Stephen Chow

Mar 4, 2021

68 min read

The Saylor Series | Episode 5 | Channeling Monetary Energy Across Time and Space

Link to the podcast: https://www.listennotes.com/podcasts/the-what-is-money/the-saylor-series-episode-5-BON7cSMJjxV/

Robert Breedlove: Hey guys! Welcome to Episode 5 of The Saylor Series here on the “What is Money?” Show! Super excited for this one! This is episode 2 of us getting into Bitcoin theory, and things are just starting to really heat up and get interesting at this point! So it’s a big episode — I don’t want to waste a lot of your time here, I’m just gonna run through a few of the topics that we’ll be hearing today. If you haven’t checked out Episodes 1–4 yet I suggest you do, because a lot of the foundation that we’ve been building upon up until this point really starts to throw off some good energy here! So today we’re going to be talking about money as power, also, talking about one of my favorite ways to describe money is as an insurance policy on the uncertainty or the entropy of the future. And then we’ll also be looking at debt and how it’s actually a form of anti-energy. And then Saylor delivers a really interesting take on fiat currency in that it’s a way of politically toxifying money, and he drops some really interesting analogies there that I think you’re gonna like. And then we’re gonna deliver a thought experiment that I think is a really simple way of clarifying the value proposition of Bitcoin and its superiority as a store of value in comparison to all other assets. Maybe something you can use in your own arguments with precoiners. And then we’re gonna be talking about some lessons of history and how essentially the most organized group of people tend to win out. We’re gonna be looking at store of value versus medium of exchange in terms of monetary functionality. We’re gonna look at the utility of money and how that tends to drive its market value. We’re also gonna look at the productivity of market participants in a monetary network and how that drives market value. And then finally we’re gonna look at Bitcoin as — you know, what I’ve argued in the past and what we get into a bit here — is that Bitcoin is an American technology! Now I do not mean America the nation state, like it was invented in America, I mean the idea of America: the principles of free market capitalism. Bitcoin positively embodies them. Saylor and I get into a unique discussion on that topic. And then we’ll look at and compare and contrast the nature of fiat currency inflation and Bitcoin appreciation and see how they’re polar-opposite forces. And then we conclude by diving into some philosophy! We’re talking a bit about truth and how Bitcoin relates to truth and civilization’s relationship with truth. So, big episode today, excited for you guys to see this! Let’s jump in!

Michael Saylor [06:10]: We’re talking about Bitcoin as the first digital monetary network! I’m positing this thought experiment: I have a $100 Million block of energy. I can generate $100 Million worth of energy through chemical processes, kinetic, gravitational, electrical, atomic power. Let’s just assume that I did some amount of work in order to generate that energy. I converted that energy into money. Money is the highest form of energy! Now I’ve got $100 Million block of money! You can do a lot with $100 Million! It equates to about 3,000 lbs worth of gold, it converts to $100 Million of currency, and we could do the calculation in Bitcoin — a little bit less than 10,000 Bitcoin at this point in time. Now, I want to do two things with it: I want to channel it through time, and I want to channel it through space. The beauty of Bitcoin channeling through time is that there really is no loss over time, there’s no inflation. You’ve only got the 21 Million Bitcoin, so as a ratio to 21 Million it’s infinitely hard! And so that’s a big check, and if we contrast it to gold and fiat: you’re gonna lose 99.5% of your energy in fiat. You’re gonna lose 98% of your energy in gold. You’re gonna keep all your energy in Bitcoin! So clearly, channeling energy through time is important and it’s critical. Channeling it through space really refers not just to moving it around the world, but it means moving it across domains at well from counterparty to counterparty. We can see the inefficiencies in fiat counterparty to counterparty is: you’re locked into 9-to-5 banking hours, you can’t do big transactions on a Saturday, there are certain jurisdictions where you can’t do transactions at all, you’re always working through a counterparty which is its own risk. And of course if we go to gold, fiat is faster, but it’s still got complexities. Gold is slower — it’s gonna take a month to physically deliver gold, and so: super slow, super expensive. Neither fiat nor gold make nearly so much sense for channeling energy through time and space! I think that the best metaphor when I think about this is it’s like I want to cross from London to New York City and I need to cross the Atlantic — and that’s the journey. And if I’m gonna do it with fiat currency it’s like a big rubber raft with a leak in it, and I’m gonna be continually blowing up that raft every day to keep it from sinking on me! And I’m going to get battered this way and that way, and it’s a bit of a venture! On the other hand with gold, it’s like getting in a wooden ship. And it’s gonna rot over the course of many many years, but maybe for the first 2, 3, 4, 5, years — compared to the rubber raft — I feel pretty good! But it’s a heavy ship! Wood is heavier than rubber, so it’s kind of harder to get going and it’s harder to maneuver it but it’s a bit more solid. But ultimately it’s organic and it’s going to decay! And then if I put it into a crypto container — a Bitcoin — it’s like a steel vessel. I have a steel hull — a steel hull container ship really, is the best metaphor — 1,000 feet long, 60 feet wide, moves 30 knots! The thing that’s special about steel is: steel is indestructible as long as you maintain it! The maintenance means: you have to keep it from corroding! It can be attacked by a corrosion, and the way you maintain it is you paint it. You sand it down every 5–10 years, you repaint it. If you maintain it, it will last longer than you will last! In fact it will last essentially forever — hundreds of years! If you punch a hole in a steel hull and then you weld it, the weld is stronger than the original steel. So it is the indestructible, extremely strong, repairable element. And it doesn’t take a rocket scientist to figure out that if you’re going to actually engage in commerce all around the world, you want a bunch of steel container ships! You do not want wooden ships, and you certainly don’t want inflatables! And that’s the distinction and that’s why Bitcoin is really such an extraordinary invention! We talked about getting out of the gravity well — the other metaphor is: I have $100 Million worth of energy. If I can get it into a vacuum and vacuum seal it—it’s like when we want to keep food forever we vacuum seal the food—we want to keep bacteria from attacking it. We want to keep natural parasites and pathogens from attacking our food energy! And so the way that you protect your food energy and stabilize it forever is you vacuum seal it! And the way you protect your monetary energy from parasites and from decay and from rotting is you vacuum seal it! And that is the genius of Bitcoin! When I say that the destiny is to be encrypted, it’s like vacuum sealing your food. You’re taking monetary energy in fiat that can decay, debase, diffuse, and you’re encrypting it in an encrypted container such that no one else can touch it, no one else can screw with it. And when you think about all these miners, these miners are power plants, they’re plugged into analog energy, but they’re modulating the analog, physical, pure energy through the SHA-256 protocol to make it a wall of encrypted energy, if not a cloud of encrypted energy and the rails of encrypted energy! If you want to pass through that, if you want to attack that, you have to go through that wall of SHA-256 encrypted energy! And all of our monetary energy is protected and floating in the cloud behind that wall! And it’s a fairly unique wall. And that’s the majesty of Bitcoin.

Robert Breedlove [13:55]: Right! Already the most powerful computing network in the world! We’ve never had something as cryptographically secure as the Bitcoin network! In it’s early stages it’s already the most powerful computing network humanity has ever seen, with still a lot of room to grow!

Michael Saylor [14:12]: Yeah! And I guess that takes us to our next interesting question, which is: So how big can the Bitcoin network get? And how is it going to absorb more power? I’m measuring: money is power —by the way, the cliche, Money is Power, it’s not a cliche! — it’s a deep reality! Money is the highest form of power, the superset of all power. Kinetic energy?—I can take bows and arrows and guns, club you to death and take your money — take your value! With a war, I can convert kinetic energy into power. Atomic energy into power. Chemical energy I can burn and create power. Gravitational energy — dam a river and create power. And ultimately that power becomes money! But I can’t do the opposite —maybe I can do the opposite — I can take a money and I can convert it back into the other things. But money is the amalgam of all powers that mankind has managed to collect! And so the question really is: How much money, how much power can fall into Bitcoin? And there’s a lot of debate in the community. For example the most famous model is the S2F model. And a lot of Bitcoiners talk about stock to flow and it’s like, Well, as Bitcoin gets harder, its price is going up! Well I mean the power in the network is directly proportional to the price because it’s equal to 21 Million times the price! That’s the power in the network! You could almost think of it as a voltage or something too — the higher the voltage, the more energy passes through the electrical network. So I see the price as the voltage, and I think that its stock to flow is an interesting transcendental model — a particular model — as we’re moving through a short period, early history of Bitcoin, where the rate of block rewards is falling dramatically! But I think that as you look toward the future of the chain as it asymptotically goes to 21 Million and as the block rewards go to zero and the entire network flips over to transaction fees, then you start to think, Well just because it’s hard, that’s not gonna explain why it’s valuable! [16:50] It’s hard to synthesize Polonium or Uranium! By the way, it’s really hard to create steel! Really hard! Like steel power plants, if the steel overflows, it hits the concrete, it blows up — kills everybody! It’s hard to deal with nitroglycerin. There’s a lot of hard things in the world. And there’s some things that are nearly impossible — I will probably never walk on the sun! Impossible! But, the impossibility of something doesn’t make it valuable. What makes it valuable is some other dynamics! And I have a simple model, and I Tweeted this model the other day: I think the success of Bitcoin and the network power ultimately is a function of the adoption, the utility, the productivity, and the inflation. Those four. And they’re big brand concepts that are vectors, they’re not like one number — they’re ideas! But the adoption idea is: a monetary network is gonna be as big as the amount of asset holders that adopt it as their primary treasury reserve asset. So for example: if a million people with $100 each decide to HODL their $100 and they put $100 Million into Bitcoin, the Bitcoin network’s worth $100 Million! If a company $100 Million decides to HODL their $100 Million in Bitcoin, the lowbrow or the historic colloquial term is HODL — Hold On for Dear Life or just HODL or save, whatever — and the highbrow term would be, Adopt as a treasury reserve asset!

Robert Breedlove: Same thing! Yep!

