Michael Saylor: Bitcoin, Inflation, and the Future of Money | Lex Fridman Podcast #276

Link to the YouTube video: https://youtu.be/mC43pZkpTec

Lex Fridman: Let’s start with a big question of truth and wisdom. When advanced humans or aliens or AI systems — let’s say 5–10 centuries from now — look back at Earth on this early 21st century, how much do you think they would say we understood about money and economics? Or even about engineering, science, life, death, meaning, intelligence, consciousness — all the big, interesting questions?

Michael Saylor: I think they would probably give us a B- on engineering, on all the engineering things — the hard sciences.

Lex Fridman: A passing grade?

Michael Saylor: We’re doing okay! We’re working our way through rockets and jets and electric cars and electricity transport systems and nuclear power and space flight and the like. And if you look at the walls that grace the Great Court at MIT, it’s full of all the great thinkers and they’re all pretty admirable. If you could be with Newton or Gauss or Madame Curie or Einstein, you would respect them. I would say they’d give us like an F+ or a D- on economics.

Lex Fridman: You have an optimistic vision — first of all, an optimistic vision of engineering, because most people you’ve listed is just over the past couple of centuries. And maybe it stretches a little farther back, but mostly all the cool stuff we’ve done in engineering is the past couple of centuries.

Michael Saylor: I mean, Archimedes had his virtues. I studied the history of science at MIT and I also studied aerospace engineering and so I clearly have a bias in favor of science. And if I look at the past 10,000 years and I consider all of the philosophy and the politics and their impact on the human condition, I think it’s a wash. For every politician that came up with a good idea, another politician came up with a bad idea. And it’s not clear to me that most of the political and philosophical contributions to the human race and the human conditions have advanced so much. I mean we’re still taking guidance and admiring Aristotle and Plato and Seneca and the like, and on the other hand, if you think about what has made the human condition better — fire, water, harnessing of wind energy — like, try to row across an ocean, right? Not easy.

Lex Fridman: And for people who are just listening or watching, there’s a beautiful sexy ship from the 16th-17th century?

Michael Saylor: This is a 19th century handmade model of a 17th century sailing ship which is of the type that the Dutch East India Company used to sail the world and trade. So the original was made sometime in the 1600s, and then this model was made in the 19th century by individuals.

Lex Fridman: Both the model and the ship itself is engineering at its best. And just imagine — just like rockets flying out to space — how much hope this filled people with: exploring the unknown, going into the mystery. Both the entrepreneurs and the business people and the engineers and just humans — what’s out there? What’s out there to be discovered?

Michael Saylor: Yeah the metaphor of human beings leaving shore or sailing across the horizon risking their lives in pursuit of a better life is an incredibly powerful one. In 1900, I suppose the average life expectancy was 50. During the Revolutionary War, while our founding fathers were fighting to establish life, liberty, pursuit of happiness, the Constitution, average life expectancy was somewhere between 32 and 36. So all the sound and the fury doesn’t make you live past 32, but what does? Antibiotics — conquest of infectious diseases. If we understand the science of infectious disease — sterilizing a knife and harnessing antibiotics gets you from 50 to 70, and that happened fast. That happens from 1900 to 1950 or something like that. And I think if you look at the human condition — you ever get on one of those rowing machines where they actually keep track of your watts output when you’re on it? 200 is a lot, okay? 200 is a lot. So a kilowatt hour is like all the energy that a trained athlete can deliver in a day, and probably not 1% of the people in the world could deliver a kilowatt hour in a day. And the commercial value of a kilowatt hour — the retail value — is 11 cents today, and the wholesale value is 2 cents. So you have to look at the contribution of politicians and philosophers and economists to the human condition, and it’s like at best a wash — one way or the other. And then if you look at the contribution of John D. Rockefeller when he delivered you a barrel of oil and the energy in oil — liquid energy — or the contribution of Tesla as we deliver electricity. And what’s the impact of the human condition if I have electric power? If I have chemical power? If I have wind energy? If I can actually set up a reservoir, create a dam, spin a turbine, and generate energy from a hydraulic source? That’s extraordinary, right? And so our ability to cross the ocean, our ability to grow food, our ability to live — it’s technology that gets the human race from a brutal life where life expectancy is 30 to a world where life expectancy is 80.

Lex Fridman [timestamp 8:19]: You gave a D- the economists. So are they too, like the politicians, a wash? In terms of: there’s good ideas and bad ideas, and that tiny delta between good and bad is how you squeak past the F+ onto the D- territory?

Michael Saylor: I think most economic ideas are bad ideas. Like, take us back to MIT and you want to solve a fluid dynamics problem: design the shape of the hull of that ship, or you want to design an airfoil — a wing — or if you want to design an engine or a nozzle in a rocket ship. You wouldn’t do it with simple arithmetic. You wouldn’t do it with a scalar. There’s not a single number, right? It’s vector math. Computational fluid dynamics is n-dimensional higher-level math — complicated stuff. So when when an economist says, The inflation rate is 2%, that’s a scalar. And when an economist says, It’s not a problem to print more money because the velocity of the money is very low — the monetary velocity is low — that’s another scalar, okay? So the truth of the matter is: inflation is not a scalar. Inflation is an n-dimensional vector. Money velocity is not a scalar. Saying, What’s the velocity of money? Oh, it’s slow or it’s fast — it ignores the question of what medium is the money moving through? In the same way that, What’s the speed of sound? Okay, well what is sound? Sound is a compression wave. It’s energy moving through a medium. But the speed is different! So for example, the speed of sound through air is different than the speed of sound through water, and sound moves faster through water. It moves faster through a solid and it moves faster through a stiffer solid. So there isn’t one.

Lex Fridman: What is the fundamental problem with the way economists reduce the world down to a model? Is it too simple? Or is it just even the first principles of constructing the model is wrong?

Michael Saylor: I think that the fundamental problem is: if you see the world as a scalar, you simply pick the one number which supports whatever you want to do, and you ignore the universe of other consequences from your behavior.

Lex Fridman: In general — I don’t know if you’ve heard of like Eric Weinstein has been talking about this with Gauge theory. So different kinds of approaches from the physics world, from the mathematical world, to extend past this scalar view of economics. So Gauge theory is one way that comes from physics. Do you find that way of exploring economics interesting? So outside of cryptocurrency, outside of the actual technologies and so on, just analysis of how economics works — do you find that interesting?

Michael Saylor: Yeah I think that if we’re going to want to really make any scientific progress in economics, we have to apply much more computationally-intensive and richer forms of mathematics.

Lex Fridman: So a simulation, perhaps?

Michael Saylor: Yeah, when I was at MIT I studied system dynamics — they taught it at the Sloan School. It was developed by Jay Forrester, who was an extraordinary computer scientist. And when we’ve created models of economic behavior, they were all multi-dimensional non-linear models. So if you want to describe how anything works in the real world, you have to start with the concept of feedback. If I double the price of something, demand will fall, and attempts to create supply will increase. And there will be a delay before the capacity increases, there’ll be an instant demand change, and there’ll be rippling effects throughout every other segment of the economy downstream and upstream of such a thing. So it’s kind of common sense, but most economics, most classical economics, it’s always taught with fairly simplistic linear models. And oftentimes even — I’m really shocked today that the entire mainstream dialogue of economics has been captured by scalar arithmetic. For example, if you read any article in New York Times or the Wall Street Journal they just refer to an inflation number or the CPI or the inflation rate is x, and if you look at all the historic studies of the impact of inflation, generally they’re all based upon the idea that inflation equals CPI and then they try to extrapolate from that, and you just get nowhere with it.

Lex Fridman: So at the very least we should be considering inflation and other economics concepts as a non-linear dynamical system. So non-linearity, and also just embracing the full complexity of just how the variables interact, maybe through simulation, maybe have some interesting models around that?

Michael Saylor: Wouldn’t it be refreshing if somebody — for once — published a table of the change in price of every product, every service, and every asset, in every place over time?

Lex Fridman: You said table — some of that also is the task of visualization: how to extract from this complex set of numbers patterns that somehow indicate something fundamental about what’s happening. So like: summarization of data is still important. Perhaps summarization not down to a single scalar value, but looking at that whole sea of numbers, you have to find patterns. Like, what is inflation in a particular sector? What is maybe change over time? Maybe different geographical regions? Things of that nature. I think that’s kind of — I don’t know even what that task is. You could look at machine learning. You can look at AI with that perspective, which is like, How do you represent what’s happening as efficiently as possible? That’s never going to be a single number, but it might be a compressed model that captures something beautiful, something fundamental about what’s happening.

Michael Saylor [15:09]: It’s an opportunity for sure right? If we take for example during the pandemic: the response of the political apparatus was to lower interest rates to zero and to start buying assets — in essence, printing money — and the defense was there’s no inflation. But of course, you had one part of the economy where it was locked down so it was illegal to buy anything. It was either illegal or it was impractical, so it would be impossible for demand to manifest — so of course there is no inflation. On the other hand, there was instantaneous immediate inflation in another part of the economy. for example you lowered the interest rates to zero. At one point we saw the swap rate on the 30-year note go to 72 basis points. Okay that means that the value of a long dated bond immediately inflates. So the bond market had hyper inflation within minutes of these financial decisions. The asset market had hyperinflation. We had what we affectionately call a k-shaped recovery: main street shutdown, Wall Street recovered all within six weeks. The inflation was in the assets: in the stocks, in the bonds. If you look today you see that a typical house according to Case-Shiller index today is up 19.2% year-over-year. So if you’re a first-time home buyer, the inflation rate is 19%. The formal CPI announced a 7.9%. You can pretty much create any inflation rate you want by constructing a market basket — a weighted basket of products or services or assets that yield you the answer. I think that the fundamental failing of economist is first of all they don’t really have a term for asset inflation.

Lex Fridman: What’s an asset? What’s asset hyperinflation? You mentioned bond market swap rate, and assets is where the all majority of the hyperinflation happened. What’s inflation? What’s hyperinflation? What’s an asset? What’s an asset market? I’m going to ask so many dumb questions.

Michael Saylor: In the conventional economic world you would treat inflation as the rate of increase in price of a market basket of consumer products defined by a government agency.

Lex Fridman: So they have a like traditional things that a regular consumer would be buying the government selects like toilet paper, food, toaster, refrigerator, electronics, all that kind of stuff? And it’s like a representative basket of goods that lead to a content existence on this Earth for a regular consumer?

Michael Saylor: They define a synthetic metric, right? I mean, I’m going to say you should have a thousand square foot apartment and you should have a used car and you should eat three hamburgers a week. Now ten years go by and the apartment costs more — I could adjust the market basket. They call them hedonic adjustments. I could decide that it used to be in 1978 you had a thousand square feet but in the year 2020 you only need 700 square feet because we’ve many miniaturized televisions and we’ve got more efficient electric appliances and because things have collapsed into the iPhone and you just don’t need as much space. So now it may be that the apartment costs 50% more but after the hedonic adjustment there is no inflation because I just downgraded the expectation of what a normal person should have.

Lex Fridman: So the synthetic nature of the metric allows for manipulation by people in power?

Michael Saylor: Pretty much. I guess my criticism of the economist is: rather than embracing inflation based upon its fundamental idea which is the rate at which the price of things go up, they’ve been captured by mainstream conventional thinking to immediately equate inflation to the government issued CPI or government-issued PCE or government-issued PPI measure, which was never the rate at which things go up, it’s simply the rate at which a synthetic basket of products and services the government wishes to track go up. Now the problem with that is two big things: one thing is the government gets to create the market basket and so they keep changing what’s in the basket over time. So if I said three years ago you should go see ten concerts a year and the concert tickets now cost two hundred dollars each now it’s two thousand dollars a year to go see concerts now. I’m in charge of calculating inflation, so i redefine your entertainment quota for the year to be eight Netflix streaming concerts and now they don’t cost two thousand dollars, they cost nothing and there is no inflation, but you don’t get your concerts, right? So the problem starts with continually changing the definition of the market basket. But in my opinion that’s not the biggest problem. The more egregious problem is the fundamental idea that assets aren’t products or services. Assets can’t be inflated.

Lex Fridman: What’s an asset?

Michael Saylor: A house. A share of Apple stock. A bond. A Bitcoin is an asset. Or a Picasso painting.

Lex Fridman: So not a consumable good, not an apple that you can eat

Michael Saylor: Right. If I throw away an asset then I’m not on the hook to track the inflation rate for it. So what happens if I change the policy such that — let’s take the classic example: a million dollar bond at a five percent interest rate gives you fifty thousand dollars a year in risk-free income. You might retire on fifty thousand dollars a year in a low-cost jurisdiction. So the cost of social security or early retirement is one million dollars when the interest rate is five percent. During the crisis of march of 2020 the interest rate went on a 10-year bond went to 50 basis points. Okay so now the cost of that bond is 10 million dollars. The cost of social security went from a million dollars to 10 million dollars. So if you wanted to work your entire life, save money, and then retire risk-free and live happily ever after on a $50,000 salary living on a beach in Mexico wherever you wanted to go, you had hyperinflation. The cost of your aspiration increased by a factor of 10 over the course of some amount of time. In fact, in that case that was like over the course of about 12 years. As the inflation rate ground down, the asset traded up, but the conventional view is: Oh that’s not a problem because it’s good that assets, the bond is highly priced because we own the bond. Or, what’s the problem with the inflation rate in housing being 19%? It’s an awful problem for a 22-year old that’s starting their first job that’s saving money to buy a house, but it would be characterized as a benefit to society by a conventional economist who would say, Well, asset values are higher because of interest rate fluctuation and now the economy’s got more wealth. And so that’s viewed as a benefit.

Lex Fridman: So what’s being missed here? Like, the suffering of the average person? Or the struggle, the suffering, the pain of the average person, like metrics that [don’t] capture that within the economic system?

Michael Saylor: One way to say it is: a conventional view of inflation as CPI understates the human misery that’s in inflicted upon the working class and on mainstream companies by the political class. And so it’s a massive shift of wealth from the working class to the property class. It’s a massive shift of power from the free market to the centrally governed or the controlled market. It’s a massive shift of power from the people to the government. and maybe one more illustrative point here, Lex is: what do you think the inflation rate’s been for the past 100 years?

Lex Fridman: Are you talking about the scalar again?

Michael Saylor: If you took a survey of everybody on the street and you asked them what do they think inflation was? What is it? Remember when Jerome Powell said our target’s two percent but we’re not there? If you go around the corner I have posted the deed to this house, sold in 1930. And the number on that deed is one hundred thousand dollars in 1930. And if you go on Zillow and you get the Z-estimate —

Lex Fridman: Is it higher than that?

Michael Saylor [timestamp 25:00]: $30,500,000. so that’s 92 years, 1930 to 2022, and in 92 years we’ve had a 305x increase in price of the house. Now if you actually back calculate you can you come to a conclusion that the inflation rate was approximately 6.5% a year every year for 92 years, okay? And there’s nobody — nobody in government, no conventional economist, that would ever admit to an inflation rate of 7% a year in the US dollar over the last century. Now if you dig deeper — I mean one guy that’s done a great job working on this is Saifedean Ammous who wrote the book The Bitcoin Standard, and he notes that on average it looks like the inflation rate and the money supply is about 7% a year all the way up to the year 2020. If you look at the S&P index, which is a market basket of scarce desirable stocks, it returned about 10%. 10% a year for 100 years. The money supply is expanding at 7% over 100 years. If you actually talk to economists or you look at the economy and you ask the question how fast does the economy grow in its entirety year over year? Generally about 2%-3%. The sum total impact of all this technology and human ingenuity might get you a 2.5%-3% improvement a year.

Lex Fridman: As measured by GDP?

Michael Saylor: I’m not sure I’d go that far yet, but I would just say that if you had the human race doing stuff and if you ask the question how much more efficiently will we do the stuff next year than this year? Or what’s the value of all of our innovations and inventions and investments in the past 12 months? You’d be hard-pressed to say we get 2% better. A typical investor thinks they’re 10% better every year. So if you look at what’s going on, really when you’re holding a million dollars of stocks and you’re getting a 10% gain a year, you really get a 7% expansion of the money supply — you’re getting a 2%-3% [real] gain under best circumstances. And another way to say that is: if the money supply stopped expanding at 7% a year the S&P yield might be 3% and not 10% — it probably should be. Now that gets you to start to ask a bunch of other fundamental questions like: if I borrow a billion dollars and pay 3% interest and the money supply expands at 7%-10% a year and I ended up making a 10% return on a billion dollar investment paying 3% interest, is that fair? And who suffered so that I could do that? Because in an environment where you’re just inflating the money supply and you’re holding the assets constant, it stands the reason that the price of all the assets is going to appreciate somewhat proportional to the money supply. And the difference in asset appreciation is going to be a function of the scarce desirable quality of the assets and to what extent can I make more of them and to what extent are they are they truly limited in supply?

Lex Fridman: Yeah so we’ll get to a lot of the words you said there: the scarcity and that’s connected to how limited they are, and the value of those assets. But you also said: so the expansion of the money supply — you just put another way, is printing money — and so is that always bad, the expansion of the money supply? Just to put some terms on the table so we understand them: you nonchalantly say it’s always the on average expanding every year, the money supply is expanding every year by 7%. That’s a bad thing? That’s a universally bad thing?

Michael Saylor [timestamp 29:17]: It’s awful. Well I guess to be precise: it’s the currency. I would say money is monetary energy or economic energy and the economic energy has to find its way into a medium, so if you want to move it rapidly as a medium of exchange it has to find its way into currency. But the money can also flow into property like a house or gold. If the money flows into property it’ll probably hold its value much better than if the money flows into currency. If you had put a hundred thousand dollars in this house you would have 305x return over 92 years. But if you had put the money a hundred thousand dollars in a safe deposit box and buried it in the basement, you would have lost 99.7% of your wealth over the same time period. So the expansion of the currency creates a massive inefficiency in the society — what I’ll call an adiabatic lapse. What we’re doing is we’re bleeding the civilization to death.

Lex Fridman: What’s the word, adiabatic?

Michael Saylor: Adiabatic lapse. In aerospace engineering, you want to solve any problem, they start with the phrase, Assume an adiabatic system. And what that means is a closed system. So I’ve got a container and in that container no air leaves and no air enters, no energy exits or enters, so it’s a closed system.

Lex Fridman: So you’ve got a closed system lapse. There’s a leak in the ship.

