The Saylor Series | Episode 4 | Bitcoin: The First Digital Monetary Energy Network

Stephen Chow
54 min readFeb 25, 2021

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Robert Breedlove: Hey guys! Welcome back to Episode 4 of the “What is Money?” Show! We’re coming back today with part 4 of the Saylor Series! And this is the first part of Day 2! So Saylor and I spent 2 days recording, we did about 10.5 hours in total, so Episode 4 represents the first episode in Day 2. And if you haven’t seen episodes 1–3 yet I highly recommend you go and check those out! We built a lot of foundational material there that just gets referenced back to going forward, so I think it’s really important! In Episodes 1–3 we covered the Stone Ages, the Iron Ages, we went into the Dark Ages, we went forward into the Steel and the Industrial Age. And now, today, we’re getting into the good stuff! Bitcoin theory, the Digital Age, how money and economics is changing once again based on these new and radical innovations in the world today. So today we’re gonna learn about how Bitcoin is the first true digital monetary system in world history! We’re also gonna get Saylor’s answer to that all-important question: What is money? And he has a really good answer I think you’re gonna dig! And we’re gonna get into a bit of the economic principles underlying commodities and their use as money, and why commodities make a really bad form of money, actually. Saylor lays out a really good case for the commodity money kind of being a self-defeating endeavor. And then finally, we’re gonna start looking at Bitcoin as the ultimate means of wealth settlement and preservation. As Saylor refers to it — it is the first closed loop or closed source energy system we’ve ever had! So I don’t want to spoil anything! This episode’s really good! For me this when a lot of the light bulbs started to go off and started to have a lot of those little, mini epiphanies during our conversation, which you might see me having as we engage. So I hope you like this! It’s a really good episode. See you again soon!

Robert Breedlove [06:12]: Hey everyone! Welcome back to the “What is Money?” Show! I’m your host Robert Breedlove and I’m sitting down today with Michael Saylor as we dive into part 2 of this deep conversation involving history, technology, commerce, economics, money, really covering a broad spectrum of topics today! And today’s the good day, because we’re getting into the good stuff with Bitcoin theory as the first digital monetary system! Michael, welcome back!

Michael Saylor: Thank you for having me, Robert! I’m excited about this! So we’re gonna be talking about Bitcoin theory!

Robert Breedlove [06:58]: Bitcoin theory! It’s a field you wouldn’t have thought you would’ve heard about even 5 years ago!

Michael Saylor: Well, when I think of Bitcoin, I think: this is the first digital monetary system in the history of the world! We’ve tried others, they just didn’t work! This is the first one that’s perfected, that’s functioning! It’s the first one to cross $100 Billion in market cap and now it’s about $200 Billion in market cap. $200 Billion means $200 Billion of monetary energy, and if I look at all of the great digital networks — Apple, Google, Facebook — when they cross $100 Billion of monetary energy, then that’s a legitimizing step! Generally when they get there, 95% or more of the investing community doesn’t believe in them! Sometimes 99% doesn’t believe in them! But they’re too big to fail — they’re fires that have been unleashed into the society, and they’re burning, and the effect is exothermal. What we have in each of these networks is: we have the collapse, a dematerialization of some product or service or virtue or some ineffable quality be it friendship or mobile devices or information. It’s collapsing into a lower energy state. And as it collapses into a lower energy state, huge amounts of energy in the form of profit, cash flow, and value get given off! Apple can ship a better camera to a billion people overnight for a nickel! Facebook can improve the way that you communicate to your loved ones overnight for a nickel! And Google can package the Library of Alexandria in the palm of your hand and ship it to a billion people overnight for a nickel! And when you have these massive dematerializations of value and they get on a network with a network effect, it’s almost like — well you see a crystallizing structure where you’ve got an amorphous substance and as it crystallizes we go from steam to water to ice! Collapses, gives off energy. And what Bitcoin is, is it’s that first digital monetary network, digital monetary system. It’s collapsing into a much more efficient form, it’s giving off energy! And that just brings us back to that entire subject of: how important is energy to the human race!

Robert Breedlove [09:52]: Let me just ask you a question there: there’s a chart with phase transitions of say, water, of going from ice to water to steam as its temperature increases, and it shows increases in temperature, and when it actually goes into the phase transition it flatlines! So it’s like all that energy is being reallocated to I guess changing the molecular structure for the next state. Then the temperature starts to increase again as it goes into water, and then it flatlines again before going into steam. So I guess what you’re getting at is that energy becomes transmuted into the next state before it can start to give off energy in the form of profit, productivity — it’s giving back economic substance to its users. And I think that’s sort of the analogy you’re drawing there?

Michael Saylor [10:44]: Yeah it’s a wild thing when all the monetary energy leaps from gold to Bitcoin! Or when it leaps from fiat to Bitcoin! There’s this phase transition, and we see it throughout all areas of science, but right now this is just the first time in human history that we see this creation of pure digital monetary network! And I want to replace monetary network with energy network, because monetary energy is energy! And money is energy! In fact, money is the highest form of energy! So if we ask the question, What is money? Money is the highest form of energy that human beings can channel. So if I look back through time, human beings as a species prosper by channeling energy. And when we mastered fire, we channeled chemical energy. And when we mastered missiles we channel kinetic energy. And when we master water and hydraulics, we’re actually channeling gravitational energy. The idea of an aqueduct is, well, I’m using gravity to move water 70 miles! Or I’m running a water wheel, or I’m floating a 2-ton block in the water and the gravity’s pushing down on the water and the water is pushing up! And when I dam a stream and I generate hydro energy, well that’s gravity being converted into energy. But if I dam the stream to divert a bunch of fish into my pond, I’m still using gravity! Now, I can channel gravity by dumping a bunch of rocks on your head, but it’s not nearly so easy to create a river of rocks as it is to just tap into a river of water! And so the mastery of fire and water is the mastery of chemical energy, gravitational energy, eventually thermal energy, and the modern era morphed into the mastery of electrical energy and atomic energy. And of course there’s conservation of energy, and when we look at all of these energy networks, I mean look — 100 guys with bows and arrows are an energy network! I’m moving kinetic energy from this side of the battlefield to that side of the battlefield! And a civilization at the mouth of a river with cities up and down the river is sitting on an energy network, just like the Aegean, and the Greek civilization was sitting at the middle of an energy network and they were using gravitational energy. And wind energy — another form of energy between sails and gravity — I’m taking advantage of these energies! So the theme is: humans prosper by channeling energy. Now, what’s the most efficient energy network in the history of the world? Well it’s about to be Bitcoin! Because the challenge of humanity is: how do I store energy and transmit energy across time and space and domain? And by domain I mean perhaps governmental domain — like how do I move my energy from New York to Tokyo? And this becomes an interesting question! Let’s take a typical power grid: well I generate power, I channel chemical energy into electrical energy, I lose like 35% of the energy in the coal or in the fossil fuel. When it gets onto the grid, I move it over a high voltage line, and I can move it up to about 500 miles and I lose 2% of the energy. Now it has to get stepped down to 240 volts or lower voltage even, to get into your house. As the voltage steps down, I lose more energy — it’s about a 4% loss. If I had pure energy at the power plant, I’m gonna lose 6% of the energy to put it into your house 250 miles away! I can’t send 2,000 miles away — I just can’t I can’t send it 10,000 miles away — energy will not move from New York to Tokyo. But I can New York to Schenectady! Now when it gets into your house, you have to use it immediately! You can’t store it! So let’s say I wanted to store it — I need a battery! Well the absence of a battery prevents a mechanism. The mobile wave is a function of Lithium ion batteries in the palm of your hand — no Lithium ion battery, no smart phone! Now we’re working with modern batteries. Tesla: it’s all about the battery, right? And Elon Musk has really driven battery technology! So let’s say I put a battery in your house. And you pull energy into your house. Well you’ve lose 6%! Now a typical battery — a good one — is gonna lose 2% per month! Okay, that means you’re gonna lose 24% of your energy a year! Well what does that sound like? It sounds like 24% inflation a year! It sounds like hyperinflation — it could get worse, right? Hyperinflation is 100% inflation a year! Let’s say that I have a battery which loses 20% of my power a year, well my half-life on my energy that I pulled off the plant is 3.5 years in 10 years! I’m down to 12.5% of my energy! So the entire civilization is based upon electric power grids and networks, and yet it’s not that good! I mean you really can’t store that much power! Anybody that ever put their computer, they charged it and left the computer for a month or 2 months and you whipped it open, it’s like — it’s drained!

