0:00 Kitco News special coverage of Bitcoin 2022 is brought to you by CoinPayments. Crypto payments 0:07 made easy. We're back at Bitcoin Miami and joining us right now is Paul Sztorc. He is a self-proclaimed 0:14 Bitcoin maximalist and independent Bitcoiner. Welcome to the show, Paul. Hey, thanks for having 0:18 me. Thanks for being on Kitco. Paul, I read your bio with great interest. What does it mean really 0:22 to be a Bitcoin maximalist? I've heard that term used a lot. I've spoken to people who claim to 0:27 be Bitcoin maximalists. Everybody seems to have a little bit of a difference when it comes to 0:31 their thesis on Bitcoin. What's yours? Well, I think Bitcoin maximalism is the idea that it's 0:37 better to focus all of your energy on Bitcoin and not these competing attempts at constructing an 0:44 internet cryptocurrency. This thesis has gone through a lot of transformations, but it began 0:50 a long time ago when people would make, for example, Litecoin. The effort it took to create 0:56 Bitcoin from a blank piece of paper, like what Satoshi Nakamoto was able to achieve, 1:01 that was an enormous amount of effort. Litecoin just copied and pasted that and changed one or 1:06 two things, and then it purported to be this new thing. That was, of course, probably the beginning 1:12 of the cultural movement to suppress the competitors. With money, you only have one. 1:23 If you go to Japan, you mainly use yen. You don't use U.S. dollars there. In any given place, 1:30 there's usually one currency. That's the maximalist broad strokes. 1:39 Let's go a little bit deeper and maybe clarify for the audience. I'm just going to give you a 1:44 series of true and false statements. If it's false, tell me why I'm wrong. A Bitcoin maximalist 1:51 thinks that Bitcoin has better potential as an investment than any other altcoin. 1:57 Yeah, I think that's true. That's also what most Bitcoin maximalists would say. 2:01 Okay. BTC, Bitcoin is the only crypto that has the potential to be a store of value. 2:08 I think most Bitcoin maximalists would say that. It's true. I think I would also say it's true. 2:14 Nothing is 100% certain, but yeah, I think that's basically true. 2:18 Finally, Bitcoin is the only coin with the potential to be a widely adopted currency. 2:25 Yeah, I think that's also true. It's not guaranteed. 2:27 So you don't see Ethereum, Solana, anything else potentially taking up the mantle? 2:32 Well, I'm a proponent of this idea called the sidechain, which is this idea where you have 2:37 a second piece of software that is basically emulating Ethereum or whatever. It's like 2:42 BitEthereum, and it does everything Ethereum can do. You take coins from Bitcoin Core, 2:49 where there's already these 21 million coins, 19 million coins, and you move your coins over 2:55 into the Ethereum world, and you can do whatever you like over there. And then that way, you 2:59 replace all the technical features of the rival piece of software. So you get all the different 3:06 pieces of software you like, Solana, Ethereum, whatever, and you can do whatever. Any idea you 3:12 like, good or bad, you copy. The sidechain is an altcoin without its own coin. Instead, 3:20 it uses the 21 million Bitcoin. Let me just posit a counter argument, 3:24 not necessarily my own view, and feel free to challenge me on this. So when you're talking 3:29 about the utility of Bitcoin as a peer-to-peer form of payment, some would argue that's failed 3:34 because there's other coins that are better as a peer-to-peer system. When you're talking about 3:39 Bitcoin as a form of payment, there's other coins, payment coins, that are better in terms of their 3:45 transaction speeds, transaction costs. When you're talking about Bitcoin as a store of value, there's 3:49 things like stable coins that provide a more stable value. You can also stake stable coins 3:55 for a yield. So there's a lot more utility in the altcoin space for whatever you need 4:00 than Bitcoin, hence making other coins potentially more viable as a form of investment, 4:08 depending on what you want to use it for. How would you respond to that? 4:13 Being able to use the altcoin for some purpose, like I said with the sidechain point, 4:18 does not necessarily mean that in the long run the investment will succeed. Because you could 4:23 introduce something new. This is like what Microsoft used to do all the time, where 4:28 someone would come up with something new and Microsoft would look at it and just sort of copy 4:31 it. I think it was called, I don't remember exactly what it's called, people are going to 4:34 Google it, and it was something like embrace, extend, extinguish or something. But just because 4:39 something has a new feature doesn't mean that the underlying investment will prevail. sidechains 4:43 is directly, a lot of my maximalism does hinge on the sidechains concept. So in my view, the ways 4:52 in which these alternative pieces of software have achieved more transaction throughput, 4:59 sometimes more privacy, that is something that could be copied and emulated by Bitcoin. 5:06 Do Bitcoin maximalists have a fair value for the price of Bitcoin? 