0:00 Hey everyone, I'm your host Tom Shaughnessy and welcome back to Chain Reaction, a research-driven 0:20 podcast that's a part of Delphi Digital. 0:22 If you're not on Delphi's research portal, you're missing out on the critical analysis 0:26 read by the top minds in the crypto space, so be sure to check it out. 0:30 One quick housekeeping item, nothing said on this podcast is a solicitation to buy or 0:34 sell any security or token, or to make any financial decisions. 0:37 Hey guys, I also wanted to tell you about Zenledger, the best tax software for cryptocurrency 0:42 investors and accountants. 0:44 It's fast and easy to use, and you can get all of your crypto transactions in one place 0:48 so you can trade smarter and optimize your taxes. 0:52 Zenledger offers 24-7 customer support by phone, email, or chat to help you get your 0:57 taxes done stress-free, and it comes with a 100% money-back guarantee because they know 1:01 you'll love it. 1:02 Zenledger is giving an exclusive 15% discount to our listeners when you use coupon code 1:08 CHAIN15. 1:09 Go to zenledger.io, linked in the show notes below, to get started and get your taxes done 1:14 fast. 1:15 And with that, let's jump into the episode. 1:18 Hey everyone, before we dive into the episode, I wanted to give a quick intro. 1:30 Just recorded with Dan Held of Kraken and Paul Sztorc, who's an independent Bitcoiner, 1:34 thought it was an amazing debate between the two. 1:37 There was no script, the debate focused on Bitcoin's security model. 1:42 This is obviously very important given the security of the Bitcoin network underpins 1:48 the entire value of the network at the end of the day. 1:51 Both have written posts on the topic. 1:53 Basically Paul's skeptical that fee rates will climb, and Dan argues that the trends 1:58 are clear that fees are already growing and they could eventually make up for the subsidy 2:03 to ensure the security of the Bitcoin network. 2:06 This was a heated episode. 2:08 I think it's really important, though, to hear both sides of the debate instead of a 2:12 one-way conversation. 2:13 I think people could learn a lot more that way, and I hope that's true. 2:16 There's also a lot of nuance in the debate. 2:19 Everything is touched on from real-world costs to arguments against things like Bitcoin Cash, 2:25 the halvening, will fees replace the block subsidy, fees beyond just transaction fees. 2:31 We talk about volatility fees and slippage and exchange fees, things all along that nature. 2:36 We also discuss what will happen with Bitcoin following the unprecedented monetary policy 2:41 actions by the US government recently. 2:43 If you enjoy the episode, share it, guys. 2:46 Let's dive in. 2:47 Hey, everyone. 2:48 Welcome back to the podcast. 2:49 Today, I have another discussion underway. 2:51 We have Dan Held, who does BD at Kraken. 2:54 He's well-known in the space for numerous posts that will be linked in the show notes 2:58 below. 2:59 Also, Paul Sztorc is an independent Bitcoiner. 3:02 I'll let him give his intro as well. 3:05 Dan, let's start off with you. 3:06 Give everybody a little bit of your background and how you got started in the space. 3:10 Yeah, so the 30-second overview starts in 2012. 3:14 I got introduced to Bitcoin via a Casascius coin that was classic, really shiny gold coins 3:20 you see in those news articles. 3:23 A buddy paid me back for a beer with one of those, and as I dug in deeper, I found the 3:27 $21 million hard cap from Bitcoin's core function really, really interesting. 3:34 I moved out to San Francisco in January 2013, got involved in the Bitcoin community out 3:38 here, which was just about 10 of us, including Brian, Fred from Coinbase, Jed McCaleb, and 3:45 Jared Kenna from Trade Hill, and Charlie Lee. 3:48 And then I built my first product in early 2013 called Zeroblock. 3:51 Zeroblock was the most popular mobile crypto product, which provided similar services to 3:56 the portfolio, so it enabled you to check the real-time price of Bitcoin and monitor 4:01 your portfolio's performance. 4:03 We were acquired by Blockchain.com at the end of 2013, and I came on board there as 4:07 the first product manager. 4:09 From there, I worked at a smaller startup called Changetip, which did micropayments 4:12 over social media using Bitcoin. 4:14 Then I worked at Uber on rider growth and the intelligence team. 4:18 Left Uber, came back to crypto, built Interchange, which did portfolio reconciliation for large 4:24 cryptocurrency hedge funds and traders. 4:27 We were acquired by Kraken in July 2019, and I'm director of BD over at Kraken. 4:34 I heard about Bitcoin for the first time in 2011, and I thought it was the dumbest idea 4:40 in the world. 4:41 I didn't give it the time of day, and then it was like more than a year passed before 4:48 I heard about it again, and then I started to get more interested in it. 4:55 In 2012, I was very interested in a website called Intrade, which did election betting, 5:01 and it collapsed, and I wrote a paper called Truthcoin about a peer-to-peer oracle system 5:09 for replacing it. 5:14 The rest, as they say, is history, but it's very interesting. 5:19 At the time, I had basically a job offer from both Blockstream and Roger Ver, so I kind 5:26 of orbited the two worlds of Bitcoin chaos pretty closely. 5:33 But yeah, I don't know, it's kind of a long way. 5:36 I mean, I started a blog in 2014, Truthcoin.info, and then I presented at Scaling, I think, 5:45 one... 5:46 At two, I did one that wasn't recorded, they had a short non-recorded session, and I presented 5:52 at Scaling 3, so I'm sort of like a technical commentator. 5:58 And I've done a lot of other stuff, too, but it's not terribly interesting. 6:01 I mean, I have a project, Truthcoin turned into Bitcoin Hivemind, and then I have a side 6:07 chains project called Drivechain, so you can go to any of those sites if you find them. 6:13 Yeah, I'll link to those in the show notes, it's nice that you guys have been in the space 6:17 for a while. 6:18 I'd like to kind of jump right in, because I'm sure people are kind of anxious to get 6:22 into the guts of the discussion. 6:23 You guys both have views on the viability and the sustainability of Bitcoin over the 6:29 long term. 6:30 Dan, I'd like to start with you, considering you have your post out, which I'll link in 6:34 the show notes, but I guess at a high level, what's your take on the long-term viability 6:39 of Bitcoin? 6:40 Well, actually, I'm not sure if that's a good idea, because as I understand it, his post 6:46 is partially a reaction to my post, in fact, he quotes a reaction of mine, so it's sort 6:52 of like a triple reaction. 6:54 I wrote a post in February 2019 called Security Budget in the Long Run, but you could start, 7:00 I mean, I don't know, it's fine if you want to start with Dan, but it's not quite the 7:04 right order, actually. 7:06 Up to you guys. 7:07 Dan, is that okay with you? 7:08 Yeah, I mean, I wrote my article January, I don't care either way, is the answer. 7:14 Yeah, Paul, let's start with you then. 7:16 So I wrote this post over a year ago called Security Budget in the Long Run, and I would 7:23 say the core message of the post is that if we embrace merged mining, then security budget 7:31 will be very high, it could be like a trillion dollars a year by 2050, but if we don't, it 7:38 will probably be pretty low, it could be like very low, as low as $70 million a year like 7:44 it was in 2018. 7:47 So I basically say that we should go for this merged mining strategy, and security budget 7:54 is how much money we pay the miners, so they can't spend more than they earn, and so how 8:00 much we pay them is also the ceiling for how much they spend on mining total. 8:06 So therefore, it's also the cost of a non-coercive 51% attack, the cost of renting and or buying 8:13 all of the mining equipment on the planet or that's in use. 8:18 So in the long run, it's also the cost of buying up all the block space, actually, and 8:22 not allowing anyone to transact, because in the long run, it's only fees that contribute 8:27 to security budget. 8:29 So whereas in the short run, it's currently we have this block subsidy that dominates 8:34 it, this is a 12.5 Bitcoin that are created every 10 minutes, that will famously halve 8:39 to 3.25 in a few weeks. 8:46 So I think the big part of the disagreement is over fee rates on layer one, which is that 8:52 I'm skeptical that they can climb significantly from where they are, which is like less than 8:57 a dollar per transaction. 9:00 And as I understand it, but you can hear it from him, Dan thinks that they could easily 9:05 climb to more than $50 per transaction. 9:10 And so that is kind of what I'm skeptical of. 9:12 I think we need to access block space on different blockchains and pool all the fees. 9:19 And that is what the post is about. 9:23 And it triggered a lot of different reactions. 9:25 A lot of people liked it, some people hated it. 9:28 But that was what I wrote. 9:32 And I think that's the core of the disagreement, as I understand it, is about these layer one 9:38 fee rates, which are different from total fees, you understand, it's difference between 9:41 revenue and price. 9:43 So it's total amount of money paid to the miners. 9:46 It's not necessarily the same thing as the Satoshi per byte fee rate. 9:53 I'll keep my opinions aside here to keep this going. 