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Abstract
This paper looks at the energy consumption of seven proof-of-work-based anarchic (public) blockchains such as Bitcoin and Ethereum. By using a hashrate division …
Abstract
This paper looks at the energy consumption of seven proof-of-work-based anarchic (public) blockchains such as Bitcoin and Ethereum. By using a hashrate division method – similar to the Cambridge Bitcoin Electricity Consumption Index – a lower bound and upper bound of mining hardware are provided. Based on this method we are able to show that proof-of-work chains continue to consume resources in direct proportion to the underlying coin value. Due to the rapid increase in coin value, proof-of-work-related activities – such as semiconductor manufacturing – are once again squeezing supply chains and retail
The model identified a bounded range for energy consumption. If we took the most efficient energy consumption assumptions (the lower bounds), these seven proof-of-work chains in aggregate consume 59.3 TWh per year, or roughly the footprint of Kuwait. In most cases – such as with Bitcoin itself – the lower bound is not realistic because the necessary amount of hashing equipment (miners) for that degree of efficiency has not been manufactured. In contrast, if we took a less conservative assumption and used the upper bound these same proof-of-work chains in aggregate consume 180.1 TWh per year, or roughly the footprint of Poland or Thailand. The upper bound scenario is likely unrealistic for coins that have seen their value (measured in USD) decline or stay the same (such as Litecoin). For those that have seen rapid appreciation (such as Bitcoin), it is possible that older equipment has temporarily been reconnected.
The paper is organized into several sections. Sections
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This paper is a sequel to our occasional series on the energy consumption of proof-of-work (PoW) cryptocurrencies such as Bitcoin.
We will get to resource consumption in the next section, but let us start in reverse order this time.
Many Bitcoin promoters conjure a future world in which the future of finance clears and/or settles on the Bitcoin blockchain, and in which that the demand for PoW generating equipment (miners) will simultaneously usher in a greener world.
Fedwire is categorized as systemically important financial market infrastructure due to the enormous amount of value it transfers and secures.
According to (Bilger 2020):
In
Bureau of Economic Analysis (2019) estimated that
We have discussed these types of large aggregates before in the past. For instance, a December 2015 paper from the Federal Reserve Board pointed out that, in the aggregate, U.S. payment, clearing and settlement systems process approximately 600 million transactions per day, valued at over $12.6 trillion.
When we mention these large, socially significant aggregates in conversations and debates at cryptocurrency-related conferences and events, many promoters are at a loss for words because they are unaware of these post-trade processes.
Another group – typically self-deputized coinfluencers – will proclaim that Bitcoin can move and secure the same value if not more, via metaphors.
The container ship fetish is a sleight-of-hand trick because Bitcoin versus a RTGS is not even a false dichotomy.
A tangentially related argument is that Bitcoin transactions are structured to move blocks of data that can include additional information beyond bitcoin itself: even if a single coin is a ‘container ship,’ Bitcoin structurally has more capacity or flexibility than traditional networks.
The problem with this argument is that it is entirely possible to do that with a non-proof-of-work system as well. In fact, a blockchain may not be necessary at all. The fact the U.S., or international co-ops like SWIFT, set up its payments system to move around specific types of (messaging) data was a generational choice but not a permanent design constraint. In other words, a PoW-based network architecture does not have an exclusive monopoly on richer or broader forms of data. That is a red herring when comparing the two systems.
What about “stablecoins” piggybacking on top of Bitcoin?
The ongoing growth of parasitic stablecoins (such as Tether) rely on reliable banking access, specifically dollars cleared by the New York Federal Reserve. Not to mention all the new traditional-style institutions and intermediaries hooking into Bitcoin for custody and trading. Don’t like old, monocle-wearing trusted third parties? Here are newer, hoodie-wearing trusted third parties to hold your coins!
More to the point, the majority of Bitcoin transactions today are simply bitcoins moving from one known intermediary to another, typically between coin exchanges for speculative purposes. If most of the endpoints and miners are self-doxxed then there is no longer a Sybil attack problem, removing the raison d’etre for proof-of-work.
How can we visualize this?
Despite oodles of free marketing that bitcoin has received, payment-related activity is still lower than during the 2017 bubble. By some measures it is a zombie chain because Bitcoin users do not spend volatile chainletter earnings. Or more precisely, merchant processors handled less than $
What is another key difference between an RTGS and proof-of-work chain such as Bitcoin?
Settlement finality.
We have discussed this multiple times but it bears repeating: proof-of-work chains – by design – allow mining participants to fork or reorganize the chain. Block making is permissionless. Now in practice, this does not frequently happen because the cost to acquire hash-generating equipment needed to successfully double-spend or reorg a chain is often quite prohibitive.
Either way, all a proof-of-work chain can guarantee is probabilistic finality that some type of confirmation has occurred but that there is a possibility that a well-funded attacker could reverse or reorganize the chain. For example, in August 2020, Ethereum Classic was hit by three separate 51% attacks, one that was more than 7000 blocks deep.
In practice, the way some financial institutions involved in the cryptocurrency world (such as trading desks) mitigate the risk of a double-spend or reorg is requiring a certain amount of blocks confirmed (often 3-6 confirmations) before allowing users to have access to recently transferred funds.
Fedwire transfers are one-way, which means banks can wire funds out, but cannot debit other banks and wire funds in. Fedwire is a payment system and does not perform the traditional banking functions of managing deposits and withdrawals. It simply transfers funds between accounts within the Federal Reserve System. Once Fedwire transactions are complete, they are irrevocable.
What about the actual network infrastructure? Surely Fedwire needs millions of hash-generating machines to secure all of those transactions each day!
According to (Bilger 2020) Fedwire has around 6600 nodes, 25 which are considered “core” which also have backups in case of disruption. Critically: none of the nodes in Fedwire is purposefully consuming oodles of extra energy to generate hashes.
Because there is no Sybil attack problem in Fedwire, there are no nyms. Anarchic chains such as Bitcoin – by design – allow pseudonyms to participate in block making. To make it expensive to double-spend or conduct a block reorganization, proof-of-work was purposefully integrated in Bitcoin so that the attacker has to expend real economic resources to succeed.
This entire kludge is negated in Fedwire because all participants are known: it is permissioned.
What does this image (above) represent?
A single day of Fedwire transactions in 2004. According to (Bilger 2020), a group of researchers isolated links and the nodes that connect them, that team was able to determine that just 66 nodes and 181 links comprised 75% of the value of daily payments. These core nodes and links are illustrated above. And as mentioned a moment ago, the inner ring of approximately 25 densely connected financial institutions is also evident.
What does this all mean?
The participating computing infrastructure for Fedwire involves between ten and twenty thousand computers, none of which need to generate SHA256 hashes. Its participants securely transfer trillions of dollars in real value each day. And most importantly: Fedwire does not take the energy footprint of Egypt or the Netherlands to do so.
As we will see below, the more than 2 million machines used in Bitcoin mining alone consume as much energy as Egypt or the Netherlands consumes each year. And they do so while simultaneously only securing a relatively small amount of payments less than $
This oxymoronic phenomenon — a resource intensive permissioned-on-permissionless infrastructure — has led to Ray Dillinger – one of the first Bitcoin users – to declare Bitcoin a disaster:
Bitcoin mining has encouraged corruption (Because it’s often done using electricity which is effectively stolen from taxpayers with the help of government officials), wasted enormous resources of energy, fostered botnets, centralized mining activity in a country where centralization means it’s effectively owned by exactly the kind of government most people thought they *DIDN’T* want looking up their butts and where the people who that government allows to “own” this whole business work together as a cartel.
There’s a pretense of monitoring the network to guard against a 51% attack, but to me it seems pretty clear that what they’re guarding against is merely the mistake of the cartel failing to give the latest warehouse full of miners a distinct network identity. The whole idea of proof-of-work mining is broken the instant hardware comes out which is specialized for mining and useless for general computation because at that point the need to have compute power for other purposes is absolutely irrelevant in having any effect on mining, and there ceases to be any force that causes mining to be distributed around the world. It becomes a “
We interviewed Dillinger a couple of years ago. Be sure to check it out.
Nornickel is a Russian mining and smelting corporation. Last year a series of news articles described how BitCluster, a Russian cryptocurrency mining company, was building a mining farm above the Arctic Circle in Norilsk. It chose this location in part because of the natural ambient cooling and in part to re-use land from a closed nickel smelting plant. The farm will utilize a local coal power plant to generate 11.2 MWh to power bitcoin miners.
The next several sections will dive into the energy consumption of the largest proof-of-work chains, including Bitcoin. As we will show, PoW chains are the equivalent of adding an undead country – a zombie chain – to the power grid: one that consumes energy and produces little beyond emissions.
If you are an asset manager considering whether or not to include proof-of-work coins in your portfolio – and have an ESG mandate – or a policymaker considering whether or not to encourage the proliferation of these types of coins in your jurisdiction, it is pretty clear that PoW coins such as Bitcoin are an ESG nightmare and not a suitable fit. If and when some (or all) of these coins transition to proof-of-stake is beyond the scope of this article.
(2) Bitcoin
There are multiple ways to estimate how much energy and how many resources (mining equipment, physical plant) are used generating hashes for a PoW chain.
One involves surveying miners and mining pools, and hoping they provide accurate self-reported information. Another method involves a bit of detective work, physically visiting locations or obtaining purchase order documents from mining manufacturers. However, this makes it hard to ascertain how much second hand equipment is being re-used.
For example, Bitcoin has a carbon footprint comparable to that of New Zealand, producing 36.95 megatons of CO2 annually, according to Digiconomist’s Bitcoin Energy Consumption Index (BECI). According to this tool, Bitcoin consumes as much power as Chile — around 77.82 TWh.
The Cambridge Bitcoin Electricity Consumption Index (BECI), a separate tool from researchers at Cambridge University, shows a much larger figure of 121.88 TWh — more than the entire annual energy consumption of the Netherlands.
There is one more simple method that everyone can do at home on their own computer. One that can create lower and upper bounds with a high degree of confidence. This is the hashrate division method which we have used multiple times in the past.
The way this works is by taking the publicly known hashrate of a network and dividing it by common hashing (mining) equipment metrics.
For example, on December 30, 2020, the Bitcoin network hashrate momentarily spiked to a record high 178.6 EH/
How can we derive aggregate energy usage from this singular number?
Last May, Bitmain began shipping its Antminer S19 Pro. There is a bit of public information on how much each of these hashing units consumes and performs.
On paper a single S19 Pro generates a maximum hashrate of 110TH/
If the entire Bitcoin network were solely comprised of S19 Pro’s (which it is not), it would consist of around 1.624 million hashing machines consuming 46.2 TWh in a year. According to estimates from the EIA, that is about as much as Portugal or Singapore consumes each year. This is a likely lower bound for how much energy is being used.
But wait, where does the Egypt number come from?
Recall that the S19 Pro is basically the most efficient, mass produced machine available today. Due to variance (the inhomogeneous Poisson process), the network hashrate varies day to day. In the process of writing this article it has gone from as low as 140 EH/
Due to the rapid increase in Bitcoin’s price over the last few months — because hashrate follows coin value — over the next several months it is likely that the hashrate will continue to grow as purchase orders are fulfilled and hit 200 EH/
In practice, the network is not comprised of 1.6 million S19 Pro’s because Bitmain has not even produced half a million of them.
To get a more accurate figure we must look at older, but more common systems that are still running.
For instance, the Antminer S17e system can churn out 64TH/
That’s about 70.4 TWh in a year. Which is about as much energy as Colombia or Bangladesh use.
But that is still not the upper bound.
Enter the older, but reliable Antminer S9i first released in May
If the whole network was using S9i’s, then there would be about 12.8 million of these machines churning out hashes.
In a year these would consume 147.5 TWh or roughly the same amount of energy that Malaysia or Egypt use each year (this is larger than either Chile or the Netherlands).
While there are probably botnets trying to use CPUs or GPUs to mine bitcoin, the amount of hashrate generated by them is likely marginal. Thus the S9i approximation is probably the upper bound.
Manufacturers such as Bitmain, MicroBT, or Canaan will eventually reveal how many systems they have sold which will give us some better refinement on the lower bound, the minimum amount of machines being used.
But it is clear that the spectrum is at a bare minimum Portugal and likely closer to Malaysia or Egypt, especially with so many people and companies trying to bring on older systems right now. This would put Bitcoin around the 27th largest ‘country’ by energy consumption.
Is the hashrate division method a better estimate than the Cambridge or Digiconomist BECI models?
They both have their tradeoffs. The Digiconomist model is inherently more conservative because it is based on miners’ income, whereas the Cambridge model uses a similar framework as the hashrate division method, starting with mining hardware that is available.
In any case, it is clear that while the energy consumption is somewhere between the Netherlands and Egypt, there is not an equivalent economic gain to the same degree.
Another way to say this is that: historically as a country develops it produces more economic output per unit of energy input, getting more output with less input. For example, U.S. energy consumption has been relatively flat since 2000 yet its GDP has more than doubled over the same period. Likewise following reunification, Germany’s GDP growth rapidly outpaced energy consumption.
As a result, PoW is clearly not something a fund with an ESG mandate should want to be involved in.
(3) Socialized losses and e-waste
Speaking of older systems, because these hash generating systems are single use ASICs (i.e., they can only do one specific thing: generate SHA256 hashes), they are often discarded in a time frame of 18-24 months. Some parts are salvaged and reused – such as the power supplies – and sometimes a new buyer is willing to acquire used machines second hand (as in the case of North Korean coin miners).
One estimate is that around half of all data center energy usage is now tied to Bitcoin mining. In fact, the energy consumption of Bitcoin is more than the combined energy use of Amazon, Google, Microsoft, Facebook, and Apple. And the e-waste that is generated annually from discarded mining equipment is roughly equivalent to what Luxembourg throws in the trash each year.
This also does not include the socialized costs – and privatized gains – that miners place on specific geographies due to the type of energy used in generating the hashes.
Below are several recent examples:
Beginning with the 2017 “crypto boom,” Rosseti started noticing abnormal jumps in electricity consumption in numerous Russian regions. The firm identified unauthorized cryptocurrency mining farms and estimated the damage to be over 718 million rubles—about $9.5 million—a significant part of which has already recovered through court procedures.
The “black” miners are known to do more than just tap into power lines. Illegal Bitcoin operations actually build their own transformer stations.
This is by no means an exhaustive set of sources on the topic. The examples serve to reinforce how PoW mining can be a one-way wealth extraction (privatizing gains) whilst externalizing environmental costs.