5:12 Well I think the real way to do the valuation is just to, and this was done a long time ago by 5:19 Hal Finney and then done in various other degrees by people in various levels of specificity, 5:25 but what people really just do is they say what's the value of all the money in the entire world 5:30 and we'll divide that by the 21 million coins and that would be the purchasing power equivalent. 5:37 Even though there would be no U.S. dollars in that scenario, but that would be how much stuff 5:41 you could buy with. And that's something like, estimates vary, but that's like between 10 and 5:46 20 million dollars per coin. But then you say that's assuming that it prevails and destroys 5:50 everything, which of course is not certain. Even one million dollar a coin, assuming 21 million 5:57 bitcoins, that implies a value of 21 trillion dollars, which is roughly equivalent to the U.S. 6:07 GDP right now. Obviously by the time it reaches that, the U.S. GDP will be even higher, but 6:11 I mean that's a large number. When people bring up GDP, of course it's hard because numbers are 6:16 so big there's no context for anything. But GDP is something that has to do with time, 6:20 so it has to do with a year. It's the value of everything produced in the United States in a 6:24 year. So what's so special about a year, right? You could make it so that it would be 10 minutes 6:29 and then Bitcoin's current market capitalization would be higher than the gross world product in 6:35 10 minutes or you could make it 100 years and it would be different. But I agree with the number 6:40 is so big that you have no context. The only thing you have is the price per coin, I think. 6:44 Do you think Bitcoin is a replacement for the U.S. dollar? People are talking about 6:47 the U.S. dollar's value being eroded away by inflation amongst other variables, 6:52 maybe the decline of the U.S. empire, some people would argue. And so people are talking about a 6:56 replacement for the dollar as a global reserve currency. Some people have speculated the Yuan, 7:01 some people have speculated Bitcoin. What's your thought? 7:04 Well, I definitely think that it's in the cards. I think that there's a long way to go, 7:12 but I think you're designed for success, right? So in order for Bitcoin to succeed, 7:19 it would have to be able to accommodate the transaction needs of everyone on the planet. 7:25 And that would include the desire of people not to pay inflation taxes, the desire of people to 7:31 not have their accounts frozen, the desire of people to have control and privacy over their own 7:38 income, and things like that. So what gets it for me is I don't understand 7:44 how the United States plans to run its long-run fiscal situation, really. We have this national 7:52 debt that increases every year, and it accelerates every year. And in general, the pace of the 7:57 acceleration also accelerates every year. And the political will to do anything about it seems to 8:03 just have shrunk over my entire lifetime. I mean, I remember when it was a Republican primary debate 8:10 topic, like how are we going to balance the budget or whatever. People used to talk about it, 8:15 but no one talks about it now. Have you heard anyone talk about that? Today, it's the problem 8:20 that everyone is afraid. It's the elephant in the room. So I don't understand where that road is. 8:26 There's a lot of other people at the conference that think that Bitcoin is the solution to the 8:31 economic problems that we're facing right now. I don't know if you share that view, but let's just 8:34 back up a minute and talk about some of the economic problems that we're facing as a nation. 8:38 Can you list a few that bothers you the most? Well, I mean, I don't know if I have the right 8:44 specialization to answer a question like that. I do think, though, that as a citizen, I'm owed 8:52 some kind of explanation for how what eventually with the national debt, it's the thing that 8:57 everyone refuses to talk about. It's a mathematical fact that eventually the interest payments on the 9:03 national debt will just, if the trend continues, will exceed the GDP of the entire country. 9:09 Yeah. So what exactly is the plan when that happens? 9:13 Fair question. I think that's a fair question. What's the answer to that question? 9:18 Then the answer is going to be something like, we'll cut spending, but that doesn't seem like 9:23 that's in the cards. Or we'll raise taxes, which also seems dubious. And then it'll be like, 9:29 maybe economic growth will pick up. These all seem very difficult. 9:34 I've wondered this myself. With the advent of cryptocurrencies, people in general, the economy, 9:40 we're essentially creating more money supply. How would that impact inflation? Let's say, 9:46 all of a sudden, on top of US dollars, I'm also transacting in Bitcoin or Ethereum or any other 9:53 coin. One of the purposes of the cryptocurrency is to just, you could say, avoid paying the inflation 9:59 tax or whatever. The inflation tax is borne by all the people who hold dollars. If you have dollars 10:07 in your back pocket, or if you have a job where you get paid a fixed amount of dollars per year 10:14 or whatever, then you're paying the inflation tax. Why pay something if you don't have to? 10:21 When the treasury spends money it doesn't have, that increases the money supply, that increases 10:26 the rate of inflation. Paul, I know you're not a trader, but can you comment on the state of 10:31 the