BEC014 — Bitcoin Spectrum with Ben Prentice

Listen to the podcast here:

Collin: Ben! How are you doing man?

Ben Prentice: I’m good! How are you doing, Collin?

Collin: I’m doing excellent! Thank you for coming on to the show today! I’m excited to talk about this stuff we’re gonna talk about! But before we get into that, why don’t you tell my listeners a little bit about yourself? How’d you get into Bitcoin? What brought you here today?

Ben Prentice [03:20]: A whole lot of stuff! I used to read a lot of Slashdot, which is — News for Nerds was their slogan. All the developers in the 90’s, the Internet geeks, this was really where all these guys hung out. And I knew about Bitcoin essentially 2011, and I read a little bit about it, and I certainly didn’t grok it, but I did kind of understand that it was this anonymous Internet money. And that people were using it to buy drugs and stuff. It was interesting! But I didn’t quite get it. And then, somewhere around 2013–2014 I was like, People are still buying drugs on the Internet with this stuff! And I tried to go on Mt. Gox and I got into the log-in, and I started to create an account, and they asked for my ID, and I was like, Oh, I thought this was an anonymous Internet currency? So I was like, Well this won’t do! So I closed that window, did a little more research, and was like, Oh! An ATM! As long as it doesn’t have a camera, I can obscure my face and I can get some anonymous Internet money! That’s cool! So I just kind of waited, and I always looked around for them, but I guess I kind of forgot about it for a few years. I’d see it come up on TV and stuff, and then 2017 — big price, the hype, right? — I was like, You know what? I’m gonna take another look at this. And like many among us, I fell into the Andreas Antonopoulos rabbit hole videos, and started going pretty deep. I watched probably like a hundred of those. And then I was just like looking around for more information, I was on Reddit a bunch, and eventually I saw that you gotta get on Twitter, if you’re gonna be in the Bitcoin universe! [05:05] I did that, and then I got into Austrian economics.

Collin: So I have some questions there, like, You mentioned Andreas, and I think a lot of people start out in crypto listening to Andreas Antonopoulos but clearly — I don’t want to say that you evolved — but maybe you moved on to something a little bit more mature than that? Like, can you tell me what that process was like for you? How did you go from listening to Andreas to Austrian economics? Because to me that’s a little bit of a leap. I don’t really consider him like an Austrian guy.

Ben Prentice: That’s really simple! I started arguing on /r/Bitcoin —

Collin: Oh, I’m sorry.

Ben Prentice: Yeah I know! But there was this really intelligent guy who, he’s just like in the finance world in the U.K. or something, and he kept going back to this deflationary argument. And I realized I didn’t understand enough about the economics, and that was just about the time I was getting onto Twitter, and eventually found people like Pierre Rochard, and kept hearing about Austrian economics. I think I followed Justin Moon, he runs BUIDL Bootcamp. He teaches people how to code Bitcoin, so he put this thing out saying, I’m doing an Austrian economics book club — who’s in? I was just like, Oh, sure! Me! Then I met Max Hillebrand, who’s amazing. I met Zane Pocock, who’s really awesome if you guys don’t know Zane, and I met Thibaud Maréchal. Almost every week, we discuss Austrian economics in the paradigm of the Bitcoin world, and my knowledge has just skyrocketed.

Collin [06:45]: Yeah it’s really interesting, because my turning point in my “crypto” career was really similar. I was on, I think it was Reddit, and as much shit as I give Reddit, I have learned a lot from Reddit over the years, and I hate Reddit and I don’t go on it these days. And I think I remember coming across a post, and it was basically like, How do I sort through all this noise? There is so much noise in crypto! This was like, early 2017, late 2016, like height of the frenzy, and somebody asked the question and was like How do I sort through all this noise? Somebody was like, Alright. What you need to do is you need to make a Twitter — and I already had a Twitter but I had only used it for like trading penny stocks, just to follow companies and P/Es and stuff — he said, Follow the people that have been in this space a really long time, cultivate a really careful Twitter feed of people that are either developers, that have been in this space a really long time and are smart and only talk about smart stuff, and then he had a list of all of his recommended people, and a lot of them were people I still follow today like Kyle Torpey, Pierre Rochard — some of them I have ended up muting, blocking, whatever. Guys like Vinny Lingham, like — get him away from me! But, yeah I had a really similar journey! And Twitter, for me, was a huge part in shaping my understanding and my thought process, and finding my gaps in my knowledge. You know what I mean?

Ben Prentice [08:09]: Yes! And I think this brings me to: I think one of the most important things you need to understand about this universe is that critical thinking is so paramount! Especially in the fake news era, but it always is. So if you guys aren’t familiar with critical thinking, it’s a very simple discipline that is quintessential to incorporating new information into your worldview. And it talks about (1) avoiding logical fallacies. So, in order to do that you need to understand logic and you need to understand what logical fallacies are and how they lead you to the incorrect conclusions and think you’re correct. (2) Second thing is, absorb information from many different sources, and decide based on the validity of the arguments therein, whether or not this information is good. You may not know whether it’s true or not, but how good is it? And you incorporate lots of information and they all kind of have a scale of how good they are. And on Twitter, you’re not getting information from CNN or FOX News, it’s from all these random people, and you just have to evaluate the information based on what it is. [09:18] In doing that, that’s how you cultivate your Twitter following, like you said. You followed people, and then you unfollowed them when you realized that what they were saying wasn’t prescient, or wasn’t logically sound. And if you work from this foundation, then you can get to a place that’s close to truth — and I use that word very loosely.

