The Saylor Series | Episode 17 | How Bitcoin Changes Everything

Stephen Chow
28 min readNov 3, 2021

Link to the audio podcast: https://the-what-is-money-show.simplecast.com/episodes/wim065-the-saylor-series-episode-17-how-bitcoin-changes-everything

Michael Saylor 0:08
So that’s mobile payments and then retail banks. If you go to commercial banking, well with commercial banks you’ve got treasury services for companies, and you’ve got credit lines. So corporations — like individuals in a way — I’ve got a bunch of cash, I want to generate yield on it. Call that treasury services. Or I have a lot of assets and I want to generate yield on them. And I also want to borrow against my assets. And so I need a commercial grade bank to do that. I tend to have slightly different requirements and I’m going to move in greater scale and I may have different accounting issues, but the commercial banking application and the retail banking are pretty similar. Exchanges are another application of Bitcoin. There, people that want to trade assets and derivatives against each other. And you can imagine infinite assets and derivatives. They will be compliance-heavy. Do you need to comply with the CFTC or the SEC or who knows what? And that gets very complicated. But it’s a big business. The next big area of applications will be corporations. And here, any company that simply buys Bitcoin becomes an application of Bitcoin. And this is not a technical application. If we take Microstrategy as an example: when Microstrategy buys Bitcoin, then Microstrategy stock becomes a derivative of Bitcoin. And now Microstrategy stock is being traded on a NASDAQ, a regulated exchange. So what you did is you took one asset sitting on the blockchain and you used that to back another asset, an equity, that’s trading on the NASDAQ, and then you back a third asset — calls and puts and leaps — that are trading on a futures exchange like the CME, and you may even issue debt that trades privately over the counter through a set of broker dealers. Each of those are applications of Bitcoin. Well how big are they? They could be a billion, $10 billion, you could have $100 billion worth of these applications. Why do they exist? Because people want them. Because there are a lot of people that want to trade stocks on NASDAQ, they don’t want to trade Bitcoin on Coinbase. Why don’t they want to? Because they took a decade to raise $100 billion and they promised a bunch of pension funds that they would only trade equities on NASDAQ and now it would take them another 5 years to reach that expectation with the pension funds. Maybe they want that because — like there are companies that do convertible arbitrage. They have $10 billion dollars, they raised it from pension funds and endowments, and they do convertible arbitrage. That’s their strategy. And that means they have to be able to buy the convertible debt and short the stock and try to generate a yield. And they’ve got billions of dollars to do that thing, they get up, that’s what they want to buy. There’s a phrase in Wall Street: when the ducks are quacking, feed the ducks. If the ducks want to buy convertible debt, give them convertible debt. If they want to buy equity, give them equity. If they wanted to buy Bitcoin, then they would want to buy Bitcoin. But these applications have different needs. If you’re a consumer, you want to download Square Cash App and you want to smash buy $37 worth of Bitcoin and you want to do it in two clicks. You don’t really want a super-complicated trading console with like 16 Bloomberg screens with futures and options and 3,700 trading pairs. That’s not what you want. You want to smash buy $37. So sometimes simplicity is the right thing. Sometimes you want simpler than that. Sometimes you’ve been doing business with the same private wealth or client adviser, you want to call him on the phone and day buy $10,000 worth of that Bitcoin, and you want them to buy the Bitcoin ETF. And the pure Bitcoin maximalist will say you’re crazy! You should store $10,000 on your own hardware wallet. Okay well I’m 82 years old and I’m in a wheelchair and my hands shake and I don’t use computers — how am I supposed to store this on a hardware wallet? I’m just buying it as an investment instead of buying gold and I’ve got 5 seconds. So you have 5 seconds and you talk to a guy Bill that you’ve been doing business with from Merrill Lynch. You know Merrill Lynch was a company on its own before it was bought by Bank of America. So I talk to my guy Bill—I’ve been talking to him for 30 years. I have 5 seconds and I want to buy $10,000 worth of Bitcoin. Okay, does that application matter? Sure it does. What if I want to buy $10 million worth of Bitcoin? Does that matter? Sure it does. What if I want to buy $100 million worth of Bitcoin? It’s the same dude with the same 5 seconds, okay? So do applications scale the Bitcoin network? Yeah, absolutely. Would it be helpful to have more? They’re all handles. They’re a handle — I’m grabbing onto Bitcoin. People handle it different ways. If I have PayPal it’s installed on my machine and it works and I can click on a button in 1 second and buy Bitcoin. I prefer that to downloading a better application that takes 37 clicks and takes 2 days to get authenticated. So at the end of the day, these applications make a big difference, and what you have going on here is the creation of financial applications being wound into other exchanges and other platforms. And the platforms are everything. For example, a corporation on the NYSE takes you to the NYSE platform. A corporation on the NASDAQ takes you to the NASDAQ platform. A corporation in Japan takes you to the Nikkei trading platforms. So as Bitcoin spreads on the balance sheets of different companies and different governments, it spreads onto different platforms and it morphs into different derivatives and different flavors.

