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Hey everyone, I'm your host Tom Shaughnessy and welcome back to Chain Reaction, a
research-driven

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00:00:20,520 --> 00:00:22,840
podcast that's a part of Delphi Digital.

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00:00:22,840 --> 00:00:26,340
If you're not on Delphi's research portal, you're missing out on the critical
analysis

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read by the top minds in the crypto space, so be sure to check it out.

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One quick housekeeping item, nothing said on this podcast is a solicitation to buy
or

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sell any security or token, or to make any financial decisions.

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fast.

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And with that, let's jump into the episode.

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Hey everyone, before we dive into the episode, I wanted to give a quick intro.

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Just recorded with Dan Held of Kraken and Paul Sztorc, who's an independent
Bitcoiner,

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thought it was an amazing debate between the two.

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There was no script, the debate focused on Bitcoin's security model.

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This is obviously very important given the security of the Bitcoin network underpins

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the entire value of the network at the end of the day.

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Both have written posts on the topic.

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Basically Paul's skeptical that fee rates will climb, and Dan argues that the trends

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are clear that fees are already growing and they could eventually make up for the
subsidy

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to ensure the security of the Bitcoin network.

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This was a heated episode.

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I think it's really important, though, to hear both sides of the debate instead of a

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one-way conversation.

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I think people could learn a lot more that way, and I hope that's true.

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There's also a lot of nuance in the debate.

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Everything is touched on from real-world costs to arguments against things like
Bitcoin Cash,

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the halvening, will fees replace the block subsidy, fees beyond just transaction
fees.

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We talk about volatility fees and slippage and exchange fees, things all along that
nature.

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We also discuss what will happen with Bitcoin following the unprecedented monetary
policy

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actions by the US government recently.

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If you enjoy the episode, share it, guys.

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Let's dive in.

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Hey, everyone.

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Welcome back to the podcast.

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Today, I have another discussion underway.

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We have Dan Held, who does BD at Kraken.

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He's well-known in the space for numerous posts that will be linked in the show
notes

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below.

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Also, Paul Sztorc is an independent Bitcoiner.

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I'll let him give his intro as well.

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Dan, let's start off with you.

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Give everybody a little bit of your background and how you got started in the space.

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Yeah, so the 30-second overview starts in 2012.

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I got introduced to Bitcoin via a Casascius coin that was classic, really shiny gold
coins

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you see in those news articles.

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A buddy paid me back for a beer with one of those, and as I dug in deeper, I found
the

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$21 million hard cap from Bitcoin's core function really, really interesting.

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I moved out to San Francisco in January 2013, got involved in the Bitcoin community
out

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here, which was just about 10 of us, including Brian, Fred from Coinbase, Jed
McCaleb, and

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Jared Kenna from Trade Hill, and Charlie Lee.

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And then I built my first product in early 2013 called Zeroblock.

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Zeroblock was the most popular mobile crypto product, which provided similar
services to

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the portfolio, so it enabled you to check the real-time price of Bitcoin and monitor

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your portfolio's performance.

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We were acquired by Blockchain.com at the end of 2013, and I came on board there as

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the first product manager.

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From there, I worked at a smaller startup called Changetip, which did micropayments

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over social media using Bitcoin.

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Then I worked at Uber on rider growth and the intelligence team.

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Left Uber, came back to crypto, built Interchange, which did portfolio
reconciliation for large

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cryptocurrency hedge funds and traders.

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We were acquired by Kraken in July 2019, and I'm director of BD over at Kraken.

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I heard about Bitcoin for the first time in 2011, and I thought it was the dumbest
idea

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in the world.

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I didn't give it the time of day, and then it was like more than a year passed
before

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I heard about it again, and then I started to get more interested in it.

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In 2012, I was very interested in a website called Intrade, which did election
betting,

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and it collapsed, and I wrote a paper called Truthcoin about a peer-to-peer oracle
system

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for replacing it.

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The rest, as they say, is history, but it's very interesting.

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At the time, I had basically a job offer from both Blockstream and Roger Ver, so I
kind

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of orbited the two worlds of Bitcoin chaos pretty closely.

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But yeah, I don't know, it's kind of a long way.

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I mean, I started a blog in 2014, Truthcoin.info, and then I presented at Scaling, I
think,

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one...

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At two, I did one that wasn't recorded, they had a short non-recorded session, and I
presented

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at Scaling 3, so I'm sort of like a technical commentator.

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And I've done a lot of other stuff, too, but it's not terribly interesting.

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I mean, I have a project, Truthcoin turned into Bitcoin Hivemind, and then I have a
side

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chains project called Drivechain, so you can go to any of those sites if you find
them.

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Yeah, I'll link to those in the show notes, it's nice that you guys have been in the
space

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for a while.

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I'd like to kind of jump right in, because I'm sure people are kind of anxious to
get

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into the guts of the discussion.

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You guys both have views on the viability and the sustainability of Bitcoin over the

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long term.

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Dan, I'd like to start with you, considering you have your post out, which I'll link
in

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the show notes, but I guess at a high level, what's your take on the long-term
viability

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of Bitcoin?

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Well, actually, I'm not sure if that's a good idea, because as I understand it, his
post

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is partially a reaction to my post, in fact, he quotes a reaction of mine, so it's
sort

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of like a triple reaction.

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I wrote a post in February 2019 called Security Budget in the Long Run, but you
could start,

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I mean, I don't know, it's fine if you want to start with Dan, but it's not quite
the

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right order, actually.

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Up to you guys.

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Dan, is that okay with you?

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Yeah, I mean, I wrote my article January, I don't care either way, is the answer.

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Yeah, Paul, let's start with you then.

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So I wrote this post over a year ago called Security Budget in the Long Run, and I
would

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say the core message of the post is that if we embrace merged mining, then security
budget

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will be very high, it could be like a trillion dollars a year by 2050, but if we
don't, it

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will probably be pretty low, it could be like very low, as low as $70 million a year
like

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it was in 2018.

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So I basically say that we should go for this merged mining strategy, and security
budget

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is how much money we pay the miners, so they can't spend more than they earn, and so
how

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much we pay them is also the ceiling for how much they spend on mining total.

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So therefore, it's also the cost of a non-coercive 51% attack, the cost of renting
and or buying

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all of the mining equipment on the planet or that's in use.

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So in the long run, it's also the cost of buying up all the block space, actually,
and

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not allowing anyone to transact, because in the long run, it's only fees that
contribute

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to security budget.

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So whereas in the short run, it's currently we have this block subsidy that
dominates

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it, this is a 12.5 Bitcoin that are created every 10 minutes, that will famously
halve

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to 3.25 in a few weeks.

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So I think the big part of the disagreement is over fee rates on layer one, which is
that

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I'm skeptical that they can climb significantly from where they are, which is like
less than

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a dollar per transaction.

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And as I understand it, but you can hear it from him, Dan thinks that they could
easily

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climb to more than $50 per transaction.

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And so that is kind of what I'm skeptical of.

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I think we need to access block space on different blockchains and pool all the
fees.

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And that is what the post is about.

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And it triggered a lot of different reactions.

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A lot of people liked it, some people hated it.

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But that was what I wrote.

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And I think that's the core of the disagreement, as I understand it, is about these
layer one

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fee rates, which are different from total fees, you understand, it's difference
between

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revenue and price.

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So it's total amount of money paid to the miners.

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It's not necessarily the same thing as the Satoshi per byte fee rate.

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I'll keep my opinions aside here to keep this going.

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But Dan, what are your knee-jerk reaction to Paul's points on transaction fees,
security

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spend and the long term here?

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Well, to zoom out just to make sure, I think we're talking about the same thing,
which

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very directionally sounds like we are.

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The big picture is, will Bitcoin security, a security model, stand up to attackers
in

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the long run?

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And a core component of that is looking at the block reward, which is comprised of
the

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block subsidy and transaction fees, and examining if transaction fees will replace
the block

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subsidy in a meaningful manner, and meaningful enough to ensure security for the
network.

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I think that's kind of the gist of it.

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There's a ton of nuance here.

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There's a lot of different pieces we can pull apart.

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One is looking at, like, is block space commoditized?

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Is block space on Litecoin equal to Bitcoin?

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Or will users pay higher fees in the future?

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There's a lot of different avenues we can go here, and I think Paul and I disagree
on

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a couple different points.

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It sounds to me like one of the key points you guys disagree about is how
transaction

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fees will have to climb over the next few decades to make up for the block subsidy.

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Is that fair, or is that off?

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Yes, I'm skeptical that they can climb.

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Skeptical of the transaction fee, layer one transaction fees.

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I definitely don't think that it's a given that they will rise from less than a
dollar

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to more than $50 for a transaction, in terms of, you know, purchasing power and
adjusting

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for inflation and time value money and all these things.

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I don't think it's a given, and I don't really even think it's likely, because there
was

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only one instance in which they did climb that high, and that was the December 2017

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bubble, and that was a very kind of, I think that was just a very, that was a kind
of incidental

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moment where people had no idea how Bitcoin works, and they were getting involved
with

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it, and they just jumped right in, and they, everyone had a lot of FOMO, so they
just jumped

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in, and they were like, I'll pay whatever it takes, but since then, they've fallen,

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and I don't see them going back up to that.

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Dan, what's your take on security fees going up over time?

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Accidentally.

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Yeah, happy to dive in on this.

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I think when we, you know, I think something that everyone should zoom out and
really understand

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is that when you transact across a block space, you don't just incur transaction
fees.

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You incur exchange costs and volatility costs.

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So for example, if I transact on Litecoin's block space, while that transaction fee
may

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be explicitly lower than Bitcoin's, the volatility is typically higher in an alt.

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So when I purchase that crypto, and then by the time I dispose of it, that
volatility

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fee could be enormous of what I, you know, for example, a $10 transaction, if
there's

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a 10% volatility fee that I pay because by, you know, from the time I purchased it
to

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the time I disposed of it, it moved to 10%.

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I pay that plus the transaction fee plus an exchange fee.

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So when I buy and sell crypto, and the use case I'd like to use here is let's
pretend

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we're doing a merchant payment where I'm buying Alpaca socks, and I am agnostic as
to which

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crypto asset I use.

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You know, let's say volatility is at zero because I immediately purchase the coin
and

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then immediately dispose of it, I still pay an exchange fee.

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So on Kraken, the exchange I work at, one of our lowest fee tiers is around 10 bps.