Michael Saylor: Okay, I’m going to use a physical metaphor for you because you’re into jujitsu. Like, you’ve got 10 pints of blood in your body? And so before your next workout I’m going to take one pint from you. Now you’re going to go exercise but you’ve lost 10% of your blood. Okay? You’re not going to perform as well — it takes about one month for your body to replace the red blood platelets. So what if I tell you every month you’ve got to show up and I’m going to bleed you? So if I’m draining the energy, I’m draining the blood from your body, you can’t perform. Adiabatic lapse is: when you go up in altitude, every thousand feet, you lose three degrees. You go up 50,000 feet you’re 150 degrees colder than sea level. That’s why you look at your instruments and instead of 80 degrees your -70 degrees. Why is the temperature falling? Temperatures falling because it’s not a closed system, it’s an open system. As the air expands, the density falls. The energy per cubic whatever falls and therefore the temperature falls, right? The heat’s falling out of the solution. So when you’re inflating — let’s say you’re inflating the currency supply by 6% — you’re sucking 6% of the energy out of the fluid that the economy is using to function.

Lex Fridman: So this ocean of currency, for the economy to function — it’s being inefficient when you expand the money supply? It’s how you do transactions at a scale of billions?

Michael Saylor [timestamp 32:56]: Currency is the asset we use to move monetary energy around. And you could use the dollar or you could use the peso or you could use the bolivar.

Lex Fridman: Selling houses and buying houses is much more inefficient. Or like, you can’t transact between billions of people with houses.

Michael Saylor: Yeah, properties don’t make such good mediums of exchange. They make better stores of value, and they they have utility value if it’s a ship or a house or a plane or a bushel of corn.

Lex Fridman: Can I zoom out? Can we keep zooming out until we reach the origin of human civilization but on the way ask: you gave economists a D-. I’m not even going to ask you what you give to governments. Do you think their failure — economist and government failure — is malevolence? Or incompetence?

Michael Saylor: I think policymakers are well-intentioned but generally all government policy is inflammatory and inflationary. So what I mean by that is: when you have a policy pursuing supply chain independence, if you have an energy policy, if you have a labor policy, if you have a trade policy, if you have any kind of foreign policy, a domestic policy, a manufacturing policy, medical policy — every one of these policies interferes with the free market and generally prevents some rational actor from doing it in a cheaper, more efficient way. So when you layer them on top of each other, they all have to be paid for. If you want to shut down the entire economy for a year, you have to pay for it. If you want to fight a war, you have to pay for it. If you don’t want to use oil or natural gas, you have to pay for it. If you don’t want to manufacture semiconductors in China and you want to manufacture them in the US, you got to pay for it. If I rebuild the entire supply chain in Pennsylvania and I hire a bunch of employees and then I unionize the employees, then not only do I idle the factory in the Far East — it goes to 50% capacity, so whatever it sells it has to raise the price on — and then I drive up the cost of labor for every other manufacturer in the US because I’m competing against them. I’m changing their conditions. So everything gets less efficient, everything gets more expensive. and of course the government couldn’t really pay for its policies and its wars with taxes. We didn’t pay for World War I with tax, we didn’t pay for World War II with tax, we didn’t pay for Vietnam with tax. In fact, when you trace this, what you realize is: the government never pays for all of its policies with taxes.

Lex Fridman: It’s too painful to raise the taxes to truly transparently pay for the things you’re doing with taxpayer money.

Michael Saylor: That’s one interpretation. or, it’s just too transparent. Like, if people understood the true cost

Lex Fridman: Of war, they wouldn’t want to go to war.

Michael Saylor: If you were told that you would lose 95% of your assets and 90% of everything, ever, will be taken from you, you might reprioritize your thought about a given policy and you might not vote for that politician.

Lex Fridman: But you’re still saying incompetence, not malevolence. so fundamentally, government creates a bureaucracy of incompetence, is kind of how you look at it?

Michael Saylor: I think a lack of humility, right? Like, if people had more humility then they would realize.

Lex Fridman: Humility about how little they know, how little they understand about the function of complex systems.

Michael Saylor: There’s the phrase from Clint Eastwood’s movie Unforgiven where he says, A man’s gotta know his limitations. I think that a lot of people overestimate what they can accomplish, and experience in life causes you to reevaluate that. I’ve done a lot of things in my life, and generally my mistakes were always my good ideas that I enthusiastically pursued to the detriment of my great ideas that required 150% of my attention to prosper. So I think people pursue too many good ideas. You know, they all sound good, but there’s just a limit to what you can accomplish, and everybody underestimates the challenges of implementing an idea, and they always overestimate the benefits of the pursuit of that. So I think it’s an overconfidence that causes an overexuberance in pursuit of policies. and as the ambition of the government expands, so must the currency supply. I could say the money supply, but let’s say the currency supply: you can triple the number of pesos in the economy but it doesn’t triple the amount of manufacturing capacity in the said economy, and it doesn’t triple the amount of assets in the economy. It just triples the pesos. So as you increase the currency supply, then the price of all those scarce desirable things will tend to go up rapidly, and the confidence of all of the institutions, the corporations, the individual actors, and trading partners will collapse.

Lex Fridman: If we take a tangent on a tangent — and we will return soon to the big human civilization question — so if government naturally wants to buy stuff it can’t afford, what’s the best form of government? Anarchism? Libertarianism? So there’s not even armies, there’s no borders — that’s anarchism. The smallest possible?

Michael Saylor: The best government would be the least, and the debate will be over that.

Lex Fridman: When you think about this stuff, do you think about, Okay, government is the way it is, I, as a person that can generate great ideas — how do I operate in this world? Or do you also think about the big picture, if we start a new civilization somewhere on mars? Do you think about what’s the ultimate form of government? At least, what’s a promising thing to try.

Michael Saylor: You know, I have laser eyes on my profile on Twitter.

Lex Fridman: Yes, what does that mean?

Michael Saylor: The significance of laser eyes is to focus on the thing that can make a difference. And if I look at the civilization, I would say half the problems in the civilization are due to the fact that our understanding of economics and money is defective — half, 50%. I don’t know, it’s $500 trillion dollars worth of problems? Money represents all the economic energy in the civilization, and it kind of equates to all the products, all the services, and all the assets that we have and we’re ever gonna have — so that’s half. The other half of the problems in the civilization are medical and military and political and philosophical and natural. And I think that there are a lot of different solutions to all those problems, and they are all honorable professions and they all merit a lifetime of consideration for the specialist in all those areas. I think that what I could offer that’s constructive is: inflation is completely misunderstood. It’s a much bigger problem than we understand it to be. We need to introduce engineering and science techniques into economics if we want to further the human condition. All government policy is inflationary. And another pernicious myth is: inflation is always and everywhere a monetary phenomenon. So a famous quote by Milton Friedman I believe it’s like, It’s a monetary phenomenon. That is, inflation comes from expanding the currency supply. It’s a nice phrase and it’s oftentimes quoted by people that are anti-inflation, but again it just signifies a lack of appreciation of what the issue is. If I had a currency which was completely non-inflationary, if I never printed another dollar and if I eliminated fractional reserve banking from the face of the Earth, we’d still have inflation. We’d have inflation as long as we have government that is capable of pursuing any kind of policies that are in themselves inflationary, and generally they all are.

Lex Fridman [timestamp 42:43]: So in general, the big characteristic of human nature is that governments — a collection of groups that have power over others and allocate other people’s resources — will try to, intentionally or not, hide the costs of those allocations. Like, in some tricky ways — whatever options are available.

Michael Saylor: Hiding the cost is like the tertiary thing. The primary goal is: the government will attempt to do good, right?

Lex Fridman: And that’s the primary problem?

Michael Saylor: They will attempt to do good and they will and they will do good imperfectly and they will create oftentimes more damage than the good they do. Most government policy will be iatrogenic: it will create more harm than good in the pursuit of it — but it is what it is. The secondary issue is they will unintentionally pay for it by expanding the currency supply without realizing that they’re actually paying for it in a sub-optimal fashion: they’ll collapse their own currencies while they attempt to do good. The tertiary issue is: they will mismeasure how badly they’re collapsing the currency. so for example, if you go to the Bureau of Labor Statistics and look at the numbers printed by the Fed, they’ll say, Oh it looks like the dollar has lost 95% of its purchasing power over 100 years. Okay, they sort of fess up that there’s a problem, but they make it a 95% loss over 100 years — what they don’t do is realize it’s a 99.7% loss over 80 years, so they will mismeasure just the horrific extent of the monetary policy in pursuit of the foreign policy and the domestic policy, which they overestimate their budget and their means to accomplish their ends and they underestimate the cost and they’re oblivious to the horrific damage that they do to the civilization, because the mental models that they use — that are conventionally taught — are wrong. The mental model that like, It’s okay, we can print all this money because the velocity of the money is low, right? — because money velocity is a scalar and inflation is a scalar and we don’t see 2% inflation yet and the money velocity is low and so it’s okay if we print trillions of dollars. Well, the money velocity was immediate. The velocity of money through the crypto economy is 10,000 times faster than the velocity of money through the consumer economy. I think Nic [Carter] pointed out when you spoke to him, he said it takes two months for a credit card transaction to settle. So you want to spend a million dollars in the consumer economy, you can move it six times a year. You put a million dollars into gold? Gold will sit in a vault for a decade, so the velocity of money through gold is 0.1. You put the money in the stock market and you can trade it once a week, the settlement is T+2. maybe you get the 2:1 leverage, you might get to a money velocity of 100 a year in the stock market. You put your money into the crypto economy and these people are settling every four hours, and if you’re offshore they’re trading with 20x leverage. So if you settle every day and you trade the 20x leverage you just went to 7,000! So the velocity of the money varies. I think the politicians, they don’t really understand inflation and they don’t understand economics, but you can’t blame them because the economists don’t understand economics. Because if they did, they would be creating multi-variate computer simulations where they actually put in the price of every piece of housing in every city in the world, the full array of foods, the full array of products, the full array of assets, and then on a monthly basis they would publish all those results. That’s a high bandwidth requirement and I think that people don’t really want to embrace it. And also there’s the most pernicious thing — there’s that phrase, You can’t tell people what to think but you can tell them what to think about — the most pernicious thing is: I get you to misunderstand the phenomenon so that even when it’s happening to you, you don’t appreciate that it’s a bad thing and you think it’s a good thing. So if housing prices are going up 20% year-over-year and I say, This is great for the American public because most of them are homeowners, then I’ve misrepresented a phenomenon. Inflation is 20%, not 7%, and then I’ve misrepresented it as being a positive rather than a negative. And the people will stare at it and you could even show them their house on fire and they would perceive it as being great because it’s warming them up and they’re going to save on their heat costs.

Lex Fridman [timestamp 48:24]: It does seem that the cruder the model — whether it’s economics, whether it’s psychology — the easier it is to weave whatever the heck narrative you want. And not in a malicious way, but just like it’s some kind of emergent phenomena, this narrative thing that we tell ourselves. So you can tell any kind of story about inflation — inflation is good, inflation is bad — the cruder the model, the easier it is to tell a narrative about it. So like if you take an engineering approach, I feel like it becomes more and more difficult to run away from a true, deep understanding of the dynamics of the system.

Michael Saylor: I mean honestly, if you went to 100 people on the street and you asked them to define inflation, how many would say it’s a vector tracking the change in price of every product, service, asset in the world over time? Not many. If you went to them and you said, Do you think 2% inflation a year is good or bad? The majority would probably say, Well here, it’s good. The majority of economists would say, 2% inflation a year is good. Look at the ship next to us: what if I told you that the ship leaked 2% of its volume every something, right? The ship is rotting 2% a year — that means the useful life of the ship is 50 years. Now ironically, that’s true: a wooden ship had a 50–100 year life. 100 would be long, 50 years is not unlikely. So when we built ships out of wood, they had a useful life of about 50 years and then they sunk and they rotted. There’s nothing good about it, right? You build a ship out of steel and it’s 0% as opposed to 2% degradation, and how much better is 0% versus 2%? well 2% means you have a useful half-life of 35 years. That’s basically the half-life of money in gold. If I store your life force in gold — under perfect circumstances — you have a useful life at 35 years. 0% is a useful life of forever. so 0% is immortal, 2% is 35 years average life expectancy. So the idea that you would think the life expectancy of the currency in the civilization should be 35 years instead of forever is kind of a silly notion, but the tragic notion is since the 1970’s it’s been 10 years. Money has had a half-life of 10 years, except for the fact that in weak societies — in Argentina or the like — the half-life of the money is 3–4 years, in Venezuela 1 year. So the United States dollar and the United States economic system was the most successful economic system in the world in the last hundred years: we won every war, we were the world superpower. Our currency lost 99.7% of its value. And that means — horrifically — every other currency lost everything. In essence, the other ones were 99.9% except for most that were 100% because they all completely failed, and you’ve got a you’ve got a mainstream economic community that thinks that inflation is a number and 2% is desirable. It’s kind of like: remember George Washington, you know how he died?

Lex Fridman: No

Michael Saylor [timestamp 52:19]: Well-meaning physicians bled him to death. the last thing in the world you would want to do to a sick person is bleed them in the modern world. I think we understand that oxygen is carried by the blood cells. There’s that triage phrase: what’s the first thing you do in an injury? Stop the bleeding. Single first thing, right? You show up after any action, I look at you — stop the bleeding, because you’re going to be dead in a matter of minutes if you bleed out. So it strikes me as being ironic that orthodox conventional wisdom was: bleed the patient to death. and this was the most important patient in the country — maybe in the history of the country and it’s and we bled him to death trying to help him. So when you’re actually inflating the money supply at 7% but you’re calling it 2% because you want to help the economy, you’re literally bleeding the free market to death. But the sad fact is George Washington went along with it because he thought that they were going to do him good. And the majority of the society — most companies most conventional thinkers — the working class, they go along with this because they think that someone has their best interest in mind, and the people that are bleeding them to death believe that prescription because their mental models are just so defective, and their understanding of energy and engineering and the economics that are at play is crippled by these mental models.

Lex Fridman: But that’s both the bug and the feature of human civilization, that ideas take hold, they unite us, we believe in them, and we make a lot of cool stuff happen — just the fact of the matter: a lot of people believe the same thing, they get together, and they get some shit done because they believe that thing. And then some ideas can be really bad and really destructive, but on average the ideas seem to be progressing in a direction of good. Let me just step back: what the hell are we doing here — us humans on this Earth? How do you think of humans? How special are humans? How did human civilization originate on this Earth? And what is this human project that we’re all taking on? You mentioned fire and water and apparently bleeding you to death is not a good idea — always thought you can get the demons out in that way, but that was a recent invention. So what’s this thing we’re doing here?

Michael Saylor: I think what distinguishes human beings from all the other creatures on the Earth is our ability to engineer. We’re engineers, right?

Lex Fridman: To solve problems? Or just to build incredible cool things?

Michael Saylor: Engineering: harnessing energy and technique to make the world a better place than you found it. From the point that we actually started to play with fire, that was a big leap forward. Harnessing the power of kinetic energy and missiles, another another step forward. Every city built on water — why water? Well, water’s bringing energy. If you actually put a turbine on a river or you capture a change in elevation of water, you’ve literally harnessed gravitational energy. But water is also bringing you food, it’s also giving you a cheap form of getting rid of your waste, it’s also giving you free transportation — you want to move 1-ton blocks around? You want to move them in water. So the human story is really the story of engineering a better world. And the rise in the human condition is determined by those groups of people, those civilizations that were best at harnessing energy. If you look, the Greek civilization, they built it around ports and seaports and water and created a trading network. The Romans were really good at harnessing all sorts of engineering — the aqueducts are a great example. If you go to any big city, you travel through cities in the Med, you find that the carrying capacity of the city or the island is 5,000 people without running water, and then if you can find a way to bring water to it, it increases by a factor of 10. And so human flourishing is really only possible through that channeling of energy. That eventually takes the form of air power. That ship — look at the intricacy of those sails. I mean just the model is intricate — now think about all of the experimentation that took place to figure out how many sails to put on that ship and how to rig them and how to repair them and how to operate them.

Lex Fridman: Yes, there’s thousands of lives spent thinking through all the tiny little details, all to increase the effectiveness the efficiency of this ship as it sails through water. And we should also note there’s a bunch of cannons on the side.

Michael Saylor: Another form of engineering, right? Energy harnessing with explosives.

Lex Fridman: To achieve what end? That’s another discussion.

Michael Saylor: I suppose we’re trying to get off the planet, right?

Lex Fridman: Well there’s a selection mechanism going on, so natural selection. However evolution works, it seems that one of the interesting inventions on Earth was the predator-prey dynamic, that you want to be the bigger fish. that violence seems to serve a useful purpose if you look at Earth as a whole. Humans now like to think of violence as really a bad thing. It seems to be one of the amazing things about humans is we ultimately tend towards cooperation: we like peace. If you just look at history, we want things to be nice and calm, but just wars break out every once in a while and lead to immense suffering and destruction and so on. And they have a resetting the palate effect. It’s one that’s full of just immeasurable human suffering, but it’s like a way to start over.

Michael Saylor [timestamp 59:32]: We’re clearly the apex predator on the planet. I googled something the other day: what’s the most common form of mammal life on Earth?

Lex Fridman: By number of organisms?

Michael Saylor: By count. And the answer that came back was human beings! I was shocked — I couldn’t believe it. Apparently if we’re just looking at mammals, the answer was: human beings are the most common, which was very interesting to me. I almost didn’t believe it, but I was trying to think: 8 billion or so human beings — there’s no other mammal that’s got more than 8 billion? If you walk through downtown Edinburgh in Scotland and you look up on this hill, there’s this castle up on the hill and you talk to people and the story is, Oh yeah well that was a British castle, before it was a Scottish castle, before it was Pict castle, before it was a Roman castle, before it was some other Celtic castle. Then they found 13 prehistoric castles buried one under the other, under the other, and you get to the conclusion that 100,000 years ago somebody showed up and grabbed the high-point — the apex of the city — and they built a stronghold there and they flourished and their family flourished and their tribe flourished until someone came along and knocked him off the hill. And it’s been a non-stop, never-ending fight by the aggressive, most powerful entity, family, organization, municipality, tribe, whatever —

Lex Fridman: All for the hill.

Michael Saylor: For that one hill, going back since time immemorial, and you scratch your head and you think, It seems like it’s just this never-ending wheel.

Lex Fridman: But doesn’t that leave all kinds of metrics? That seems to improve the quality of our cannons and ships as a result. Like, it seems that war — just like your laser eyes — focuses the mind on the engineering tasks.

