“Bitcoin is the hardest money that we have ever discovered or invented.”
Dr. Saifedean Ammous is the author of The Bitcoin Standard: The Decentralized Alternative to Central Banking, the best-selling groundbreaking study of the economics of bitcoin. The book was a pioneer in explaining bitcoin's value proposition, and the implications of its unique properties.
As a peer-to-peer software for operating payment network, Bitcoin acts as the native currency. Bitcoin is totally protected from inflation because Bitcoin’s source code makes it mathematically impossible to exceed 21 million Bitcoins- a fixed monetary supply. The entire world was effectively on the gold standard, because it was the hardest money at the time, but more gold can continually be introduced into the supply. “Anything that gets held as a form of money, the value of it rises, and because the value rises, it gives people an incentive to make more of it.”
Bitcoin offers a way to remove the third-party intermediaries in the financial transaction. The decentralized nature of the blockchain, on which Bitcoin exists, creates security via transparency. There is no one single point of failure in the way that a third-party financial institution, entrusted with money, must secure itself from hackers or thieves.
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SPEAKER
Saifedean Ammous
Author
The Bitcoin Standard
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:08)
Hello, everyone, and welcome back to SALT Talks. My name is John Darsie. I'm the managing director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology and public policy. SALT Talks are a digital interview series where we talk to leading investors, creators and thinkers. And our goal on these SALT Talks is really to replicate the experience that we provide at our global conferences, the SALT Conference, which we host twice a year. One in the United States, one internationally. Obviously this year we were unable to host our conferences, but we look forward to hopefully resuming our in-person events starting again in 2021.
John Darsie: (00:47)
What we're trying to do at our conferences and on these SALT Talks is provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to bring you the latest installment of our digital asset series with our guest today Dr. Saifedean Ammous. Dr. Ammous is the author of The Bitcoin Standard: The Decentralized Alternative to Central Banking, which is a bestselling, ground breaking study of the economics of Bitcoin. And for people who are looking to get introduced to the space, we thought this was a great place to start.
John Darsie: (01:22)
When I was going through my personal Bitcoin education one of the first books that was recommended to me was The Bitcoin Standard. So we're very excited to have Saif with us today on SALT Talks. The book was a pioneer in explaining bitcoin's value proposition and the implications of its unique properties. Bitcoin's supply is completely irresponsive to demand, making it the hardest money ever discovered, and making hard money available to everyone worldwide.
John Darsie: (01:48)
Saif has been at the forefront of the study of the economic implications of this new technology. And he teaches and researches the economics of Bitcoin on his online learning platform Saifedean.com. Dr. Ammous holds a PhD in sustainable development from Columbia University, where his doctoral thesis studied the economics of biofuels and alternative energy sources. He also holds a Master's in development management from the London School of Economics, and a Bachelor of Engineering from the American University of Beirut.
John Darsie: (02:20)
Just a reminder, if you have any questions for Dr. Ammous. During today's talk, you can enter them in the Q&A box at the bottom of your video screen on Zoom. And in terms of today's format, we're going to do something a little bit different with Dr. Ammous. He's a fantastic presenter and has fantastic materials that sort of take you even if you're a Bitcoin novice, you can start to understand some of the economics and the value proposition of Bitcoin and cryptocurrencies. So we're going to have Dr. Ammous, give a presentation and share his screen for the first 25 to 30 minutes of today's talk. And then I'm going to come in and moderate audience Q&A and ask some follow up questions from my end as well. So with that, I'm going to turn it over to Dr. Ammous to give his presentation.
Saifedean Ammous: (03:01)
Thank you very much, John, thank you for having me. And for your very kind introduction. It's a pleasure to be here. Can everybody see my slides?
John Darsie: (03:11)
I think so. I can see them.
Saifedean Ammous: (03:13)
Okay, cool. So, in today's talk, I'm going to go over some of the main concepts in my book, The Bitcoin Standard. And I'm going to begin with explaining what is Bitcoin, the definition that I came up with for Bitcoin. And then we bitcoins monetary uniqueness? What is it about Bitcoin that makes us so unique? What is Bitcoin good for? And what are some of the implications of the use of Bitcoin? So my definition of Bitcoin is that Bitcoin is a peer to peer software for operating a payment network with its own native currency that is protected from unexpected inflation, without having to rely on any trusted third parties.
Saifedean Ammous: (03:53)
I think this really captures the essence of what we have here. It's a form of software that is peer to peer in that it's distributed over the Internet, and anybody can download it and use it and any member of the network is a peer with other members. So it's perfectly voluntary. And what that software does is that it operates a payment network between participants on the network. And that payment network runs with its own native currency, which is digital, and whose supply is protected from unexpected inflation, there's no way for anybody to make more of that money, which I think is the most important economic property of Bitcoin.