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So 10 bps, you know, unfortunately volatility in exchange costs are priced in
percentages

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essentially.

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So as those move, or as the value you're trying to move on chain becomes larger,
those can

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become enormous sort of costs.

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So when we look at costs to transact on a block space, we have to not only include
the

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transaction fee, but these other two costs as well.

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And then I'm not even including other things like, well, these block spaces are very
unique

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considering there's coordination costs.

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You know, we all, many people have Bitcoin, not many people have Dogecoin.

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And so there's a coordination cost there.

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And also, there's a security sort of mindset where at the end of the day, we're
looking

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at what's my, with a proof of work coin, it's what's my, what are the assurances do
I have?

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Or how confident am I that this transaction will be final?

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In proof of work chains, there's degrees of finality.

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And so, you know, people will naturally gravitate towards a blockchain that has that
highest

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amount of security.

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So, you know, TLDR, there's a lot of costs involved when you transact via block
space.

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When we look at Bitcoins specifically, and the transaction sort of elasticity or
inelasticity

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of the transactors on Bitcoin's block space, you know, when people transact in
Bitcoin's

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block space, what fees are they willing to pay?

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And what's nice is that we have historical data to look at for this.

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So if I pop up in coin metrics right now, you can simply look at transaction fees
median

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in US dollar value.

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And we see that climbing over time, especially when you look at this in log, on a
log presentation.

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And this is, I think, the more appropriate way to look at it versus a linear one,
which

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is commonly used by Paul.

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We don't look at Bitcoin's pricing.

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00:15:25,740 --> 00:15:26,740
That's not true.

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00:15:26,740 --> 00:15:28,300
In the post, I never use a linear scale.

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I don't know why you bring that up.

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You did for the first two charts, and I read, we read your article right before
this.

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00:15:33,820 --> 00:15:37,700
The first two charts you use linear, and then you show a log.

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But you also use.

225
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I have it open right here.

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It's your February.

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00:15:43,980 --> 00:15:51,060
Yeah, no, I may have used it once or twice, but, you know, it's not the case that
it's

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misrepresenting as, you know, some trend or something.

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It clearly is, given your conclusion, using a linear price, using a linear chart for
fees

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00:16:01,740 --> 00:16:07,700
very much distorts the growth in fees or the growth in what users are willing to pay
in

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00:16:07,700 --> 00:16:08,700
fees over time.

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00:16:08,700 --> 00:16:15,180
Yeah, well, I mean, I don't really agree that there's any, I mean, what I'm trying
to make

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with some of the points of the graph is that they've been very low for a while.

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00:16:19,620 --> 00:16:27,060
And then in December 2017, they spike up, but then they go back down and are
completely

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00:16:27,060 --> 00:16:28,060
absent.

236
00:16:28,060 --> 00:16:34,620
So most of the data or most of these points in time are just meaningless because
they're

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like in 20, fees go up from 2013 to 2014, they were the cheapest, Bitcoin went from

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00:16:40,420 --> 00:16:44,500
being the cheapest transaction medium to still the cheapest.

239
00:16:44,500 --> 00:16:49,820
So it doesn't really mean anything when they go from one cent to five cents or one
cent

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to 10 cents.

241
00:16:50,820 --> 00:16:55,540
That has no like microeconomic significance to the person transacting.

242
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It's only when it goes from being a dollar to like $5 or $10 that people will
suddenly

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start to actually pay any attention.

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00:17:03,740 --> 00:17:08,820
Yeah, so over time, the idea of a long-term trend is, I think, a myth.

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It's not because with each bull bear market, we see a floor established with
transaction

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00:17:13,340 --> 00:17:14,580
fees.

247
00:17:14,580 --> 00:17:18,420
Anyone can look up this data, by the way, it's on CoinMetrix, fee, transaction,
median

248
00:17:18,420 --> 00:17:23,580
USD is the value I'm looking at, especially if you do like 90 days smooth, which
makes

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it a little bit easier to read.

250
00:17:25,500 --> 00:17:30,980
So yeah, I mean, with each bull bear market, we see a floor established where fees
don't

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all of a sudden fall to zero.

252
00:17:33,780 --> 00:17:38,180
The median transaction fee per transaction continues to climb higher and higher over

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time.

254
00:17:39,180 --> 00:17:42,020
Wait, so Paul and Dan, I might be misunderstanding here.

255
00:17:42,020 --> 00:17:46,060
What do you guys mean by comparing the linear to the log chart of fees here?

256
00:17:46,060 --> 00:17:51,020
Are you saying, Paul, that since fees only spike up to a meaningful amount, that
that's

257
00:17:51,020 --> 00:17:52,020
not sustainable?

258
00:17:52,020 --> 00:17:57,700
Or are you saying that when fees spike up, that people take notice and won't use it?

259
00:17:57,700 --> 00:17:59,500
Like, what's the significance of that?

260
00:17:59,500 --> 00:18:03,980
Well, let me, I've got it somewhere around here, so let me go to it.

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00:18:03,980 --> 00:18:09,780
Yeah, so what I, so I have two charts here in this post that I wrote.

262
00:18:09,780 --> 00:18:15,780
And they are, it's true that two of them are with a linear scale, but that's to
demonstrate

263
00:18:15,780 --> 00:18:22,580
my point about there being a big difference between December 2017 bubble period and
all

264
00:18:22,580 --> 00:18:26,180
the time since, which is readily apparent.

265
00:18:26,180 --> 00:18:31,500
And I didn't choose any of these axes, they're from other websites, but then the
next one

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00:18:31,500 --> 00:18:41,300
is a log scale, and it states the average transaction fee in U.S. dollars per
transaction

267
00:18:41,300 --> 00:18:52,940
and there's this bump up in January, but then there's a, there's nothing, what I'm
trying

268
00:18:52,940 --> 00:18:58,220
to get at is that there's only this December 2017 bump.

269
00:18:58,220 --> 00:19:01,900
There's no, there's no other data, really.

270
00:19:01,900 --> 00:19:05,460
It's true that fees have gone up, but they don't, you know, they went up.

271
00:19:05,460 --> 00:19:13,700
It's true that in, so in July 2011, they were 4 cents, and then they went up from
there

272
00:19:13,700 --> 00:19:17,820
to January 2014, where they went up to, you know, 30 cents.

273
00:19:17,820 --> 00:19:21,220
But you see, going from 4 cents to 30 cents is meaningless.

274
00:19:21,220 --> 00:19:27,960
So, Paul, let me just make sure I understand, and Dan, jump in here if I'm also
misunderstanding,

275
00:19:28,700 --> 00:19:33,760
but so basically what you're saying is that since the cost jumped up once or twice,
that's

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00:19:33,760 --> 00:19:38,080
not a sustainable trend for transaction fees increasing over time to maintain.

277
00:19:38,080 --> 00:19:40,280
There really is no trend.

278
00:19:40,280 --> 00:19:41,280
There's just in the software.

279
00:19:41,280 --> 00:19:44,200
I mean, that's a complete fabrication.

280
00:19:44,200 --> 00:19:45,640
There is definitely a trend.

281
00:19:45,640 --> 00:19:46,640
Anyone can look at the data.

282
00:19:46,640 --> 00:19:50,600
I don't know what the fabrication is, the fact that there's a trend.

283
00:19:50,600 --> 00:19:55,360
You are looking at bull, you're looking at, you know, boom bus cycles and going, oh,
look,

284
00:19:55,360 --> 00:19:59,160
it's not sustaining those peak, but, you know, peak boom cycle fee levels.

285
00:19:59,160 --> 00:20:00,160
And of course it's not.

286
00:20:00,160 --> 00:20:01,560
No, just one, just one.

287
00:20:01,560 --> 00:20:06,520
There's only one in which it went above $10 per transaction, for example.

288
00:20:06,520 --> 00:20:08,200
You're choosing an arbitrary value.

289
00:20:08,200 --> 00:20:10,840
No, I don't think so.

290
00:20:10,840 --> 00:20:14,960
Because this is the, you could compare it to the cost of other things like Venmo or

291
00:20:14,960 --> 00:20:15,960
Facebook.

292
00:20:15,960 --> 00:20:22,800
But I think it's not arbitrary to say that, like, people won't care about 25 cents,
but

293
00:20:22,800 --> 00:20:25,080
I think people start to care about $2.

294
00:20:25,800 --> 00:20:30,360
I don't know that that's a completely, like, I picked a number off of the real line
from

295
00:20:30,360 --> 00:20:36,680
zero to infinity, like at random, it's pretty normal to say that $2 is about when
people

296
00:20:36,680 --> 00:20:42,760
start to think, hey, is there a way of me not paying this because, you know, $2 will

297
00:20:42,760 --> 00:20:43,760
buy you something.

298
00:20:43,760 --> 00:20:51,800
Paul, in your post, you provide no data to support that, that $2 or $1 or $10 is a
magical

299
00:20:51,800 --> 00:20:52,800
level of people who care.

300
00:20:52,800 --> 00:20:54,880
And in fact, I did in mine.

301
00:20:55,680 --> 00:21:00,560
Well, I agree that I just chose it, but I don't think that it is, you know, well,
first

302
00:21:00,560 --> 00:21:06,080
of all, the fees haven't even gone above $1 since that one epoch.

303
00:21:06,080 --> 00:21:09,120
But I mean, it's true that these are all random numbers, but you really think that
there's

304
00:21:09,120 --> 00:21:13,400
complete neutrality between, like, if I'm going to say that.

305
00:21:13,400 --> 00:21:20,320
So Paul, that's a lie because in August 2019, fees went above $1 again and people
paid it.

306
00:21:20,320 --> 00:21:24,760
Oh, yeah, well, maybe for, you know, one or two weeks.

307
00:21:24,760 --> 00:21:26,520
But this is, again, that's exactly another.

308
00:21:26,520 --> 00:21:28,360
It's actually for a couple of months.

309
00:21:28,360 --> 00:21:31,320
Anyone can look at this data, by the way.

310
00:21:31,320 --> 00:21:35,240
So guys, I have the dollars, not it's very, there's a huge difference between
crossing

311
00:21:35,240 --> 00:21:37,240
from $0.10 to $0.10.

312
00:21:37,240 --> 00:21:41,680
Actually, let me do this, Tom, I've got a good answer for this.