Robert Breedlove 7:28
This is a very useful framing — I’ve said that money is the base layer protocol for human interaction. We’ve had gold functioning for a long time and we could arguably say that a lot of these institutions, technologies, government currencies, these are all applications on top of gold, effectively. So now Bitcoin is like a new base layer protocol replacing gold and enabling lots of other applications to flourish on top of it.

Michael Saylor 8:02
Yeah I would agree. It’s the base property protocol or the base monetary protocol if what you want to do is to build something on a stable monetary base or a stable value base then you need digital money, digital property. And that’s a little bit different than digital currency, right? If you want a good digital currency, you’re best to base it on a good digital money. Currency is an application of money. And if you understand it that way, money is the base layer, the end-all, be-all source of all value and virtue. And everything else is an application on top of it. I mean I don’t need 100% of everything I am to be in my currency. I only need 1% of everything I own to be in the currency, and then 99% of what I am I need to be in the money. And in fact, if the money has integrity, the currency doesn’t need to. Which is a pretty important point. If I had 99% of my wealth in the money and if the economy was growing or my assets are growing at 4% a year and if 1% was in the currency and the currency was devaluing at 10% per year, it wouldn’t matter because its on the margin. I’m getting wealthier faster than I’m dissipating energy. And it’s the same with a lot of things in life. The $5 that falls out of my pocket on a Saturday night isn’t going to impoverish me. And on the margin you could say well you’re kind of crazy to carry cash to a bar on a Saturday night. I know but I’ll take the risk, for the convenience. Each of these things is putting value at risk. For example if you have $1 billion in a company you have the counterparty risk of the billion dollars in the company. If the company fails or the company’s defrauded then the billion disappears but it doesn’t imperil the entire blockchain. And publicly traded company that files quarterly results is a lot more trustworthy counterparty. Like Microstrategy is able to issue debt backed by Bitcoin, but we’re a public company. If you were a private company and you also wanted to issue debt backed by Bitcoin, it would either be harder, impossible, or you might pay a higher interest rate. And if you were an entity, an individual that nobody trust and you went and you tried to sell the same bond maybe you wouldn’t get it because people are taking counterparty risk. And they’re trying to figure out whether they trust the counterparty. But now here you see the Bitcoin which is: everybody can have an application. So the question is: which exchange is going to embrace Bitcoin most effectively? Which mobile app is going to embrace Bitcoin most effectively? Which commercial bank will? Which corporation will? Which government will? Any government or municipality could issue a billion dollars in municipal bonds at 2% interest, they could buy a billion dollars of Bitcoin that has 100% yield, they could scrape the arbitrage and they could generate a billion dollars a year, right? In appreciation. You play the game right, in theory you could just issue a bunch of debt, buy the Bitcoin, eliminate taxes forever. Now you’re like, Well that sounds too good to be true! Well everybody can’t do it. If you’re last, it doesn’t work that well. For example, Mark Zuckerberg was first to own Facebook stock so he’s rich forever. You can’t get rich forever by buying Facebook stock now. What’s the difference between you and Zuckerberg? The different is he was first and you were last. And the same is true with Jeff Bezos. So if you’re the first city and you move early then as everybody else enters it’s like if you came to America first and you got 1,000 miles of farmland — Lord Baltimore. You get a better deal than if you show up 9 generations late. So with this you’ve got a market dynamic where the first government, the first city, the first state, the first country, they can all seize an advantage. And they’re competing. I talked to an energy company the other day, I said, Well you’re an energy company but you know what? You can either sell your energy to Bitcoin miners and get paid 2 cents a kilowatt-hour and you could sell your excess energy — small idea, or you could become a Bitcoin miner and you could mine with all your excess energy and make 40 cents a kilowatt-hour — better idea, or you can go big and you can buy a bunch of Bitcoin miners and/or mine it, and then you can go issue billions of dollars of debt at 2% interest and buy the Bitcoin, and then make billions of billions of dollars. If you want to make $5 billion if you’re an energy company, buy $5 billion of Bitcoin and issue a press release and then wait 90 days and you’ll probably make $5–$10 billion. Do you want to bend over and do that? Now that’s a bigger idea. But the biggest idea is: you do all those things, you reposition your company, and your revenue multiple doubles or triples because now you’re not a sleepy regulated entity, you’re a high-tech company. These big energy companies, you could have 20, 30, 40 billion in revenue and trade at $40 billion market cap. Well it’s likely that a $2 billion Bitcoin miner will trade with a $40 billion market cap. What if the Bitcoin miners start buying the energy companies? It happened with UUNet and Worldcom back in the day where you actually saw the Internet companies buying the baby bells, buying the Telcos. And maybe they don’t, but the bigger idea is the utility companies are in competition with the tech companies, and they’re in competition with the financiers and the hedge funds and the traders and the governments. Bitcoin doesn’t care.