(
Like Bitcoin, the past month has seen Ethereum (ETH) hit several new record prices. Unsurprisingly this has also led to a new record in hashrate, at over 360,000 GH/
In December 2020, a mining manufacturer in China, Linzhi, revealed an early demonstration of its new Phoenix mining machine via F2Pool. According to the demo, the Phoenix could generate 2,600 MH/
In contrast, the most efficient ASIC mining system on the market today (for Ethash) is the InnoSilicon A10+ Pro. A single A10+ Pro can generate 500 MH/
The Ethereum network hovers at over 360,000,000 MH/
Annually these machines would consume 8.2 TWh. That’s about as much as the Congo (DRC) or Trinidad and Tobago consume. This would probably be the lower bound.
As mentioned in the previous article, there are many mining farms that still use GPUs to mine Ethereum. So much so that it has led to a massive, publicly reported on shortage of high end cards from Nvidia and AMD.
Without any modifications, the top-of-the-line GeForce RTX 3090 can churn out 122 MH/
A network entirely composed of 3090’
As you can see, as these GPUs have closed in on the previous generation of ASIC, this has led to some speculation that GPU manufacturers such as Nvidia may once again roll out GPUs just for cryptocurrency mining (again). The last time was a major dud as Nvidia had to write-off over $57 million in hardware due to a glut in
What is an upper bound for Ethereum mining?
This is a bit harder to guesstimate compared with the upper bound for Bitcoin or Bitcoin Cash, because of the unknown factor: how many GPUs are being used. Anecdotally it appears that a lot of less efficient GPUs and older ASICs are likely being used due to the run-up in ETH.
For example, an overclocked RTX 2080 can generate 35.3 MH/
An entire network of overclocked 2080’
In the summer of
Because of the mix of older, less efficient GPUs (such as the RTX 10 series) or first generation ASICs that have been switched back on, it is likely that the network hashrate is closer to the upper bound of Ecuador than mid-range of Bolivia or Panama. This would put Ethereum around the 70th largest country by energy consumption.
Unlike many Bitcoin promoters, most Ethereum developers – and even some miners – believe that this energy footprint is temporary, pointing to an ongoing transition to proof-of-stake which started with the Beacon chain (Phase 0) launched last December. Obviously the work-in-progress towards PoS has been known since before mainnet was even launched, yet it has been a slow slog.
Despite the desire of developers to quickly sunset proof-of-work, last month we contacted Vitalik Buterin who pointed out that there is currently no EIP to switch over from PoW to PoS. Based on the roadmap at least one EIP is expected to be crafted during the year.
It also bears mentioning that Buterin – unlike Bitcoin promoters – recognizes the large aggregates of energy consumption that PoW chains account for. In an interview three years ago he explained:
“I would personally feel very unhappy if my main contribution to the world was adding Cyprus’s worth of electricity consumption to global warming.”
While “DeFi” usage and total-value-locked (TVL) has soared since the previous two articles on this topic were published, this would be an ends-justify-the-means argument. Not a fallacy per se, but also not a frequently used argument, because greenwashing is not part and parcel to the Ethereum ecosystem.
(5) Other large PoW chains
(5a) Litecoin
The fact that Litecoin is still a “Top 10” coin in 2021 should indicate how ridiculous proof-of-work coins are for society. No one really uses it for anything. Except one guy who invested more than he could afford to.
In fact, the hashrate is roughly the same today as it was two-and-a-half years ago because — as pointed out many times — hashrate follows coin price. Its most recent surges were due to PayPal adding it as an option users could buy or sell with, and an adult website (PornHub) that announced it would accept it as a form of payment.
Despite having launched several years ago, Bitmain’s Antminer L3+ is still basically the top ASIC mining unit that is used today. It generates ~500 MH/
At around 300 TH/
The Antminer L3++ specifications are similar:
If only L3++’
This consumption is pretty absurd once we factor in things like how there are only a couple of active developers who basically just merge changes from Bitcoin into Litecoin. In other words, one of the largest PoW networks has very few users or developers, yet consumes the same amount of energy as Cyprus.
How is that a socially useful innovation?
(5b) Bitcoin Cash
Unlike Bitcoin, Bitcoin Cash has seen a dramatic decline in hashrate since it briefly peaked at over 5 million TH/
The calculations for Bitcoin Cash are very straightforward since it is just a modified version of Bitcoin.
Recall from above that a single S19 Pro generates a maximum hashrate of 110TH/
A network consisting of just Bitmain S19 Pro systems would comprise about 12,000 systems.
In a given year these would use about 336 GWh, this will serve as our lower bound.
Not counting e-waste, that would put the energy usage of Bitcoin Cash somewhere around 174th or about the same as Burundi. Despite the fact that BCH has almost doubled in value since the last article, the hashrate decline is likely due to more efficient hardware now available.
This presents a problem for potential malicious forks as an attacker could rent hardware (via NiceHash) or purchase older discarded hardware previously used for Bitcoin mining. There are disagreements as to how to prevent this but most of them involve some kind of centralized group of developers manually inserting themselves into the validation process (via block signing).
For an upper bound, let us use an S9i for approximation. Recall it churns out 14 TH/
Unlike last update, there is relatively little economic activity beyond speculators moving coins from one intermediary to another. In fact, an economist with Chainalysis noted that Bitcoin Cash saw less merchant processor volume, about $12 million in 2020.10
Clearly on-chain payments is not the use case, even though the infrastructure exists to do so.
(5c) Monero
Unlike the previous article, it appears that the decision makers behind Monero stopped trying to fork it every six months to prevent involvement from ASICs.
At the time of this writing Monero’s hashrate is hovering near its all-time high, likely due to the fact that XMR’s price has also risen, reaching a two-and-a-half year high.11
Compared with the previous article, the hashrate has increased nearly six fold to about 2 GH/
There are lots of how-to guides for building a CPU-focused Monero mining system, and NiceHash even has an easy-to-use profitability calculator.
In the previous article we looked at a Vega-based GPU build, which could still work, but again, CPU mining is still typically used for Monero. Currently the top performing CPU system on Monero Benchmarks is a modified 3990X Threadripper which generates 64,000 hashes/
If the entire network were composed of just this type of machine, there would be 31,250 systems running. They would consume 164 GWh annually. This would place it around 195th, between American Samoa and Saint Kitts and Nevis. This would be the lower bound.
For comparison, a slightly more common Ryzen 3600 generates 7,400 hashes/sec and consumes 100 watts. A network would consist of around 271,000 systems. They would consume about 237 GWh annually. This would place it around 190th between Chad and Sierra Leone.
In terms of GPUs, a RTX 3090 generates 2053 hashes/sec and consumes 350 watts. A network of these would involve 974,184 systems. Altogether they would consume about 2,987 GWh per year. This would place it around 136th, between Montenegro and Jamaica. This is not the upper bound.
As you can see, just like ASICs in sections above each older or slightly less energy efficient CPU or GPU system will incrementally increase the aggregate energy consumed.
For instance, in the previous article we looked at a 12-card Vega build, the user was able to generate 28,100 hashes/sec and consume 1920 watts. That’s about 2341 hashes per card.
That’s about 854,335 GPUs each sipping 160 watts. Altogether these consume 1,197 GWh annually. This is still not the upper bound.
What is the upper bound then?
A few months ago a manufacturer, ASICLine, claimed to be shipping a mining system that can generate hashes for Bitcoin, Litecoin, Ethereum, and Monero. Because of how inflexible ASICs are, it is unlikely that their claim is true. While we would like to be able to say for certain how much energy Monero is consuming, there is a possibility that someone has built a custom ASIC (or FPGA) which could throw off our estimate.
Based on the same electricity consumption chart as the others, we can guesstimate that Monero drinks around
(5d) BSV and ZEC and DOGE
There are hundreds, if not thousands, of dead PoW coins. Three proof-of-work coins that have remained in the “Top 50 as measured by USD” over the past few years are Bitcoin SV (BSV) and Zcash (ZEC) and Dogecoin (DOGE).
BSV was created (forked) by Craig Wright, an Australian who claims – without sufficient evidence – to be Satoshi Nakamoto.
Due to a lack of interest beyond a core group of his followers, BSV — as measured in USD — has declined relative to its cousins BTC and BCH. As a result, its hashrate has also declined. At the time of this writing it is just over 600 PH/
If the BSV network was composed only of S19 Pro’s there would be around 5,454 systems consuming 155 GWh per year. That is about as much as America Samoa at around 200th place. This is the lower bound. An upper bound is unknown but if we re-use the S9i there would be about 43,400 of these systems consuming 502 GWh. That would put it around Andora or South Sudan, around 170th place.
There are a number of gambling-related apps that have been built around BSV, but no substantive economic analysis beyond the regular speculation that dominates in other chains.
Zcash received a lot of attention when it first launched for its privacy and confidentiality (opt-in) properties. For one reason or another, it has not seen as much market interest as Monero (despite arguably having stronger technical capabilities).
Either way, at the time of this writing Zcash’s current hashrate (6.79 GH/
There are also multiple ASIC miners for ZEC available including the Antminer Z15. The Z15 churns out 420 KH/
One of the slightly dated comparisons involved tweaking a Nvidia 1080 Ti. One user was able to achieve around 641 H/
What about Dogecoin?
We wrote a bit about Dogecoin in 2014 but stopped because it merge mined with Litecoin in September of that year. While it is no longer independent — as it piggybacks off of Litecoin mining — people still mine it with the same L3+ machines mentioned above (both Litecoin and Dogecoin use the same hash generating algorithm called ‘scrypt’). Despite new record highs in prices, Dogecoin’s hashrate is about 30% less than its all-time high. In fact, it is nearly identical to Litecoin’s hashrate because it uses the same farms and pools. While some have suggested that this is an efficient usage of resources (two-chains-for-the-price-of-one) it creates a top-heavy situation that in theory, makes them both less secure.
(6) Status check
With all of these numbers and calculation spread around, let us briefly collate them in an easy to view section.
If the entire Bitcoin network were solely comprised of:
If the entire Ethereum network were solely comprised of:
If the entire Litecoin network were solely comprised of:
If the entire Bitcoin Cash network were solely comprised of:
If the entire Monero network were solely comprised of:
If the entire BSV network were solely comprised of:
If the entire ZEC network were solely comprised of:
As mentioned above (and in numerous previous articles) there are hundreds if not thousands of dead or dying PoW chains.
If we took the most efficient energy consumption assumptions above (the lower bounds), these seven PoW chains consume 59.3 TWh per year. Roughly the footprint of Kuwait, around 46th place. But in most cases – such as with Bitcoin itself – the lower bound is not realistic because the necessary amount of efficient hashing equipment (miners) have not been manufactured.
In contrast, if we took a less conservative assumption and used the upper bound these same PoW chains consume 180.1 TWh per year. Roughly the footprint of Poland or Thailand, around 25th place. The upper bound scenario is likely unrealistic for coins that have seen their value (measured in USD) decline or stay the same. For those that have seen rapid appreciation (such as Bitcoin), it is possible that older equipment temporarily comes back online until newer replacements are installed.
And yet, in either scenario, these PoW networks are not also adding the equivalent GDP output of similar sized countries. Society is in effect, at a net loss.
As we have mentioned in this article and others, historically, as a country industrializes, its growth is often limited by access to energy which throttles its energy consumption. Simultaneously, as it grows and develops, it becomes more efficient per wattage of input.
For example, according to the Energy Information Agency:
In the United States, energy intensity has been declining steadily since the early 1970s and continues to decline in EIA’s long-term projection. A country’s energy intensity is usually defined as energy consumption per unit of gross domestic product (GDP). Greater efficiency and structural changes in the economy have reduced energy intensity.
Despite dozens of RTGS systems being deployed across the world, in no instance do any of them consume the footprint of a small or medium sized country to operate.
The next section will look at some of the coin promoters and how they try to whitewash this issue away.
Only two nuclear reactors have been built in the U.S. in the past 25 years. One of the reasons why others may not be built in the future: the shale boom.
Interested in hearing the twenty-first century equivalent of “smoking is good for you”?
On with the show!
No, Bitcoin is not a battery.
Contrary to the musings of venture capitalists with a heavy stake in coins (and coin mining), mining PoW chains is not the same as a battery. It should be obvious that energy used in mining is not reusable, it is turned into heat as it enters the environment. When miners pay bills they convert some of their holdings into actual money, energy is not released in this process because no energy was stored to begin with.
It is hard to know where to start with this batch of Bitcoin promoters, nearly all of whom work for prominent cryptocurrency intermediaries.
Fun fact: despite continual claims that Bitcoin will spur development of Thorium-based nuclear power plants, to date, there have been zero Thorium plants built let alone funded by Bitcoin personalities.
What about stranded energy?
In practice “stranded energy” means there is some kind of inefficiency in storage and/or the transportation grid. In some cases capital could be used to increase efficiencies (e.g., new pipelines) which could reduce the price of energy extraction or transmission. Yet because it is stranded, it centralizes PoW mining in that specific area.13
But what about renewables?
Hitchen’s Razor: That which can be asserted without evidence, can be dismissed without evidence.
In terms of cyclical generation, even in the summer, when hydroelectric dams are at their peak output in the northern hemisphere, Cambridge BCIE estimates that more than half of energy generation still relies on non-renewables such as coal or gas.
Many miners themselves do not provide any reason to believe this. Cambridge surveys miners, and they indicated that while a majority has renewables in the energy mix, only 39% of mining is done with renewables (as it can be a small part of the energy mix).
The location data above is from Cambridge, sourced from mining pools rather than a survey. If you look at where miners are situated most of the time, you also see that while they use some renewables during the summer (wet season) in China, they are using fossil fuels the rest of the year.
According to Stoll et al., the carbon intensity of the energy used for mining Bitcoin was 480-500g CO2 per kWh in 2019 and went up to more than 550g CO2 per kWh recently due to increasing popularity of Iran and Kazakhstan. 8% of miners are now using sanctioned Iranian oil-based energy to mine.
There is also a steady stream of on-the-ground local stories providing anecdotes to the rush for relatively cheap energy. For instance, clandestine Bitcoin mining in Iran is believed to be one of the reasons for a rash of blackouts (and smog).
Lastly, even if Bitcoin miners were mostly run on renewables (which is not occurring) Bitcoin mining could not be considered environmentally friendly. Why? Because of the regular cycle of e-waste that is created as next generation ASICs are introduced.
(8) Whataboutisms
Whataboutery is commonplace and normalized in the cryptocurrency world.
Tired of policy makers pointing out that illicit activity is attracted to KYC-less chains? Whatabout HSBC! Dislike the moans from hospitals impacted by Bitcoin-funded ransomware operations? Whatabout nuclear warfare!