9:57 But Dan, what are your knee-jerk reaction to Paul's points on transaction fees, security 10:03 spend and the long term here? 10:05 Well, to zoom out just to make sure, I think we're talking about the same thing, which 10:08 very directionally sounds like we are. 10:11 The big picture is, will Bitcoin security, a security model, stand up to attackers in 10:18 the long run? 10:20 And a core component of that is looking at the block reward, which is comprised of the 10:25 block subsidy and transaction fees, and examining if transaction fees will replace the block 10:31 subsidy in a meaningful manner, and meaningful enough to ensure security for the network. 10:37 I think that's kind of the gist of it. 10:39 There's a ton of nuance here. 10:41 There's a lot of different pieces we can pull apart. 10:44 One is looking at, like, is block space commoditized? 10:47 Is block space on Litecoin equal to Bitcoin? 10:51 Or will users pay higher fees in the future? 10:54 There's a lot of different avenues we can go here, and I think Paul and I disagree on 10:57 a couple different points. 10:59 It sounds to me like one of the key points you guys disagree about is how transaction 11:05 fees will have to climb over the next few decades to make up for the block subsidy. 11:11 Is that fair, or is that off? 11:14 Yes, I'm skeptical that they can climb. 11:16 Skeptical of the transaction fee, layer one transaction fees. 11:20 I definitely don't think that it's a given that they will rise from less than a dollar 11:25 to more than $50 for a transaction, in terms of, you know, purchasing power and adjusting 11:32 for inflation and time value money and all these things. 11:35 I don't think it's a given, and I don't really even think it's likely, because there was 11:39 only one instance in which they did climb that high, and that was the December 2017 11:46 bubble, and that was a very kind of, I think that was just a very, that was a kind of incidental 11:54 moment where people had no idea how Bitcoin works, and they were getting involved with 11:58 it, and they just jumped right in, and they, everyone had a lot of FOMO, so they just jumped 12:03 in, and they were like, I'll pay whatever it takes, but since then, they've fallen, 12:09 and I don't see them going back up to that. 12:12 Dan, what's your take on security fees going up over time? 12:15 Accidentally. 12:16 Yeah, happy to dive in on this. 12:18 I think when we, you know, I think something that everyone should zoom out and really understand 12:23 is that when you transact across a block space, you don't just incur transaction fees. 12:29 You incur exchange costs and volatility costs. 12:32 So for example, if I transact on Litecoin's block space, while that transaction fee may 12:38 be explicitly lower than Bitcoin's, the volatility is typically higher in an alt. 12:44 So when I purchase that crypto, and then by the time I dispose of it, that volatility 12:49 fee could be enormous of what I, you know, for example, a $10 transaction, if there's 12:54 a 10% volatility fee that I pay because by, you know, from the time I purchased it to 12:59 the time I disposed of it, it moved to 10%. 13:02 I pay that plus the transaction fee plus an exchange fee. 13:07 So when I buy and sell crypto, and the use case I'd like to use here is let's pretend 13:11 we're doing a merchant payment where I'm buying Alpaca socks, and I am agnostic as to which 13:17 crypto asset I use. 13:19 You know, let's say volatility is at zero because I immediately purchase the coin and 13:24 then immediately dispose of it, I still pay an exchange fee. 13:28 So on Kraken, the exchange I work at, one of our lowest fee tiers is around 10 bps. 13:34 So 10 bps, you know, unfortunately volatility in exchange costs are priced in percentages 13:39 essentially. 13:40 So as those move, or as the value you're trying to move on chain becomes larger, those can 13:48 become enormous sort of costs. 13:51 So when we look at costs to transact on a block space, we have to not only include the 13:55 transaction fee, but these other two costs as well. 13:58 And then I'm not even including other things like, well, these block spaces are very unique 14:03 considering there's coordination costs. 14:06 You know, we all, many people have Bitcoin, not many people have Dogecoin. 14:11 And so there's a coordination cost there. 14:12 And also, there's a security sort of mindset where at the end of the day, we're looking 14:17 at what's my, with a proof of work coin, it's what's my, what are the assurances do I have? 14:23 Or how confident am I that this transaction will be final? 14:27 In proof of work chains, there's degrees of finality. 14:30 And so, you know, people will naturally gravitate towards a blockchain that has that highest 14:37 amount of security. 14:38 So, you know, TLDR, there's a lot of costs involved when you transact via block space. 14:46 When we look at Bitcoins specifically, and the transaction sort of elasticity or inelasticity 14:53 of the transactors on Bitcoin's block space, you know, when people transact in Bitcoin's 14:58 block space, what fees are they willing to pay? 15:01 And what's nice is that we have historical data to look at for this. 15:04 So if I pop up in coin metrics right now, you can simply look at transaction fees median 15:10 in US dollar value. 15:11 And we see that climbing over time, especially when you look at this in log, on a log presentation. 15:18 And this is, I think, the more appropriate way to look at it versus a linear one, which 15:22 is commonly used by Paul. 15:24 We don't look at Bitcoin's pricing. 15:25 That's not true. 15:26 In the post, I never use a linear scale. 15:28 I don't know why you bring that up. 15:30 You did for the first two charts, and I read, we read your article right before this. 15:33 The first two charts you use linear, and then you show a log. 15:37 But you also use. 15:41 I have it open right here. 15:42 It's your February. 15:43 Yeah, no, I may have used it once or twice, but, you know, it's not the case that it's 15:51 misrepresenting as, you know, some trend or something. 15:55 It clearly is, given your conclusion, using a linear price, using a linear chart for fees 16:01 very much distorts the growth in fees or the growth in what users are willing to pay in 16:07 fees over time. 16:08 Yeah, well, I mean, I don't really agree that there's any, I mean, what I'm trying to make 16:15 with some of the points of the graph is that they've been very low for a while. 16:19 And then in December 2017, they spike up, but then they go back down and are completely 16:27 absent. 16:28 So most of the data or most of these points in time are just meaningless because they're 16:34 like in 20, fees go up from 2013 to 2014, they were the cheapest, Bitcoin went from 16:40 being the cheapest transaction medium to still the cheapest. 16:44 So it doesn't really mean anything when they go from one cent to five cents or one cent 16:49 to 10 cents. 16:50 That has no like microeconomic significance to the person transacting. 16:55 It's only when it goes from being a dollar to like $5 or $10 that people will suddenly 17:01 start to actually pay any attention. 17:03 Yeah, so over time, the idea of a long-term trend is, I think, a myth. 17:08 It's not because with each bull bear market, we see a floor established with transaction 17:13 fees. 17:14 Anyone can look up this data, by the way, it's on CoinMetrix, fee, transaction, median 17:18 USD is the value I'm looking at, especially if you do like 90 days smooth, which makes 17:23 it a little bit easier to read. 17:25 So yeah, I mean, with each bull bear market, we see a floor established where fees don't 17:30 all of a sudden fall to zero. 17:33 The median transaction fee per transaction continues to climb higher and higher over 17:38 time. 17:39 Wait, so Paul and Dan, I might be misunderstanding here. 17:42 What do you guys mean by comparing the linear to the log chart of fees here? 17:46 Are you saying, Paul, that since fees only spike up to a meaningful amount, that that's 17:51 not sustainable? 17:52 Or are you saying that when fees spike up, that people take notice and won't use it? 17:57 Like, what's the significance of that? 17:59 Well, let me, I've got it somewhere around here, so let me go to it. 18:03 Yeah, so what I, so I have two charts here in this post that I wrote. 18:09 And they are, it's true that two of them are with a linear scale, but that's to demonstrate 18:15 my point about there being a big difference between December 2017 bubble period and all 18:22 the time since, which is readily apparent. 18:26 And I didn't choose any of these axes, they're from other websites, but then the next one 18:31 is a log scale, and it states the average transaction fee in U.S. dollars per transaction 18:41 and there's this bump up in January, but then there's a, there's nothing, what I'm trying 18:52 to get at is that there's only this December 2017 bump. 18:58 There's no, there's no other data, really. 19:01 It's true that fees have gone up, but they don't, you know, they went up. 19:05 It's true that in, so in July 2011, they were 4 cents, and then they went up from there 19:13 to January 2014, where they went up to, you know, 30 cents. 19:17 But you see, going from 4 cents to 30 cents is meaningless. 19:21 So, Paul, let me just make sure I understand, and Dan, jump in here if I'm also misunderstanding, 19:28 but so basically what you're saying is that since the cost jumped up once or twice, that's 19:33 not a sustainable trend for transaction fees increasing over time to maintain. 19:38 There really is no trend. 19:40 There's just in the software. 19:41 I mean, that's a complete fabrication. 19:44 There is definitely a trend. 19:45 Anyone can look at the data. 19:46 I don't know what the fabrication is, the fact that there's a trend. 