Saifedean Ammous: (04:32)
And all of that is done without having to rely on any single trusted third party, there aren't intermediaries that you need to rely on in the transactions that take place on the Bitcoin network. The significance of Bitcoin, in my mind, lies in two main properties. The first one is that it is the hardest money that we have ever discovered or invented. And I'm going to discuss this in a little bit more detail now. And second is that it is the only working alternative to central banks for international payments settlement.
Saifedean Ammous: (05:02)
So first of all, when we think about the hardness, if you think about it, anything can be used as money, there's no reason why anything can't be used as money, anybody who decides to hold something, not for the sake of consuming it, but for the sake of exchanging it for something else later on, is choosing to hold that thing as a form of money.
Saifedean Ammous: (05:26)
But anything that gets held as a form of money, the value of it rises, and because the value rises, that it gives people an incentive to make more of it. So anything that is easy to make ends up being a lousy money, because people can make more of it and the value of it will drop. And so if you look historically, you find that the things that have been used as money, historically, are usually things that are hard to make. And in fact, you find that whatever is used as money is whatever is the hardest to make at any particular point in time. And so, there are these examples, which I discuss in more detail in my book. But if you look at the beginning of the 20th century, you see the entire world effectively was on a gold standard, or the vast majority of the world was on a gold standard. Because at that time, gold was the hardest money that we had ever had.
Saifedean Ammous: (06:19)
And for a very long time we know that gold supply is only increasing at around one or 2%. This has been the case for about a century, we look at global gold production, we see that every year it goes up at around 1.5%. And that is, in my mind, what makes gold the most likely monetary asset, the most popular monetary asset in the market all over the world at the beginning of the 20th century, because it is the hardest money. And even the supply continues to grow at a very low rate. So there's no way for anybody to make increasingly large quantities of gold and to bring them onto the market.
Saifedean Ammous: (07:00)
Now, why is this important? Because if you look, today, you see that Bitcoin is basically the hardest money ever. Bitcoin's supply grows, but flattens out, it stops growing at around 21 million Bitcoin. There will only ever be 21 million Bitcoin. And that's it, there'll never be more and so the supply growth rate starts off quick starts off high, but then begins to drop as the already existing supply increases, and the new supply becomes less and less significant.
Saifedean Ammous: (07:36)
So the current annual growth rate is around 2% to 3% for Bitcoin, and over the next two, three years, it's going to be a little less than 2%. And then in 2025, it'll drop again to under 1%. And then it'll continue to drop under 1% until effectively it reaches zero sometime in the next century. So, this is quite unique. And this I think makes Bitcoin quite interesting as a monetary technology, because it is the first money that we have whose supply is completely irresponsive to demand.
Saifedean Ammous: (08:12)
In other words, with everything else, if they get if something gets chosen as money, more people will be trying to produce more of it, and so the supply will increase. But with Bitcoin, there is no way of producing more of it because of something called the difficulty adjustment. When you try and make more Bitcoin, you don't make more Bitcoin, you just end up expanding more processing power and electricity on making Bitcoin more secure.
Saifedean Ammous: (08:39)
And so the way that I like to present this, is if you look at it with every other form of money that we've ever known, if people use it as a store of value, the price will rise, there will be more profit to be made from mining it. And that leads to an increase in the supply, which then leads to a drop in the price. But with Bitcoin, on the other hand, this process is a cycle. And the reason for that is that we have the first same three steps, the store of value demand increases, it causes the price to rise, it causes mining to become more profitable. But in the case of Bitcoin, if you start mining more Bitcoin, you're not able to increase the supply, there's no way of increasing the supply of Bitcoin.
Saifedean Ammous: (09:26)
So instead, what ends up happening is that more hashing power goes to mining, so more people are spending more resources on mining, and mining becomes harder, and the supply of coins stays the same. That's how the difficulty adjustment works. Instead of the reward for mining rising, the reward stays the same, but mining becomes harder. And so no matter how many people are using Bitcoin and how many people are trying to mine Bitcoin, we're only going to get a certain number of Bitcoin produced every day, around these days, it's around 900 coins, and for the next three and a half years, it's going to be 900 coins a day, regardless of how many people are trying to mine Bitcoin.
Saifedean Ammous: (10:09)
The 900 coins a day is a set reward, and the difficulty of mining adjusts in order to make sure that we continue to average around 900 coins a day. And that's how this has been working. So in other words, when mining becomes more profitable, more hashing power is going toward mining, but the supply does not increase, instead more hashing power is effectively protecting the network. So the network becomes harder to attack, it becomes more expensive to attack the Bitcoin network becomes more expensive to make the Bitcoin network unusable. And that gives Bitcoin the ability to survive longer, which makes it more attractive as a store of value which attracts more store of value demand.
Saifedean Ammous: (10:55)
And this in my mind is the only way that we can explain and understand the incredible rise in the price of bitcoin that we've seen over the last 10 years. Bitcoin has basically gone up... Well 11 years now. Bitcoin has gone up about one and a half to two billion percent in 11 years, and nothing has ever gone up like that. Ever. And I think this is really the only way to understand it, because bitcoin's supply is completely irresponsive to demand with anything else. If there's more supply, if there's more demand, we can always make more. We're always able to make more of anything else. But with Bitcoin, there's a strict fixed limit on how much we can make from it.