Michael Saylor: It is that, and it does remind you that the winner is always the most powerful. And we throw that phrase out, but no one thinks about what that phrase means. Like, Who’s the most powerful? Or, The most powerful side won, but they don’t think about power as energy delivered in a period of time, and then you think, A guy with a spear is more powerful than someone with their fist, and someone with a bow and arrow is more powerful than the person with the spear, and then you realize that somebody with bronze is more powerful than without, and steel is more powerful than bronze. And if you look at the Romans, they persevered with artillery and they could stand off from 800 meters and blast you to smithereens. You study the history of the Balearic slingers and you think we invented bullets, but they invented bullets to put in slings thousands of years ago. They could have stood off 500 meters and put a hole in your head, right? And so there was never a time when when humanity wasn’t vying to come up with an asymmetric form of projecting their own power via technology.

Lex Fridman: An absolute power is when a leader is able to control a large amount of humans. They’re facing the same direction — working in the same direction to leverage energy.

Michael Saylor: The most organized society wins. When the Romans were were dominating everybody, they were the most organized civilization in Europe. And as long as they stayed organized, they dominated. And at some point they over-expanded and got disorganized and they collapsed. And I guess you could say that the struggle of the human condition, it catalyzes the development of new technologies one after the other, it penalizes — anybody that rejects ocean power gets penalized. You reject artillery, you get penalized. You reject atomic power, you get penalized. If you reject digital power, cyber power, you get penalized, and the underlying control of the property keeps shifting hands from one institution or one government to another, based upon how rationally they’re able to channel that energy and how well organized or coordinated they are.

Lex Fridman: Well that’s really interesting thing about both the human mind and governments and companies — once they get a few good ideas they seem to stick with them. They reject new ideas. Whether that’s emergent or however that evolved, it seems to have a really interesting effect because when you’re young you fight for the new ideas, you push them through, then a few of us humans find success, then we get complacent, we take over the world using that new idea, and then the new young person with the better new idea challenges you and you, as opposed to pivoting, you stick with the old and lose because of it. And that’s how empires collapse. And it’s just both at the individual level that happens, when two academics fighting about ideas or something like that, and at the human civilization-level — governments, they hold on to the ideas of old. it’s fascinating.

Michael Saylor: Yeah an ever-persistent theme in the history of science is the paradigm shift, and the paradigms shift when the old guard dies and a new generation arrives. Or, the paradigm shifts when there’s a war and everyone that disagrees with the idea of aviation finds bombs dropping on their head. Or everyone that disagrees with whatever your technology is has a rude awakening. And if they totally disagree, their society collapses and they’re replaced by that new thing.

Lex Fridman [timestamp 1:05:59]: A lot of the engineering you talked about had to do with ships and cannons and leveraging water. What about this whole digital thing that’s been happening over the past century? Is that still engineering in your mind? You’re starting to operate in these bits of information.

Michael Saylor: I think there’s two big ideas: the first wave of ideas were digital information, and that was the Internet wave that’s been running since 1990 or so, for 30 years. And the second wave is digital energy. So if I look at digital information, this idea that we want to digitally transform a book, I’m going to dematerialize every book in this room into bits and then I’m going to deliver a copy of the entire library to a billion people and I’m going to do it for pretty much de minimis electricity — if I can dematerialize music, books, education, entertainment, maps, that is an incredibly exothermic transaction. It’s a crystallization. When we collapse into a lower energy state as a civilization we give off massive amounts of energy. If you look at what Carnegie did: the richest man in the world created libraries everywhere at the time and he gave away his entire fortune. Now we can give a better library to every six year old for nothing. And so what’s the value of giving a million books to 8 billion people? That’s the explosion in prosperity that comes from digital transformation. And when we do it with maps, I transform the map, I put it into a car, you get in the car, and the car drives you where you want to go with the map. And how much better is that than a Rand McNally atlas right here? It’s like a million times better. So the first wave of digital transformation was the dematerialization of all of these informational things which are non-conservative — that is, I could take Beethoven’s 5th symphony played by the best orchestra in Germany and I could give it to a billion people and they could play it a thousand times each at less than the cost of the one performance. So I deliver culture and education and erudition and intelligence and insight to the entire civilization over digital rails, and the consequences to the human race are, first order, generally good, right? The world is a better place, it drives growth, and you create these trillion-dollar entities like Apple and Amazon and Facebook and Google and Microsoft. That is the first wave.

Lex Fridman: That first wave, it feels like the impact that’s positive — you said the first order impact is generally positive — it feels like it’s positive in a way that nothing else in history has been positive. And then we may not actually truly be able to understand the orders of magnitude of increase in productivity, in just progress of human civilization, until we look back centuries from now. Like just looking at the impact of Wikipedia, giving access to basic knowledge and then perhaps wisdom to billions of people — if you can just linger on that for a second: what’s your sense of the impact of that?

Michael Saylor [timestamp 1:09:55]: I would say: if you’re a technologist-philosopher, the impact of a technology is so much greater on the civilization and the human condition than a non-technology that it’s almost not worth your trouble to bother trying to fix things in a conventional way. So let’s take example an: I have a foundation, the Saylor Academy, and the Saylor Academy gives away free education, free college education, to anybody on Earth that wants it. And we’ve had more than a million students. And if you go and you take the physics class, the lectures were by the same physics lecturer that taught me physics at MIT, except when I was at MIT the cost of the first four weeks of MIT would have drained my family’s collective life savings for the last hundred years. Like, a hundred years worth — my father, my grandfather, my great-grandfather — if they saved every penny they had after 100 years they could have paid for one week or two weeks at MIT. That’s how fiendishly expensive and inefficient it was. I went on scholarship — I was lucky to have a scholarship. But on the other hand, I sat in the back of the 801 lecture hall and I was like right up in the rafters — it’s an awful experience on these uncomfortable wooden benches and you can barely see the blackboard, and you’ve got to be there synchronously. And the stuff we upload, you can start it and stop it and watch it on your iPad or watch it on your computer and rewind it multiple times and sit in a comfortable chair and you can do it from anywhere on Earth and it’s absolutely free. So I think about this and I think: you want to improve the human condition? You need people with post-graduate level education, you need PhDs, and I know this sounds kind of elitist, but you want to cure cancer? You want to go to the stars? Fusion drive? We need new propulsion, right? We need we need extraordinary breakthroughs in every area of basic science, be it biology or propulsion or material science or computer science. You’re not doing that with an undergraduate degree. You’re certainly not doing it with a high school education. But the cost of a PhD is like a million bucks. There’s like 10 million PhDs in the world if you check it out. There’s 8 billion people in the world. How many people could get a PhD or would want to? Maybe not 8 billion, but a billion? 500 million? Let’s just say 500 million to a billion: how do you go from 10 million to a billion highly educated people, all of them specializing in — and I don’t have to tell you how many different fields of human endeavor there are — I mean, your life is interviewing these experts and there’s so many it’s amazing. So how do I give a multi-million dollar education to a billion people? And there’s two choices: you can either endow a scholarship in which case you pay $75,000 a year. Let’s pay a million dollars a person — I can do it that way. And even if you had a trillion dollars — if you had $10 trillion dollars to throw at the problem — and we’ve just thrown $10 trillion dollars at certain problems — you don’t solve the problem, right? If I put $10 trillion dollars on the table and I said, Educate everybody, give them all a PhD — you still wouldn’t solve the problem. Harvard University can’t educate 18,000 people simultaneously or 87,000 or 800,000 or 8 million, so you have to dematerialize the professor and dematerialize the experience. So you put it all as streaming on-demand computer-generated education, and you create simulations where you need to create simulations and you upload it. The human condition is being held back by 500,000 well-meaning, average algebra teachers. I love them I mean please don’t take offense if you’re an algebra teacher. But instead of 500,000 algebra teachers going through the same motion over and over again, what you need is 1 or 5 or 10 really good algebra teachers and they need to do it a billion times a day or billion times a year for free. And if we do that there’s no reason why you can’t give infinite education, certainly in science, technology, engineering, and math, right? Infinite education to everybody with no constraint. And I think the same is true with just about every other thing: if you want to bring joy to the world you need digital music, if you want to bring enlightenment to the world you need digital education, if want to bring anything of consequence in the world you got to digitally transform it and then you got to manufacture it something like a hundred times more efficiently as a start, but a million times more efficiently is probably — that’s hopeful, maybe you have a chance. And if you look at all of these space endeavors and everything with, We’re thinking about getting to Mars, getting off the planet, getting to other worlds, number one thing you gotta do is you’ve gotta make a fundamental breakthrough in an engine. People dreamed about flying for thousands of years, but until the internal combustion engine, you didn’t have enough energy — enough power in a light enough package — in order to solve the problem. And the human race has all sorts of those fundamental engines and materials and techniques that we need to master, and each one of them is a lifetime of experimentation of someone capable of making a seminal contribution to the body of human knowledge.

Lex Fridman: There are certain problems like education that could be solved through this process of dematerialization. And by the way, to give props to the 500,000 algebra teachers — when I look at YouTube, for example, one possible approach is each one of those 500,000 teachers probably had days and moments of brilliance, and if they had ability to contribute to — in the natural selection process — like the market of education where the best ones rise up. That’s a really interesting way, which is like: the best day of your life, the best lesson you’ve ever taught, could be found and broadcast to billions of people. So all of those kinds of ideas can be made real in the digital world. Now traveling across planets, you still can’t solve that problem with dematerialization. What you could solve, potentially, is dematerializing the human brain, where you can transfer — like you don’t need to have astronauts on the ship you — can have a floppy disk carrying a human brain.

Michael Saylor: Touching on those points: you’d love for the 500,000 algebra teachers to become 500,000 math specialists and maybe they clump into 50,000 specialties as teams and they all pursue 50,000 new problems and they put their algebra teaching on autopilot. That’s the same as when I give you 11 cents worth of electricity and you don’t have to row a boat eight hours a day before you can eat. It would be a lot better that you would pay for your food in the first eight seconds of your day and then you could start thinking about other things, right? With regard to technology, one thing that I learned studying technology — when you look at S-curves — is: until you start the S-curve, you don’t know whether you’re 100 years from viability, 1,000 years from viability, or a few months from viability.

Lex Fridman: Isn’t that fun? That’s so fun — the early part of the S-curve is so fun because you don’t know.

Michael Saylor: In 1900 you could have got any number of learned academics to give you 10,000 reasons why humans will never fly. And in 1903 the Wright Brothers flew, and by 1969 we’re walking on the moon. So the advance that we made in that field was extraordinary, but for the 100 years and 200 years before they were just back and forth and nobody was close. And that’s the happy part. The happy part is we went from flying 20 miles an hour or whatever to 25,000 flying miles an hour in 66 years. The unhappy part is I studied aeronautical engineering at MIT in the 80's and in the 80's we had Gulfstream aircraft, we had Boeing 737s, we had the space shuttle, and you fast forward 40 years and we pretty much had the same exact aircraft — the efficiency of the engines was 20%-30% more. We slammed into a brick wall around ‘69-’75. In fact the Global Express, the Gulfstream — these were all engineered in the 70's, some in the 60's. The actual fuselage silhouette of a Gulfstream of a G5 is the same shape as a G4 is the same shape as a G3 is the same shape as a G2, and that’s because they were afraid to change the shape for 40 years because they worked it out in a wind tunnel and they knew it worked, and when they finally decided to change the shape it was like a $10 billion dollar exercise with modern supercomputers and computational fluid dynamics.

Lex Fridman: Why was it so hard? What was that wall made of that they slammed into?

Michael Saylor: But the right question is: so why does a guy that went to MIT that got an aeronautical engineering degree spend his career in software? Like, why is it that I never a day in my life — with the exception of some Air Force Reserve work — I never got paid to be an aeronautical engineer and I worked in software engineering my entire career.

Lex Fridman: Maybe software engineering is the new aeronautical engineering in some way. Like maybe you hit fundamental walls until you have to return to it centuries later? Or no?

Michael Saylor: The National Gallery of Art was endowed by a very rich man, Andrew Mellon, and you know how he made his money? Aluminum. And you know what kind of airplanes you can create without aluminum? Nothing.

Lex Fridman: So it’s a materials problem?

Michael Saylor: Okay, so 1900, we made massive advances in metallurgy. I mean that was US Steel, that was iron to steel, aluminum — massive fortunes were created because this was a massive technical advance. And then we also had the internal combustion engine and the story of Ford and General Motors and Daimler Chrysler and the like is informed by that. So you have no jet engines, no rocket motors, no internal combustion engines, you have no aviation, but even if you had those engines, if you were trying to build those things with steel — no chance — you had to have aluminum. So there’s two pretty basic technologies, and once you have those two technologies, stuff happens very fast. Tell me the last big advance in jet engines? There hasn’t been one. The last big advance in rocket engines? There hasn’t been one. The big advances in spaceship design, from what I can see, are in the control systems, the gyros, and the ability to land in a stable fashion — that’s pretty amazing landing a rocket.

Lex Fridman: Also, at least according to Elon and so on, the manufacturer — the more efficient and less expensive manufacturer of rockets. So like production — whatever that you call that discipline of at-scale manufacture or at-scale production, so factory work. But it’s not 10x. I mean, maybe it’s 10x over a period of a few decades.

Michael Saylor [timestamp 1:23:19]: When we figure out how to operate a spaceship on the water in your water bottle for a year — now then you’ve got a breakthrough. So the bottom line is: propulsion technology, propellants, and the materials technology, they were critical to getting on that aviation S-curve. And then we slammed into a wall in the 70's, and the Boeing 747, the Global Express, the Gulfstream, the space shuttle, they were all pretty much reflective of that. And then then we stopped — and at that point you have to switch to a new S-curve. So the next equivalent to the internal combustion engine was the CPU, and the next aluminum-equivalent was silicon. So when we actually started developing CPUs — the transistor gave way to CPUs — and if you look at the power, the bandwidth that we had on computers, and Moore’s law — what if the efficiency of jet engines had doubled every three years in the last 40 years? Where we be right now? So I think that if you’re a businessperson, if you’re looking for commercially viable application of your mind, then you have to find that S-curve. And ideally you have to find it in the first 5, 6, 10 years, but people always miss this. Let’s take Google Glass: Google Glass was an idea in 2013 — the year is 2022, and people were quite sure this was going to be a big thing.

Lex Fridman: But it could have been — at the beginning of the S-curve.

Michael Saylor: But fundamentally, we didn’t really have an effective mechanism — I mean, people getting vertigo and they’re —

Lex Fridman: Yeah, but you didn’t know that at the beginning of the S-curve, right? I mean maybe some people had a deep intuition about the fundamentals of augmented reality, but you don’t know that. You’re looking through the fog — you don’t know.

Michael Saylor: So the point is: we’re year zero in 2013 and we’re still year zero in 2022 on that augmented reality, and when somebody puts out a set of glasses that you can wear comfortably without getting vertigo, without any disorientation, that managed to have the stability and the bandwidth necessary to sync with the real world — you’ll be in year one. And from that point, you’ll have a 70-year or some interesting future until you slam into a limit to growth, and then it’ll slow down. And this is the story of a lot of things. I mean, John D. Rockefeller got in the oil business in the 1860's and the oil business as we understood it became fairly mature by the 1920's to 1930's, and then it actually stayed that way until we got to fracking, which was like 70 years later and then it burst forward.

Lex Fridman: The interesting story about Moore’s law, though, is that you get this constant burst of S-curves on top of S-curves on top of S-curves — it’s like, the moment you start slowing down, or almost ahead of you slowing down, you come up with another innovation, another innovation. It’s like, Moore’s law doesn’t seem to happen in every technological advancement. It seems like you only get a couple of S-curves and then you’re done for a bit, so I wonder what pressures there are that resulted in such success over several decades, and still going.

Michael Saylor: Humility dictates that nobody knows when the S-curve kicks off, and you could be 20 years early or 100 years early. Leonardo da Vinci, Michelangelo, they were designing flying machines hundreds and hundreds of years ago. So humility says you’re not quite sure when you really hit that commercial viability, and it also dictates: you don’t know when it ends. Like, when will the party stop? When will Moore’s law stop, and we’ll get to the point where they are exponentially diminishing returns on silicon performance? Just like we got exponentially diminishing returns on jet engines, and it just takes an exponential increase in effort to make it 10% percent better. But while you’re in the middle of it, then you know you can do things. So the reason that the digital revolution is so important is because the underlying platforms — the bandwidth of and the performance of the components, and the components are the radio protocols, mobile protocols, the batteries, the CPUs, and the displays — those four components are pretty critical. They’re all critical in the creation of an iPhone — I wrote about it in the book, The Mobile Wave, and they catalyzed this entire mobile revolution. Because they have advanced and continued to advance, they created a very fertile environment for all these digital transformations. And the digital transformations themself, they call for creativity on their own. Like, I think the interesting thing about — let’s take digital maps — when you conceptualize something as a dematerialized map, it becomes a map because I can put it on a display like an iPad or I can put it in a car like a Tesla, but if you really want to figure it out, you can’t think like an engineer. You need to think like a fantasy writer. Like, this is where it’s useful if you played Dungeons & Dragons and you read Lord of the Rings and you study all the fantasy literature, because when I dematerialize the map, first I put 10 million pages of satellite imagery into the map — that’s a simple physical transform. But then I start to put telemetry into the map and I keep track of the traffic rates on the roads and I tell you whether you’ll be in a traffic jam if you drive that way and I tell you which way to drive, and then I start to get feedback on where you’re going and I tell you the restaurant’s closed and people don’t like it anyway, and then I put an AI on top of it and I have it drive your car for you. And eventually, the implication of digital transformation of maps is: I get in a self-driving car and I say, Take me someplace cool where I can eat? [goes to sleep]. And how did you get to that last step? It wasn’t simple engineering. There’s a bit of fantasy in there. A bit of magic.

Lex Fridman: Design, art, whatever the heck you call it. Yeah, fantasy injects magic into the engineering process. Like, imagination precedes great revolutions in engineering. It’s like imagining a world of what you can do with the display, how will the interaction be. That’s where Google Glass actually came in: augmented reality, virtual reality — people are playing in the space of sci-fi imagination.

Michael Saylor: They called it a moon shot. They tried — it didn’t work, but to their credit they stopped trying.

Lex Fridman [timestamp 1:31:04]: And then there’s new people. They keep dreaming — dreamers are all around us. I love those dreamers. And most of them fail and suffer because of it, but some of them win Nobel prizes or become billionaires.