Robert Breedlove 15:20
At every level there’s this game theoretic incentive to move first, benefit disproportionate to later adopters, because to your point, wealth is hierarchical. If you’re there first and you’re right you’re going to benefit the most. This is true in Bitcoin as well if you’re there first you’re going to benefit more than later adopters. This is also the problem with fiat in a way that the central bank has arrogated itself to always be first. It always gets to allocate itself new shares of currency, so it’s kind of hijacked the hierarchy of wealth in fiat.

Michael Saylor 15:59
Yeah and in Bitcoin, the courageous with clarity, a vision, get to make themselves first. It’s private market in money, and with fiat it’s those that are politically connected that stay first. So it’s public money. It’s worthwhile to say: all of those organizations are competing, but we have other types of derivatives that are very interesting, or other applications of Bitcoin. Like let’s take insurance: if you’re an insurance company then every insurance policy you issue or annuity that you sell based on Bitcoin becomes a Bitcoin derivative. So if I want to sell you a life insurance policy that pays off a million dollars when you die and I’m going to charge you x premium — I’ve got to charge you enough premiums and invest them to pay off the million dollars, so if I charge it as premiums then I invest them at 2% or 3% yield it’s kind of hard to pay off the million. I have to charge you a high premium. Whereas if I charge you premiums, invest them in Bitcoin, I can lower the premium. Or I can raise the payout. Or I can make the payout variable. So now you’ve got an insurance company that’s created a differentiated insurance product, and you can either do it explicitly by offering the policy backed by Bitcoin, or you can do it implicitly on your balance sheet. You could just take $50 billion of your balance sheet that are your collected annuities or premiums and you could buy Bitcoin with it and use it collectively to back all your policies at the corporate level. And of course insurance companies have long-durations, they have to look out 30–40 years, they’re in business forever, they have huge balance sheets, and their traditional funding vehicle is bonds and bonds are broken. And so you need a better type of annuity generating asset or a better appreciating asset and that’s where Bitcoin comes in. And that’s where investment firms come in. I mean, my next application — you’ve got an investment firm and you sell mutual funds or you sell investment funds and people invest with you. So if you create the fund based on Bitcoin and then you sell that, that becomes an instrument that’s interesting to corporate investors, family offices, individual investors. There’s a lot of people that will want to buy that fund, and there’s an entire industry that sells those funds. There’s also an interesting hybrid twist on that, like if you look at Fidelity, Fidelity sells all sorts of fixed income funds — municipal bond funds, sovereign debt funds, corporate bond funds, junk bond funds. They all have a low yield and they’ve got a negative real yield. Well you can juice them by blending them with Bitcoin. So if I have an instrument or an asset that’s been going up 100% a year and I blend it in to an asset that’s been paying 3% interest, now I’ve created a hybrid instrument that’s got downside protection of bonds but upside opportunity of something — maybe not as much. It’s like sucralose, a powerful sweetener. It’s a booster, a sugar. So for an investment fund you can blend various types of funds. What if you’re 50% Bitcoin and the other 50% is Bitcoin derivatives — call and future collar options. Maybe you collar the Bitcoin or maybe you’re 50% Bitcoin and then you’re selling covered calls out of the money to generate yield. So you’re creating a Bitcoin yield fund. It doesn’t have the same upside as Bitcoin but it’s got a guaranteed — at some point downside protection, upside yield, you’re blending the thing and you’re selling it to someone that wants to buy that. Are there people that want to buy it? Sure. In a way, Microstrategy issues a bond, 6 1/8% interest, and we go and buy Bitcoin with it. If you swap the two, you’ve given up the upside of Bitcoin in return for the guarantee of 6 1/8% interest. And why do you do that? Because the government is paying you 1% interest. Because the spread is 500 basis points over sovereign debt, and because the spread over investment-grade corporate debt is 400 basis points. So you want the yield. Who wants the yield? Well somebody that actually sold $100 billion of a high-yield fund to an endowment — that’s who wants the yield, right? So there are structures in the financial universe. You don’t just snap your fingers and change those structures in a day, week, month, or a year. In some cases those structures have formed over 10, 30, 40 years. 