Michael Saylor [18:46]: If I’m filing an SEC statement I would say, We’re adopting the treasury reserve asset! And if I was just a Bitcoin maximalist, I loved it and I got it — I’m HODLing! And that’s why I love the HODLers! That’s why they’re my people — I love them! They’re HODLing! And they figured it out before I figured it out! And I give them credit: they figured it out and that’s genius! But I’m not too proud to learn. Some other — you gotta believe, if I looked a million years ago and some dude comes up with fire, I’m like, I’m not the guy that’s gonna say, I’m not doing that — that wasn’t my idea! Could I borrow some of that fire, Sir? And thank you! Thank you, for bringing life to me! So, adoption: the number of individuals and the number of entities that adopt Bitcoin as a treasury reserve asset — not measured in numbers, measured in monetary energy in whatever US dollar equivalents, but they’re converting their fiat (Euros, Yen, Pesos, Dollars) — the total US dollar amount of fiat that is converted into Bitcoin for the purposes of holding as a treasury reserve asset! You see that the traders, the speculators — they’re short term interesting, but over the long term they don’t really have any value to the network, right? Someone that’s going to buy $1 Million of Bitcoin today and sell it tomorrow? They’re not going to drive network energy, because they’re going to rob the network of energy as fast as they fed the network. They are mercenaries! The Roman Empire was built on citizen soldiers willing to fight and die to protect what they believed in! At the point that you’re hiring mercenaries to fight and not die as long as you pay them — your empire’s over! So, the HODLers — people that adopt Bitcoin as a treasury reserve asset — they’re citizens of Bitcoin! They’re citizens of the network! And if you decide it’s 20% of your treasury reserves — like, it’s a matter of faith! How committed are you? If you really committed like, say, Microstrategy — I had $500 Million worth of money I didn’t need! I had two choices: I can buy the stock back or buy Bitcoin with it. Well I bought as much stock back as the shareholders wanted to sell to us, because that was the appropriate, respectful thing to do — to put a tender offer! And then whatever’s left, we convert! The treasury is our reserve asset, which is our reserve energy! It is our life force! Treasury is life force! It’s not unlike fat. Fat is nature’s organic battery. You carry 30 lbs of fat, that means you’ll probably be able to live an extra 60–90 days without food when the going gets tough! And so it’s an organic battery. A treasury is an organic battery. Or it’s a monetary battery for a family, an individual, a company, or a country! You have no treasury? You’re gonna die very quickly when the crisis hits! You’re gonna be insolvent!

Robert Breedlove [22:24]: In some ways, through an economics lens, I often describe this as a cash balance. Whatever you’re holding it in is basically an insurance policy on the uncertainty of the future! Because this cash balance or this treasury reserve gives you pure optionality in the marketplace, you’re best able to contend with unforeseen developments! Another thing, just to jump back to the power and money relationship, I think it’s very interesting to look at power through the physics definition. Physics defines power as work over time! That’s what gold was: it was reflective of our collective work over time, and it was a claim on that work over time in the form of capital! And the other thing—you were drawing the analogy to the vacuum sealing to protect it from parasites — I think we could all agree that work is kind of the opposite of theft, right? You don’t create any value by theft, you just steal the value of others’ work. And that’s essentially what inflation is! So, money being power, there’s a big incentive to store it in a medium that is as much protected from theft as possible! And I think that’s getting to the core value proposition of what Bitcoin represents!

Michael Saylor [23:49]: Yeah that is definitely the proposition, right? It’s an encrypted energy crucible in which we store the precious energy of life! And we’re insulating it via an encrypted vacuum layer from all the things that would bleed off or steal that heat or steal the energy, be it a political exchange or just physical — there are a lot of ways to lose the energy of life! And Bitcoin solves that problem! Now how do we get energy into this system? There are a lot of metaphors for heat exchange, and if you look at closed systems, a closed system in thermodynamics is: mass cannot leave or enter — only heat! So let’s assume that 21 Million Bitcoin is the mass—it cannot leave or enter! Heat can come! If I’m buying Bitcoin at a price higher than the rolling 3-year average, or the rolling 200-week average — I’m heating it up! And if I’m selling it at a price lower than the rolling average for whatever time frame you care about — let’s say that 4 years is your time reference frame — if I’m selling it at a price lower than the 200-week moving average, I’m cooling it down! So people see Bitcoin trading day-to-day, and they’re like, Oh it’s lower than yesterday! That’s not what I see! I see it as: If it’s trading at $10,000 and the 200-week rolling average was $7,000, I see it heating up! I see its capacitor gathering energy! And that’s a very important way to think of it. Now we come back to this issue of adoption: you can adopt Bitcoin with varying degrees of commitment. It’s like joining a religion, right? So I adopt Bitcoin as my treasury reserve asset, and then do I commit 50% of my reserves to it? Or 1%? Or 99%? Or 100%? What is the true adoption rate? How much do you really believe it? Is it a hedge? Is it a 1% hedge à la Paul Tudor Jones? Or is it a 100% commitment à la Michael Saylor? Right? I said, No hedge! No speculation! 100% commitment! Just like your body is 100% committed to storing excess energy in fat! 100% commitment! There’s no other thing! I like your analogy of an insurance policy, except that I would say: an all-powerful insurance policy with no caveats! Because the problem with most insurance policies is: I have an insurance policy on my restaurant, but it doesn’t cover pandemics! And so I’m bankrupt! Have you noticed how many insurance policies are not paying off in the pandemic? Because there’s a carve-out: Well we only insure against a — only if this happens and that happens, and if you didn’t do this and if nobody said that and if the government didn’t do this, then in that case I will give you some money!

Robert Breedlove: Right!

Michael Saylor [27:41]: If you were driving your car and you were drunk, I don’t pay the policy! If you were sober I pay the policy, unless someone says that you were erratic and I don’t pay the policy! And so that’s the problem with buying an insurance policy! If I have $100 Million of energy and I buy a $1 Million insurance policy that pays off $100 Million—if it pays off! Well that’s cheap! And I get to take the $99 Million and buy something else with it, but I’ve assumed risk — I’ve taken on counterparty risk in order to get the insurance policy. You could say that $100 Million of Bitcoin in your treasury is an insurance with no counterparty risk!

Robert Breedlove [28:27]: This I think brings up a very deep point! I actually Tweeted about this today. There’s a quote from Carl Schmitt that says, “He who gets to decide the exception is sovereign.” So there’s rules they’re all abiding by — or protocols — but whoever gets to make exceptions to those rules or protocols really has the power to act as they see fit in the world because they get to bend the rules! And that’s what is so deeply profound about Bitcoin is that it is a set of rules that we cannot break! It is an exception-proof money supply! And it’s unlike anything we’ve ever had! And by eliminating that attack vector such that any group could be sovereign over the money, it effectively makes everyone individually maximally sovereign! And that’s one of the great breakthroughs of Bitcoin!

Michael Saylor [29:24]: And that’s why it should be a treasury reserve asset! If you look at the corruption and the decimation, the destruction, in our society, and the devastation in our economy, there are two things that everyone fears: individual bankruptcy and corporate insolvency. Becoming insolvent as an individual or as an entity. How many times have you heard the story, That was a really good company, but they took on too much debt and they couldn’t make their interest and they were broken up and they closed the factories and they moved away and now we’re eat manufactured slop from a machine because our favorite vendor got destroyed. There are a lot of companies that get destroyed. How does it happen? Well they have treasuries in fiat, the fiat’s inflating, so the CFO thinks, Well I cannot afford to invest this! It’s not politically acceptable to invest in stocks or equity that keeps up with inflation. If I invest in bonds, I can’t keep up with inflation, and so I start buying my stock back, and I borrow money to buy my stock back. So if I have $100 Million in treasury and I borrow $100 Million and then I buy back $150 Million worth of stock, I get the stock up, but now my treasury is -$50 Million in net treasury instead of +$100 Million, right? So I went from having a positive position—it’s like you have enough fat to live for 30 days without food, to a negative position — you have no fat, you’re in debt, and there’s a banker that clicks on a Feed You button every day, and if the banker decides to pull the plug on your credit line, you’re instantly eviscerated! And so a company in debt with no liquid assets has no energy! It’s in energy debt! So what that means is, Maybe you generate $100 Million in cash flow a year and you’ve got $500 Million or $1 Billion in debt and you need $90 Million as EBITDA to cover the covenants. That means you have a $10 Million cushion! That means you have a $2 Million a quarter cushion! That means that in any given quarter, if you were short $3 Million on a $500 Million number, that $3 Million kicks you into default on your debt and renders you potentially — it renders your capital worthless! It can drive your equity to zero! And it can render you insolvent, you lose your sovereignty and the creditor can take control of your company — you lose everything! It’s the same as: I go onto an exchange and I’m trading at 50:1 or 100:1 leverage. The idea that I’m going to pledge 1 Bitcoin and get control of 100 Bitcoin, and if it goes down by 100 bucks I’m going to be utterly wiped out is a pretty silly idea! I would not recommend it to anybody other than an addicted gambler! If your goal is, I’m okay losing all of this—and that’s just like going to Vegas or going to Bitcoinville — if that’s what you want to do, then call it a gambling habit! But there’s nothing rational about it! The leverage could be thought of as every entity — be it a government or a corporation — is draining their life energy, pouring it out, when you flip from having a positive treasury to a negative treasury. I have drained my entity of my life force, and I’m living at the pleasure of my creditors or my counterparties, wherever and whoever they may be! I’ve lost my sovereignty!

Robert Breedlove: Absolutely!

Michael Saylor [33:55]: Individuals do it too, right? Corporations do it and individuals do it!

Robert Breedlove: Absolutely, and I think you’re plucking the thread of how the incentive schema related to fiat currency fragilizes the economy in a systemic fashion! To your point, there’s no adequate store of value, so people at the individual and corporate level are forced into the use of leverage! The assumption of debt! Because the real debt load is actually eroding via inflation over time, so there’s an incentive to take on debt. But this is a very short-sighted strategy, because now you are hyper-exposed to the inherent volatility of the future! So once there’s any form of shock—COVID or any other form of economic shock — you can go to zero immediately! You get wiped out! Versus holding cash — makes you antifragile! You can absorb these shocks! You can actually capitalize on these shocks, such that if things get priced lower in the market, you can go and acquire things at a discount!