Robert Breedlove [17:13]: It’s dead, yeah!

Michael Saylor: Okay so now, let’s say I want to take $100 Million. By the way, I could take $100 Million of money, and I can buy $100 Million of electricity in New York, and I can distribute it to 10 Million people in New York — as long as they use it today! So if they don’t use it today, it starts to bleed out. And so this is the loss on the network.

Robert Breedlove: And in a monetary sense, we would say that energy really lacks durability, right? And I think this is important too to tie this back to money, is that gold itself — to your point — was an energy network! Whatever productivity couldn’t be allocated towards something more economic, we would go and mine gold, such that gold became this claim on savings of humanity—which is what money is. And those savings themselves are the result of all our collective energy utilization up until that point. We’ve been transitioning energy into capital, and then gold, or money, becomes the network that commands that capital, and then what I think is interesting too is that the scarcity of the gold actually reflects the scarcity of the energy. So it maps onto it in a way.

Michael Saylor [18:44]: A brilliant insight! And now let’s play a thought experiment: let’s take our $100 Million worth of monetary energy and let’s put it in a power network that runs on copper, and then let’s put it into a gold network! If I put it into a copper energy network, I have 24% bleed rate per year by the time it gets to the battery. I lose 6%, and I can’t get it more than 500 miles. Okay, so it’s a very short term, short duration, here and now energy network. Let’s put it into a gold network: I put $100 Million into gold. Now I can move that $100 Million of gold 100 miles — would I lose 6%? Probably not 6%! I could probably move $100 Million of gold 100 miles for $10,000-$100,000 depending on how much security I need! So we’re talking about 10 basis points, instead of 600 basis points of loss. 10 basis points! So gold is a more efficient way to move large amounts of energy for short distances. What if I want to move $100 Million of gold 10,000 miles? Well, that’s about 3,000 lbs of gold, 1.5 tons. So I put it on a global express, it costs $10,000 an hour, I put some dudes with guns on it, I fly 16–18 hours around the world — that’s about $180,000 plus another $70,000. $250,000. If I have to fly the plane back — let’s just assume I don’t! It’s $250,000, so now we’re up to like 25 basis points. 0.25% is the cost to move it around the world once! Okay? So that’s okay. Now what if I want to deliver $100 Million of gold 100 years into the future? What if I wanted to deliver $100 Million of energy 100 years into the future on copper and batteries? Well my half-life is at 24% at 2% bleed a month. My half-life is 3.5 years. It’s gone completely! And everybody with any common sense knows if you put your laptop charged in your attic for 100 years, it will not be charged in 100 years! You cannot store electricity on a copper network or a Lithium ion battery, it’s no good! I put it in gold, put it in a vault. So let’s say I put it in a vault in J.P. Morgan in 1900 in the United States of America. And the United States is the most successful country in the 20th century: we win every war, and J.P. Morgan remains as a bank and the vault in New York remains. In that case, assuming a 2% mining rate, assuming a stock to flow of 50 and miners mine 2% more gold a year, the half-life of a gold battery is 35 years. I go from $100 Million to $50 Million in 35 years, to $25 Million in 70 years. So about $12.5 Million in 100 years! So I’ve depleted my gold battery 87% if the United States wins every war, and if J.P. Morgan isn’t a corrupt institution and doesn’t fail, and if no one drops a nuclear bomb on New York City! If those things don’t happen then I will get 12% of my money back!

Robert Breedlove [23:00]: So in addition to betting on gold, which is governed by natural law, you’re also assuming this counterparty risk in the form of US Government, in the form of J.P. Morgan. You have to bet on stability in the geopolitical landscape as well! Because the gold has to be secured, and it has to be secured by institutions!

Michael Saylor [23:21]: What if you put a $100 Million worth of gold into a bank in Frankfurt in 1900? What if you put it in the largest bank in Japan in Tokyo in 1900? Name a city and a bank you could have put it in in 1900 that will still be there in the year 2000? It’s a short list! London, Zürich, New York! You would’ve failed in Paris, Berlin, anywhere in Eastern Europe, you would’ve failed in Moscow, you would’ve lost it all in Beijing, you would’ve lost it all in Tokyo, you would’ve lost it all anywhere south of the Rio Grande, you would’ve lost it everywhere in Africa —

Robert Breedlove: And in the US, possibly with Executive Order 6102 would have impacted you in the US?

Michael Saylor [24:14]: And you would have lost it in the US!

Robert Breedlove: Yeah!

Michael Saylor [24:20]: Okay! Isn’t it ironic? So can’t we reduce it down to maybe Switzerland — maybe? It’s an interesting exercise for the reader, but the counterparty risk on gold is at the municipal level, the state level, the federal level, and the corporate level! There’s a phrase, Over a long enough timeline, mortality rate is 100%.

Robert Breedlove: Yeah. In the long run we’re all dead! I think Keynes may have said that.

Michael Saylor: He said it, Robert Heinlein wrote a book called Lifeline and he said, Over a long enough timeline, the mortality rate is 100% And so in this particular case, back to our gold network. We have a gold network and we want to move money, so I put $100 Million in gold and I want to move it around — well it’s 25 basis points every time I want to move it around. If I want to move it once a quarter, it’s 1% bleed a year if I move it once a quarter. If I mine it it’s 2% bleed a year. That gets me to 3% bleed a year. Divide that into 70 and every 22 years — that’s the half-life of gold. Energy on a gold network has a half-life of 22 years at best! When you throw in the counterparty risk and the need to move it around — let’s just assume that we move it around so you don’t lose it! You’re just down to now the issue of technology and commodity risk. And this is an important point: gold is the king of commodities! Gold is the greatest of all human commodities! But my first job at DuPont was I built computer simulations of commodities and specialty chemical networks, and let me tell you what people in that business think: they think commodity is a dirty word! The first thing I learned is: commodity is awful! Nobody wants to be in a commodity business! And here’s the reason commodities are awful: if I actually create a factory that creates a commodity, say, gasoline — the only thing it can do is create gasoline! If I invest $10 Billion into gasoline refinery, my fixed cost are $10 Billion. The ideal, rational price for me to make a profit? Probably at $4 a gallon? But my variable cost is $1.50 a gallon, because I’ve got all these billions of dollars in the factory! What happens is, when I create commodity refineries, when the price below the profitable point, I will still keep running the factory, because I’ve got a variable margin. I’m generating cash flow even though I’m driving the price down for everybody else in the business. So it’s possible in the commodity business for every single producer to be losing money! And for them to all be acting irrationally, and they’re all pumping out the commodity be it silver — if you’re a gold miner, what can you do other than mine gold? Once I’ve gone and I’ve invested $100 Billion in mining gold, if the price of gold is cut in half, but my variable cost is $400 an ounce and it’s $800 an ounce, I’m mining gold and selling it at $800 an ounce! I’m selling it at $700 an ounce! I’m selling it at $600! When it gets to $500, I’m selling it because the market is not rational — I can’t transmute my $100 Billion of gold mining capital into Google stock!

Robert Breedlove: Right, the switching costs are too high! It’s just not possible!