Collin [09:40]: Yeah and I think I would add to that, in regards to the critical thinking piece: everybody has a bias, and I think that we’re — at least I was when growing up — under this false pretense that bias is bad, and you need to go to sources that don’t have bias. But that’s inherently impossible! Because everybody’s biased in some way, shape, or form. And just because a person is biased, doesn’t mean that they’re wrong! Somebody can be extremely — me, for example, I’m probably very biased for Bitcoin. But that’s also because I’ve done probably, at this point, hundreds if not a thousand-plus hours of research on this topic. And I am thoroughly and logically convinced through my steps through this process, through this Bitcoin spectrum — as we’re gonna go over and talk about today — that I’ve come to the correct conclusions, or at least I’ve surrounded myself with enough smart people that they would weed out my bullshit. You know, where I would be wrong. Like, Twitter is such an amazing resource. If you cultivate, carefully, a good following, and you block people liberally who interrupt your intellectual process, it can be a really, really great place to learn! So, I want to jump into this Bitcoin spectrum. Now, this is something that you share with me — this was published by Unchained Capital, I’m gonna have a link to this picture down in the show notes if you guys want to check it out, if you want to follow along visually if you’re a visual learner (I don’t know why you’re listening to a podcast, but…). If you want to follow along as we talk through this, but we want to try to hit some of the major points, because something Ben and I talked a lot about is how the Bitcoin and the blockchain spectrum is massive in scope, and if you have missing pieces, it’s kind of like a jigsaw puzzle, right? If you have missing pieces on this Bitcoin spectrum, you’re not gonna be able to see the whole picture, and you’re really not going to be able to understand why this thing is so important, and why it’s so valuable, unless you can see the big picture! Ben, do you have any thoughts on that?

Ben Prentice [11:39]: Yeah. So the spectrum — in case people aren’t looking at the thing — it’s four main pillars. And I don’t think this graph is necessarily the end-all. It’s a Venn-diagram, right? It has four main pillars, four main schools of thought, and I don’t think this is the end-all, be-all of what describes Bitcoin, but it’s a great start to understand how complex this topic is. There are four main bubbles on this Venn-diagram: Politics, Economics, Distributed Systems, Cryptography. Really, each one of these things are very difficult to understand wholisticly — really understand them. And what we’re trying to do, to understand Bitcoin, is to understand all four of these things and how they interact. And then, try to understand the paradigm of a new world with Bitcoin in it! And then understand all of those disciplines in this new paradigm, this unknown future that is in front of us. And that is a very difficult task to do I think. That’s why all of us spend all this time researching and discussing and eliminating bad ideas! Right?

Collin [12:50]: Yeah. It’s important to try to take a very praxeological approach to this spectrum in understanding that there aren’t really any hard and fast rules here. All we can really do is observe human action, try to anticipate the way that we think this is gonna play out, and that’s where the whole game theory thing comes into it. And look at each spectrum as broadly as possible, and then dig as deeply into Bitcoin as we can, and try to understand where we think this thing is gonna go! And I think that that’s what a lot of really smart people have done. And yeah, Ben, you and I have been talking about this just the other day, I feel like the smartest people in cryptocurrency — and if you’re listening to this and you’re not that into Bitcoin, you know, welcome to the show — but, I’m sorry it’s just the honest truth! I’m not sorry! The smartest people in this space have all come to the same conclusion independently.

Ben Prentice [13:44]: Yeah, and I see that over and over again. I will come to a thought independently, post it on Twitter and see somebody else later that had already wrote it! Or, I’ll post it first, and I’ll see Andreas say something like that, and it’s incredible that we’re individually all coming to the same conclusions. And one of those conclusions — the Schelling point, as Marty Bent talks about — is Bitcoin itself being really, really, a whole lot farther ahead than all the other ones. Really has a much better chance of doing what we’re talking about. Where it’s taking over a large swathe of the money that we transact on the Internet.

Collin [14:23]: So let’s take a look at this spectrum. In case you guys missed it, the four pillars are Politics, Economics, Distributed Systems, and Cryptography. So we’re gonna start, and we’re gonna talk about the economics first. We’re gonna touch on some of the points there. And then we’re gonna make our way through the other pillars to give you a broad overview of all of the things that go into this system. So first and foremost we have the economics piece. Ben, what are your initial thoughts when you think of the economics?

Ben Prentice: Well I encourage everyone to really dive into the Austrian economics here because, as Collin was asking me, like How did I get into the economics side of it? Well, I got into it because I was trying to argue with people and I realized that I didn’t have the knowledge. I didn’t understand inflationary versus deflationary. And that’s really a small piece of this, once you start getting deep into this! I think Hazlitt and Bastiat — Henry Hazlitt’s the one who wrote Economics In One Lesson — incredible read, talks about a fallacy, right? So I was talking about logical fallacies before. He talks about the fallacy of the broken window. [15:32] So really simply, if you’re not familiar with it, it’s the idea that somebody has a shop. And the window gets broken in the shop, and that this creates economic activity and it’s good for the economy, because the guy comes and sweeps up the street and he gets paid, and the glazier — the guy who makes glass — has to create a glass window, and the people who supply him with glass stock, and the people who supply him with tools to do all that, all get economic transactions out of this! So you’ve created economy activity! But the fallacy is that: well, yeah, but the shop owner has to take money that he could have spent elsewhere. He could have spent it on a new pair of shoes, and — you never see those things, right? So this is the effects of that shop owner not being able to spend money on his new pair of shoes or his new suit or something — [they] are never seen, and they’re obscured, and they’re ignored. This happens everywhere in the economy, and if you have the government saying, Oh, well we’re gonna build this thing! And, Yes, that creates economic activity, but this is like a zero-sum game, essentially. That, if you create money to pay for something, then you have diluted the supply of all the money, and you’ve taken away purchasing power from everybody, and the investments that never happened, or the things that we couldn’t buy because our money was worth a little bit less, are never seen. So this is a really crucial thing to understand, I think! I can keep going here, economics is so deep into this, right? Because money itself and commerce are so tied into economics, and we’re talking about a digital money that is brand new, so you have to understand money! I don’t think anybody really understands money!