This fallacy rears its head in the discussion of energy consumption: ignore this category of waste because there is also a category of waste there!
This is not a contest to waste as much energy as possible. Aircraft carriers, submarines, and airborne infantry divisions do not protect RTGS systems. All wasteful activities – such as nuclear warhead production – can clearly be categorized as bad and undesirable. It is also unclear from that thread how Bitcoin can end war or reduce military spending.
Speaking of poor analogies:
If we are going to play along with this game above: we actually know who participates in Federal Reserve decision making processes. Whereas we still do not have a regularly updated list of who funds those with merge control in the Bitcoin Core github repo.
At the time of this writing about 70 RGTS systems are live across the world. But only a small handful of countries with an RTGS also have nuclear weapons and/or aircraft carriers. And only six have both. 15 This illustrates that you can have one – a secure large value transfer system – without the other.
Held’s argument is a Whataboutism. Why? Because this is not a contest over who wastes more (or less).
As Galloway correctly points out in that thread: no one is trying to run a PoW-based payment system with Christmas lights. Christmas light operators are not incentivized to string up more lights as the aggregate market capitalization of light manufacturers increases.16
No one is trying to run a PoW-based payment system with smartphones. Furthermore, telecoms do not need to consume oodles of more energy per extra unit of phone added to their networks. PoW chains empirically and theoretically will consume energy in direct proportion to the value of the coin price. That is why we continue to see ever larger amounts of ASIC machinery sold by Bitmain and MicroBT to miners, not less. Yet PoW chains do not have a monopoly on securing permissionless payment systems.
Proof-of-stake (PoS) chains require some electricity too. If this was a comparison of say Polkadot or Avalanche (both of which are PoS-based), they would consume several orders less than Bitcoin does today.
And if these were compared to running full nodes (since there is no hash generation needed)?
For instance, according to Bitnodes there are approximately 9,415 nodes relaying transactions on the Bitcoin network (including the 25 or so mining pools).
Virtually every sentence is incorrect. And this is all Whataboutery. Bitcoin mining usage could boil the ocean? But what about banks!
The bar should be: how can a value transfer system reduce its energy consumption and externalities, not to distractingly point fingers at other entities that also waste.
Speaking of which, in her examples above, it is also a different type and magnitude of waste. Banks do not generate more revenue if they leave their computers on 24/7 whereas PoW miners have to be left on around the clock to generate hashes in order to compete for block rewards.
Furthermore, banks as a whole provide many more services (and products) beyond just processing payments. In contrast, Bitcoin has very limited functionality, including the inability to do any on-chain lending.
That is not an accurate description of boiling gold (alchemy?) or what proof-of-work is as described by the original creators (Dwork and Naor). Neither its supply schedule nor energy consumption is what creates value for PoW coins, external demand is.
Claiming that PoW imbues a cryptocurrency with value because it requires real effort to produce it is a variation of the Labor Theory of Value. And saying PoW can promote energy efficiency is like saying paying people to dig holes and fill them up again helps the economy. 19
In his accompanying article for this image Held states that: “The pressure to find cheap electricity sources will accelerate the effort to build fusion reactors.”
But that basically saying if you leave your car running it is good because it incentivizes finding alternate power sources.
Speaking of which:
Due to the demand shock from COVID-19, depending on geography, the cheapest sources of energy today might actually be oil and gas. Perhaps the near-future of mining are cars parked outside of refineries in Houston, churning up hashes for PoW networks.
And last but not least:
According to modeling from the Resources for the Future, a think tank, Miami will become the most vulnerable major coastal city in the world with “100-year floods” occuring every few years rather than once a century in many locations. A quarter of all homes at risk from flooding due to climate change reside in Miami-Dade county. If the mayor wanted to stave off this crisis the last thing he should be encouraging is direct investments in proof-of-work based cryptocurrencies.
(9) Competing for scarce resources
Due to the rapid rise in some cryptocurrency prices, foundries that churn out semiconductors have months of backlogs due to GPU and ASIC demand. Why? Because there are only a small handful of foundries capable of manufacturing state-of-the-art chips and as a result there is a limited capacity irrespective of what the ultimate destination may be.
This has led to a shortage of chips used in automobiles to the point where large manufacturers such as Ford or General Motors (GM) have announced plant shutdowns. In its most recent earnings announcement, GM estimated that:
The semiconductor shortage will shave $1.5 billion to $2 billion off adjusted earnings before interest and taxes this year.
How much semiconductor output capacity is being squeezed because of PoW miners?
History repeats itself: in November 2017, Chen Min (a chip designer at Avalon Mining) gave a presentation which noted that 5% of all transistors in the entire semiconductor industry were used for mining and that was driving up DRAM prices. Last cycle this negatively impacted a variety of ancillary set of actors, such as astronomers who rely on GPUs to chug through cosmic signals.
The current surge in demand for GPUs for mining has led some participants to acquire hundreds of gaming laptops en masse, crowding out, again, anyone who needs a high performance GPU. The image (above) comes from a Weibo account tracking various China-based miners who are showing off their GPU farms consisting of high-end laptops.
“Laptop mining” has pushed new buyers down the performance curve, to hardware that is two generations old.
Below are three publicly listed companies that have announced large purchases of mining equipment in the past several months:
A few days ago UK-listed Argo Blockchain announced it would build a 200 MW mining facility in West Texas.
Private companies have also announced large purchases of coin miners. For instance, last month Blockstream announced that it had purchased $25 million worth of equipment from MicroBT and that this would be part of its 300 MW of mining capacity.
And an anonymous buyer in Russia, recently acquired 20,000 mining systems that consume 70 MW for a new farm in Bratsk, Siberia.
And this is just the tip of the iceberg.
A GPU farm of 78 GeForce 3080s was photographed (above) churning up hashes for Ethereum last month.
An entire paper or two could be written on large bulk purchases of ASICs or GPUs which crowd out other industries that need the same resources for actual productive activities.
(10) Undead countries are an ESG nightmare
Is it a stretch to call Bitcoin a ‘smoldering Chernobyl sitting at the heart of Silicon Valley’?
In May 2014 we briefly discussed a hypothetical “million dollar” bitcoin. At the time, Bitcoin’s price had dropped below $500 and we were already able to empirically discern that hashrate grows (or declines) directly proportional to coin value.
In the previous articles we found that, despite the introduction of increasingly energy efficient hardware, a PoW network like Bitcoin consumes ever larger amounts of energy. That is because of the Red Queen’s
That is why anyone that has access to a hashrate chart can project with decent certainty what the likely outcome of a “million dollar” bitcoin will be in the future.
If a $40,000 bitcoin has already led miners to consume the energy equivalent of the Netherlands or Egypt, a million dollar bitcoin would be about 25 times as much.
What does that mean in actual numbers?
Critical to any analysis of energy usage is economic output. In a million dollar bitcoin world, society would be bearing the externalities of mining activity that does not produce a proportional amount of GDP. For instance, much of the coin mining industry is reliant and dependent on taxpayer funded utility companies and grids. As a result, we would see the equivalent of an additional U.S.-sized energy usage without seeing anywhere near the economic output, this would be a huge net loss.
This also does not take into account e-waste that is created via discarded single-use ASICs. And it does not take into account other PoW networks such as Litecoin which are basically ghost towns yet consume country-sized energy units too.
Miners will surely lead to greener sources of energy production, right?
This is a red herring.
Through the usage of either permissioned systems (like an RTGS) or a proof-of-stake chain, the energy consumed by PoW chains did not need to take place at all. In fact, PoS chains can provide the same types of utility that PoW chains do, but without the negative environmental externalities. PoW chains are the equivalent of adding an undead country – a zombie chain – to the power grid: one that consumes energy and produces little more than emissions.
Because of disputes among its undead participants these zombie chains must utilize the judicial and legal resources of third party countries. The chains also have a parasitic relationship to other government-run services that they continue to rely on such as taxpayer-financed energy grids.
(11) Call to Action
What can be done?
For starters, do not patronize coin lobbying organizations that weaponize misinformation. They are not dedicated to protecting consumers or the environment. Their mission is to convince legislators around the world to take a hands-off approach to regulations, including potential taxes on miners.
Nearly three years ago, the executive director of Coin Center, Jerry Brito, solicited names to hire to whitewash easy-to-prove energy consumption numbers.
Why? Because it is bad for business. Some Bitcoin promoters like to present themselves as being part of the cutting-edge future, one disassociated with the ancien régime. But as we have seen repeatedly in this paper, PoW miners compete for the same scarce resources and capacity that society relies on to generate real goods and services.
This is not true. Agrawal, who works with Brito at Coin Center, attempts to limit the available options when there are a wide range of other possibilities.
For instance, according to The New Republic:
In 2020, Tesla sold about $1.58 billion worth of these [carbon] credits—almost exactly the value of the Bitcoin purchased.
Tesla is going to account for its Bitcoin holdings as intangible assets (goodwill) which is not how this line item was intended for. This is clearly shrewd opportunism (and accounting), not some re-imagination of resource consumption.
According to Digiconomist:
If 12 million people used Bitcoin to buy a Tesla, it would be enough to completely offset the combined total of CO2 saved by these EVs (by Tesla’s own account).
Elon Musk says he is now a fan of Bitcoin but PoW miners are directly cannibalizing the chip production capacity required to produce Tesla vehicles, a point that Tesla’s latest 10-K filing indirectly touches on.
What can you do?
Most developed and developing countries levy taxes on polluters or “sin” activities. ((Another consideration that funds with an ESG mandate should consider is not just the environmental impact of PoW mining but also the human rights that may be violated in the production of said coins.)) Clearly proof-of-work mining falls into both categories.
Contact your local Public Utility Company and explain the socialized losses and privatized gains that are possibly accruing to miners. In addition to levying a tax on coin mining activity, perhaps introducing a tax on PoW-based holdings at intermediaries could be discussed since they directly benefit from miners providing the underlying blockchain infrastructure.
And if you are a user of a cryptocurrency, publicly advocate for switching to proof-of-stake (PoS) chains or accelerating such transitions if they are already underway. You can still enjoy decentralized finance in a way that does not dramatically contribute to climate change.24
Acknowledgements
Thanks to the following people for their helpful feedback: CK, JG, VB, RG, KR, JH, MW, and AV.
Endnotes

BIO:
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The actual writing of this piece took around six hours, though I have been thinking on this issue for at least the past nine years since I started writing my Easy Money book. I have been told …
The actual writing of this piece took around six hours, though I have been thinking on this issue for at least the past nine years since I started writing my Easy Money book. I have been told that the backlash from the bitcoins believers will be huge. All feedback is welcome, as long as you don’t abuse. And if you choose to abuse at least read the piece first. You will be able to abuse better.
Bulbulon ko abhi intezar karne do. (Let the bubbles wait for now). — Gulzar, Vishal Bhardwaj, Usha Uthup and Rekha Bhardwaj in 7 Khoon Maaf.
Let’s start this one with a small story.
Salvador Dalí was a famous painter who lived through much of the twentieth century. He was a pioneering figure in what is known as Surrealism.
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Other than being a fantastic painter, Dalí was also a sharp businessman. The story goes that once Dalí had treated some friends at an expensive New York restaurant. When the time to pay for the meal came, Dalí instead of paying in dollars, like anyone else would have, decided to carry out a small experiment.
On the back of the cheque Dalí had signed to pay for the expensive meal, he drew a sketch in his inimitable style. He signed it and handed it to the waiter. The waiter passed it on to the manager.
The manager realised the value of what Dalí had given him and decided to frame the cheque and hang it on the wall, making sure that anyone who came to the restaurant saw it.
Of course, this meant that Dalí’s cheque wasn’t encashed and he didn’t really have to pay in dollars for the expensive meal he had taken his friends out for.
This trick worked for Dalí. He was delighted and he used the same trick at different New York restaurants to pay for meals. The managers of all these different restaurants framed the cheque and hung it on one of the walls in their restaurants, so that everybody who came to the restaurant could see and realise that the famous painter Salvador Dalí had dined at the same place as they were.
This interesting story is recounted by Mauro F Guillén in his book 2030—How Today’s Biggest Trends Will Collide and Reshape the Future of Everything: “
Now what was happening here? If I can state this in simple English, Salvador Dalí, had turned his art into money. As Guillén writes:
“The money offered to pay for the meals was never deposited, as the cheques were transformed into artworks and took on a separate life. For Dalí, this maneuver was a stroke of genius. He could print his own money (his drawings had value), and people were willing to accept it as a form of payment.”
The trouble was Dalí went overboard and paid for one too many meals using this trick. In the end, the restaurant managers wised up and Dalí probably had to start paying real dollars for the expensive meals he took his friends out for.
What’s the moral of this story? Anyone can create his or her own money as long as others are willing to accept it, though one thing needs to be kept in mind. As Guillén writes: “As with national currencies, any money can be felled by the laws of supply and demand, as an excessive supply depreciates its worth and reduces people’s willingness to use it.”
What Dalí ended up doing in a very small way, governments have done over and over again, over the centuries. They have gone overboard with printing money and spending it, created high inflation, as too much has chased the same set of goods and services, and in the process destroyed the prevailing form of money. (If you are interested in details, I would suggest that you read my Easy Money trilogy).
Dear Reader, you must be wondering by now why am I recounting this story in a piece which is headlined to be about the bitcoin bubble. Have some patience, everything will become clear very soon. Read on.
Bitcoin is a digital currency that does not use banks or any third party as a medium or at least that is how it is conventionally defined. It is governed by a string of cryptographical codes, which are believed to be military grade and very tough to break.
The price of a bitcoin has rallied big-time over the last few months. It rose from a little over $10,000 per bitcoin in early September to more than $40,000 per bitcoin in early January. As of January 8, 2021, the price of bitcoin touched an all-time high of $40,599.
One of the core selling points of bitcoins as well as its raison d’être is that unlike paper money they cannot be created out of thin air. The number of bitcoins is finite and the code behind it is so written that they cannot go beyond a limit of 21 million tokens.
Interestingly, mining, or the generation of a bitcoin, happens when a computer solves a complex algorithm. Anyone can try to mine bitcoins, but with a finite number being generated at regular intervals and with an increase in the number of people joining the mining
As of January 11, 2021, the number of bitcoins in circulation stood at 18.6 million units. The rate at which bitcoins are being created has slowed down over the years and the last fraction of the 21 millionth bitcoin will be created only in 2140.
The larger point here is that unlike the paper money system (or to put it slightly more technically the fiat money system) which can be manipulated by central banks and the governments, the bitcoin system can’t.