Saifedean Ammous: (11:38)
Because of this thing that we call difficulty adjustment, so the difficulty adjustment really is the most amazing technology in Bitcoin in my mind, it's the magic sauce that makes Bitcoin work. Because it protects the network from inflation. And it ensures the supply is auditable, and verifiable by all network members. And it converts people's inevitable incentive to increase bitcoins supply into network security. So it makes the network more secure. And it does that by using the incentive of people to increase the supply of the currency.
Saifedean Ammous: (12:11)
So it's the reason why I like to call Bitcoin and all conquering juggernaut of economic incentives. Whereas everybody competes to inflate all other monies. Whereas everybody's competing to increase the supply of every other currency that is out there, people compete to secure Bitcoin, not to inflate it. So people compete to make Bitcoin more secure, which ends up making it more attractive. So Bitcoin really solved the inflation problem in the most neat way imaginable, because instead of providing people with an incentive to increase the supply, it provides them with an incentive to make the network more secure.
Saifedean Ammous: (12:49)
And how secure is Bitcoin? Bitcoin has no single point of failure, it has no single piece of critical hardware or infrastructure, no single critical individual or organization, it basically can't be stopped. It's a protocol that is always open to anyone who wants it at any point in time, around every 10 minutes, a new block of transactions is released. And this has basically never failed in the 10 or 11 years that has been going on. And it's never confirmed a fraudulent transaction. So far, nobody has managed to spend money they don't have on the Bitcoin network.
Saifedean Ammous: (13:22)
So the hardest money that's ever been invented is basically available worldwide for anyone who can receive two megabytes of data every 10 minutes. You don't even need a computer or an internet connection. There are ways to get around that to use Bitcoin. It's purely voluntary. It does not read regulation enforcement or the police. And it's chosen and valued freely on the market. It's sound money. It's money that gets its value, because the market gives it value, not because anybody forces its value. So what is Bitcoin good for then?
Saifedean Ammous: (13:53)
Well, for me, I think the most important use case of Bitcoin is that it is a store of value. And it's an obvious use case, because it's the first strictly scarce liquid asset that we've ever had. And in fact, if you think about it, one of my favorite books is a book called The Ultimate Resource, written by economist Julian Simon. And in this book, Julian Simon explains that the ultimate resource in the world really is human time, because with human time we're able to make more of any other resource. The limit on how much we have of oil, or silver, or gold, or copper, or nickel or zinc. The limit on how much we have of all of these metals is simply how much time we dedicate toward mining and producing them. The amount of them that exists in the crust of the earth is far beyond our capability to process and consume.
Saifedean Ammous: (14:54)
And the limiting factor really is just the time that we are able to dedicate to producing those goods versus other goods, we could always make more of anything. And that's why we never run out of these metals. No matter how much we find, no matter how much we consume, we keep digging and we keep finding more. Because the limit is not how much exists on Earth, because that's so far larger than we can even ever imagine or calculate, the earth is enormous. The limit is how much time we have for other things. The limit is the opportunity cost in terms of our time, in terms of other things.
Saifedean Ammous: (15:29)
And so, before Bitcoin, anything that we chose, as a store of value in this world, had the imperfection that its supply will increase in response to it being chosen as money. But Bitcoin doesn't have that. So naturally it ends up working out really well as a store of value. And so ultimately, the only thing that is scarce is time. And Bitcoin is the second thing that is truly scarce. And so, for me that's a natural match between the two, if you want to store the value of your time in money, you would want to store it in the money that is scarce like your time.
Saifedean Ammous: (16:02)
So this is why I like to call Bitcoin the most advanced technology for transferring the value of time into the future. The second thing that Bitcoin I think is good for is that it is the decentralized free market alternative to central banking. Until the year 2009 if you wanted to send money from one country to the other, the only way that you could do it was you had to go through financial institutions that are operated by central banks. So central banks have a national monopoly on this process in every country. And they're able to monopolize the market for sending money in and out of the country. And it's had terrible consequences in many places for many people. And in many of those places, and many of those times people didn't have an alternative, because where do you go? How do you trade with people outside your country, if you can't have a bank? You can send physical gold in reliable ways that are cheap and economical.
Saifedean Ammous: (17:08)
And there was no alternative. So you have to have your savings always with the local banking system, which was also lending to the government and likely to witness significant devaluation. Bitcoin offers us the first alternative to that. It really is the first working alternative to international payment settlement. It's digital and yet it does not require the supervision and the control of national central banks.