Collin [17:38]: Yeah! That’s actually a really great point if I could stop you for a second! I know for me personally, and I went to public school — I know Ben’s situation is a little bit different, but, growing up I took several economics courses, probably in high school and then maybe in my undergrad also, and I had never been exposed — you know, I had heard the name F. A. Hayek, but probably in name only in mentions like in passing them off, in the same way that you would read a psychology textbook and read about Freud and be like, That guy with those crazy theories that we don’t really believe anymore. That’s the way that Austrian economics is presented to the modern scholar. And I’m sorry (I keep saying sorry. I’m not sorry) we’ll bring it back to the critical thinking piece from earlier—you have to examine these things for yourself! And decide whether or not they’re worthy of value. And if you haven’t been exposed to Austrian economics then you are not in a position to decide whether or not that’s a valid argument to be made, whether or not that’s a valid theory! So if you’re listening to this and you think, Oh, Austrian economics is bunk! It’s been bunk for years and years and years ever since modern money theory! Ever since Keynesian economics! You need to revisit that. You need to go and learn a lot more about money! Where is it? Where does it come from?

Ben Prentice [18:59]: Yeah and I would actually go a step further because as Hazlitt said in the book I talked about, Economics in One Lesson, he actually goes into it and talks about that fallacy, but he actually goes on to say that there’s a network of fallacies that obscure the truth! That you’re required to fall into this network of fallacies in order to understand Keynesianism. So essentially, what I’m trying to say really, really convolutedly, is that: Austrian economics breaks the fallacies that are the arguments that Keynesianism makes. And Keynesianism is the main school of thought in economics! Essentially, that governments should interfere in markets. And really, Austrian economics is really just exposing the fallacies therein! And that’s why we don’t even really spend time [on it]— because Keynesianism is just a bunch of equations and trying to manipulate the markets to your whim. And the thing you realize about markets and supply and demand is that the more you manipulate them the more they push back! But I really want to get into this forgotten history of money. If you don’t understand the history of money, or what money is, or what problem it solves, how could you understand whether or not Bitcoin is money, or is good money, or is bad money? It’s really not possible, and it’s really enlightening, and that goes into — if you guys haven’t read The Bitcoin Standard — incredible book that talks about the history of money and how so many great societies fell because of poor money. And a lot of it had to do with inflation. And inflation comes in many forms, but many years ago when there were gold coins or other metals used, they used debasement to inflate the currency. Which meant that they would take all the coins back, or they would collect some of them, and they would return coins out into circulation that had less of that metal in them. That was very laborious to do, it took a lot of work, you had to create all these new coins — it still had issues, and it was easy to verify! Like if you take this thing and melt it down and you find out there’s less gold in it, then you could find out that the government was debasing your currency! And inflation happened much less than it happened now back then. For these reasons, because it was so hard to do.

Collin [21:27]: Right. But they didn’t even call it inflation back then. Nobody was trying to pass it off as a good thing! Everyone knew it was just the king stealing a little bit of extra gold to line his coffers.

Ben Prentice: Right! The king would be hiding this! And he would be caught red-handed and blushing if people caught him doing this. Now, not only in the modern day has Keynesianism convinced us that inflation is necessary, but it is so much easier to inflate now. It literally costs them almost nothing! [In] a keystroke, they can create new digital entries at the Federal Reserve, and create new money! And that’s what they did in 2008 when they created many trillions of dollars. Since then, another $10 trillion has been added to the money supply — it’s insane! And this is all because it’s now easier to inflate, and it’s impossible to verify whether or not they’re inflating or not! They can just print and print and print! And that’s what happened in Zimbabwe and Venezuela.

Collin [22:28]: Right. And we could go really deep on this. We could talk about this for hours and hours and hours, and many people have! And there’s still a lot more to unpack. We still haven’t yet fully begun to understand the economic implications of Bitcoin, because it’s the first time that we’ve ever really been able to push back on the free market, on this ideology, because it affords so much power to the centralized authorities: the ability to create credit and to harvest wealth through seigniorage rights. It is what has financed the world wars that we saw in the previous century. And it was unprecedented prior to that, when, in Democracy: The God That Failed, Hans Herman Hoppe, talks about how, back when private property was the norm—when that was just the expectation across the board — and kings had to represent their own private best interests by engaging in armed conflict, they couldn’t afford to indebt themselves indefinitely in order to fight these extremely large, expense, bloody battles, because it was impossible! They didn’t have a way to pay for it. So yeah the rabbit hole goes pretty deep there.

Ben Prentice [23:46]: Yeah because through inflation, they’ve now extended their war treasure chest to the wealth of all of the citizens that hold their money. I think that’s a Saifedean kind of quote there.

Collin: And I will say real quick — we’re about to shift topics here. Anytime you’re going through this Bitcoin spectrum here, or if you’re just reading posts on Twitter and you’re just trying to learn more about Bitcoin, anytime you come across any concept that you don’t understand, or even if you’re not 100% clear of what that is, you should take that as a learning opportunity. And you should go and you should educate yourself on that matter. Most of the time it’s just a Google search away. Like if you don’t know what Supply and Demand actually means, if you’ve heard that in school and you don’t remember what it mean, type it into Google, go to Investopedia or whatever, and just look it up! And now you’re clear, because I think I see a lot of people do this, where they’re participating in an argument and they don’t understand what’s even being discussed. But they’re still arguing, even though they don’t understand the concepts that are being discussed? And that really makes you look like a fool. So don’t be a fool. Make sure that you understand these concepts, and if you don’t understand something, jump into it. But, anyway, it’s not just the economics piece. Economics sort of has an overlap with politics. It’s not enough to know about just sound money, and about supply and demand, and about scarcity. You’ve also got markets. You have to understand the way markets work, regulation, monetary policy, global banking, national security. Ben you want to touch on any of those?

Ben Prentice [25:15]: Yeah. I think this one, it’s tough to talk about on its own, because I plan to show how these things overlap. But democracies and communities are on the politics spectrum. Democracy has been kind of — started to be infected through socialism. And a lot of people today throw that word around without really understanding what it means. Socialism is, by a simple definition, government owning the means of production. But I came across a Tweet recently that said, Japan’s central bank has become a top 10 shareholder in 50% of the companies there. So what do I mean by that? I mean that literally the central bank has bought stocks from all of these companies. A top 10 shareholder in 50% of the companies in Japan! And it’s a similar story here! I don’t know the numbers on here, but the government, in open market operations, is buying stocks to support asset prices. This is what happened in 2008. They’re also, through their policy, through low interest rates, they’re throwing money on assets, but — we’ll get into that in a second I think, but —

Collin [26:44]: And just to clarify, I just looked into this really recently: the Federal Reserve doesn’t actually own any equities, but like Ben is saying, they do actually buy the assets that can inflate the underlying equities, because they inflate the value of the equities. And another really similar thing is going on in Switzerland. The Swiss national bank owns—something like 10% of their balance sheet is international equity, and I believe half of that is actually US equity. Imagine the moral hazard of being able to print money at will, and then use that money to buy money share off of the global equities market. There’s a huge incentive for malice there.