313
00:21:41,680 --> 00:21:46,040
So yeah, Paul, rather than just hypothesizing what people might be willing to spend,
I looked

314
00:21:46,040 --> 00:21:47,680
at real world data.

315
00:21:47,680 --> 00:21:54,120
So I looked at what people spent on wires, physical gold delivery, offshore banking,

316
00:21:54,120 --> 00:21:59,400
and real estate transactions, all of those being store of value asset transactions,
which

317
00:21:59,400 --> 00:22:02,880
Bitcoin is most definitively a store of value asset.

318
00:22:02,880 --> 00:22:08,120
And so we could look at other people's affinity to pay those fees for those type of
asset

319
00:22:08,120 --> 00:22:11,360
transfers and probably use that as a good benchmark for what people would be willing

320
00:22:11,360 --> 00:22:12,360
to pay for Bitcoin.

321
00:22:12,360 --> 00:22:15,840
And Bitcoin actually is a phenomenally better asset than these other ones.

322
00:22:15,840 --> 00:22:19,240
I mean, with real estate, not only do you have these transaction fees, but the asset

323
00:22:19,240 --> 00:22:21,200
you own isn't fungible.

324
00:22:21,200 --> 00:22:22,960
It's got maintenance costs.

325
00:22:22,960 --> 00:22:25,580
It's very illiquid market.

326
00:22:25,580 --> 00:22:30,000
So in fact, you could claim that users would be willing to pay even higher amounts
on transaction

327
00:22:30,000 --> 00:22:31,000
fees.

328
00:22:31,000 --> 00:22:32,000
And so here's an easy-

329
00:22:32,000 --> 00:22:35,000
No, I think this is just ridiculous.

330
00:22:35,000 --> 00:22:40,240
If you buy a Steinway Grand Piano, you have to pay for movers, you have to pay for
like,

331
00:22:40,240 --> 00:22:41,240
it's like-

332
00:22:41,240 --> 00:22:42,240
It's a store of value asset.

333
00:22:42,240 --> 00:22:43,240
Thank you.

334
00:22:43,240 --> 00:22:49,840
But it's not the case that, I mean, what does real estate have to do with payments
technology?

335
00:22:49,840 --> 00:22:50,840
I think-

336
00:22:51,480 --> 00:22:54,400
It's really simple because Bitcoin is a store of value, the Bitcoin is a store of
value

337
00:22:54,400 --> 00:22:55,800
gold 2.0 asset.

338
00:22:55,800 --> 00:22:59,560
So we can look at other stores of value and determine what people would be willing
to,

339
00:22:59,560 --> 00:23:04,240
you know, what they pay in transaction fees today on those sort of whatever we want
to

340
00:23:04,240 --> 00:23:09,040
call them, rails or assets, and then use that as a good approximation for what
Bitcoin users

341
00:23:09,040 --> 00:23:10,720
would be willing to pay.

342
00:23:10,720 --> 00:23:13,920
I mean, you could say that, I don't know, I don't know what to tell anyone in the
audience

343
00:23:13,920 --> 00:23:23,720
who thinks that we should look to a real estate closing costs as having anything to

344
00:23:23,720 --> 00:23:31,280
do with a payment, you know, willingness to pay or the market clearing price for,
you

345
00:23:31,280 --> 00:23:32,280
know, a market.

346
00:23:32,280 --> 00:23:34,880
I don't even know, it's like, it's baffling to me that-

347
00:23:34,880 --> 00:23:38,880
Let's make this easy, Paul, because you're kind of, you're building a straw man
here.

348
00:23:38,880 --> 00:23:39,880
Let's make it really easy.

349
00:23:39,880 --> 00:23:40,880
Let's look at wires.

350
00:23:40,880 --> 00:23:42,800
That's a pretty close equivalent, right?

351
00:23:42,880 --> 00:23:46,760
Yeah, I think definitely people will prefer blockchain payments to wires.

352
00:23:46,760 --> 00:23:47,760
I agree with that.

353
00:23:47,760 --> 00:23:48,760
That makes sense.

354
00:23:48,760 --> 00:23:50,160
How much do people pay for wires today?

355
00:23:50,160 --> 00:23:57,360
What's the similarity between wires and real estate transactions?

356
00:23:57,360 --> 00:23:59,200
I think you're building a straw man here with real estate.

357
00:23:59,200 --> 00:24:01,080
So how about we ignore it since you're focused on-

358
00:24:01,080 --> 00:24:03,960
I didn't want to build it, you gave it to me.

359
00:24:03,960 --> 00:24:04,960
This is your argument.

360
00:24:04,960 --> 00:24:06,200
I had nothing to do with real estate.

361
00:24:06,200 --> 00:24:08,200
I've already explained it to you twice.

362
00:24:08,200 --> 00:24:12,480
All of these are store of value assets, whether it be gold, wire, you know, you're
moving

363
00:24:13,160 --> 00:24:14,160
large amounts of money with wires.

364
00:24:14,160 --> 00:24:15,160
I don't think so.

365
00:24:15,160 --> 00:24:17,760
Real estate, you live in a house and you-

366
00:24:17,760 --> 00:24:18,760
Real estate is a $250-

367
00:24:18,760 --> 00:24:20,640
Real estate is very different.

368
00:24:20,640 --> 00:24:24,680
Real estate is a $250 trillion store of value industry.

369
00:24:24,680 --> 00:24:28,280
In fact, real estate is typically the largest asset anyone will own.

370
00:24:28,280 --> 00:24:29,400
So yes, it is a very good-

371
00:24:29,400 --> 00:24:33,360
No, I mean, there's nothing about the size of the asset.

372
00:24:33,360 --> 00:24:36,480
I'm just saying that when people buy real estate, they usually want to do something

373
00:24:36,480 --> 00:24:37,480
with land.

374
00:24:37,480 --> 00:24:38,480
They live in the land.

375
00:24:38,480 --> 00:24:41,320
Paul, I'm not going to continue down this conversation if you don't want to have an

376
00:24:41,320 --> 00:24:42,560
intellectually honest debate.

377
00:24:42,560 --> 00:24:43,560
Let's focus on-

378
00:24:43,560 --> 00:24:44,560
I don't understand.

379
00:24:44,560 --> 00:24:45,560
What's the intellectual dishonesty?

380
00:24:45,560 --> 00:24:46,560
I don't, I don't know.

381
00:24:46,560 --> 00:24:50,160
I, you know, I apologize if I've given any offense, but I honestly have no idea.

382
00:24:50,160 --> 00:24:51,160
You're the one-

383
00:24:51,160 --> 00:24:52,160
Paul-

384
00:24:52,160 --> 00:24:55,160
But if you want to go back to wires, then by all means.

385
00:24:55,160 --> 00:24:56,360
Yeah, Paul, let's zoom out.

386
00:24:56,360 --> 00:24:59,640
So first of all, you said users would not be willing to pay above a few dollars,
which

387
00:24:59,640 --> 00:25:01,040
you provided no data for.

388
00:25:01,040 --> 00:25:03,920
I looked across multiple types of store of value assets.

389
00:25:04,197 --> 00:25:04,317
You're being a bit picky and focusing on real estate where-

390
00:25:04,317 --> 00:25:10,637
Yes, I believe that occasionally people have, in the heat of the moment, and this is
fully

391
00:25:10,637 --> 00:25:16,317
my consistent published point, that in the heat of the moment, obviously, people
have,

392
00:25:16,317 --> 00:25:22,477
especially in December 2017, they have paid these high fees. But I'm skeptical that
this

393
00:25:22,477 --> 00:25:29,597
is this kind of sustainable thing. I think when people pay these high fees, they're
not

394
00:25:29,997 --> 00:25:34,637
these high fee rates. The gears start to turn in their head and they think,

395
00:25:34,637 --> 00:25:40,157
you know, isn't there some way of me improving this? Maybe I can transact
differently and I

396
00:25:40,157 --> 00:25:43,517
could do like what Adam Back was saying, where you can have some kind of credit
relationship.

397
00:25:43,517 --> 00:25:50,157
We have a tab build up as a bartender and I'm going to transact less or maybe this
technology,

398
00:25:50,157 --> 00:25:56,077
you know, isn't right for me and I should go back to using Venmo or Facebook or
whatever.

399
00:25:56,077 --> 00:25:59,517
But I think people are willing to give it a try for the first time and they say,

400
00:25:59,517 --> 00:26:02,397
well, you know, whatever, I'm going to invest all this time in learning about it.

401
00:26:04,397 --> 00:26:07,357
Guys, when we think about this- Sorry, Daiglett.

402
00:26:08,157 --> 00:26:11,757
Let me dig in a little bit more. So I have a question for you, Paul. In your
article,

403
00:26:11,757 --> 00:26:16,397
did you ever look at volatility or exchange fees when looking at transacting across
a block space?

404
00:26:17,677 --> 00:26:25,277
Yeah, you're referring to my point about altcoin space being a competitor to Bitcoin

405
00:26:25,357 --> 00:26:28,477
block space, yes? Answer the question. Did your article ever

406
00:26:28,477 --> 00:26:31,597
talk about other fees when transacting? I don't think so.

407
00:26:31,597 --> 00:26:36,397
Okay. So you didn't focus holistically on how much it costs to transact in a block
space?

408
00:26:36,397 --> 00:26:40,157
Well, I mean, how expensive can it be? If it's going to go, it's going to be $50

409
00:26:40,157 --> 00:26:45,837
for every layer one BTC transaction. Well, Paul, I work at Jack and I actually

410
00:26:45,837 --> 00:26:49,277
know exactly what my fee schedule is and it's- No, but I'm saying, I'm just saying

411
00:26:49,277 --> 00:26:53,357
your example where layer one Bitcoin fees are $50 per transaction.