Saifedean Ammous: (17:41)
And one important aspect that I get into detail in my book, is the issue of how Bitcoin grows and how Bitcoin scales. There is, I think, a common misconception that Bitcoin is a payment network that you can think of Bitcoin and compare it to PayPal. But in my mind I try and explain the idea that Bitcoin is actually more... Is better understood as being a settlement network, it's a network for a small number of high value transactions. And this is the way in which the network has been evolving over the past few years, it's growing in this direction, where the number of transactions conducted on Bitcoin every day has been roughly constant for maybe five, six years now at around 300,000 to 500,000 transactions a day. But the value of that is transacted continues to increase significantly. More and more value is being sent on the Bitcoin network, even though the number of transactions is the same.
Saifedean Ammous: (18:37)
So in that sense, Bitcoin is growing as a settlement network. And I think, in this regard, we're going to see it grow more in this capacity. And I think you see more and more of the businesses that are being built around Bitcoin, at this point, are focusing on this kind of use case. And an important part to this is the fact that we see it with corporations now looking into using Bitcoin as a cash settlement... As a part of their cash reserve assets, rather than thinking of using Bitcoin for payments.
Saifedean Ammous: (19:24)
So a few years ago, a lot of people used to think that when is Starbucks going to adopt Bitcoin? When is McDonald's going to adopt Bitcoin? In their mind ideals, you would be able to pay for your coffee or your burger with Bitcoin. But I think what we're seeing is that we're going to be witnessing Bitcoin transactions being performed... Bitcoin coming into those companies from the balance sheet, not from the... They're going to hold it as cash rather than accepted for small payments. And I think eventually, we will see small payments being built on Bitcoin eventually, but for now, I think that the compelling use case is to hold it and use it for large amounts of settlement rather than for daily small transactions.
Saifedean Ammous: (20:12)
So this is why in my book, I analogize Bitcoin to gold because similarly with gold, the trade was happening with a gold certificate. So we'll see second layer solutions built on Bitcoin, similar to second layer solutions built on gold, I think, and the interesting security question then for Bitcoin is whether it can resist being centralized, like gold was in central banks.
Saifedean Ammous: (20:41)
Some implications for Bitcoin I discuss in the book. One that I find extremely important is the issue of time preference. I think a problem of easy money is that it loses value and so it makes the future less certain for people. And because it makes the future less certain, it raises the cost of providing for the future. And therefore it makes it less likely for people to save for the future. And that reflects on all manner of decisions and outlooks on life which gives people more of a present focused orientation rather than a future focused orientation. I think we see the same... We see the opposite happen under hard money.
Saifedean Ammous: (21:25)
So if you think of the 19th century to today, people used to save much more in the 19th century. And if you look at what has happened as western economies went off the gold standard, you see that savings rates declined, continues to decline. The one country that continues to have higher savings rates was the last country to go off the gold standard, and that is Switzerland. So I think there's something there that suggests if we do move to a Bitcoin standard, effectively, the world would have far less debt and far more saving is the way that I would see it if you move to a hard assets.
Saifedean Ammous: (22:00)
Don't have much time to explain this in detail. But if you're familiar with the Austrian School theory of the business cycle, from that perspective, effectively easy money and the ability of governments to manipulate and central banks to extend credit, unbacked by real savings, effectively manipulating interest rate downward and increasing the money supply, that is effectively the cause of the business cycle, and inflation and recessions. And for me, this is my favorite chart to illustrate this again, look at Switzerland, up until the 1970s when they went on the gold standard, they basically had no unemployment, there were no recessions, there was really no unemployment. And then that started happening as they went off gold and started having a more conventional 20th century monetary policy.
Saifedean Ammous: (22:52)
One other important application in my mind is that it will end the... Having Bitcoin could offer us the way out of the Tower of Babel, that is the foreign exchange market. Which is trading something roughly in the sea of the size of 25 multiples of GDP, in terms of volume. All of it essentially, because we've unsolved the problem of money in the 20th century by going off gold, which was one universal international apolitical money and going to many different political monies, which effectively create the system of international partial barter around the world.
Saifedean Ammous: (23:34)
So in conclusion, I think Bitcoin, if I were to summarize what Bitcoin is, I would say Bitcoin is a technological and apolitical solution to two problems. The first is international value transfer. And the second is saving, or transferring value to the future. Bitcoin offers us essentially a technological solution for those things, it makes those things, the use of them similar to using a computer, you're able to store your value in computer in a way that is much more reliable and predictable and auditable than the traditional solutions that we have.
Saifedean Ammous: (24:12)
And I think the intriguing possibility of Bitcoin is that it offers us the prospect of a real free market in money savings, capital, and investments. That is all for the presentation. Thank you very much for inviting me. My website to saifedean.com. The Bitcoin Standard, my book is available in 24 languages now. You can find them all listed on my website. And you can also sign up to receive chapters from my two forthcoming books that I'm working on right now the Fiat Standard, which is the sequel to The Bitcoin Standard, and also a textbook in economics, Principles of Economics. Thank you very much.
John Darsie: (24:50)
Well, Saif. Thank you so much for that presentation. We already have a few questions in the queue. But I want to remind anybody who's watching, if you have any questions for the remaining 15 to 20 minutes of today's SALT Talk, if you're on Zoom with us, you can enter them in the Q&A box at the bottom of your video screen. If you're watching on Periscope on LinkedIn, or on our YouTube channel, you can email any questions you have to info@salt.org and we will try to get those in before we let Saif leave us.