Hence, there is an overall limit to the number of bitcoins that can be created. This is the main logic offered in support of buying and owning bitcoins. Unlike central banks or governments or Salvador Dalí (in case you are still wondering why I started with that story), money in the form of bitcoin cannot be created out of thin air and beyond a certain limit.
In fact, this core idea/message at the heart of the bitcoin was built into the first fifty coins, now known as the genesis block, created by Satoshi Nakamoto, the mysterious inventor behind it. The beauty of bitcoin is that even not knowing who really Nakamoto is, doesn’t impact the way the system he created, works.
The genesis block contained a headline from The Times newspaper published in London dated January 3, 2009. The headline was: “Chancellor on brink of second bail-out for banks”. The headline and the date are permanently embedded into the bitcoin data.
As Nakamoto wrote on a message board in February 2009: “The root problem with conventional currency is all the trust that’s required to make it work… The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”
Bitcoin was supposed to be this grand idea meant to save the world from the way the central banks and governments manipulate the paper money system. As William Quinn and John
The question is, in these times of easy money, has bitcoin reached anywhere near its original goal or is it just another way of pure speculation.
Let’s look at this pointwise.
It doesn’t take rocket science to understand that if you have been a long-term investor in bitcoin, you would have made shitloads of money by now. But the fundamental question is, is bitcoin money or even the future of money, as it is made out to be, by those who are in love with it, or is it simply another form of speculation.
One of the key characteristics of money is that it is a store of value. The recent rally in bitcoin has led to many bitcoin believers telling us that bitcoin is a store of value. This comes from a very shaky understanding of what the term store of value actually means.
A store of value basically means that something has a stable value over time. As Jacob Goldstein writes in Money: The True Story of a Made-Up Thing: “If $100 buys your family a week’s worth of groceries today, there is a very good chance it will buy approximately a week’s worth of groceries a year from now. The dollar is a good store of value (it tends to lose about 2 percent of its value every year).”
Let’s look at what has happened to bitcoin over the last few months. It rose from a little over $10,000 per bitcoin in early September 2020 to more than $40,000 per bitcoin in early January 2021.
As of January 8, 2021, the price of bitcoin touched an all-time high of $40,599. As I write this early in the morning on January 14, 2021, the price of a bitcoin is around $37,329. The price has fallen by 8% in a little over five days’ time. So, where is the stability of value? And this isn’t a one-off event. Bitcoin has moved rapidly up and down on many occasions.
But this is a very simple point. Here’s the more complicated point. The price of a bitcoin as of September 5, 2020, was $ 10,092. On January 8, 2021, it reached $40,599, a rise of 302% in a matter of a little over four months.
If bitcoin really was money, using which we could make and receive payments and borrow and lend, the recent rally would have created a havoc in the economy.
What does the rise in the value of any form of money really mean? It means that the price of everything that money can buy is falling. And in this case prices would have fallen big-time. As Goldstein puts it: “This rise in the value of bitcoin would have caused a deflation far worse than the one in the Great Depression.” Deflation is the scenario of falling prices and is deemed to be dangerous because people keep postponing their consumption in the hope of getting a lower price. This hurts businesses and the overall economy.
Now take a look at the following chart which plots the price of a bitcoin in dollars between December 2017 and December
The price of a bitcoin as on December 16, 2017, was $19,345. A year later on December 15,
In its current form, bitcoin is no store of value. If it was to be used as money, the world would hyperventilate between deflation and inflation.
2) Another key characteristic of money is that it is a medium of exchange or to put it in simple English, it can be used to buy things (like Dalí bought meals at expensive restaurants).
According to financial services company Fundera 2,352 American businesses, accept bitcoins as a payment. The United States is the mecca of bitcoin believers. As per the US Census Bureau there were around 7.7 million companies in the US with at least one paid employee. This statistic doesn’t inspire much confidence. Barely anyone takes payments in bitcoins even in the United States.
Of course, it takes time for any new form of money to be adopted, but for something that has been around for 12 years, the rate of adoption seems quite poor.
Personally, I don’t know of any business that accepts bitcoin as a payment in India. Maybe, there is some coffee shop in Bengaluru that does. Dear reader, if you know of it, do let me know.
3) The bitcoin believers like to compare it with gold. The reason gold has acted as a hedge against the proclivity of the governments and central banks to create paper money out of thin air, is that it cannot be created out of thin air. While alchemists, which included Isaac Newton as well, have tried this over the centuries, no one has been successful in developing a chemical
But the thing is that the code behind bitcoin is freely available. Anyone can take it and tweak it and come up with a new kind of money. Over the years this has happened and many of these new forms of money have ended up as shitcoins.
As Quinn and Turner write:
“In August 2016, one bitcoin was trading at $555; in the next 16 months its price rose by almost 3,400 per cent to a peak of $19,783.3 This was accompanied by a promotion boom, as a mix of cryptocurrency enthusiasts and opportunistic charlatans issued their own virtual currencies in the form of initial coin offerings, or ICOs. These coins had, on the face of it, no intrinsic value – to entitle their holders to future cash flows would have violated laws against issuing unregistered securities – but they nevertheless attracted $6.2 billion of money from investors in 2017 and a further $7.9 billion in
A lot of this money never came back to the investors. There is no way to make sure that this won’t happen in the future.
Also, at a broader level, a free market in money is a bad idea. The United States went through this situation sometime in the nineteenth century (Something I discuss in detail in the first volume of Easy Money). It was very easy to get a banking license and banks could print their own money.
As Goldstein writes: “Not all banks were shady. Not even most banks were shady. But the notes printed by the shady banks looked as legit as the notes printed by the honest banks. And there were a lot of notes—at one point, the Chicago Tribune reported that the country had 8,370 different kinds of paper money in circulation.” Imagine the confusion this would have created.
It was also easy for counterfeiters to manufacture their own paper money. In this scenario, a guide called Leonori’s New York Bank Note List, Counterfeit Detector, and Wholesale Prices Current was published once a month. An issue of this guide, dated 18 November 1854, shows that 1,276 such banks were in operation in various states and 825 different kinds of forged notes were in circulation. The financial system was in a total anarchy.
While it is easy to make a case for a non-government decentralised money system, what may lie in store isn’t something we may want in the first place. The sad part is very little thinking has happened on this front. Saying, let the best money win is a very insensitive way to go about it.
5) Let’s talk a little more about paper money. Why do others accept it as money? Because they know that the government bank/central bank deems it to be money and hence, still others will accept it as money as well.
As L Randall Wray writes in Modern Money Theory – A Primer on Macroeconomics for Sovereign Monetary Systems: “The typical answer provided in textbooks is that you will accept your national currency because you know that others will accept it. In other words, it is accepted because it is accepted. The typical explanation thus relies on an ‘infinite regress’: John accepts it because he thinks Mary will accept it, and she accepts it because she thinks Walmart will take it.”
While this sounds correct there is a slightly more nuanced answer to the question.
There are three main powers that any government has:
As Wray writes:
“One of the most important powers claimed by sovereign government is the authority to levy and collect taxes (and other payments made to government, including fees and fines). Tax obligations are levied in the national money of account: Dollars in the United States, Canada, and Australia; Yen in Japan; Yuan in China; and Pesos in Mexico. Further, the sovereign government also determines what can be delivered to satisfy the tax obligation. In most developed nations, it is the government’s own currency that is accepted in payment of taxes.”
What does this mean?
As Wray puts it:
“Ultimately, it is because anyone with tax obligations can use currency to eliminate these liabilities that government currency is in demand, and thus can be used in purchases or in payment of private obligations. The government cannot easily force others to use its currency in private payments, or to hoard it in piggybanks, but government can force use of currency to meet the tax obligations that it imposes… It is the tax liability (or other obligatory payments) that stands behind the curtain.”
Hence, the government creates demand for paper/fiat money by accepting taxes in it. This has ensured that the paper money system has kept going despite its weaknesses.
What this also means is that for bitcoin to become popular and move beyond the nerds, it needs a use case as solid as paying taxes in what government deems to be money, is.
It is worth remembering here what Wray writes: “For the past 4,000 years (“at least”, as Keynes put it), our monetary system has been a “state money system”. To simplify, that is one in which the state chooses the money of account, imposes obligations (taxes, tribute, tithes, fines, and fees), denominated in that money unit, and issues a currency accepted in payment of those obligations.”
This is not to say that governments haven’t destroyed money systems in the past. The history of money is littered with examples of kings, queens, rulers, dictators, general secretaries and politicians, representing governments in different eras, having destroyed different money systems at different points of time. But the government has always comeback and controlled the money system the way it has wanted to.
And unless governments and central banks start taking a liking to bitcoin, there is no way its usage is going to spread to a level where it can hope to challenge the prevailing paper money system. It is worth remembering that if governments start taking interest in bitcoin, it in a way beats the entire purpose behind its creation.
Also, every government will want to protect its right to create money out of thin air. Right now bitcoin is too small in the overall scheme of things for governments to be bothered about it and hence, they have largely humoured it (not in India though).
The market capitalisation of bitcoins (number of coins multiplied by the dollar price) as of January 8, peaked at around $759 billion. The global GDP in 2019 was around $88 trillion. So the price of bitcoin even at its peak was lower than
Hence, the bitcoin story is like that of a rich Indian father basically allowing his son to play around, until he thinks that the son now needs to grow up.
6) There is another point that needs to be made here regarding the paper money system. This is something I realised while writing the third volume of Easy Money and it makes me sceptical of anyone who wants to write off the paper money system in a hurry. (Before you jump on me for being a blanket supporter of the paper money system, I am not, but then that doesn’t mean I don’t see logical arguments when they are offered).
Many years back, in one of my first freelancing assignments, I happened to interview the financial historian Russel Napier. He explained to me the link between paper money and democracy. As he told me on that occasion:
“The history of the paper currency system, or the fiat currency system is really the history of democracy … Within the metal currency, there was very limited ability for elected governments to manipulate that currency. And I know this is why people with savings and people with money like the gold standard. They like it because it reduces the ability of politicians to play around with the quantity of money. But we have to remember that most people don’t have savings. They don’t have capital. And that’s why we got the paper currency in the first place. It was to allow the democracies. Democracy will always turn towards paper currency and unless you see the destruction of democracy in the developed world, and I do not see that, we will stay with paper currencies and not return to metallic currencies or metallic-based currencies.”
Back then bitcoin wasn’t really on the radar. The reason people with savings liked gold back then, is why many of them like bitcoins now.
The twentieth century saw the rise of both paper money and democracy. Pure paper money started coming into being after the First World War. The reason for this is very straightforward. In a democracy whenever there is a crisis, the politicians and the technocrats advising them need to be seen to be doing something.
As an ex-RBI Governor once told me, do nothing cannot be a strategy. And this need to be seen to be doing something, can most easily be fulfilled by manipulating the paper money system that prevails in a democracy. It gives central bankers the option of printing money and driving down interest rates in the hope that people will borrow and spend more and businesses will borrow and expand.
Of course, this has its own problems (as I keep highlighting in my pieces over and over again). But then, the prevailing system does really allow politicians to show that they are trying. Any other system would take this option away from politicians. Hence, the paper money system is not going to be replaced in a hurry. No government is going to let go of this privilege.
7) This is a slightly technical point, but I think it needs to be made. As I have mentioned through this piece, over the years it has become more and more difficult to mine bitcoins. Now bitcoin farms with giant racks of mining computers, are needed to mine bitcoins. The days when bitcoins could be mined using the processing power of a PC are long gone.
The bitcoin farms, as they are known as, need a lot of electricity. Hence, mining operations have moved to countries where electricity is cheap. They have moved to countries like Iceland, Mongolia and primarily, China.
This has created another problem. As Goldstein writes: “By the beginning of 2020, Chinese miners had grown so large that they controlled most of the processing power on the bitcoin network. And the way the code for bitcoin was written gave them control over the system.”
While, bitcoin might be a decentralised democratic system running on code, but it’s people who ultimately control the mining of bitcoins and hence, can direct its future.
So, will the future of bitcoin be driven by China? And if that turns out to be the case, what does this do to its chances of spreading as actual money, used in the selling and buying of things? There are no easy answers to these questions.
8) One of the key points of bitcoins was that it was a non-government decentralised money system which promised freedom from the middlemen. But that hasn’t really happened. As Quinn and Turner write: “[Bitcoin] had promised freedom from middlemen, but trading it without a third party was cumbersome unless the user was expert in cybersecurity.”
If you are using a broker to trade bitcoin it beats the entire idea of freedom from middlemen. Also, the moment you convert your money into fiat money and the money comes into your bank account, the entire idea of remaining unknown and the government not knowing what you are doing goes for a toss. Hence, you may have your reasons to buy bitcoins, but basically you are speculating.
9) You might want to ask why you haven’t heard all this in the mainstream media. The reason for that lies in the fact that the incentives of the media are misaligned these days. Most investment related news is presented as a money-making opportunity. Hence, in this case the bitcoin believers have gotten more space and screen time in the media.
Many of the bitcoin believers are like the original investors in a Ponzi scheme. They have an incentive to talk up bitcoin, get more investors into it, drive up its price and make more money in the process. (In fact, these are precisely the kind of stock market investors that you get to see on TV and read in the media most of the time, but that is another topic for another day).
Also, given the extremely short attention spans that people have these days, the written word doesn’t find much of an audience. As Quinn and Turner put it: “More fundamentally, the move away from the written word to television financial news, docusoaps and social media may corrode the ability of investors to think clearly and understand the complexities of the financial system.”
You cannot understand economic history and the complexities of the financial system by watching TV or watching stuff over the internet or even listening to extremely detailed podcasts (podcasts can just give you a flavour of things and a feeling that you are actually learning a lot). The only way to understand complex issues is to read, read and read more.
In an era of short attention spans, bitcoins are just the right asset to speculate on. Their price goes up or falls even before you can say Virat Kohli. (This is another reason to support my writing).
10) We live in an era of easy money. Central banks have printed trillions of dollars during the course of 2020 to drive down interest rates in the hope of encouraging people to borrow and spend and businesses to borrow and expand. Interest rates are in negative territory in some of the European nations.
In this scenario of very low interest rates, investors are desperate to earn returns. Hence, a lot of money has been invested into stock markets all over the world, driving them to levels not justified by earnings that companies are expected to earn in the years to come.
Some money has also found its way into bitcoins. As The Economist puts it: “The current surge seems to have been spurred by interest from the financial establishment, most of which had long scorned it.” In simple English, hedge funds are buying bitcoins. Given that bitcoins are thinly traded, this has driven up prices by astonishing levels. Hence, like stock markets, bitcoin is also in bubble territory.
And as we have seen over the past few decades, hedge fund money can be quite mercurial. They can drive down prices faster than they drove them up.