10 years is a short period of time in the finance world. So what you have here is investment firms that are able to create all their own financial products with any mixture and blend of risk and volatility and they can hybridize them with existing conventional assets. What if you had a fund which was half gold, half Bitcoin? For people that like gold but they can’t bear to give up — or they like Bitcoin but they can’t bear to give up their gold. It’s like an alloy, right?

Robert Breedlove 22:30
What’s coming to mind here is that you could almost put in your parameters and just back into the right blend customized for you, using Bitcoin to augment your risk profile and volatility and such.

Michael Saylor 22:42
Yeah and there’s a lot of people that would give up the ability to get 100% return in a year, in return for a downside protection. If you went to every conventional investor and said, Are you willing to give up more than 30% upside a year in return for all these downside protections? Yeah there’s a lot. And big banks sell these all the time. They’re very lucrative products. Like I charge you a 2% fee to give you a structured product that gives you some mixture of downside protection and upside that we tailored to your needs. So those are just other applications. Moving on, let’s talk about trust and endowments. You’ve got a family trust that’s supposed to last 100 years. Fund it with Bitcoin. The Rockefeller Foundation, right? If you have any kind of endowment, every university, every non-profit has an endowment. They all have the same funding problem, which is: where do you put your money where it will last 100 years? And here this is an interesting — it’s a digital transformation of money managers. I can either put $100 million into an endowment and have like 10 money managers and they charge me a 1–2% fee a year to manage the money, or I can just put the money into Bitcoin and I’ve dematerialized the money managers. We talked about the complete digital transformation or dematerializing of the fiat banking system in our early sessions. In this particular case you’re just dematerializing money managers. But there’s an application: the application would be, I need a certain type of reporting and compliance. Like what if you did run a non-profit foundation and you wanted to be a custodian of $12 million? You want to flip it into Bitcoin and now you want to spend 1 hour a year monitoring your position, filing the appropriate forms with the IRS, and then you need to make disbursements. So if you’re an endowment what you probably want is a credit line so you can borrow some money to pay your disbursements — your fees — on an ongoing basis. And then you want the principle to be protected. Normally you would have to re-invest it. Well what’s the closest thing to Bitcoin? Probably the Vanguard 500 or the like. And if you look at Vanguard and Fidelity and you look at what they do, one big business for them is this endowment management or donor-assisted funds and they just run these funds where you put your money in this stuff and you put it on autopilot and people look at it once every 90 days. And that’s a big business. Right now, $100 trillion of it is broken, because $100 trillion of it is bonds. And so you’ve got massive amounts of fixed income bonds and other assets that are broken, and those are traditionally the things that are easy to manage. And if you can’t do $100 trillion of bonds you have to get into equity. But there’s not enough equity. So if the equity markets in the US were $35 trillion and you’ve got $100 trillion in bonds that are broken, you can’t just jam $50 trillion into equity. You can, but what are the consequences? You overvalue the equity, right? I mean I can’t imagine any of those examples right? Yeah! Lots of examples. We overvalue the equity as we jam the money into it. And then people are waking up and they’re looking for that ultimate asset-class, and the beauty of Bitcoin is Bitcoin can never be overvalued because Bitcoin is a bank in cyberspace. If you jam $50 trillion into it the price would go up by $50 trillion and it would be worth $50 trillion more.