19:50 You are looking at bull, you're looking at, you know, boom bus cycles and going, oh, look, 19:55 it's not sustaining those peak, but, you know, peak boom cycle fee levels. 19:59 And of course it's not. 20:00 No, just one, just one. 20:01 There's only one in which it went above $10 per transaction, for example. 20:06 You're choosing an arbitrary value. 20:08 No, I don't think so. 20:10 Because this is the, you could compare it to the cost of other things like Venmo or 20:14 Facebook. 20:15 But I think it's not arbitrary to say that, like, people won't care about 25 cents, but 20:22 I think people start to care about $2. 20:25 I don't know that that's a completely, like, I picked a number off of the real line from 20:30 zero to infinity, like at random, it's pretty normal to say that $2 is about when people 20:36 start to think, hey, is there a way of me not paying this because, you know, $2 will 20:42 buy you something. 20:43 Paul, in your post, you provide no data to support that, that $2 or $1 or $10 is a magical 20:51 level of people who care. 20:52 And in fact, I did in mine. 20:55 Well, I agree that I just chose it, but I don't think that it is, you know, well, first 21:00 of all, the fees haven't even gone above $1 since that one epoch. 21:06 But I mean, it's true that these are all random numbers, but you really think that there's 21:09 complete neutrality between, like, if I'm going to say that. 21:13 So Paul, that's a lie because in August 2019, fees went above $1 again and people paid it. 21:20 Oh, yeah, well, maybe for, you know, one or two weeks. 21:24 But this is, again, that's exactly another. 21:26 It's actually for a couple of months. 21:28 Anyone can look at this data, by the way. 21:31 So guys, I have the dollars, not it's very, there's a huge difference between crossing 21:35 from $0.10 to $0.10. 21:37 Actually, let me do this, Tom, I've got a good answer for this. 21:41 So yeah, Paul, rather than just hypothesizing what people might be willing to spend, I looked 21:46 at real world data. 21:47 So I looked at what people spent on wires, physical gold delivery, offshore banking, 21:54 and real estate transactions, all of those being store of value asset transactions, which 21:59 Bitcoin is most definitively a store of value asset. 22:02 And so we could look at other people's affinity to pay those fees for those type of asset 22:08 transfers and probably use that as a good benchmark for what people would be willing 22:11 to pay for Bitcoin. 22:12 And Bitcoin actually is a phenomenally better asset than these other ones. 22:15 I mean, with real estate, not only do you have these transaction fees, but the asset 22:19 you own isn't fungible. 22:21 It's got maintenance costs. 22:22 It's very illiquid market. 22:25 So in fact, you could claim that users would be willing to pay even higher amounts on transaction 22:30 fees. 22:31 And so here's an easy- 22:32 No, I think this is just ridiculous. 22:35 If you buy a Steinway Grand Piano, you have to pay for movers, you have to pay for like, 22:40 it's like- 22:41 It's a store of value asset. 22:42 Thank you. 22:43 But it's not the case that, I mean, what does real estate have to do with payments technology? 22:49 I think- 22:51 It's really simple because Bitcoin is a store of value, the Bitcoin is a store of value 22:54 gold 2.0 asset. 22:55 So we can look at other stores of value and determine what people would be willing to, 22:59 you know, what they pay in transaction fees today on those sort of whatever we want to 23:04 call them, rails or assets, and then use that as a good approximation for what Bitcoin users 23:09 would be willing to pay. 23:10 I mean, you could say that, I don't know, I don't know what to tell anyone in the audience 23:13 who thinks that we should look to a real estate closing costs as having anything to 23:23 do with a payment, you know, willingness to pay or the market clearing price for, you 23:31 know, a market. 23:32 I don't even know, it's like, it's baffling to me that- 23:34 Let's make this easy, Paul, because you're kind of, you're building a straw man here. 23:38 Let's make it really easy. 23:39 Let's look at wires. 23:40 That's a pretty close equivalent, right? 23:42 Yeah, I think definitely people will prefer blockchain payments to wires. 23:46 I agree with that. 23:47 That makes sense. 23:48 How much do people pay for wires today? 23:50 What's the similarity between wires and real estate transactions? 23:57 I think you're building a straw man here with real estate. 23:59 So how about we ignore it since you're focused on- 24:01 I didn't want to build it, you gave it to me. 24:03 This is your argument. 24:04 I had nothing to do with real estate. 24:06 I've already explained it to you twice. 24:08 All of these are store of value assets, whether it be gold, wire, you know, you're moving 24:13 large amounts of money with wires. 24:14 I don't think so. 24:15 Real estate, you live in a house and you- 24:17 Real estate is a $250- 24:18 Real estate is very different. 24:20 Real estate is a $250 trillion store of value industry. 24:24 In fact, real estate is typically the largest asset anyone will own. 24:28 So yes, it is a very good- 24:29 No, I mean, there's nothing about the size of the asset. 24:33 I'm just saying that when people buy real estate, they usually want to do something 24:36 with land. 24:37 They live in the land. 24:38 Paul, I'm not going to continue down this conversation if you don't want to have an 24:41 intellectually honest debate. 24:42 Let's focus on- 24:43 I don't understand. 24:44 What's the intellectual dishonesty? 24:45 I don't, I don't know. 24:46 I, you know, I apologize if I've given any offense, but I honestly have no idea. 24:50 You're the one- 24:51 Paul- 24:52 But if you want to go back to wires, then by all means. 24:55 Yeah, Paul, let's zoom out. 24:56 So first of all, you said users would not be willing to pay above a few dollars, which 24:59 you provided no data for. 25:01 I looked across multiple types of store of value assets. 25:04 You're being a bit picky and focusing on real estate where- 25:04 Yes, I believe that occasionally people have, in the heat of the moment, and this is fully 25:10 my consistent published point, that in the heat of the moment, obviously, people have, 25:16 especially in December 2017, they have paid these high fees. But I'm skeptical that this 25:22 is this kind of sustainable thing. I think when people pay these high fees, they're not 25:29 these high fee rates. The gears start to turn in their head and they think, 25:34 you know, isn't there some way of me improving this? Maybe I can transact differently and I 25:40 could do like what Adam Back was saying, where you can have some kind of credit relationship. 25:43 We have a tab build up as a bartender and I'm going to transact less or maybe this technology, 25:50 you know, isn't right for me and I should go back to using Venmo or Facebook or whatever. 25:56 But I think people are willing to give it a try for the first time and they say, 25:59 well, you know, whatever, I'm going to invest all this time in learning about it. 26:04 Guys, when we think about this- Sorry, Daiglett. 26:08 Let me dig in a little bit more. So I have a question for you, Paul. In your article, 26:11 did you ever look at volatility or exchange fees when looking at transacting across a block space? 26:17 Yeah, you're referring to my point about altcoin space being a competitor to Bitcoin 26:25 block space, yes? Answer the question. Did your article ever 26:28 talk about other fees when transacting? I don't think so. 26:31 Okay. So you didn't focus holistically on how much it costs to transact in a block space? 26:36 Well, I mean, how expensive can it be? If it's going to go, it's going to be $50 26:40 for every layer one BTC transaction. Well, Paul, I work at Jack and I actually 26:45 know exactly what my fee schedule is and it's- No, but I'm saying, I'm just saying 26:49 your example where layer one Bitcoin fees are $50 per transaction. 26:54 Then it has to be quite a bit. The volatility has to be quite a bit to be- And any upside 27:01 volatility, you benefit. So you can write a kind of- Someone could write a hedge or 27:08 use something like Tether or something like that. They could write a zero cost caller or some kind 27:12 of financial scheme if they wished. But just ignoring all that, if it's costing you $50 27:22 to transact on BTC layer one, then the total costs, which I admit it's inconvenient to have 27:30 this multi-crypto wallet and have all these prices that fluctuate. I fully admit that that is not 27:35 free. But I just think you can have a situation where BTC fills up and the fees start climbing to 27:43 $10, $20. Someone can copy and paste Bitcoin. It doesn't even have to be Bitcoin Cash or 27:50 a large block piece of software or something with like weird developers that no one likes 27:58 or Satoshi's Vision. It doesn't have to be anything like that. It can just be copy paste 28:02 to Bitcoin or it could be like Litecoin where it's as if it were a copy paste. And it can have 28:07 basically the same technical properties, even though we'll certainly have a smaller network 28:12 effect and be new. But then you have a situation where one costs a layer one fee in addition to 28:18 all the hassle of dealing with crypto. One has $10, $20. The BTC has $10, $20 fee. And this 28:26 newcomer will have zero at first. And it will also be much easier to run a full node. I mean, 28:32 it will be more insecure because it will have less hash rate. This is why I advocate for merge mining 28:36 in the post because you wouldn't have to deal with any of this. But just ignoring that, you 28:42 have this altcoin that's just a copy of Bitcoin and it's $50 or $10 or $20 per transaction versus 28:51 one that's free. I think you have to have quite a lot of frictions to make up for that. 28:58 Right. And so in your analysis, did you look at how much volatility would be 29:01 averaged for most of these other chains? 