The Saylor Series | Episode 10 | The Death of Gold

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Robert Breedlove 1:29
I am thrilled today to have Mr. Michael Saylor sitting down with me to discuss Bitcoin, money, history, as we add some additional installments here to the Saylor Series. Michael, welcome back.

Michael Saylor 1:47
Thanks for having me, Robert.

Robert Breedlove 1:49
So, you know, I’ve told you about the feedback we’ve gotten on the Saylor Series, it’s been absolutely tremendous. People are reporting that it completely reshaped their worldview. Sent them down the rabbit hole. It’s been very valuable. And so I commend you for that. And I think the right place to jump in here today — since we’re taking the big picture approach — is to just answer the question, what is money?

Michael Saylor 1:49
You know, I never in my life had anybody asked me that question before you asked it to me the first time for our first series? And when you asked me that question, that catalyzed the whole set of thinking. And it got me thinking: money is energy. And of course we did the nine-part series and we spent a lot of time talking about energy systems and engineering as a discipline of manipulating energy and why it was critical to the human race and the human condition. And so we won’t re-cover any of that, because that’s well-trod territory. But coming back to the question of what is money and just focusing on it, I would say, for our round two or part two of this series, I’d say: money is tokenized energy within a socio-political framework. So we know money is energy. But tokenized energy — that is: a dollar is a measure of energy, a gold coin is a measure of energy, a bale of tobacco that you’re trading is a token of energy. And how much energy? Well, that’s where the socio-political framework comes in. You can you can measure actual physical or engineering energy and its objective, but money ends up being to a certain degree subjective because if I show up on a deserted island and I’ve got a stack of gold coins and everybody has guns, and they’re shooting each other, they might not accept my gold coin. Whereas if I actually offer the bullets for their gun, they might think the bullets are actually better money than the gold coin, just like cigarettes are good money and in a POW camp, but gold coins wouldn’t be. So this question of what is money gets you really going. So if money is tokenized energy within a social-political framework, then we can look over the history of mankind and we realize that we’ve chosen many different ways to tokenize that energy, and we’ll skip through most of them because they came and they went, but there are three that popped to mind that are interesting. One is the gold standard. The second is the fiat standard. And the third is the Bitcoin standard. And when you start asking what is money, you start asking, well, what’s the best monetary system? And we’ve got these three systems to talk about. I think one thing that’s pretty clear is that most people can’t get their heads around Bitcoin because it’s an utter paradigm shift. And why is it a paradigm shift? Well, because I think Bitcoin is the first digital money. It’s the first digital money. Gold wasn’t digital money and fiat is not digital money, either. And so economists and politicians and investors, they all lack the right mental model to understand Bitcoin because science and engineering were so intrinsic to gold that we took it for granted, because gold is a 10-pound lump of something and if you if you get slugged in the head with it, nobody had to explain that science and physics mattered. And then science and engineering kind of became like quasi-irrelevant in the fiat world. Everybody just kind of ignored science and engineering and there were no immediate clear consequences. There were just the hyperinflations and the collapses of those fiat systems. But because they abandoned gold and there was no digital money, the only alternative to one fiat, you know, the Weimar Republic fiat currency, was the [British] Pound. And that alternative was an alternative to the next thing and the next thing. So we’re comparing fiat currencies or fiat monies to each other. And so there was no real need to embrace science and engineering. And Bitcoin is this paradigm shift where we have digital money crashing into, I guess what we’ll call analog money, or maybe a political money is a better way to describe it. And now we start to ask the question again, what is money? And I think tokenized energy isn’t good enough to explain what is money. Another way to describe money is by coming back to the ideal model. What is the ideal model of money? Ideal money is a shared, immutable, correct ledger. You know, you’ve heard the phrase, Bitcoin is a shared immutable ledger and people debate about whether it’s truly immutable or not, but a crypto-asset network, fully decentralized and mature, is the closest thing we can get to an immutable shared ledger in the history of the world. I think a lot of times when people describe it as a shared immutable ledger, they leave off the correct or the mathematically correct, because it’s almost implied. But I think that if you were to focus upon the three critical dimensions of ideal money, you would say: (1) it’s a ledger that’s shared, everybody in the political system has to have the same access to the ledger. (2) It has to be immutable, no one can doctor it. But it has to be (3) correct, mathematically complete or mathematically proper, because if it’s incomplete or incorrect, then it’s not ideal money. So if I take that as a model, money is a shared immutable, correct ledger, then I can imagine the perfect money would be: some godlike being comes down on earth and they create this perfect uncorruptible system and they telepathically drop that shared immutable correct ledger into the heads of every human being. And every time you incur a debt, it updates the ledger and when you incur a credit, it updates the ledger. And no one can corrupt the ledger.