Michael Saylor [28:28]: And maybe I’ve been captured by the government. Maybe a certain government wants to mine gold! Maybe I can’t legally stop even if I wanted to stop! So when you have a commodity business where people have specialized capital and they make those investments, what happens over time everywhere in every industry in every commodity in the history of the world is: the producers overproduce the commodity because, in the phrase of Hotel California, You can check in anytime you want, but you can’t ever leave! It’s a one-way route! You go in, you can’t get out! So that takes us to this real issue of gold, or the real risk of gold, which is: gold prices goes up by a factor of 10, capital gets attracted into commodity production. It’s a feedback: people produce more, gold price goes down, people keep producing to try to recover their cash flows, lots of intelligent people become desperate. When men are desperate, they invent new techniques to produce more gold. They keep producing because they don’t have a choice! They will produce down until the variable cost equals the price, then they will keep producing below variable cost, because it’s possible that they’re in a situation where they can lay off — for example: a government that takes ownership of a gold mine will produce below variable cost in order to maintain jobs.

Robert Breedlove: They’ll subsidize it, yeah!

Michael Saylor [30:14]: Where has this happened? Automobiles and airlines! This is why you don’t ever want to be a budget airline because a government will operate airline flights at a variable cost loss in order to avoid shutting down the airline, right? If you’re Singapore and you turn off the airlines because they’re not profitable, you turned off your bridge to the world! The politicians will run the airline below variable cost. If I want to keep jobs — and how many countries want to project jobs — if I want to project jobs, I will produce something and sell it below the variable cost. We do that with anything that is politically charged! When a government decides: education, healthcare, transportation, automobiles, local manufacturing, security, defense — defense is a great example of something that we produce whether we like it or not at a cost that’s higher than potentially the value and use of it! And we can’t stop! It creates this industrial complex.

Robert Breedlove [31:31]: A good point there that I think reinforces your earlier point too: you said that gold was the greatest commodity in history. I think the point there is that it is the greatest commodity in history because it commands human time or commands savings. It commands the collective output of capital that humanity has ever created. So in that way it’s kind of like the smartest form of energy, because human beings — our ingenuity, our time, our ability to see the world — we are the greatest form of economic energy in the world, and gold is the instrument that commands that energy!

Michael Saylor [32:13]: For thousands of years, it was the best commodity that we could produce to store our energy in. Partly it was hard, but it’s not the hardest thing to produce! I think there are other commodities that are harder to produce! But it was the best combination of being hard and then being durable and being non-toxic—right? There are toxic things that kill us! There are things that aren’t durable that are unstable. I’m sure we figured out how to produce gold before we figured out how to produce Uranium or Polonium. So there’s other stuff, but gold —

Robert Breedlove: The other important piece too is that gold is indestructible. Such that every ounce we ever mined is pretty much still part of the extant supply. I think it’s two Olympic-sized swimming pools of gold that we’ve ever produced!

Michael Saylor: You want stability, right? It takes us back to why Marjorie Merriweather Post was the richest woman in the world! Because Post cereal was starch was stable in a box for a year! Stability at room temperature! Like, Coca-Cola is stable at room temperature in a can. And gold is stable energy! So yeah it’s energy but nonetheless it’s a commodity, and you know what they call a business when it’s been totally wrecked? They call it commoditized! [inaudible] And so every businessperson forever has always strived to avoid being commoditized! That’s the origin of branding, right? We branded sugar water, we branded Gucci bags, we branded everything. We patent things, we brand things, because we want to avoid the inevitable result! The result is: as soon as something is commoditized and open to the public and anybody can produce it, its value goes to the variable cost of production and then it goes below! For example, Apple Computer — worth $2 Trillion today — Google, worth more than a Trillion, Facebook. These are valuable networks! But are they the most valuable networks? No! They’re not the most valuable networks to humanity — they’re the most valuable non-commoditized networks! Because if I go to New York City and I pull the plug on Google, it’s inconvenient. But if I go to New York City and I pull the plug on the power company, it’s deadly! If I cut off your power and your water or even turn off the bridge — people die! If I turn off Google, Facebook, and Apple — nobody in New York City’s going to die, right? And so people forget this! And this is the danger of putting all your wealth, of storing your wealth in Apple stock! The world thinks Apple, Google, Facebook — Big Tech — they’re a store of value! And post-pandemic, everybody surged into the NASDAQ five, and the NASDAQ, because of Big Tech equity — this is a store of value! I’ll be safe here! We’ll you’ll be safe there for a year, or two years, but you know, General Electric and General Motors and Standard Oil were once, they were the most important networks on Earth, and they changed humanity a lot more than Google, Apple, and Facebook did! And you want to change your life? Try to go a week without electricity and see if there aren’t riots, murders, mayhem! So people don’t ask the question, Why is it that I get my electricity for nothing? Why do I get my water for nothing? Because you try to go 3 days without water, 3 days without electricity, you see what that’s like! And the answer is: because those two things got declared as public utilities — that they’re so important that nobody have a monopoly on it! As soon as Standard Oil became so instrumental that it changed the Western world, politicians got interested in Standard Oil! And if your power company said, We just decided to jack the cost of electricity by a factor of 10. Would you pay it? Sure you’d pay it, right? Would you complain? Who would you complain to? A politician, right? So we’ve got these networks, they’re really important! But eventually if they’re important enough, they become commodity networks. And so that’s an interesting characteristic. The reason that gold doesn’t work over time is — we have two examples. It doesn’t work over time because people produce 2–3% more of it every year, and over 100 years that means you lose 90% of your energy. It doesn’t work over time because there’s counterparty risks, and the Polish bank, through no fault of their own, got overrun by the Nazis in World War II, and Beijing bank got overrun by first one regime then another regime then a third regime! So that’s another reason it doesn’t work! And a third reason it doesn’t work is if the people become threatened by the network — so for example 1933, Franklin Delanor Roosevelt found gold to be inconvenient — if the people become threatened, they complain to the politicians. The politicians might go ahead and take action, and in this case, the reason they were able to take action is because all the gold was sitting in the same place! So if the gold’s sitting in a vault and we know where it is, and it’s under the control of institutions, the institutions are under control of government and therefore that heightens the counterparty risk because of the centralized nature of gold. So the best case for a gold network is you’re gonna lose 90% of your energy over 100 years! But the likely case is you’re gonna lose 95%-98% of your energy over 100 years. And if we look at Nicholas Taleb’s range of outcomes, if you take the 100 biggest cities in the world and you put your gold in the best bank in any of the hundred cities in the world, it looks like in 95–96 of them or maybe 99 of them, you lost all your money! You lost all your gold!

Robert Breedlove [39:51]: So that highlights too one of the shortcomings of gold is that the economies of scale lead to its centralization! Because it is so heavy and hard to transact — compared to Bitcoin, that’s non-corporeal, it can be transmitted at the speed of light — because gold is so heavy to settle, that that leads to its centralization in bank vaults, and that becomes the ultimate honey pot for politicians and governments, frankly! And the other attack vector we didn’t discuss is that temptation is always given into! As soon as things get dicey, governments immediately monopolize that gold energy network, which is the most important in the world!