To conclude, the fact that the price of bitcoin is so volatile tells us that most people investing in it aren’t really bothered about the long-term story of bitcoin as money, the bitcoin believers try selling all the time. If they did believe in this story they would have bought bitcoin and held on to it. But as the crash of
As Saifedean Ammous writes in The Bitcoin Standard, the bible of the bitcoin believers:
“Buying a Bitcoin token today can be considered an investment in the fast growth of the network and currency as a store of value, because it is still very small and able to grow many multiples of its size and value very quickly. Should Bitcoin’s share of the global money supply and international settlement transactions become a majority share of the global market, the level of demand for it will become far more predictable and stable, leading to a stabilization in the value of the currency.”
(Ha ha, this is to show that I also read stuff I don’t really agree with).
I am not clairvoyant. This may happen. This may not happen. My reading of economic history tells me it won’t. But then I might turn out to be wrong. What do they say about history not repeating itself but rhyming? But what if it doesn’t rhyme as well?
There are no guarantees when it comes to economics. The trouble is that while you are waiting for all this to happen, the price of a bitcoin is at the level of a very very very very expensive large cap stock and its volatility is that of a small cap penny stock.
So, if you do invest in bitcoin, do understand that you are taking a punt, you are speculating, you are hoping that the price goes up and does not fall. Also, don’t go looking for fundamental reasons for investing in it.
Given that investing in bitcoin is equal to taking a punt, please don’t bet your life on it. As the old cliché goes, don’t put all your eggs in one basket.
PS: This doesn’t mean I don’t believe in digital money. I do. But I also believe that it will be controlled by large corporations and the governments.

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myBTCcoin5:20 PM Services Browsing social media, one could be forgiven for thinking that the bitcoin community is all about Lambos. One cryptocurrency user is proving that their interests are more …
myBTCcoin5:20 PM Services Browsing social media, one could be forgiven for thinking that the bitcoin community is all about Lambos. One cryptocurrency user is proving that their interests are more diverse, however, by buying a whole fleet of F1 supercars.Also Read: Parity Calls for Ethereum Hard Fork to Reverse $230 Million BugA Chinese individual has agreed to purchase fourrare F1 cars, valued about

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This week Saifedean Ammous, legendary author of The Bitcoin Standard, and George Gammon, Rebel Capitalist, joined Swan Signal live to discuss gold, central banking, the devaluation of …
This week Saifedean Ammous, legendary author of The Bitcoin Standard, and George Gammon, Rebel Capitalist, joined Swan Signal live to discuss gold, central banking, the devaluation of currencies and how Bitcoin is going to suck value out of every store of value. George and Saifedean connected well and needed nearly no prompting for a lively discussion hosted by Brady Swenson, Swan Bitcoin Head of Education.
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0:00 Introduction
8:32 Bitcoin vs Gold
15:01 Bitcoin vs Real Estate
21:07 Inflation’s consequences
29:00 Nation-state responses to Bitcoin
41:01 Historical transitions between currencies
55:28 Fed Coin as competition
Brady Swenson:
Welcome to the Swan Signal podcast, a production of Swan Bitcoin. The best way to accumulate bitcoin with automatic recurring buys at swanbitcoin.com. Swan Signal pairs great guests for compelling discussions and this week we have author and educator, Saifedean Ammous and George Gammon, host of The Rebel Capitalist Show. Pairing up great guests is a unique format in the bitcoin content space and has produced some incredible content so far. In my opinion, Swan Signal absolutely deserves a spot in your rotation. So subscribe today if you’re not already. Glad you found your way here. Hope you enjoy.
Hello and welcome back to Swan Signal live, a production of Swan Bitcoin. Swan Signal is a weekly show that pairs up great guests for compelling discussions about bitcoin and economics. I’m your host, Brady Swenson, head of education at Swan. But before we dive in, a quick word about the service we provide here at Swan. We’ve built the best way to accumulate bitcoin with automatic recurring buys. It’s a very simple setup. One, you just connect your bank account to auto fund USD.
Two, we automatically stack for you. Three, you can set up automatic withdrawals to your wallets. We do all this with very low fees in the industry up to 80% lower than Coinbase, absolutely crushing Coinbase and up to 57% lower than Cash App for automatic recurring purchases.
Today, I have some big news for you all. We are launching our Daily Buys beta. We’ve had a huge demand to add Daily Buys to our weekly, bi-monthly, and monthly purchase frequencies. So we’re about to roll that out. You can sign up at swanbitcoin.com. Just add your email address, click get started to be added to the beta list or you can DM us on twitter @SwanBitcoin.
We have about 400 out of our thousand Daily Buys beta slots filled up, so get in there. All right. I’m really excited to welcome our guest to the show today. First, we have the inimitable, Saifedean Ammous with us today. He’s author of a staple of the bitcoin canon, of course the Bitcoin Standard and he’s an economics educator researcher. You can find Saif’s work at saifedean.com. Saif, welcome to the show, man.
Saifedean Ammous:
Thank you very much for having me. It’s always fun to join you, Brady.
All right. And we have finance and wealth management YouTuber, host of The Rebel Capitalist show and investor, George Gammon with us today as well. You can subscribe to George’s
George Gammon:
Doing very well. Thank you very much. I appreciate you having me on the show.
I really appreciate your time. Okay. Let’s dive in and get started with the big news from yesterday that bitcoin Twitter is a buzz about the news that MicroStrategy announced that they made a $250 million bitcoin purchase. BlackRock, the largest asset manager in the world and Vanguard, the largest provider of mutual funds in the world, both hold a significant stake in MicroStrategy. The two of them together hold over 25%.
So it seems likely that they had prior notice of this buy and if so, that means that these two financial behemoths just essentially approved a massive bitcoin buy. The MicroStrategy stock price is up around 15% on the news. So that means I’m sure that other CEOs are taking notice. We’ve also seen in the past few months big macro investors are publicly announcing their bitcoin positions. Paul Tudor Jones, Raoul Pal, Lyn Alden who we had on the show recently.
For instance, Raoul Pal recently tweeted that bitcoin is the future and is wildly underpriced. So George, let’s start with you on this one. What do you think of these developments and their implications for bitcoin?
Well, I’d have to go with Lyn Alden. She’s my partner in Rebel Capitalist Pro. So anything she says, I’m definitely going to go along with because she is definitely one of the smartest people I have ever met in my life without exception. But I think the best information I can give you is just some insider information right here from St. Barts and I came here maybe three weeks ago because I wanted to find a place in the world where I could just go to the gym or I could go to the beach where things were as close to normal as you could find.
And if your viewers or your listeners have never been to St. Barts, it’s right in the Caribbean. It’s basically like
I would say pretty much every single one of them that I spoke with after a few drinks, we ended up talking about bitcoin. So you can take that for what it’s worth and I don’t really know what’s going on as far as the news. I don’t know what’s going on with this company or BlackRock, but I do know that every hedge fund manager I’m talking to here in St. Barts after a couple drinks. That’s where the conversation goes.
Great. Tell them about my book.
Yeah. It’s a great place to start for sure. It’s widely recommended. Saif, what are the implications here for bitcoin. I’ve got a follow-up after this, but I’d like to hear just your initial thoughts.
I think it’s quite significant because a lot of people have spent the last few years discussing bitcoin from the perspective of payments and retail adoption, and the idea was when am I going to be able to pay for my coffee or for my McDonald’s with bitcoin? The point that I made in my book in the Bitcoin Standard is that bitcoin is not competing with Visa, with Mastercards, with all these payment methods. Bitcoin is not an alternative to these things. It doesn’t compete with them. It’s orthogonal to them. You can install all of those things on top of bitcoin.
Bitcoin is competing with the actual assets that are being traded on these networks. It’s competing with the currencies, with national currencies and with gold as a form of money and as a store of value. I think this development bears it out and of course it’s absolutely massive. It’s $250 million of bitcoin, which is not chump change. I mean, it’s a large company that makes about a half a billion dollars of revenue a year.
It’s a company that has a significant cash balance and it has reached the conclusion that the best thing for us to do with the significant part of our cash balance is to hold some bitcoin. Somebody dug up there, I think it was the investor letter from a few weeks or a few months ago where they had discussed… I’m not sure if it was a conference call or the letter, but they discussed their cash position and they said, “Our outlook on our cash position is becoming negative now because of all the developments of the last three months with the coronavirus lockdowns and so on. They have a negative outlook on their cash position and now we see that they’ve acted upon that and they’ve replaced part of their holdings of US dollar cash with bitcoin and I think a lot of people are going to see the benefit of this.
I think really this is how bitcoin adoption happens. Bitcoin is going to become part of people’s cash balances and if it continues to work, if it continues to operate and it continues to appreciate, it’s going to become an increasingly significant part of other people’s cash balances particularly as other currencies continue to lose value more and more over time. So the phenomenon I described in my book is that in the long run, value accrues to the hardest money. I think Microsystems recognizing that, I think is I find it to be very exciting because it’ll be interesting to see what happens when more companies really do that.
I mean, if we look at bitcoin’s average performance over the last 10 years, I think it’s gone up. Last time I ran the numbers, it was maybe 500 or 400% per year on average. So if bitcoin has an average year for bitcoin next year, every company is going to pay attention because this move is likely to end up being more profitable than anything else the company has done. I think that just shows the value proposition for investing in an alternative to central banks. The market is telling the world, invest in this central bank alternative that works well.
Go ahead, George.
I’m sorry. I don’t know the format here, but just to dovetail on that thought, I think going back to the people that I’m speaking with who are the professionals, short term, I think it’s more of a speculation, and I don’t really see gold as competing with bitcoin or silver just because I see them as two completely separate asset classes. I would never buy bitcoin for the reasons I buy gold and vice versa because gold to me is just an insurance policy. It’s not a way to get rich, it’s a way to stay rich. And with bitcoin, it’s a fantastic asymmetric speculation.
So I just see them as two completely separate things. Now, that said, I think long term what you were saying with your book is really interesting because you’re talking about how in the long run everything goes into hard currencies or hard money like we’ve seen in the past with gold. When you were saying that, it reminded me of Gresham’s law. Brady, if your viewers aren’t familiar with Gresham’s law, it’s basically the bad money chases out good money.
So let’s use an example of Ancient Rome or some society where they used physical gold coins and when they get over indebted, what happens is the president or king or whomever says, “Okay. We’ll just solve this problem by making these new coins and we’ll just paint them gold. But really, they’re nickel or they’re copper or something like that. They’re trying to pull the wool over your eyes and they issue more and more of this currency, we’ll call it. But everyone knows it’s fake. So the more they issue these currencies, the more the real gold coins come out of circulation because smart people see the value, they see the intrinsic value and they start hoarding all of the real money. It’s Gresham’s law. Over the long-term, I’m not saying it’s happening today, but it could happen with bitcoin. It’s a very interesting concept.
Yeah, but I think the nickel coins are nowhere to be found today, but gold coins are still around today. So I think Gresham’s law talks about which coins will be used for legal, commercial transactions in the country. And the answer is clearly in Venezuela today, everybody wants to spend their Bolivars if they can, but nobody wants to take them. So officially, yes, the bolivar has driven out the US dollars because it is the worst money many, many times over. But in reality, the bolivar continues to drop further and further and further. And any actual real wealth that exists in Venezuela is stored in the US dollar or in bitcoin or in gold.
It’s misinterpreted by Keynesians to suggest that, “Oh, if it’s an easy money, then it’s just going to win out over the harder money.” Well, no, it’s going to win out because people are just going to get rid of it, but eventually it’s not going to be money very quickly because it’s going to just lose its value quickly and eventually the harder money will remain.
Yeah, I think that’s my point.
Yeah. I think this is effectively what’s happening with bitcoin and you’re right that it is in this asymmetric bet now, but it’s an asymmetric bet where the positive upside outcome is that it becomes something like gold. It stops being an asymmetric bet. It becomes just the predominant monetary asset. We’re at least 100X away from there or maybe 50X away from there or a thousand X away from there. God knows how much more bull run we have to get there. But bitcoin keeps going up. It eats everything else. I’m not saying it will happen, but it hasn’t looked like it’s been stoppable over the last 10 years. So we’ll see.
I’m sure you guys have done the math. I’d be curious to know how much the price of bitcoin would have to go up in order for it to be equivalent to the market value of gold or the market cap of gold.
It’s at about the price of one gold bar like the 12
Yeah. The math I’d like to do is figure out how much gold is in the world right now?
I think it’s about 180, 170,000 tons.
Yeah. How much is that in dollar terms and then figure out how much bitcoin would have to go up to equal that amount?
I think it’s about $10 trillion at this point if I’m running-
Gold is about $10 trillion, yeah because it’s about 180,000 tons and then
Yeah. I think that’s your upside.
Exactly. 2% of gold.
That’s not the upside actually. That’s just one way station on one base camp on the real launch because that’s just gold. Right now in a world in which all kinds of other monetary assets are used because gold is not allowed to be in a free market. If we could have a free market of money, I believe gold would win and everybody would be using more of the instruments back for gold.
In that case, probably gold would be worth a lot more than what it is today because we would have all these national currencies. So there’s also that. So gold and then there’s the national currencies. And then there’s the question of how much of the store value market in the world. How much of the financial markets in the world and the art market, and the real estate market is actually just store of value demand that could better be replicated by just going into bitcoin.
How many people are just buying houses and real estate investments not because they want to own houses, but because they want to store their wealth. So you think that could lead to potentially more stuff for bitcoin to eat as it rises.
Another fantastic point. I do a lot of business in South America, and I’ve been doing so since, call it 2014. And for the Americans or people in more developed economies, they might not get this. But in South America, I mean I’m going to call it almost 100% of the population stores their wealth in real estate. That’s just what you do. I mean, when I was in Ecuador, even the poor people in the fishing villages, if they earned an extra even hundred thousand dollars, what they do is they just build another 10 or 20 square feet on their house and they just keep building, and building, and building, and building.
And the same thing in Medellin, Colombia where I’ve been doing real estate since 2015. I would say and I had the numbers for this, but almost like 90% of the apartments that are owned there are owned just outright. There’s no mortgage on them, because people really don’t have savings accounts there. Their currency hasn’t been a store of value at all. It’s lost a lot more than the dollar a lot faster. So for them, their house, their apartment, their property, their FINCA, it’s a store of value. It’s their savings account. So I think you just hit the nail on the head there, very interesting point.