Robert Breedlove [9:38]: This is getting right to the heart of property, right? Where it’s essentially a list of who owns what, and that ownership is premised on what favors have you rendered to the market, then you’ve earned some right to redeem favors from the market. And money is just kind of the ultimate form of property and one that can be redeemed for any other form of property.

Michael Saylor [10:01]: Yeah, I mean a shared immutable correct ledger could be used to allocate ownership of all intellectual property. You kind of need it to keep track of your music rights or your video rights or your movie rights on your iTunes Store. What do you own? Or the right registrations and licenses? Can I enter a building? Can I exit? Can I cross a border? What are my rights? And what are my obligations? And what do I own? And what do I share, and it all comes down to just a shared database, but that database needs to be immutable and correct. And that is property, the essence of property. And I suppose, when you own a piece of property, and you buy it — a piece of land five acres somewhere, then there’s a deed and you go and you file the deed with the courthouse. And that’s kind of critical, right. And so much of property law revolves around making sure that there are no liens on the property before I buy it, making sure that you have the proper title to it. And that you can transfer that title. And I think that money, to your point, it’s kind of like the apex property, it’s the sum of all property or at least it’s the most important property, I suppose, because it would be the property that I could use to trade for any other property. Any other property or any other product or service. So that is my tokenized energy.

Robert Breedlove [11:49] Now, what you’re describing here is this movement of money out of the sphere of politics into an engineered standard. And one definition of politics I really like is the discussion of how to apply coercion. So Bitcoin seems to be this type of money that’s actually moving economics out of the sphere of politics into a more hard science. That seems to be part of this paradigm shift. We’ve always thought money was in the domain of who could apply force. But now it’s moving into the domain of what’s scientifically proper.

Michael Saylor [12:31]: Yeah we’re moving from politically engineered money to scientifically engineered money.

Robert Breedlove [12:39]: Yeah. From social engineering to scientific engineering.

Michael Saylor [12:42]: Yeah. Is that money because the most important person in the village said it’s money? Or is that money because the best engineer offered it as money? Satoshi engineered money. Whereas, every government has created money. So if we start with that model, right: shared immutable correct [money]. And now we go back to all the monetary systems in history. Start with ancient coins, right? Coin networks, well there have been so many coin networks starting with the Lydians. Each coin network is: well I have a gold coin, I have a silver coin, I have a copper coin, oftentimes, there’s three different coins, you know, one for 1,000, one for 10, one for 1, they have to be at three different scales. And the shortcoming is you create a system of coinage or custom tokens, and then you start shuffling them around in a network, you can only trade to the extent that you have those tokens. And if people lose the tokens the money is gone. But then people try to counterfeit the tokens, they try to cut the coins different ways. Eventually the coins might wear down, the coins have to be carried. And so why do all these coin systems fail? I guess on one hand, there’s never enough of them. There’s always a limit. On the other hand, they’re discrete. So you can go from 1000 to 100 to a 10, or from 1000 to a 10 to a 1 but how do you get to a 0.1 or 0.01 when you want to get to orders of magnitude more or you want to make change in the middle. You end up with all these money changers, and the result of the money changing is a huge amount of friction or impedance. And for thousands of years, people couldn’t figure out how to manufacture coins that couldn’t be cut or counterfeited or that were durable and so ultimately, every single mercantile system has its own internal coin system. And when you swap from one system to the second, there’s this money changer in the middle and they take you for 10%. I remember traveling from London to Rome back before the EU was formed, Robert, and I showed up with dollars, and I converted my dollars into pounds. And then I think I took a plane to the Netherlands and I converted my pounds to whatever the Dutch currency was. And I went to Belgium and I converted the Dutch currency to the Belgian currency. And then we went through France, I converted it again. And then we went to Italy and I converted again, I ended up with like 50% of what I started with after about 72 hours!