Ben Prentice [27:27]: Yeah. I think that brings us into sovereignty, right? I haven’t read the Sovereign Individual yet, but I’m starting to understand why I need to!

Collin: It’s on my list! It’s on my list.

Ben Prentice: Yeah it’s on my list too. But you know, there’s this concept in Bitcoin of self-sovereignty, right? So sovereignty is the idea that a nation controls itself. It’s like an independence. Self-sovereignty is like being independent of the government, I think. And really in this current landscape — and after learning about a lot of these concepts — essentially, the government is stealing our wealth through inflation, they’re manipulating markets, and they’re really messing with all economics! And really the free market is dying! And people are point to now capitalism and saying, Oh, capitalism isn’t working! Well, it’s not capitalism when the government is literally manipulating all of the markets! Price signals are developed — so you can see how these things are overlapping, I can’t even talk about politics without talking about economics, but— free markets are the idea that, you know, I put up a good at whatever price that it took me to produce it plus a little bit of premium from my work that I’ve put into it, and when the government is changing the value of the money by diluting the supply and, in many other ways, manipulating these markets — and by the way, they’re doing this openly and saying that this is the Federal policies! Their mandate is to ensure low unemployment and to keep inflation—

Collin [29:14]: Inject liquidity and manage inflation. And another thing too, you know, if you want to see—you can go and look at the balance sheet, for the Federal Reserve! And you can go look for yourself: every single dollar, where they have it allocated, what they have it allocated to, they publish it every single year. And it’s kind of frankly very disturbing, and that doesn’t even get into the unfunded liabilities that we have in America. The debt is actually much much much much higher than just the national debt ticker that you can type into Google and see. It’s actually in the hundreds of trillions. You can compare all of our social safety net and socialist economic fallback plans that we have — you know, even FDIC, the bank insurance, which — we can get into that, that’s a whole other can of worms!

Ben Prentice: I have a really simple soundbite on that! The lenders of last resort create moral hazard by shifting the risks from markets to the lender of last resort. And the lender of last resort is the central bank, and the central bank’s response to these events is to create money! So actually the risk is shifted to everybody! So that’s what we mean by socialism, right? So social policy — you’re talking about Social Security and Medicare which are essentially ponzi schemes which are falling apart now — we’re realizing that they’re gonna be unfunded! But all of these social policies — yeah. It’s not straight socialism, the government doesn’t own Amazon and Microsoft and Ford, but they are slowly usurping power and inserting themselves into, it seems, every facet of the market!

Collin [31:07]: Yeah. And we’re not just making this stuff up. You know, there’s already historical precedent for this. Just 2008 is actually a great example. You see the real estate bubble, and most people don’t understand why it happened. They think that it was because the average investor thought that they could get rich quick, and that they were going out and taking out too many mortgages, and yeah, that’s part of the problem, but the real problem was that credit was so easy to get, and there was so much incentive—because of all the mortage-backed securities, no risk, and money that was being funneled into Fannie Mae and Freddy Mac — and this was all through the government, right? And this disrupts the normal actions of the free market. Normally, you have the benefits, and then you have the fall backs. You get to reap the rewards, but you also have to deal with the risks, deal with the fallout afterwards. And there was so much going on there, there was so much inter-breeding of government and free market there that it was what led to the bubble and caused the ultimate fallout.

Ben Prentice [32:12]: Yeah. And that’s exactly what I was just talking about with the risks. So the banks don’t take on any risk! Because if they fail, the lender of last resort steps in. And that’s what happened. There was this implicit guarantee that the government will bail out the banks, and it did happen in 2008, and millions and millions of Americans lost unknowable wealth through the real estate bubble bursting. And this brings me to another point, is that in understanding money I’ve realized that, you know — what do the wealthy hold? Do they hold a savings account with a whole $10 billion? No! Absolutely not! They hold assets, which are like stocks and real estate. And we’re talking about government policies that literally support the prices of these things: low interest rates and open market operations keep piling money on the stock market and real estate. And on top of this — so, money devalues over time. [33:21] So people don’t hold their wealth in money! Everybody knows that just keeping a savings account means that you’re losing 2%-3% per year, compounded every year. So you’re losing half your wealth every 15–20 years! It just disappears, in money! So people hold their wealth in assets. And the assets inflate, right? So they’re getting return in that. And the poor people cannot hold assets. I mean, think of somebody working at McDonald’s living paycheck to paycheck — they can’t hold stocks or real estate as their wealth, so they lose more to inflation than rich people. Rich people don’t really lose anything to inflation, because they hold such a small amount of cash, they hold equities, and they hold real estate, and they hold positions in businesses. I have another chart on this that I just Tweeted. It’s just mind-blowing that, even the middle class have access to certain assets. But the richer you are, the more access you have to assets that go up even farther over time! That’s the slavery that’s happening right now! That’s why everyone’s pissed off! That’s why everyone is begging for social policies. This gets into this concept that @paranoidbull, if you guys don’t follow Paranoid Bull, I mean he’s a grim follow, but very interesting guy! He talks about socialism for the rich. Have you heard this term, Collin?

Collin [34:43]: No, please explain.

Ben Prentice: Oh! This is exactly what this is, right? So the government is throwing money on the assets that rich hold, while the poor are left holding money. So they’re inflating the money, they’re stealing the wealth — because government can print pieces of paper, but they can’t create wealth out of thin air — so they are robbing wealth from everybody by diluting the supply of money, and they’re dumping it on assets.

Collin: Your piece of the pie just gets smaller, if they’re not creating any more pie.