412
00:26:54,317 --> 00:27:01,517
Then it has to be quite a bit. The volatility has to be quite a bit to be- And any
upside

413
00:27:01,517 --> 00:27:07,117
volatility, you benefit. So you can write a kind of- Someone could write a hedge or

414
00:27:08,077 --> 00:27:12,717
use something like Tether or something like that. They could write a zero cost
caller or some kind

415
00:27:12,717 --> 00:27:22,077
of financial scheme if they wished. But just ignoring all that, if it's costing you
$50

416
00:27:22,077 --> 00:27:29,517
to transact on BTC layer one, then the total costs, which I admit it's inconvenient
to have

417
00:27:30,157 --> 00:27:35,517
this multi-crypto wallet and have all these prices that fluctuate. I fully admit
that that is not

418
00:27:35,517 --> 00:27:43,357
free. But I just think you can have a situation where BTC fills up and the fees
start climbing to

419
00:27:43,357 --> 00:27:49,837
$10, $20. Someone can copy and paste Bitcoin. It doesn't even have to be Bitcoin
Cash or

420
00:27:50,397 --> 00:27:58,797
a large block piece of software or something with like weird developers that no one
likes

421
00:27:58,797 --> 00:28:02,397
or Satoshi's Vision. It doesn't have to be anything like that. It can just be copy
paste

422
00:28:02,397 --> 00:28:07,757
to Bitcoin or it could be like Litecoin where it's as if it were a copy paste. And
it can have

423
00:28:07,757 --> 00:28:12,797
basically the same technical properties, even though we'll certainly have a smaller
network

424
00:28:12,797 --> 00:28:18,557
effect and be new. But then you have a situation where one costs a layer one fee in
addition to

425
00:28:18,557 --> 00:28:26,077
all the hassle of dealing with crypto. One has $10, $20. The BTC has $10, $20 fee.
And this

426
00:28:26,077 --> 00:28:32,077
newcomer will have zero at first. And it will also be much easier to run a full
node. I mean,

427
00:28:32,077 --> 00:28:36,557
it will be more insecure because it will have less hash rate. This is why I advocate
for merge mining

428
00:28:36,557 --> 00:28:41,997
in the post because you wouldn't have to deal with any of this. But just ignoring
that, you

429
00:28:42,957 --> 00:28:51,037
have this altcoin that's just a copy of Bitcoin and it's $50 or $10 or $20 per
transaction versus

430
00:28:51,037 --> 00:28:57,437
one that's free. I think you have to have quite a lot of frictions to make up for
that.

431
00:28:58,077 --> 00:29:01,437
Right. And so in your analysis, did you look at how much volatility would be

432
00:29:01,437 --> 00:29:03,037
averaged for most of these other chains?

433
00:29:03,917 --> 00:29:07,997
Well, I think it's possible that in a realistic scenario where BTC

434
00:29:07,997 --> 00:29:12,717
fills up, it won't be relevant because when you start up the new chain, it'll just
be something

435
00:29:12,717 --> 00:29:17,517
else that has a similar story to Bitcoin, where we'll just continue to appreciate
over time.

436
00:29:18,237 --> 00:29:23,277
This is a hypothetical world where BTC fills up and then you copy and paste again.
And then

437
00:29:23,277 --> 00:29:26,397
when that one fills up, you copy and paste the third time and a fourth time.

438
00:29:29,197 --> 00:29:32,557
As the saying goes, no one goes there anymore because it's too crowded, is what
you're saying?

439
00:29:33,437 --> 00:29:37,677
Not really. I'm just saying that it would cost more. And so people would want to
avoid paying

440
00:29:37,677 --> 00:29:38,237
that cost.

441
00:29:39,517 --> 00:29:44,877
Sure. But your cost analysis ignored larger costs as well. So you singularly focused
on

442
00:29:44,877 --> 00:29:50,157
one tiny component of the cost. And so I find that just kind of absurd, to be
honest.

443
00:29:50,157 --> 00:29:56,397
I mean, you tell me that. If you looked into it, you're going to tell me that this
adds up to more

444
00:29:56,397 --> 00:29:57,117
than $50?

445
00:29:59,117 --> 00:30:00,077
It's common sense.

446
00:30:00,877 --> 00:30:04,717
All you have to do is look at the value you're transacting. As that value grows,

447
00:30:05,277 --> 00:30:08,237
then the volatility and exchange fees become much higher,

448
00:30:08,237 --> 00:30:11,197
right? Because those are percentages rather than an absolute value.

449
00:30:14,317 --> 00:30:19,757
You know, if you say that, because almost all, like a huge mass majority of
payments,

450
00:30:20,397 --> 00:30:25,917
think the average credit card payment is something like $50. So that's, you know,

451
00:30:26,637 --> 00:30:32,157
the average card payment for credit and debit cards around the world, I'm not
disputing that

452
00:30:32,157 --> 00:30:36,877
there are many large payments people make by check and by wire and things. I'm just
saying,

453
00:30:36,877 --> 00:30:41,757
in the United States, the average credit card size, which is probably skewed,

454
00:30:42,797 --> 00:30:46,877
someone should probably look at the median because it's probably lower. But the
average

455
00:30:46,877 --> 00:30:51,997
is something like card, debit and credit is something like $50. So you're looking at
doubling

456
00:30:52,237 --> 00:30:56,157
it for all those class of payments. So those wouldn't be on chain.

457
00:30:56,157 --> 00:31:00,317
That makes no sense. I mean, what is this, 2015, and we're talking about using

458
00:31:00,317 --> 00:31:02,957
Bitcoin as a cheap visa? No one thinks that anymore.

459
00:31:04,957 --> 00:31:09,357
It means that there's less demand, though. You can have a lot of people in the
United States

460
00:31:09,357 --> 00:31:15,037
buying into Bitcoin the first time in December 2017. Less demand for block space.
The difference

461
00:31:15,997 --> 00:31:21,117
is in the block space and the asset itself. So there's only 21 million coins,
there's only

462
00:31:22,077 --> 00:31:29,997
one megabyte available for non-witness data. And if you want to have a lot of people
bidding up,

463
00:31:29,997 --> 00:31:38,957
the transactions are in the block space dimension. They're not in the demand for the
asset dimension.

464
00:31:38,957 --> 00:31:43,357
Right. So in my analysis, one, I looked holistically at fees, and then second,

465
00:31:43,357 --> 00:31:49,357
I looked at real world comps. So like, for example, today, an average consumer is
willing

466
00:31:49,357 --> 00:31:56,557
to pay between $20 and $60 in the United States to wire money. That is a good,
close, real-world

467
00:31:56,557 --> 00:32:02,637
data that we have that would validate my hypothesis that users are willing to pay
higher fees for

468
00:32:02,637 --> 00:32:05,837
Bitcoin transactions. But willingness is not the same thing.

469
00:32:06,317 --> 00:32:11,677
Higher fees for Bitcoin transactions. I mean, I'm willing to pay a lot of money for
food,

470
00:32:11,677 --> 00:32:16,877
but that doesn't mean the market clearing price of food is going to be high. It
ignores the supply

471
00:32:16,877 --> 00:32:23,357
dimension. Your hypothesis would be validated if we saw Bitcoin fees collapsing as
more and

472
00:32:23,357 --> 00:32:28,877
more blockchains with all this unlimited block space came online, right? No, not
precisely,

473
00:32:28,877 --> 00:32:35,837
but we see exactly that anyway. We don't see that at all. We don't see that at all.
We see

474
00:32:35,837 --> 00:32:41,117
Bitcoin's fees climbing over time, despite thousands and thousands of blockchains
being

475
00:32:41,117 --> 00:32:45,197
created, which would increase the amount of commoditized block space, as you would
put it.

476
00:32:46,637 --> 00:32:50,957
No, I don't think that's the case. I mean, when Bitcoin first became worth,

477
00:32:50,957 --> 00:32:56,397
the transaction fees first rose above $1 for a transaction, that was May 2017.

478
00:32:56,397 --> 00:33:01,917
That's exactly when Ethereum became big. And see, here's the thing. Ethereum became
big,

479
00:33:02,477 --> 00:33:10,237
not using any of its novel, quote, novel features about Turing completeness or
whatever. That was

480
00:33:10,237 --> 00:33:15,437
just people doing basically counterparty on Bitcoin, but on Ethereum. They were
doing the

481
00:33:15,437 --> 00:33:24,637
CRC20 token. That was all preempted by and basically caused by

482
00:33:25,517 --> 00:33:32,957
this dispute about fees in the Bitcoin community. No comment on the dispute other
than that. I'm

483
00:33:32,957 --> 00:33:38,717
just saying that it created this. And there's no need for there to be, it's not the
case that

484
00:33:39,277 --> 00:33:44,237
new supply automatically lowers the price because it's negligible when it's less
than

485
00:33:44,797 --> 00:33:49,117
$1 or $2 is my claim. So my claim is that people just, even though it's a real
number

486
00:33:49,917 --> 00:33:56,237
and $1 or $2, people prefer having $1 or $2 to not having it. I don't think they
significantly care.

487
00:33:57,997 --> 00:34:02,237
So it's not the case that just copying and pasting a billion will just cause the $2
to plummet to

488
00:34:02,237 --> 00:34:08,797
zero. I agree with you that there are many frictions involved in changing, swapping
the

489
00:34:08,797 --> 00:34:13,837
chains around. So I don't think that it's just copy and pasting a trillion chains
will drive

490
00:34:14,637 --> 00:34:21,517
the fee rate all the way down to 0.000 millionths of a cent.

491
00:34:22,477 --> 00:34:27,277
I'm just saying that once they get high, once they get to $2, $3, $4, $5, then
people start

492
00:34:27,277 --> 00:34:33,917
to think, why am I paying this? Can't I do something with my behavior to pay less?

493
00:34:33,917 --> 00:34:38,237
And so I think that food is a pretty good example. My willingness to pay food is

494
00:34:39,197 --> 00:34:43,197
tremendous. But fortunately for me, I live in a world where there's lots of food
around.

495
00:34:43,837 --> 00:34:45,917
I've got various shapes and sizes for me to buy.

496
00:34:46,797 --> 00:34:51,517
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503
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done fast. Paul, quick question for you real quick, though. Yes. Quick question for
you and

504
00:35:29,037 --> 00:35:33,437
Dan, and it might be more suited for you, though. It sounds like a lot of your
comparisons are

505
00:35:33,437 --> 00:35:39,117
focused on the medium of exchange definition. I don't think a lot of people view
Bitcoin as

506
00:35:39,117 --> 00:35:44,397
a medium of exchange. I mean, I personally want to store value in it. I don't mind
paying a little

507
00:35:44,397 --> 00:35:50,077
bit more to compensate miners around the world to store that state. Oh, well, that's
a different

508
00:35:50,077 --> 00:35:55,277
issue. But that's two issues. One issue is that, yes, it's completely different.
Again,

509
00:35:55,277 --> 00:36:00,157
the supply and demand for coins versus the supply and demand for the block space.