Michael Saylor [34:57]: And in a simple world, if you had cash that was non-inflationary, if the politicians adopted Austrian economics and said we’re gonna print cash with zero inflation, then it’s simple for the citizens of the society to save in cash, and you have deflation! And the cash will actually be worth more over time! And that’s what Jeff Booth points out. But every technologist knows this! If there was no inflation, the cash would buy more over time, and my entire simple monetary strategy would be: save cash and over time I’ll improve. But in a currency war, the political system declares war on the currency and makes the cash toxic! And if it’s 2% toxic, that’s like injecting a mild drug into your veins. When it becomes 10% toxic, it’s like a poison in your veins. When it becomes 20% toxic, this is like basically saying I’m gonna put a healthy on chemotherapy, and I pump toxic chemicals through a healthy person’s bloodstream, because current — current is like blood current — it’s carrying the energy of life, the oxygen. Oxygen is energy. Your blood carries energy to keep you alive — currency is carrying energy! If a sovereign nation is injecting massive inflation into its own currency, it’s injecting a toxicity into its own circulatory system, and it’s somewhere between either — one metaphor is chemotherapy — another metaphor would be Type 2 Diabetes. I’m injecting so much sugar into your system that your insulin response is failing and you’re becoming insulin-resistant, and your body becomes diabetic and I give you metabolic disease because I am just pumping the liquidity too hard into the currency, which is the blood of life!

Robert Breedlove: Which is possibly where we are today, right? The stimulative responses by the central banks don’t seem to be having the same effects as they used to!

Michael Saylor [37:34]: Yeah arguably like, if I pump enough sugar into your body, you could become diabetic first, and then the pancreas fails and the liver fails, and you have organ failure, cancer, and death! That’s what happens if you overdose on pure sugar. I guess the equivalent would be hyperinflation. If I inject enough money in the system that the currency loses all of its energy carrying—like oxygen carrying capability? — energy carrying capability! I just lose it all! At that point the organ failure is, Now how do I buy electricity? How do I buy food? How do I get on a bus? Like all the transit systems, the food systems — how do I pay soldiers and policemen and firemen? That’s organ death of the society. That happens at hyper-hyperinflation!

Robert Breedlove [38:27]: That’s a great point! You said it loses its energy carrying capacity. And it’s also — there’s a connection here to information, because the price signals become totally disrupted! The money means nothing in that instance! So capital is not being allocated efficiently whatsoever, because prices are completely — you completely lose this economic nerve signal that we call the price signal. So it’s losing its energy carrying capacity, its information carrying capacity, and you end up with cash in the streets like we have in Venezuela today!

Michael Saylor [38:58]: The phrase, Toxic shock, comes to mind! Toxic shock! The toxic shock of the system. But, let’s move back to our happy subject! How does the Bitcoin energy network grow? Well, adoption! So a million people adopt it as their 90% treasury reserve asset and they have $1 Million each, and now you’ve got $1 Million times a thousand is a billion, a million times a million is a trillion, right? So a million millions gets you to a trillion in the network, they put the money in the network and the network is the syndication of all of the treasury energy of the people that choose to adopt it as their primary treasury reserve. So when a million people put a million dollars in it’s a trillion dollar network. When a thousand companies put a billion dollars in, it’s another trillion dollar network, so now you’re up to $2 Trillion! When a hundred companies put a billion in or $100 Billion in — you go the next level! So as individuals, families, private companies, public companies, government agencies, small governments, municipalities, states, small countries, mid-size countries, big countries, all the non-profit organizations — as they adopt this as their treasury reserve asset, they don’t need to adopt it as their currency, medium of exchange! They don’t need to adopt it as their unit of measure! As it becomes their store of value, their treasury reserve asset, as they adopt it, the network syndicates all their energy, and the decision of Apple to buy $100 Billion worth of it would accrue to the benefit of a million HODLers that bought $100,000 each or $1 Million each or $50,000 or whatever they bought! The beauty of it is that everybody is pro rata, pari passu benefiting. And it’s in everybody’s interest to bring everybody else in, right? And it’s a network effect, that as someone comes in, someone else comes in, the price moves up, the people that were in it get a benefit, and now we get to this next dynamic — with me pausing to say: without adoption, without people believing that this should be their treasury reserve asset, without that, you have nothing! So it’s not enough to say it’s just hard! People have to love Bitcoin more than they love gold, silver, Apple stock, Amazon, Facebook — whatever! By the way, we didn’t touch on it much, but if we consider Bitcoin as an energy network versus Facebook or Apple as an energy network, the issue there is: I gotta look out 100 years and say, Will I be able to put $100 Million in Apple stock, hold it for 100 years — and what’s my exposure? And of course your exposure is: income tax on the company, sales tax on their product, tariff exchanges, regulatory interaction, income tax on their employees, all sorts of other taxes you can come up with, plus many other regulatory actions including and likely being the ultimate regulation of these things as public utilities, because if they weren’t regulated as public utilities, the richest guy in every city would be the guy that owns the electrical power plant! And that guy would be richer than Jeff Bezos or Bill Gates or anything! The only reason that these guys are rich is because they’re in a new novel unregulated area that was not deemed to be important! And the problem is, as soon as it is deemed to be important enough that you can’t live without it, then it becomes a God-given right to have access to your YouTube or to your iPhone or to your whatever, and now the entire value proposition differs! I mean we live in a society right now where people think equity is the perfect store of value! What they don’t realize is: it’s possible for the equity to go to zero! For example, a nationalized power station has zero equity! It still works! When stuff gets nationalized, be it education, power, electricity, technology — the equity goes to zero! You can have something with an equity zero and the debt has value. You can have something where the equity has no value, the debt has no value, but the underlying vendors are getting paid. It can shift back and forth — it’s a political thing! So with regard to Bitcoin and the value of the network, it comes down to people making the commitment to adopt it as their treasury reserve asset at all levels. It’s just as good for us if Norway adopts it for their treasury reserve as it is some big charity as it is the Rockefeller Foundation or the Hughes Institute or Harvard or Stanford or MIT or for a private company or a public company or an agency of the government. Maybe the county or a city that you live in or the fire department or a union or a pension fund! And then there’s all the investors, right? Hedge funds, pensions funds, insurance companies! There are a lot of entities that have monetary energy. They either need it to operate or they stored it up in trust for their shareholders or for future generations, etc. So as that energy flows, the network strengthens! Now that’s the first order dynamic. It’s simple network effect. We’re syndicating our power. No different than — let’s say that there are a hundred of us in a football field, and you organize 50 people to be on your tug-of-war team, and I can only get 5 on mine, and the rest are all singletons — your team wins! If there’s a lesson of history, the lesson of history is: the most organized team always wins! Usually the Romans kicked everybody’s ass for nearly a thousand years! Because they were the most organized! When they put their petty differences aside for 700 years, they beat everybody else. And then when they started fighting with each other there’s the decay and eventually when they were disorganized, that disorganization causes a deterioration in power. So it’s the most organized that wins. It doesn’t matter if you’re in 8th grade football or whether you’re in high school or in college. Whatever it is! Organization is always critical!

Robert Breedlove: And I think you’re pointing to another strength of the Bitcoin network here! And also debunking what I would call the alternative narrative that money needs to be adopted as a medium of exchange to proliferate as a network. You do have to HODL or adopt it as a treasury reserve asset—in an economic sense — to create reservation demand for that asset. You’re taking that asset off the market. You’re reducing its supply, thereby increasing its price. And that’s what creates the bootstrapping effect, this monetization process. And that again hearkens back to this evolutionary path where you have it as a store of value first. After it’s created enough value, it can be used as a medium of exchange, because those early HODLers had more of an incentive to use it as a medium of exchange. And then finally when its been widely accepted enough, it’s being used as a unit of account. To your point about organization, HODLers are all perfectly aligned to 21 Million! It’s just the energy efficient strategy is to just HODL! It’s very simple, hard to disrupt, hard to disorganize because there’s not a lot of activity on the part of the HODLer, so it seems like an indomitable strategy in the market for money!

