. And maybe when we don't work in buildings anymore, we're gonna build soccer stadiums so people can watch soccer games until they don't wanna watch soccer games anymore.

So there's gonna be other assets. There's gonna be other financial instruments that represent the assets. There's gonna be mortgage backed securities, they're gonna come and go. They're gonna be undervalued and overvalued. Bitcoin should aggressively advance up. To to be half of that. Yeah. Because it makes sense that the world would be half liquid energy and the other half would be, if you think about this, this is, this is, uh, the universe at work and this is energy matter duality, right?

Yeah. Matters energy. Energy is matter. Right. And we're, you know, we can't destroy it, but we can [01:23:00] transform it. Steel or copper or light or fire or heat. They're all just manifestations of energy. Yeah. So how much of the universe should be material and how much of the universe should be pure energy. Right.

And like this is material and this is material. Your glasses are material and you are material. So some of the It's okay. And you need food. Yeah, yeah. And water. So it's okay for half of everything. To be materialized assets. And the other half will be just pure energy. Because pure energy, of course, has the most optionality, the most immortality is the most efficient.

But at some point, you know, ashes to ashes, dust to dust. You came into this world, you're a very inefficient energy container, but give yourself pleasure. Yeah. And credit. Yeah. And then eventually you will leave, [01:24:00] right? Yeah, yeah. And uh, you'll go from being pure energy to being materialized energy. To being pure energy again.

Yeah. Yeah. And that's okay with a certain frequency and Bitcoin has its place, and right now, clearly it's just a small part of the energy balance of the civilization. It's destined to reach the right equilibrium and then it will adjust based upon technical and political. And, and work, you know, competitive factors.

[01:24:33] Kilo Price of a Bitcoin

Michael: So, so

Knut: can you calculate, I I know I tried to do this in the everything divided book, can you calculate the, the kilo price of a Bitcoin via e equals mc squared? So if you take all the energy that has been sacrificed for mining over, over Bitcoin's existence, and you calculate how many jewels that is and uh, and you run it through e [01:25:00] equals mc squared, and you get the kilo price of Bitcoin,

Michael: I, I mean, you could do it in kind of those calculations you want.

I wouldn't do it that way because Right. It's just a thought experiment because

you would be looking back at the amount of energy it took to create the network, but you wouldn't be looking forward at the value of the network. Yeah. So for example, There was a certain amount of energy it took to invent a clock. John Harrison did it when he invented the clock. We discovered longitude on the ocean.

When we discovered longitude on the ocean, we developed, we figured out how to navigate the ocean. We made possible the entire Mercantile Em empire of the British Empire. The cost of inventing the clock is not the same as the value of the empire. No. No. Right. And um, if I hypothetically created a fusion reactor, and it was about this big, and it would operate an entire city for a thousand years [01:26:00] off of eight ounces of water.

Yeah. The cost to create the fusion reactor is not the same as the value of the fusion reactor. Right. You're derived from it. Huh? So the value of Bitcoin looking forward is half of humanity. So is like whatever the human race is gonna be, the cost to get here. So is just a small fraction, right? It's the amount of energy to start the fire is not the benefit of fire for 8 billion people for the next a hundred thousand years.

You see, there's a difference between the one and the other.

Knut: So everything divided by 21 million is wrong. It's half of that.

Michael: What it, it depends. You could actually make the argument that, that the, the money, the, the value of all the money is equivalent to the value of everything else, of all the [01:27:00] stuff and the service. And so of everything, uh, all the products and services and property right, has to map to the money, right? Yeah.

There's, there's an interesting question there. Right. It depends upon how you, how you view it, I guess. Uh, we could go, you would probably need another podcast to discuss. What? I'd love to have another one of the, to do another one. The civilization should be liquid in the form of the monetary network. Yeah.

And it would be, it would be all of the energy that we need to be able to move at high frequency through space and all the energy we wanna move through time.

Knut: Sounds like a lot.

Michael: It's a large number

[01:28:00]

Michael: I think that's a great place to stop on. I know. Has one last great question.

[01:28:23] Infinity Day 2023 (Wrapping Up)

Knut: So speaking of that, how will you celebrate Infinity Day 2023?

Like what's your plan?

Michael: I haven't decided yet. We'll, I guess I'll throw a party with. Whichever bitcoiners I'm in the vicinity of at the time. That sounds like

Knut: a great idea. Michael, thank you so much for coming on the board. This has been great. Um, love your thoughts and keep doing what you're doing. Keep rocking. Thanks for having me.