Michael Saylor: But what I would say is: if half the civilization dropped what they were doing tomorrow and eagerly started working on launching a rocket to Alpha Centauri — it might not be the best use of our resources, because it’s kind of like if half of Athens in the year 500 BC eagerly started working on flying machines. If you went back and you said, What advice would you give them?

Lex Fridman: Don’t!

Michael Saylor: You would say, It’s not going to work until you get to aluminum, and you’re not going to get to aluminum untill you work out the steel and certain other things, and you’re not going to get to that until you work out the calculus of variations and some metallurgy — and there’s a dude, Newton, that won’t come along for quite a while and he’s going to give you the calculus to do it and until then it’s hopeless. So you might be better off to work on the aqueduct or to focus upon sails or something. So if I look at this today I would say: There’s massive profound civilizational advances to be made through digital transformation of information — and you can see them. This is not the story of today, right? It’s 10 years old, what we’ve been seeing.

Lex Fridman: We’re living through different manifestations of that story today too, though. Like, social media, the effects of that is very interesting, because ideas spread even — you talk about velocity of money — the velocity of ideas keeps increasing. So like Wikipedia is a passive store of knowledge. Twitter is like a water hose or something — it’s like spraying you with knowledge whether you want it or not. Social media is just like this explosion of ideas and then we pick them up and then we try to understand ourselves because the drama of it also plays with our human psyche, so sometimes there’s more ability for misinformation, for propaganda to take hold, so we get to learn about ourselves, we get to learn about the technology that can decelerate the propaganda, for example — all that kind of stuff. But the reality is I feel like we’re living through a singularity in the digital information space, and we don’t have a great understanding of exactly how it’s transforming our lives.

Michael Saylor: This is where money is useful as a metaphor for significance, because if money is the economic energy of the civilization, then something that’s extraordinarily lucrative that’s going to generate a monetary or a wealth increase is a way to increase the net energy in the civilization. And ultimately, if we had 10x as much of everything we’d have a lot more free resources to pursue all of our advanced scientific and mathematical and theoretical endeavors. So let’s take Twitter, right? Twitter’s something that could be 10x more valuable than it is. Twitter could be made 10x better.

Lex Fridman: Oh by the way, I should say that people should follow you on Twitter. Your Twitter account is awesome.

Michael Saylor: Thank you. Yeah Twitter can be made 10x better. If we take YouTube or take education, we could generate a billion PhDs. And the question is: do you need any profound breakthrough in materials or technology to do that? And the answer is: Not really. So you could make Apple, Amazon, Facebook, Google, Twitter — all these things — better. The US Government, if they took 1% of the money they spend on the department of education and they simply poured it into digital education and they gave degrees to people that actually met those requirements, they could provide 100x as much education for 1/100th of the cost and they could do it with no new technology — that’s a marketing and political challenge. So I don’t think every objective is equally practical, and I think the benefit of being an engineer or thinking about practical achievements, is: when the government pursues an impractical objective, or when anybody — not so bad with an entrepreneur because they don’t have that much money to waste — when a government pursues an impractical objective, they squander trillions and trillions of dollars and achieve nothing. Whereas if they pursue a practical objective or if they simply get out of the way and do nothing and they allow the free market to pursue the practical objectives, then I think you can have profound impact on the human civilization. And if I look at the world we’re in today, I think that there are multi-trillion — $10, $20, $50 trillion dollars — worth of opportunities in the digital information realm yet to be obtained, but there’s hundreds of trillions of dollars of opportunities in the digital energy realm that, not only are they not obtained, the majority of people don’t even know what digital energy is. Most of them would reject the concept. They’re not looking for it. They’re not expecting to find it. It’s inconceivable because it is a paradigm shift, but in fact it’s completely practical, right under our nose, it’s staring at us, and it could make the entire civilization work dramatically better in every respect.

Lex Fridman [timestamp 1:37:19]: So you mentioned in the digital world, digital information is one, digital energy is two, and the possible impact on the world and the set of opportunities available in the digital energy space is much greater. So how do you think about digital energy? What is it?

Michael Saylor: So I’ll start with Tesla: he had a very famous quote. He said, If you want to understand the universe, think in terms of energy, vibration, and frequency. And it gets you thinking about, What is the universe? And of course the universe is just all energy. And then what is matter? Matter is low frequency energy. And what are we? We’re vibrating from — ashes to ashes dust to dust — I can turn a tree into light, I can turn light back into a tree. If I consider the entire universe — and it’s very important because we don’t really think this way — let’s take the New York disco model: if I walk into a nightclub and there’s loud music blaring in New York City, what’s really going on there? If you blast out 14 billion years ago, the universe is formed — okay, that’s a low frequency thing — the universe. Four and a half billion years ago, the Sun, maybe the Earth, are formed. The continents are 400 million years old. The schist that New York City is on is some hundreds of millions of years, but the Hudson River is only 20,000 years. There’s a building that’s probably 50 years old. There’s a company operating that disco or that club which is 5–10 years old. There’s a person, a customer, walking in there for an experience for a few hours. There’s music that’s oscillating at some kilohertz. And then there’s light. And you and you have all forms of energy, all frequencies, all layered, all moving through different mediums, and how you perceive the world is a question of: At what frequency do you want to perceive the world? And I think that once you start to think that way, you’re catalyzed to think about what would digital energy look like? And why would I want it? And what is it? So why don’t we just start right there: What is it? The most famous manifestation of digital energy is Bitcoin. Bitcoin’s a crypto-asset. It’s a crypto-asset that has monetary value.

Lex Fridman: Can we just linger on that? Bitcoin is a digital asset that has monetary value. What is a digital asset? What is monetary? Why use those terms versus the words of money and currency? Is there something interesting in that disambiguation of different terms?

Michael Saylor: I would call it a crypto-asset network. The goal is to create a billion-dollar block of pure energy in cyberspace, one that I could then move with no friction at the speed of light. It’s the equivalent to putting a million pounds in orbit. How do I actually launch something into orbit? How do I launch something into cyberspace such that it moves friction-free? And the solution is a decentralized proof-of-work network. Satoshi’s solution was: I’m going to establish a protocol running on a distributed set of computers that will maintain a constant supply of never more than 21 million Bitcoin subdividable by a hundred million satoshis each, transferable via transferring private keys. Now, the innovation is to create that in an ethical, durable fashion. The ethical innovation is: I want it to be property and not a security. A bushel of corn, an acre of land, a stack of lumber, a bar of gold, and a Bitcoin are all property — and that means they’re all commonly occurring elements in the world. You could call them commodities, but commodity is a little bit misleading — and I’ll tell you why in a second — but they’re all distinguished by the fact that no one entity or person or government controls them. If you have a barrel of oil and you’re in Ukraine versus Russia versus Saudi Arabia versus the US, you have a barrel of oil, and it doesn’t matter what the premier in Japan or the mayor of Miami Beach thinks about your barrel of oil. They cannot wave their hand and make it not a barrel of oil or a cord of wood. And so, property is just a naturally occurring element in the universe.

Lex Fridman: Why use the word ethical? Why ethical, assigned to property?

Michael Saylor: Because if it’s a security — a security would be an example of a share of a stock or a crypto token controlled by a small team — in the event that something is a security because some small group or some identifiable group can control its nature, character, supply, then it really only becomes ethical to promote it or sell it pursuant to fair disclosures. So I’ll give you maybe a practical example: I’m the mayor of Chicago. I give a speech. In my speech I say, I think everybody in Chicago should own their own farm and a chicken in the backyard, and their own horse, and an automobile — that’s ethical. I give the same speech and I say, I think everybody in Chicago should buy Twitter stock, sell their house, or sell their cash, and buy Twitter stock — well, is that ethical? Not really. At that point you’ve entered into a conflict of interest, because what you’re doing is you’re promoting an asset which is substantially controlled by a small group of people — the board of directors or the CEO of the company. So how would you feel if the president of the United States said, I really think Americans should all buy Apple stock. Especially if you worked at Google. But if you worked anywhere, you’d be like, Why isn’t he saying, Buy mine? A security is a proprietary asset in some way, shape, or form. And the whole nature of securities law, it starts from this ancient idea: Thou shalt not lie, cheat, or steal. So if I’m going to sell you securities or I’m going to promote securities as a public figure or as an influencer or anybody else, if I create my own Yo-Yo coin or Mikeycoin and then there’s a million of them and I tell you that I think that it’s a really good thing and Mikeycoin will go up forever, everybody buys Mikeycoin and then I give $10 million to you and don’t tell the public — I’ve cheated them. Maybe if I have Mikeycoin and I think there’s only two million Mikeycoin and I swear to you there’s only two million and then I get married and I have three kids and my third kid is in the hospital and my kid’s gonna die and I have this ethical reason to print five hundred thousand more Mikeycoin or else people are gonna die and everybody tells me it’s fine — I’ve still abused the investor, right? It’s an ethical challenge. If you look at ethics laws everywhere in the world, they all boil down to having a clause which says that if you’re a public figure you can’t endorse a security. You can’t endorse something that would cause you to have a conflict of interest. So if you’re a mayor, a governor, a country, a public figure, an influencer, and you want to promote or promulgate or support something using any public influence or funds or resources you may have, it needs to be property — it can’t be a security. So it goes beyond that, right? I mean, would the Chinese want to support an American company? As soon as you look at what’s in the best interest of the human race, the civilization, you realize that if you want an ethical path forward, it needs to be based on common property which is fair. And the way you get to a common property is through an open, permissionless protocol. If It’s not open — if it’s proprietary and I know what the code says and you don’t know what the code says — that makes it a security. If it’s permissioned — if you’re not allowed on my network or if you can be censored or booted off my network, that also makes it a security. So when I talk about property — I mean, the challenge here is: How do I create something that’s equivalent to a barrel of oil in cyberspace? And that means it has to be a non-sovereign bearer instrument, open, permissionless, not censorable. If I could do that, then I could deliver you ten thousand dematerialized barrels of oil and you would take settlement of them and you would know that you have possession of that property irregardless of the opinion of any politician or any company or anybody else in the world — that’s a really critical characteristic, and it actually is it’s probably one of the fundamental things that makes Bitcoin special. Bitcoin isn’t just a crypto-asset network — it’s easy to create a crypto asset network. It’s very hard to create an ethical crypto-asset network, because you have to create one without any government or corporation or investor exercising undue influence to make it successful.

Lex Fridman [timestamp 1:48:38]: So: open, permissionless, non-censorable — so basically no way for you, without explicitly saying so, outsourcing control to somebody else. So you have full control. Even with the barrel of oil, what’s the difference between a barrel of oil and a Bitcoin to you? Because you mentioned that both are property — you mentioned Russia and China and so on. Is it the ability of the government to confiscate? In the end, governments can probably confiscate no matter what the asset is, but you want to lessen the effort involved.

Michael Saylor: A barrel oil is a bucket of physical liquid property. Bitcoin is a digital property.

Lex Fridman: But it’s easier to confiscate a barrel of oil.

Michael Saylor: It’s easier to confiscate things in the real world than things in cyberspace — much easier.

Lex Fridman: So that’s not universally true — some things in the digital space are actually easier to confiscate because just the nature of how things move easily with information, right?

Michael Saylor: I think in the Bitcoin world, what we would say is that Bitcoin is the most difficult property — that the human race possesses or has yet invented — to confiscate. And that’s by virtue of the fact that you could take possession of it via your private key. So if you got your 12 seed phrases in your head then that would be the highest form of property right, because I literally have to crack your head open and read your mind to take it. It doesn’t mean I couldn’t extract it from you under duress, but it means that it’s harder than every other thing you might own — in fact, it’s exponentially harder. If you consider every other thing you might own — a car, a house, a share of stock, gold, diamonds, property rights, intellectual property rights, movie rights, music rights, anything imaginable — they would all be easier by orders and orders of magnitude to seize. So digital property in the form of a set of private keys is by far the apex property of the human race. In terms of ethics, I want to make one more point: I might say to you Lex, I think Bitcoin is the best, most secure, most durable crypto-asset network in the world, is going to go up forever, and there’s nothing better in the world. I might be right, I might be wrong, but the point is: because it’s property, it’s ethical for me to say that. If I were to turn around and say, You know, Lex, I think the same about Microstrategy stock — $MSTR — that’s a security. If I’m wrong about that, I have civil liability or other liability, because I could go to a board meeting tomorrow and I could actually propose we issue a million more shares of Microstrategy stock. Whereas, the thing that makes Bitcoin ethical for me to even promote is the knowledge that I can’t change it. If I knew that I could make it 42 million instead of 21 million and I had the button back here, then then I have a different degree of ethical responsibility. Now, I could tell you your life will be better if you buy Bitcoin and it might not — you might go buy Bitcoin, you might lose the keys and be bankrupt and your life ends and your life is not better because you bought Bitcoin, but it wouldn’t be my ethical liability any more than if I were to say, Lex, I think you ought to get a farm. I think you should be a farmer. I think a chicken in every pot. You should get a horse. I think you’d be better — I mean, these are all opinions expressed about property which may or may not be right, that you may or may not agree with. But in a legal sense, if we read the law — if we understand securities law, and I would say most people in the crypto industry, they didn’t take companies public and so they’re not really focused on the securities law, they don’t even know the securities law — if you focus on the securities law, that would say: You just can’t legally sell this stuff to the general public or promote it without a full set of continuing disclosures signed off on by a regulator. So there’s a fairly bright line there with regard to securities, but when you get to the secondary issue it’s: How do you actually build a world based on digital property if public figures can’t embrace it or endorse it? You see? So you’re not going to build a better world based upon Twitter stock, if that’s your idea of property, because Twitter stock is a security and Twitter stock is never going to be a non-sovereign bearer instrument in Russia or in China — it’s not even legal in China. So it’s not a global, permissionless, open thing. It will never be trusted by the rest of the world, and legally it’s impractical. Would you really want to put $100 trillion dollars worth of economic value on Twitter stock if there’s a board of directors and a CEO that could just get up and take half of it tomorrow? The answer is: No. So if you want to build a better world based on digital energy, you need to start with constructing a digital property. And I’m using property here in a legal sense, but I would also go to the next step and say: property is low frequency money. So if I give you a million dollars and you want to hold it for a decade, you might go buy a house with it. And the house is low frequency money — you converted the million dollars of economic energy into a structure called a house. Maybe after a decade you might convert it back into energy — you might sell the house for currency, and it’ll be more worth more or less depending upon the monetary climate.

Lex Fridman [timestamp 1:55:08]: The frequency means what here? How quickly it changes state?

Michael Saylor: How quickly does something vibrate. So if I transfer $10 from me to you for a drink and then you turn around you buy another, we’re vibrating on a frequency of every few hours — the energy is changing hands. But it’s not likely that you sell and buy houses every few hours, right? The frequency of a transaction in real estate is every 10 years, every 5 years — it’s a much lower frequency transaction. And so when you think about what’s going on here, you have extremely low frequency things which we’ll call property, then you have mid frequency things I’m going to call a money or currency, and then you have high frequency and that’s energy. And that’s why I use the illustration of: you got the building, you got the light, and you got the sound, and they’re all just energy moving at different frequencies. Now, Bitcoin is magical and it’s truly the innovation — it’s like a singularity, because it represents the first time in the history of the human race that we managed to create a digital property, properly understood. It’s easy to create something digital, right? Every coupon and every skin on Fortnite and Roblox and Apple TV credits and all these things, they’re all digital something, but they’re securities. Shares of stock are securities. When you transfer money on PayPal or Apple Pay, you’re transferring, in essence, a security or an IOU, and so transferring a bearer instrument with final settlement in the Internet domain or in cyberspace — that’s a critical thing — and anybody in the crypto world can do that. All the cryptos can do that, but what they can’t do — what 99% of them fail to do — is be property. They’re securities.

Lex Fridman: Well there’s a line there I’d like to explore a little further: for example, what about when Coinbase or something like that, when there’s an exchange that you buy Bitcoin in, you start to move away from some of the aspects that you said makes up a property, which is this non-censorable and permissionless and open — so in order to achieve the convenience, the effectiveness of the transfer of energy, you have to leverage some of these places that remove the aspects of property. So I mean, maybe you can comment on that?

Michael Saylor: Let me give you a good model for that: if you think about the layer one of Bitcoin, the layer one is the property settlement layer and we’re going to do 350,000 transactions or less a day, 100 million transactions a year is the bandwidth on the layer one. And it would be an ideal layer one to move a billion dollars from Point A to Point B with the massive security. The role of the layer one is two things: one thing is I want to move a large sum of money through space with security. I can move any amount of Bitcoin in a matter of minutes for dollars on layer one. The second important feature of the layer one is: I need the money to last forever. I need the money indestructible, immortal. So the bigger trick is not to move a billion dollars from here to Tokyo — the big trick is to move a billion dollars from here to the year 2140. And that’s what we want to solve with layer one. And the best real metaphor in New York City would be the granite or the schist. What you want is a city block of bedrock. And how long has it been there? Millions of years, it’s been there. And how fast you want it to move? You don’t. In fact the single thing that’s most important is that it not deflect. If it deflects a foot in a hundred years, it’s too much. If it deflects an inch in a hundred years, you might not want that. So the layer one of Bitcoin is a foundation upon which you put weight. How much weight can you put on it? You could put a trillion, $10 trillion, $100 trillion, a quadrillion. How much weight is on the bedrock in Manhattan, right? Think about 100-story buildings. So the real key there is: the foundational asset needs to be there at all. So the fact that you can create a $100 trillion dollar layer one that would stand for 100 years — that is the revolutionary breakthrough — first time. And the fact that it’s ethical and it’s common property, global, permissionless. Extremely unlikely that would happen — people tried 50 times before and they all failed. They tried 15,000 times after and they’ve all generally failed. 98% have failed and a couple have been less successful, but for the most part. That’s an extraordinary thing.

Lex Fridman [timestamp 2:00:54]: Now let’s just really quickly pause just to define some terms. For you people that don’t know: layer one, that Michael’s referring to, is in general what people know of as the Bitcoin technology originally defined, which is the blockchain. There’s a consensus mechanism of proof-of-work. Low number of transactions but you can move a very large amount of money. The reason he’s using the term layer one is that now there’s a lot of ideas of layer two technologies built on top of this bedrock that allow you to move a much larger number of transactions at higher frequency — I don’t know how what terminology you want to use — but basically be able to use now something that is based on Bitcoin to then buy stuff, be a consumer, to transfer money, to use it as currency. Just to define some terms.

Michael Saylor: Yeah. So the layer one is the foundation for the entire cyber-economy. And we don’t want it to move fast. What we want is immortal, incorruptible, indestructible. That’s what you want: integrity from the layer one. Now there’s layer two and layer three. And layer two I would define as an open, permissionless, non-custodial protocol that uses the underlying layer one token as its gas fee.