John Darsie: (25:19)
The first question that's being asked and one of the reasons why we did this with you Saif is that we had some people in our community who are crypto curious but have yet to really dive in educate themselves completely about what Bitcoin is and the long term implications of cryptocurrency. So we have just a very basic follow up question from Victoria, who asks, "How is Bitcoin mined? And what's the process going to be for mining the rest of Bitcoin over the next decade and into infinity?" As we know, Bitcoin, halving works. But could you just explain what the process for mining Bitcoin is?
Saifedean Ammous: (25:53)
Yeah, the way you think of mining Bitcoin is it's almost Bitcoins are handed out, kind of like medals or trophies in a sports competition, in that they're handed out at a specific period of time. So let's say every four years, there's going to be a gold medal for the 100 meter dash. And it doesn't matter how many people compete for it all over the world. There are only going to be one metal, no matter how many people try and get it. So you can't control the supply through mining more or less. And the way that works is that the reward for mining is pre-programmed and constant. And then if more people try and compete for the reward, then all the people that are competing end up getting less and less out of the reward.
Saifedean Ammous: (26:41)
So the way that it works is that you use a computing power, you get a machine, initially you could do it on your own computer with any basic personal computer, but now it's become more sophisticated and complex, and it needs its own computer to be done economically. So you'll get this machine, which will try and solve mathematical problems to effectively win that reward.
Saifedean Ammous: (27:12)
So all these machines all over the world are mining Bitcoin by trying to find the solution to a mathematical problem. And then whoever provides the correct solution ends up winning a reward. So those rewards are handed out at a rate of six and a quarter, plus a little bit for transaction fees every 10 minutes. So there's six bitcoins being handed out every 10 minutes, roughly six to seven bitcoins more or less every 10 minutes. And that adds up to around 900 bitcoins a day, today.
Saifedean Ammous: (27:44)
So these will be handed out to people who use their computing power and their electricity to solve these mathematical problems. And the more computing power you direct towards the problem, the more likely you are to find those solutions, the more likely you are to have a profit, to make a profit. So what this leads to is that mining ends up being just a very competitive market were only the people who are the most efficient, who have the lowest cost of power, and who can secure the best hardware are able to continue to mine profitably, because it's competitive.
Saifedean Ammous: (28:22)
So the people who have the lowest electricity prices are the only ones who are going to be able to turn out profit because everybody else, they won't be making that award because it won't be economical for them. If your electricity is expensive, then that award that you make will not be worthwhile. So the point behind it is to make it so that the supply of Bitcoin is regulated by the mining process, so that it doesn't increase beyond what it is meant to be increasing at.
Saifedean Ammous: (28:53)
So the schedule right now, the schedule brings us to 21 million in around 100 years from now. We're already at 18.5 million roughly today. So we already have 18.5 million bitcoins that have already been mined. So there's only two and a half million bitcoins to be mined over the next 100 years. And the growth rate is just going to continue to decline over time.
John Darsie: (29:18)
All right, fantastic. What do you say to critics who talk about energy efficiency as it relates to mining and computing power to run the Bitcoin network? That's one criticism that's leveled at Bitcoin is that it's very energy inefficient.
Saifedean Ammous: (29:32)
I think Bitcoin is extremely energy efficient in that it is constantly punishing anybody who has expensive energy. So if you're trying to mine Bitcoin with grid power, you're not going to mine Bitcoin profitably. There are no grids that are basically competitive with a Bitcoin network, because the people that are able to be turning a profit in Bitcoin mining are those who have power that is essentially stranded, that is oversupply at places where it's not easy to move in.
Saifedean Ammous: (30:04)
And power is not easy to transport the capital power a lot. So Bitcoin is essentially a buyer of last resort of power from people who have excess power that don't know what to do with it. And that's why it's mainly mined in hydroelectric dams where they have a lot of spare capacity. And in methane fields, I think is another one where it's going to start growing, it's not now, but I think the potential for that one is enormous, because methane fields, they flare a lot... Sorry, in oil fields, they flare a lot of methane that is not economical to ship, because methane isn't very energy dense, and so it's not really economical.
Saifedean Ammous: (30:40)
And so usually they just burn it, but if you use it to mine Bitcoin, you can recover a lot of your costs. So I think Bitcoin is efficient, is highly energy efficient, uses extremely cheap energy, and it encourages innovations in finding cheaper and cheaper electricity. However, there's no denying that Bitcoin does consume a lot of energy. But I think here I find this question strange.
Saifedean Ammous: (31:04)
It's very common for people to think that consuming a lot of energy is a bad thing. But if you think that consuming a lot of energy is a bad thing, then why would you buy a washing machine? Why wouldn't you wash your clothes with your own hand? Why would you get into a car? A car consumes more energy than a bicycle and an airplane consumes more energy than both.