Robert Breedlove [16:01]: Which makes sense to that energy analogy, because every time you have a transformation of energy from thermal to kinetic to chemical, whatever direction it’s going, you have a loss. So there’s this problem we’ve always had, transforming one form of energy into another and back.

Michael Saylor [16:19]: Crossing a coin network is: every single time you cross the network, there’s energy loss. And then there’s loss over time as people counterfeit the coins, and you can’t tell. And then there’s losses as the coins get debased. And so the result is what, like 5,000 different systems of coinage over time. And every one of them struggled. Ultimately, they were the basis of the gold standard. And we have this myth that there was a gold standard, the good old days, but it seems like the gold standard never worked as far as we can find anywhere. I mean, we have the stories of the Romans debasing their coinage and the collapse of the Roman Empire. And we know the Lydians eventually lost theirs. And we know there must have been hundreds of systems of coinage in Greece, and one city would sack another city and melt down their coins and create the next set of coins. So I mean there’s a problem with the whole idea of coinage. And the problem with coinage is it’s based on metal — metallic money. And of course, the highest form of money is the gold. So let’s say it’s called the gold standard. But what’s the problem with the gold standard? I mean it never worked that well, because it’s got some crippling flaws, and just some nagging flaws. There’s inflation. Inflation is a nagging defect, it doesn’t inflate fast, it inflates slow, but it inflates at 2% or 3% a year. And because it’s inflating, because you’re mining more gold, and you’re striking more coins or whatever it is you’re moving around, it’s not conservative. And by that I mean it’s not mathematically conservative, or it’s not conservative from a scientific point of view. You start with 100 units, and then you’ve got 102 units, and then 105 units, and 108 units. So whatever percentage of the gold supply you have is leaking at 2% to 3% a year. And it could be worse if it’s not a closed system. So if anybody introduces new gold into the system like when the Spaniards found the Inca gold and they brought back the gold from the New World, you get a massive inflation. I think I remember reading a history of Caesar where when he came back after the Gallic Wars, he had seized so much gold that that created a hyperinflation in Rome and the interest rates leaped. And there was just too much money. And so, either there is inflation because you seized gold or another nation flooded your market with gold, or there’s inflation because the gold mining process continues. And so against our ideal model of money, that means that gold’s not mathematically correct. It’s not conservative, nor is it correct. It’s an approximation. Under the best of circumstances, it’s got a 2% error a year and so over the course of a decade, the best of circumstances is like a 20%, 25% error rate. But the worst of circumstances is: I double or triple the amount of gold when I come back from sacking the Aztecs or the Incas, or I sacked Gaul and I just brought back all this gold and so then you’ve just got a massive error. So gold is mathematically erroneous because you’re just shuffling metallic tokens and it’s not a closed system. The second problem with gold is confiscation because it’s physical. The custodial rights of gold aren’t really — they’re not great. I guess they’re a little bit better than fiat currency. But in some ways they’re not as good. If I have a lot of gold, if I have a million dollars worth of gold or $10 million worth of gold, it’s heavy — really heavy. I can’t get it through an airport. I don’t even know like — you know I tried to — I went online on Amazon once a few years ago and I wanted a little pocket knife. And I ordered this pocket knife — you know how pretty much you can only carry a blade, which is like, I don’t know, half an inch long or what’s the number? It’s like some infinitesimally small sized blade, like a quarter inch or a half an inch blade. So I went on Amazon and I found someone advertising this really super small, dinky little knife that you could use to cut a string with. And it was advertised as being a TSA friendly, compliant little pocket knife. And I was so proud of myself, because I must have paid like $39 for it. And then I took it to the airport to go through the metal detector. And I swear that the TSA agent stopped — you know, I put all this stuff through, they stopped the luggage and said like, Show me that. And they pulled out this little half inch blade to slice a string with, like, Sir, you can’t take this with you. And of course the defense of: Amazon said it’s okay didn’t really fly. Right? And the point of the story is, you can’t even slip a needle-like metal blade through an airport. I wonder if you could carry five gold coins and get away with it? Or ten gold coins, if you can’t get my little pen knife thing through? And so the answer is: it’s easy to confiscate [gold coins], custodial rights are really weak. The fundamental problem with the gold standard is, the custody is difficult and the security is hyper-expensive. And by hyper-expensive, it’s — how much does it cost to secure a billion dollars worth of this stuff? Like you hire 24 armed guards and you have a vault in Fort Knox?