Michael Saylor [40:39]: Let’s say—it’s not fast enough! Every good technology is smarter, faster, stronger! Every technology! Smarter, faster, stronger! So coming to digital gold versus gold: physical gold is not fast enough! How fast is it? If I wanted to move $100 Million of gold, as we talked about, it’s gonna cost me $250,000. So that’s an impedance! But how long is that gonna take you? A week? A month? Somewhere between — you wanna move 3,000 lbs of gold from New York? I’ve got a month I’m guessing, if you want to get all the protocols set up. So you’re talking about a quarter-million dollars and a month to move the gold. Assuming I needed another custodian and I used Bitcoin, and I wanted to move $100 Million to Bitcoin — and this is where Bitcoin critics are just utterly wrong and missing the point! — they all think, Oh, well it takes 30 minutes and $5 to move Bitcoin! And they’re comparing it to a new crypto network that has no value on it! And they’re saying, I can find a way to move it in 5 minutes for a nickel — but that’s not the point! The appropriate comparison is to gold! How long would it take to move $100 Million of gold? Because there’s $250 Trillion in assets in the alt-assets! And there’s only $25 Billion of real assets in the altcoins or the alt-cryptos. So how long does it take me to move the $250 Trillion around? And when you think about that you realize that Bitcoin would move it in 30 minutes instead of 30 days. Okay? That’s 1,440x as fast! A thousand times as fast a minute versus 1,440 minutes in a day. And so it’s a thousand times as fast, but then it’s $5 versus $250,000! So that’s 50,000x cheaper! So now we’ve got people saying, Oh well it’s very energy efficient — blah blah blah! Well it’s not, really! It’s inefficient in the way that it’s inefficient to create an electro high speed transit system, a mass-transit system. It was expensive to build the mass-transit system, it got really really cheap to move onto the rails! If you look at the history of railroads, the biggest thing in the 19th century was railroads. It was pretty expensive to create the railroads! It became really cheap to move on the rails! So what we do is we’ve created crypto rails in order to make it 50,000x cheaper to move! But it’s not just that it’s 50,000x cheaper, it’s that it’s 1,000x faster and 50,000x cheaper, and then when you start to multiply 1,000 x 50,000, and you realize — it starts to be 50,000,000x faster, and then you start to add that third dimension, which is maybe a computer that thinks about this while you’re sleeping 18,000 times, and you realize eventually you get to 50,000,000,000x faster! And now we’ve got to a new engineering or new scientific metaphor which is: superconducting networks! There’s impedance going through an electric power network and you’re losing it, so the solution is that I need to get this superconducted! So I gotta cool the network down to close to near-zero, and it’s expensive! And the point is: Yeah! It’s expensive to get to near-zero, and then the impedance disappears in the network and the friction goes away! And what could you do if the friction went completely away?

Robert Breedlove [45:23]: Right! You’re in outer-space! [With] the smallest amount of energy you can move something billions of miles. And I love that analogy too that you’re getting to a lower energy state, and that eliminates the frictions to conduct them. So you achieve superconductivity and in a way that’s what Bitcoin is! It’s a monetary medium completely free of the noise of unexpected inflation, so you’re actually conveying pure price signal! Even gold we didn’t quite have that!

Michael Saylor [45:54]: And I love your analogy because I mean the aerospace engineer in me is loving it a lot! You could think about when you encrypt monetary energy on the Bitcoin network, it’s like achieving escape velocity out of the gravity well! What we’ve done — we paid a price to get out of the gravity well. Throw a baseball on a baseball field, it goes a couple of hundred feet. Get out of the gravity well, throw the baseball, it’ll go around the Earth forever! So how much more distance do you get out of the baseball if you pay the price of getting out of the gravity well? It’s not like 10x better, it’s not 100x better, it’s not 1,000,000x better, it goes to infinity, and it never stops! And that’s the breakthrough that people don’t get, it’s like, What can I do if I had vacuum, and I was rid of friction? And yeah there’s a price to pay! And that’s your phase change and your state change, and that’s why I would say: Bitcoin is the most efficient system for channeling energy through time and space in the history of mankind! We’ve never figured out how to channel energy with no impedance and channel energy with no loss! But let’s come back to the outer space analogy: take your flashlight and shine it in your basement. Take your flashlight and shine it on your baseball field. Now get into outer space and take your flashlight and shine it, or flip it the other way: the Hubble telescope! How much better are the photos you get from the Hubble telescope than the photos you get from a telescope that has to shoot through the atmosphere?

Robert Breedlove: Right. It’s totally free of distortion!

Michael Saylor [48:06]: It’s a billion times better! It’s like you just can’t really imagine the world when you’re trapped in an energy well.

Robert Breedlove: This analogy holds too for the institutional counterparty risk: it’s almost as if once you escape the gravity well, you’re also free of institutional counterparty risk! I don’t need to worry about the stability of the United States and J.P. Morgan to transmit Bitcoin 100 years into the future, you only need to be concerned about the stability of the energy network, which is maintained by the collectively self-interest of the world, in theory!

Michael Saylor [48:43]: Yeah. It’s something that’s just altogether unique and we’ve just never had it before! If you now conceptualize that and you go through your thought experiment, you realize: we need a monetary system, and our monetary system—the three in front of our face are, let’s take it—fiat is a monetary system, gold is a monetary system, Bitcoin is a monetary system. If I put my $100 Million of monetary energy — I have energy. I take energy, I sell it on the grid, you give me money! I take my money, I put it into the US dollar bank — it’s in fiat. I wait 100 years, and it’s 7–8% asset inflation rate, I have a half-life of 10 years, so I get cut in half 10 times! Okay? $100 Million…$50 Million…$25 Million…$12 Million — it’s gonna get painful!…$6 Million…$3 Million…I only cut in half 5 times!…$1.5 Million…that’s 6 times, now it gets really painful!…70 basis points…35 basis points…17 basis points…8 basis points! By the way, 8 basis points if you don’t get hyperinflation! 8 basis points if your nation wins every war! So we’re not even — what to say is: you’re losing 99% of your energy. 99% of your energy is being charitable! Now let’s generate $100 Million worth of electricity by burning coal or nuclear power or peddling on my flywheel or rowing on my row machine — however you got to it — windmills! Let’s sell it to the grid, take the $100 Million, and let’s to go J.P. Morgan and let’s buy $100 Million worth of gold and let’s have them custodian for me. Put it in their vault — I guess I could just take it with me, it’s 3,000 lbs! It’s $2,000 an ounce, or whatever the number is! Okay so 1.5 tons — no! I gotta put it in a vault, right? So I put it in a vault and I pay for custody fees and going in there’s a fee, and then I’m paying, whatever, 20, 30, 40 basis points a year to keep it, and then the miners are out there doing their mining thing and it’s probably 200 basis points worth of additional gold. So that’s 250 basis points a year. And if I watch it and assuming it’s just a dead rock and it’s heavy, I’m not moving it — I’m doing nothing with it, I’m just staring at it — then I’ve just gotta add on the counterparty risk and then the fracking risk, or the technology risk. The fracking risk is — academics always opine about shortages. Academics have been saying there’s an oil shortage, and energy shortage coming! They’ve been saying it since the Club of Rome in 1973 or something! They said it in the ’50s, ’60s, ’70s, ’80s, and ’90s, and the world always predicted that we were gonna run out of oil or energy in about 10 years. I studied this at MIT — I created computer simulations about it. There’s an entire school of thought — system dynamics — that studies these things. And the flaw in the reasoning is: it’s a linear interpretation of the world instead of a closed feedback or a non-linear interpretation of the world. The linear interpretation of the world is: we’ve got 10 years worth of oil because that’s what our main proven reserves are! The closed loop interpretation of the world is: when we actually get to 5 years worth of reserves, people start looking for more reserves! And so, no company wants to carry on their balance sheet more than about 10 years worth. And then they just keep finding more, but they don’t publish it. We’re not factoring in human will to live, human ingenuity! People have a tendency that when you tell them they’re about to run out of something, they reprioritize, they think a little bit harder, and they come up with an innovative solution! So that’s what happened with fracking. We’re gonna run out of oil, we had a crisis, and eventually the price of oil went high enough. The people sat down and said, You know? If we invent a new chemistry, and if we raised some capital, we can go ahead and implement fracking, and we doubled the amount of oil! And we did it fast! We had 5 Million barrels a day for like 40 years and that was conventional wisdom and everybody thought, That’s it! And then we went the next year to 6 Million, the next year to 7 Million, the next year to 8 Million, the next year to 9 Million, the next year to 10 Million! And I watched it happen, and I watched all of the big investment bankers — J.P. Morgan and the like — they went and they raised billions of dollars from investors and they invested in these fracking companies, in Chesapeake Energy and all these others popped up, and we were awash with oil! And the next thing you read is that we have too much oil! Because it’s a commodity! Because if you put $100 Billion into anything, you invent something new! So for you to be a — this is why being a cynic and being a pessimist about technology is generally a losing trade, because you’re assuming that human beings won’t invent anything new and have no capability to do it different!