Saifedean Ammous: (31:23)
And we use those things precisely because they use more energy because burning energy is an extremely cost efficient way to get things done, much more cost efficient than using human input. And so for the same reason, I think that we got rid of telephone operators and we use automated telephones, Bitcoin essentially automates monetary policy and gets rid of discretionary monetary policy and automates international settlement clearance. And I can't think of a better use of electricity.
John Darsie: (32:04)
So we have a few questions around this theme of Bitcoin being digital gold, or an alternative store of value. And some people enjoyed your last slide comparing the total value of the FX market. What do you think the ultimate market cap for Bitcoin could climb to? Is it capped at basically, taking some market cap from gold, and those two assets being your two main alternative stores of value? Or how large of a market cap Do you think Bitcoin could eventually have? And what's the path to getting there?
Saifedean Ammous: (32:39)
Really, it's a scary question to consider, because you try and draw the line on where demand can stop and you keep struggling. So you could say gold, I think de-monetizing gold is a realistic goal and turning golden into an industrial metal, that can happen. So Bitcoin can eat that market. It won't mean gold will go to zero, obviously, it'll become just a expensive industrial metal.
Saifedean Ammous: (33:06)
But you have to also remember that a lot more of global markets are essentially just looking for a store of value, or they're not looking for investment that yields returns. There's a lot of money that is just looking for a store of value. And so a lot of real estate, a lot of people buy homes that they don't really need, because that beats inflation. And a lot of people invest in all kinds of things like bonds, for instance.
Saifedean Ammous: (33:38)
So Bitcoin could eat into the market for real estate, could eat into market for bonds. And so these things could lose a significant amount of the demand that comes to them. Because people don't have a solid store of value that can just offer them... That can be the base of your portfolio that you don't take risks with. And Bitcoin, if it grows into this kind of digital gold, it can offer people that. And so you can imagine, then it would reduce the demand for other markets. And then really, the sky's the limit, I guess.
John Darsie: (34:18)
So we have a few questions about Satoshi Nakamoto, who is the anonymous figure that basically created Bitcoin, there's been speculation about it being an individual or a group of people. But to this day, the identity of the people who started Bitcoin remains a question mark. And we've had a few questions like this on other digital assets, SALT Talks we've done about whether you think ultimately we'll find out who created Bitcoin, and whether you think that would enhance confidence in the system. And who you think, Satoshi Nakamoto is.
Saifedean Ammous: (34:55)
I don't know who it is. And a lot of people have spent a lot of time digging into it. And I don't think there's any satisfactory answer. I think it's hard to explain who he is or what happened. But what we know... In my mind, I think, the disappearance and there's the fact that the person who created this left is probably an essential part of what makes Bitcoin work. I think, if Bitcoin had continued... And I don't know if he did it deliberately, because he didn't indicate whether he wanted to do that. Maybe he did it deliberately, or maybe something happened.
Saifedean Ammous: (35:32)
But I think the fact that there was nobody in charge, and the project continued to survive, is what makes it extremely tough, because it's what makes the monetary policy set in stone. It's what gives it digital value. Because this is a network that is out of control of anybody. There's nobody out there who can take over this network and change the money supply.
Saifedean Ammous: (35:55)
And potentially, I think, if the owner of the guy who started it was still around, they might have had this power and they have this power, they'd set the precedent of doing something like this at an early stage. The whole thing would have become much more political. And in my mind, it would not have this value proposition. It would be far more of like an interesting startup. More than this neutral protocol, which is what Bitcoin is right now. So I think the disappearance of the creator was an enormously important factor in the growth of Bitcoin in a way in which it had become neutral and controlled by nobody.
John Darsie: (36:42)
Correct me if I'm wrong on this, but my understanding is that Satoshi whether that's a person or a group of people still owns a substantial part of the Bitcoin float that exists out in the marketplace. And in general, Bitcoin ownership is very concentrated among a small group of people who are early evangelists of the cryptocurrency. What do you say to people who level the accusation that those groups of people are simply talking their own book and trying to hype up Bitcoin as a way to enrich themselves, and maybe staying anonymous as a way to avoid accusations of conflict of interest as they try to drive Bitcoin higher?
Saifedean Ammous: (37:21)
Well, I mean, part of the mystery is that we don't know who the person is, and they haven't touched their coins. So while we don't really know whether they are his coins to begin with. But given the current value is probably something in the range of, I think, $10, $20 billion, or something like that. It's a lot of money for somebody to be sitting on. I think they probably would have wanted to cash on it earlier. So it's-
John Darsie: (37:51)
They've had a pretty nice return.
Saifedean Ammous: (37:53)
Yes, but they haven't cashed out. So that is quite mystifying but I think in terms of the early adopters, in a sense, yes. But you have to remember that as the thing goes up, as the price goes up, as demand increases, the early adopters sell, because the prices go up in ways that become life changing, and so they sell significant chunks of their assets.