Robert Breedlove [23:02]: Cost of custody, it scales with the amount stored. Which is something that’s very problematic.

Michael Saylor [23:07]: Yeah, the cost — you would say if there’s a small amount of it, it’s impossible to secure and if there’s a large amount of it, it’s exponentially expensive to secure. And the security cost scales in some ways exponentially with the amount you have. And also with the number of nodes. If I have 100,000 nodes, I have 100,000 points of failure. And so it scales with the number of nodes, the value of the nodes and the velocity of the nodes, or the velocity of the money, right? If I wanted to move a billion dollars of gold every day of the week, for 365 days in a row, 1,000 miles. Figure out the security cost of that, right? The conclusion is, this money is so heavy it has no velocity. It goes into Fort Knox, it sits there for 30 years, and nobody audits it. And under that circumstance you can almost delude yourself into saying it’s secure. But it’s only secure because there’s no money velocity and there’s no distribution. If I wanted to give gold to 8 billion people and wanted to move it every day, then the cost of the security would go up to consume all of the energy that humanity produces, right? Probably the cost of security for 8 billion people moving gold every day is more than the sum of the entire gross national product of the world. So the security cost doesn’t work — doesn’t scale.

Robert Breedlove [24:47]: This gets into then the decomposition of money into an asset and a currency. So gold is functioning as an asset but it’s not useful as a currency, something that circulates. Therefore, we introduce a currency. And the other thing on gold, I guess it’s the best approximation of that immutable ledger that you described as ideal money. But it has still has this error rate for both inflation, which is relatively small, but the bigger error rate has to do with the violence and confiscation risk, that it’s unpredictable when the market is going to be flooded, or if you’re going to be confiscated, or if your custodian is trustworthy, etc.