Robert Breedlove 27:04
And this is the crazy thing about Bitcoin too, or money more generally, is that it’s a Veblen good. So the more expensive Bitcoin gets, the more de-risked it is as money. So therefore it’s almost like a self-catalyzing feedback loop. The more money you jam into it the more likely it is to eat all the other money in the world, the more value you would expect to be placed on it.

Michael Saylor 27:32
Yeah I mean it’s the ideal solution for the problem. Now I talked about a bunch of financial applications and also about corporations and governments as platforms, but we should also talk about hardware applications. There’s a lot of hardware applications in Bitcoin. There’s the miners, nodes, wallets. Any device that exists could have Bitcoin protocol built into it. And the question is: do you want to build the wallet protocols? You can build Lightning and you can build Bitcoin wallet right into any mobile device. You can build it into jewelry, right? You can build multisig into your watches, your jewelry, your phones, your desks, your appliances. And that’s the differentiating business. Like people build Bluetooth into stuff. This is more important than Bluetooth. A bit more important. You can also build nodes and node capabilities right into devices, and you can build mining into devices. You could integrate these capabilities right into firmware, into hardware. And why would you do it? Because it’s differentiating. If Apple builds Bitcoin support into Face ID or Touch ID on the iCloud, if the iCloud was like a multisig, multi-factor Bitcoin cloud, then you’ve got a trillion dollars worth of Bitcoin that can flow into the iCloud. That differentiates iCloud. You can do it with Google Cloud, you can do it in Microsoft. You can do it in Facebook. And so Apple’s interesting because it crosses hardware and software and network areas, but if you go into the software area you’ve got Windows and iOS and Android and these are all operating systems. And to a certain extent things like Chrome are like their own mini operating system. You can build Bitcoin right into those things. Google built password managers into Chrome, right? And if the operating system has native support for the monetary protocol, then either that’s a reason to use the operating system, or you can pass on those primitives and that functionality to the applications running on the operating system. Like, for example, Apple lets banking applications use Face ID for authentication. And that makes the banking application better. So if you want to compete in hardware and devices or in software operating systems, then putting the monetary protocol into it is just like building TCP/IP. I mean I’m old enough to remember when the TCP/IP wasn’t built into every computer.

Robert Breedlove 32:08
I’ve seen recently too that the Lightning Network can actually augment authentication, or you can authenticate through the Lightning node so it can be an alternative to password management at some point.