Saifedean Ammous: (38:23)
Now the fact that it's insiders that are promoting it. I guess you could say that about anything but the key difference with Bitcoin. And the reason why I think it's completely meaningless to call it a Ponzi scheme, is that none of the insiders have the way of creating more liabilities to draw on the wealth, or backed by the wealth that is parked in the network.
Saifedean Ammous: (38:49)
So in a Ponzi scheme, people would bring in money into it, and then you're getting new money from new people, and you're using that to pay off the old people. So the same money is being given as liabilities out to several people, and then the whole thing comes crashing down, but nobody can do that in Bitcoin. You are the only one who can own your own keys, and nobody can generate more liabilities, nobody can make more Bitcoins.
Saifedean Ammous: (39:15)
So the rules of the game are open and transparent for everybody. And in a sense, this sounds little more than just sour grapes, like yes, some people took a risk early when you were mocking it and laughing at it and saying it was stupid. And the market found out that maybe it wasn't very stupid. So it seems to me that it is a little bit unfair to be turning around now and saying that it's unfair that the people who took the risk that you derided it and didn't take, took the reward for it.
John Darsie: (39:48)
So your book is called The Bitcoin Standard. Obviously, you're very enthusiastic about Bitcoin. Are you a Bitcoin maximalist? Meaning you think it's going to be a winner take all type scenario in the digital asset space where Bitcoin is going to be the overwhelming winner, and you're going to have maybe a few other coins out there that lag well behind Bitcoin? Do you think this is a space that's going to develop as a mature asset class, and you're going to have other coins and cryptocurrencies and digital assets that have tremendous value as well?
Saifedean Ammous: (40:17)
No, I think it's really it's Bitcoin or bust. There's really only one protocol, one neutral protocol here, and there's only neutral protocols. But I think the use case, ultimately, of the tokens that underlie value transfer, it has to be one protocol. And the only one that can make a claim for being a neutral protocol that is controlled by nobody, that isn't controlled by anybody, is Bitcoin. And that's really ultimately... It's what I see as the value proposition that... It's the guarantee that this thing should have value. The reason these digital bits of data are able to have economic value is because there's a guarantee that nobody can go and change the supply, which is trivial in my mind with all the other digital assets.
Saifedean Ammous: (41:05)
So none of them can demonstrate to me that they have anything like the resilience that Bitcoin has. Because we saw with Bitcoin in 2017, some of the most influential Bitcoin companies and some of the most influential Bitcoin developers and some of the bigger investors in Bitcoin all I tried to change one simple metric and parameter in the Bitcoin network and failed. But you don't see that happening with any of the other currencies, which are to be frank, after Bitcoin, if any of these has made a name where people have heard about it, it only made that name because it had a group of people behind it, working in a concerted effort.
Saifedean Ammous: (41:43)
And for those people, changing the supply and controlling the supply is more or less a bit of a trivial problem. And we've seen with some of the bigger ones that they've... That they don't even know what their supply is going to be like. So for me, I think the value proposition is just not there, in having any of these digital tokens attain the scarcity that is necessary for them to have reliable market value in the long run. And that's why you see that a lot of these copycat coins come into the Bitcoin space. There's a lot of hype initially, but then eventually, they crash. And essentially, they all flatline and head towards zero next to Bitcoin.
Saifedean Ammous: (42:28)
It's happened with thousands of them. And I think we're still at a point where in terms of market cap, which is a very flawed measure, Bitcoin is about 70% of the market. But in terms of real world liquidity, the real world liquidity for the other currencies, it's more likely than Bitcoin is about 90% of the total real liquidity, not just the kind of market cap, which can be easily spoofed.
Saifedean Ammous: (42:58)
So if we're talking about a world in which the market has for 11 years, after 11 years of all these thousands of competitors coming in, and they still can't get to more than 10% of the liquidity of Bitcoin, I think it's time to consider this is not Pepsi and Coca Cola. This is not different providers of different software packages. This is a neutral protocol versus really proprietary currencies. And it's more like there's the internet. And then there are other people trying to sell their own local work network as being the other internet. But there's only really one protocol for the web itself.
John Darsie: (43:44)
So you're a believer in the Austrian School of Economics. And you think that our current Keynesian, fiat monetary system is inevitably flawed and eventually going to implode as we try to inflate our way out of our problems. What do you think the ultimate path for Bitcoin is? Do you think it's something that the United States government and other global governments are going to eventually acquiesce and come up with regulation that allows it to coexist with something like the US dollar? Do you think if the system starts to collapse a little bit that they'll start to crack down on cryptocurrency with capital controls and try to prosecute people that use cryptocurrencies? What do you think the ultimate path to acceptance and mainstream use for Bitcoin is over the coming decades?
Saifedean Ammous: (44:30)
I have to say, I don't really necessarily think that this current system has to crash, it's been going around 50 years and for all I know, it could go for another 50, maybe even more. And in my mind, I don't really have much of the idea that Bitcoin is... It could be that Bitcoin is the savior from hyperinflation and it certainly was my savior from hyperinflation in Lebanon, where I used to live until recently and the currency collapsed. So I think if hyperinflation does happen, Bitcoin is a great thing to have.