Michael Saylor [25:28]: It’s not correct. It’s tokenized energy. And it was the best idea for tokenizing energy in the Bronze Age, I suppose. But it’s not a [mathematically] correct token. And because it’s so easy to confiscate, it’s not really a shared ledger anymore. It’s not shared tokens, right? I can’t share it because I can’t carry it with me. And then that leads us to the third problem with it, which is the hypothecation. It’s too easy to counterfeit and manipulate. And it’s easy to counterfeit because I can either debase the coins themselves, or I can lie about the asset in the vault while I give you a gold note. I either create the gold note and I lie about it or I just debase the coin, and that creates a problem of authenticity. And that leads us to the fourth problem, which is authentication. It’s too expensive to audit and authenticate. In fact, out of everybody that I know, I don’t know a single person that’s ever authenticated a gold coin. You wouldn’t know! Coinage was an attempt to make authentication self-evident. Right? And Isaac Newton worked on how do you create a good coin, and most coins were crappy, but we still struggle with this issue. And so if you can’t authenticate it, then that really undermines the “shared” part of the shared ledger as well, and maybe the correct part. And so transportation is also a defect. It’s too expensive and slow and difficult and dangerous to move. And distribution’s a defect because it’s difficult to move, difficult to authenticate and easy to confiscate. Then that means: how do you distribute it? It’s too difficult to distribute, and too expensive to distribute. And when I talk about distribute I mean, how do I give it to a billion people? Right? I mean, practically speaking, if you distribute up to $1,000 of gold coins to a billion people today, there would be a 35% markup/markdown every time it trades, right? You pay $90 for $60 worth of gold. If you have $60 worth of gold, you’d be lucky to sell it for $40. And so that transfer cost is obscene. And then finally, you’ve got this division issue. How do you divide a one ounce gold coin? You can’t. And so I can’t divide it. So I have to create silver coin and copper coin. And now I never have the right combination of change. So prices don’t work quite right. So gold has — fundamentally, it’s the best tokenized energy in the Bronze Age. But because of all of these defects, by the Middle Ages it was clear it was going to be replaced with some some type of fiat or some kind of checking system or other paper ledger system. It’s not clear to me that they didn’t replace it — I talked about the gold myth — it’s not clear to me they didn’t replace the 2,000 years ago. Like they talk about the Sumerian tablets, right, and the Sumerian tablets of clay — they have ledgers on them. So, isn’t it quite possible, if not likely, that we had checking systems or ledger systems that were privately enforced by banks thousands and thousands of years ago. So the gold myth is: there never was a gold standard. There was never a time when all money was gold. What you had was a time when the principal asset for a store of value over the long duration was gold. And it’s quite likely that you always had — you know, the merchant had their ledger and you would have credit with the merchant. And maybe that was a credit with the ancient Roman merchant. And maybe that was a credit with the town. Or maybe that was a credit — if you were on a ship, anybody that’s ever been on a ship sailing for months at a time, the quartermaster has all the supplies. And if you wanted some of those cigarettes or some of that alcohol, they might let you sign it out, but then they charge your account. And when the voyage is over, they debit it against your wages. And so this has been going on for as long as people have been sailing ships around. What we have is the myth of the gold standard, but we’ve always had an asset currency system, and the currency was a checking system with a central counter-party — we can call them banks today. But we had goldsmiths that had gold notes back in the Middle Ages. And I think you’ve always had merchants, and you’ve always had quartermasters. And you’ve always had the guy in the army that said, You lose it, we’re going to dock your wages for that, whatever it is you lost or you spent or you consumed.

Robert Breedlove [31:20]: I think this is a really important point to zero in on: so what gold gave us was this reliable medium for final settlement. But it can only be used for large transactions, essentially, because the economics don’t make sense to use it for small transactions. So it doesn’t circulate well but you can settle large transactions with it. So due to that technological limitation of gold — effectively it had such a high value to weight [ratio], I guess you might say — that we needed these cheaper systems, these credit systems or derivative systems — systems of deferred settlement built up around it. And that has been kind of the problem throughout history, because we have this system for final settlement, but we build systems of deferred settlement around it, which are economically more efficient. But they introduce all of this need to trust counter-parties, which comes with counter-party risk which blows up time and time again.

Michael Saylor [32:19]: And one of the implications of that is: the socio-political systems we can create are small and local. The implication is city-state, because I have to get my credit from the local merchant. So if the local merchant is 1,000 miles away, the credit system doesn’t work. It breaks down. So I think you can create a trust network that goes about 10 miles or 20 miles — a trust network out to the suburbs. And then once you get beyond the suburbs, the trust breaks down. And if the trust breaks down, that means you’ve got Renaissance Italy, with 100 different city-states and they’ve all got their own little system of trust and ledgers and coinage. And there is no universal money. And so you can’t have an easy rise of the nation-state under a gold standard or a coinage standard, or at least it’s kind of challenging!

Robert Breedlove [33:23]: It’s fascinating to me that the actual shape and configuration of our institutions is derived from the nature of our money in a way. The reason we have a central bank is because of gold’s technological limitation. So what it gets me really thinking about is when you swap out gold for Bitcoin, how transformational that potentially is to all the institutions we take for granted today?