Robert Breedlove [54:53]: And this has its roots in what I would say is kind of the Malthusian fallacy. Where he said, We’re gonna run out of food, there’s gonna be mass starvation! And it just fails to take into account the non-linearities associated with innovation! When we get our back against the wall so to speak, we get smarter, we figure out new ways of extracting new resources or growing food. And it’s impossible to project that! You don’t know when those breakthroughs are coming but when they do come, it releases a lot of energy. It releases a lot of productivity.

Michael Saylor [55:29]: Yeah Malthus is the iconic example of just being utterly wrong over and over and over again! And if you study the history of science, the history of science is very simple: the non-scientist and non-believers that will tell you why it’s impossible, and then the creative, innovative scientist who thought, I’m gonna ignore that—and just go try it. And 99% of the population generally will just tell you why it’s impossible and be cynical and be critical and they’re fearful. And the 1% will say, I think I’ll just go try it! And of course the 1% is generally right! I mean, they’re wrong until they’re right! The technology fails until it succeeds. But if they just keep trying, the likelihood that you’ll invent electricity or airplanes or antibiotics or better techniques for agriculture or mobile phones or YouTube—the likelihood is high! It is highly likely that someone in the future will come up with a way to extract all the energy that you’re ever gonna need from some element the size of a sugar cube. We don’t have it yet, and I can probably find a million conventional thinkers that’ll tell us why it’s impossible. The same guys that told John Harrison he couldn’t discover longitude with a clock, and the same guys that told the Wright brothers they couldn’t fly! It would be those same guys—and they’ll be right until they’re wrong! And in this particular case, that’s a good thing! That’s a good thing if what you want is abundance. But that’s why it’s a crippling intellectual mistake to run a monetary standard on a commodity that can be produced by man! Ultimately, you have to run a monetary system on math, right? As you pointed out before — mathematical money — because 2 + 2 = 4, and as long as 2 + 2 = 4, human ingenuity is not the enemy! And this is a basic sociological principle, really, which is: do you want to design a system assuming that people are stupid and will not evolve and cannot defeat it? Or do you want to design a system assuming people are smart and channel the energy of human ingenuity into making the system work better? And this is why gold is defective! And why a decentralized crypto network of which Bitcoin is the most successful in the history of the world — that’s why it is effective, because Bitcoin is channeling human ingenuity into making it better! And every commodity is channeling human ingenuity into making it worse, as a money! So if we come back to this idea, Bitcoin is the ultimate energy network! Well we’re gonna bleed 99.5% of our energy on a fiat network. We’re going to bleed 95% or more of our energy on a gold network. Once you calculate the fully diluted Bitcoin count — 21,999,999.98, as I heard from Andreas the other day, that number just slightly less than 21 Million — once you’ve done that, then you just realize that it’s a lossless monetary energy system through time. Through space, it has a slight loss in the form of transaction fees, but it’s a good thing, and the transaction fees on the Bitcoin network are like a little bit of impedance and/or a little bit of gravity, a little bit of friction. And the goddess of wisdom that created the universe gave us a little bit of friction — it’s a good thing! No gravity, no friction — your life gets really really complicated!

Robert Breedlove: No resistance, no growth!

Michael Saylor [1:00:09]: And so there’s nothing wrong with just a slight bit of friction. That’s why the idea that I’ve gotta drive transaction fees to zero is a silly idea! It’s like, No! What we want to do is drive inflation or the loss of energy over time to zero, and then we want there to be a slight loss of energy when we reorganize all of the monetary energy. When I send $100 Million from New York to Tokyo, I don’t mind spending $5. I probably won’t mind spending $50! When Bitcoin has $250 Trillion of energy into it, there’s no reason why you can’t pay $25 Billion in transaction fees! People forget — again — this is the problem of the crypto community: they’re fixated upon a prototypical coin network that’s a lab experiment, and they’re comparing it to Bitcoin, instead of comparing Bitcoin to actual monetary or asset networks in the real world! So for example here’s a real asset network: it’s called real estate! I have $100 Trillion of real estate. You have a house. Let’s say you have a $1 Million house. You wanna hold — this is a good example — let’s assume that real estate is my energy network! If you wanna actually carry a $1 Million house 100 years — in Florida, there’s a 2% real estate tax. You would pay $20,000 a year every year for 100 years, assuming that the house was capped and not reappraised, and so you’re in essence going to lose the house in 50 years! Right? Under the best of circumstances! You’re gonna lose all your wealth in about 20 years if you store your wealth or your monetary energy in a real estate network in Florida. So if you go to any other real estate jurisdiction, they’ve all got different tax rates over time, but this is why you can’t really store energy in property, because the tax rate generally will bleed you out in somewhere between 20-100 years. Now that’s the inflation rate, or the energy loss rate over time. What about over space? What if you wanted to transfer a $100 Million house? What if I want to buy it from you? So you want to exchange — heat exchange, energy exchange — you want to exchange the energy in the house? Well it’s a 6% transaction fee, and at the point that I said, Robert I want to buy your house, I’ll give you $1 Million bucks for it. How many days ‘till closing? 30? Probably 30! Okay, so you just paid $60,000 and waited a month in order to do your transaction! Now compare that to Bitcoin again? 30 minutes? $6 bucks? 30 days, $60,000! This is why we don’t use property as an energy network! By the way, some people do! You can ask people point blank, How are you gonna actually give your money to your granddaughter? Well I’m gonna buy property. But it where? California? Florida? Where? It’s the same counterparty risk! It’s worse than gold! You can move 3,000 lbs of gold in 30 days for $150,000-$200,000! You can’t move $100 Million worth of property in 30 days to another country!

Robert Breedlove [1:04:22]: And you’re also taking the counterparty risk again. The other thing with property is that it’s non-fungible, so the liquidity of the market is much smaller than say gold or Bitcoin. And you run the risk of that area having some natural disaster or some other event that makes it uninhabitable or unappealing.

Michael Saylor: It’s illiquid right? It could take you 3 years to sell the house!

Robert Breedlove: That’s right!

Michael Saylor: It’ll take you 3 years to find a counterparty. It’ll take you 30 days to do the transaction. Now we just come back to this fee, right? What are the transaction fees on the Visa network? What are the transaction fees across any monetary network? It’s pretty routine to pay 1%, 2%, 3% to move something around. If Bitcoin gets to be $100 Trillion and there’s 1% transaction fees, it’s going to be — well pick any number and multiply it by 1%! It’s $1 Trillion a year in transaction fees! Nothing wrong with that! What’s the entire size of the — you know what the spreads are in the bond industry? Like, I used to buy and sell convertible debt. There were 200 basis point spreads. You could buy at 0.98%, you could sell at 0.96% — the banks got in between! So all of the financial system is built on taking a spread. That’s why New York City has tall buildings! We’ve talked about this before. Wherever there’s a node in a network — a rail head, Venice, Paris, London, New York — wherever there’s a node in a central network where there’s exchange, there’s a transaction fee. And if you’re lucky it’s only 1% or 2%! When you’re unlucky — I mean there’s a reason people refer to free ports. Free port meant that when you pull your ship into our port we weren’t gonna steal it all! You know what the great breakthrough is in Singapore? Here’s the breakthrough: we’re gonna have a port in the middle of the Pacific where when the ship comes into our port, we don’t take all of their cargo! Or we don’t take 10% of their cargo! That’s your idea? Yeah! That’s my idea! We’re gonna let them stop here and not seize 10% of their stuff! Wow! That’s a brilliant idea! By the way, that’s such a unique concept that Singapore is Singapore! It is the greatest port in the Pacific — because it’s so rare that a country agrees not to take 3% of what you have when you stop! You can’t even come into the United States without filling out a customs form where they charge you a 10% duty on whatever you have in your possession! The point is: it’s very common to take 10% of what you have when you come and when you leave. That’s why those cities are cities! That’s why those empires are empires! So when someone sits around and they whine about $5 in transaction fees is too great, they’re whining because it’s more expensive than their laboratory experiment on their scientific workbench that no one’s using! Yeah, I can conceptualize hypothetically in my perfect world a perfect system where it was better. But the real world is $100 Trillion worth of real estate and $250 Trillion worth of bonds and stocks and gold and silver and other property! And that stuff’s moving around with transaction fees which are high enough to have paid for all the buildings in London, Paris, New York, San Francisco, Beijing, Tokyo, Venice, and Rome! It’s not a new idea to charge transaction fees! It’s not a problem! And the beauty of Bitcoin is, as more miners come on, they create a very competitive industry, and if a miner charges too much transaction fees, someone else is gonna drive the cost of transaction fees down, and if the revenue from transaction fees falls below the variable cost of running the mining rigs, people are gonna take mining rigs out of production eventually — unless a government wants to subsidize them! Unless a government’s gonna be subsidizing the crypto rails which create the 21st economy, and that’s a reason why mining is a bit riskier as a business than owning Bitcoin! Because you’re getting into a commodity business where you may get driven down to the variable cost of the electricity, or below the variable cost of the electricity if someone else wants to get into the business and they can. It’s good for Bitcoin, it’s good for everything built above the chain! Caveat emptor if you wanna get into the commodity — or the business of encrypted energy!