510
00:36:01,277 --> 00:36:06,477
So they're completely separate markets. I mean, they have relationships like
everything is related

511
00:36:07,197 --> 00:36:15,277
to something else. But the desire to own Bitcoin and the price of Bitcoin, dollars
per Bitcoin,

512
00:36:15,997 --> 00:36:23,037
you see dollars per coin, that's a different price than the dollars per 250 bytes
that it costs to

513
00:36:23,037 --> 00:36:31,757
rent to describe the average Bitcoin transaction. So you see bytes in the
blockchain, that is a

514
00:36:31,757 --> 00:36:40,077
different commodity, for lack of a better word, than BTC. So it has no basis on
whether you think

515
00:36:40,077 --> 00:36:45,517
that Bitcoin, the coin, should be a medium of exchange or store value. There's no
basis.

516
00:36:47,037 --> 00:36:50,237
I guess I'm just missing it. I guess I'm just missing it, though. And

517
00:36:50,237 --> 00:36:52,717
maybe, Dan, you could explain it or Paul explain it further.

518
00:36:52,717 --> 00:36:56,317
I can explain it, I think, which is that if the exchange rate goes up a lot,

519
00:36:57,277 --> 00:37:03,117
you reprice, you're not suddenly, if you're willing to pay, let's say you have a
giant stack

520
00:37:03,117 --> 00:37:09,197
of Bitcoin, you want to pay someone, and the software will make you quote it in
satoshis per

521
00:37:09,197 --> 00:37:17,917
byte, the fee. You'll pay some, I don't know what it is, whatever, 40,000 or let's
just say 4,000

522
00:37:17,917 --> 00:37:24,477
satoshis, because I don't want to think about it. 4,000 satoshis to pay the
transaction fee.

523
00:37:24,477 --> 00:37:29,997
But if the exchange rate goes up and multiplies by 10 or something, what you'll do
is when you

524
00:37:29,997 --> 00:37:34,557
really think about, when you go to make, to make the same transaction, you'll be
like, oh,

525
00:37:34,557 --> 00:37:42,237
what's the market rate for transaction fees? And you will then type in 400 satoshis
instead of

526
00:37:43,037 --> 00:37:47,517
4,000, because it would be more painful to you to lose, it would be 10 times more
painful

527
00:37:48,717 --> 00:37:53,677
losing each satoshi. So it will come out to a kind of, this is why they all have to
be in

528
00:37:53,677 --> 00:37:58,557
purchasing power, the fees. The fees are what, the cost in economics, the cost of
anything is

529
00:37:58,557 --> 00:38:04,637
when you give up to obtain it. So when the, if the Bitcoin price sky, the price goes
to the

530
00:38:04,637 --> 00:38:12,237
moon or the exchange rate skyrockets by 10, the coins are all worth more, but it
doesn't really

531
00:38:12,237 --> 00:38:17,357
affect the fee market. The fee market is driven by these fundamentals of demand for
the block space

532
00:38:18,157 --> 00:38:22,237
and whether or not people need to make transactions. So only during the bubble time

533
00:38:22,237 --> 00:38:27,517
they become related because suddenly everyone wants Bitcoin and everyone wants
blockchain space

534
00:38:27,517 --> 00:38:31,757
at the same time. So they have a misleading relationship that is.

535
00:38:32,637 --> 00:38:37,357
Maybe I can jump in here that will provide a little color for, for everyone
listening. So

536
00:38:38,237 --> 00:38:41,917
yeah, essentially the way that I think about block space is that it's like a parcel
of real

537
00:38:41,917 --> 00:38:47,917
estate and there's a new one created every 10 minutes. And by bidding on it, I'm
bidding on

538
00:38:47,917 --> 00:38:54,317
getting into that, that parcel. So in an open market, that means that I need to bid
competitively

539
00:38:54,317 --> 00:38:58,557
in order to get within, to get in that parcel within that, you know, that 10 minute
time period,

540
00:38:58,557 --> 00:39:03,357
approximate 10 minute time period. So, you know, for me, the way that I think about
it is that

541
00:39:03,917 --> 00:39:07,917
yes, demand for the asset itself fluctuates. And I think what Paul is trying to say
is that the

542
00:39:07,917 --> 00:39:13,837
demand for the asset fluctuates, but the, the block space remains constant. So
demand can

543
00:39:13,837 --> 00:39:21,277
fluctuate or not. Sorry, I miss, miss said that, that the demand for block space,
there's,

544
00:39:21,277 --> 00:39:24,957
there's a lot of, there's potentially almost unlimited demand for block space in a
fixed

545
00:39:24,957 --> 00:39:31,117
amount. Whereas like the demand for the asset itself, there's a bunch of supply that
can meet

546
00:39:31,117 --> 00:39:35,037
that. Is that what you're trying to say, Paul? Well, I'm not sure. I'm just saying
that they're

547
00:39:35,037 --> 00:39:40,077
two different assets. So they have a different price, like pricing. I don't know,
even what

548
00:39:40,077 --> 00:39:44,397
it's like pricing a television versus the electricity required to run it. The
electricity

549
00:39:44,397 --> 00:39:53,117
is a function of different power plants and how well run the power lines are. And,
you know,

550
00:39:53,117 --> 00:39:57,037
that's a function of a totally different thing than the, how much it costs to buy a
television

551
00:39:57,037 --> 00:40:03,517
is a function of how good people are at producing television. So they're, in my
view, they're

552
00:40:03,517 --> 00:40:07,197
separate goods, but of course they have some relationships, especially during these
bubble

553
00:40:07,197 --> 00:40:13,117
times when everyone wants to own. Yeah. So then they need, in order to obtain it for
the first

554
00:40:13,117 --> 00:40:17,197
time, it's like, you know, in order to use a TV, you need electricity and it's not a
perfect

555
00:40:17,197 --> 00:40:22,397
metaphor by any, in any sense. I'm just trying to emphasize there are two different
things. People,

556
00:40:22,397 --> 00:40:27,197
they get very, I think they do get kind of, they don't really realize there's two
different

557
00:40:28,317 --> 00:40:33,677
goods here. Let me take a derivative, derivative of this and see if this leads

558
00:40:33,677 --> 00:40:39,917
out on an interesting path. So, you know, when we look at, you know, the subsidy
over time in

559
00:40:39,917 --> 00:40:47,197
the block reward decreases through the halvening events. And after those halvening
events, we then,

560
00:40:47,197 --> 00:40:55,117
you know, we've seen thus far a corresponding boom bust cycle. And so over time, as
the have,

561
00:40:55,117 --> 00:41:02,877
as the subsidy has decreased, it has decreased. We have seen transaction fees
respond in terms of

562
00:41:02,877 --> 00:41:07,517
the amount. So when the block reward halves, that reduces the supply hitting the
market,

563
00:41:08,157 --> 00:41:13,757
that makes the supply a bit more sensitive to increases in demand. So when increases
in demand

564
00:41:13,757 --> 00:41:19,117
occur, the price goes up, that new price, the new spike in price creates a bubble,

565
00:41:19,117 --> 00:41:23,117
that bubble creates awareness. And then people come back into the protocol because
of that

566
00:41:23,117 --> 00:41:29,357
awareness. So for instance, you see it going past 10, a hundred or a thousand
dollars on CNN,

567
00:41:29,357 --> 00:41:34,077
you go, oh, maybe I should buy some. And then when you buy some, you now become a
potential

568
00:41:34,077 --> 00:41:39,037
transactor. And so we've seen that reflected in Bitcoin's block spaces that through
these bubbles,

569
00:41:39,597 --> 00:41:46,717
we've seen liquidity, awareness, adoption, and transaction fees all jump as well.
And through

570
00:41:46,717 --> 00:41:51,917
each cycle, even though there is a drawdown in the bear market, similar to price,
you know,

571
00:41:51,917 --> 00:41:57,437
with the price of Bitcoin in a similar fashion, transaction fees don't go below the
floor of the

572
00:41:57,437 --> 00:42:03,357
last bubble. There is a floor set of the price of Bitcoin and there's a floor set to
what

573
00:42:03,357 --> 00:42:08,477
transaction fees users are willing to pay. And we have seen that go in lockstep
upwards and upwards

574
00:42:08,477 --> 00:42:12,637
over time. Well, I agree with a lot of that, but I don't think it will help. I mean,
the floor is

575
00:42:12,637 --> 00:42:21,037
no good really. And the floor is just, you know, we need the average fee to go up,
we need the

576
00:42:21,037 --> 00:42:27,197
ceiling to go up. We have seen that average fee has trended upwards over time. But
yeah,

577
00:42:27,197 --> 00:42:33,997
I definitely agree that as more people get involved, there's more demand for, yeah,

578
00:42:33,997 --> 00:42:39,197
once there's more demand for Bitcoin, the asset, then in order to join the club,
people need at

579
00:42:39,197 --> 00:42:46,717
least one, usually several on-chain transactions. Of course, it goes the other way
around, right?

580
00:42:47,517 --> 00:42:53,037
If the fees are too high or if the security budget collapses, right? I mean, they'll
want Bitcoin a

581
00:42:53,037 --> 00:42:59,277
lot less if the security budget is too low and it costs just a few million dollars
to reorg the

582
00:42:59,277 --> 00:43:04,957
chain for a month or two months or something. So I think that kind of goes in both
ways.

583
00:43:04,957 --> 00:43:10,957
But yeah, I agree with most of that, that it's true that people, I don't agree that
this thing

584
00:43:10,957 --> 00:43:16,717
about the halvening is a myth and having any real effect is a myth. There are
dealers, there are

585
00:43:16,717 --> 00:43:22,717
people who would hold, buy the coins up before the halvening and then sell them
later and

586
00:43:23,517 --> 00:43:28,877
warehouse them to arbitrage any known price discrepancies and things. But yeah, I
agree

587
00:43:28,877 --> 00:43:33,997
that there's definitely a lot of positive feedback loops because when Bitcoin goes
up,

588
00:43:33,997 --> 00:43:40,077
people get more interested in it. It grows the community and it does increase demand
for the

589
00:43:40,077 --> 00:43:45,837
coin and for block space because you want these new people to join. So I agree with
all that.

590
00:43:45,837 --> 00:43:52,957
Again, I just don't see how it translates to $50 per transaction for thousands of
transactions

591
00:43:52,957 --> 00:44:02,557
every 10 minutes, every 24-hour period, every 365 days of the year. This is a
negative feedback

592
00:44:02,557 --> 00:44:09,357
loop. This is more people join, fees go up, people become more frustrated. And you
were saying

593
00:44:09,357 --> 00:44:14,397
before it was like real estate, but I think, as I've said, you can just copy and
paste Bitcoin.