29:03 Well, I think it's possible that in a realistic scenario where BTC 29:07 fills up, it won't be relevant because when you start up the new chain, it'll just be something 29:12 else that has a similar story to Bitcoin, where we'll just continue to appreciate over time. 29:18 This is a hypothetical world where BTC fills up and then you copy and paste again. And then 29:23 when that one fills up, you copy and paste the third time and a fourth time. 29:29 As the saying goes, no one goes there anymore because it's too crowded, is what you're saying? 29:33 Not really. I'm just saying that it would cost more. And so people would want to avoid paying 29:37 that cost. 29:39 Sure. But your cost analysis ignored larger costs as well. So you singularly focused on 29:44 one tiny component of the cost. And so I find that just kind of absurd, to be honest. 29:50 I mean, you tell me that. If you looked into it, you're going to tell me that this adds up to more 29:56 than $50? 29:59 It's common sense. 30:00 All you have to do is look at the value you're transacting. As that value grows, 30:05 then the volatility and exchange fees become much higher, 30:08 right? Because those are percentages rather than an absolute value. 30:14 You know, if you say that, because almost all, like a huge mass majority of payments, 30:20 think the average credit card payment is something like $50. So that's, you know, 30:26 the average card payment for credit and debit cards around the world, I'm not disputing that 30:32 there are many large payments people make by check and by wire and things. I'm just saying, 30:36 in the United States, the average credit card size, which is probably skewed, 30:42 someone should probably look at the median because it's probably lower. But the average 30:46 is something like card, debit and credit is something like $50. So you're looking at doubling 30:52 it for all those class of payments. So those wouldn't be on chain. 30:56 That makes no sense. I mean, what is this, 2015, and we're talking about using 31:00 Bitcoin as a cheap visa? No one thinks that anymore. 31:04 It means that there's less demand, though. You can have a lot of people in the United States 31:09 buying into Bitcoin the first time in December 2017. Less demand for block space. The difference 31:15 is in the block space and the asset itself. So there's only 21 million coins, there's only 31:22 one megabyte available for non-witness data. And if you want to have a lot of people bidding up, 31:29 the transactions are in the block space dimension. They're not in the demand for the asset dimension. 31:38 Right. So in my analysis, one, I looked holistically at fees, and then second, 31:43 I looked at real world comps. So like, for example, today, an average consumer is willing 31:49 to pay between $20 and $60 in the United States to wire money. That is a good, close, real-world 31:56 data that we have that would validate my hypothesis that users are willing to pay higher fees for 32:02 Bitcoin transactions. But willingness is not the same thing. 32:06 Higher fees for Bitcoin transactions. I mean, I'm willing to pay a lot of money for food, 32:11 but that doesn't mean the market clearing price of food is going to be high. It ignores the supply 32:16 dimension. Your hypothesis would be validated if we saw Bitcoin fees collapsing as more and 32:23 more blockchains with all this unlimited block space came online, right? No, not precisely, 32:28 but we see exactly that anyway. We don't see that at all. We don't see that at all. We see 32:35 Bitcoin's fees climbing over time, despite thousands and thousands of blockchains being 32:41 created, which would increase the amount of commoditized block space, as you would put it. 32:46 No, I don't think that's the case. I mean, when Bitcoin first became worth, 32:50 the transaction fees first rose above $1 for a transaction, that was May 2017. 32:56 That's exactly when Ethereum became big. And see, here's the thing. Ethereum became big, 33:02 not using any of its novel, quote, novel features about Turing completeness or whatever. That was 33:10 just people doing basically counterparty on Bitcoin, but on Ethereum. They were doing the 33:15 CRC20 token. That was all preempted by and basically caused by 33:25 this dispute about fees in the Bitcoin community. No comment on the dispute other than that. I'm 33:32 just saying that it created this. And there's no need for there to be, it's not the case that 33:39 new supply automatically lowers the price because it's negligible when it's less than 33:44 $1 or $2 is my claim. So my claim is that people just, even though it's a real number 33:49 and $1 or $2, people prefer having $1 or $2 to not having it. I don't think they significantly care. 33:57 So it's not the case that just copying and pasting a billion will just cause the $2 to plummet to 34:02 zero. I agree with you that there are many frictions involved in changing, swapping the 34:08 chains around. So I don't think that it's just copy and pasting a trillion chains will drive 34:14 the fee rate all the way down to 0.000 millionths of a cent. 34:22 I'm just saying that once they get high, once they get to $2, $3, $4, $5, then people start 34:27 to think, why am I paying this? Can't I do something with my behavior to pay less? 34:33 And so I think that food is a pretty good example. My willingness to pay food is 34:39 tremendous. But fortunately for me, I live in a world where there's lots of food around. 34:43 I've got various shapes and sizes for me to buy. 34:46 Hey guys, I also wanted to tell you about Zenledger, the best tax software for cryptocurrency 34:51 investors and accountants. It's fast and easy to use and you can get all of your crypto transactions 34:56 in one place so you can trade smarter and optimize your taxes. Zenledger offers 24-7 35:02 customer support by phone, email, or chat to help you get your taxes done stress-free. 35:07 And it comes with 100% money back guarantee because they know you'll love it. 35:11 Zenledger is giving an exclusive 15% discount to our listeners when you use coupon code 35:17 chain15. Go to zenledger.io, linked in the show notes below, to get started and get your taxes 35:23 done fast. Paul, quick question for you real quick, though. Yes. Quick question for you and 35:29 Dan, and it might be more suited for you, though. It sounds like a lot of your comparisons are 35:33 focused on the medium of exchange definition. I don't think a lot of people view Bitcoin as 35:39 a medium of exchange. I mean, I personally want to store value in it. I don't mind paying a little 35:44 bit more to compensate miners around the world to store that state. Oh, well, that's a different 35:50 issue. But that's two issues. One issue is that, yes, it's completely different. Again, 35:55 the supply and demand for coins versus the supply and demand for the block space. 36:01 So they're completely separate markets. I mean, they have relationships like everything is related 36:07 to something else. But the desire to own Bitcoin and the price of Bitcoin, dollars per Bitcoin, 36:15 you see dollars per coin, that's a different price than the dollars per 250 bytes that it costs to 36:23 rent to describe the average Bitcoin transaction. So you see bytes in the blockchain, that is a 36:31 different commodity, for lack of a better word, than BTC. So it has no basis on whether you think 36:40 that Bitcoin, the coin, should be a medium of exchange or store value. There's no basis. 36:47 I guess I'm just missing it. I guess I'm just missing it, though. And 36:50 maybe, Dan, you could explain it or Paul explain it further. 36:52 I can explain it, I think, which is that if the exchange rate goes up a lot, 36:57 you reprice, you're not suddenly, if you're willing to pay, let's say you have a giant stack 37:03 of Bitcoin, you want to pay someone, and the software will make you quote it in satoshis per 37:09 byte, the fee. You'll pay some, I don't know what it is, whatever, 40,000 or let's just say 4,000 37:17 satoshis, because I don't want to think about it. 4,000 satoshis to pay the transaction fee. 37:24 But if the exchange rate goes up and multiplies by 10 or something, what you'll do is when you 37:29 really think about, when you go to make, to make the same transaction, you'll be like, oh, 37:34 what's the market rate for transaction fees? And you will then type in 400 satoshis instead of 37:43 4,000, because it would be more painful to you to lose, it would be 10 times more painful 37:48 losing each satoshi. So it will come out to a kind of, this is why they all have to be in 37:53 purchasing power, the fees. The fees are what, the cost in economics, the cost of anything is 37:58 when you give up to obtain it. So when the, if the Bitcoin price sky, the price goes to the 38:04 moon or the exchange rate skyrockets by 10, the coins are all worth more, but it doesn't really 38:12 affect the fee market. The fee market is driven by these fundamentals of demand for the block space 38:18 and whether or not people need to make transactions. So only during the bubble time 38:22 they become related because suddenly everyone wants Bitcoin and