Ben Prentice: Yeah, exactly! And they’re taking that wealth that they’re robbing from people that hold cash, and dumping it on assets and real estate, which the rich hold a larger percentage of as their wealth! So that’s socialism for the rich! The rich are getting bailed out every year, while the poor are struggling to get social programs to try to help them survive. And that’s they where the turmoil you’re seeing right now in the country is, that’s why people are begging for more socialism. Because only the rich are getting it, and they don’t realize that!

Collin [35:47]: Yeah and if you’re privy to the information of the few men in the world who hold the keys to the kill switch of the economy—the ones who determine the monetary policy —you can make decisions when you’re privy to that information prior to those things happening, and you stand to profit. I mean, that’s why you see the central banks move larger allocations into gold before they start to tighten their monetary policy, because they know that those assets are gonna come back down to more reasonable levels in value. And they’re storing their wealth in between changes in monetary policy, but if you’re not privy to that information before it happens, you’re gonna be playing catch-up. You’re gonna be trying not to lose.

Ben Prentice [36:27]: Yeah I want to jump off this for a second, because I want to go back. So we’ve gone into a little bit of economics and a little bit of politics and how some of those things interweave together. We haven’t talked about cryptography and distributed systems. So cryptography — a lot of those Bitcoiners might know this stuff, but — these are already hard concepts to understand: hash functions and merkle trees and —

Collin: Elliptic curve cryptopgraphy.

Ben Prentice: Thank you. And math, right? So math and provability and verifiability and how, if you tell some random Joe who has no math on the street about, Oh no no! This is all verifiable! He either won’t trust you or he’ll have to trust you, right? If he doesn’t understand these concepts intrinsically. And you get into cryptographic security of the protocols, and cryptographic security of your wallet, right? Like, can somebody just guess my Bitcoin key? Because then you just generate one. Understanding that it takes a thousand Earth’s worth of computing power to guess the key to your wallet. And then the quantum cryptography —

Collin: Yeah if you don’t understand logarithmic math, it might be really easy to think that Bitcoin is not that secure.

Ben Prentice [37:35]: And then understanding security of the blockchain, and how it takes — how much energy you would need to input to recreate the blockchain and to change the history. Or even to write a new transaction, or to double-spend. And this gets me into why Bitcoin is better than all the other cryptocurrencies — probably combined! Because it has ten times the users and ten times the hashrate of all these things combined! You could turn off 10% of the supply of Bitcoin miners and point them at Bitcoin Cash, for example, and 51% attack it with ease! And one of these large Bitcoin mining pools could probably do that with ease, right now, and then go back to mining Bitcoin afterward! They could crash Bitcoin Cash if they really wanted to! That’s not possible with Bitcoin. So you see a lot of Bitcoin maximalists very ardent that Bitcoin is way, way better. You have to understand all of these things together, and then you have to start to understand the economics and networks. So Metcalfe’s law, network effects, and how much larger the network of Bitcoin is, and how much more people know about Bitcoin and use Bitcoin. And where it’s accepted, if you want to go that route. How much further ahead it is. I also wanted to get into how cryptography and distributed systems — specifically BitTorrent. If you guys don’t remember, in the 90’s there was Napster. Napster was where you could download songs for free. I remember showing this to my friends and they were like, Wow! You can download any song for free? And I was like, Yep! Right there! Check it out! And it was shut down. And then there was Morpheus and Limewire and all these other services came out after it and those were all shut down too. [39:17] And then somebody came along and made this thing called BitTorrent. And the governments were like, Huh! There’s really no way to shut this down! It’s a peer to peer network! You’d have to go down to every single person’s house and shut them all off. And BitTorrent opened the door to a system that could never be turned off. And that kind of goes into the decentralization of Bitcoin, why decentralization is so important, and why Bitcoiners are small blockers, versus the big block Bitcoin Cash people. The decentralization of the network is paramount! It’s the most important thing! If you do not have this decentralization, it will get shut down! We know, because all of the other sovereign monies that were tried outside of the government all got shut down. From Liberty Dollar to real meatspace stuff to BCash and BitGold. There was a number of digital currencies started and eventually the government just shows up and knocks on the door and says, Yeah you guys gotta turn this stuff of. The decentralization of Bitcoin, plus solving the double-spend problem, is what makes it resilient to this. Its antifragility. And if you don’t understand that concept you’re not gonna understand why Bitcoiners think that it’s better than all the other cryptocurrencies. And while we’re on distributed systems and open source software, you get into network architecture. The network architecture of the Internet is built with Internet Protocol first, then its TCP/IP, and then later they built all these other layers on top of that: HTTPS — and those things don’t change, right? So IP, TCP — we’re not changing those protocols. Another good example is e-mail, the POP and IMAP, haven’t changed in 20 or 30 years! You know, there’s no read receipts, there’s no undo button, and there’s a number of features that we could add if we could change the protocols underlying these things, but they don’t change. And there’s a reason these things don’t change — it’s because these things are being built in layers. And understanding why the Lightning Network developed the way it did — you have to crucially understand these concepts first, right? I think that’s mainly covering most of these giant things. If you want we can go into how some of these overlap, but we already kind of started that. What do you think, Collin?

Collin [41:52]: Yeah. Well, I’ll touch on some of the things that you just mentioned. You were talking about how, a lot of people, they see the Bitcoiners ardently proclaiming that Bitcoin is so objectively more secure than any other project. And the layman hears that and says, This guy! This guy is trying to pump his bags! He cares more about his — he’s selfish! He wants Bitcoin to win and he wants everyone else to lose! But the real objective truth is that we’re talking orders of magnitude, the levels of security that Bitcoin has relative to everything else, and I would even argue — first of all, I think that proof of stake is stupid, but that’s a rabbit hole we’re not gonna go down right now. I would argue that minority proof of work chains, meaning any proof of work coin that isn’t Bitcoin, is at a severe severe severe security disadvantage, for the reason that Ben talked about earlier, is that you can just take a small fraction of the hashpower from the Bitcoin network — leaving Bitcoin’s security completely unchanged — and you can attack a minority chain with that. And you can affect a lot of people that are using that chain that way. And the Bitcoin’s main security isn’t even touched! So when people say, when you’re on Twitter, you see people saying, Oh! Bitcoin is the only secure cryptocurrency. There’s a reason that they’re saying it! They’re not talking under their butt, they’re not trying to pump their bags —

Ben Prentice [43:21]: Again, using logical reasoning, critical thinking, to understand these concepts. You know, a lot of us started with Bitcoin and then went on to the shitcoin path, like I personally bought a bunch, and — I actually still have a few — but like, I definitely want to sell them. And we got into Bitcoin, and then we were like, Oh wait! There’s all these other things? This one’s more efficient! And this one’s faster! And this one is gonna be the Internet of Things money and this one’s gonna be the world computer money! And, really, understanding the economics piece, is understanding why you really only want one money, because the more different types the money, the harder it is to trade, and there’s more barriers in there!