Lex Fridman: So what’s custodial mean? And how does the different markets — like is Lightning Network?

Michael Saylor: So Lightning Network would be an example of a layer two — non-custodial. So the Lightning Network will sit on top of layer one — it’ll sit on top of Bitcoin — and what you want to do is solve the problem of: It’s well and fine, I don’t want to move a billion dollars every day, what I want to move is five dollars a billion times a day. So if I want to move five dollars a billion times a day, I don’t really need to put the entire trillion dollars of assets at risk every time I move five dollars. All I really need to do is put a hundred thousand dollars in a channel, or a million dollars in a channel, and then I do 10 million transactions where I have a million dollars at risk. And of course it’s kind of simple: if I lower my security requirement by a factor of a million, I can probably move the stuff a million times faster. And that’s how Lightning works. It’s non-custodial because there’s no corporation or custodian or counterparty you’re trusting — there’s the risk of moving through the channel. But Lightning is an example of how I go from 50,000 transactions a day to 350 million transactions a day. So on that layer two you could move the Bitcoin in seconds for fractions of pennies. Now, that’s not the end-all, be-all because the truth is there are a lot of open protocols. Lightning probably won’t be the only one — there’s an open market competition of other permissionless, open source protocols to do this work. And in theory, any other crypto network that was deemed to be property — deemed to be not a security — you could also think of as potentially a layer two to Bitcoin. There’s a debate about: Are there any? And what are they? And we could leave that for a later time.

Lex Fridman: But why do you think of them as layer two as opposed to contending for layer one?

Michael Saylor: If they’re using their own token then they are a layer one. If you create an open protocol that uses the Bitcoin token as the fee then it becomes a layer two. Bitcoin itself incentivizes it’s own transactions with its own token and that’s what makes it layer one.

Lex Fridman: Okay, what’s layer three then?

Michael Saylor [timestamp 2:05:14]: Layer three is a custodial layer, so if you want to move Bitcoin in milliseconds for free, you move it through Binance or Coinbase or Cash App. So this is a very straightforward thing: I mean it seems pretty obvious when you think about it that they are gonna be hundreds of thousands of layer threes. There may be dozens of layer twos. Lightning is a one, but it’s not the only one — anybody can invent something. And we can have this debate about custodial, non-custodial —

Lex Fridman: Don’t you think there’s monopolization possibilities at layer three? So you mentioned Binance, Coinbase — what if they start to dominate and basically everybody is using them, practically speaking, and then it becomes too costly to memorize the private key in your brain or like a cold storage of layer one technology?

Michael Saylor: Well, the idealists fear the layer threes because they would detest — there’s almost like a layer four, by the way, if you want to. A layer four would be: I’ve got Bitcoin on an application but I can’t withdraw it. So I’ve got an application that’s backed by Bitcoin but the Bitcoin is sealed. It’s a proprietary example. An example of that would be like Grayscale: if I own a share of $GBTC and so I own a security — actually you could own $MSTR. If you own a security or you own a product that has Bitcoin embedded in it, you get the benefits of Bitcoin but you don’t have the ability to withdraw the asset.

Lex Fridman: So you have a security market at layer four? Am I understanding this correctly?

Michael Saylor: I don’t know if I would say — not all securities are layer four, but anything that’s a proprietary product with Bitcoin embedded in it where you can’t withdraw the Bitcoin, is another application of Bitcoin. So if you think about different ways you can use this, you can either stay completely on the layer one and use the base chain for your transactions, or you can limit yourself to layer one and layer two Lightning — and the purist would say we stay there: get your Bitcoin off the exchange. But you could also go to the layer three when Cash App supported Bitcoin they made it very easy to buy it and then they gave you the ability to withdraw. When PayPal or I think Robinhood let you buy it, they wouldn’t let you withdraw it and it was a big community uproar. People want these layer threes to make it possible to withdraw the Bitcoin so you could take it to your own private wallet and get it off the exchange. I think the answer to the question of, Well is corruption possible? is: corruption is possible in all human institutions and all governments everywhere. The difference between digital property and physical property is: when you own a building in Los Angeles and the city politics turn against you, can’t move the building. And when you own a share of a security that’s like a US-traded security and you wish to move to some other country, you can’t take the security with you either. And when you own a bunch of gold and you try to get through the airport, they might not let you take it. So Bitcoin is advantageous versus all of those because you actually do have the option to withdraw your asset from the exchange. And if you had Bitcoin with Fidelity and you had shares of stock with Fidelity and if you had bonds and sovereign debt with Fidelity and if you owned some some mutual funds and some other random limited partnerships with Fidelity, none of those things can be removed from the custodian, but the Bitcoin you can take off the exchange — you can remove from the custodian. There’s a deterrent that’s an anti-corrupting element, and the phrase is: an armed society is a polite society. Because you have the optionality to withdraw all your assets from the crypto exchange, you can enforce fairness. And at the point where you disagree with their policies you can, within an hour, move your assets to another counterparty or take personal custody of those assets. And you don’t have that option with most other forms of property. You don’t have as much optionality with any other form of property on Earth. And so what what makes digital property distinct is the fact that it has the most optionality for custody. Now coming back to this digital energy issue, the real key point is: the energy moves in milliseconds for free on layer threes. It moves in seconds or less than seconds on layer twos. It moves in minutes on the layer one. And I don’t think it makes any sense to even think about trying to solve all three problems on the layer one because it’s impossible to achieve the security and the incorruptibility and the immortality if you try to build in that much speed and that functionality and performance. In fact, if you come back to the New York model, you really wanted a block of granite, a building, and a company — that’s what makes the economy. If I said to you: you’re going to build a building but you can only have one company in it for the life of the building, it would be very fragile, very brittle. What company a hundred years ago is still relevant today? You want all three layers because they all oscillate at different frequencies. And there’s a tendency to think, Well it’s got to be this L1 or that L1 — not really. And sometimes people think, Well I don’t really want any L3, but it’s not an either/or: companies are better than crypto-asset networks at certain things. If you want to implement complexity or you want to implement compliance or customer service, companies do these things well. You couldn’t decentralize Apple or Netflix or even YouTube — the performance wouldn’t be there, and the subtlety wouldn’t be there. And you can’t really legally decentralize certain forms of banking and insurance, because they would become illegal in the political jurisdiction they’re in. So unless you’re a cryptoanarchist and you believe in no companies and no nation states — which, it’s just not very practical, not anytime soon — once you allow that nation states will continue and companies have a role, then the layered architecture follows and the free market determines who wins. For example, there are layer threes that let you acquire Bitcoin and withdraw Bitcoin. There are other applications that let you acquire but not withdraw it. And they don’t get the same market share but they might give you some other advantage. There are there are certain layer threes like Jack Dorsey’s Cash App where they just incorporated Lightning — an implementation of it — so that makes it more advantageous versus an application that doesn’t incorporate Lightning. If you think about the big picture: the big picture is 8 billion people with mobile phones served by a hundred million companies doing billions of transactions an hour, and the companies are settling with each other on the base layer in blocks of $80 million at a time, and then the companies are trading with the consumers in proprietary layers like layer three, and then on occasion, people are shuffling assets across custodians with Lightning layer two because you don’t want to pay $5 to move $50 — you want to pay a twentieth of a penny to move $50. And so all of these things create efficiency in the economy. And Lex, if you want to consider how much efficiency: if you gave me a billion dollars in 20 years, I couldn’t find a way to trade with another company or a counterparty in Nigeria — no amount of money. Give me $10 billion dollars — I couldn’t do it, because you get shut down at the banking level, you can’t link up a bank in Nigeria with a bank in the US, you get shut down at this credit card level because they don’t have the credit card so they won’t clear, you get shut down at the compliance FCPA level because if you wouldn’t be able to implement a system that interfaced with somebody else’s system if it’s not in the right political jurisdiction. On the other hand, three entrepreneurs in Nigeria on the weekend could create a website that would trade in this Lightning economy using open protocols without asking anybody’s permission. So you’re talking about something that’s like a million times cheaper, less friction, and faster to do it if you want to get money to move.

Lex Fridman [timestamp 2:15:27]: What do you think that looks like? Now there’s a war going on in Ukraine, there’s other wars, Yemen, going on throughout the world — in this most difficult of states that a nation can be in, which is at war, civil war, or war with other nations, what’s the role of Bitcoin in this context?

Michael Saylor: Bitcoin is a universal trust protocol. A universal energy protocol, if you will. English is one. What I see is a bunch of fragmentation of applications. For example, the Russian payment app is not going to work in Ukraine. The Ukraine payment app is not going to work in Russia. The US payment apps won’t work in either of those places as far as I know. And in Argentina, their payment app may not work in certain parts of Africa. So what you have is different local economies where people spin up their own applications compliant with their own local laws, or in war zones not compliant, but just spinning up —

Lex Fridman: So how do you build something that’s not compliant? What is the revolutionary act here when you don’t agree with the government or you want to free yourself from the constraints — so here’s the thing: when a nation is really at war, especially if it’s an authoritarian regime, it’s going to try to control the population, like lock everything down, the spread of information. How do you break through that? Do you do the thing that you mentioned, which is that you have to build another app, essentially, that allows you the flow of money outside the legal constraints placed on you by the government? So basically break the law?

Michael Saylor: Metaphorically speaking, if you want to break out of the constraints of your culture, you learn to speak English. For example, it’s not illegal to speak English — or even if it is, it doesn’t matter. But English works everywhere in the world if you can speak it and then you can tap into a global commerce and intelligence network. So Bitcoin is a language, so you learn to speak Bitcoin or you learn to speak Lightning and then you tap into that network in whatever manner you can.

Lex Fridman: But the problem is it’s still very difficult to move Bitcoin around in Russia and Ukraine now during war. And there was a sense to me that cryptocurrency in general could be the savior for helping people there. There’s millions of refugees — they’re moving all around. It’s very difficult to move money around in that space to help people.

Michael Saylor: I think we’re very early. Like, we’re very embryonic here.

Lex Fridman: Who’s we? We as a human civilization? Or we operating in the cryptocurrency space?

Michael Saylor: I think the entire crypto economy is very embryonic, and the human race’s adoption of it is embryonic — we’re like 1%-2% down that adoption curve. If you take Lightning, for example, the first real commercial applications of Lightning are just in the last 12 months. So we’re like year one — we might be approaching year two of commercial Lightning adoption — and if you look at Lightning adoption, Lightning is not built into Coinbase, it’s not built into Binance, it’s not built into FTX, Cash App just implemented the first implementation but not all of the features are built into it. There’s a few dozen, a dozen Lightning wallets circulating out there. So I think that we’re probably going to be 36 months of software development. At the point that every Android phone and every iPhone has a Bitcoin wallet or a crypto wallet in it of sorts — that’s a big deal. If Apple embraced Lightning, that’s a big deal.

Lex Fridman: So the adoption is the thing — like in a war zone, adoption — the people who struggle the most in war are people who are weren’t doing that great before the war started. They don’t have the technological sophistication. The hackers and all those kinds of people will find a way. It’s just regular people who are just struggling to make day-by-day living. And so if the adoption permeates the entire culture, then you can start to move money around in the digital space. If you can psychoanalyze Jack Dorsey for a second: so he’s one of the early adopters, or he’s one of the people pushing the early adoption in this layer three inside Cash App — what do you make of the man? Of this decision? As a business owner, as somebody playing in the space: why did he do it? And what does that mean for others at the scale that might be doing the same? So: incorporating the Lightning Network, incorporating Bitcoin into their products.

Michael Saylor: I think he’s been pretty clear about this: he feels that Bitcoin is an instrument of economic empowerment for billions of people that are unbanked and have no property rights in the world. If you want to give an incorruptible bank to 8 billion people on the planet, that’s the same as asking the question: How do you give a full education through PhD-level to 8 billion people on the planet? And the answer is: a digital version of the 20th century thing running on a mobile phone. And Bitcoin is a bank in cyberspace. It’s run by uncorruptable software and it’s for everybody on Earth. So I think when Jack looks at it, he’s very sensitive to the plight of everybody in Africa. If you look at Africans — you’re going to give them banks? You’re not going to put a bank branch on every corner — that’s an obscene waste of energy. You’re not going to run copper wires across the continent — that’s an obscene waste of energy. You’re not gonna give them gold. So how are you going to provide people with a decent life? The metaphor I think is relevant here, the biological metaphor, Lex, is Type I diabetic: if you’re a Type I diabetic, you can’t form fat, and if you can’t form fat then you can’t store excess energy. Fat is the ultimate organic battery, and if you’ve got 30 pounds of it you can go 60 days without eating. But if you can’t generate insulin you can’t form fat cells, and if you can’t form fat cells and store energy then you can eat yourself to death. I mean you will eat and you will die — you’ll starve to death. So the lack of property rights is like being a Type I diabetic. And so if you look at most people everywhere in the world: they don’t have property rights, they don’t have an effective bank, and their currency is broken. Like, what are the two things that in theory would serve as the equivalent of an organic battery or an economic battery to civilization? It would be: I have a currency which holds its value and I can store it in a bank. So a risk-free currency derivative. I pay you your money, you take your life savings, you put it in the bank, you save up for your retirement, you live happily ever after — that’s the American Dream. That’s the idyllic situation. The real situation is: there are no banks, you can’t get a bank account, so I give your pay in currency and then I double the supply and I give it to my cousin or I give it to whatever cause I want or I use it to buy weapons and then you find a loaf of bread costs triple next month as what it cost and your life savings is worthless. And so in that environment, everybody’s ripped back to stone age barter. And the problem with that, even with stone age barter, is: you’re going to carry your life savings on your back? And what happens when the guy with a machine gun points it at your head and just takes your life savings? So I think from Jack’s point of view, he thinks that life is — this is maybe too strong but these are my words — life is hopeless for a lot of people, and Bitcoin is hope, because it gives everyone an engineered monetary asset that’s a bearer instrument and it gives them a bank on their mobile phone and they don’t have to trust their government or another counterparty with their life force. So there’s a secondary thing I think he’s interested in which is — the first thing is the human rights issue — and the second thing would be: the friction to trade cross-borders is so great. Like, you like AI so I’ll give you a beautiful notion: maybe one day there’ll be an artificially intelligent creature in cyberspace that is self-sufficient and rich.

Lex Fridman: Like, that would have sovereignty?

Michael Saylor: Can a robot own money or property? Can a Tesla car? Can I actually put enough money in a car for it to drive itself and maintain itself forever? Or can I create an artificially intelligent creature in cyberspace that is endowed such that it would live a thousand years and continue to do its job? We have a word for that in the real world: it’s institution — Harvard, Cambridge, Stanford — there are institutions with endowments that go on in perpetuity. But what if I wanted to perpetuate a software program? And with something like digital property — with Bitcoin and Lightning — you could do it. And on the other hand, with banks and credit cards, you couldn’t — you couldn’t ever. So you can create things that are beautiful and lasting. And what’s the difference in speed? Well, I can either trade with everybody in the world at the speed of light friction-free in 24 hours writing a python script, or I can spend $100 billion dollars to trade with a few million people in the world after it takes them 6 months of application. The impedance is like a 10,000,000:1 difference, and the metaphors are literally like launching something in orbit versus almost orbit, or vacuum sealing something. Does it last forever and does it orbit forever? Or does it go up and come down and burn up? And I think Jack is interested in putting freedom in orbit. And he said it many times. He said: the Internet needs a native currency. And no political construct or security can be a native currency. You need a property. And you need a property that can be moved a million times a second. Can you oscillate it at 10 kilohertz or 100 kilohertz? And the answer is: only if it’s a pure digital construct — permissionless and open. And so I think he’s enthusiastic as the technologist and he’s enthusiastic as the humanitarian. And what he’s doing is to support both those areas. He’s supporting the Bitcoin and the Lightning protocols by building them into his products, but he’s also building the applications which you need at the Cash App level in order to commercialize and deliver the functionality and the compliance necessary, and they’re related.

Lex Fridman [timestamp 2:28:24]: And I should also say he’s just a fascinating person — for a random reason that I couldn’t even explain if I tried — I met him a few days ago and gave him a great big hug in the middle of nowhere. There was no explanation — he just appeared. That’s a fascinating human: his relationship with art, with the world, with human suffering, with technology is fascinating. I don’t know what his path looks like, but it’s interesting that people like that exist. And in part I’m saddened that he no longer is involved with Twitter directly as a CEO, because I was hoping something inside Twitter would also integrate some of these ideas of what you’re calling digital energy, to see how social networks — something I’m really interested in and passionate about — could be transformed. Let me ask you just for educational purposes: can you please explain to me what Web 3.0 and the beef between Jack and Marc Andreessen is exactly? Did you see what happened? Sorry to have you analyze Twitter like it’s Shakespeare, but can you please explain to me why there was any drama over this topic?

Michael Saylor: First of all, Web 3.0 is a term that’s used to refer to the part of the economy that’s token finance. So if I’m launching an application and my ideas is to create a token along with the application and issue the token to the community so as to finance the application and build support for it, I think that that’s the most common interpretation of Web 3.0. There are other interpretations too, and so I’m just gonna refer to that one. And I think the beef in a nutshell — not articulated, but I’ll articulate it — is whether or not you should focus all your energy creating applications on top of an ethical digital property like Bitcoin, or whether you should attempt to create a competitor to it which generally would be deemed as a security by the Bitcoin community. So I’m going to put on my Bitcoin hat here: all the tokens that have been [released], if it’s driven by a venture capitalist, was a security — if there’s a CEO and a CTO, it’s a security. All these projects — they’re companies. Foundations are companies. If you call them a project or a foundation, it doesn’t make it not a security — they’re all in essence collections of individuals that are issuing equity in the form of a token. And if there’s a premine, an IPO, an ICO, a foundation, or any kind of any kind of protocol where there is a group of engineers that have influence over it, then to a securities lawyer or to most Bitcoiners and definitely to anybody that’s steeped in securities law, you’re looking at it and you say, Well that passes the Howie test: it looks like a security. It should be sold to the public pursuant to disclosures and regulations, and you’re just ducking the IPO process. And so now we get back to the ethical issue. Well the ethical issue is: if you’re trading it as a commodity and representing it as a commodity while truthfully it’s a security, then it’s a violation of ethics rules and it’s probably illegal.