Robert Breedlove [1:10:02]: Right! I think that’s a great point too that you bring up the transaction fees on the Bitcoin network are set at fair market value. It is a freely competitive industry such that all of the transaction fees are a consensual exchange, and the value paid in those transaction fees goes — with very little loss — directly to supporting the security of the network! Whereas ostensibly these government fees—they’re non-consensual, they’re conducted under a monopolized area. A lot of that value being extracted — 10% in, 10% out — is not going to securing the property rights that you’re bringing in and out! It’s a very small piece of that! Most of it’s going into the political coffers!

Michael Saylors [1:10:50]: And politicians, they don’t even hide that. They’ll say, We just decided to tax this in order to pay for something unrelated.

Robert Breedlove: Exactly, yeah!



Robert Breedlove [1:11:04]: Alright guys! How good was that? Another great episode with Mr. Saylor! I think we’re starting to see things coming together in this episode where all of this foundation we’ve been laying starts to relate and highlight the significance of Bitcoin in the modern age. We started out talking about Bitcoin being the first true digital monetary network in history. There had been prior attempts with things like E-Gold and other things, but they had never solved the issue of counterparties, frankly! We’ve never had a trust-minimized digital money that was basically more or less free of counterparty risk! And Saylor brings up the great point that Bitcoin — at the time that we recorded was well over $200 Billion market cap — and when you look at Bitcoin through that lens as a digital energy network, other digital energy networks like Amazon, Apple, Netflix, etc., one they pass that $100 Billion milestone, it tends to be kind of a point of no return! And also a point that leads them to realizing these winner-take-all dynamics in digital competition. And he also makes a great point that, at that point in those companies’ life cycles, those digital energy networks’ life cycles, 99% of the investment community still doesn’t get it! When Amazon or Apple is at $100 Billion market cap, people were still just writing them off and didn’t realize that these were gonna be even multi-trillion dollar companies today! So I thought that was really interesting that Bitcoin is really at that juncture where it’s crossed the multi-hundred billion dollar market cap threshold, and that gives it a lot of resiliency to disruption or downside potential, where it still has just a ton of upside potential if you look at it even in the context of gold’s market cap, or other stores of value. And I liked that Saylor went to how these digital networks, they’re dematerializing some ineffable quality. Like social media is friendship, or with Apple you could say maybe it’s information or communication, and with Bitcoin it’s money. And it’s taking that ineffable quality to a lower energy state, something that’s more crystalline-like, and when it does that — using the analogy of a phase transition — let’s say water going from liquid to ice, all of this thermal energy is released! And in an economic sense that would be value or cash flows or market cap. What I think he called was an exothermal reaction, where is actually collapses to a state that requires lower energy to remain cohesive, and gives off that excess energy in the form of value of some kind. I thought that was a brilliant way to look at it! And it calls to mind again standardization, right? When we achieve certain standards and everyone starts singing off the same song sheet, productivity just explodes! So our effort necessary to maintain the network collapses, so the network gains a lot of density, and then in doing that it just throws off all of this — whatever the ineffable quality is that it’s aiming for, whether it’s energy or value or productivity for instance. And then Saylor was so kind to actually answer the question that we always ask on this show, which is, What is money? And the way he puts it is that, Money is the highest form of energy that human beings can channel. And indeed if you go back to what we talked about in Episode 1 to those Stone Age technologies, that’s what human beings have been doing to advance themselves. That is what distinguishes man from animal in fact, is that we harness energy and channel it across the field lines of our intellect, essentially. The three Stone Age technologies we looked at were: fire, missiles, and water. Fire was harnessing and channeling chemical energy, missiles were kinetic energy, and water was gravitational energy! And in the modern era, we’ve evolved past that and now we’re dealing with things like thermal energy, electrical energy, and nuclear energy! And the point that he makes is that, All of the meta-energy, if you will, that controls all of the others is money! Money is the claim on the collective savings of humanity. It’s a claim on the efforts present, past, or future of all of us! So any group that commands one of these forms of energy can be commanded themselves by money. So it makes money this form of meta-energy, which I thought was a very interesting definition! [1:16:27] And it’s also what defines civilization in a way. It’s like, What types of energy are we harnessing? Are we a Stone Age civilization that’s only harnessing fire? And at what scale are we doing that? At what scale are we channeling that energy? Those two aspects are kind of what defines civilization in a lot of ways! And he makes the point too that the challenge has always been moving the energy across domain, and this domain can either be a jurisdictional or governmental domain — how do you get your capital out of one country into another with the least loss possible, it could be characterological — so if I’m going from thermal energy to kinetic energy, what’s the most efficient way to do that? We could look at something like the steam engine was such a breakthrough because it allowed us to transition energy the most lossless way. Or even just moving the energy across space and time! If we can harness it and store it in a medium that’s reliable and then transport it somewhere else and redeem it at later times for later uses, that has a lot of value as well! As humans try to go into the world and solve problems. So in that lens, historically at least, gold was energy money! It’s what captured the residual energy that mankind was able to produce, that was not able to be put to a higher and better use. So if we couldn’t dedicate our efforts towards any other activity that could increase productivity more than say gold mining, then we would just go and mine gold! And gold, again being this hard energy money, would sort of be — it’s annual appreciation would be a proxy for the aggregate productivity growth in an economy. And unless your investment could outperform that, say it’s 2-3% a year, then you would just mine gold! So it kind of provided this floor for human energy, and it was a medium through which we stored and transported it. But, I love this part where Saylor went into the math behind why gold sucks! Even though it was the best thing we ever had historically, it still sucks as an energy money! One was, If you want to move gold around the world once, say it costs you 25 basis points, which on $100 Million is $250,000 just to move it around the world once! So if you’re doing that once a quarter that’s 1% energy loss per year. And then something — which we got into — you would almost have to do, because if you’re gonna store gold, you’ve gotta put it in a vault. It’s gotta be physically safeguarded over a long period of time, and you have to trust a counterparty. You have to trust a custodian! And as we went through history, many of these custodians and nation states have fallen over, so if you wanted to transport wealth across 100 years, you would necessarily need to change locations rather frequently just to avoid and minimize that risk! So that was across space, say it costs 1% a year to move it 4–5 times a year across space. And then also, gold production increases by about 2% a year, so gold’s got a 2% dilution built right into it from gold mining. So if you put those two together, call it 3% loss per year on this monetary energy batter — you’ve got a 22-year half-life! In 22 years, holding your value in gold, you’re gonna get cut in half! So that’s just not that great as far as building something with a long time horizon! After 100 years, you’re talking about 87% loss in value if you’re storing in gold! And that’s your best case! That’s assuming that you move it to the right places and you don’t end up storing it in a Frankfurt or Tokyo in 1900 or any of these other cities that lost a war or their institutions were compromised. This assumes that you make the right moves with it! Your best case is let’s say a 90% loss in value. Your worst case is 100% because of confiscation outright, or theft. If you’re Poland and Germany invaded your country your gold was stolen! And Bitcoin is just fundamentally different because it’s this form of money that’s digitized energy! So it’s not stored in a physical corporeal form that can be seen, targeted, confiscated. It’s informational, which allows you a lot of unique ways to custody it in these ultra-high security schemas that are largely resistant to these forms of counterparty risk that we’ve seen gold succumb to in the past. And then we got into commodities, the economic principles surrounding them. [1:21:54] And I liked how he described gold mining in that the cap-ex deployed into gold mining is really largely