594
00:44:14,397 --> 00:44:21,117
If you could copy and paste Earth, including Manhattan, I think you'd have some
people who

595
00:44:21,117 --> 00:44:28,637
would be willing to take a chance on Manhattan too, the ultimate Manhattan. If
they're paying

596
00:44:28,637 --> 00:44:36,557
$7,000 for a one-bedroom or whatever, they're in the Wall Street district, financial
district,

597
00:44:36,557 --> 00:44:43,997
and they can then pay zero. And sure, no one else is there. So definitely, it's a
good comparison

598
00:44:43,997 --> 00:44:49,357
in a way. No one's in the nightclubs yet, but you have your own Brooklyn Bridge, you
have your own

599
00:44:50,717 --> 00:45:00,717
Empire State Building. I think it really would prevent... Real estate isn't a great
example,

600
00:45:00,717 --> 00:45:07,837
actually, because a big benefit of spending a lot of money on rent is actually that
you live

601
00:45:07,837 --> 00:45:15,277
near other wealthy, successful people like yourself. Whereas in this world,

602
00:45:16,957 --> 00:45:21,517
you could still... It would be like if you could copy and paste Earth, but you could
still stream

603
00:45:22,397 --> 00:45:26,317
Netflix videos that were made on Earth One and still talk to the people on Earth
One.

604
00:45:26,317 --> 00:45:30,557
I'm not sure that it's a perfect metaphor. But what I'm trying to say is if you
could copy and

605
00:45:30,557 --> 00:45:36,877
paste Rome and have your own Rome... I think I would rather go to Rome all by myself
and not

606
00:45:36,877 --> 00:45:41,997
with panic at the crowd of other people. Bitcoin's block space has value due to the

607
00:45:41,997 --> 00:45:46,237
network effect. The coordination cost and the security model is all based on that.
So

608
00:45:47,037 --> 00:45:50,797
it's not a really good comparison to say you can just copy and paste it, because if
you copy and

609
00:45:50,797 --> 00:45:54,637
paste it, you lose the network effect, which is the whole point of why we're here.
Money is a

610
00:45:54,637 --> 00:45:59,917
network effect. No, I completely agree that money is a network effect. And I think
that

611
00:46:00,877 --> 00:46:05,757
you... Yeah, definitely a drawback of copying and pasting Earth is the first few
people there,

612
00:46:05,757 --> 00:46:10,397
then no one else will be there. So you have to take the transporter or whatever and
your

613
00:46:11,117 --> 00:46:15,917
friends and family won't be there, even though you could still call them or
something.

614
00:46:15,917 --> 00:46:20,077
But I just think that... I think it just dampens the ability to say,

615
00:46:21,037 --> 00:46:27,917
I mean, you can go... It just dampens the ability... You seem to ascribe a kind
of...

616
00:46:28,797 --> 00:46:34,237
A kind of... You say no matter what it costs, people will be willing to just pay
this

617
00:46:37,037 --> 00:46:41,517
high fee rate. And I just think that's... To me, that just seems like a dangerous
little

618
00:46:41,517 --> 00:46:45,037
wishful thinking. I'm not comfortable with that. I just think, well, I don't know,

619
00:46:45,037 --> 00:46:48,077
people are kind of... Most people don't care about Bitcoin. Most people don't like

620
00:46:49,197 --> 00:46:55,997
libertarianism. They're not ideologically going to pay. They just want something
that works.

621
00:46:55,997 --> 00:46:59,277
And the blockchain payments, even if you started over with no... I mean,

622
00:47:00,477 --> 00:47:05,757
we've seen other things succeed, Monero and Ethereum to some extent, just because
they

623
00:47:05,757 --> 00:47:10,477
happen to solve problems that people thought they had, for better or for worse. And
if you start

624
00:47:10,477 --> 00:47:17,917
over, you still have a lot of the self-sovereignty, privacy properties. You get a
new coin that can

625
00:47:17,917 --> 00:47:23,357
appreciate... That's objectively false. You can't say that these coins have those
same properties

626
00:47:23,357 --> 00:47:27,917
because the entire point of our conversation was talking about security budget. And
if we look at

627
00:47:28,557 --> 00:47:32,797
transaction fees overtaking the subsidy from Monero, it's basically dead. Also,

628
00:47:33,517 --> 00:47:37,997
Monero's hypothetical use case is dark market transactions, but Bitcoin still very
much

629
00:47:37,997 --> 00:47:43,597
predominantly owns dark market transactions despite its lack of privacy, which
indicates

630
00:47:43,597 --> 00:47:48,717
that network effect, by and large, is the most important characteristic here for
Blockspace.

631
00:47:48,717 --> 00:47:53,037
No, I totally agree that network effect is very important and probably the most
important thing.

632
00:47:53,277 --> 00:47:58,717
I just don't think it has an unlimited ability to trump people's... See, here's the
other thing,

633
00:47:58,717 --> 00:48:03,037
is that you can move and you have the network effect today, but then you lose it
tomorrow.

634
00:48:03,037 --> 00:48:12,637
So this is what Roger Ver is hoping and praying for that, and all of his followers
hoping and

635
00:48:12,637 --> 00:48:21,037
praying that fees will climb on layer one, BTC, and then something else that's
relatively similar,

636
00:48:21,037 --> 00:48:28,157
but has larger block size. Enough people will experiment with that until the network
effect

637
00:48:28,157 --> 00:48:35,517
will regrow around that thing, and then the demand for BTC will collapse. This is
what he's hoping,

638
00:48:35,517 --> 00:48:42,877
that no one will want to be on BTC. I've lost the network effect that you and I both
agree is

639
00:48:42,877 --> 00:48:49,197
important. So the network effect is not like... You can extract quite a bit. I've
been to some

640
00:48:50,157 --> 00:48:56,157
some New York City nightclubs and things that charge an awful lot of money for
basically

641
00:48:57,037 --> 00:49:02,477
only that other people are there. Right, and back to my original point, have you or
Roger,

642
00:49:02,477 --> 00:49:06,877
which I've both studied extensively what you've written, have either of you ever
looked at

643
00:49:06,877 --> 00:49:11,357
volatility fees and exchange fees when transacting across a Blockspace? No, but I
don't think you

644
00:49:11,357 --> 00:49:15,757
understand what I'm saying. He's saying, well, Roger Ver is hoping that people
switch completely

645
00:49:15,757 --> 00:49:23,517
to BCH, and they will no longer have to switch, go across chains. They'll just be in
one chain.

646
00:49:24,397 --> 00:49:29,277
It's really simple here. So you guys are singularly focused on transaction fees,

647
00:49:29,277 --> 00:49:33,757
which is by definition intellectually dishonest, because you're not including other
fees.

648
00:49:35,277 --> 00:49:40,717
You're not including all the fees necessary to transact. Shouldn't it be a wash for
each?

649
00:49:40,717 --> 00:49:43,997
Why would it be different to BCH volatility fee versus BTC?

650
00:49:45,677 --> 00:49:47,277
Bitcoin has less volatility than alts.

651
00:49:48,237 --> 00:49:51,997
No, but you don't understand what I'm saying. Roger Ver is hoping that sometime in
the future,

652
00:49:52,717 --> 00:49:57,037
in like 20, well, maybe this year or 2021 or something,

653
00:49:57,037 --> 00:50:01,677
BTC is like the hottest nightclub in town. But then more people start to go,

654
00:50:01,677 --> 00:50:05,997
you know, it's like it's an empty Super Bowl stadium at BCH because no one is there,
but it's

655
00:50:05,997 --> 00:50:06,557
big.

656
00:50:06,812 --> 00:50:12,452
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.

657
00:50:12,452 --> 00:50:16,372
So then it will be BTC. All of your arguments will cut against BTC.

658
00:50:16,372 --> 00:50:26,532
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.

659
00:50:26,852 --> 00:50:44,772
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.

660
00:50:44,772 --> 00:50:49,812
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.

661
00:50:49,812 --> 00:50:53,652
He's saying that hoping that people will stay on BCH and not go to BCH.

662
00:50:53,652 --> 00:50:58,852
As you said, Paul, your purchasing power is how we should evaluate costs. We don't
evaluate...

663
00:50:58,852 --> 00:51:01,652
Yeah, I agree. But what does that have to do with it?

664
00:51:01,652 --> 00:51:05,572
Because the value of BCH and Bitcoin fluctuates, so you're still paying a volatility
fee.

665
00:51:07,012 --> 00:51:13,652
I know, but there's no additional marginal... I don't understand what you're saying.
You're saying that BCH will...

666
00:51:14,372 --> 00:51:35,092
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.

667
00:51:35,092 --> 00:51:41,972
Volatility fee fluctuates because whether... No, let's say you take Bitcoin and I
want to give you Bitcoin.

668
00:51:42,612 --> 00:51:55,412
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.

669
00:51:55,972 --> 00:51:58,692
And so that's the fee that we're paying and that fee fluctuates.

670
00:52:03,652 --> 00:52:09,892
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...

671
00:52:10,612 --> 00:52:12,212
Which is nonsensical because like...

672
00:52:12,212 --> 00:52:25,652
...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?

673
00:52:25,652 --> 00:52:26,772
It's empirical, yeah.

674
00:52:28,132 --> 00:52:38,692
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.

675
00:52:38,772 --> 00:52:47,572
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.

676
00:52:48,212 --> 00:52:58,612
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.

677
00:52:59,572 --> 00:53:12,532
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?

678
00:53:13,172 --> 00:53:25,412
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.

679
00:53:25,492 --> 00:53:48,452
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?

680
00:53:49,412 --> 00:53:56,452
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?

681
00:53:56,452 --> 00:53:57,492
Yes.

682
00:53:58,052 --> 00:54:21,972
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.

683
00:54:22,932 --> 00:54:35,652
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.

684
00:54:35,652 --> 00:54:45,252
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.

685
00:54:45,332 --> 00:54:55,412
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?

686
00:54:56,212 --> 00:55:02,132
It's really simple, Paul. We're making this way too complicated. When I transact on
any lock, right?

687
00:55:02,132 --> 00:55:09,172
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.