Michael Saylor 32:22
Yeah there’s really fascinating decentralized applications like decentralized identifiers. It’s probably outside the scope of our conversation here, it’s like an entirely other world. But with hardware and software that leads you to Cloud, right, because Cloud is another application. AWS, Azure, Google Cloud and the like are all general purpose, containerized corporate platforms for spinning up massive applications. So to the extent that they have support for Bitcoin or Lightning and certain other monetary protocols, then it makes it easier for their clients like Zoom. You know Zoom went from nothing to 400 million users during Covid because they were sitting on top of Cloud platforms from an Azure or an AWS and if they weren’t they couldn’t have scaled. So when they’re scaling they need to be able to access these underlying services, and monetary services are destined to be built into every application. And they would be a differentiator. Now if we go to another really interesting application, take social networks. Twitter, Facebook, Instagram, TikTok. Well, one of the killer applications for social networks is verification and credit-worthiness. Another way to say it is to put skin in the game. Right now there’s no cost for malicious behavior, so if I open up my Instagram Direct Messages, 99% of them are bots, they’re not really people. And when I look in my Twitter comments, a lot of times 90% of them will be bots or malicious actors. So we’ve got a bot war. People have computers spinning up fake Twitter accounts and then Twitter has computers taking them down as fast as they can, and in the first hour after I post I just see a bunch of garbage. And then after a day after they clean it up I see real comments. Well what that means is there’s a 2, 3, 4, 5 hour delay between when I do something and when I don’t have garbage in the feed. How do you solve it? Well the logical way to solve it is I put 100,000 satoshis on a Lightning wallet and then I make a security deposit to Twitter. Or a security deposit to Instagram, or YouTube. And if you deposit — that’s like $40, pick a number, it doesn’t matter what the number is, something less than a lot but more than nothing — I deposit 100,000 satoshis and then people on Twitter can say I only want people with an orange check that are credit-worthy or Lightning-certified to be able to post comments on my Tweets. And I only want to receive Direct Messages from people that are Lightning-certified or verified or I follow — one of those three. And if you’re not an orange check we’ll call it, then you can’t message me and you can’t comment. So what happens? Well first of all if I just turned my entire feed to only orange check and blue check, all the bots disappear. Everything disappears. CZ does this on Binance a different way, he basically blocks everybody but people he follows from being able to post on his Twitter comments. But the problem with that is if you’re only following 1,000 people, you’re living in this hermetically sealed world of only 1,000 who can comment. What you want is 100 million people to be able to comment but you want them to comment with civility, or at least you want them to be human beings. So if 100 million people post $30, then you’ve got $3 billion worth of Bitcoin posted as a security deposit on the Twitter network. Now everybody that comments is a real person — well let’s say 98% of them are, and if someone wants to spin up 29 Michael Saylor bots, well they can do that but they’re not orange checked and so I’ll never see them. And no one will ever see them. Or if they want to get the orange check they’ll have to post 100,000 sats 29 times. And if it turns out that they were imitating somebody, maybe they get a fine of 1000 sats or maybe they just lose their orange check and they forfeit the security deposit. It’s like if you trash somebody’s house when you’re renting it. Whenever you rent a house or whenever you cross public properly, you either have to have insurance like car insurance, or you have to be bonded if you’re a worker, or you have to post a security deposit. And if you have that concept that you have to be bonded or have to be credit-worthy, then what that means is that every time a bot attacks you it costs them $30 and you’re monetizing maliciousness. If someone’s stupid enough to be malicious. It’s not that the platforms don’t have rules — they do have rules. They take people down and kick them off and put them into the penalty box all the time. But the rules don’t have consequences. If you have a computer that generates 87 million Michael Saylor bots every day, what the heck do you care about the rules. The rules don’t hurt robots. There has to be a price or a cost to maliciousness. And so what you have here is a Bitcoin Lightning network that allows a billion people to post $20 each. And then you can have micropayments. And when that happens, if I go on Amazon, I look at the opinion surveys, I don’t have to worry that someone created fake bots to fill in the survey. Because if you get caught faking it, you get a fine. And if I go on YouTube and someone’s running a scam video and they have to have the right green check and then when they get — we report scam videos every 2 hours, Robert. Every 2 hours someone spins up a scam video on YouTube which fakes something and we report them as fast as they spin up. But there’s no cost. Or there’s minimal cost to denial of service attacks. There’s no cost to spamming. There’s no cost to hostility online. There’s no cost to being an imposter. There’s no cost to spinning up 97,000 fake accounts that actually try to create the appearance of a panic when it doesn’t exist — cyber warfare. So what’s the solution? The solution is: in the real world you have skin in the game. If you walk up to women in the street and you insult them, you take the risk that the person next to them or they punch you in the face. And if you drive your car and you get in a wreck you get fined and then you get an insurance claim and there’s a consequence. And if you go rent someone’s house for the summer and you trash the house and you have a security deposit, they take it. Or if you rent an apartment with a security deposit and you trash it, they take it. So there’s skin in the game and that causes people to act with some degree of civility. There’s no civility in cyberspace because there’s no skin in the game. Why not? Well because if you use credit cards there’s a 2.5% fee, it takes 2 days to clear and 2 billion people don’t have credit cards, among other things. You do it through the App Store, well you could try to do it through the App Store, there’s a 30% cut. How do you move 1000 satoshis for 1 satoshi in a split second? So having a value network becomes a credit network, and so for all these social networks you can actually inject the quality of credit-worthiness. And you could do it different scales. You could post 100,000 sats to get a small check, you could post 1 BTC to get a green check, you could post 10 BTC to get a purple check, and if I’m going to go ahead and scalp tickets or I’m going to book a flight from someone online, I want them to have a purple check because I want recourse from them if they lie to me or if they’ve defrauded me.