Michael Saylor [33:50]: Now I think that what we see is the progression of money as technology through the ages. And if you have a better money, you have a better economy. And as the money gets — if we come back to this issue of: Is it shared? Is it immutable? Is it correct? The greater the sharing, the greater the economy. The more immutable, the higher integrity. The higher the efficiency of the economy, the more correct. The more effective the economy, the faster the network updates, the faster the economy. So just finishing up on gold — why does gold fail? In theory — why does gold fail in theory? It fails because the base layer protocol is okay. It’s kind of God-given by nature. It’s the creation and the smelting of gold. It’s okay, but it’s not conservative. The base layer protocol is not conservative. The application level protocol — that one layer above the base layer, the layer 2 — the application protocol is difficult and dangerous. But what does that mean? Like so I give you 10 blocks of gold. That’s the base layer. Okay, well, so what are all the applications of gold? What can you do with it? How many people do you know that can actually refine or melt down molten gold and create something with it? That’s the dangerous part and the difficult part. So gold applications, they’re difficult and they’re limited by the laws of physics. And that just means that — and there is no application protocol. So if I want to do anything with gold above the layer 1 it’s either a very difficult, dangerous application like gold goblets or gold coins or something like that, or I have to create the equivalent of a gold [paper] check, which is a manually implemented protocol. And now we’ve got the same problems we have with a fiat currency. At the point you implement a gold check, you’ve in essence moved on to the Fiat standard with a gold reserve of some sort. So gold fails primarily because there’s no good application protocol. It’s not conservative, it’s too difficult, too slow, too dangerous. And the physicality of it invites violence. I can literally firebomb the city, kill everybody in it, and the gold won’t be damaged. And so when in doubt, shoot first, and then sift through your clothing and take your gold! I don’t have to worry about any collateral damage. The last thing in the world you want to do is be carrying around immutable money on your person. When someone has an incentive just to kill the people and take the money. So that’s the fundamental problem with gold. That’s why the gold standard ultimately has always just been an invitation to war. And never-ending. I think thousands and thousands and thousands of wars — many wars, right? And an invitation to criminality and an invitation to violence. If the criminals don’t take your gold then the counter-parties take your gold and the counter-parties don’t take your gold then your own government takes your gold and your own government doesn’t take your gold the hostile government takes your gold. But ultimately, gold — because of its physicality — is imperfect property. It is imperfect property. And it’s imperfect money, because the token itself is so cumbersome and unwieldy to utilize.

Robert Breedlove [38:24]: And so this is Bronze Age money as you said, but this contention over gold, it extends right up into the 20th century in World War I and World War II. There’s still massive gold flows taking place geopolitically while those nations are at war. So it’s almost — I think it’s an ill-understood aspect of human history that a lot of the violence between countries has been over the gold or about the gold. But it’s not often discussed in the history books.

Michael Saylor [38:57]: Yeah I mean when you think about it, you never read a historical account where someone says, Yeah, we invaded their country and we killed everybody so we could take their paper currency. I could give you 5,000 accounts of: we sacked the city, we burned it and we took their gold. We might have sacked the city and hauled the people off in slavery. We might have taken their livestock, we prefer to take — normally the livestock is all dead by the time we take the city though. So the people are dead, the cattle are dead, the food is gone, the water is all gone, but the gold is still there! So generally, if you look at the first 5,000 years, it’s: we sacked the city, we took the gold. Then even in the modern era from 1700, 1800, 1900: We sacked the city. Okay, what do we make off with? There’s not that many diamonds — normally they’re not easy to find. There’s not a lot of that. Sometimes, you know, the Nazis took the art, right? And the Nazi took the gold. And so there’s a lot of that: we took the gold from the Treasury, Stalin seized the gold during the Spanish Civil War, and the Poles had to smuggle their gold away to keep it from the Nazis. And there’s all sorts of examples of somebody sacking some city or rolling over someone’s border to take their gold. That’s because it’s take-able, right? It’s like, why do you want to take it? Because it’s take-able. But not a single example [for paper currencies]. Like the Nazis didn’t want Norwegian paper currency. They didn’t want Swiss paper currency, they didn’t want the Dutch or the French paper currency. And not many people ask the question, Why? We didn’t take their checks. We didn’t take their securities. Because at the end of the day, securities and derivatives and all these things have no value. Maybe the factory has value. If it’s not destroyed. Maybe the people have value if you get them to work for you. The gold has value but the paper doesn’t.