688
00:55:09,252 --> 00:55:14,212
It's not circular reasoning. It's very simple. So, I'll say this one more time, and
then I'm done.

689
00:55:14,212 --> 00:55:24,772
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.

690
00:55:24,772 --> 00:55:30,772
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.

691
00:55:31,252 --> 00:55:41,572
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.

692
00:55:41,572 --> 00:55:50,692
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.

693
00:55:51,572 --> 00:55:52,532
Oh, I agree with that.

694
00:55:54,372 --> 00:55:55,892
We're convincing in real time, guys.

695
00:55:56,212 --> 00:56:00,692
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?

696
00:56:01,412 --> 00:56:04,212
I mean, I'd rather keep it to you guys. I have my own views here.

697
00:56:04,772 --> 00:56:11,172
Yeah, but why did I say that? Because I'm saying that this is all tied up into one,

698
00:56:12,132 --> 00:56:17,732
all these points are tied to one premise, which is that BTC has the strongest
network effect.

699
00:56:17,732 --> 00:56:22,612
But you see, if it's network effect that is the most important feature, then Bitcoin
can never

700
00:56:22,612 --> 00:56:27,732
conquer the US dollar, which has a much higher network effect. So you can't be
completely

701
00:56:27,732 --> 00:56:33,252
dogmatic about the network effect. You have to say that at some point, features make
some difference.

702
00:56:34,052 --> 00:56:37,972
And at some point, I think fees also make a difference.

703
00:56:39,972 --> 00:56:43,572
Let's table this for now, guys. Let's move on to two different points so we don't

704
00:56:43,572 --> 00:56:47,732
go in circles a bit. I think you guys both expressed your views and people could

705
00:56:48,212 --> 00:56:53,012
understand them and think for themselves on who they agree with there. So I think
it's helpful.

706
00:56:53,012 --> 00:56:56,772
And I really think the discussion is helpful because it paints a picture for people
to

707
00:56:56,772 --> 00:57:04,612
understand both sides here. The other question I have is on settlement. So Bitcoin
has a global

708
00:57:04,612 --> 00:57:09,812
base of nodes. People are paying for that security. They don't want to just go to a

709
00:57:09,812 --> 00:57:15,972
new version that doesn't have those assurances. How do you guys think through the
long-term

710
00:57:15,972 --> 00:57:20,292
view there that people want to hold an asset that is secured over the long time?
They don't

711
00:57:20,292 --> 00:57:26,612
just want to pick up an alt that might not be secure over the long term. I agree
with that.

712
00:57:27,732 --> 00:57:33,732
I don't know how to think about it. I don't know. I guess, Paul, you brought up a
couple of points

713
00:57:33,732 --> 00:57:38,932
that people might want to go to, say, a copy-paste version. But if you do that, you
lose

714
00:57:38,932 --> 00:57:43,812
the settlement assurances of Bitcoin, which is, in my opinion, one of its major
factors here.

715
00:57:44,772 --> 00:57:50,292
Well, I think if you assume in this hypothetical world where you have a lot of
people, half of the

716
00:57:50,292 --> 00:57:56,132
card payments are below $50 hypothetically. Some of those people are interested in
crypto.

717
00:57:56,852 --> 00:58:02,212
They will forge the new version. You can call it BCH, or you can call it whatever
you like.

718
00:58:02,772 --> 00:58:07,892
They will then start building their own community that has its own inferior but

719
00:58:08,212 --> 00:58:12,532
existing. It's not as though it won't exist, this settlement guarantee. But yeah,

720
00:58:12,532 --> 00:58:17,732
that's the difference, though, between the asset and the block space.

721
00:58:19,252 --> 00:58:24,212
Again, also, let me reiterate that if the security budget collapses, it will be the…

722
00:58:25,972 --> 00:58:32,052
If it plummets, then you have no settlement guarantee, basically, because currently…

723
00:58:32,612 --> 00:58:43,252
I mean, it depends on what you think, but fees in 2018 were just $70 million, as I
said. So,

724
00:58:44,052 --> 00:58:48,612
that's nothing. So, it goes in both directions.

725
00:58:48,612 --> 00:58:55,892
Well, I mean, these are intertwined, right? The value of Bitcoin determines what the
block

726
00:58:55,892 --> 00:59:00,212
subsidy is comprised of in terms of its purchasing power, that block subsidy.

727
00:59:00,212 --> 00:59:07,252
And transaction fees, as we've seen empirically, continue to climb as Bitcoin grows
and grows in

728
00:59:07,252 --> 00:59:14,452
adoption. And so, if the security budget collapsed, that means that the value of
Bitcoin either

729
00:59:14,452 --> 00:59:18,772
collapsed or no one's transacting, which is sort of a circular logic to say that no
one cares about

730
00:59:18,772 --> 00:59:23,172
Bitcoin anymore, which means that the security budget is somewhat meaningless
because Bitcoin

731
00:59:23,172 --> 00:59:25,092
doesn't need to be secured because no one values it.

732
00:59:26,132 --> 00:59:33,332
Right. I agree completely. It's a simultaneous determination of security and health.

733
00:59:34,052 --> 00:59:40,372
Guys, I want to take some time here. We have to talk about physical policy, monetary
policy,

734
00:59:40,372 --> 00:59:45,012
the government printing potentially trillions of dollars, the flight to US dollars,
what that

735
00:59:45,012 --> 00:59:50,132
means for Bitcoin. In my view, I kind of view Bitcoin as a risk on asset, but the
last two

736
00:59:50,132 --> 00:59:54,532
days with the stock market down, Bitcoin up, now the stock market flat, Bitcoin
again up,

737
00:59:54,532 --> 00:59:58,372
kind of makes sense that people are starting to see Bitcoin as an alternative.
They're trying,

738
00:59:58,372 --> 01:00:03,412
they're really understanding it now, especially my friends I talk to who are new to
the space.

739
01:00:03,412 --> 01:00:08,692
Do you guys think that the potential recession we're going into, the stock market
getting killed,

740
01:00:08,692 --> 01:00:11,892
the government printing trillions in assets, bullish for Bitcoin,

741
01:00:11,892 --> 01:00:15,652
how do you think through the timelines there, how do you feel about it?

742
01:00:16,612 --> 01:00:25,412
Yeah. Well, certainly, there was a bull market in cash recently. Everyone wanted
cash. And so that

743
01:00:26,372 --> 01:00:31,572
is going to produce something recession-like. But I don't think that Bitcoin, I
think that

744
01:00:31,572 --> 01:00:37,572
Bitcoin really is... The funny thing is most people have looked and said, actually,
Bitcoin isn't...

745
01:00:38,292 --> 01:00:45,252
Originally, people said Bitcoin is de-correlated. But now after this last event,

746
01:00:45,252 --> 01:00:50,132
people have said, oh, no, actually, Bitcoin is just high beta. It is correlated
after all.

747
01:00:50,932 --> 01:00:59,652
But I think that actually, in the end, the interpretation is that it actually is

748
01:00:59,652 --> 01:01:04,052
de-correlated after all. Because I really think that what really happens is that
people are

749
01:01:04,052 --> 01:01:10,132
unsure about Bitcoin. And so whenever anything weird happens at all, sometimes the
price plummets

750
01:01:10,132 --> 01:01:20,612
to break check everyone. And we see how everyone will flinch or panic. So you saw
that many days

751
01:01:20,612 --> 01:01:28,692
ago when the price got cut in half, the exchange rate. But then as you say, we've
had more bumpy

752
01:01:28,692 --> 01:01:37,252
road back in the real economy. And yet, Bitcoin has ignored it. So I think it
actually does end

753
01:01:37,252 --> 01:01:43,972
up supporting the whole premise of it being independent and outside the regular
financial

754
01:01:43,972 --> 01:01:53,092
system. I also think that certainly, we have had a very long-term trend of fiscal
irresponsibility,

755
01:01:53,092 --> 01:01:56,852
the government spending more and more money and all. But more importantly, the
political will

756
01:01:57,572 --> 01:02:03,652
to address this issue has collapsed. That's what I think is interesting.

757
01:02:05,252 --> 01:02:09,812
I remember when it was a presidential debate question, people used to say, what are
you going

758
01:02:09,812 --> 01:02:14,052
to do about the national debt? What are you going to do about the deficit? But now,
no one cares.

759
01:02:14,052 --> 01:02:19,732
Now, it's just free college for everyone, free everything. So I think that actually,
more and

760
01:02:19,732 --> 01:02:28,772
more people will get really excited about Bitcoin's original mission statement of
changing

761
01:02:28,772 --> 01:02:35,332
the way that the banks and the central banks and the government do business. I think
that it is

762
01:02:35,332 --> 01:02:41,652
actually, I mean, how much more chaotic could it possibly be? It's like, this is
like pure chaos.

763
01:02:41,652 --> 01:02:47,252
And then you have all this policy uncertainty. I mean, I can't think of a better
backdrop for

764
01:02:47,252 --> 01:02:53,012
the bull case for Bitcoin than what's going on right now. Yeah, and I can throw in
my two cents

765
01:02:53,012 --> 01:03:00,852
here. Bitcoin was special purpose built to be a Gold 2.0 sort of asset. And Satoshi
planted Bitcoin,

766
01:03:00,852 --> 01:03:05,892
he created this new species of money, this new Gold 2.0, and he planted it in the
middle of

767
01:03:05,892 --> 01:03:11,012
the last financial crisis. And if we look at the only message he ever etched into
the blockchain,

768
01:03:11,012 --> 01:03:17,572
it's a slap to the face against central banks and the banking system. And so that's
what Bitcoin

769
01:03:17,572 --> 01:03:22,612
was special purpose built for. Blockchains aren't this ambiguous thing where you can
just

770
01:03:22,612 --> 01:03:27,572
sprinkle a blockchain on something and make it useful. Blockchain was special
purpose built

771
01:03:27,572 --> 01:03:33,412
to build Bitcoin, to make it this state-level resistant money to overthrow
government's

772
01:03:33,412 --> 01:03:38,852
control over money. And those parameters that Bitcoin chose in order to do that were
incredibly

773
01:03:39,812 --> 01:03:44,932
restrictive to make that new sound money a reality. And so I've waited eight years
to

774
01:03:44,932 --> 01:03:54,372
see this moment. I agree with Paul on seeing how before these were the budget and
being balanced

775
01:03:54,372 --> 01:04:00,052
and the government not spending too much in excess was very much a contentious
topic.