everyone wants blockchain space 38:27 at the same time. So they have a misleading relationship that is. 38:32 Maybe I can jump in here that will provide a little color for, for everyone listening. So 38:38 yeah, essentially the way that I think about block space is that it's like a parcel of real 38:41 estate and there's a new one created every 10 minutes. And by bidding on it, I'm bidding on 38:47 getting into that, that parcel. So in an open market, that means that I need to bid competitively 38:54 in order to get within, to get in that parcel within that, you know, that 10 minute time period, 38:58 approximate 10 minute time period. So, you know, for me, the way that I think about it is that 39:03 yes, demand for the asset itself fluctuates. And I think what Paul is trying to say is that the 39:07 demand for the asset fluctuates, but the, the block space remains constant. So demand can 39:13 fluctuate or not. Sorry, I miss, miss said that, that the demand for block space, there's, 39:21 there's a lot of, there's potentially almost unlimited demand for block space in a fixed 39:24 amount. Whereas like the demand for the asset itself, there's a bunch of supply that can meet 39:31 that. Is that what you're trying to say, Paul? Well, I'm not sure. I'm just saying that they're 39:35 two different assets. So they have a different price, like pricing. I don't know, even what 39:40 it's like pricing a television versus the electricity required to run it. The electricity 39:44 is a function of different power plants and how well run the power lines are. And, you know, 39:53 that's a function of a totally different thing than the, how much it costs to buy a television 39:57 is a function of how good people are at producing television. So they're, in my view, they're 40:03 separate goods, but of course they have some relationships, especially during these bubble 40:07 times when everyone wants to own. Yeah. So then they need, in order to obtain it for the first 40:13 time, it's like, you know, in order to use a TV, you need electricity and it's not a perfect 40:17 metaphor by any, in any sense. I'm just trying to emphasize there are two different things. People, 40:22 they get very, I think they do get kind of, they don't really realize there's two different 40:28 goods here. Let me take a derivative, derivative of this and see if this leads 40:33 out on an interesting path. So, you know, when we look at, you know, the subsidy over time in 40:39 the block reward decreases through the halvening events. And after those halvening events, we then, 40:47 you know, we've seen thus far a corresponding boom bust cycle. And so over time, as the have, 40:55 as the subsidy has decreased, it has decreased. We have seen transaction fees respond in terms of 41:02 the amount. So when the block reward halves, that reduces the supply hitting the market, 41:08 that makes the supply a bit more sensitive to increases in demand. So when increases in demand 41:13 occur, the price goes up, that new price, the new spike in price creates a bubble, 41:19 that bubble creates awareness. And then people come back into the protocol because of that 41:23 awareness. So for instance, you see it going past 10, a hundred or a thousand dollars on CNN, 41:29 you go, oh, maybe I should buy some. And then when you buy some, you now become a potential 41:34 transactor. And so we've seen that reflected in Bitcoin's block spaces that through these bubbles, 41:39 we've seen liquidity, awareness, adoption, and transaction fees all jump as well. And through 41:46 each cycle, even though there is a drawdown in the bear market, similar to price, you know, 41:51 with the price of Bitcoin in a similar fashion, transaction fees don't go below the floor of the 41:57 last bubble. There is a floor set of the price of Bitcoin and there's a floor set to what 42:03 transaction fees users are willing to pay. And we have seen that go in lockstep upwards and upwards 42:08 over time. Well, I agree with a lot of that, but I don't think it will help. I mean, the floor is 42:12 no good really. And the floor is just, you know, we need the average fee to go up, we need the 42:21 ceiling to go up. We have seen that average fee has trended upwards over time. But yeah, 42:27 I definitely agree that as more people get involved, there's more demand for, yeah, 42:33 once there's more demand for Bitcoin, the asset, then in order to join the club, people need at 42:39 least one, usually several on-chain transactions. Of course, it goes the other way around, right? 42:47 If the fees are too high or if the security budget collapses, right? I mean, they'll want Bitcoin a 42:53 lot less if the security budget is too low and it costs just a few million dollars to reorg the 42:59 chain for a month or two months or something. So I think that kind of goes in both ways. 43:04 But yeah, I agree with most of that, that it's true that people, I don't agree that this thing 43:10 about the halvening is a myth and having any real effect is a myth. There are dealers, there are 43:16 people who would hold, buy the coins up before the halvening and then sell them later and 43:23 warehouse them to arbitrage any known price discrepancies and things. But yeah, I agree 43:28 that there's definitely a lot of positive feedback loops because when Bitcoin goes up, 43:33 people get more interested in it. It grows the community and it does increase demand for the 43:40 coin and for block space because you want these new people to join. So I agree with all that. 43:45 Again, I just don't see how it translates to $50 per transaction for thousands of transactions 43:52 every 10 minutes, every 24-hour period, every 365 days of the year. This is a negative feedback 44:02 loop. This is more people join, fees go up, people become more frustrated. And you were saying 44:09 before it was like real estate, but I think, as I've said, you can just copy and paste Bitcoin. 44:14 If you could copy and paste Earth, including Manhattan, I think you'd have some people who 44:21 would be willing to take a chance on Manhattan too, the ultimate Manhattan. If they're paying 44:28 $7,000 for a one-bedroom or whatever, they're in the Wall Street district, financial district, 44:36 and they can then pay zero. And sure, no one else is there. So definitely, it's a good comparison 44:43 in a way. No one's in the nightclubs yet, but you have your own Brooklyn Bridge, you have your own 44:50 Empire State Building. I think it really would prevent... Real estate isn't a great example, 45:00 actually, because a big benefit of spending a lot of money on rent is actually that you live 45:07 near other wealthy, successful people like yourself. Whereas in this world, 45:16 you could still... It would be like if you could copy and paste Earth, but you could still stream 45:22 Netflix videos that were made on Earth One and still talk to the people on Earth One. 45:26 I'm not sure that it's a perfect metaphor. But what I'm trying to say is if you could copy and 45:30 paste Rome and have your own Rome... I think I would rather go to Rome all by myself and not 45:36 with panic at the crowd of other people. Bitcoin's block space has value due to the 45:41 network effect. The coordination cost and the security model is all based on that. So 45:47 it's not a really good comparison to say you can just copy and paste it, because if you copy and 45:50 paste it, you lose the network effect, which is the whole point of why we're here. Money is a 45:54 network effect. No, I completely agree that money is a network effect. And I think that 46:00 you... Yeah, definitely a drawback of copying and pasting Earth is the first few people there, 46:05 then no one else will be there. So you have to take the transporter or whatever and your 46:11 friends and family won't be there, even though you could still call them or something. 46:15 But I just think that... I think it just dampens the ability to say, 46:21 I mean, you can go... It just dampens the ability... You seem to ascribe a kind of... 46:28 A kind of... You say no matter what it costs, people will be willing to just pay this 46:37 high fee rate. And I just think that's... To me, that just seems like a dangerous little 46:41 wishful thinking. I'm not comfortable with that. I just think, well, I don't know, 46:45 people are kind of... Most people don't care about Bitcoin. Most people don't like 46:49 libertarianism. They're not ideologically going to pay. They just want something that works. 46:55 And the blockchain payments, even if you started over with no... I mean, 47:00 we've seen other things succeed, Monero and Ethereum to some extent, just because they 47:05 happen to solve problems that people thought they had, for better or for worse. And if you start 47:10 over, you still have a lot of the self-sovereignty, privacy properties. You get a new coin that can 47:17 appreciate... That's objectively false. You can't say that these coins have those same properties 47:23 because the entire point of our conversation was talking about security budget. And if we look at 47:28 transaction fees overtaking the subsidy from Monero, it's basically dead. Also, 47:33 Monero's hypothetical use case is dark market transactions, but Bitcoin still very much 47:37 predominantly owns dark market transactions despite its lack of privacy, which indicates 47:43 that network effect, by and large, is the most important characteristic here for Blockspace. 47:48 No, I totally agree that network effect is very important and probably the most important thing. 