Lex Fridman: Well you keep leaning on this — let me push back on that part. Maybe you can educate me, but you keep leaning on this line of securities law — with all due respect to lawyers — as if that line somehow defines what is and isn’t ethical. I think there’s a lot of correlation, as you’ve discussed, but and I’d like to leave the line aside. If the law calls something a security, it doesn’t mean, in my eyes, that it is unethical. I mean there could be some technicalities and lawyers and people play games with this kind of stuff all the time. But I take your bigger point that, if there’s a CEO, if there’s a project lead, to you that’s fundamentally different than the structure of Bitcoin.

Michael Saylor: It’s not that creating securities is unethical — I created a security. I took a company public. That’s not the unethical part. It’s completely ethical to create securities. Block is a security. All companies are securities. The unethical part is to represent it as property when it’s a security, and to promote it or trade it as such.

Lex Fridman: This whole promotion — that’s also a technical thing because what counts as or as not a promotion is a legal thing, and you get in trouble for all these things, but that’s the game that lawyers play. There’s an ethical thing here which is like: what’s right to promote and not? To me, propaganda is unethical, but it’s usually not illegal.

Michael Saylor: If you roll the clock back 20 years, all the boiler room pump and dump schemes were all about someone pitching a penny stock selling swampland in Florida. And if you roll the clock forward 20 years and I create my own company and I represent it as the same thing and I don’t make the disclosures, you’re just one step removed from the boiler room scheme, and that’s what’s distasteful about it. There are ways to sell securities to the public, but there are expectations. Maybe we could forget about whether the security laws are ethical or not — I will leave that alone. We’ll just start with the biblical definition of ethics: Don’t lie, cheat, or steal. So if I’m going to sell something to you, I need to fully disclose what I’m selling to you. And that’s a matter of great debate right now. And so I think that’s part of the debate. But the other part of the debate is whether or not we need more than one token. We need at least one, right? We need at least one digital property.

Lex Fridman: One is better than zero.

Michael Saylor: Zero means there is no digital economy. And by the way, the conventional view of maximalists is they think there’s only one and everything else isn’t — that’s not the point I’m going to make. I would say: we know there is at least one digital property, and that is Bitcoin. If you can create a truly decentralized, non-custodial, bearer instrument that is not under the control of any organization that is fairly distributed, then you might create another, or multiple. And there may be others out there. But I think that the frustration of a lot of people in the Bitcoin community — and I share this with Jack — is: we could create $100 trillion dollars of value in the real world simply by building applications on top of Bitcoin as a foundation. And so continually trying to reinvent the wheel and create competitive things is a massive waste of time, and it’s a diversion of human creativity. It’s like: we have an ethical good thing and now we’re going to try to create a third or a fourth one — why?

Lex Fridman: Well let’s talk about it. So first of all I’m with you. But let me ask you this interesting question, because we talked about properties and securities. Let’s talk about conflict of interest. So you said you could advertise publicly — you have a popular Twitter account, it’s hilarious and insightful — you do promote Bitcoin in a sense. I don’t know if you would say that. But do you think there’s a conflict of interest in anyone who owns Bitcoin promoting Bitcoin? Is it the same as you promoting farming?

Michael Saylor: I would say: No — there’s an interest. I think that you can promote a property or an idea to the extent that you don’t control it. I think that the point at which you start to have a conflict of interest is when you’re promoting a proprietary product or a proprietary security. A security in general is a proprietary asset. So for example, if you look at my Twitter, you will find that I make lots of statements about Bitcoin — you won’t ever see me making a statement that, say, Microstrategy stock will go up forever. I’m not promoting a security, $MSTR, because at the end of the day, $MSTR is a security. It is proprietary. I have proprietary interest in it. I have a disproportionate amount of control and influence on the direction.

Lex Fridman: The control is the problem. Because you have interest in both: if Bitcoin is as successful as we’re talking about, you very possibly can become the richest human on Earth, given how much you own in Bitcoin. The wealthiest, not the richest — I don’t know what those words mean.

Michael Saylor: I would benefit economically.

Lex Fridman: You would benefit economically.

Michael Saylor: That’s true.

Lex Fridman: So the reason that’s not conflict of interest is because of the word property, that Bitcoin is an idea? And Bitcoin is open?

Michael Saylor: Because I don’t control it. In essence, the ethical line here is: could I print myself 10 million more Bitcoin or not?

Lex Fridman: Or can anyone, right? It’s not just you. It’s: can anyone? Because, can you promote somebody else’s? Yes, I guess you can. Like, can you promote $AAPL?

Michael Saylor: It’s like: you could have a Twitter account where you promote oil or you promote camping or you promote family values or promote a carnivore diet or promote the iron man.

Lex Fridman: But you’re not going to get wealthier if you promote camping, because you can’t own a stake in it. I mean, you own a lot of Bitcoin. What is that? Don’t you own a stake in the idea?

Michael Saylor [timestamp 2:39:31]: Yeah I would grant you that.

Lex Fridman: But the lack of control is the fundamental ethical line, that all you are is you’re a fan of the idea. You believe in the idea and the power of the idea. You can’t take that idea away from others.

Michael Saylor: Let me give you some maybe easier examples: if you were the head of the Marine Corps and someone came to you and said, I created MarineCoin. And the twist on MarineCoin is I want you to tell every marine that they’ll get an extra MarineCoin when they get their next stripe. And then I’m gonna let you buy MarineCoin now, and then after you buy MarineCoin, I want you to promote it to them. At some point, if you start to have a disproportional influence on it or if you’re in a conversation with people with disproportionate influence, it becomes conflict of interest. And it would make you profoundly uncomfortable, I think, if the head of the Marine Corps started promoting anything that looked like a security. Now, if the head of the Marine Corps started promoting canoeing, you might think he’s kind of wacky. Maybe like that’s kind of a waste of time, a distraction, but to the extent that canoeing is not a security, it’s not a problem. Ultimately, the issue of decentralization is really a criticism of not having—

Lex Fridman: So not having a head. So can Bitcoin be replicated? All the things that you’re saying that make it a property — can that be replicated?

Michael Saylor: I think it’s possible to create other crypto properties.

Lex Fridman: Does having a head of a project, [is that] a thing that limits its ability to be a property if you try to replicate a project? Is that the fundamental flaw?

Michael Saylor: Look, I think the real fundamental issue is: you just never want it to change. If you really want something decentralized, you want a genetic template that substantially is not going to change for a thousand years. So I think Satoshi said it at one point — he said, The nature of the software is such that by version 0.1, its genetic code was set. If there was any development team that’s continually changing it on a routine basis, it becomes harder and harder to maintain its decentralization, because now there’s the issue of: Who’s influencing the changes? So what you really want is a very very simple idea — the simplest idea: I’m just going to keep track of who owns 21 million parts of energy. And when someone proposes big, functional upgrades, you almost don’t really want that development to go on the base layer — you want that development to go on the layer threes because now Cash App has a proprietary set of functionality and it’s a security, and if you’re going to promote the use of this thing, you’re not going to promote the layer three security because that’s an edge to a given entity and you’re trusting the counterparty — you’re gonna promote the layer one or at most the layer two.

Lex Fridman: Okay, so one of the fascinating things about Bitcoin — and sorry to romanticize certain notions — but Satoshi Nakamoto, that the founder is anonymous. Maybe you can speak to whether that’s useful? But also I just like the psychology of that, to imagine that there’s a human being that was able to create something special and walk away. So first: are you Satoshi Nakamoto?

Michael Saylor: I’m certain I’m not! No, actually — I think the providence is really important, and if I were to look at the highlighted points, I think having a founder that was anonymous or pseudonymous is important. I think the founder disappearing is also important. I think that the fact that the Satoshi coins never moved is also important. I think the lack of an initial coin offering is also important. I think the lack of a corporate sponsor is important. I think the fact that it traded for 15 months with no commercial value was also important. I think that the simplicity of the protocol is very important. And I think that the outcome of the block size wars is very important. All of those things add up to common property. They’re all indicia — indicators of a digital property as opposed to a security. If there was a Satoshi sitting around sitting on top of $50 billion dollars worth of Bitcoin, I don’t think it would cripple Bitcoin as property, but I think it would undermine its digital property. And if I wanted to undermine a crypto-asset network, I would do the opposite of all those things: I would launch one myself, I would sell 25% or 50% to the general public, I would keep some of the initial — I would premine some of the stuff or early mine it, and I would keep an influence on it. Those are all the opposite of what you would do in order to create common property. And so I see the entire story as Satoshi giving a gift of digital property to the human race and disappearing.

Lex Fridman: Do you think it was one person? Do you have ideas of who it could be?

Michael Saylor: I don’t care to speculate.

Lex Fridman: But do you think it was one person?

Michael Saylor: I think it was one person, maybe in conjunction with a bunch of others. I mean, it might have been a group of people that were working together, but certainly there’s a Satoshi.

Lex Fridman: I mean, it’s just so fascinating to me that one person could be so brave and thoughtful. Or do you think a lot of it is an accident? Like, the block size wars, the decision to make a block a certain size — all the things you mentioned led up to the characteristics that make Bitcoin property. Do you think that’s an accident? Or it was deeply thought through? This is almost like a history of science question.

Michael Saylor: People tried forty of them, right? I mean, I think there’s a history of attempting to create something like this, and it was tried many many times and they failed for different reasons. It’s like Prometheus tried to start a fire 47 times and maybe the 48th time it sparked. And that’s how I see this — this is the first one that’s sparked, and it sets a road map for us. And if you’re looking for any one word that characterizes it: it’s fair. The whole point of the network is it’s a fair launch, a fair distribution. Like yeah, I have Bitcoin, but I bought it. And in fact, at this point we’ve paid $4 billion dollars of real cash to buy it. If I was sitting on the same position and I had it for free, then there’s always this question of — or I bought it for a nickel a coin or a penny a coin — the question is: Was it fair? And that’s a very hard question to answer. Did you acquire the Bitcoin that you own fairly? And if you roll the clock back, you could have bought it for a nickel or a dime, but that was when it was a million times more likely to fail, right? When the risk was greater, the cost was lower — and then over time the risk became lower and the cost became greater. And the real critical thing was to allow the marketplace, absent any powerful interested actor — it’s almost if Satoshi had held a million coins and then stayed engaged for 10 more years tweaking things in the background, there’d still be that question. But what we’ve got is really a beautiful thing: we’ve got a chain reaction in cyberspace, or an ideology spreading virally in the world that has seasoned in a fair, ethical fashion. Sometimes it’s a very violent, brutal fashion with all the volatility, and there’s been a lot of a lot sound and fury along the way.

Lex Fridman [timestamp 2:48:37]: How do you psychoanalyze, how do you deal — from a financial, from a human perspective — with the volatility? You mentioned you could have gotten it for a nickel and the risk was great. Where’s the risk today? What’s your sense?

Michael Saylor: We’re 13 years in to this entire activity. I think the risk has never been lower. If you look at all the risks, the risks in the early years are: is the engineering protocol proper? Like, one megabyte block size, 10-minute clock frequency, cryptographies. First, will it be hacked or will it crash? 730,000 blocks in and it hasn’t crashed. Will it be hacked? It hasn’t been hacked. But it’s a Lindy thing, right? You wait 13 years to see if it’ll be hacked. But on the other hand, with a billion dollars it’s not as interesting a target as it is with $100 billion, and when it gets to be worth a trillion then it’s a bigger target. So the risk has been bleeding off over time as the network monetized. I think the second question is: Will it be banned? You couldn’t know — it literally could have been banned many times early on. In fact, in 2013 I tweeted on that subject: I thought it would be banned. I made a very infamous tweet: I thought it was gonna be banned. In 2014, the IRS designated it as property and gave it property tax treatment. So they they could have given it a tax treatment where you had to pay tax on the unrealized capital gains every year and it probably would have crushed it to death, right? So it could have been — in any in any number of places — banned by a government, but in fact it was legitimized as property. And then the question is: Would it be hacked or would it be copied? Would there be something better than that? And it was copied 15,000 times. And you know the story of all those, and they either diverge to be something totally different and not comparable, or someone trying to copy a non-sovereign, bearer instrument, store of value found that their networks crashed to be 1% of what Bitcoin is. So now we’re sitting at a point where all those risks are out of the way. I would say that year one of institutional adoption started August 2020: that’s when Microstrategy bought $250 million dollars worth of Bitcoin and we put that out on the wire. We were the first publicly-traded company to actually buy Bitcoin. I don’t think you could have found a $5 million dollar purchase from a public company before we did that. So that was kind of like a gun going off. And then in the next 12 months, Tesla bought Bitcoin, Square bought Bitcoin. And I’d say now we’re in year two of institutional adoption. And there should be 24 publicly-traded Bitcoin miners by the end of this quarter, so you’re looking at 36 publicly-traded companies, and you’ve got in a range of $50 billion dollars of Bitcoin on the balance sheet of publicly-traded companies, and hundreds of billions of dollars of market cap of Bitcoin-exposed companies. So I would say the asset — decade one was entrepreneurial, experimental. Decade two is a rotation from entrepreneurs to institutions, and is becoming institutionalized. So maybe decade one you go from zero to a trillion, and in decade two you go from one trillion to a hundred trillion.

Lex Fridman: What about government adoption? You said institutional adoption. Are governments important in this? Maybe some governments incorporating it as a currency into their banks, all that kind of stuff. Is that important? And if it is, when will it happen?

Michael Saylor [timestamp 2:52:43]: It’s not essential for the success of the asset class, but I think it’s inevitable in various degrees over time. But the most likely thing to happen next is large acquisitions by institutional investors of Bitcoin as a digital gold, where they’re just swapping out gold for digital gold and thinking of it like that. And the government entities most likely to be involved with that would be sovereign wealth funds. If you look at all the sovereign wealth funds that are holding big tech stock, equities — the Swiss, the Norwegians, the Middle Easterners — if you can hold big tech, then holding digital gold would be not far removed from that. That’s a non-controversial adoption. I think there are opportunities for governments that are much more profound: if a government started to adopt Bitcoin as a treasury reserve asset, that’s much bigger than just an asset investment — that’s 100x bigger. And you could imagine that’s like a trillion dollar opportunity. Like, any government that wanted to adopt it as a treasury reserve asset would probably generate trillions of dollars — a trillion or more of value. And then the thing that people think about is: Well, will oil ever be priced in Bitcoin? Or any other export commodity? I think there’s like $1.8 trillion dollars or more of export commodities in the world, and right now they’re all priced in dollars. I think that this is a colorful thing, but it’s not really that relevant. Like, you could sell all that stuff in dollars. The relevant decision that any institution makes, whether they’re a non-profit, a university, a corporation, or a government, is: What’s your treasury reserve asset? And if your treasury reserve asset is the peso, and if the peso’s losing 20%-30% of its value a year, then your balance sheet is collapsing within 5 years. And if the treasury reserve asset is dollars and currency derivatives and US treasuries, then right now it’s probably 15% or more monetary inflation — we’re running double the historic average, you could argue triple — somewhere between double and triple depending upon what your metric is. So do I think it’ll happen? I think that they’re conservative, but they have to be shocked, and I think there is a shock. The late Russian sanctions are a big shock. When the West sees $350 billion dollars worth of Russian gold and currency derivatives, I think you’ve got the famous quote by Putin that, We have to rethink our treasury strategies, and that pushes everybody toward a commodity strategy. What commodities do I want to hold? I think that’s got a lot of people thinking. I think it’s got the Chinese thinking. Everybody wants to be the reserve currency, right? So if I buy $50 billion dollars worth of dollars every year then I buy $500 billion over a decade and I probably pay $250 billion dollars of inflation cost on the backs of my citizens in a decade.

Lex Fridman: So inflation could be one of the sources of shock. And you wonder if there is a switch to Bitcoin, whether it would be a bang or a whimper. Like, what is the nature of the shock? Or the transition?

Michael Saylor: I think that the year 2022 is pretty catalytic for digital assets in general, and for for Bitcoin in particular. The Canadian trucker crisis I think educated hundreds of millions of people and made them start questioning their property rights and their banks. I think the Ukraine war was a second shock, but I think that the Russian sanctions was a third shock. I think all three — and I think hyperinflation in the rest of the world is a fourth shock, and then persistent inflation in the US is a fifth shock. So I think it’s a perfect storm, and if you put all these events together, what do they signify? They signify — the rational conclusion for any person thinking about this — is: I’m not sure if I can trust my property. I don’t know if I have property rights. I don’t know if I can trust the bank. And if I’m politically at odds with the leader of my own country, I’m going to lose my property. And if I’m politically at odds with the owner of another country, I’m still going to lose my property. And when push comes to shove, the banks will freeze my assets and seize them. And I think that that is playing out in front of everybody in the world, such that your logical response would be: I’m going to convert my weak currency to a strong currency. I’ll convert my peso and lira to the dollar. I’m going to convert my weak property to strong property: I’m going to sell my building downtown in Moscow and very rather own a building in New York City. I’d rather own in a powerful nation than be stuck with a building in Nigeria or a building in Argentina or whatever. So I’m going to sell my weak properties and buy strong properties. I’m going to convert my physical assets to digital assets. I’d rather own a digital building than own a physical building, because if I had a billion dollar building in Moscow, who can I rent that to? But if I have a billion dollar digital building, I can rent it to anybody in any city in the world — anybody with money. And the maintenance cost is almost nothing, and I can hold it for a hundred years. So it’s indestructible building. And then finally, I want to move from having my assets in a bank with a counterparty to self-custody assets. And this is not just Ukraine, but this is like the story in Turkey, Lebanon, Syria, Afghanistan, Iraq, South America — you don’t really want to be sitting with $10 million dollars in a bank in Istanbul. The bank’s gonna freeze your money, convert it to lira, devalue the lira, and then feed it back to you over 17 years, right?

Lex Fridman: So, self-custody assets would be layer one Bitcoin?

Michael Saylor: Self-custody assets is like if I got my own hardware wallet and I’ve either got — your highest form of self-custody would be Bitcoin on your own hardware wallet or Bitcoin in your own self-custody, and the other thing people think about is how do I get crypto dollars like Tether, like some stablecoin. If you had a choice, would you rather have your money in a bank in a war zone in dollars, or have your money in a stablecoin on your mobile phone in dollars? You’d take the latter risk rather than the former risk.

Lex Fridman: In a war zone, definitely, yeah.

Michael Saylor: And you can see that happening. We’ve gone from $5 billion in stablecoins to $200 billion in the last 24 months. So I do think there’s massive demand for crypto dollars in the form of a US dollar asset. And everybody in the world would say, Yeah, I want that. Well, unless you’re just an extreme patriot. But most people would say, I want that. And then a lesser group of people would say, I think I want to be able to carry my property in the palm of my hand so I have self-custody of it.