Yeah. I think in my book, I argue basically bitcoin is the most advanced technology for saving that we’ve ever invented because it’s strictly scarce. Gold was the most advanced because gold by nature of its chemistry can never increase it more than
When you think about it this way, there’s no better thing in which if you want to store value in the future, this offers, in my mind, the explanation for why we’ve seen so much gains in bitcoin and I think as long as this continues, the case is arguably very strong that this is quite useful as a store of value simply because nobody can make more of it. We’ve had 10 years, 11 years of this thing running and nobody managed to find a way of making one bitcoin more than what should be made in the schedule by this block height. And I think that’s an astonishing invention really.
Just thinking about it, it’s almost… Robert Breedlove on Twitter compares this to the invention of zero. It’s a mental construct. Once we’ve invented… It changes the way that we can do math just by thinking of zero and in a sense inventing this first strictly scarce asset just changes the way that we deal with scarcity and with storing value and with saving for the future. It’s an astonishing idea.
I would even take it a step further and that I don’t even think it’s a fixed number of bitcoin. I think it’s a decreasing number. These human beings are always going to lose them. That may be a crude way of looking at it, but there might be more than one billion, but sure next year, there’s going to be maybe 20.5 and as the years go on, you lose more, and more, and more of them. So it’s a scarce asset as is that becomes more and more scarce just because us, clumsy human beings are just going to lose our thumb drive or who knows what we’ll do.
We call those donations, George.
It’s philanthropy. Deflationary philanthropy.
So Saif, I want to circle back to this idea of monetary premiums in other assets especially real estate. So how much do you think that the monetary premiums in these actually hard assets drives wealth inequality or inequality of access to these assets that are needed?
I think it’s quite significant because it makes the market for people who are looking for homes. It’s not just young people who are looking to leave their parents home and start their own family and have their own home. On top of that, you have people who already have a house, but are looking for a savings account that can’t be confiscated through capital controls and inflation by their government. The people in Latin America instead of putting money in a bank account or a stock market or something, some advanced technology for saving like bitcoin, they end up having to buy a new apartment.
So you see this all over the world so many apartments are empty or are owned by people that are renting them out. It’s increased demand. Most people have no business speculating in the real estate business. This should be something that is provided by professionals who have expertise in this business. If you’re a doctor, you’re not providing any value to the real estate business by investing in real estate properties. In a healthy financial system, what you’re looking for in terms of savings, you would keep in a decent saving vehicle like gold or bitcoin.
Then what you’re looking to invest, you’d invest in things in which you have, some kind of specific edge that allows you to understand probably your own business. You’d open your own clinic, your own practice or some business that you have some expertise with. But I think this notion that everybody needs to be a real estate speculator just so that they can retire is in my mind massive inefficiency in the housing market. I think we’d have cheaper houses available for people if it was just the people who… If the people bidding for houses were only the people who were looking for houses to live in, to buy. And if credit for housing wasn’t so easy to get, houses would be far cheaper.
I mean, I think that’s a huge point that I hope everyone just understands and I would take it and say all financial assets. Let’s take it back to 1930 and if you look at a chart of inflation from 1930 to today, you see that every single year, it’s just pretty much going up. We’ve got a few years it just goes down a fraction. It might stay the same, but it’s just up, up, up, up. Take it prior to 1930 and you see that inflation and deflation was more like a heartbeat. It would go up, it would go down, it go up, it would go down and most of the time it stayed pretty consistent.
If you look at the 1800s as an example, the late 1800s, we had about 3% deflation per year. So the price of goods and services were going down. Now most people especially Keynesians would have a heart attack and say, “Oh my gosh, that must have been the most horrible time in history.” But it wasn’t. We had nominal GDP growth and we had nominal wages increase. We also had about
But now that we have a two or 3% per year inflation, I would argue that it’s higher going back to 1980. You don’t have a choice. The average Joe and Jane, whether they know it consciously or subconsciously, they realize that if they keep their money in the bank, they’re never going to be able to retire. The way that you get ahead is you buy a home or you take and you put as much money as you possibly can in your 401k to go in the stock market and then maybe, just maybe you’ll have enough money to retire.
But if you think about it, that’s because we have lived in a state of inflation where those currency units are losing value every single day. If they were gaining in value every single day, it’s the complete opposite. I would go so far as to say it would not only alleviate the misallocation of resources through just pure speculation of the overall economy, but it would make society so much better because people… Just as an example, a McDonald’s worker. Let’s say they’re making $1,500 a month. Their expenses are $1,500 a month.
If you take and run that math over 20 years at 3% deflation and a
So now they have a thousand dollar delta right there and they have a thousand dollars every single month of disposable income. They’ve gotten richer just debt, but the problem is they still have a really unstable economy because it’s built around oil where we would have the same thing. You could wipe out all these things that people perceived to be the problem, but it wouldn’t rearrange our economy.
Our economy still is the same. You look at the zombie corporations in Japan. Even if you could wipe out their debt, zombie corporations are still there. So would anything really change if you just do a couple accounting tricks? Not really. So what bitcoin does or what any hard money system does is it starts from the ground up and everything that you build on top of this infrastructure, on top of this foundation is solid, it’s secure, it’s sustainable. I mean I know that’s a buzzword now with everyone in the green community and whatnot. But for me, something that’s sustainable, number one is something that is profitable. I know it’s a bizarre concept in today’s stock market.
It’s profitable, but also it doesn’t require massive amounts and ever expanding amounts of debt in money printing and fiat currency. That’s sustainable. So again, my main point is that whether it’s Bitcoin Standard, whether it’s gold, anything that fixes these currency units and provides us with natural deflation, a free market economy where entrepreneurs are always producing more efficient goods and services at lower and lower prices, that’s where we want to be. And I think looking at this through an optimistic lens hopefully I think we could get there. I know we could get there as human beings because we’ve done it many, many times before we’re very resilient and I think that’s how we kind of come out the other side.
Yeah. And I really think it’s shaping up to be bitcoin. That’s the solution. Bitcoin really is the… Because you identify the problem exactly in terms of the problem of not having a hard money and how government captures that and bitcoin just routes around the way government is able to capture it. And this is why I think… I’m not one of the people who puts a high probability on there being the violent crackdown on bitcoin because I think it’s just… The natural technological limitations of physical gold naturally led to government having the ability to abuse its authority over gold and then having that ability led to all these institutions that were built around it.
When new technology is created, it creates its own reality and the world adjusts to it. So people deal with it from a self-interest perspective, and that’s eventually what bitcoin does. That’s the cycle of skepticism. You start off thinking, of course, this can’t work, of course, it’s going to fail. Then it continues to work and then you’re starting to appreciate why it continues to not fail. Then eventually you understand that there’s value related there and that it’s relevant to you and you could use it yourself.
Yeah. I think that every day that goes by, as we see more adoption with bitcoin, the better probability you have that that’s the default mechanism. So many people say, “Oh, we’ll never go on a bitcoin center. We’ll never go on a gold standard again. It will never ever happen. Governments will never choose to go on XYZ standard.” But what they’re not understanding is it might not be government’s choice.
You might not have an alternative.
Yeah. The Roman empire didn’t choose to go out of business.
Exactly, right. So if you get this gradual adoption, the more time goes on, the more bitcoin isn’t a new thing. It’s not a bizarre thing. You don’t have these grandmothers like, “Bit what? Bit who? What’s going on here?” I think it’s very interesting and I’m not sure the specific countries in Africa, but I know many of them, the people aren’t even using cash. They’re just trading their their cellphone minutes back and forth on their cellphone or whatever little… I forgot the name of the little unit of exchange, but it just goes back and forth on their cellphone.
Although it might not be bitcoin directly, the bottom line is it’s a currency that’s completely digital that’s going back and forth that people are already starting to adopt. And of course the millennials are doing it. Even on your twitter feed, I know someone was making fun of both of us calling us boomers like, “Oh, I’m not watching that one. You got two boomers on there.” Right? But my point is obviously, it’s being more and more adopted by the younger generation. So as those kids get older, it’s not so bizarre to them and that benefits bitcoin even more, I think.
You get to that point where governments don’t have a choice because of a total loss of confidence in fiat current.
Yeah. All right. So I’m going to sneak in two questions here because you guys are going for 45 minutes on one question, which I love. It’s great. I’m going to sneak two in here.
Making your job easy, huh?
Yeah, exactly. And I want to check in, we’re about 15 minutes away or so from end time.
I forgot where we’re at.
So I want to know if you guys can go a little longer than we had planned or if you have a hard cut off?
I’m fine. Go ahead and let me look at my calendar here. Are people-
You check it out. All right. So here’s the questions. To follow up on the question about transitions. So we have some chatter in the YouTube chat about central bank digital currencies like a fed coin, right?
So Saif, what do you think about the prospects of a fed coin and the competition that it might bring against bitcoin?
I think ultimately we might get some forms of more digitization. I think there will be things like that, but ultimately it’s not a digital currency. It’s still any national currency. And it’s orthogonal to bitcoin, it’s irrelevant to bitcoin or I shouldn’t say irrelevant, it’s different from bitcoin because it doesn’t do anything that bitcoin does. In particular, there are two things that are distinguishing bitcoin from current national currencies, which is that bitcoin’s monetary policy is algorithmic, it’s not discretionary. Nobody wakes up in the morning and decides what to do with bitcoin’s monetary policy.
Also, the bitcoin payment finalizations, clearance, and settlement is also algorithmic and cryptographic and programmable rather than discretionary. So nobody can freeze your bitcoin account, nobody can confiscate it. So those are the two main functions of central banks. That’s why central banks are there to decide who can pay and who can’t pay on one hand and secondly to decide what’s going to happen with the monetary policy.
So the notion that central banks would invent a digital currency or introduce a digital currency that takes away those two things, I think is a non-starter. They’re not getting themselves out of business. They’re not going to introduce a currency who supplies algorithmic or whose payment clearance is totally cryptographic. They’re still going to want what programs call god mode. They’re still going to want the ability to say, “No, you can’t send them money.” And they’re still going to want to set the money supply.
All they’re doing is that they’re just making it more digitalized and therefore hopefully making it, just as George was saying getting bitcoin acceptance into people’s minds. So we thank them for the free PR.
Basically like a last gasp like rebranding of the dollar basically.
I think bitcoin could get us there a lot faster. And going back to what we’re talking about of the collapse of confidence in fiat currency itself. So I don’t want to get too wonky on everyone here, but if we create, let’s call it a fed coin and I actually talked to Ron Paul about this the other day. Basically what would have to happen is everyone would have to have a bank account with the fed with bank reserves just like the primary dealer banks and the banks under the fed’s umbrella because the fed right now can’t really create broad money directly as of right now. I think that may change, but right now they just create base money.
And I don’t want to bore anyone with details, but that’s why quantitative easing, they could take it up to 10 trillion, 20 trillion and it wouldn’t necessarily affect consumer prices because the transfer mechanism there is A, the debt monetization with the government. If they’re not doing that, then it has to be lent out into new money by the commercial banking system. And those bank reserves, they’re not lending those out directly. Those only just backstop additional loans and increase the capacity of their balance sheet, okay?
So that’s the way it works right now, but I’m thinking that maybe very soon here and we saw this how cumbersome it was to get out these stimulus checks that the fed because, they’re thinking okay, we’re going to take on more power. We want more control over the currency and how money is spent and we want to know where you’re spending every single dollar. We want more and more control over that whether it’s the fed, the government just the central planners, let’s call them. They want to micromanage everything. So they take that. They set up this fed coin and say, “What you have to do is download this app on your phone and every single month, we’ll send you these stimulus checks or UBI,” whatever you want to call it of let’s say $2,000.
Then you can go right to Starbucks and use that on your phone. Okay. Well, everyone is going to… In my opinion, most people will adopt that because it’s free money and then you are on this fed coin system, if we look at the work of Dr. Lacey Hunt who’s one of my favorite economists, he’s someone that’s really in the deflationary camp, but he says that once you change the Federal Reserve Act to allow the federal reserve to change what he calls their liabilities into actual currency units, into broad money, increase M2 money supply directly, that’s where he goes from being a deflationist to someone who sees us being on the path to hyper inflation.
Those are his words, not mine. And if you don’t know who Lacy Hunt is, not a tin foil hat guy. He goes all the way back to the Milton Friedman days. He is an OG. He is legit. You can look him up, google him for sure. So that’s how he sees this. So my point is that by creating this fed coin, what they’re doing is they’re getting us on the path to hyperinflation. And the faster we get to hyperinflation, obviously, that’s by definition a loss of confidence in fiat currency. That’s when as a society, as a global society, we start looking for an alternative, whatever it is.
So you see my point? I think they’re going to a fed coin. Obviously, it’s not a cryptocurrency, it’s just a more digital currency that gives them more control, but I think inadvertently if they do that, they put us right on the path that will lead to their own destruction.
All right. So here’s the second question I was going to ask then because I didn’t get it in. That was my mistake. All right. So we’re talking about how bitcoin might global, talking about hyperinflation, hyperbitcoinization. We’ve talked about the path that might be taken to get to a bitcoin future. So yeah, I wanted to go back to that idea, but ask a more specific question. What country do you guys think will be the first to publicly disclose that they have bought some bitcoin for their own treasury if they’re sovereign treasury.
Again, remembering that at the top we talked about how we have macro investors, big investors buying in. We have companies now buying in. It seems like the last kind of stone to fall is a sovereign nation. Obviously, the game theory says that because it’s an asymmetric bet, you could make an asymmetric bet on the future of your country’s power and really rise and increase your country’s power on the global stage significantly by accumulating bitcoin now. So what do you guys think? Saif, you want to start?
I think Venezuela.
Because what’s their downside? I mean obviously, the guy running the show there is a complete nut, but if you got someone that actually had some sense, then why not start going on what’s called a Bitcoin Standard. Because if you look at hyperinflations throughout history, the way you particularly get rid of that like with Zimbabwe as an example. You say, “Okay. Just automatically overnight, we’re not using this Zimbabwe thing anymore. We’re using the dollar.” It’s just a change of confidence.
I employ a lot of them in Colombia, so believe me, they’re no fans of what’s going on there to say the least. I mean, viscerally it makes them sick when I even talk about it on my videos. So they’re going to have this complete loss in anything that the government comes out that even resembles a fiat currency which just puts them right back in the same position. So why not just say, “Okay. We’re on a bitcoin standard. We are no longer going to control…” I mean, the only other thing they could do is like dollarize something like that. But I don’t think Venezuela would do that because they want nothing to do with the US government. Although Ecuador did it, but I think that’s kind of what have you got to lose? There’s no downside. The only thing you have is upside so why not?
We know that Venezuela is using bitcoin. We know that Venezuela that some government department, I think for passport renewal, they were charging people in bitcoin because they can’t get their money from the regular banking system because they’re bankrupt and they were charging bitcoin. But I think it’s not so much about charging and holding it or using it, it’s about holding it for the long term. That’s the really interesting thing.