Michael Saylor [47:59]: That’s why, if you understood Bitcoin, you would never say something so silly as, I know when to buy it and I know when to sell it and I just trade! The people that are trading in it don’t really understand it, because if they understood it they would just buy it and HODL it! And sometimes people think they’re accomplishing something, but they’re accomplishing not that much! If a hundred entities buy $1 Billion each, then the value of the network’s gonna go up by more than $100 Billion, and if they just buy it and park it in a cyber-vault and don’t touch it for 100 years, it doesn’t matter! It’s going up! The fact that they poured their energy into the container is actually what caused the energy network to grow! The moving in and out is actually wasting and dissipating energy! You’re just dissipating energy to come and go, and ultimately the success of the thing — I hear these people, they talk about store of value, medium of exchange. Well, Bitcoin is the high frequency store of value and a low frequency medium of exchange! That’s what it needs to be and technically that’s what it is! And if you understand that, once you get it, you realize you shouldn’t fight that! So for example: I buy $1 Billion of Bitcoin. Every second, it keeps anybody from stealing my Bitcoin! Every second, it’s storing the value! No government, no parasite, no thief, no hacker is taking my billion dollars every second for the next million years! It’s working! In the same way that I put that energy into a vacuum package and every second it’s staying vacuum sealed, and the whole point was to live forever! And so if I gave you a little crypto-field that made you live forever and never age, you would say, High frequency longevity device — it works pretty well! And you wouldn’t have a problem — there’s nothing wrong with living forever! It’s immortal energy! So that’s high frequency. The problem is, people don’t recognize that every second of the day they’re being attacked. You are being attacked! Every second of the day there’s bacteria and there’s viruses trying to kill you! If I said, I’m gonna spin up a field that stops them from killing you, it’s gonna work a million years, and you’re not gonna notice it — you would think that’s a pretty good trick! But that is in fact what happens when you actually store value! Now, low frequency medium of exchange: in order for Bitcoin to have its antifragile properties and utility, we have to be able to move it on occasion. Maybe once a year I move it from one cyber crypto bank to another one, or one cyber vault to another one, or once a decade. Or maybe when I’m gonna die I need to transfer it to somebody or split it between my daughter and my son. Or maybe not, maybe I just have one key and I give it to my one child. They give it to their one child, they give it to their one child — then it never gets transferred! Maybe once a year I have to take 5% of my Bitcoin out of my vault, convert it to fiat, and then break that into 100,000 little parts and put it on Apple Pay and use it to pay for Ubers and Domino’s Pizza and credit card bills. Okay! Once a year I take a chunk out of my piggy bank, my crypto bank, and I put it into fiat, and I do whatever I’m gonna do with it — maybe! And maybe—if the world works the way you’d think it might work—I just put $100 Million into the vault, I never take it out, I just borrow against it! I just borrow $3 Million a year, $1 Million a year — tax free! I don’t recognize income, I don’t generate a capital gain tax, I don’t generate an operating income tax. If I borrow money in cash and if my Bitcoin is going up 20% a year — that’s the real yield—and I can borrow money at 5%, then my effective arbitrage is 15%! So it never makes sense to sell it, ever! In fact, if you look at people that use real estate as a store of value, the way it works is, My family buys a block in Manhattan for $10 Million in 1900. It goes up 8% a year—it doubles every 10 years. It’s worth $20 Million, then $40 Million, then $80 Million, and then $160 Million, and by the time you get out 80 years, you got a billion dollars worth of real estate in Manhattan. You’re not selling it! You haven’t done one transaction in a hundred years! All you’ve done is pledged it as collateral against the loan and you’ve borrowed $42 Million against it and you’re paying 3% interest. And that $42 Million — that’s not income! You didn’t pay 42% tax on $42 Million — that’s not income! That’s not a capital gain! It’s not a long term capital gain! It’s not a short term capital gain! It’s a liability! You’ve generated $42 Million of liabilities against a non-taxed asset. The only way it’s getting taxed is you’re just suffering from real estate taxes, right? But, if you’re in a jurisdiction where inflation is high, real estate tax is low, interest is low, then your secret to living well forever tax-free is just borrow against your stationary assets! And so that’s the news of this week: Donald Trump has $400 Million in debt and paid no taxes for a decade. But he’s not unique! You could substitute every real estate magnate, a family that had generational wealth in real estate, they all did it! All of ‘em! How do rich people live well and pay no taxes? Not by selling stuff! Not by transacting stuff! The way that they actually live is they just park an asset on the balance sheet, and they never ever ever ever trade it! They just finance it or borrow against it — and once in a blue moon, once in a decade, somebody wants to pay me triple what it’s worth — and maybe I do it, but oftentimes, the Warren Buffett school of thought is, The taxes kill you! And so the ideal holding period for an asset is forever! He says it’s forever like I’m committed to it — yeah! But it’s the taxes that murder you, and so the ideal holding period is forever because then you can pledge it and borrow against it. How do you get rich? You buy an asset, it goes up, you borrow against it to buy another asset, and it goes up, you borrow against it, you buy another asset, and it goes up, and pretty soon you’ve generated all these assets that are highly appreciated with massive built-in capital gains that you’re never ever gonna recognize! Obviously that can change in different types of jurisdictions where politicians decide they’re just gonna tax you on unrealized capital gains, but —

Robert Breedlove [56:01]: Let me ask you: How do you balance that with not becoming fragilized by leverage? Is it just kind of a threshold that you would never borrow more than say 10% of the value of the collateral — something to that effect? Is that how you protect yourself?

Michael Saylor: The fragility comes from two primary metrics: collateral coverage and the mark to market frequency of the loan — the duration of the loan. How frequently is the collateral marked to market? So for example, if you borrow money to buy a house and it’s a 30-year mortgage and if the bank says to you, they’re never gonna mark it down. Right? There’s some loans like a mortgage loan where they’ll never get marked down. They might get marked up — you can go to the bank and you can petition them to revalue your loan but nobody ever went to the bank and said, Mark my house to the market after the real estate market crashed! So if you buy a $1 Million house with an $800,000 loan, and you got $800,000 in debt and it’s never marked to market then there’s not that much fragility as long as you can make the $25,000 a year interest payment, assuming 3%, right? So that’s not that risky — I mean a little bit risky, you can’t make $25,000 and you lose it — but on the margin, if I didn’t have the million bucks or I didn’t have the $800,000 and somebody was willing to give me the $800,000 house for free, and all I did was pay $25,000 a year — I think that’s a pretty good trade off! The worst that happens is they take the house back and I go do it again somewhere else. So that’s not very fragile! How does it get fragile? It gets fragile when you buy a $1 Million worth of stock on a $800,000 loan and you’ve got loan-to-value of 80%. And now, the stock trades down 20%! And the stock trades down 20% and the banker marks the collateral every day. And if you’re in a swap with the bank, they will mark it to market every day. Every single day, they calculate the value of collateral, and if you’re under you have to wire them the money the next day! And if you’re over, they in theory have to wire you the money! And you have to mark it to market every day — that’s risky! So if you were gonna buy $100 stock, you probably don’t want to borrow more than 50%, but if you borrow 50% you damn well better think that the volatility’s not gonna be 50%! You can’t afford to! So probably in that case, if you thought the volatility was that it could lose half its value, you’d want to borrow no more than 25%! And if you wanted to hold the stock even if it loses 80% of the value you can’t borrow more than 20% loan-to-value, right? So the big risk, the hyper-risk is one of these Bitcoin exchanges that go 100:1 in leverage and I mark to market every hour! What if I mark to market every minute, Robert? I mean that the BitMex liquidation! I basically bought 100 Bitcoin, I pledge 1 Bitcoin, it gets marked to market every minute, and if the price goes down $100 I get wiped out and there’s a crash! And it happens in 3 seconds. So that’s risky. If you want to take the opposite point of view, I have 100 Bitcoin and I’m gonna borrow the equivalent of 1 Bitcoin or 10 Bitcoin in value, and as long as it doesn’t go more than 90% down, I’m good. But if you wanted to save for one, you would say, I’m gonna borrow against the collateral but I want you to agree that you won’t ever mark it to market — that’s what real estate loans are! Or a bank: I’m gonna loan you money against your artwork or against your boat or against some other interesting collectible, and every year or every 5 years our appraiser is gonna reappraise it. So the issue is the frequency of the appraisal, combined with the volatility of the asset combined with the political regime you’re in combined with the loan-to-value! If you’re in a political regime where it’s unacceptable to let real estate values go down, then you can reasonably expect that it’s not likely your house is gonna be worth 20% of what you bought it for because the politicians won’t let that happen! But they might not protect your Picasso painting! So if I borrowed money against a Picasso painting and the banker said we’re gonna mark it to market every month, that’s not as good as once a decade! So when you’re thinking about risk, you’re thinking about, How liquid is the collateral? And how frequent is the mark to market? And then how much is the loan-to-value? And that’s how you get to a question of risk and what you should do and not do! I’m not saying you have to do it, by the way! You could just sell the Bitcoin highly appreciated for cash, pay the tax, and take zero risk! And look, if the interest rate was 18% and you thought that the economy was gonna grow at 3–4%, then you would sell and you wouldn’t take on the debt! So it’s a function of interest rates as well, and productivity. Let’s go back to this issue of our power equation: adoption, utility, productivity, inflation. We talked about adoption, and my point there was you’re just syndicating — if the world was static, in a static world where there’s $1 Trillion of assets, if you get $100 Billion on the network then that’s better than $10 Billion! And $500 Billion is better than $100 Billion! And in a static world it’s just all about recruiting and getting people to join the network. But the world is not strictly speaking static! The next thing is dynamic, and technology is what makes it dynamic! And that’s where utility comes in! So if I can take Bitcoin and I can buy it from Square Cash, it’s got more utility! If I can send it as $22 — if I can send it from Square Cash — if Square will convert my Bitcoin into dollars and send it in a split second, it’s got more utility! If Apple Computer builds it into Apple Pay, and I can link a small wallet with 1% of my Bitcoin into Apple Pay and I can zap that around on my iPhone, it’s got more utility! If Kraken creates a crypto bank and they offered me 4% interest and they’ll offer it to me with institutional low-risk counterparty and they represent to me that they’ve got $100 Billion of insurance and I can give them my crypto wallet and I get 4% interest on it or 6% and I trust them, the utility just went up again, and Bitcoin becomes more valuable! If I get to the point where I can manage my crypto keys using my retina scanner face ID and give speech instructions and I can say, Send Robert $37 of my crypto in cash — and if it always works and I just did it and it’s more secure than a hardware key and I don’t have to remember my 12 [word] seed key or whatever and it never fails — utility went up! Right? If I can say, Robert — maybe I’ve got a girlfriend, Lisa— I could say, Send Lisa flowers on her birthday every year for the next decade — click! And it’s jacked into my crypto—utility went up! There’s a lot of ways utility can go up. Buying stuff, selling stuff, etc. It’s all a function of technology. If the Lightning Network works. In the ideal world, back to my example, I have X money — $10 Million — I have $100,000 in my checking account. I say, Move $100,000 in checking, leave the rest in the bank yielding 7% interest — tie my checking account into Apple Pay, link that to my Uber account, my sister’s Uber account, my Domino’s account, and use it to pay off Netflix, Google, this, that, and the other thing, and pledge it as trusted collateral on some dating network to show that I’m a real person, and then use it to automatically pay all my fees on my domain registrations every year when they become due. There I just set it! I just did it — that’s utility! That’s [what we’re looking for! 1:06:09]

Robert Breedlove: It’s connecting it to productivity, right? It’s enabling you to accomplish greater results with the same or less efforts! So the utility is a reflection of your productivity!