Lex Fridman: So the Bitcoin price has gone through quite a roller coaster — what do you think is the high point it’s going to hit?

Michael Saylor: I think it’ll go up forever. I think Bitcoin is going to climb in a serpentine fashion. It’s going to advance and come back and it’s going to keep climbing. I think that the volatility attracts all of the capital into the marketplace, and so the volatility makes it the most interesting thing in the financial universe. It also generates massive yield and massive returns for traders, and that attracts capital. We’re talking about the difference between a 5% return and 500% return. So the fast money is attracted by the volatility. The volatility’s been decreasing year-by-year-by-year — I think that that it’s stabilizing. I don’t think we’ll see as much volatility in the future as we have in the past. I think that if we look at Bitcoin and model it as digital gold, the market cap goes to between $10-$20 trillion. But remember: gold is defective property. Gold is dead money. You have a billion dollars of gold that stays in a vault for a decade — it’s very hard to mortgage the gold. It’s also very hard to rent the gold. You can’t loan the gold. No one’s going to create a business with your gold. So gold doesn’t generate much of a yield, so for that reason, most people wouldn’t store a billion dollars for a decade in gold. They would buy a billion dollars of commercial real estate property. And the reason why is because I can rent it and generate a yield on it that’s in excess of the maintenance cost. So if you consider digital property that’s a $100-$200 trillion dollar addressable market, so I would think it goes from $10 trillion to $100 trillion as people start to think of it as digital property.

Lex Fridman [timestamp 3:03:08]: What does that mean in terms of price per per coin?

Michael Saylor: At $500,000, that’s a $10 trillion dollar asset. At $5 million, that’s a $100 trillion dollar asset.

Lex Fridman: So you think it crosses a million — it can go even higher?

Michael Saylor: Yeah I think it keeps going up forever. I mean, there’s no reason we couldn’t go to $10 million a coin, because digital property isn’t the highest form, right? Gold was that low frequency money. Property is a mid-frequency money. But when I start to program it faster, it starts to look like digital energy. And then it doesn’t just replace property — then you’re starting to replace bonds. It’s $100 trillion in bonds. There’s $50-$100 trillion in other currency derivatives. And these are all conventional use cases. I think that there’s $350-$500 trillion dollars worth of currency, currency derivatives in the world. And when I say that, I mean things that are valued based upon fiat cash flows: any commercial real estate, any bond, any sovereign debt, any currency itself, any derivatives to those things — they’re all derivatives. And they’re all defective. And they’re all defective because of this persistent 7%-14% lapse which we call inflation or monetary expansion. Can we switch subjects to talk about the energy side of it? Like, the innovative piece? Let’s just start with this idea that I’ve got a hotel worth a billion dollars with a thousand rooms: when it becomes a dematerialized hotel —

Lex Fridman: I love that word so much by the way: dematerialized hotel.

Michael Saylor: We’re across from the Fontainebleau here: imagine the Fontainebleau is dematerialized. The problem with the physical hotel is I got to hire real people moving subject to the speed of sound and physics laws and Newton’s laws and I can rent it to people in Miami Beach. But if it was a digital hotel, I could rent the room to people in Paris, London, and New York every night, and I can run it with robots. And as soon as I do that, I can rent it by the room-hour and I can rent it by the room-minute, and so I start to chop my hotel up into 100,000 room-hours that I sell to the highest bidder anywhere in the world. And you can see all of a sudden, the yield, the rent, and the income of the property is dramatically increased. I can also see the maintenance cost of the property falls. I get on Moore’s law and I’m operating in cyberspace. So I got rid of Newton’s laws — I got rid of all the friction and all those problems — I tapped into the benefits of cyberspace. I created a global property. I started monetizing it at different frequencies. And of course now I can mortgage it to anybody in the world. I mean, you’re not going to be able to get a mortgage on a Turkish building from someone in South Africa — you have to have to find someone that’s local to the culture you’re in. So when you start to move from analog property to digital property, it’s not just a little bit better, it’s a lot better. And what I just described, Lex, is like the DeFi vision: it’s the beauty of DeFi flash loans, money moving at high velocity. At some point, if the hotel is dematerialized, then what’s the difference between renting a hotel room and loaning a block of stock, right? I’m just finding the highest, best use of the thing.

Lex Fridman [timestamp 3:07:05]: It feels like the magic really emerges though when you build a market of layer two and layer three technologies on top of that. Maybe you can correct me if I’m wrong, but for all these hotels and all these kinds of ideas, it’s always touching humans at some point and the consumers or humans or business owners and so on, so the interface — you have to create services that make all that super-efficient, super-fun to use, pleasant, effective, all those kinds of things. So you have to build a whole economy on top of that.

Michael Saylor: Yeah I happen to think that won’t be done by the crypto industry at all — I think that’ll be done by centralized applications. I think it’ll be the citadels of the world, the high-speed traders of the world, the New Yorkers. I think it’ll be Binance, FTX, and Coinbase as a layer three exchange that will give you the yield and will give you the loan and the best terms. Because ultimately you have to jump through these compliance hoops. Like, BlockFi can give you yield, but they have to do it in compliant way with the United States jurisdiction. So ultimately those applications — to use that digital property and either give you a loan on it or give you yield on it — are going to come from companies. But the fundamental difference is: it could be companies anywhere in the world. So if a company in Singapore comes up with a better offering then the capital is going to start to flow to Singapore. I can’t send 10 city blocks of LA to Singapore to rent during a festival, but I can send 10 blocks of Bitcoin to Singapore. So you’ve got a truly global market that’s functioning in this asset. And it’s a second-order asset. For example: maybe you’re an American citizen and you own 10 Bitcoin and someone in Singapore will generate 27% yield on the Bitcoin, but legally you can’t send the Bitcoin to them — it doesn’t matter, because the fact that exists means that someone in Hong Kong will borrow the 10 Bitcoin from somebody in New York and then they will put on the trade in Singapore and that will create a demand for Bitcoin which will drive up the price of Bitcoin which will result in an effective tax-free yield for the person in the US that’s not even in the jurisdiction. So there’s nothing that’s going on in Singapore to drive up the price of your land in LA, but there is something going on everywhere in the world to drive up the price of property in cyberspace, if there’s only one digital Manhattan. And so there’s a dynamic there which is profound because it’s global. But now let’s go to the next extreme. I’m still giving you a fairly conventional idea which is: let’s just loan the money fast on a global network, and let’s just rent the hotel room fast in cyberspace. But let’s move to maybe a more innovative idea: the first generation of Internet brought a lot of productivity, but there’s also just a lot of flaws in it. For example: Twitter is full of garbage. Instagram DMs are full of garbage. Your Twitter DMs are full of garbage. YouTube is full of scams. Every 15 minutes there’s a Michael Sayler Bitcoin giveaway spun up on YouTube. My Office 365 inbox is full of garbage. Millions of spam messages. I’m running four different e-mail filters. My company spends a million dollars a year to fight denial of service attacks and all sorts of other security things. There are denial of service attacks everywhere against everybody in cyberspace all the time — it’s extreme. And we’re all beset with hostility, right? You’ve been a victim of it on Twitter. You go on Twitter and people post stuff they would never say to your face. And then if you look you find out that the account was created like three days ago and it’s not even a real person. So we’re beset with phishing attacks and scams and spam bots and garbage. Why? And the answer is because the first generation of Internet was digital information and there was no energy. There’s no conservation of energy in cyberspace. The thing that makes the universe work is conservation of energy. If I went to a hotel room, I’d have to post a credit card. And then if I smashed the place up, there’d be economic consequences, maybe there would be criminal consequences, there might be reputational consequences. A lamp might fall on me. But in the worst case, I can only smash up one hotel room. Now imagine I could actually write a Python script to send myself to every hotel room in the world every minute, not post a credit card, and smash them all up anonymously. The thing that makes the universe work is friction: speed of sound, speed of light, and the fact that ultimately it’s conservative. You’re either energy or you’re matter, but once you’ve used the energy it’s gone, and you can’t do infinite everything — that’s missing in cyberspace right now. And if you look at all of the moral hazards and all of the product defects that we have in all of these products, most of them — 99% of them — could be cured if we introduced conservation of energy into cyberspace. And that’s what you can do with high-speed digital property — high-speed Bitcoin. And by high-speed I mean, not 20 transactions a day, I mean 20,000 transactions a day. So how do you do that? Well, I let everybody on Twitter post a 1,000 or 10,000 satoshis via a Lightning wallet — a Lightning badge. Give me an orange check. If you put up $20 bucks once in your life, you could give 300 million people an orange check. Right now you don’t have a blue check, Lex. You’re a famous person — I don’t know why you don’t have a blue check. Have you ever applied for a blue check?

Lex Fridman: No.

Michael Saylor: There are 360,000 people on Twitter with a blue check. There are 300 million people on Twitter. So the conventional way to verify accounts is elitist, archaic.

Lex Fridman: Yeah, how does it work? How did you get a blue check?

Michael Saylor: You’ve got to apply and wait six months and you have to post like three articles in the public mainstream media that illustrates you’re a person of interest.

Lex Fridman: Interesting.

Michael Saylor: Generally they would grant them to CEOs of public companies or — the whole idea is to verify that you are who you say you are. But the question is: why isn’t everybody verified? And there’s a couple of threads on that. One is: some people don’t want to be doxxed. They want to be anonymous. But there are even anonymous people that should be verified, because otherwise you’re subjecting their entire following to phishing attacks and scams and hostility.

Lex Fridman: What’s the orange verification? Can you actually elaborate a little bit more? If you put up $20 bucks?

Michael Saylor [timestamp 3:14:57]: Yeah I think everybody on Twitter ought to be able to get an orange check if they could come up with like $10.

Lex Fridman: And what is the power of that orange check? What what does that verify exactly?

Michael Saylor: You basically post a security deposit for your safe passage through cyberspace. So the way it would work is: if you’ve got $10 once in your life, you can basically show that you’re credit-worthy, and that’s your pledge to me that you’re going to act responsibly. So you put the $10 or the $20 into the Lightning wallet, you get an orange check, then Twitter just gives you a setting where I can say, the only people that could DM me are orange checks, the only people that can post on my Tweets are orange checks. So instead of locking out the public and just letting your followers comment, you lock out all the unverified, and that means people that don’t want to post a $10 security deposit can’t comment. Once you’ve done those two things, then you’re in position to monetize malice, right? Monetize motion or malice, for that matter. But let’s just say for the sake of argument you post something and 9,700 bots spin up and pitch their whatever scam. Right now you sit and you go, Report, Report, Report, Report, Report, Report. And if you spend an hour, you get through half of them — you waste an hour of your life — they just spent up another 97 gazillion because they’ve got a Python script spinning it up, so it’s hopeless. But on the other hand, if you report them and they really are a bot, Twitter’s got a method to actually delete the account — they know that they’re bots. The problem is not they don’t know how to delete the account — the problem is there are no consequences when they delete the account. So if there are consequences, Twitter could just seize the $10 or seize the $20 because it’s a bot. It’s a malicious, criminal act or whatever — it is a violation of the platform rules. You end up seizing $10,000 — give half the money to the reporter and half the money to the Twitter platform.

Lex Fridman: It’s a really powerful idea but that’s adding friction akin to the kind of friction you have in the physical world. You have real consequences. Conservation of energy.

Michael Saylor: There’s no friction, there’s no nothing on this Earth, right? I mean, you can’t walk across the room without friction. Friction is not bad — unnecessary friction is bad. So in this particular case, you’re introducing conservation of energy. And in essence you’re introducing the concept of consequence or truth into cyberspace. And that means: if you do want to spin up 10 million fakes Lex Fridmans, it’s going to cost you $100 million dollars to spin up 10 million fake Lexs.

Lex Fridman: But the thing is, you could do that with the dollar, but in your case you’re saying that it’s more tied to physical reality when you do that with Bitcoin.

Michael Saylor: Yeah, well let’s follow up on that idea a bit more: if you did do it with the dollar, then the question is, How do 6 billion people deposit the dollars? Because what you’re doing is — could you do it with a credit card? Like, how do you send dollars? Well, you have to dox yourself. Like, it’s not easy. So you’re talking about inputting a credit card transaction, doxing yourself, and now you’ve just eliminated the 2 billion people that don’t have credit cards or don’t have banks. You’ve also got a problem with everybody that wants to remain anonymous. But you’ve also got this other problem which is: credit credit cards are expensive transactions, low frequency, slow settlement. So do you really want to pay 2.5% every time you actually show a $20 deposit? And maybe you could do a kludgy version of this for a subset of people — it’s like it’s 10% as good if you did it with conventional payment rails. But what you can’t do is the next idea, which is: I want the orange badge to be used to give me safe passage through cyberspace tripping across every platform. So how do I solve the denial of service attacks against a website? I publish a website — you hit it with a million requests. Now how do I deal with that? Well I can lock you out and I can make it a zero-trust website and then you have to be coming at me through a trusted firewall with a trusted credential, but that’s a pretty draconian thing. Or, I could put it behind a Lightning wall. A Lightning wall would be: I just challenge you Lex — you want to browse my website, you have to show me your 100,000 satoshis. Do you have 100,000 satoshis? Click, Okay. Now you click away a hundred times or a thousand times, and after a thousand times I’m like, Well now Lex you’re getting offensive. I’m gonna take a satoshi from you, or 10 satoshis — a microtransaction. You want to hit me a million times? I’m taking all your satoshis and locking you out. What you want to do is you want to go through 200 websites a day and every time you cross a domain you need to be able to in a split second prove that you’ve got some asset. And now when you cross back, when you exit domain, you want to fetch your asset back. So how do I, in a friction-free fashion, browse through dozens or hundreds of websites, post a security deposit for safe passage, and then get it back? You couldn’t afford to pay a credit card fee each time. When you think about 2.5% as a transaction fee, it means you trade the money 40 times and it’s gone! It’s gone.

Lex Fridman [timestamp 3:21:15]: So you can’t do this kind of hopping around through the Internet with this kind of verification that grounds you to a physical reality. It’s a really, really interesting idea. Why hasn’t that been done?

Michael Saylor: I think you need two things: you need an idea like a digital asset like Bitcoin that’s a bearer instrument for final settlement, and then you need a high-speed transaction network like Lightning where the transaction cost might be a 20th of a penny or less. And if you roll the clock back 24 months, I don’t think you had the Lightning Network in a stable point. It’s really just the past 12 months. It’s an idea you could think about this year, and I think you need to be aware of Bitcoin as something other than like a scary speculative asset. So I really think we’re just at the beginning.

Lex Fridman: The embryonic stage. I have to ask: Michael Saylor, you said before, There’s no second best to Bitcoin. What would be the second best? Traditionally there’s Ethereum with smart contracts, Cardano with proof-of-stake, Polkadot with interoperability between blockchains, Dogecoin has the incredible power of the meme, privacy with Monero — I just can keep going. There’s of course after the block size wars the different offshoots of Bitcoin.

Michael Saylor: I think if you decompose or segment the crypto market, you’ve got crypto property — Bitcoin is the king of that, and other Bitcoin forks that want to be an a bearer instrument store of value would be a property, a Bitcoin Cash or a Litecoin, something like that — then you’ve got cryptocurrencies. I don’t think Bitcoin’s a currency, because a currency I define in nation state sense: a currency is an a digital asset that you can transfer in a transaction without incurring a taxable obligation. So that means it has to be a stable dollar or a stable euro or a stable yen — a stablecoin. So I think you’ve got cryptocurrencies — Tether, Circle most famous — then you’ve got crypto platforms, and Ethereum is the most famous of the crypto platforms. The platform with smart contract functionality, etc. And then I think you’ve got just crypto securities — it’s just like my favorite whatever meme coin and I love it because I love it and it’s attached to my game or my company or my persona or my whatever. I think if pushed me and said, Well what’s the second best? I would say the world wants two things: it wants crypto property as a savings account and it wants cryptocurrency as a checking account. And that means that the most popular thing really is going to be a stablecoin dollar. And there’s maybe a fight right now — it might be Tether. But a stable dollar — it’s not clear that there’ll be one that will win. The class of stable dollars is probably a $1-$10 trillion dollar market, easily. I think that in the crypto platform space, Ethereum will compete with Solana and Binance smart chain and the like.

Lex Fridman: Are there certain characteristics of any of them that kind of stand out to you? Or don’t you think the competition is based on a set of features? Also — the set of features that the cryptocurrency provides — but also the community that it provides. Don’t you think the community matters and sort of the adoption, the dynamic of the adoption both across the developers and the Internet?

Michael Saylor: If I’m looking at them, the first question is: What’s the regulatory risk? How likely is it to be deemed a property versus a security? And the second is: What’s the competitive risk? And the third is: What’s the speed and the performance? And all of those things lead to the question of: What’s the security risk? How likely is it to crash and burn? And how stable or unstable is it? And then there’s the marketing risk. I mean, there are different teams behind each of these things and communities behind them. I think that the big cloud looming over the crypto industry is regulatory treatment of cryptocurrencies and regulatory treatment of crypto securities and crypto platforms. I think that won’t be determined until the end of the first Biden administration. For example, there are people that would like only US FDIC-insured banks to issue cryptocurrencies. They want J.P. Morgan to issue a crypto dollar backed one-to-one. But then in the US right now we have Circle and we have other companies that are licensed entities that are backed by cash and cash equivalents, but they’re not FDIC-insured banks. There’s also a debate in Congress about whether state-chartered banks should be able to issue these things. And then we have Tether and others that are outside of the US jurisdiction, they’re probably not backed by cash and cash equivalents — they’re backed by stuff, and we don’t know what stuff. And then finally you have UST and DAI which are algorithmic stablecoins that are even more innovative further outside the compliance framework. So if you ask who’s going to win, the question is really: Will the market decide? Or will the regulators decide? If the regulators get out of the way and the market fought it out, well then it’s an interesting discussion. And then I think that all bets are off if the regulators get more heavy-handed with this. And I think you could have the same discussion with crypto properties. The DeFi exchanges and the crypto exchanges — the SEC would like to regulate the crypto exchanges, they’d like to regulate the DeFi exchanges. That means they may regulate the crypto platforms, and at what rate? And in what fashion? And so I think that I could give you an opinion if it was limited to competition under the current regulatory regime, but I think that the regulations are so fast-moving and it’s so uncertain that you can’t make a decision without considering the potential actions of the regulators.