47:53 I just don't think it has an unlimited ability to trump people's... See, here's the other thing, 47:58 is that you can move and you have the network effect today, but then you lose it tomorrow. 48:03 So this is what Roger Ver is hoping and praying for that, and all of his followers hoping and 48:12 praying that fees will climb on layer one, BTC, and then something else that's relatively similar, 48:21 but has larger block size. Enough people will experiment with that until the network effect 48:28 will regrow around that thing, and then the demand for BTC will collapse. This is what he's hoping, 48:35 that no one will want to be on BTC. I've lost the network effect that you and I both agree is 48:42 important. So the network effect is not like... You can extract quite a bit. I've been to some 48:50 some New York City nightclubs and things that charge an awful lot of money for basically 48:57 only that other people are there. Right, and back to my original point, have you or Roger, 49:02 which I've both studied extensively what you've written, have either of you ever looked at 49:06 volatility fees and exchange fees when transacting across a Blockspace? No, but I don't think you 49:11 understand what I'm saying. He's saying, well, Roger Ver is hoping that people switch completely 49:15 to BCH, and they will no longer have to switch, go across chains. They'll just be in one chain. 49:24 It's really simple here. So you guys are singularly focused on transaction fees, 49:29 which is by definition intellectually dishonest, because you're not including other fees. 49:35 You're not including all the fees necessary to transact. Shouldn't it be a wash for each? 49:40 Why would it be different to BCH volatility fee versus BTC? 49:45 Bitcoin has less volatility than alts. 49:48 No, but you don't understand what I'm saying. Roger Ver is hoping that sometime in the future, 49:52 in like 20, well, maybe this year or 2021 or something, 49:57 BTC is like the hottest nightclub in town. But then more people start to go, 50:01 you know, it's like it's an empty Super Bowl stadium at BCH because no one is there, but it's 50:05 big. 50:06 And so Roger's hoping that one day he can throw the most popular party that has the Super Bowl, and then that would be the one that has the network effect. 50:12 So then it will be BTC. All of your arguments will cut against BTC. 50:16 It's a pretty nonsensical sort of analogy here. So I'd probably prefer to move on to something else, because again, I go back to this point multiple times. 50:26 I am the only one who looked at exactly how much it costs to transact across block spaces. You all singularly focused on one variable, and I find that really dishonest, because I look at real world costs and you look at an isolated variable in a laboratory. 50:44 No, but don't you understand you don't need to cross change if you stay on BCH. That is what Roger Ver is hoping. 50:49 He's saying that hoping that people will stay on BCH and not go to BCH. 50:53 As you said, Paul, your purchasing power is how we should evaluate costs. We don't evaluate... 50:58 Yeah, I agree. But what does that have to do with it? 51:01 Because the value of BCH and Bitcoin fluctuates, so you're still paying a volatility fee. 51:07 I know, but there's no additional marginal... I don't understand what you're saying. You're saying that BCH will... 51:14 That's the exchange fee, Paul. It's going from any other crypto or fiat to the crypto of your choosing and back, but I'm removing that from this equation to more granularly focus on just the transaction fee and volatility fee. 51:35 Volatility fee fluctuates because whether... No, let's say you take Bitcoin and I want to give you Bitcoin. 51:42 Just because we transact in the same asset doesn't mean we're paying a fee, a volatility fee, because that Bitcoin in the real world has a purchasing power that's prescribed to it and the more stable units of purchasing power like the dollar. 51:55 And so that's the fee that we're paying and that fee fluctuates. 52:03 Yes, I still don't understand that. So Roger is hoping that people will stay in BCH completely, that they'll just pay each other... 52:10 Which is nonsensical because like... 52:12 ...US dollar values, but they'll just pay... You're saying that the price of BCH or large block variant of Bitcoin is inherently more volatile than the price of BTC? That's what you're saying? 52:25 It's empirical, yeah. 52:28 No, but historically, don't you understand what I'm saying? The network effect... BTC has had the network effect in the past, but Roger is hoping that the tables will turn in the future and it will be the reverse. 52:38 I mean, it's a bunch of what-about-isms, but we see that there's really strong reasons why Bitcoin's network effect will be maintained and continue. 52:48 And these are more like, if we build it, they'll come and no one goes there, it's too crowded, which both are kind of like debunked, totally debunked sort of memes. 52:59 Dan, Dan Paul, just so I'm understanding correctly, Dan, what you're saying is that if people move to BCH, the fee might be smaller, but they're paying so much more on the spread because the asset's more volatile, that it's not worth it? 53:13 Both in the spread, both the exchange fee, which is the spread plus slippage plus exchange fee, and on the volatility fee, which is the variable purchasing power of the underlying asset. 53:25 No, but it is actually not. All the empirical evidence, supposedly, that Dan is marshalling in favor of BTC is just being commandeered, because he's saying the most liquid asset has advantages, like less volatility, more liquidity when you buy and sell, less need to change chains, right? 53:49 So he's saying the network effect gives you advantages. That's what he's been saying for the last 20 minutes or whatever, right? Yes? 53:56 Yes. 53:58 But what I have been saying is that Roger Ver is hoping that things change and BCH becomes, for whatever reason, trickery, magic, you know, fluke, anything, rational thing at the moment, just he's hoping that, hypothetically, for any reason, BCH becomes the one with the network effect. 54:22 That is all I've been trying to say, is that he hopes to make that happen through his efforts, his marketing efforts, but having the lower layer one fee could be one thing that helps. 54:35 But that's not true, because the lower layer one fee, you only looked at transaction fees. You never built a model to calculate volatility and exchange fees. 54:45 No, but Dan, don't you understand what I'm saying? The model is independent of that, because that is only a function of the network effect. Who has the network effect trophy? 54:56 It's really simple, Paul. We're making this way too complicated. When I transact on any lock, right? 55:02 These cards are not important that you think are important, because they're a function of circular reasoning. You just say that BTC has a model. 55:09 It's not circular reasoning. It's very simple. So, I'll say this one more time, and then I'm done. 55:14 So, the way to think about it is, okay, I'll say this example one more time, just so, I mean, I think it's common sense. Anyone on the street can understand this. 55:24 Let's say I don't care about any crypto asset, and I'm looking to just transact across the block space using it as a conduit. 55:31 I am paying a transaction fee. I'm paying a volatility fee between the time I purchase the crypto asset and transact across that block space, and by the time the merchant then sells the asset. 55:41 And then both of us, both me and the merchant, are paying an exchange fee. This is all common sense, very easy to understand. That's simply what I'm saying. 55:51 Oh, I agree with that. 55:54 We're convincing in real time, guys. 55:56 I don't know. Well, no, but Tom, do you understand why I said I agree with that? Why don't you explain it to me? 56:01 I mean, I'd rather keep it to you guys. I have my own views here. 56:04 Yeah, but why did I say that? Because I'm saying that this is all tied up into one, 56:12 all these points are tied to one premise, which is that BTC has the strongest network effect. 56:17 But you see, if it's network effect that is the most important feature, then Bitcoin can never 56:22 conquer the US dollar, which has a much higher network effect. So you can't be completely 56:27 dogmatic about the network effect. You have to say that at some point, features make some difference. 56:34 And at some point, I think fees also make a difference. 56:39 Let's table this for now, guys. Let's move on to two different points so we don't 56:43 go in circles a bit. I think you guys both expressed your views and people could 56:48 understand them and think for themselves on who they agree with there. So I think it's helpful. 56:53 And I really think the discussion is helpful because it paints a picture for people to 56:56 understand both sides here. The other question I have is on settlement. So Bitcoin has a global 57:04 base of nodes. People are paying for that security. They don't want to just go to a 57:09 new version that doesn't have those assurances. How do you guys think through the long-term 57:15 view there that people want to hold an asset that is secured over the long time? They don't 57:20 just want to pick up an alt that might not be secure over the long term. I agree with that. 57:27 I don't know how to think about it. I don't know. I guess, Paul, you brought up a couple of points 57:33 that people might want to go to, say, a copy-paste version. But if you do that, you lose 57:38 the settlement assurances of Bitcoin, which is, in my opinion, one of its major factors here. 57:44 Well, I think if you assume in this hypothetical world where you have a lot of people, half of the 57:50 card payments are below $50 hypothetically. Some of those people are interested in crypto. 