With a government like Venezuela, it doesn’t matter how much bitcoin they buy and sell and spend. I mean, it doesn’t matter how much bitcoin they get in, they’re going to continue to spend it and so they won’t really benefit from holding and appreciating in the long run. It’s really hard to say. I mean, it’s 200 governments or something in the world. It’s really hard to say which one of them is going to take the plunge on it.
If I were to make a wild guess, I’d say Switzerland just because they were the ones who had the gold standard for the longest time and they went off the gold standard the most recently. So perhaps, they might be the ones that are most perceptive to it.
Yeah. I’d like to dive into talking a little bit about the market narratives in bitcoin and we’ve seen the narrative change quite a bit. It seems like the prevailing narrative now is probably digital gold in terms of like the widespread view of bitcoin. So Saif, how do you see bitcoin narratives evolving as adoption happens and works its way up the
I mean, I think the main evolution is going to be the one that we mentioned earlier from asymmetric bet on this happening in over long-term into it becoming more and more of just a boring monetary asset that everybody holds and that’s ultimately it. I think we’ve seen a lot of narratives come and go and we’re going to continue to see a lot of narratives come and go that missed the point. But it may just be that hard money is really… It’s just going to be the narrative that is dominant.
Yeah. What I’d be curious to know and I’m sure you guys have your finger on the pulse of this more than I do is what is the probability of the tech around bitcoin advancing to the point where it could legitimately be a medium of exchange? Because correct me if I’m wrong right now, it’s rather cumbersome. The amount of transactions that happen on a daily basis would just completely overwhelm the system and it would be slow or the amount of electrical needs what not. But I’m assuming there’s tons of people that are trying to figure out workarounds for that.
Yeah, there are. The thing that I argue in my book is… And that’s why the title of my book is The Bitcoin Standard is that you can’t really compare bitcoin transactions with credit card payments. Bitcoin transactions are final settlement transactions so you have to compare them with settlement payments across international borders. That’s the advantage. If I send you a bitcoin transaction and you’re in the same room, it costs let’s say five cents and it takes a few minutes or a couple of hours to confirm.
But if I send that same transaction across the world to China, that’s also going to cost the same thing. So the transactions that are going to be used in… I mean bitcoin is going to be used, in my opinion more as a settlement layer rather than for individual payments. I don’t think individuals are going to be using bitcoin to pay for their coffee, the bitcoin tune. And scaling limitations, and I show some numbers in my book, bitcoin does, what is it, half a million transactions a day or something like that and Visa does I think something like 2 billion.
Even if we improve bitcoin in all kinds of way, there are limitations because it’s decentralized that mean that it will always be different from Visa. But you can’t compare Visa payments to bitcoin payments because Visa payments are credit payments. Visa payment is my credit card goes to your machine and in your shop and then my bank tells your bank that they’re going to settle with them and then they sort it out and it takes several weeks for it to finally settle. But a bitcoin transaction is final.
Once you’ve gotten six, 10 confirmations, whatever, it’s going to take a few hours. Once you’ve gotten a few of these confirmations, then you’ve gotten to the point where the transaction is completely secure. Well, completely is obviously a big word, but it’s secure and it’s irreversible. So in this regard we need to think of the bitcoin chain base layer as being similar to physical gold or physical money and that it’s going to be moved around. Central banks will exchange gold and they will exchange physical cash with each other and banks will move physical cash around, but ultimately the majority of transactions will be done digitally without the physical underlying asset having to move.
I think bitcoin is going to scale with that like there will be second layer solutions that are settled with the second layer bitcoin. It’s the second on the first layer, settled on the first layer of bitcoin chain.
How do you see the extension of credit, if we’re on a bitcoin standard because obviously, you’re not lending… or how does that… Let me just…
My feeling… Well, I wouldn’t say feeling. I think the way that I think about it is that in that kind of situation where we have hard money and what would happen is that banking would have two functions. Deposits where you pay people in order to store your money for you and have it available for you and use it to settle payment around the world. And I think this is a very valuable service that your money is at once safe from theft and also a click of a button away from being sent to China.
So you pay people for offering you that service, so deposit banking and then there’s equity banking in my mind or equity investment. I don’t see the possibility of… I don’t think credit really makes sense in this world, but I don’t think that’s necessarily a bad thing. I don’t see why it wouldn’t be a problem. I think deposit banking and equity are all that anybody needs. If you want your money to just remain safe or if you want your money to be there, then you pay people to store it.
Now, if you want your money to earn a return, they can’t just store it for you, they have to put it out, which means that there’s going to be a risk involved, which means that it’s going to be invested. And in a world in which nobody has a money printer and central banks can’t bail out banks, I don’t see how you can give depositors guarantees on their investment. If lenders are not offered the guarantee on the downside because the central bank can’t bail them out, I don’t see why they would want to lend with a fixed interest rate rather than just taking equity, which has unlimited upside.
Right. So if I’m hearing you correctly, we’re not looking at a fractional reserve system there?
I don’t think it would work. I think bitcoin fixes the glitch in gold that makes fractional reserve banking work, because gold requires banks and places so much value in bank’s ability to clear money that it almost allows them to print money because they almost have like a monopoly network on banks. So bitcoin, by making settlements so cheap and open to anybody an open source and not monopolistic, anybody can set up their own bitcoin node and settle payments for people all over the world. I think by making it into an open market, it makes it very hard for banks to engage in things like fractional reserve banking or maturity transformation. That’s also something I get into in detail in the fiat standard.
Yeah. I just wonder how that would work with the growth of the economy needing a growth of the money supply or if it just comes through deflation like you’re talking about.
Maybe we get five, 10% deflation a year.
Yeah, right because that in essence would increase the amount of… I want to call them units of measurement available. Let’s just say that we had one bitcoin or had one dollar. A lot of people say, well, then the economy could never grow. But it could if you just divided the dollar into small amounts. Such as pennies, right?
And then everyone that was saving those quarters or in this case bitcoin, they would just get richer and richer and richer just by holding it. So anyway, it’s just kind of a thing that I’ve tried to think through there. I appreciate your feedback.
Yeah. It’s an absolutely amazing idea when you think about it that anybody can have their wealth, hold its value and appreciate over time, and that’s available for anybody anywhere. Then if you want to take on extra risk. Once you’ve established an amount of saving that can protect you from say a rainy day or losing your job or whatever, and then you’re able to take risk, then you’re able to put investments in. You’ll only invest and take risk once you find something that’s extremely compelling as an investment. I think in that world, we’d only get resources diverted toward really valuable investments that produce value in the long-term.
100%. We go back to what I said with a sustainable business because your hurdle is so much higher. I mean, think what your hurdle rate is when you’re getting a business loan that costs 3% fixed rate over 30 years compared to if your hurdle rate was 10%. I mean, how much stronger would the cash flows of those businesses need to be? So, yeah.
Okay. Yeah, absolutely.
We had Jeff Booth on a couple of episodes ago with Lyn Alden. In his book, The Price of Tomorrow, he talks a lot about the deflationary forces that technology brings. We’ve actually like with the fiat standard been overcoming or suppressing the deflationary forces of technology.
Yeah, I’d agree.
I think the risk of deflation causing some problems or making… I don’t believe in the hoarding effect anyway or bringing the economy to a standstill anyway. But with the deflationary effects of technology then there’s like no risk at all. I think we’re going to see really quick deflation especially with the hard money economy. Okay, guys. Time is up there. I want to respect you guys’ time and we’ll wrap it up. Any closing words?
No. This has been a fascinating conversation. I appreciate you both for your time and expressing your views. I’ve learned a lot.
Likewise. Thank you. I really enjoyed this as well. I want to pick your brain about references on a couple of things that you mentioned, the 7% return in the 1890s. If you can give me references-
I was just using the
I’m looking for sources on this and a couple of other things. I’ll probably email you about them.
Okay. I think you’ve got my email, don’t you?
I’ll make sure, Saif has it.
All right. Thanks so much guys. And again, you know can find Saifedean’s work at saifedean.com. That’s
Thank you so much, Brady. Take care. Bye-bye.
Thanks so much again to Saif and George for joining us today. You can find Saif on Twitter at @saifedean. That’s at
Swan Signal is a production of Swan Bitcoin at swanbitcoin.com, the best way to accumulate bitcoin with automatic recurring buys. Follow us on twitter @SwanBitcoin and subscribe to the podcast at swansignalpodcast.com.
Episode 8 –Andy Edstrom and Ansel Linder
Episode 9 –Rockstar Developer and Jeremy Rubin
Episode 10 – Bitcoin TINA and CK Snarks
Episode 11– Gigi and Knut Svanholm
Episode 12 –Adam Back and Preston Pysh
Episode 13 –Alex Gladstein and Matt Odell
Episode 14 –Robert Breedlove and Tuur Demeester
Episode 15 –Isaiah Jackson and Max Keiser
Episode 16 –Gigi and Udi Wertheimer
Episode 17 –Aleks Svetski and Jimmy Song
Episode 18 –Stephan Livera and Marty Bent
Episode 19 –Mark Moss and Ben Prentice
Episode 20 –Samson Mow and Parker Lewis
Episode 21–Lyn Alden and Jeff Booth
Episode 22– Robert Breedlove and Cory Klippsten
Saifedean’s Personal Website
Saifedean on Twitter
The Bitcoin Standard– Saifedean’s book
George Gammon on Twitter
George Gammon on Youtube
as a result of letting the free market do its job, create goods and services at lower and lower prices.
Absolutely. That’s all music to my ears. People don’t get the idea that economics is not a rat
So that destroys the incentive for saving. In fact, think about it. With a hard money that appreciates at
It’s not impossible to imagine that any normal person working any kind of menial job given the technological capacity of our society today. It’s normal that people should be able to afford normal and decent homes with 24-hour electricity and running hot water. It’s just something that is so cheap to produce given our technological capacities today that really any burger flipper should be able to afford it. If you spend eight hours a day flipping burgers, that’s an extremely valuable thing. You should be able to afford saving up to that after a few years. You should be able to afford to buy a house.
I think it would be something that would be taken for granted in this world. For most of the 19th century, you’re right, people could save. People had that ethic of saving. They had that idea that you put your money aside and you save and you watch it grow. Now, that’s completely replaced with the idea that no, you just continue to spend and all of your life you spend, you spend, you spend and then when you have major expenses, you just take out a loan, and you get into the debt. Then the more income you get, the bigger debt you can take on.
Yeah. It’s ironic that we’ve got the people in the central bank, all these PhDs that see inflation as the solution, right? They see it as the solution to everyone’s problems instead of looking at it as the cause of the problem.
If we could just get people to rearrange their thinking and say, “Okay, wait a minute. If all this additional government spending, let’s say through welfare, this creates inflation. It creates additional money supply. Now, whether that comes out in the CPI due to velocity, that’s a whole other story. But you’re increasing the money supply through the debt monetization of the fed and let’s say they’re spending it on welfare, that’s the solution that as a society we look to or the government just has to spend more money, the government just has to provide healthcare or whatever. But if we turned it on its head, so to speak and said, “Well, if we just go back to deflation, we don’t need the government to solve all these problems, which they just make worse, that society could handle it on their own because they’ve got a hard money that stays consistent or appreciates over time.”
Listen, if that’s where bitcoin can take us, then I think everyone should be on board. Philosophically, I don’t think anyone is more aligned with bitcoin than I am whether it pans out, only time will tell, but I think if you understand really the ramifications for society at large to have a currency or a store of value, that’s scarce, that’s limited. You almost solve every single problem that we have at least in the developed economies today.
Yeah. A lot of people make fun of bitcoiners because one of the things that we’re always saying is whatever problem there is bitcoin fixes this. But really, if we do manage to put central banks out of business and replace them with a form of software where everybody in the world can have access to a hard money that they could save in, really that’s going to fix an enormous amount of problems all over the world.
It’s all about hard money.
It’s all about hard money whether it’s gold, whether it’s bitcoin, whether you want a price in oil, whatever you want to do. As long as you got that hard money, that’s what it’s all about.
Yeah. But oil is not a hard money.
I’m just saying you use anything you want. I don’t care what you plug into the equation. As long as-
I mean, the reason gold was used is because it is hard, but I think the interesting thing about bitcoin is that it gets over the one limitation of gold, which is that gold is physical and clunky to move around. Bitcoin is native to the internet so there’s no physical asset to it anywhere. There’s nothing in the world that is a physical manifestation of bitcoin that is needed for bitcoin to operate. So it exists purely digitally. So it can travel around the world very fast, very cheap. That’s the really powerful thing about it.
And so far, the past 11 years we don’t really have time to get into the technical details, but judging by results, we’ve had 11 years in which the supply has not been inflated by anybody or corrupted by anybody. That’s the really interesting thing.
Yeah. Where do you… I’m sorry, Brady. Do you have another question, Brady? I was going to…
No. Go ahead man. Go ahead. This is great.
How do you guys reconcile the advancement of bitcoin? Let’s say that it triples in values. It quadruples in value. So now all of a sudden, it’s a competitor where the government really sees this as competing with the dollar. And I understand that they can’t ban it from a standpoint that it’s decentralized. I totally get that, but they make it illegal to where the consequences of being caught although very few people actually do get caught, but the consequences are so extreme that it prevents people from using it or holding it or want to. How do we get around that with bitcoin?
I mean, first of all, there’s no promises and no guarantees. So obviously this is a risk that any investor needs to assume and assess on their own. But I would say the… First of all, the fact that trying to pass a ban like this is highly unlikely to succeed. You can see it from the fact that you can still get drugs in pretty much any major city in the world even though drugs are illegal and even though drugs need to be physically produced and processed and transported and sold, and yet you can still secure them.
So bitcoin requires people to just run code on their computers and it can be encrypted. Of course, there’ll always be surveillance mechanisms, but there are always ways to get around them. It’s a complicated cat and mouse game, but I think ultimately it’s very hard to ban it and I think it seems that… At some point, it might even be ridiculous that we are discussing this because it’s been 11 years now and some governments have issued recommendations against it here and there, but practically we haven’t seen any kind of real crack down on bitcoin.
It’s getting to a point where it’s entering into the mainstream and I think the way that I look at it is that in a sense this isn’t a superior technology and this is a point that I make repeatedly in my talks. People think about this as if it’s just like a new gimmick, whether they let us adopt it or they won’t let us adopt it. But I think it’s better to think about it as something like dynamite. So when you’ve invented dynamite, governments can make it illegal, but the smarter ones would rather have the dynamite themselves.