Collin: Most definitely! I talked about this with the episode with Michael Goldstein where it’s sort of akin to gift cards. There’s a market for gift cards, but they’re not liquid. Like, if you were gonna sell — if you get a gift card for Christmas, and you want to try to sell it, you can! There is a market for that, but you’re gonna be selling it at a loss, because it’s not a liquid market, and it’s gonna be the same thing for a lot of these utility tokens, because they’re not liquid! Nobody wants Target gift cards, because they’re not a fungible currency.

Ben Prentice: They’re not money any more than gift cards are money. I mean gift cards you might think are money, sure, but they’re a token that is only redeemable in one place. I think what we’re starting to see is with what a lot of those utility tokens were trying to do — again, and you’ll hear Bitcoiners say this a lot — we can all be done, eventually, using Bitcoin. Smart contracts are already a part of Bitcoin, you know, what Brave Browser was trying to do to incentivize people watching ads and getting a part of that revenue, it could all be done with Bitcoin! You don’t need a token for that.

Collin [45:32]: And it’s an open source project, and GAB, you know some of my longtime viewers will remember I had Andrew Torba on my show and he talked about GAB, GAB right now is working on forking Brave Browser, pulling out BAT, and putting in Bitcoin and Lightning in its place. And it’s just a matter of time before that happens to pretty much any crypto project out there with any merit whatsoever. Because, when I’m looking at these — people send me all kinds of stupid projects all the time and they’re like, Well, what about this? What do you think about this? If you can take the token, completely get rid of it, and replace it with Bitcoin? I think it’s dumb.

Ben Prentice: Yeah, absolutely! Do you want to jump into how some of these things really like, you know in this Venn-diagram, some of these things overlap, but they all overlap in the center here, under blockchain. And once you really start to get the Austrian view of economics, you understand how distributed systems and open source software—you know open source software is a meritocracy of ideas, not of people! So people are always talking about, Well, who controls Bitcoin? Good ideas control Bitcoin, not people, right? Yeah there’s Blockstream and there’s Bitcoin Core, and all these people, but if their ideas are bad, well all the people that run nodes will just stop using their version and they’ll start using an idea that’s better!

Collin: And that happened!

Ben Prentice: Yes! Yes it did. The Schelling point that we arrive at is what Bitcoin really is. And it’s very clear how much farther ahead Bitcoin is. It’s much larger than all of the other cryptocurrencies put together. I wanted to talk about legal tender laws and inter-central bank cooperation. Essentially, we’re talking about the governments stealing money from people by printing it. It turns out that — in the Bretton Woods agreement, essentially, in 1944, all the centrals of the different countries got together and agreed to inflate their currencies at the same rate. It was the closest thing we got to a gold standard in the last century. But they’re all still robbing from all of their citizens, right?

Collin [47:49]: And nobody would ever adhere 100% to that rate that they agreed on. There always would be someone that would cheat just a little bit.

Ben Prentice: Yeah and it was this competition of who could keep the most gold in their reserves. Before that in 1933 I think, the New Deal, the government confiscated gold from everybody. They literally said, No you guys can’t use that money! And the reason they did that is because, there was redeemability of gold in paper notes. So this is where the intersection of politics and money — money has become a political thing!

Collin: But it didn’t used to be?

Ben Prentice: It didn’t used to be. And many economists—usually proponents of the free markets — stop short at money. They insist that money should be regulated by the government and issued by the government. But it didn’t used to be. It used to be gold! We essentially, by confiscating gold and making it illegal to hold gold, we took the free market out of money completely! And we’ve replaced it with these pieces of paper that allow us to create money with a keystroke. And [they’ve] powerfully and subtly acquired the stored time of people — Misir Mahmudov talks about money as a stored time. You go work a bunch, and then later in life you redeem those tokens that you’ve received. But if those tokens can be diluted, they’re diluting your time! I had a friend who came to me and he was saying, If somebody wastes some of your time, they are murdering part of your life. They’re actually taking part of your life away. Right? So if you go watch a 30-second ad, for example — and he started doing all the math and the average lifespan is 80 years or something, and he said — A minute of your time is a micromurder! Because he calculated how much time you have in your life, and if you waste one day of it, then it’s one millionth of that or something. And I turned to him and I said, Well yeah, but you store your time in money! So if the government is diluting the supply of money, that means they’re murdering you at 3% per year! And he goes, Oh. That’s a really good point. [50:24] Legal tender laws are tied into this confiscation of gold thing, right? Where they essentially — the US government suspended redeemability of gold a number of times, until 1971, when Richard F’ing Nixon suspended the redeemability of gold forever.

Collin: Right. And I would add, the reason this happens is because of something called Gresham’s Law, which is where a good money will be hoarded, and bad money will be circulated. Meaning that, people — like, the free market knows what’s good money and what’s bad money. And that’s why, in these systems where we had gold notes and gold in the banks, you’d see people spending the bad money, and hoarding — you know, anytime they could get a hold of gold or silver coins, they’d take it home and they’d put it in the dresser drawer, or they’d store it in a bank deposit box. Because even if they don’t consciously realize it, they know that that holds its value, and that the paper gets diluted over time and it loses its value, and that’s where these legal tender laws come from: is the government has to force people to use the paper that their brains tell them, No! That’s not as good as the gold! Because it’s not as hard of a value. The legal tender laws force you! You have to pay your taxes, you have to accept this if you own a store. You have to use this if you want somebody to buy your house. You’re not allowed to just say, No, you have to pay me in gold bars, because legal tender laws force you to circumvent the free market demand.