Michael Saylor [1:06:21]: And that’s a great segue to element 3 of the network power, and that’s productivity! Well we have a million HODLers and they put $1 Million each into the network and now we have $1 Trillion in the network. Adopting it as your primary treasury reserve assets means sweeping your excess cash flows into Bitcoin, so those million people put $1 Million each, but how much money do they make each year, and how much do they save each year? So let’s say they make $100,000 a year, and they save $10,000 a year. So $10,000 times a million — $10 Billion! So in that case $10 Billion in fiat gets converted into Bitcoin every year! That’s the productivity! If they all get a raise — next year it’ll be $11 Billion. The next year it’ll be $12 Billion. If they all start their own business, the near year it’ll be $30 Billion. If the economy’s growing and they’re inventing cool stuff and one of them becomes the next Michael Dell or Bill Gates or whatever, that person’s gonna put in $100 Billion or $50 Billion! If you get lucky and one of your HODLers is Jeff Bezos he’s gonna put in $37 Billion! So the productivity of the individuals is going to sweep cash flows into the network. And the same is true with the productivity of the corporations! So Microstrategy, we put $500 Million into a network, we make $50 Million a year. If we generate $50 Million a year after tax, we sweep that into the treasury, right? And do that 10 years in a row, our initial $500 Million is going to become $500 Million more of discounted cash flow! So now we’re just back to some basic finance theory: What’s the value of the stock? It’s equal to the balance sheet cash value plus the discounting of the cash flows. The discounted value of the cash flows over time! So, the treasury that gets put in is the initial slug, and the discounted value of the cash flows of all the people in the network is the next value proposition. Of course, this kind of dovetails nicely with economic theory, because if the overall worldwide economy is flat and not growing, then the cash flows are not gonna grow! If the overall economy tanks and starts to deteriorate, the cash flows will deteriorate! If I destroy the economy, cash flows are going to zero, no value will accrete! And if I invent an atomic overthruster that gives you infinite energy in a sugar cube, presumably productivity is gonna go through the roof and cash flows are gonna go through the roof! So ultimately we’re getting a bunch of people to join the network and then all of our fates are intertwined with all of our productivities! We’ve created a cyber economy! Just like Warren Buffett said, Never bet against the United States. The United States was a 20th century physical economy and every business in it was working to the benefit of every other business in a competitive capitalist Darwinian ecosystem. Well now we’re actually creating a cyber economy where you can be in a relationship with anybody else to the extent that, Robert, you adopt as a HODLer and I adopt as a corporate treasurer! If I’m successful, you benefit! If you’re successful, I benefit! Obviously, if we can get Apple Computer to put $100 Billion in and then sweep $50 Billion a year, we all benefit! And when a country does it, they benefit. And of course, if the people that join the network are more responsible, if they actually are productive and they save more than they spend, or they earn more in revenue than they spend in cost, then the network grows. And if they spend more on revenue, flip it the other way — a million HODLers all of a sudden save their money and then they start going crazy and partying and quit their jobs and buy Lambos and blow it all on champagne and gambling, they start drawing down their balances in the Bitcoin network and they sell their Bitcoin for fiat! And if they’re selling it for fiat they’re draining it out of the network! So the network is going to accrete with virtuous economic behavior and debase and dilute with vices!

Robert Breedlove [1:11:18]: I love the example that you use of the United States as being this Darwinian economic ecosystem of value creation! Because it was indeed a place in the world with the lowest impediments to free trade that actually led to America creating the most wealth and the most capital. And in many ways I think Bitcoin positively embodies a lot of the founding principles of American free market capitalism. You have inviolable property rights in Bitcoin, which in the American ecosystem actually marginally disrespected through Quantitative Easing and fiat currency printing. There’s a rule of law here in the US, so we have non-violent dispute resolution and enforcement of contract law, and clearly the Bitcoin network is the most adept network at reaching global consensus we’ve ever created! And then kind of from the first view, honest money or hard money would be something else that a real capitalist system puts out. So it’s almost as if America as an experiment was the closest thing to pure capitalism we had prior to Bitcoin. Because again the nation state always gives in to that temptation to violate the money supply and thereby violate the private property rights of the citizens.

Michael Saylor [1:12:46]: Now Robert, you jogged my memory, or jogged my thoughts. I’ve described Bitcoin as a swarm of cyber hornets behind a wall of encrypted energy. Well the United States is a swarm of military assets: the navy, army, and air force, behind a wall of water! The insulation is the Pacific Ocean, the Atlantic Ocean! 3,000 miles of water — you have to go through the army, the navy, and the air force, and that protected a bunch of capitalists, a bunch of entrepreneurs. In service of the goddess of wisdom, in this case in service of the American way! The American businesses pursuing the American Dream unhindered by interruption because they’re behind a wall of water. You know if you go to Poland, they’re good people too! I’ve been there! I have a lot of Polish employees — they’re brilliant! Between Russia and Germany. Again, Trotsky’s point, You may not be interested in war, but war is interested in you! It’s kind of hard to go about your business when people are rolling over you with tanks this way and that way. And the equivalent of that in a monetary system or an energy system is with someone stealing your energy! Okay? How do I keep my coffee warm? I put it in a thermos! I need to insulate my energy so that no one steals it! If I take your Starbucks coffee and I put it in a cooler of ice and I drop it in the ice your coffee’s getting cold! And so the wall of encrypted energy is the insulator. The wall of water is the insulator. The insulator is the insulator. The vacuum is the insulator. If you want a crucible of virtuous innovation, you need that vessel that serves as the insulator against all the forces that would attack it from without or [within] from fear with this process. And that is Bitcoin, right? We’re creating that! And having said all that, right: adoption, utility, productivity — those three things create that monetary chemical reaction of sorts. And the last piece is inflation. But inflation is almost just the way that we translate the energy — it’s a translation coefficient of the energy into a frame of reference of the dimensionality or the domain where I’m spending it. I mean, I’m gonna have to translate my monetary energy into Rubles or Pesos of Dollars or Euros of Yen if I cross into one of those domains, because it’s their world, not our world! So if the Dollar didn’t inflate, then would Bitcoin go up? If the United States had a perfect monetary policy — no inflation — could Bitcoin succeed? Yeah! It could succeed! If people adopt it — because it’s got technical advantages, right? If they adopt it as a reserve asset, I mean their choice is that versus stock versus bonds versus property — you still have the issue of: How do I commute energy through time and space? So I would still adopt it! Technology will still get better! I mean if there was no inflation you would still like the iPhone. You would still like Zooming to me if there was no inflation! Technology would get better, and we’d have productivity! We’d be inventing stuff: fusion, better materials, etc. And when we created stuff like Zooming and we put together Zoom with YouTube, we would talk, and someone would put it up on YouTube and 100,000 people would see it and 3 people would have an idea and something would happen that wouldn’t have happened otherwise! You don’t need inflation for Bitcoin to be successful anymore than you need it for Google or Apple or Amazon to be successful — it just happens that in an inflationary environment it accelerates — 2% inflation will grow it 2% faster, 10% inflation will grow it 10% faster — in theory if a bond is pure energy and if bonds are inflating at 20%, then that means that Bitcoin will have a 20% real yield in that currency where you see that energy inflation! And it’ll be different relative to the frame of reference of every single domain or every country depending upon how they choose to manage their currency. They could in theory — I could peg the Dollar, like in Singapore or the UAE I peg to the Dollar. I could peg to gold. If I peg to gold, it’ll be a 3–4% differential. If I peg to the Dollar it could be a 10–15% differential. If I peg to the Peso it could be a 32% differential. So all of the value of Bitcoin relative to the people in the ecosystems in the domain will vary! And of course, that’s why if I’m in Lebanon or Argentina, this is even more insanely valuable to me than if I’m in Switzerland!

Robert Breedlove [1:18:48]: Absolutely! I would just maybe add that 2% inflation would increase adoption say by 2%, but as you increase the inflation rate, I think it would actually be non-linear, because if you take the extreme example of hyperinflation, everyone would pile out of their currency into the Dollar or into Bitcoin — something that was more reliable, such that, as you increase from say 2% to 10%, people’s inflation expectations actually increase, which gives them further incentive to move into Bitcoin or something alternative.

Michael Saylor [1:19:24]: It’s multivariate, non-linear, and one dynamic is: Hyperinflation panics people into it, high inflation pushes them into it, low inflation encourages them into it, but we’re marking the value of the Bitcoin to all the assets — the tangible assets, all the products and services and assets in the domain which is being inflated — and that’s also having a frame of reference impact. So the frame of reference changes literally when it’s $1 Million for a cup of coffee — Bitcoin’s gonna be worth $1 Billion, right?

Robert Breedlove: Yeah. That is the Number Go Up technology!

Michael Saylor [1:20:09]: So it becomes powerful in that regard. So each of these four effects — I haven’t written them out as a formula or equation. If I was writing it I would be writing: f(adoption), f(utility), f(productivity). Because in fact, they’re all vectors that are all the time dynamically varying across many dimensions. Each of these is a general idea and they all convolve with one another in order to drive network power. But when you take them all into affect, then you just realize Bitcoin is this energy network! It’s gonna gather energy and as people perceive it, they will adopt it, as people adopt it they’ll want to integrate it with more utility, as they do that it’s natural we can expect human productivity will increase, we can expect technology to advance. If we only have 0.1% adoption, it’s like having all of the gas in 1% of the chamber and I take away the barrier. You could expect it will — it’s not getting less! The genie is out of the bottle! The genie is going to expand! And then betting on some governments to inflate is not a highly risky bet.

Robert Breedlove: That’s a good bet!

Michael Saylor: Probably you will get that! And that is Bitcoin network power dynamic. That is the dynamic there, and everybody that’s marketing Bitcoin, they’re contributing to it. Everyone working on Bitcoin technology is contributing to it. Everyone simply HODLing Bitcoin is contributing to it. Everybody that hates it, or everybody attacking every other asset or every time another asset fails or another currency weakens it contributes to it. And then just the relentless passage of time contributes to it.