Lex Fridman [timestamp 3:27:55]: I hope the regulators get out of the way. Can you steelman the case that Dogecoin is I guess the second best cryptocurrency? Or if you don’t consider Bitcoin a cryptocurrency but instead as crypto property —

Michael Saylor: I would classify it as crypto property because the US dollar is a currency, so unless your crypto-asset is pegged algorithmically or stably to the value of the dollar, it’s not a currency — it’s a property or it’s an asset.

Lex Fridman: So then can you steelman the case that Dogecoin is the best cryptocurrency then, because Bitcoin is not even in that list?

Michael Saylor: The debate is going to be whether it’s property or a security, and there’s a debate whether it’s decentralized enough. So let’s assume it was decentralized — well it’s increasing at what, 5% a year inflation rate? But it’s not 5% exponentially, it’s like a plus 5 million something capped at less — I forget the exact number, but it’s an inflationary property. It’s got a lower inflation rate than the US dollar and it’s got a much lower inflation rate than many other fiat currencies, so I think you could say that.

Lex Fridman: But don’t you see the power of meme? The power of ideas? The power of fun or whatever mechanism is used to captivate a community?

Michael Saylor: I do, but there are meme stocks — it doesn’t absolve you of your ethical and securities liabilities if you’re promoting it. So I don’t have a problem with people buying a stock. It’s just, the way I divide the world is: there’s investment, there’s saving, there’s speculation, and there’s trading. So Bitcoin is an asset for saving — if you want to save money for 100 years, you don’t really want to take on execution risk or the like. So you’re just buying something to hold forever. For you to actually endorse something as a property — like if you said to me, Mike, what should I buy for the next hundred years? I’d say, Well, some amount of real estate, some amount of scarce collectibles, some amount of Bitcoin. You can run your company — but running your company is an investment. So the savings are properties. If you said, What should I invest in? I’d say, Well here’s a list of good companies. Private companies — you can start your own company — that’s an investment. If you said, What should I trade? Well trading is like a proprietary thing — I don’t have any special insight into that. If you’re a good trader, you know you are. If you said to me, What should you speculate in? We talk about meme stocks and meme coins, and it kind of sits up there right in the same space with what horse should you bet on and what sports team should you gamble on and should you bet on black six times in a row and double down each time? It’s fun, but at the end of the day it’s a speculation, right? You can’t build a civilization —

Lex Fridman: On speculation.

Michael Saylor: It’s not an institutional asset. And in fact, where I’d leave it is: Bitcoin is clearly digital property, which makes it an institutional-grade investable asset for a public company, a public figure, a public investor, or anybody that’s risk-adverse. I think that the other the Top-100 other cryptos are like venture capital investments. And if you’re a VC and if you’re a qualified technical investor and you have a pool of capital and you can take that kind of risk, then you can parse through that and form opinions. It’s just orders of magnitude more risky because of competition, because of ambition, and because of regulation. And if you take the meme coins, it’s like when some rapper comes out with a meme coin it’s like maybe it’ll peak when I hear about it. I mean, SHIB was created as a coin such that it had so many zeros after the decimal point that when you looked at it on the exchanges it always showed zero zero zero zero and it wasn’t until like six months after it got popular that they started expanding the display so you could see whether the price had changed.

Lex Fridman: That’s speculation. Maybe you can correct me, but you’ve been critical of Elon Musk in the past in the crypto space. Where do you stand on Elon’s effect on Bitcoin and cryptocurrency in general these days?

Michael Saylor [timestamp 3:32:42]: I believe that Bitcoin is a massive breakthrough for the human race that will cure half the problems in the world and generate hundreds of trillions of dollars of economic value to the civilization. And I believe that it’s an early stage where many people don’t understand it and they’re afraid of it and there’s FUD and there’s uncertainty there’s doubt and there’s fear and there’s a very noisy crypto world and there’s 15,000 other cryptos that are are seeking relevance and I think most of the FUD is actually fueled by the other crypto entrepreneurs. So the environmental FUD and the other types of uncertainty that surround Bitcoin — generally, they’re not coming from legitimate environmentalists, they don’t come from legitimate critics. They actually are guerrilla marketing campaigns that are being financed and fueled by other crypto entrepreneurs because they have an interest in doing so. So if I look at a constructive path forward: first I think it’d be very constructive for corporations to embrace Bitcoin and build applications on top of it. You don’t need to fix it — there’s nothing wrong with it. Like, when you put it on a layer two and a layer three it moves a billion times a second at the speed of light, so every beautiful, cool DeFi application, every crypto application, everything you could imagine you might want to do, you can do with a legitimate company and a legitimate website or mobile application sitting on top of Bitcoin or Lightning if you want to. So I think that to the extent that people do that, that’s going to be better for the world. If you consider what holds people back, I think it’s just misperceptions about what Bitcoin is. So I’m a big fan of just educating people. If you’re not going to commercialize it, then just educate people on what it is. So for example: Bitcoin’s the most efficient use of energy in the world, by far. Most people don’t necessarily perceive that or realize that, but if you were to take any metric — energy intensity — you put like $2 billion dollars worth of electricity in the network every year and it’s worth $850 billion dollars. There is no industry in the real world right that is that energy-efficient. Not only that energy-efficient, it’s also the most sustainable industry. We do surveys: 58% of Bitcoin mining energy is sustainable. So there’s a very good story. In fact every other industry — planes, trains, automobiles, construction, food, medicine, everything else — it’s less clean, less efficient. So I wouldn’t say there is a debate, I would just say that to the extent that the Bitcoin community had any issue with Elon, it was just this environmental uncertainty that he fueled in a couple of his tweets, which I think just is very distracting.

Lex Fridman: Well that was one of them, but I think it’s like the Bitcoin maximalists, but generally the crypto community — what you call the crypto entrepreneurs — it’s also they’re using it for investment, for speculation, and therefore get very passionate about celebrities, including you, like famous people, saying positive stuff about any one particular crypto thing you can buy on Coinbase. And so they might be unhappy with Elon Musk that he’s promoting Bitcoin and then not, and promoting Dogecoin and then not, and there’s so much emotion tied up in the communication on this topic. And I think that’s where a lot of the —

Michael Saylor: Look — I don’t have a criticism of Elon Musk. He’s free to do whatever he wishes to do — it’s his life. In fact, Elon Musk is the second-largest supporter of Bitcoin in the world. So I think that the Bitcoin community tends to eat its own quite a bit. It tends to be very self-critical. And instead of saying, Elon is more supportive of Bitcoin than the other 10,000 people in the world with serious amounts of money, they focus upon —

Lex Fridman: Yeah, this is strange. Eating your own is just —

Michael Saylor: So I mean I think he’s free to do what he wants to do, and I think he’s done a lot of good for Bitcoin in putting it on the balance sheet of Tesla and holding it, and I think that sent a very powerful message.

Lex Fridman: Do you have advice for young people? So you’ve had a heck of a life: you’ve done quite a lot of things — before MIT — but starting with MIT. Is there advice you have for young people in high school and college? How to have a career they can be proud of? How to have a life they can be proud of?

Michael Saylor: I was asked by somebody for quick advice for his young children — he had twins — when they enter adulthood. He said, Give me your advice for them in a letter —I’m going to give it to them when they turn 21 or something. So I was at a party and then he handed me this sheet of paper and I thought, Oh, he wants me to write it down right now. So I sat down I started writing and I figured, Well, what would you want to tell someone at age 21?

Lex Fridman: You wrote it down? Awesome.

Michael Saylor: I wrote it down and I tweeted it and it’s sitting on Twitter but I’ll tell you what I said. I said — my advice if you’re entering adulthood: focus your energy, guard your time, train your mind, train your body, think for yourself, curate your friends, curate your environment, keep your promises, stay cheerful and constructive, and upgrade the world. That was the ten.

Lex Fridman: Upgrade the world — that’s an interesting choice of words. Upgrade the world, upgrade the world —

Michael Saylor: It’s like an engineer’s dream.

Lex Fridman: Yeah it’s very engineering-themed. Keep your promises, too — that’s an interesting one.

Michael Saylor: I think most people suffer because they just don’t focus. Like, you’ve got to figure out — I think the big risk in this world is there’s too much of everything. Like, you can sit and watch chess videos 100 hours a week and you’ll never get through all the chess videos. There’s too much of every possible thing, too much of every good thing. So figuring out what you want to do — and then everything will suck up your time, right? There’s a hundred streaming channels to binge watch. So you gotta guard your time and then train your body, train your mind, and control who’s around you, control what surrounds you. So ultimately, in a world where there’s too much of everything —

Lex Fridman: It’s like those laser eyes. It’s like those laser eyes — you have to focus on just a few of those things.

Michael Saylor: Yeah I mean I’ve got a thousand opinions we could talk about and I could pursue a thousand things, but I don’t expect to be successful, and I’m not sure that my opinion in any of the 999 is any more valid than the leader of thought in that area, so how about if I just focus upon one thing and then deliver the best I can in the one thing — that’s the laser eye message. The rest get you distracted.

Lex Fridman: Well how do you achieve that? Do you find yourself, given where you are in life, having to say No a lot? Or just focus comes naturally when you just ignore everything around you? So how do you achieve that focus?

Michael Saylor: I think it helps if people know what you’re focused on.

Lex Fridman: So everything about you just radiates that people know — people know this is —

Michael Saylor: If they know what you’re focused on, then you won’t get so many other things coming your way. If you dally or if you flirt with 27 different things, then you’re going to get approached by people in each of the 27 communities, right?

Lex Fridman: You mentioned getting a PhD — and given your roots at MIT — there’s all kinds of journeys you can take to educate yourself. Do you think a PhD or school is still worth it? Or are there other paths through life?

Michael Saylor: Is it worth it if you have to pay for it or is it worth it to spend the time on it?

Lex Fridman: The time and the money is a big cost. Time probably the bigger one, right?

Michael Saylor: I think it seems clear to me that the world wants more specialists. It wants you to be an expert in and to focus in on one area, and it’s punishing generalist jack-of-all-trades, but especially people that are generalists in the physical realm. Because if you’re a specialist in the digital realm, you’re the person with 700,000 followers on Twitter and you show them how to tie knots, or you’re the banjo player with 1.8 million followers and when everybody types banjo — it’s you. And so the world wants people that do something well, and then it wants to stamp out 18 million copies of them. And so that argues in favor of focus. I mean, the definition of a PhD is someone with enough of an education that they’re capable of or have made — I guess to get a PhD, technically you have to have done a dissertation where you made a seminal contribution to the body of human knowledge. And if you haven’t done that, technically you have a master’s degree but you’re not a doctor. So if you’re interested in any of the academic disciplines that a PhD would be granted for, then I can see that being a reasonable pursuit. But there are many people that are specialists — you know the Agadmator on YouTube?

Lex Fridman: Yeah yeah yeah.

Michael Saylor: He’s the world’s greatest chess commentator. And I’ve watched his career and he’s got progressively better — and he’s really good!

Lex Fridman: He’s going to love hearing this.

Michael Saylor: Yeah if the Agadmator ever hears this: I’m a big fan of the Adadmator. I have to cut myself off because otherwise you’ll watch the entire Paul Morphy saga for your weekend. But the point really is: YouTube is full of experts who are specialists in something, and they rise to the top of their profession. And Twitter is, too, and the Internet is. So I would advocate that you figure out what you’re passionate about and what you’re good at and you do focus on it — especially if the thing that you’re doing can be automated, the problem is back to that 500,000 algebra teacher-type comment — the problem is if it is possible to be automated, then over time someone’s probably going to automate it, and that squeezes the state space of everybody else. Like, after the lockdowns, it used to be there were like all these local bands that played in bars and everybody went to the bar to see the local band. And then during the lockdown you would have like these six super-groups and they would all get 500,000 or 1 million followers, and all these smaller local bands just got no attention at all.

Lex Fridman [timestamp 3:45:49]: Well the interesting thing is: one of those 500,000 algebra teachers is likely to be part of the automation. So it’s like it’s an opportunity for you to think: where is my field, my discipline, evolving into? I talked to a bunch of librarians — just happen to be friends with librarians — and libraries will probably be evolving, and it’s up to you as a librarian to be one of the few that remain in the rubble.

Michael Saylor: Yeah if you’re going to give commentary on Shakespeare plays, I want you to basically do it for every Shakespeare play. Like, I want you to be the Shakespeare dude. Just like — Lex, you’re the deep-thinking podcaster, right? Or you’re the podcaster that goes after the deep intellectual conversations. And once I get comfortable with you and I like you, then I start binge watching Lex. But if you changed your format through 16 different formats so that you could compete with 16 different other personalities on YouTube, you probably wouldn’t beat any of them, right? You would probably just kind of sink into the #2 or #3 guy — you’re not the #1 guy in the format. And I think the algorithm — the Twitter algorithm and the YouTube algorithms — they really reward the person that’s focused, on message, consistent. The world wants somebody they can trust that’s consistent and reliable, and they kind of want to know what they’re getting into, because — and this is taken for granted, maybe — but there’s 10 million people vying for every hour of your time, and so the fact that anybody gives you any time at all is a huge privilege, right?

Lex Fridman: It’s amazing.

Michael Saylor: And you should be thanking them, and you should respect their time.

Lex Fridman: It’s interesting — like, everything you said is very interesting, but of course from my perspective, and probably from your perspective, my actual life has nothing to do with it. It’s just being focused on stuff — and in my case it’s focused on doing the thing I really enjoy doing and being myself and not caring about anything else. Like, I don’t care about views or likes or attention, and just maintaining that focus is the way. From an individual perspective, you live that life, but it does seem that the world and technology is rewarding the specialization and creating bigger and bigger platforms for the different specializations. And then that lifts all boats, actually, because the specializations get better and better and better at teaching people to do specific things, and they educate themselves, and it’s just everybody gets more and more knowledgeable and more and more empowered.

Michael Saylor: The reward for authenticity more than offsets the specificity with which you pursue your mission. Another way to say it is: nobody wants to read advertising. If you were to spend $100 million dollars advertising your thing, I probably wouldn’t want to watch it.

Lex Fridman: Yeah. That’s so fascinating.

Michael Saylor: We see the death of that. And so the commercial shows are losing their audiences, and the authentic specialists or the authentic artists are gaining their audience.

Lex Fridman: And that’s a beautiful thing. Speaking of deep thinking: you’re just a human. Your life ends. You’ve accumulated so much wisdom, so much money, but the ride ends. Do you think about that? Do you ponder your death? Your mortality? Are you afraid of it?

Michael Saylor: When I go, all my assets will flow into a foundation, and the foundation’s mission is to make education free for everybody, forever. And if I’m able to contribute to the creation of a more perfect monetary system, then maybe that foundation will go on forever, right?

Lex Fridman: The idea — the foundation of the idea. So each of the foundations.

Michael Saylor: It’s not clear we’re on the S-curve of immortal life yet — like that’s a biological question and you ask that on some of your other interviews a lot. I think that we are on the threshold of immortal life for ideas, or immortal life for certain institutions or computer programs. So if we can fix the money, then you can create a technically perfected endowment. And then the question really is: what are your ideas? What do you want to leave behind? And so if it’s a park then you endow the park. If it’s free education then you endow that. If it’s some other ethical idea, right?

Les Fridman: Does it make you sad that there’s something that you’ve endowed, some very powerful idea of digital energy, that you help put it into the world, and that your mind — your conscious mind — will no longer be there to experience it? It’s just gone forever?

Michael Saylor: I’d rather think that the thing that Satoshi taught us is: you should do your part during some phase of the journey and then you should get out of the way. And I think Steve Jobs said something similar to that effect in a very famous speech one day, which is: Death is a natural part of life and it makes way for the next generation. And I think the goal is: you upgrade the world, right? You leave it a better place, but you get out of the way. And I think when that breaks down, bad things happen. I think nature cleanses itself. There’s a cycle of life.

Lex Fridman: And speaking of great people who did also get out of the way is George Washington — so, hopefully, when you get out of the way, nobody’s bleeding you to death in hope of helping you. To do a bit of a callback: what do you think is the meaning of this whole thing? What’s the meaning of life? Why are we here? We talked about the rise of human civilization — it seems like we’re engineers at heart. We’ll build cool stuff. Better and better use of energy — channeling energy to be productive. Why? What’s it all for?

Michael Saylor: You’re getting metaphysical on me.

Lex Fridman: Very — there’s a beautiful boat to the left of us: like, why do we do that? This boat that sailed the ocean. Then we build models of it to celebrate great engineering of the past.

Michael Saylor: To engineer is divine. You can make lots of arguments as to why we’re here. We’re either here to entertain ourselves or we’re here to create something that’s beautiful, or something that’s functional. I think if you’re an engineer, you entertain yourself by creating something that’s both beautiful and functional. So I think all three of those things: it’s entertaining, but it’s ethical. You’ve got to admire the first person that built a bridge — crossing a chasm — or the first person to work out the problem of how to get running water to a village, or the first person that figured out how to dam up a river, or mastered agriculture, or the guy that figured out how to grow fruit on trees or created orchards and maybe one day had like 10 fruit trees and he’s pretty proud of himself.

Lex Fridman: So that’s functional. There is also something to that — just like you said — that it’s just beautiful. It does get you closer to, like you said, the divine. When you step back and look at the entirety of it — a collective of humans using a beautiful invention or a creation or just something about this instrument is creating a beautiful piece of music — that seems just right. That’s what we’re here for. Whatever the divine is, it seems like we’re here for that. And I of course love talking to you because, from the engineering perspective, the functional is ultimately the mechanism towards the beauty.

Michael Saylor: Isn’t there something beautiful about about making the world a better place for people that you love? Your friends, your family, or yourself? When you think about the entire arc of human existence and you roll the clock back 500,000 years and you think about every struggle of everyone that came before us and everything they had to overcome in order to put you here right now, you’ve got to admire that. You’ve got to respect that.

Lex Fridman: That’s a heck of a gift they gave us. It’s also a heck of a responsibility. Don’t screw it up.

Michael Saylor: If I dropped you 100,000 years ago and I said, Figure out steel refining. Or figure out silicon chips, fab reproduction, or whatever it is —

Lex Fridman: Or fire.

Michael Saylor: And so now we’re here, and I guess the way you repay them is: you fix everything in front of your face you can. To someone like Elon, it means get us off the planet. To someone like me I think: fix the energy in the system.

Lex Fridman: And that gives me hope. Michael, this is an incredible conversation. You’re an incredible human. It’s a huge honor you would sit down with me. Thank you so much for talking today.

Michael Saylor: Yeah, thanks for having me, Lex.