Robert Breedlove 41:51
Yeah. And this makes a ton of sense because the original purpose of proof of work itself was a counter-measure to spam. It would be applied to other levels.

Michael Saylor 42:03
That was Adam Back’s idea. Proof of work to fight spam. Well we’re living in a world 30 years later and we still have spam! Like we’re running two levels of spam filters at my company. 90% of my e-mail is spam. I’m getting spammed on LinkedIn, Facebook, Instagram, Twitter. All of the news feeds are getting spammed. And it’s worse than spam, there are hostile, malicious actors that are fake bots that are waging a psychological psyops warfare to destroy people and ideas and demoralize them. And they do it for economic reasons, political reasons, etc. And there is no way to stop that in the absence of some kind of value network. So the killer app for Bitcoin with social networks is credit-worthiness leading to cyber-security. Safety and civility in cyberspace. Now if you think about where you can apply this idea of just a security deposit — which is the same as the cyber-bond if you will, or a cyber-passport — the beauty is that you don’t have to disclose your identity. You could spin it up and spin it down and it’s lightning-fast and dirt-cheap so it’s open to everybody. But once you spin up this idea, it works across every social network, it cleans up all of the feeds, the news feeds, etc. It also works for all the communication networks. So you’ve got Whatsapp, Signal, iMessage, Zoom, Gmail, every other mail, Office365 — all of these things have spam imposters, malicious accounts. The phishing attacks are ridiculous. So if you’re a corporation and you want to send something, maybe you ought to post — if someone sent me a mail message and I knew they posted a 1,000 BTC security deposit and if they had it all at risk and if they could lose it instantly on the platform, I would be probably trust them more. Like it’s all about cyber-reputation. If you really want me to do something risky, what do you have at risk? What’s your value at risk? Now what’s interesting about this is you’re picking up all these security deposits, the platforms could use the float to do something if they wanted. And it’s generally good for Bitcoin because it locks up the Bitcoin on the platforms. And the sky’s the limit. Once you’ve done that, you’ve not that far from implementing fees. You could say, Look you want to send me a message, pay me 1000 sats. You can have micropayments, you could have streaming payments, you can tie services to credit-worthiness. If you go to a bank and you put a bunch of money in the bank they’ll give you a higher level of service than if you put a small amount. So if you want to have distinguished services whatever they might be — it might be more bandwidth on Spaces or some other functionality. But everybody eventually can become a bank. And that takes us to entertainment/news. They have similar opportunities. They either sell access via these micropayments, or they curate the response, they create safer forms and safer spaces by requiring that you be credit-worthy in order to engage. Or they certify their news by posting some credit-worthiness. There’s a lot of news circulating so if you’re trying to separate fake news from real news, then you could use this to certify. You could also have service providers like Uber, OpenTable, AirBNB, and for them the idea of credit-worthiness also matters. It matters when you’re pairing customers with restaurants. Like can I trust my customer to show up to the restaurant? Can I trust the driver? Can I trust the passenger? Can I trust the person that’s going to come into my AirBNB? They tried to do this with reputation, but there is no more important metric I think than the credit-worthiness. If someone says I’ll post $10 million in order to drive your car for the weekend, it’s highly unlikely that they’re going to trash your car. And one way or the other, it’s just an example of an insurance policy or a bond. If you have the recourse to the bond in cyberspace, then it creates accelerated commerce, and that means that millions of people can trade with millions of people without the impedance of “getting to know each other.”