Robert Breedlove [1:22:23]: I think this is a brilliant and unique way to look at the network effects of Bitcoin! And I also find it interesting that at the center of this vortex is the highest expression of truth we’ve ever had! Bitcoin is literally this system of converting energy into indisputable truth about who owns what UTXOs, and the 21 Million again is kind of like the third certainty in life. We’ve had Death and Taxes, and now in the socioeconomic sphere at least we have this number 21 Million we know that can’t be violated. And that’s what’s spurring all these effects!

Michael Saylor [1:23:01]: Bitcoin is a cyber economy based upon the principles of truth, respecting the laws of thermodynamics, respecting Newton’s laws. If you’re gonna worship the goddess of energy, you better respect the laws of conservation of energy! And it is that conservative monetary energy system. The first conservative monetary energy system that we’ve ever invented—anybody can choose to be a member: any individual, any family, any company, any government, can choose to become a member of this closed energy system. And conservative energy is truth! It starts with this simple principle: energy can be neither created nor destroyed! You could lose control of it! You have it — you could lose control of it and it can dissipate and you can lose it! And so that doesn’t mean you can be lazy or sloppy. You have to channel the energy! But Bitcoin is the best system in the history of the world for controlling, storing, and channeling energy, and that’s why it’s destined to be successful!

Robert Breedlove [1:24:24]: I love — I’ve never heard it put like that! That conservative energy is truth! That ties it back to how we started this conversation of the eagle dragging the goat off the cliff side: it’s employing the least energy necessary to accomplish the greatest result. And that’s what you want to bet on. That is the winning strategy on which you want to bet. And it points towards the kernel of all economics, which is: scarcity gives things market value. Scarcity is the driver of market value. Things that are hard to obtain and have utility are what give them value in the marketplace.

Michael Saylor: The ultimate scarce asset in the universe is energy! You can’t create more of it! If I give this much to you, you can’t wiggle your fingers and make it twice as much! If you lose it, it’s gone! And you can play all these games and thermodynamics — it’s a great field because everybody thinks — they’re all looking for that perpetual motion machine. The laws of thermodynamics, we used to paraphrase them at MIT in a snarky way, we’d say, You can’t win, you can’t break even, and you can’t get out of the game! The laws of thermodynamics! It’s like, from a layman’s point of view: You can’t cheat! There is no cheating in thermodynamics! It might look like you got something for nothing — even Maxwell’s demon. He posed, Maybe I could actually fight or reverse entropy and get order from disorder by dividing a chamber and I have a demon and there’s a little door and molecules are bouncing around, and what if my demon opened the door when the molecule bounced from the right to the left and closed it before the [molecule] bounced from the left to the right? I could over time with randomness get all of the bouncy molecules on one side of the chamber and I could reduce entropy. And they couldn’t figure that out! They called it Maxwell’s demon. Well what’s wrong with that argument? Doesn’t that break the laws of thermodynamics? And the answer came along 100 years later when some IBM computer scientist pointed out that information is building up in the head of the demon, and the information is in and of itself creating entropy, and so no you’re not cheating! Once you actually account for all the information, disorder, and energy in the system, it did respect the laws of thermodynamics! You can’t cheat time. You can’t cheat space. There is ultimately conservation! And Isaac Newton — all of Newton’s laws: conservation of mass, conservation of energy F = ma, it’s the basis of physics, the basis of mechanics, the basis of every machine we’ve built that works, it’s the basis of all of our heat exchange, and it hasn’t been —I mean scientists and engineers don’t have a high opinion of economists. And one of the reasons why is that it hasn’t been important for economists to understand closed systems, isolated systems, servomechanisms, conservation of mass and energy, E = mc⌃2. E = mc⌃2 matters! What it means is: If there’s mass, it becomes exponentially expensive to move it around. E is the energy! You wanna move stuff fast? You need to take the mass to zero! And that’s how you move stuff fast! So economists, maybe what they were doing didn’t matter before Bitcoin! You could say, maybe Bitcoin is the first time that technology crashed into economics! You have energy, you have technology, you have math crashing into economics and now you couldn’t really be a competent economist without appreciating closed systems, energy efficiency, math, conservation of everything!

Robert Breedlove [1:29:01]: Yeah! Another thing this calls to mind and maybe a unique way to look at Bitcoin: We can’t break the laws of thermodynamics. Those are the rules of the game within which we are operating in physical reality. And Bitcoin in a way maps onto that system very nicely, because it gives us an economic system in which we cannot break the laws. It perfectly respects and aligns itself with the laws of thermodynamics in the economic sphere! And another thing this made me think of was — this was a framework I got from you on inflation — was that, CPI is low, but everything you want is inflating rapidly. You could probably plot that on a spectrum as, The things that are more energy intensive to create are inflating more rapidly, and the things that are created easily are tweaked and controlled and dumped into that CPI bucket!

Michael Saylor [1:29:56]: Because the laws of thermodynamics apply even if you don’t wish they did! You can’t get out of the game!

Robert Breedlove: No free lunch in the universe!

[END]

Commentary:

Robert Breedlove [1:30:15]: Alright guys! That was Episode 5 of the Saylor Series and, man! What a big episode! We hit on some major concepts today! I just thought it was super interesting, as always! Mr. Saylor brings the heat! I think first of all we talked about how fiat currency is basically implemented as a means of augmented the portability of gold, because gold is heavy and physical, it’s difficult and expensive to transact it across space, although gold is really good at holding its value across time and has a high relative scarcity. But the point there that Saylor brought up was, Although gold-backed paper currencies were great at moving value across space — that was their purpose of introduction — they actually suffer because they have all of these frictions between different regulatory and intermediary environments, such that when you try and move cash from say China to the US, you hit different types of capital controls and whatnot. So it can be very expensive and cumbersome to actually move fiat currency across different jurisdictional domains which actually inhibits its original purpose, which was to increase the portability of money! And I like the analogy he drew with a boat: If you consider that the moving value across space function of money is something like putting goods on a boat and selling it across the sea, he’s saying effectively that gold was dingy—very unlikely to move value across space well, whereas fiat currency might be something more like a wooden ship — a little bit better at doing that but still not idea, whereas Bitcoin is actually like a steel ship — it’s an extremely strong protocol and as long as you maintain the steel by painting it it’s basically indestructible. The analogy there being: So long as Bitcoin is maintained by the mining network — which generates its revenue through the block revenue and the transaction fees — that essentially makes the monetary network itself self-reinforcing and indestructible in a lot of ways. And then the last analogy is that steel is super repairable! If you weld a steel plate onto the hull of a ship, the weld actually has a higher tensile strength than the original steel itself, which I think again analogizes [to] Bitcoin, is that: It can absorb superior competitive features from the marketplace, so it can actually repair or improve itself in a way that makes it even stronger than its original form. So that was a great analogy! And the other one that I liked that we touched on was the vacuum sealing of food, which if you think about it it’s just a way of restricting the stored energy — whether it’s food or money — from contact with entropy of the environment. In the case of vacuum sealing, we’re removing all of the air — all of the microorganisms that might exist in that air, water, or moisture — from the package itself, such that none of them can attack the energy content stored therein. And the analogy there being: Getting the entropy or uncertainty out of the monetary channel. We can think of the SHA-256 algorithm as an encrypted vacuum sealing of the monetary energy stored in the Bitcoin network. So it gives it this super-high resistance to impurities or uncertainty or nefarious actors — it doesn’t even have to be nefarious necessarily depending on your perspective on central banks—but it gets the uncertainty out of your money! So it gives it this energetic vacuum seal, so I thought that was a really cool analogy too. [1:34:38] And we talked about money being power. And that money itself is this superset of all power that humans have been able to create in the world. Again the physics definition for power which I really liked — because it ties back to the importance of proof of work — power is the capacity to do work over time. So to be able to apply force over distance over time — that’s what power actually means. It makes sense that we would generate power, or be able to allocate energy into a power storage network through proof of work. That’s what gold mining was, and that’s what the mining expenditure related to Bitcoin is! So we think of money as this amalgam of all the powers that human beings have had over time and looking at Bitcoin through that lens, we see that the power of the network — which was another analogy that Saylor used was the voltage in a closed source system — so the supply of Bitcoin doesn’t move, but the amount of energy stored in the network is the only thing that can be increased! So it’s a perfectly closed system that mass can neither exit or leave, but only energy can be added to it! In that way we can think of the power of the Bitcoin energy network as its price, effectively. We dug in a little bit in that and talked about stock to flow model and Bitcoin supply issuance. It’s not actually the supply that is driving the value necessarily — as we go into later — it’s more a function of its utility. Because as Saylor said the impossibility to produce something is not what makes it valuable, it’s actually the impossibility of producing something that already has relevance to someone’s goal-directed action! So value is this subjective quality where if a particular object or even a service or a piece of knowledge is relevant to you accomplishing the aims of your goal-directed actionif it’s an accelerant for you towards you achieving your goalsthen we can say that thing has value! Even if something is an accelerant towards you achieving your aims — say like oxygen, we all have the aim of breathing and surviving — it doesn’t actually have a lot of value because it has no scarcity! So the scarcity can amplify the value, but the value itself is actually a function of the individual good, service, or knowledge’s relevance to your goal-directed action. So we actually put it in these buckets of what actually defines the monetary network value of Bitcoin. And he classified it as: adoption, inflation, utility, [and productivity]. And I loved this quote he used. He said that Bitcoin is, “An encrypted energy crucible in which we store the energy of life.” So we touched on it repeatedly in this show that money is life force. It’s this meta-energy that allows us to access essentially any other form of energy that’s available in the marketplace. [1:38:08] And in that way we need a system that maps onto the scarcity of the thing that it represents, if that makes sense. So in thermodynamics, energy can neither be created nor destroyed, so it makes sense that the money which best maps onto that will become naturally selected in the marketplace! And then we went into another definition of money—and this is one I’ve used several times. I say that, Money is an insurance policy on the uncertainty of the future. The ineradicable uncertainty of the future! No matter how much technology advances, we’re never going to get rid of uncertainty! Uncertainty itself by the way is another expression of entropy! We live in a universe pervaded by entropy, and in fact entropy is the only thing that defines the flow of time in the universe. Everything — often these processes are symmetric — but the one thing that imparts a directionality to time is this flow of entropy: things left unmaintained becoming increasingly uncertain or breaking down or more chaotic over time. So money, since it gives us pure optionality in the marketplace — it’s like, no matter what unforeseen consequence we encounter, money is the best tool for dealing with that uncertainty, because it gives us a claim on the collective savings of the world! So we can access whatever it is we may need—assuming it’s available in the marketplace—to resolve that uncertainty when we encounter it. And Saylor made a good caveat to this analogy because he said that one thing about an insurance policy is that it carries a lot of counterparty risk. So even today we’re sitting in 2020 with this global pandemic striking, many insurance policies are not being paid out because it had exclusions for a pandemic or other force majeure I guess they call a lot of them. So we could say that Bitcoin is actually even more valuable than just a standard insurance policy in that it’s a non-counterparty insurance policy! It’s a money that does not have any political exposure to pay out. So if you’re holding cash in a form that can’t be confiscated, inflated, stopped, then no matter what eventuality you encounter or what circumstances you encounter in dealing with the uncertainties of life, you have a pool of pure capital optionality with Bitcoin! And that cannot be said for any other asset! There is no other money that can provide you that degree of assurance! [1:40:53] I mentioned that quote from Carl Schmitt that, Sovereign is he that decides the exception, so this really important because by totally removing counterparty risk from money, Bitcoin has removed all exceptions from money or the monetary policy if you will. And by doing that, you’ve taken away the ability to make exceptions in the game of Bitcoin, so all of a sudden—Sovereign is he who can make the exception — if no one can make the exception, then no one’s sovereign so there’s no sovereign over participants in the network, which means you’ve maximized the individual sovereignty of all network participants! And this is something that’s really radical! You really have to think about this for a long time! Again we could define sovereignty somewhat simply as just, The authority to act as one sees fit. The ability to conduct an action consistent with your purpose of aims. And Bitcoin’s the only money in history that maximizes our ability to do that! As I argue in one of my latest pieces, Bitcoin is Hope, that Bitcoin is money purpose-built for entrepreneurship. It maximizes not only their sovereignty but also their accountability, and their ability to engage in adventure! To engage in business dealings and taking on risk to try and solve problems for the market and generating value in the process. So I thought that was a really interesting way to look at it. And then we got into debt, and I love the way he described debt as almost an anti-energy, where you’ve actually, instead of having this capital cushion against uncertainty, that debt actually can amplify the negative consequences of encountering uncertainty! Now it can also be used to enhance the positive consequences! That’s what leverage is, that’s what amplifies gains or losses, but it tends to be a poor strategy over time, because the one thing that’s unavoidable in an entropic universe is volatility. It makes positive volatility more beneficial, but it can make negative volatility cause you total destruction. It puts you at risk of ruin, which if you’ve any of Taleb’s work, it’s just the number one thing we all must avoid! We got into some specific examples of how fiat currency — because it’s depreciating over time and large corporations have access to really cheap loans, it’s actually incentivizing them to take negative treasury positions! To borrow money on the market at low rate and buy back their own stock, because again you would expect that the scarcity of that stock and the performance of the underlying capital tend to outperform the borrowing cost in a market where the cost of borrowing is suppressed by central banks, effectively. [1:44:13] So this puts corporations in a weird position because the incentive structure is such that it’s causing them to fragilize their own business model into — instead of having a positive buffer against uncertainty in their treasury they’re actually carrying negative treasury balances — which can make them subject to their creditors! The wishes of their creditors, which again — Sovereign is he who makes the exceptions. All of a sudden, by marginalizing your own capital position and putting yourself in the hands of creditors you’ve now given away your sovereignty in the world to your creditor, and taken it away from yourself and your shareholders. So I thought that was brilliant as well! And then we went into the politics of currency, and this is another way to look at the importance of Bitcoin is that people for years have talked about getting the money out of politics. If we get the money out of politics that would make for a more fair equitable system, but Bitcoin’s gonna flip that on its head! If you’re getting money out of politics, that would require legislating away human nature somehow which in a way that’s not possible! What we would do instead with Bitcoin is just get the politics out of the money. All of a sudden we have a money that can’t be manipulated or confiscated based on political will. And Saylor’s analogy here is that politics actually toxify the currency. And we could think of Quantitative Easing or monetary inflation is actually like putting a healthy individual on chemotherapy just to enrich the physician — the physician being the government! The physician is administering this “medicine” to the patient, but the patient — being the productive economy — doesn’t actually need it! Quantitative Easing again is not infusing any new value into the economy, it’s just reallocating it away from those holding the fiat currency as a store of value to those holding assets that inflate: typically real estate, stock, reliably scarce assets. So the other part of that is that over time this analogy holds because like even sugar or drugs like maybe heroin or chemotherapy — it loses its efficacy over time! So the stimulative effects of fiat currency inflation actually diminish over time as well! And that’s what we’re seeing today in 2020 is that central banks have pushed all the levers to the metal so to speak and they’re getting very little economic response as a result. And through that biological lens we can consider hyperinflation as being a form of socioeconomic organ failure or a toxic shock where all of a sudden these energy centers—in the form of our institutions or economic networks—the life blood that flows through them in currency has been so diminished in terms of its informational energetic carrying capacity that the institutions start becoming unraveled! People can no longer interoperate between themselves and between these institutions. The trust that maintains the social cohesion is basically diluted along with the currency! I thought that was a great way to look at it as well. And then this — I just think this is just a wonderful argument — this next point — on how to just diffuse anyone’s counterpoint to Bitcoin! Assuming they have a relatively sophisticated understanding of a store of value function—and it’s just a very simple thought experiment: How do you store value effectively for 100 years into the future? How can I store value today in the most lossless way to transmit it 100 years into the future? So we could say, Alright, what’s being used today as a store of value? FAANG stocks or other high-performing equities! They’re being used today — why not those? So the problem with those is that clearly by owning an equity you’re taking on industry, regulatory, and counterparty risk. There’s not really many equities you could’ve invested in 100 years ago that would still hold their value today! Maybe none actually—I could be wrong on that! But very very few, so you’d have to be the stock picker of the century so to speak for that to work. So you’d say, Ah well let’s look at something like real estate! Real estate also suffers from all of those issues! It does have reliable scarcity but it’s an asset that’s out in the open, it can’t be hidden, in the event of a war or an escalation of property taxes or even just outright confiscation as in the US with Eminent Domain — your property could just be taken away completely! Even if it worked perfectly, say you’re paying a low property tax rate of 2% a year, you’re still getting cut in half every 35 years! So that’s not a very effective way. So historically the most trust-minimized asset or trustless store of value was gold. But as we covered in the last episode, gold has 2% inflation per year. If you’re trying to circumvent the counterparty risk related to it you need to move it every quarter or every few years. That can be another 25 basis points to 1% per year. So now even looking at gold as the hardest economic store of value historically, you’re talking about getting cut in half every 22–35 years, and over a 100-year period you’re approaching a 90% loss of value. You could say fiat currencies — the US Dollar! The US Dollar is strong today, but I would argue that there’s scarcely a worse choice than