Ben Prentice [51:55]: Yes, to say it in other words: without the legal monopoly on money, we wouldn’t use paper money, we would use gold! Again you have to understand why we use paper money in the first place. We started to use paper certificates of gold. They were stand-ins, where the gold was kept in vaults. And you get to the centralization of gold in vaults problem: the person that holds all the gold, really, is the person who holds all the money, not the people that hold the paper. Because you have to actually get the gold. If the paper is inflated too much, well then you’re gonna want the gold back, but it’s all held in banks and the government’s confiscated it all. Oh and you talked about Gresham’s Law, but I never talk about Gresham’s Law without talking about Thiers’ Law, which is like the reciprocal of it! So you talked about: bad money drives out good money, meaning that people hoard the good money, and the spend the bad money, so all the bad money is being spent in the economy. But Thiers’ Law is when good money drives out bad money. Meaning that, once the purchasing power of the bad money gets so bad, people no longer want it at all. And that’s when good money wins, right?

Collin [53:07]: Which you see it happen in places like Venezuela, Weimar Germany —

Ben Prentice: Zimbabwe, right?

Collin: People carry around wheelbarrows full of cash for a loaf of bread, because they don’t want the cash and they can’t even burn it to stay warm. You know, they would rather have anything else!

Ben Prentice: And what I have come to the conclusion of is that Bitcoin obviates almost every issue that is an issue with paper money. And gold! It has verifiable purity. It goes back to the verifiability of cryptography and math. So when you tested gold, to make sure that it was good gold, you had to melt it down or weigh it, you had to do all this stuff in order to make sure it’s the right density, that it is actually gold. Well, Bitcoin is not only trivial to verify — like, how much digital gold somebody just gave you? You can actually melt down the entire supply of Bitcoin every ten minutes using your full node. So you can trivially verify all of the Bitcoin, you can melt down the entire supply all at once. It also cannot be inflated. The reason it cannot be inflated is the immutability of this very large decentralized network that is based on mathematical security that there will never be more than 21 million. Bitcoin will never be suppressed because of the BitTorrent thing. They made Napster, then Limewire, then Morpheus, but they couldn’t shut down BitTorrent! And they still haven’t, much to their dismay. Bitcoin cannot be turned off! And it can’t really be suppressed. In Venezuela, they’re trying to suppress Bitcoin, they’re knocking on miners’ doors and confiscating mining equipment in Venezuela. But you can send a packet anywhere in the world very easily by connecting to any network. And in the future mesh networking will become even more prolific. As Andreas says, when you turn money into a content type that can be sent over a radio, a satellite network now, we have Blockstream. This cannot be stopped.

Collin [55:24]: There was this story about the guys in Venezuela that were using their car battery to power some sort of transmitter to send a Bitcoin transaction through the Blockstream satellite.

Ben Prentice: That’s amazing!

Collin: Yeah, they find a way. People always find a way.

Ben Prentice: Completely cut off from the grid, you can still send Bitcoin transactions. That’s amazing.

Collin: Just to talk about something you passed there real quick: you were talking about the auditable, verifiable supply. Someone challenged me not that long ago. They said, Well, yeah, everyone says that Bitcoin, there will only ever be 21 million Bitcoins, but nobody can actually prove it! I pushed back, man! This was over on the, it’s a forum that I spend a lot of time on. I was like, No, I can prove it to you right now. I can show you how you can prove it! I can show you the blocks, I can show you where the coinbase is, I can show you the reward, I can show you exactly how much the reward paid out, and I can show you where each output went after it got spent. It is provable, and it’s not that difficult. You don’t even have to know that much about computers to be able to go into the blockchain data and prove, without a shadow of a doubt, exactly how many Bitcoin there are.

Ben Prentice [56:38]: Well yeah, but unless you understand math and cryptography, there is still doubt, right?

Collin: Yeah, it means nothing to you. But the fact that people make that argument! You either have to take our word for it or you have to figure these things out for yourself.

Ben Prentice: Right! So we encourage you to not take our word for it and to go down this rabbit hole — and this is the rabbit hole that Marty Bent talks about, and a lot of us talk about, is that, this is the rabbit hole, guys — trying to understand all of these different things! It is no easy task, and Collin and I don’t claim to understand it all! But we’re trying!

Collin: It’s a monumental undertaking to look at this spectrum, and to pick out each individual thing and try to understand how each of them fit into this picture, and where they overlap, and the subtleties and the nuances of all of these different things, on top of a nascent technology that in and of itself is kind of difficult and complicated to understand!