Saifedean Ammous: (45:05)
However, I don't think that Bitcoin needs a hyperinflation scenario, in order for it to rise. I think this is a point that I keep trying to communicate, which is that we need to stop thinking about it, in terms of this system is going to collapse in Bitcoin is the only answer. I think we need to just think this is just a better technology, this is just a more advanced system. And it's likely to take over just because apolitical settlement that is accessible and verifiable, for anybody, anywhere around the world, at a very low cost is just a much more powerful proposition than having to go through political institutions every time you want to send and receive money. And having to go through political institutions that have a monopoly that can devalue the currency.
Saifedean Ammous: (45:53)
So I think, by being harder money and by offering international clearance independently, Bitcoin is just a new ecosystem. And in my mind, I don't see that it is necessary for the Fiat system to collapse for Bitcoin to grow. I think the two can continue to coexist for a long period of time, while Bitcoin grows. And it's not implausible in my mind that just Bitcoin continues to grow peacefully next to a relatively shrinking Fiat economy, and then effectively we upgrade to a scenario where we're using more Bitcoin.
Saifedean Ammous: (46:30)
And I think the use case, ultimately, in my mind, I like to compare it to dynamite. When dynamite comes up it changes... Or gunpowder, it changes the dynamics of power. And if you have an army of soldiers who have swords, you don't like gunpowder. So what do you do? Do you ban gunpowder? Banning gunpowder is not going to be effective, because the people who are going to fight your soldiers are not going to-
John Darsie: (46:58)
Good luck with that.
Saifedean Ammous: (47:00)
Exactly. You're just bending your own soldiers from having gunpowder. So for me, I think individuals, corporations, and governments will start just understanding the massive potential for Bitcoin as effectively digital dynamite gold. And see that their own interest is better served by using Bitcoin rather than fighting Bitcoin.
John Darsie: (47:25)
So in your view, what are the biggest risks to Bitcoin becoming this major store of value that we're talking about as a digital gold, and an alternative to other stores of value that you've described?
Saifedean Ammous: (47:37)
I think the main risk to keep an eye on is the decentralization of the network. If the number of nodes, and that's really the key metric to keep an eye on, if the number of nodes in the Bitcoin network declined significantly, then there's... Or if the cost of running a node rises significantly, then you expect that the number of nodes would decline. And as a result, you would have a smaller number of nodes. And then that becomes more concerning because it becomes more plausible that they could collude with one another, to change the supply.
Saifedean Ammous: (48:10)
So if you have a situation where there develops an asymmetry between the people using Bitcoin and the people who are able to validate the blocks, and are able to validate the consensus rules of the network, if that split becomes too big, and the number of the nodes becomes too small and concentrated, then in my mind that really compromises the value proposition, because it makes it likely that you could get some kind of collusion or it's more likely at least that you could get some kind of collusion that could alter the monetary policy. So this for me is the main risk, the decentralization.
John Darsie: (48:50)
For people who are interested in owning Bitcoin what do you think is the optimal path to buying Bitcoin that's currently available in the marketplace today? So you have some over the counter investment products that have started to emerge, but you have yet to have a SEC approved and registered ETF. For example, you have exchanges like Coinbase, Gemini, and others that you can buy and sell Bitcoin, in your view what's the most secure, safest method for buying Bitcoin today?
Saifedean Ammous: (49:20)
I mean, it's not an easy question, because it depends on who's asking it and how they want to do it. Obviously, there are many commercial options for individuals and for institutions. For my personal, I work with a company called the NYDIG, the New York digital Investment Group, and they offer a full suite of solutions, institutional grade solutions fully regulated, and they have the BitLicense.
Saifedean Ammous: (49:49)
So that would be the kind of solution that I would recommend for institutions. With individuals, I recommend, the most important thing is that you hold your own keys of Bitcoin. If you don't hold your own private keys of Bitcoin, for your Bitcoin, then these are not your bitcoins. And I recommend personally, individually holding your own Bitcoin for yourself. But obviously, that might not be feasible with institutional money, which might require more elaborate custody arrangements. And for that there's NYDIG. But yeah, I think that it's difficult to recommend something too specific, just because there are too many options. And it depends on what the person prefers. And for their own security, the best solution is the one that makes sense for you, that you're likely to stick to safely.
John Darsie: (50:45)
There you go. That's responsible advice. Dr. Ammous, Saif, it's been a pleasure to have you on, we look forward to hopefully having you at one of our in person SALT conferences here in the future, as we talked about before we started and as you can see, by all the episodes of SALT Talks that have covered digital assets, we have a growing enthusiasm and interest in the space. So we look forward to continuing our journey, both academically and potentially in practice in the future. But thanks so much for joining us, and we'll look forward to seeing you soon.
Saifedean Ammous: (51:15)
Thank you very much for having me. This was a lot of fun.