57:56 They will forge the new version. You can call it BCH, or you can call it whatever you like. 58:02 They will then start building their own community that has its own inferior but 58:08 existing. It's not as though it won't exist, this settlement guarantee. But yeah, 58:12 that's the difference, though, between the asset and the block space. 58:19 Again, also, let me reiterate that if the security budget collapses, it will be the… 58:25 If it plummets, then you have no settlement guarantee, basically, because currently… 58:32 I mean, it depends on what you think, but fees in 2018 were just $70 million, as I said. So, 58:44 that's nothing. So, it goes in both directions. 58:48 Well, I mean, these are intertwined, right? The value of Bitcoin determines what the block 58:55 subsidy is comprised of in terms of its purchasing power, that block subsidy. 59:00 And transaction fees, as we've seen empirically, continue to climb as Bitcoin grows and grows in 59:07 adoption. And so, if the security budget collapsed, that means that the value of Bitcoin either 59:14 collapsed or no one's transacting, which is sort of a circular logic to say that no one cares about 59:18 Bitcoin anymore, which means that the security budget is somewhat meaningless because Bitcoin 59:23 doesn't need to be secured because no one values it. 59:26 Right. I agree completely. It's a simultaneous determination of security and health. 59:34 Guys, I want to take some time here. We have to talk about physical policy, monetary policy, 59:40 the government printing potentially trillions of dollars, the flight to US dollars, what that 59:45 means for Bitcoin. In my view, I kind of view Bitcoin as a risk on asset, but the last two 59:50 days with the stock market down, Bitcoin up, now the stock market flat, Bitcoin again up, 59:54 kind of makes sense that people are starting to see Bitcoin as an alternative. They're trying, 59:58 they're really understanding it now, especially my friends I talk to who are new to the space. 1:00:03 Do you guys think that the potential recession we're going into, the stock market getting killed, 1:00:08 the government printing trillions in assets, bullish for Bitcoin, 1:00:11 how do you think through the timelines there, how do you feel about it? 1:00:16 Yeah. Well, certainly, there was a bull market in cash recently. Everyone wanted cash. And so that 1:00:26 is going to produce something recession-like. But I don't think that Bitcoin, I think that 1:00:31 Bitcoin really is... The funny thing is most people have looked and said, actually, Bitcoin isn't... 1:00:38 Originally, people said Bitcoin is de-correlated. But now after this last event, 1:00:45 people have said, oh, no, actually, Bitcoin is just high beta. It is correlated after all. 1:00:50 But I think that actually, in the end, the interpretation is that it actually is 1:00:59 de-correlated after all. Because I really think that what really happens is that people are 1:01:04 unsure about Bitcoin. And so whenever anything weird happens at all, sometimes the price plummets 1:01:10 to break check everyone. And we see how everyone will flinch or panic. So you saw that many days 1:01:20 ago when the price got cut in half, the exchange rate. But then as you say, we've had more bumpy 1:01:28 road back in the real economy. And yet, Bitcoin has ignored it. So I think it actually does end 1:01:37 up supporting the whole premise of it being independent and outside the regular financial 1:01:43 system. I also think that certainly, we have had a very long-term trend of fiscal irresponsibility, 1:01:53 the government spending more and more money and all. But more importantly, the political will 1:01:57 to address this issue has collapsed. That's what I think is interesting. 1:02:05 I remember when it was a presidential debate question, people used to say, what are you going 1:02:09 to do about the national debt? What are you going to do about the deficit? But now, no one cares. 1:02:14 Now, it's just free college for everyone, free everything. So I think that actually, more and 1:02:19 more people will get really excited about Bitcoin's original mission statement of changing 1:02:28 the way that the banks and the central banks and the government do business. I think that it is 1:02:35 actually, I mean, how much more chaotic could it possibly be? It's like, this is like pure chaos. 1:02:41 And then you have all this policy uncertainty. I mean, I can't think of a better backdrop for 1:02:47 the bull case for Bitcoin than what's going on right now. Yeah, and I can throw in my two cents 1:02:53 here. Bitcoin was special purpose built to be a Gold 2.0 sort of asset. And Satoshi planted Bitcoin, 1:03:00 he created this new species of money, this new Gold 2.0, and he planted it in the middle of 1:03:05 the last financial crisis. And if we look at the only message he ever etched into the blockchain, 1:03:11 it's a slap to the face against central banks and the banking system. And so that's what Bitcoin 1:03:17 was special purpose built for. Blockchains aren't this ambiguous thing where you can just 1:03:22 sprinkle a blockchain on something and make it useful. Blockchain was special purpose built 1:03:27 to build Bitcoin, to make it this state-level resistant money to overthrow government's 1:03:33 control over money. And those parameters that Bitcoin chose in order to do that were incredibly 1:03:39 restrictive to make that new sound money a reality. And so I've waited eight years to 1:03:44 see this moment. I agree with Paul on seeing how before these were the budget and being balanced 1:03:54 and the government not spending too much in excess was very much a contentious topic. 1:04:00 Now almost everyone, Republicans and Democrats, are like, let's print as much as we can. Literally 1:04:05 this last week, I think we printed a few trillion. I mean, it's a wild, crazy setup. 1:04:12 So Bitcoin, if this had happened earlier in Bitcoin's growth, it probably would have been 1:04:17 too early. I still think it's a little early. I think 2021, 2022 would have been a little bit 1:04:23 nicer for Bitcoin. However, Bitcoin survived. Bitcoin survived the last week. It didn't go to 1:04:29 zero. In fact, the last, I think it did quite well considering that this is a once in a hundred 1:04:34 year sort of event. If we look at the volatility of the S&P, we haven't seen this level of volatility 1:04:42 since 1929. So Bitcoin, given the circumstances, has performed fabulously. And going forward, 1:04:51 the potential for Bitcoin's growth, I mean, this is what it was built for. All that's required is 1:04:56 that more and more people believe in the same belief that we have, that Bitcoin being that 1:05:01 gold 2.0 is something that they want to get into. And I think when we look at the 2008 financial 1:05:07 crisis, we see that gold dropped 30% at the onset. But later, as people became more and more 1:05:16 aware of the sort of inflationary response to this, they bought gold as a hedge against that 1:05:22 inflation. And I think they'll see Bitcoin as the same hedge. Dan, one question for you on that line 1:05:27 of thought. When you think about Bitcoin being successful over the next 20 to 50 years, I always 1:05:33 have trouble trying to figure out where our existing government plays into this, right? 1:05:37 Is it some dystopian future where the people have to pay for public services? I personally think 1:05:42 about it more on we now have this invisible entity, which is Bitcoin, hanging over the shoulder of 1:05:49 every person in the government, making sure that they act correctly or else people will move on. 1:05:55 I guess, how do you think about the success of Bitcoin in the face of governments and entities 1:06:00 like that and their responsibility? Yeah, so Paul and I covered earlier how the security budget 1:06:05 works for Bitcoin in regards to proof of work. But Bitcoin also has other vectors in which it 1:06:11 protects itself. One is the sort of game theory behind network effects. So as more and more people 1:06:19 own Bitcoin, right now it's a very small percentage of the U.S. population. I'm just 1:06:24 going to use the U.S. because I'm a U.S. citizen. It's easy math for me. I think it's around like 1:06:28 5 to 10 percent. Of course, these are based on surveys and very hard to nail down. 1:06:34 But let's just say it's 5 percent. Now, Bitcoin's network effect and adoption increase exponentially 1:06:40 every single boom-bust cycle. So let's say in the next cycle, Bitcoin goes to 100,000 1:06:46 and there's now 20 million or 50 million HODLers. This gets really interesting in the U.S. alone. 1:06:53 This gets really interesting because Bitcoin is now becoming more and more meaningful percentage 1:06:58 of the U.S. population. Sorry, my math before was 5 percent. Let's extrapolate that to like 1:07:03 20 percent of the population, which in the U.S. I think would be like 70 million people. 