Robert Breedlove 47:42
Yeah an accelerated commerce and higher quality. So again the skin in the game we keep throwing around, but it’s this balancing of incentives and disincentives that facilitates quality discourse among people.

Michael Saylor 47:57
There’s not a day that goes by, Robert, that you don’t hear about someone getting hit with a denial of service attack. If you have an open website, there are hostile actors in Eastern Europe and they’ll unleash an array of machines and they’ll just start hammering your website to take it down and it happens all the time. It’s like spamming except it’s worse. That’s because there’s no cost for denial of service. But a lot of the proof of work and the Bitcoin protocol was to protect the underlying Bitcoin mining network from denial of service attacks, right? But this actually solves the problem. If you have a web service and you require someone to have an orange check, you could actually filter on the orange check and you could then prevent the denial of service attack. You can protect yourself from it. Again, like having a credit rating in cyberspace. And since it’s open to everybody in the world, anybody can have one, and it causes 98% of the malicious behavior to be non-economic anymore. It doesn’t make any sense. So I didn’t spend much time on retail but clearly retail is another example of a layer 3 application of Bitcoin. And it’s either buying, selling, trading, security deposits or credit checks or the like as you’re doing business. If I’m selling something to someone and I trust them and I trust their credit rating, maybe you can do business with retailers friction-free that don’t know you and you don’t know them, right? And it definitely is the case that if I’m Amazon or I’m setting up a retail operation, people are coming at me that I don’t know very well. So what I want to do is find a way to accelerate the transactional speed and I do that with some type of Lightning security deposit and/or Lightning payment. We didn’t really touch on the elephant in the room here which is the Visa and MasterCard network costs 2.5%. Just the general payments network and the remittance network is another killer application. Just money movement around the planet, because the existing systems either bank wires — and small sums of money is credit cards, and you have knock-off periods. They don’t move on the weekends, they don’t move from certain jurisdictions to others, you can’t program them, they’re not automated. So you’ve got a heterogeneous expensive manual patchwork quilt of payment options. And you can’t scale that. So Lightning helps you scale it at the transaction level, and then Bitcoin is the core settlement network. So if you want to plug 100,000 businesses into each other and move blocks of money a million to $100 million or $1 billion at a time you do it on the Bitcoin network, and then when you want to plug the millions and tens and hundreds of millions of people into each other, you’ve got to do it on these other platforms. But it won’t be one. I think Lightning will be very successful, but I think that Square, PayPal, Apple Pay, Google, Facebook, they will all build their own proprietary networks and they will have additional functionality or compliance or performance or convenience built into it. Like if I bought an insurance policy a decade ago and if the insurance company just buys Bitcoin for their balance sheet, I now own a Bitcoin derivative insurance policy and I did nothing. So there are certain subtleties where the corporation or the actor can do something that provides a benefit to millions of people without them doing anything, and that’s how you really scale in a big way. Like if you’re a country and all of a sudden you start buying Bitcoin, your currency in circulation with 11 million people using has become a Bitcoin derivative, and it happened because someone in the back office started buying Bitcoin. So the beauty of all this is: there’s a lot of ways to scale Bitcoin and there’s a lot of applications. There’s hundreds of thousands of applications — millions of applications. There will be lots of platforms, tools. If Twitter creates the orange check and they plug it into the Lightning Network, then who’s to say that Twitter couldn’t open up the API and let Google and Facebook and Apple and Medium and Reddit and Discord inherit the orange check. Twitter becomes a platform for cyber-security, and you carry your Twitter reputation or credit rating to all these other places. I mean that’s what Google tries with their Google log-in and Apple has Apple log-in. They’re carrying authentication around the network. There’s no end to the type of opportunities that there are there, and you’re only limited by human creativity.

END

Robert Breedlove 54:11
Hey everybody, so that was Episode 17.

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