Ben Prentice: Yeah and this takes me back to the history of money. We started off not having any money and just bartering and eventually people realized that everybody liked wheat, for example, and everybody used wheat as money because it was widely used. And then they went on and used shells and glass beads and stones — and all of these things got inflated. So inflation was really the problem with most monies. [57:55] [For] some of them durability was a problem. And eventually gold took over all money because it was the best money, not because a government enforced gold. It means that individually, separately, just like us Bitcoiners individually coming to the same conclusions, the markets across the world, individually, separate from each other, zeroed in on gold. And the reason that they zeroed in on gold was mostly because it was very difficult to inflate. It grew this very large stockpile, and then the flow of new gold coming in was so insignificant that you weren’t diluting your supply of your stored time energy with your gold. But gold had a really big issue with it. It wasn’t portable, and it wasn’t divisible to the needs of the modern world. If I wanted to transact with somebody in Sweden or in Japan, well I have to mail them a bunch of gold, and that’s why they started using money certificates that were stand-ins for the gold that could be easily moved around and they made it divisible and all this stuff. But it led to the centralization of gold in vaults and it gave governments all this undue power to manipulate the supply of money because we eventually got off of certificates and we got onto pure fiat money and all these other problems. But Bitcoin is a 10x improvement on gold, because A) it solves the portability issue. Obviously, it’s digital information content type, we can move it around in ways that we can’t even imagine yet! You know, the Lightning Network is talking about streaming money — these concepts that are still so foreign to us. B) It’s censorship-resistant, meaning that nobody can stop you from using it. C) The innovation on Bitcoin. You don’t need to go to a central bank and get permission from them. You don’t need to go to the government to get permission from them. You don’t need to go to Paypal and get permission to innovate and create new tools like streaming money or whatever. D) Access to it is access to anybody that has access to the Internet. A $20 cell phone as Andreas says, in Sudan, using a solar charger, can access this stuff. E) The unforgeable costliness, how much computing energy has gone into creating this blockchain that is now immutable because it has tens of thousands of nodes—I think it’s close to a hundred thousands nodes now — around the world. F) The verifiability, etc. All of this stuff is the improvement that Bitcoin is on gold and why we think Bitcoin will just start seeping into every place where it is better money than these other things. And I think the biggest challenge to Bitcoin right now is its biggest boon, which is the volatility. If you talk to anybody intelligent about this who isn’t into Bitcoin, they’ll say, Yeah but if I put my money in Bitcoin it can go up and down?

Collin: “Something so volatile can never become money.”

Ben Prentice: Yes! But understanding why something is volatile is crucial, right? This goes back to understanding that the reason its volatile is because, well, its inflation rate is higher than all the other monies, but that’s changing with the halving schedule. So you have to understand the halving schedule. And then you have to understand liquidity, right? Which is like this already strange, anomalous concept, of liquidity! But it essentially means how salable over time this thing is, and how much is stored in it. We talk about the market cap of the stock market and how much US dollars is it. Trillions of US dollars and we use dollars as the unit of account. The liquidity of the Bitcoin network is like $90 billion today. And that, in relation to all of these other gigantic currencies in the hundreds of trillions each, it’s just a drop in the bucket! It can get swayed around. But understanding why the price keeps rising really is tied into this halving schedule. People adopting it and it acquiring a monetary premium. You know monetary premium, Collin?

Collin [62:12]: Explain it.

Ben Prentice: Like, gold has use in electronics and it has a value from that, but it has a value from people holding it. Holding money is a use case for money. It is not hoarding, right? Just holding that and using it as money gives it a premium above its utility value.

Collin: Right. The vast majority of market cap from gold comes from store of value. It’s not from industrial use cases.

Ben Prentice: But what is Bitcoin? Bitcoin has no inherent utility, it is not a commodity, it has no inherent value! It only has value because we have given it value! People are willing to spend money on it! To buy it.

Collin: Right. Because of its properties that we just spent the last hour talking about. So Ben, we’re coming up on the end of our time here. But I had one last big finale question for you here. So, at the bottom of this chart, we have game theory. And you see a lot of people, particularly the people that are newer to crypto, or have really just got Bitcoin and they want to get more people into it, and they ask the question, What’s a good, simple, 5 minute explanation that I can use to make somebody understand Bitcoin and blockchain completely? And I think that we’ve kind of demonstrated here by going through the spectrum, that there really isn’t an answer to that question! People say, Well, you’ll never be able to get my grandma to understand this thing! Ben, can you in your own words explain to us in regards to the game theory, why it doesn’t matter whether or not everybody’s gonna understand this thing one day? In regards to it becoming a money?

Ben Prentice [63:54]: Game theory is this study of rational actors in a given situation, and how they will act. Essentially, it’s funny because, you know, I spent so much time trying to tell people about Bitcoin, and some of them listened, and some of them don’t, and some of them even have acquired some. But I think that everybody in the world is incentivized. They’re game theoretically incentivized to acquire some of this, actually! And they’re gonna buy some for the same reason I did. I told you this story, I knew about this a long time ago, but I only bought some when the price went up a lot! And I think the price is gonna continue going up! And understanding that is understanding all of the other stuff that I just talked about. But when the price goes up on something, well people get interested in it! And they might get a little bit! And then when people get some the hype surrounds it, the price goes up more. And people start to learn more about it. Which is what happened to me. I bought some, and then I started to learn a lot more about it. That’s really the answer, is that I think that this is a better money! I think it’s going to lead to prosperity for the people and not socialism for the rich. It’s gonna lift everybody up, even the politicians, they’re gonna be incentivized to buy some. Even rich people, they’re gonna be incentivized to buy some. Maybe even central banks. I’m not sure about that one. But I think we’re all incentivized to want to hold the best money, and it is the best money, and that will help civilization scale in ways that we can’t even imagine!

Collin: Well, this conversation was awesome. And I think that we could’ve spent probably hours on each individual pillar of the spectrum. We just quickly touched on each piece just in the last hour, but I really enjoyed this, and I hope that the listeners really enjoyed this conversation!

Ben Prentice: Yeah this was a blast man! I get so excited about this stuff, because I’m so passionate about wanting to help the world! So if I jumped around a little bit, I apologize!

Collin: Yeah! Ben and I were talking about it the other day and we were going back and forth on how awesome it is to be in this community surrounded by people that are so passionate about this topic and it’s so rare to find! Anybody that’s passionate about anything, these days. Bitcoin is like the exception to the rule. Everybody that you come across that understands this, they can’t stop talking about it! They annoy all their friends, they drive their spouses crazy, it’s nuts! So we are grateful to be able to get together with those types of people and share ideas and talk through this. Ben so where can my listeners find you if they want to find more, what you’re working on and keep up with you?

Ben Prentice: Yeah I have a blog, but a lot of it was written before I really got deep into this stuff, but I’m not even really doing that. If you want to follow me on Twitter, I’m always trying to understand these things better, and try to condense them down into a Tweet which is near impossible. So you can follow me on Twitter if you want, it’s @mrcoolbp.

Collin: Any upcoming projects?

Ben Prentice: I’m working on a history of money infographic right now, that I should be posting soon! More to come for sure!

Collin: Very cool man! Thanks so much for coming on the show!

Ben Prentice: My pleasure! Thanks for having me Collin!