for the purpose of mining gold, and the switching costs related to it are very high, so you can’t just turn your gold miner off and start mining silver, right? In some cases, depending on the actual piece of equipment, it only may be useful for mining gold. But assuming it’s useful for mining something else, you have to pull it out of the mine, put it on a truck or a ship, ship it somewhere else, redeploy it, not to mention all the training and security involved with that! So very high switching cost on the cap-ex related to gold mining, and this leads to specialized producers overproducing! So they’ll overproduce this commodity — gold — down to the point where marginal revenue is equal to marginal cost, so there’s no profit. And even below at times. Again they’re trying to amortize the cost of this cap-ex that invested in gold mining. Or, it could also possibly — if they get desperate enough — they could also seek a government subsidy that can allow them to mine below the cost of capital even further! And so all of this leads to commodity money getting destroyed! The incentives are to always increase its supply and always compress its margins. The way Saylor puts this is that the energy being channeled into commodity production, it’s actually — the incentives related to it — are targeting human ingenuity at destroying that commodity! You’re commodifying it, which is to say compressing its profit margin and increase its supply! Whereas those incentives in Bitcoin are fundamentally different, which we’ll touch on shortly. But the interesting thing here with gold as a commodity or energy money is that it was a stable form of energy at room temperature. Which as we touched on in prior episodes, is akin to the breakthrough with consumer packaged goods, with Post foods, so they could store food energy at room temperature in the form of corn flakes or other canned or dried goods. This also points to —commodification at least —points to this interesting configuration in the world where we have, say, the electric and water networks. And in our civilization they’re clearly the most important, right? If you turned off electricity or water, chaos would ensue! Whereas if you turned off say Google or Amazon, it might be inconvenient, but it’s not necessarily gonna be this whole breakdown in society! But, Amazon and Google are tremendously more valuable on a market cap basis than electric and water networks, and the answer to why is because electric and water networks are commodified. They have become this network that’s so fundamental to civilization that we’ve optimized how we produce and distribute these goods in a way that makes them ultra-cost effective to the consumer. Whereas things like Amazon or Google, they haven’t been commoditized yet. They’re still new enough, they’re newly explored industrial territory if you will. There’s still very large margins there and they’re also monopolists. As we saw earlier in the Steel Age in the railroads and whatnot, in these newly charted industrial spaces you tend to have monopolies first before commodification. First of all the monopolists set standards. Once the standards are set, the commodification sets in and actually compresses the margin and leads us to the more free market environment we have today! So commodification also points to why FAANG stocks — which are being predominantly used as a store of value today — since the store of value function of fiat has been so compromised, we see a lot of institutional capital pulls, high net worth individuals, everyone really, that would typically depend on fiat currency as a store of value, resorting to the FAANG stocks or other high-flying tech stocks, as a store of value! Something that is reliably scarce enough to hold its value across time. But commodification — the history of it, and the economic principles behind it — actually point towards why that’s a really bad strategy for the long run! Because we’re early in the digital age, these data monopolies, although they could be expected to persist for some time — years, possibly even decades — it’s very unlikely that the large profit margins they’re enjoying today will persist far into the future. What’s more likely is that now that standards are established, we’ll see commodification of some of these digital utilities that are monopolized today! If history is any indicator. So in that way the FAANG stocks, although they’re like a primary store of value today maybe second only to government bonds, and increasingly so now that government bonds are largely going negative, they make for a really poor long term store of value. And this also points to Bitcoin and the uniqueness of it in that Bitcoin is like the ultimate store of value through this lens of commodification, because it actually resists commodification! So Bitcoin mining is this race to produce hashes more cheaply. We’re thinking about hash as a vote or a lottery ticket trying to solve the puzzle to win the coinbase reward, which is the newly minted Bitcoin in every block every 10 minutes. So the commodification of Bitcoin is actually in the energy being allocated into its network, however — and this is where Bitcoin is so unique — is that, every 4 years, the algorithm adjusts itself in such a way that it actually pushes back on this commodifying force by cutting its new supply flow in half! So at the halving, the operation and energy expense being allocated to generate a hash—which is to create Bitcoin basically—that same cost flows into half as much Bitcoin being produced! So as Bitcoin is undergoing this downward pressure to cost of production as people figure out how to generate hashes more cheaply with cheaper energy or better ASICs or whatever the breakthrough is, the algorithm pushes back every 4 years! You’re pressing down cost to production in one way, but every 4 years we’re gonna double it! And that’s actually the incentive structure that makes Bitcoin so interesting, because that keeps ratcheting it’s marginal cost of production higher, and as we know by studying commodities and money, that the marginal cost of revenue or the market price tends to converge to the marginal cost of production. So the algorithm actually has this rising floor cost of production, and that’s what’s ratcheting its market price higher and higher! And if you look at the price action of Bitcoin historically on the log scale matched over these halvings you see it perfectly! It’s not to say that that will hold indefinitely into the future, but it’s definitely very unique in that we’ve never seen an asset that has this — at least we’re 12 years in — very predictable and algorithmically driven market value. It’s definitely influenced by the algorithm! So that’s really interesting and really unique to economics. The other thing that’s interesting to me about that is it’s inverting the economic principles behind commodification. So if you think: the ratcheting effects in, say, gold production will actually be to produce gold more cheaply over time. So just make gold more and more cheaply over time, which actually points to why gold was selected as money because it was so resistant to commodification! You couldn’t get the cost of gold production lower because it’s so scarce and hard to produce! But because Bitcoin’s pushing back, instead of all of that energy flowing into producing cheaper Bitcoin, it’s actually pushing us to just seek out cheaper energy, so it’s created this global perpetual incentive scheme to figure out cheaper ways to make energy. Because that’s the only way to access cheaper Bitcoin production, effectively, although Bitcoin just keeps getting harder to produce! [1:32:23] So it’s just really really unique economics to think about! And then we went into the settlement aspects of Bitcoin, and why comparing it to another crypto asset is simply the wrong comparison. Saylor made a great point that, if you want to compare the cost to settle in Bitcoin, you have to compare it to gold, because with gold, you are settling in finality. If I flip you a gold coin, you put it in your pocket and walk away, you and I have participated in an irreversible transaction! There’s no authority in the world that can make you give me that coin back, and there’s no authority in the world that can — aside from gold mining — that can devalue that coin! So we’ve transferred a token of self-sovereign wealth. It is a final transaction, a final settlement. And there’s only one other asset in the world that lets you do that in a fully depoliticized way. You could argue that Ethereum allows you to do that, but Ethereum is subject to political attack vectors, we don’t know its whole supply, there is a small group of people that control its functioning, whereas it’s just not true for Bitcoin. It’s the only truly decentralized digital asset in the world! So that points to another way to think about Bitcoin. Another analogy that we went into was the superconductive monetary network. It’s a lossless energy network. So we can now transmit this meta-energy that is money across time, across space, across jurisdictional domain, governmental domain, with the least amount of loss! And the analogy there to superconductivity is that superconductivity is effectively cooling the conductive material to a very low temperature. So a very low entropy medium, and by getting the entropy out of the channel, it maximizes the flow of energy! There’s the least impedance or the least friction in the channel. And I love that analogy for Bitcoin, because that’s the breakthrough that Bitcoin is, right? It’s the first asset we have in history that has absolute zero-percent noise in the channel, which