that! That is the wealth storage medium that least holds its value over time. I think your best case of holding a fiat currency for 100 years — at least the past 100 years, say in the US Dollar you’re above 99% total loss of value — and that’s if you pick the right currency and yours doesn’t hyperinflate or is invaded by another country and deauthorized or whatever it may be. So you’re somewhere between 99%-100% loss of total value in fiat currency. So what does that leave you with? It leaves you with Bitcoin! There’s only one store of value that is totally free of counterparty risk, has a fully diluted or a universally transparent and predictable supply schedule — so we all know the inflation, there’s zero unexpected inflation — and it can be stored in any number of ways in these custom, ultra high security custody schemas like multisig and things of that sort! So I think if you just zoom out on the store of value argument, it’s a clear winner! There’s just not even competition! I mean your second best choice is maybe I guess gold or possibly real estate, and you’re still looking at — say in the case of real estate, if everything went perfectly and you only had your 2% property tax per year, you’re looking at an 87% total loss in 100 years! Whereas Bitcoin you have essentially 0%! It’s not that Bitcoin doesn’t have inflation in the system, but the inflation is a fully-diluted cap table if you will. Everybody knows what it is! So you’re playing off of 21 Million even though only 18.5 Million Bitcoin have been issued so far to date. So I thought that was brilliant! A great way to look at it. Zoom out! In the store of value area, Bitcoin is — undisputed — the best contender! I mean the one argument against it would be that it’s new! It’s only 12 years old, so how could argue that it’s gonna last for 100 years — and that just comes down to faith and the existing track record of Bitcoin and the protocol and the math defending it. So it’s not a surefire bet, but assuming Bitcoin continues to function in the same flawless way it has to date then it’s not even a contest! Bitcoin is far and away the best store of value! [1:52:55] So that goes into a discussion about history, and Saylor made the point that the greatest lesson of history was that the most organized group of people win. Clearly, right? We are more than the sum of our parts when we can coordinate our efforts! And again, by getting the politics out of money, Bitcoiners are essentially perfectly aligned! We can compete and fight amongst ourselves and argue and all of these things, but the one thing that doesn’t change, that’s not subject to politics, is 21 Million, no confiscating, only private keys can generate and spend transactions — these fundamental rules of money that are not subject to politics enhances the cohesion of Bitcoiners, effectively. And so that’s another perspective on why Bitcoin wins! It’s just gonna have a more organized, more disciplined human force behind it! And the way it — I Tweeted this the other day — and this gets back to the Sun Tzu thing, Territory is the most decisive factor in determining the outcome of any battle. And as Bitcoiners, the moral, intellectual, and philosophical high ground that we occupy is virtually unassailable! So in my mind that’s why we win! We are operating from a place that is the most protected and gives us the most optionality against all competing systems, and therefore that causes Bitcoin to outcompete all of the other systems over time! That’s just Darwinian. And then going back into the SOV store of value versus medium of exchange argument, Saylor had a brilliant way of describing this, that, Bitcoin’s a high-frequency store of value and a low-frequency medium of exchange! So that every second you’re holding Bitcoin, it’s performing its function! Anyone that’s saying Bitcoin doesn’t have utility, they don’t understand inflation. They don’t understand store of value. Because every second you’re holding Bitcoin and it’s adhering to that fixed and diminishing supply schedule and you’re storing it in a custody model that’s really difficult to confiscate or to corrupt, it’s performing its function! It’s storing your monetary life energy in an encrypted vacuum sealed container! And one of the things he said there was, In the sphere of money, Bitcoin is immortal energy! We’ve never had anything like this! And this too got into how preserving this wealth will impact Bitcoin’s relationship with fiat currency. So Bitcoin — which is historically yielding about 200% annually — if you can go out into the market and borrow at 5%, you have an incentive to never sell! You have an incentive to just keep accumulating Bitcoin and borrowing up to these intelligent thresholds, of ideally never being marked to market, and having favorable loan covenants. The incentive is to borrow, and acquire Bitcoin! Again he analogized this to how generational wealth is handled, where a lot of families just own, say, a block of New York City, and they just borrow against it little by little over time. So Saylor’s point is, In the sphere of money, Bitcoin operates as this immortal energy. And the incentives related to Bitcoin are interesting because historically it’s been yielding say 200% annualized return, so if you can go into the marketplace and borrow let’s say 5% or anything below the annualized return, then you actually have an incentive to do so! To actually go out and borrow and acquire more Bitcoin! And more recently — this was recorded before Saylor’s latest announcement most recently —he actually used Microstrategy’s balance sheet to go out and raise some convertible notes and do this very thing! Where he can borrow at a rate below Bitcoin’s expected annualized return, and he’s using it to acquire additional Bitcoin! And this points toward something really interesting: Pierre Rochard wrote a great piece about this years ago. I think it’s called Speculative Attacks. And so what’s effectively happening is that, since Bitcoin tends to outperform broader investment indices, and since debt and interest rates are being artificially suppressed by central banks, this opens up an attack vector on the fiat currency itself where market activists can go out into the marketplace, borrow fiat, and then actually sell that fiat to acquire Bitcoin! And if you do this at scale, this can actually induce inflationary pressure on the fiat currency undergoing the speculative attack. So this is to say: Saylor’s recent move with the convertible note play is in some ways a speculative attack on the US Dollar! So again it just points towards how the economic principles underpinning money and the incentive schemes related to both fiat currency and Bitcoin sort of all point towards the ultimate success of Bitcoin in the long term! Then we got into the utility of money. It was another one of these factors that drive Bitcoin’s success. And the general point here is pretty straightforward. It’s: Bitcoin is extensible. Meaning, it’s protocol is adaptable. You can add other features to it, you can build businesses on top of it, you can connect APIs to it. There’s a great degree of programmability that Bitcoin enables that something like gold just does not! Gold is this dumb rock that essentially just sits in a vault and provides assurances of supply scarcity, but offers none of the feature sets that Bitcoin enables! And looking at it as technology, we can also say of fiat currency, it suffers because it has these technology backdoors in the form of issuers being able to inflate the supply and steal wealth from everyone else. Whereas something like gold or Bitcoin does not! It has these backdoors closed! And this spins up a number of interesting possibilities with Bitcoin which Saylor went into in a little more detail, but basically, by interfacing this base monetary protocol that we call Bitcoin with digital technology, we now gain a huge degree of customizability and unique ways to channel our will or intent across time and fund it in many unique ways. And you can do this with things like smart contracts that actually mitigate or minimize counterparty risk. Whereas if again you wanted to send flowers to your niece on her birthday every year for 100 years after your death, to do that with something like gold you’d have to put all your trust in a custodian and some type of payment mechanism to get to the flower delivery guy, and then the flower delivery business itself you’d have to bet on one that was gonna stay in business! Whereas with something like Bitcoin you can actually write a lot of these things into the code or into the smart contract that can go into the marketplace and search for say a good payment service to deliver the payment, a good flower delivery service. So it gives you a much higher degree of adaptivity and resiliency and projecting your will and intentions beyond the grave if you will, so super interesting way to look at Bitcoin. And then he touched on another aspect of Bitcoin that really drives its valuation, and he was referring to the productivity of the Bitcoin network participants themselves. So when market actors — whether they’re individual, corporate, or government — have decided to go long Bitcoin, they’re making a similar decision to what Saylor did, where they’re deciding to use Bitcoin as a primary treasury reserve asset, or said differently, just to hold it on balance sheet as a means of storing wealth. And what this does is that this is a two-phased approach because the initial phase is, Hey, I’m putting my treasury into Bitcoin. I’m selling the cash and buying Bitcoin. But the second-order effect of that is, once you’ve made that decision, you as a productive and effective entrepreneur are going to continue sweeping profits or excess cash flow into your treasury over time! So not only is the value accreted to the Bitcoin network — it’s not even that initial slug of capital in the form of the treasury transaction — but also the discounted future expected cash flows from future sweeps into that same treasury! And I think this is an incredibly way of looking at it, because I’ve never seen anyone in Bitcoin that studies it closely that becomes bullish — that ever becomes less bullish! So it’s almost like once you’re allocating capital in and you’re studying it more closely and you see all of these things we’ve covered in depth and more things we will cover on how significant of a monetary innovation this really is, and it just causes you to escalate your allocation into your treasury. Maybe 20% of your treasury initially and creeping up to 30, 40, 50%! And this is all just a self-reinforcing feedback loop, because every decision you make to increase your allocation of Bitcoin is putting game theoretic pressure on all other market participants to do the same! It’s a game of frontrunning or taking as much territory on the network as possible! So this has a really interesting effect of intertwining the fate of Bitcoiners together in a way that — it’s like a compounding incentive structure that incentivizes us not only to become more productive to generate even more free cash flow to put into this superior savings technology, but it also incentivizes us as HODLers to want to educate others! We want to describe to the rest of the world — not only for financial purposes but also for moral purposes — how the existing system is rigged! And you are being robbed! And this is not only pragmatically the best system but also philosophically the best system for savings the world’s ever had! And even evangelize! Once you’re a Bitcoin HODLer and you’ve found this way of saving your own wealth — your own life energy — in an uncompromisable medium across time, you want the same for others! The natural human proclivity towards helping one another I think comes to the surface in that you want others to succeed in the same way because why would you want anything else? Actually—other people succeeding in true free market economic competition — it’s a positive sum game! Every time someone’s doing something better, faster, cheaper, that solution they’re providing accretes to all of us! So Bitcoin really—not only does it intertwine all of the fates of its network or market participants, but it’s also encouraging all of us to think differently and communicate differently! Versus a fiat currency paradigm which is much more zero-sum—much more rent seeking focused. So on this topic of Bitcoin as an American — in the idea sense — technology, Saylor had this great quote that, A crucible of virtuous innovation requires a vacuum insulation layer. Again, to preserve the wealth whether that’s the productivity, the energy generated, the profits, the cash flows of any entity requires an insulating layer of some kind! Otherwise the entropy of nature — whether it’s the greed of man or the uncertainty of nature or the taxes of moving capital from one jurisdiction to another — they just eat up that wealth itself! So again we’re back to Bitcoin being the ultimate vacuum sealing of capital we’ve ever had! We got into inflation a bit and the one thing I really wanted to point out here is that contrary to what Bitcoin is — this virtuous feedback loop of incentives and game theory — fiat currency is actually the reverse! So not only is inflation theft — it’s eroding real wealth through fiat currency supply inflation, but there’s also a psychological element to it as well! If inflation is growing, market actors are smart! They start to attempt to frontrun future inflation, so actually inflation expectations tend to outpace actual inflation in a nonlinear fashion! So inflation’s coming in at 2, 3, 4, 5%. If it’s growing, people expect it to continue growing and they’ll actually start selling their fiat today in anticipation of further fiat currency inflation in the future. And if you sell fiat currency, you’re inducing further inflationary pressure on it. You’re actually increasing the velocity of money itself. It becomes this game of hot potatoes — you don’t want to hold the dollars. And this can add fuel to that vicious cycle that ultimately culminates in hyperinflation. Again that’s just the precise opposite of Bitcoin’s quantitative hardening technology — it’s disinflating over time, causing it to appreciate! And finally we got into one of the topics I like to talk about a lot which I think is eternally mystifying — is this concept of truth! Saylor presented it in a way I never heard before in that he said, Conservative energy is truth. Meaning that: Whatever strategy or organism or organization best adheres to the first law of thermodynamics and optimizing its inflows and outflows of energy or money or anything else — that’s how you succeed! You wanna maximize your cash inflows, minimize your cash outflows, for instance, to be a successful organization. In that context Bitcoin is the first conservative monetary network in history! We could say gold was one — it was the most conservative monetary network in history — but Bitcoin’s the first one that maps perfectly onto thermodynamics! As Saylor said sort of jokingly how they talked about thermodynamics at MIT in that, You can’t win, you can’t break even, and you can’t escape the game — Bitcoin maps onto that really well! You can’t manipulate 21 Million, you must incur transaction fees — so you can’t really break even — and you can’t ignore the game! You can’t escape the game of Bitcoin! It just imposes its rules on everything! So that was it! I think it was a great episode! He concluded with saying that perhaps Bitcoin is actually the first instance of technology crashing into economics, so possibly it’ll cause a rewriting of history books, which I’ve intuited it would! More so in the sphere of say capitalism versus socialism, but we may actually see economics become more focused on these physical principles of say energy and everything that we discussed today — thermodynamics and things like that. And actually the new book by Saifedean — he’s writing a book called Principles of Economics, and it goes into energy! Which is not something that you typically see in economics textbooks, so he might be right at the cutting edge of something really important! That was Episode 5, I hope you can tell things are heating up at this point! We spent a lot of time building this foundation and now I think you’re starting to see the fruits of that. Things are only going to get more interesting in future episodes. Thanks for listening, and we’ll see you soon!