price action we've been seeing? Some people are speculating that we're in another crypto 10:35 winter. Recall that in 2017, we had a price high in December. It came back down. Bitcoin was trading 10:41 around $4,000. It traded range-bound for quite some time before it finally found new momentum in 10:46 2020, late 2020. Are we seeing that now? Are we seeing a stalling in the price growth for the 10:51 next couple of years? Well, who knows? I believe in the efficient markets hypothesis. I think that 10:59 you take your fundamental value. There's enormous potential of Bitcoin if it goes the whole, 11:05 if it completes this project of being better money for everyone, which 11:10 it's not certain that it will, and it's not certain that it will anytime soon. 11:16 That's how I view these things. I have been around for a little while. You can never really 11:22 tell. The crypto winter is only two or three announcements of good news away from ending. 11:30 When the price goes up, it tends to keep going up in Bitcoin because 11:36 there's a lot of people on the fence or people who are confused. Then when the price goes up, 11:40 they think, oh, I was right. This really was a good idea. Then they pile in or something. 11:46 There's much more momentum in Bitcoin than in anything else I've ever seen. 11:50 That's a fair point. Do you think that the rise of altcoins in other areas like NFTs, 11:57 with the rise of the metaverse, for example, Web3, a lot more utility in other places, 12:02 do you think some of that will take momentum out of Bitcoin in terms of investment flows, 12:06 capital flows, interest and whatnot? Yeah, I think that is the unfortunate 12:10 state of affairs is that Bitcoin had all these things long, long, long before Ethereum ever 12:17 existed. There was MasterCoin, Omni, colored coins. There were all these things that were 12:23 very, very old. Those were like NFTs on Bitcoin before Ethereum ever existed, like 2012, 2013, 12:30 2014, Counterparty. Bitcoin had a lot of things. There has been a decline in what you might call 12:41 assertiveness. People have become very conservative in Bitcoin. 12:46 Well, Paul, finally, you're making a series of presentations here at the Bitcoin Miami 12:49 Conference, the largest crypto conference in the world. Tell us about some of the topics you're 12:53 talking about. You already talked about sidechains. I will be talking on Friday. I have a panel on 12:58 sidechains. Then tomorrow, on Thursday, I'm talking about the soft fork, which is how the 13:06 Bitcoin protocol moves from version to version. We upgrade the protocol through this technical 13:13 technique, but it has a lot of curious features. I'm doing a panel on that. 13:18 A couple of months ago, Bitcoin had the taproot upgrade. 13:21 Yes, that was a soft fork. 13:22 Yeah, that was a soft fork. Now, are you an advocate of soft forks, or do you think that 13:26 Bitcoin should be left alone and just Layer 2 is built on top of that? 13:29 Yeah, well, because of the institution of the sidechain, I think sidechains should replace 13:34 soft forks. We should soft fork to add sidechains and then not do anything anymore. I think it 13:39 would be better if Bitcoin stopped changing at all so that it could just be exactly what it is 13:46 and people could just write books about it and they could write whatever. There's one version 13:50 of the software and it's just like what long division is or something. It's like long division 13:54 is just what it is. I think that would be good because the sidechain can actually replace all 14:01 soft forks and also all hard forks, which hard fork is even seen as not even possible in Bitcoin, 14:06 but both of those are under the umbrella of the sidechain. 14:09 Development challenges of the sidechain, what are they? 14:13 Well, it's very easy to add the port into Bitcoin, like the kind of interoperability 14:20 feature into base Layer 1 Bitcoin is, I think, very easy, actually. It's then the development 14:27 moves to the side. Most of the work, the code work, is moved up into the Layer 2 sidechain 14:33 piece of software. But we have a template that does all that for everyone already, 14:37 so the ideal thing is that either you fork this template, which is taking care of all 14:41 the coins moving back and forth between pieces of software, you take that template and you just 14:45 add whatever you want into there. And we have a different template that is sort of like a bridge 14:50 where you take an altcoin like Ethereum, you can run it in a kind of like a test mode, 14:54 like a reg test mode, and this software will take that software and kind of bridge between 15:01 Bitcoin Core and that and it will kind of be like a sort of zombie version of the altcoin. 15:07 So it converts altcoin into a sidechain. So there's a lot of technical issues. I don't know 15:11 how well anyone will understand what they are, but I think it's actually quite easy to turn an 15:15 altcoin into a sidechain. Okay, well, excellent thoughts. Paul, I appreciate your time. 15:19 Okay, thank you. Thanks so much. 15:23 It'll survive. It's got through worse. Thank you for watching Kitco News. I'm David Lin. 15:26 Stay tuned for more in Miami. 15:28 Kitco News special coverage of Bitcoin 2022 is brought to you by CoinPayments. 15:34 Crypto payments made easy.