Robert Breedlove [41:30]: There’s some examples of the opposite, actually. I think in Japan they had the Noborito laboratory where they were running experiments where they would bomb their enemies’ territory with counterfeit currency. The idea was to go and bomb, say, England with a bunch of counterfeit pounds so they could hyperinflate their currency and disable their economy.

Michael Saylor: Psyops!

Robert Breedlove: So it’s like not only do you not want the paper [currency], but you try to actually inflate the enemies’ paper!

Michael Saylor [42:00]: Yeah I think there’s a lot of examples where hostile governments would attempt to just counterfeit the currency of their enemy to destabilize the regime. But it doesn’t get reported a lot in political history or even military history. I mean some nations successfully did it to the US but we don’t want to talk about it, right? So you won’t read that much but it’s an effective thing you could do. Well anyway, that ends my thoughts on gold. It’s basically a metallic token, and it was our best idea, but it seems to have stopped working thousands of years ago. You could say 2,000 years ago almost certainly they had shared ledgers. And they just used gold as a method of final settlement. And we know that it failed at different points. We know that it was debased and resulted in the collapse of the Roman Empire. And so if Rome was the greatest empire on Earth, when their final settlement network failed, then the empire collapsed and what you have is: history is the endless succession of successive empires rising up with the new gold standard that was not debased, and then generation after generation the coinage of that next empire — the successor empire — would be debased, and then that empire would fail and collapse. And then another empire would come along and they would start the cycle over and over again. And yet the myth of gold as immutable money or the sovereign store of value — it stayed with us for thousands of years into the 20th century. I would say that the gold standard has been dying a slow death — a death by a thousand cuts. 1914 comes along — you know we’ve got the golden age from 1870–1914 but then World War I comes along and then in 1914 every country abandons the gold standard. And maybe that’s the final cut. And after World War I, the Treaty of Genoa, we came back to a gold reserve standard and in essence we had gold backing the pound and the dollar. And that degree of backing successively slid, so there was a debasement of the pound and the dollar, consistently and gradually. And then of course the pound and the dollar became layer 2 applications if you will, and then every other currency became a layer 3 derivative. And then everything else in the economy was built on those derivatives, so you had basically layers of derivatives of gold that got progressively less backed by tangible energy — or de-nurtured. And that resulted in who knows how many collapses: the Great Depression. Eventually we get World War II which you could say came out of just a bunch of economic collapses like the Weimar Republic. And all the gold ended up getting centralized and seized by the Americans in Fort Knox, and then we wrapped Bretton Woods around it, and Bretton Woods was the second gold reserve standard of the century, except this time just the dollar was the reserve currency, backed some percentage by gold — say 40% or 30% by gold. And then every year thereafter it slid from 40% to 30% to 20% — I shudder to say it must have been less than 10% by 1971. And in 1971 we defaulted on the gold standard. In essence, at that point the gold reserve standard was effectively dead. Gold still has a fiction of being a store of value and an asset, and if you’re looking for a non-sovereign store of value between 1971 and the invention of Bitcoin, you could’ve gone to gold, I guess you could’ve used property like land or commodities, timber rights, oil rights, something like that. And you could’ve used art. There’s probably no one king, right? People dabble with, Is silver a store of value? I think the free market went back and forth but it’s pretty clear that gold kind of died — it started dying if not had died about 10 years ago as far as I can see, when Bitcoin was formed. And if we look at performance in the last 12 months, just for kicks let’s just go and look at 12 months of performance. So it’s quite a day, right? In 12 months Bitcoin is up 240%. Gold is down 9.82%. Over the course of 10 years Bitcoin is up 132% compounded annual growth rate (CAGR), gold is 0.94%. The S&P Index is 13.9% over 10 years. 33% over one year. Summary is: gold is not a store of value over the last decade, it’s something opposite of a store of value. If the S&P is up 33% in 12 months, then a reasonable surrogate for the collapse of purchasing power of the currency in 12 months is the inverse of that, right? But you could say you need 33.7% more money to buy the same share of the S&P. So a store of value has to clock at 33% or better, and gold is -40%, and Bitcoin is +200%. So that’s the marketplace screaming at you that no-one really sees gold as a monetary asset anymore except for the gold bugs.