I think this is the case with bitcoin. I think the ultimate security of bitcoin rests not on maybe the technical specifications, but it rests on the fact that it’s going to be compelling as an economic option for everybody including people in government. I think we see this increasingly. Members of congress are open about the fact that they hold bitcoin and we see more and more financial institutions getting into it. It’s more likely that people once they understand the implications of bitcoin, it’s more likely that they would want to be on the side of bitcoin rather than fighting it because fighting it is extremely expensive and it has an extremely high opportunity cost because if you failed, you could have spent all that time and money on securing yourself more of the scarce bitcoin buy.
Incidentally, I think the point where I started really paying attention to bitcoin was in 2013 when it didn’t really collapse after the Silk Road incident. After that was shut down and bitcoin continued to operate. Later on, I remember hearing from one of the investigators where she I think said something along the lines of, “Once I started learning about bitcoin, my initial intuition was all right, we should just shut this thing down. But then as I dug into it, I thought to myself no, we should use this to identify the drug dealers and to work with them.”
I’ve heard several stories of this both in person to talking to people as well as reading about them. Interestingly enough, that same investigator ended up also working in bitcoin and holding bitcoin, and using it. Now, she works in some bitcoin companies as well. So I think there’s this allure to hard money that I think you clearly obviously understand the value proposition of gold. And in a sense, if you understand gold and you see bitcoin as digital gold, it starts to make sense that people don’t want to ban gold. They want to get their hands on it.
So they if they’re banning it, they’re probably taking it away from you so that they would have it rather than banning it because they don’t want to touch it. Because it’s really scarce and if it’s banned, I’d rather have it banned while I possess it rather than take my chances and not own it because I can’t get it back again because of that scarcity.
I see what has happened, let’s just say, since we can go back a long time, but let’s just take recently what has happened 2020 with the the coronavirus and the fed coming in and doing limitless quantitative easing, committing to a trillion dollars a day and repo. Just taking their balance sheet from under four trillion up to seven trillion. Or war. Bitcoin would prevent them from going into war, which I’m all about. I think everyone would be in favor of that except for the people in politics that gain political power through going to war and doing all of these, what I would consider nefarious things.
But I think that it’s just… If we were to say, “Okay, listen. We want to use this bitcoin that takes away the power of the central bank to increase the money supply and it eliminates the warfare state, it eliminates the welfare state. I don’t think governments are going to… Or at least the United States governments and the developed economies are going to jump on board with that. But what I do think is interesting, if we get to a point where if bitcoin rises in value that much, then my guess is there’s going to be a lot of skepticism at that time even more so than today with fiat currencies.
One thing that I’ve looked into just recently because of how hard it is to travel right now, and I don’t even want to go into the story of me trying to get from Medellin, Colombia just to St. Barts. I mean it was like a mission impossible movie with Tom Cruise. I mean it was just crazy having to get a humanitarian flight out of Medellin to Fort Lauderdale. Then in Fort Lauderdale, I couldn’t get a COVID test in time to get to St. Bart’s because everywhere in the Caribbean right now, you have to have a negative test that had been taken within three days.
And in Florida, when I was there, the fastest you could get the results was five days. So effectively, you’ve got a Berlin wall around Florida right there if you’re trying to get even somewhere like Puerto Rico. So I had to fly from Fort Lauderdale to St. Thomas in the Virgin Islands just to get a COVID test. Get it in 24 hours or 48 hours. Then once I got the test done, then go to Puerto Rico then down to St. Barts on a semi charter flight.
I mean, it was insanity. But my point is I’m like, “Okay. I’m in the process right now of getting my Colombian passport to have dual citizenship, but I’ve looked into some of these Caribbean islands.” Now, the passports in these islands right now as an example St. Kitts, St. Lucia, the ones that you always hear about that are actually very good passports, they’re a fraction of the price of what they were prior to COVID because all of their revenues are decreasing so they have to lower their prices to compete with other countries that are selling these passports.
So fast forward or go back to what I was saying about bitcoin and the lack of confidence in fiat currency, maybe if we have a United States, Japan that takes those draconian measures, because they want to keep the warfare and the welfare state alive and well, and give the the federal reserve the power to create money supply or at least base money supply or M2. Who knows where it goes in the future? But maybe there’ll be other countries that say, “Hey, listen. What we’ll do is we’ll go and we’ll use bitcoin.
Puerto Rico right now with Act 20 and 22. I know a lot of bitcoin guys have gone there for that. So what Puerto Rico is doing, saying, “Hey, guys. Come here and spend your money. We’ll take bitcoin or we’ll lower your taxes. We’ll do whatever needs to be done to encourage you to come here and create jobs, create businesses, do these things.” So maybe if you’re a country that’s an emerging market and you’re saying, “Hey, how do we get out of our debt problem? How do we save our economy? I know what we’ll do. We’ll take bitcoin, guys. Come here. Bring all your money. Bring all your wealth. Bring your human capital. Bring your brain power, your experience. Come here and create a tech industry, create businesses, create jobs. I think that’s where it could go.
Also too, if central banks, and you guys would know this a heck of a lot better than I would, but a few people that I’ve talked to recently that know the bitcoin space have kind of gone over this hypothesis when I was interviewing them about if central banks start bringing bitcoin on and using that as an asset on their balance sheet a little bit like they do with gold, so then if you had the central banks that were kind of giving it the green light although it might not become and replace their hallowed fiat currency, it becomes more adopted and then you kind of have that boiling of the frog effect, with bitcoin boiling the frog, being the politicians, the federal government and the central bank of that nation.
They just gradually adopt it. So that kind of goes along with what you’re saying. But that’s kind of where I find the argument very interesting against what I brought up initially with the governments just not wanting to lose power over the printing press and just saying, “You know what, bitcoin is illegal.”
Yeah, and I think… Go ahead, Brady.
I want to steer this into a certain direction. Excuse me. So the irony that you were trying to point out, George was that government interventions under the guise of trying to fix the problems, fix certain problems in society and the vast majority of them were caused by this singular intervention that we all know as the government take over control of money. As you say, this is how Saif says bitcoiners have this meme and bitcoin fixes this. Saif, in your book, you write that human civilization flourished in times and places where sound money was widely adopted. Whereas unsound money all too frequently coincided with civilizational decline and societal collapse. So question on the table now, how do you guys see the path toward a better society unfolding given that we transition to a bitcoin based economy? And what lessons might we be able to draw from historical transitions between global currencies? Saif, you want to start this one?
Sure. So generally as a little disclaimer, my friends will probably let you know that I am the most optimistically delusional person or delusionally optimistic person.
You must be a great entrepreneur.
It’s best reflected in my support of my football team where I’ve believed for every one of the last 30 years, the Liverpool are going to win the league, and they never do. Of course, until this year they’ve won it. So now I guess-
Like being a Chicago Cubs fan.
Yeah, basically. So now perhaps my delusional optimism is not entirely misplaced since it did work out eventually. I think in this situation, I like to take the optimistic take that it’s not going to necessarily… Or bitcoin is what’s going to mean that the collapse of government money is going to be less painful and less problematic. I think this is the way that I would like to think of it. When hyperinflation happens, the reason hyperinflation is terrible is not just because people lose money, it’s not just because people lost their wealth.
It’s not just that everybody got an 80 or 90 or 99% haircut on their wealth, it’s the fact that businesses are no longer working. Shelves are empty and economic production breaks down. Farmers can’t grow food and then food can’t get to the shelves. And all that stuff breaks down because money is no longer usable, because there’s no longer a money in society. So that’s the real catastrophe of hyperinflation much more than just the financial losses that are attached to it.
Now, in the case of bitcoin, I’m slightly optimistic that perhaps what’s going to happen is that, because bitcoin is available, as we witness more and more of these hyperinflations around the world, more and more people will have access to bitcoin. More and more people will be able to hedge against their national currencies with bitcoin, hold a 5% position in bitcoin, 10% position in bitcoin, which could end up being 50% of your net worth after a couple of years of national currency inflation and a couple of years of bitcoin appreciation 50 or even 90.
So I think with this being there, it means that… And I don’t think bitcoin is yet at that point where the liquidity is large enough, but possibly in a few years, 10 years maybe let’s say when more hyperinflationary cases like, say, Zimbabwe and Venezuela and Lebanon start happening, more and more people will have access to bitcoin and these things will start mattering less and less. The way that I see it is, and I discussed this in my forthcoming book, The Fiat Standard, bitcoin is the way that we euthanize and get rid of the fiat standard peacefully and without too much bloodshed.
We don’t have to butcher it and risk it. Jumping and killing us while we’re butchering it. Nobody needs to be reliant upon it and as it starts to collapse, people can choose to opt out and use bitcoin. Bitcoin is better than gold in this regard because you can continue to use it internationally whereas gold is much harder to use. So I’m going to go with the… I discuss all different scenarios in the book, maybe delusionally, but I’m optimistic that bitcoin ends up being more of an upgrade of the financial software of the world rather than messy cataclysmic Roman empire collapse.
Well, I can tell you that if you can get some way to transact, it gets around the swift system that we have right now and around FATCA. The increase in global productivity would be meaningless. I mean we’re talking about something that I think would be very much like the airplane. Let me explain.
That’s a great metaphor, yeah.
An airplane would, let’s say, go from Phoenix to Las Vegas. Let’s just say we only had cars, right? So it takes you six hours. Well, that’s six hours of your time. Well, if it only takes you an hour to fly, then that’s five hours that you have saved that you could be producing goods and services. Well, times that by however many flights there are, how many hours we save as a result. I can tell you by doing so much business in South America and in Medellin that just getting my own money that it’s not someone else’s, I’m not going to loan. It’s my money from the United States just down to Colombia and then take the dollars and then buy the pesos, and put them in the bank, and go to the paperwork, and go to the reporting system and blah, blah, blah, blah, blah, blah.
Then you’ve got to pay the spread to the bank for doing the transfer. So think about how much money is flushed down the toilet right there and then how much time is wasted. I mean, we’re talking about billions if not trillions of dollars a year. This is completely wasted in economic output and productivity as a result of having to deal with something so cumbersome as the current dollar fiat system we have. It’s not just about the global reserve currency, just these green pieces of paper, but people have to understand it’s about the infrastructure.
So that’s why it’s so hard to go from, let’s say the dollar to the euro, or the yen, or the won, or something like that, it’s not necessarily it would be hard to change green pieces of paper for red pieces of paper.
No, but everybody’s locked into the infrastructure and the KYC and all that.
The infrastructure. But this infrastructure is very cumbersome. So to your point, if we could get this seamless way to transfer money… I remember the first time I spoke with my buddy, Alex with Nuggets News, he made me… Right when I was talking to him on the phone. I don’t know if we were live or not, but he had me download this app on my wallet while I was talking to him. I think I still got it right here. It’s this Wallet of Satoshi. He told me to open it up like this and I put it right in front of the the camera there and he transferred me like 2 or $3 in Satoshi’s just through the little webcam thing. I mean, to think about how hard that would have been if he would have tried to transfer me, let’s say 100,000 or something like that from Australia to where I was in Medellin, Colombia at the time.
I mean, this is a huge, huge advancement. It’s really a game changer as far as global productivity. Also, what I wanted to say is you were talking about how the current system completely distorts the economy and it creates this… Well, let me back up here. So it distorts the economy, but I would go so far as to take it even a step further back. So what I mean by this is we were talking about inflation distorting the economy, but if you look at government debt, it distorts the economy as well and people say, “Well, yeah. But it’s when the debt gets to a certain level.” But what they don’t realize is it’s getting from A to B that really matters.
I think most people really don’t get that. So let me give you an example. Right now, the United States government is almost 50% of GDP. The government spending is over 50% of GDP. So that means that private sector economy or the productive part of the economy is only 50%. Take that back before we had the federal reserve and it was over 90% of the government was the actual private sector that really produced the goods and services.
So now even if we could just eliminate all 26 trillion in debt, the problem is that our economy has been built around this government spending and these inefficiencies just like Venezuela using them as an example. You could solve all their debt problems or the dollar denominated

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Via VOX EU To what degree has aggregate stable coin issuance driven the price of Bitcoin and other cryptocurrencies? This column addresses the Griffin and Shams (
Via VOX EU To what degree has aggregate stable coin issuance driven the price of Bitcoin and other cryptocurrencies? This column addresses the Griffin and Shams (

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[NEW YORK] A form of digital money known as
[NEW YORK] A form of digital money known as

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Jonald FyookballBlockedUnblockFollowFollowingJun 26, 2017Mathematical Proof That the Lightning Network Cannot Be a Decentralized Bitcoin ScalingSolutionHave you heard of the Bitcoin Lightning …
Jonald FyookballBlockedUnblockFollowFollowingJun 26, 2017Mathematical Proof That the Lightning Network Cannot Be a Decentralized Bitcoin ScalingSolutionHave you heard of the Bitcoin Lightning Network? It is a proposal that claims that:using a network of these micropayment

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App today from the App Store or Google Play Store and start #stackingsats 42:17May 7, 2019Rabbit Hole Recap: Week of 2019.04.29This week Marty and Matt discuss: - Bitcoin v.0.18.0 released …
App today from the App Store or Google Play Store and start #stackingsats 42:17May 7, 2019Rabbit Hole Recap: Week of 2019.04.29This week Marty and Matt discuss: - Bitcoin v.0.18.0 released hats-new/ - Bitfinex spread increases, -

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sponsor, Cash App. Head over to the App Store or Google Play Store, download cash.app and start #stackingsats today.
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Tales from the Crypt: A Bitcoin PodcastBy Marty BentTales from the Crypt is a podcast hosted by Marty Bent about Bitcoin. Join Marty, Editor in Chief of "the best newsletter in Bitcoin", as he sits …
Tales from the Crypt: A Bitcoin PodcastBy Marty BentTales from the Crypt is a podcast hosted by Marty Bent about Bitcoin. Join Marty, Editor in Chief of "the best newsletter in Bitcoin", as he sits down to discuss Bitcoin with interesting people.Starting in undefined…00:001:32:341xRabbit Hole Recap Stimulus Package: 2020.04.20Join Marty & Matt as they discuss: - BTCPay Server adds payjoin support - Trezor update breaks HWI support - Cobra and Theymos split ownership of bitcoin.org and bitcointalk.org - Purse.io shuts down - Breez wallet adds keysend support - Nodl adds keysend support Nodl OG - Juggernaut messenger - Oil markets - MMT - much more Shoutout to this week's sponsors. Cash App. Start #stackingsats today. Use the promo code: "stackingsats" to receive $10 and contribute $10 to OWLS Lacrosse you download the app.

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sponsor, Cash App. Head over to the App Store or Google Play Store, download cash.app and start #stackingsats today.
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