is: unexpected supply and inflation. Everyone knows and can agree to what the supply is and what the supply ever will be! And the other thing that analogy points toward is that it’s very expensive to achieve that! There’s a great deal of energy expenditure necessary to achieve superconductivity, or to achieve this breakthrough, but once you get there, you release all of these productivity gains! Again, kind of like that phase transition to a lower energy state: when it crystallizes, it just throws off this exothermic reaction of value, cash flow, profit, whatever it is! That’s what Bitcoin’s done! We’ve now had this singular moment breakthrough which we could call the Genesis block—pretty everything from there is a step function of the algorithm—that is now releasing all of these gains into the world in terms of reducing frictions to trade, reducing the noise and theft in the channel from inflation, and then giving us a medium of wealth storage that can’t be confiscated! So it’s taken a lot of unpredictability out of money, if you will! And that same achievement can also be analogized to achieving escape velocity, which I thought was a really cool analogy. And that once you get — you know there’s a huge expenditure to get into orbit — if you imagine a rocket, how much fuel it has to expend, how much ingenuity and design and science has to go into building a rocket to get it going fast enough away from the Earth to escape Earth’s gravitational field — but once you get into orbit, all of a sudden your returns on energy expending go to like near-infinity! The example Saylor gave was throwing a baseball in a baseball field. It’ll go a hundred feet if you’ve got a strong arm. You throw that same baseball in orbit, it just goes around the Earth forever! So your returns on energy expended just explode, it just becomes astronomical! And about this Saylor said, Bitcoin is the most efficient system for channeling energy through time and space in the history of mankind. If we just sit with that for a while and really think about the profundity of something like that, and that we are the species that channel energy across time and space. That’s what distinguishes us as man! And here we have the system that has achieved this function to a higher degree than any other system we’ve ever created! That’s the breakthrough that Bitcoin is! It’s something truly remarkable! And it’s why so many of us have decided to devote our life to it, talking about it, educating others! I love the engineering mindset and lens that Saylor brought to this equation. I talked about a lot of these aspects of Bitcoin previously, but I was more focused on the time side, which time too is like absolutely scarce, but it’s more of an experiential aspect of reality. Whereas Saylor is very focused on the energy, which is much more of an engineering or physicist aspect of reality, and much more measurable and objective than even time! So I think it’s kind of saying the same thing, but just speaking to a different audience in a way. I think it’s just really good stuff that he’s bringing to the table! The last part I thought was cool about the absolute zero superconductive monetary network for achieving escape velocity, was the example of the Hubble space telescope. So for the whole history of astronomy, we’ve been pointing our telescopes toward the sky, but we’ve dealt with atmospheric distortion — something we’ve had to correct for, something that for certain objects far into the distance we just couldn’t even see, and it’s all because we had this distortion of the atmospheric shell that surrounds our planet! But again once we achieved this escape velocity and we got into Earth orbit, we got a telescope up there in the form of Hubble telescope, that when we started to see our Universe in a whole new way with a whole entirely new degree of clarity and precision unlike anything we have ever seen before! Just totally free of atmospheric distortion! And it’s because we eliminated the frictions to visibility, if you will. We’ve eliminated the frictions to communication — in this case, communicating light to the eye or light to the telescope — and it gave us this entirely new perspective on the Universe. And I think Bitcoin is just going to do something similar! We’ve eliminated the atmospheric distortions, if you will, of counterparty risk, monetary inflation, commodification — all of these things that have screwed up every monetary system historically and broken civilization after civilization — all of a sudden we have this invention through Bitcoin that’s like the Hubble telescope! It exists in an orbit that’s beyond man’s reach — which is really important, so it’s not vulnerable to counterparty attack vectors — we all know what the inflation rate is and ever will be, so there’s no unexpected inflation. And it’s just a lossless energy network, as Saylor says! It’s something that’s a really big breakthrough! The other thing there is the price signals that it would propagate. Price signals being the coordinating force in any economy — they’ve always suffered from these distortions that we just mentioned like inflation and counterparty risk and what have you — uncertainty in general, entropy, entropy in the channel. By being an entropy-less or entropy-minimized monetary channel, a Bitcoin-denominated world promises to allocate capital more efficiently than ever before! And that may sound kind of economic-nerdy when you say allocating capital, but that means putting people and assets in the right place! So they’re best satisfying wants or best solving problems for the demands of market participants! So it will lead us to a world where more of our desires are more easily satisfied. This is a really really big deal! And Saylor talked too — I like this — that there’s kind of two types of people: we have the doers in the world, and we have the nay-sayers. I would also say we could call those the tinkerers and the bureaucrats, or the entrepreneurs and the legislators. And what distinguishes these two people is: one is action-oriented — willing to fail, willing to take risks, willing to put their skin in the game, whereas the other one is just contrarian — says things can’t be done. I flash back to the example of the Wright brothers where every intellectual in the world—there was basically consensus among them all that man would never fly! Until these two guys flew in their garage. So it’s a really idea to bet against human ingenuity. If history shows nothing else, it’s that we have this amazing ability to problem-solve in a way that we can’t even fathom! So the point being — when we looked at a commodity money versus something like Bitcoin — is that it’s a really bad idea to try and run a monetary system based on a commodity. It’s much better to run a monetary network which is intended to be a system for allocating our time and our energy based on math! Based on a system that has inviolable rules or one that incentivizes fair play versus a twisting of the rules, because that would actually produce the best outcome, and the best moment of play. When rules are fixed, players are gonna play the game to the best of their ability. But when rules are bendable or breakable, you’re actually creating incentives to behave in a corruptive or exploitative way. And that’s what Bitcoin is. Through that game theoretical lens you could say that it’s a fixed rule set that no one can change or manipulate. And looking at a money based on a commodity versus a money based on math, Bitcoin is actually channeling human ingenuity in a way that causes it to improve over time, and in a way that causes civilization to improve. Whereas a commodity money is gonna be channeling human energy and ingenuity into the compression of the profit margins on that commodity, and the overproduction of that commodity! So it makes so much more sense to be in a true, digital money with a rule set based in math, versus something based on our ability to produce it in the natural world! It’s such a leap forward in innovation and in potentially civilization advance as well that it’s hard to even comprehend how big of a deal this is! And finally we touched on the transaction fees on the Bitcoin network. So although it’s a “lossless” monetary system, there is a need — there’s always going to be a need — for some resistance in the channel, which we would call transaction fees. And this is essentially the fee we’re paying to the miners for securing the network. And we could think, as Saylor alluded to, the goddess of wisdom always introduced a little bit of friction! It’s kind of like all things exist in opposition. We need something to push against to move forward. You could also think of the transaction fees as the expense or the tax we’re paying to the governors of the network, which the enforcers of the rules are the miners. So in the same way you pay taxes to the government ostensibly to protect and preserve your private property rights, in the Bitcoin universe we actually have to pay this tax to the mining network so that they can secure the monetary network itself and preserve our private property rights in the Bitcoin time chain. So to argue that a crypto asset needs to eliminate the transactions is just sort of ignorant of this fundamental truth that we need it in a monetary network. What we need truly in a monetary network is zero unexpected energy loss or inflation, which Bitcoin provides. So I hoped you guys enjoyed that episode! Again that was our first session on Day 2. We’re now into Bitcoin theory, we’re getting into the Modern Age and it’s only going to get more interesting from here, so I’ll see you in the next episode!