Robert Breedlove [49:09]: Yeah. One of the key points that jumps out at me here — getting back to your framework of ideal money — is that: immutable quality necessitates a proof of work, and gold again was just the best approximation of that. That’s really the only thing that ever made gold money was the proof of work necessary to produce it. It was just really difficult to produce, therefore it minimized counter-party risk.

Michael Saylor [49:38]: It was the best token that you could work to produce that you could possibly mould into a coin, right?

Robert Breedlove [49:45]: But it then lost relevance in a globalizing society because it wasn’t fast enough.

Michael Saylor [49:51]: Yeah. Not fast enough, not smart enough, not strong enough. Everything that lives in a Darwinian world has to be faster, smarter, stronger.

Robert Breedlove: Yes, adaptive!

Michael Saylor: The cicadas came out after 17 years and I saw them a month or two ago, and they all come out of the ground at the same time and I watched the cicadas fly around my home and I thought, Those are the stupidest, slowest, weakest creatures I’ve ever seen! Sometimes they would like fly to a branch and they couldn’t land on a branch. They were literally so stupid they couldn’t land on a branch, they could barely fly fast, a lot of them would just accidentally fly into the dirt and slam into the dirt. So when you looked at them and you compared them to other insects, you saw that those other insects are so much better at flying. You take it for granted, but you never really think, Oh those birds are good at flying, they’re fast and strong and smart. Until you see something that isn’t fast and isn’t strong and isn’t smart. And you might say, Well this thing is pretty much history! How could it possibly survive? And the answer is: they all have to birth once every 17 years, and there’s a million of them in the air, and they’re all so stupid and slow and inept that they’re definitely going to die, but all the other creatures aren’t going to be able to kill them fast enough to keep some of them from procreating.

Robert Breedlove: Right. The quantity over quality strategy.

Michael Saylor [51:33]: Yeah and I think gold eventually it just fails because it’s not strong enough, it’s not fast enough, it’s not smart enough. And the world goes to the next best thing, and fiat arises not because it’s better than Bitcoin but because there’s no such thing as cryptography and computing. So in a world without computers and without cryptography and without networks, you ask yourself: What are you going to do next? The answer is: I’m going to come up with a shared ledger — I do have math. We’ve got algebra. We got calculus. I do have writing. I can create a shared ledger. And the immutable part is going to come from the institutional credibility. The credibility of the proprietor and the reputation of the proprietor, whether that’s a king or a mayor or an owner or a religion. But the immutability and the credibility comes from an institutional human source. And the greater the institution, the greater the monetary system. And you have the greatest monetary systems of history associated with the greatest institutions. And then you have the weakest ones: all the way down to somebody on a 80-foot sailing ship in the middle of the Atlantic and there’s a ledger and there’s a quarter-master and there’s 42 people and that’s their money system and they’re trading. It’s a money system which is good for 6 weeks or 8 weeks, but it is life or death for the 8 weeks. And that is the fiat standard and that’s backed by the force of the captain. You have a good captain you might make it, and if you have a bad captain there’s going to be a mutiny and everybody’s going to die.

Robert Breedlove [53:43]: Yeah it’s a great framework. I love the framework of property and energy because there’s also this deeper notion that most species are territorial. Most social species especially, and that includes humans. And I think we actually express and manage our territoriality through property. And so every little enclave, whether it’s a boat on the ocean or a large piece of land tries to control its most important property because it’s an expression of managing its territory. And that’s why we have these regional monopolies on money we call central banks.


Robert Breedlove [54:25]: So that was Episode 10 of the Saylor Series.