1:07:08 So if we look at Bitcoin's growth in terms of exponentially more and more of a country's 1:07:13 citizens owning Bitcoin, you get to a point to where a government could take action against 1:07:18 Bitcoin. However, they would be shooting their citizens in the foot. And when they do that, 1:07:24 politicians are very much focused on being reelected. And ultimately, governments are 1:07:28 just a collection of citizens. If citizens all demand this new asset and are willing to hold it, 1:07:34 I view that as like a sort of impossible thing to defeat over time. Now, yes, 1:07:39 we did have gold being banned in the 1930s. But I don't really see if Bitcoin is an entirely 1:07:47 different type of asset than gold because it's digital, it's divisible, it's much more useful, 1:07:52 I would say, than what gold was. And so when we look at how governments might attack it in the 1:07:58 future, the more and more people that own Bitcoin will, I think, reduce the possibility that 1:08:03 governments attack it because the price goes higher and higher, the security budget becomes 1:08:08 higher, and there's more and more individuals within their citizenry that own it. 1:08:14 That's fair. No, I agree with that. I guess attacking it's one thing. I guess my wonder, 1:08:20 though, what I'm wondering about is where does Bitcoin play into government, 1:08:25 like physical and monetary responsibility, like the decisions that they make in the world? 1:08:31 You want me to take it? I have one interesting, I mean, I think the US Federal Reserve has resisted 1:08:38 attempts to be like bound by a rule. So there's these rules, like the Taylor rule, 1:08:43 it's like a famous rule that says the Fed should always just do exactly this, 1:08:47 and you should just plug some numbers into an equation, and then it should do that, 1:08:50 and there's other things. Scott Sumner's market monetarism and GDP targeting. 1:08:57 Friedman, Bill Friedman had a K% rule, very similar to Bitcoin, where he just said the 1:09:02 money supply should grow by some formula every year, and the Fed has resisted all this. 1:09:07 I think that that would be, if the Fed did something like that, it would be the worst thing 1:09:11 for Bitcoin because I think that what sets up all these great comparisons is that 1:09:16 people have to turn on the television, they have to check Twitter or whatever 1:09:20 to figure out what these people are going to do, and they're like, what are these people going to 1:09:24 do? But with Bitcoin, you don't, you already know what Bitcoin is going to do. So I think that 1:09:29 that is, it sets up these nice comparisons, I think. The more crazy discretion that these 1:09:38 people take for themselves, the more uncomfortable people will get, I think. 1:09:43 Yeah, and I agree with Paul wholeheartedly on this. Bitcoin's monetary, and this is where a 1:09:49 lot of the Ethereum community really doesn't understand this, is that it's about the confidence 1:09:55 in the monetary policy. So with gold, I know that gold is produced via proof of work. I have to go 1:10:02 mine it out of the ground, and essentially demand ensures that X amounts of supply will be produced 1:10:09 because supply will want to respond in the demand that's willing to purchase it. And as demand 1:10:14 increases for gold, the gold that is found, people are willing to dig deeper and deeper 1:10:19 and expend more costs in order to produce that supply. With the fiat systems that we have, 1:10:25 it's completely based on watching a few old people talk on TV and us interpreting what that means. 1:10:30 So we're constantly looking for signs to understand what the Fed is doing, 1:10:36 and our confidence in our government and the Fed is essentially what gives the dollar its value, 1:10:46 is that our trust in it. And so the trust in Bitcoin is due to the immutable monetary policy 1:10:52 that hasn't changed in 10 years and is very unlikely to change in the future. I would say 1:10:57 more unlikely than any fiat or any other crypto asset is how I like to put it, because some people 1:11:02 would debate as to the degree of impossibility. And so the Ethereum community fundamentally 1:11:09 doesn't understand that by changing their monetary policy, they undermine the entire 1:11:14 reason why cryptocurrency existed, was the fact that no one can change it. And that's a very good 1:11:20 thing due to the subjectivity of what a proper rate of inflation might be. And so in this world 1:11:25 of high volatility with central banks printing off trillions of dollars this week and the virus 1:11:32 disrupting our normal economic activity, what monetary policy can we trust? We can trust 1:11:38 Bitcoins. It's totally fair. Guys, last question for you on this kind of line of thought. Do you 1:11:45 think that what's going on with the virus, monetary and physical policy today, do you think that over 1:11:51 the next 12 months this will be the bullet to get the globe of non-crypto people involved in Bitcoin, 1:11:57 or do you think it will still be a multi-decade shift into Bitcoin? I don't know. That's quite 1:12:05 a question. I don't know. Maybe. I think, you know, actually, people are still pretty 1:12:11 uncomfortable with it, I think. Now everyone is sort of it, but I still think people are not, 1:12:17 you know, I don't know. I like stuff about... It depends on... Because, you see, a lot of people 1:12:22 have different... In the United States, people have very different levels of wealth. You have 1:12:26 bottom 20 percent is actually has a negative net worth. They have more debt than assets. And 1:12:32 then you have two fifths that basically have no money, and they live paycheck to paycheck, 1:12:38 and they have basically zero dollar net worth. So it depends on... If you only want to convince 1:12:43 that top fifth that has, you know, Scrooge McDuck and has piles of money, that's a much smaller 1:12:52 problem then. But then it's all related to network effects as well. So it becomes quite 1:12:57 a complicated tangle. But yeah, I think it's definitely possible that people will suddenly 1:13:02 adopt Bitcoin very, very, very quickly. I'm hesitant to think that it will be a U.S. dollar 1:13:08 country, actually, though, because the U.S. dollar is just so dominant throughout the world, 1:13:12 throughout even the eurozone in Central Asia. You have these euro dollars. The euro dollar 1:13:18 market is ten times as many euro dollars as like regular dollars. So it's this huge... 1:13:24 There's just this huge U.S. dollar infrastructure. I think it probably was... The story I 1:13:30 held in my head is where it breaks out in some smaller country, and they're just like, 1:13:35 what do we have to lose? They sort of switch over in a big way, or at least their banks do. 1:13:42 So, you know, some New Zealand or something. Probably not New Zealand, but something like 1:13:46 that. So I kind of still think that's sort of pat... I mean, you saw what happened when the 1:13:52 virus hit. Everyone moved to U.S. dollars. U.S. dollar just has that beautiful, 1:13:59 beautiful network effect that Dan and I agree is so powerful in general. 1:14:05 I think the one-liner for me here, to kind of keep it simple, is that I believe all humans, 1:14:11 whether acting on their own behalf or via a corporation, will choose to preserve their 1:14:17 value or their wealth. I think that humans... I can bet on that. And if I can bet on that, 1:14:24 Bitcoin offers a very attractive proposition. It's an asset that can't be seized very easily 1:14:30 and is immutable when you want to send it. So I think those core parameters and the tendency 1:14:36 for all human beings, being the animals that they are, to preserve their wealth, 1:14:41 sets Bitcoin up to be in a really cool spot. Yeah, I agree with you there, Dan, 1:14:45 and Paul, wholeheartedly. And I guess the thing that's pushing me there as well, 1:14:49 even further, is I saw Bill Ackman, who's a major American investor, for those who don't know him, 1:14:55 of Pershing Square. He was on CNBC yesterday basically saying, 1:14:59 the end of the world's coming. You went to the bank to take out cash. 1:15:02 Makes a lot more sense that I could store my wealth in something that I could 1:15:06 literally remember the words in my head and travel around the globe and transact and store my value 1:15:10 in it. I think it makes a lot more sense. Dan, Paul, it's been a pleasure having you guys on. 1:15:15 I think the debate helps a lot of people understand both sides of the arguments. 1:15:19 Dan, let's start with you, then we'll go to Paul. Dan, where can people 1:15:22 follow you and learn more about you? And then afterwards, Paul, please share as well. 1:15:27 Yeah, so on Twitter is primarily where I publish most of my content. So it's 1:15:32 Dan Held is my Twitter handle. And you can go to my personal website, which is danheld.com, 1:15:38 and on there you can read my long-form blog content. 1:15:42 That's awesome. Paul, what about you? Yeah, I have a blog, but it publishes very long, 1:15:49 painfully long blog posts. But that's Truthcoin.info. Truthcoin is the original name of 1:15:56 the paper for the peer-to-peer oracle system that I designed, but I renamed that to Bitcoin Hivemind. 1:16:02 So I think if you want to know what I'm about, you should go to bitcoinhivemind.com and look 1:16:08 at this 20-minute video that I have on the front page over there. That's kind of like the good 1:16:14 of how I got into Bitcoin, what I hope to accomplish. I also have a project called 1:16:19 Drivechain. The website for that project is drivechain.info. And on Twitter, I am Truthcoin, 1:16:26 T-R-U-T-H-C-O-I-N. I love that, guys. I appreciate your time. If anybody has any 1:16:31 questions, feel free to reach out. And until next time. Thanks, Tom. Thanks a lot. 1:16:36 Hey, everyone. Thanks for listening to the podcast. If you enjoyed it, please support the 1:16:40 show by hitting subscribe on iTunes, writing a review, or sharing this episode on Twitter 1:16:44 and LinkedIn. And stay tuned for our next episode out soon.