776
01:04:00,052 --> 01:04:05,332
Now almost everyone, Republicans and Democrats, are like, let's print as much as we
can. Literally

777
01:04:05,332 --> 01:04:12,132
this last week, I think we printed a few trillion. I mean, it's a wild, crazy setup.

778
01:04:12,132 --> 01:04:17,892
So Bitcoin, if this had happened earlier in Bitcoin's growth, it probably would have
been

779
01:04:17,892 --> 01:04:23,412
too early. I still think it's a little early. I think 2021, 2022 would have been a
little bit

780
01:04:23,412 --> 01:04:29,092
nicer for Bitcoin. However, Bitcoin survived. Bitcoin survived the last week. It
didn't go to

781
01:04:29,092 --> 01:04:34,532
zero. In fact, the last, I think it did quite well considering that this is a once
in a hundred

782
01:04:34,532 --> 01:04:40,852
year sort of event. If we look at the volatility of the S&P, we haven't seen this
level of volatility

783
01:04:42,052 --> 01:04:51,172
since 1929. So Bitcoin, given the circumstances, has performed fabulously. And going
forward,

784
01:04:51,172 --> 01:04:56,212
the potential for Bitcoin's growth, I mean, this is what it was built for. All
that's required is

785
01:04:56,212 --> 01:05:01,732
that more and more people believe in the same belief that we have, that Bitcoin
being that

786
01:05:01,732 --> 01:05:07,412
gold 2.0 is something that they want to get into. And I think when we look at the
2008 financial

787
01:05:07,412 --> 01:05:15,412
crisis, we see that gold dropped 30% at the onset. But later, as people became more
and more

788
01:05:16,052 --> 01:05:22,452
aware of the sort of inflationary response to this, they bought gold as a hedge
against that

789
01:05:22,452 --> 01:05:27,572
inflation. And I think they'll see Bitcoin as the same hedge. Dan, one question for
you on that line

790
01:05:27,572 --> 01:05:33,252
of thought. When you think about Bitcoin being successful over the next 20 to 50
years, I always

791
01:05:33,252 --> 01:05:37,652
have trouble trying to figure out where our existing government plays into this,
right?

792
01:05:37,652 --> 01:05:42,932
Is it some dystopian future where the people have to pay for public services? I
personally think

793
01:05:42,932 --> 01:05:49,572
about it more on we now have this invisible entity, which is Bitcoin, hanging over
the shoulder of

794
01:05:49,572 --> 01:05:55,092
every person in the government, making sure that they act correctly or else people
will move on.

795
01:05:55,092 --> 01:06:00,292
I guess, how do you think about the success of Bitcoin in the face of governments
and entities

796
01:06:00,292 --> 01:06:05,892
like that and their responsibility? Yeah, so Paul and I covered earlier how the
security budget

797
01:06:05,892 --> 01:06:11,732
works for Bitcoin in regards to proof of work. But Bitcoin also has other vectors in
which it

798
01:06:11,732 --> 01:06:19,412
protects itself. One is the sort of game theory behind network effects. So as more
and more people

799
01:06:19,412 --> 01:06:24,052
own Bitcoin, right now it's a very small percentage of the U.S. population. I'm just

800
01:06:24,052 --> 01:06:28,932
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

801
01:06:28,932 --> 01:06:34,532
5 to 10 percent. Of course, these are based on surveys and very hard to nail down.

802
01:06:34,532 --> 01:06:40,532
But let's just say it's 5 percent. Now, Bitcoin's network effect and adoption
increase exponentially

803
01:06:40,532 --> 01:06:45,492
every single boom-bust cycle. So let's say in the next cycle, Bitcoin goes to
100,000

804
01:06:46,052 --> 01:06:53,812
and there's now 20 million or 50 million HODLers. This gets really interesting in
the U.S. alone.

805
01:06:53,812 --> 01:06:58,292
This gets really interesting because Bitcoin is now becoming more and more
meaningful percentage

806
01:06:58,292 --> 01:07:03,972
of the U.S. population. Sorry, my math before was 5 percent. Let's extrapolate that
to like

807
01:07:03,972 --> 01:07:07,572
20 percent of the population, which in the U.S. I think would be like 70 million
people.

808
01:07:08,292 --> 01:07:13,572
So if we look at Bitcoin's growth in terms of exponentially more and more of a
country's

809
01:07:13,572 --> 01:07:18,372
citizens owning Bitcoin, you get to a point to where a government could take action
against

810
01:07:18,372 --> 01:07:23,492
Bitcoin. However, they would be shooting their citizens in the foot. And when they
do that,

811
01:07:24,132 --> 01:07:28,452
politicians are very much focused on being reelected. And ultimately, governments
are

812
01:07:28,452 --> 01:07:33,972
just a collection of citizens. If citizens all demand this new asset and are willing
to hold it,

813
01:07:34,612 --> 01:07:39,412
I view that as like a sort of impossible thing to defeat over time. Now, yes,

814
01:07:39,412 --> 01:07:47,412
we did have gold being banned in the 1930s. But I don't really see if Bitcoin is an
entirely

815
01:07:47,412 --> 01:07:52,292
different type of asset than gold because it's digital, it's divisible, it's much
more useful,

816
01:07:52,292 --> 01:07:58,212
I would say, than what gold was. And so when we look at how governments might attack
it in the

817
01:07:58,212 --> 01:08:03,012
future, the more and more people that own Bitcoin will, I think, reduce the
possibility that

818
01:08:03,012 --> 01:08:08,132
governments attack it because the price goes higher and higher, the security budget
becomes

819
01:08:08,132 --> 01:08:13,892
higher, and there's more and more individuals within their citizenry that own it.

820
01:08:14,852 --> 01:08:20,612
That's fair. No, I agree with that. I guess attacking it's one thing. I guess my
wonder,

821
01:08:20,612 --> 01:08:25,972
though, what I'm wondering about is where does Bitcoin play into government,

822
01:08:25,972 --> 01:08:30,212
like physical and monetary responsibility, like the decisions that they make in the
world?

823
01:08:31,172 --> 01:08:37,172
You want me to take it? I have one interesting, I mean, I think the US Federal
Reserve has resisted

824
01:08:38,052 --> 01:08:43,412
attempts to be like bound by a rule. So there's these rules, like the Taylor rule,

825
01:08:43,412 --> 01:08:47,492
it's like a famous rule that says the Fed should always just do exactly this,

826
01:08:47,492 --> 01:08:50,532
and you should just plug some numbers into an equation, and then it should do that,

827
01:08:50,532 --> 01:08:57,172
and there's other things. Scott Sumner's market monetarism and GDP targeting.

828
01:08:57,812 --> 01:09:02,612
Friedman, Bill Friedman had a K% rule, very similar to Bitcoin, where he just said
the

829
01:09:02,612 --> 01:09:07,892
money supply should grow by some formula every year, and the Fed has resisted all
this.

830
01:09:07,892 --> 01:09:11,412
I think that that would be, if the Fed did something like that, it would be the
worst thing

831
01:09:11,412 --> 01:09:15,492
for Bitcoin because I think that what sets up all these great comparisons is that

832
01:09:16,612 --> 01:09:20,052
people have to turn on the television, they have to check Twitter or whatever

833
01:09:20,052 --> 01:09:24,132
to figure out what these people are going to do, and they're like, what are these
people going to

834
01:09:24,132 --> 01:09:29,332
do? But with Bitcoin, you don't, you already know what Bitcoin is going to do. So I
think that

835
01:09:29,332 --> 01:09:37,892
that is, it sets up these nice comparisons, I think. The more crazy discretion that
these

836
01:09:38,692 --> 01:09:43,172
people take for themselves, the more uncomfortable people will get, I think.

837
01:09:43,732 --> 01:09:49,812
Yeah, and I agree with Paul wholeheartedly on this. Bitcoin's monetary, and this is
where a

838
01:09:49,812 --> 01:09:55,252
lot of the Ethereum community really doesn't understand this, is that it's about the
confidence

839
01:09:55,252 --> 01:10:02,292
in the monetary policy. So with gold, I know that gold is produced via proof of
work. I have to go

840
01:10:02,292 --> 01:10:09,092
mine it out of the ground, and essentially demand ensures that X amounts of supply
will be produced

841
01:10:09,092 --> 01:10:14,692
because supply will want to respond in the demand that's willing to purchase it. And
as demand

842
01:10:14,692 --> 01:10:19,412
increases for gold, the gold that is found, people are willing to dig deeper and
deeper

843
01:10:19,412 --> 01:10:25,332
and expend more costs in order to produce that supply. With the fiat systems that we
have,

844
01:10:25,332 --> 01:10:30,932
it's completely based on watching a few old people talk on TV and us interpreting
what that means.

845
01:10:30,932 --> 01:10:35,572
So we're constantly looking for signs to understand what the Fed is doing,

846
01:10:36,212 --> 01:10:46,132
and our confidence in our government and the Fed is essentially what gives the
dollar its value,

847
01:10:46,132 --> 01:10:52,132
is that our trust in it. And so the trust in Bitcoin is due to the immutable
monetary policy

848
01:10:52,132 --> 01:10:57,172
that hasn't changed in 10 years and is very unlikely to change in the future. I
would say

849
01:10:57,732 --> 01:11:02,692
more unlikely than any fiat or any other crypto asset is how I like to put it,
because some people

850
01:11:02,692 --> 01:11:09,092
would debate as to the degree of impossibility. And so the Ethereum community
fundamentally

851
01:11:09,092 --> 01:11:14,532
doesn't understand that by changing their monetary policy, they undermine the entire

852
01:11:14,532 --> 01:11:20,052
reason why cryptocurrency existed, was the fact that no one can change it. And
that's a very good

853
01:11:20,052 --> 01:11:25,812
thing due to the subjectivity of what a proper rate of inflation might be. And so in
this world

854
01:11:25,812 --> 01:11:31,972
of high volatility with central banks printing off trillions of dollars this week
and the virus

855
01:11:32,532 --> 01:11:38,212
disrupting our normal economic activity, what monetary policy can we trust? We can
trust

856
01:11:38,212 --> 01:11:45,572
Bitcoins. It's totally fair. Guys, last question for you on this kind of line of
thought. Do you

857
01:11:45,572 --> 01:11:51,172
think that what's going on with the virus, monetary and physical policy today, do
you think that over

858
01:11:51,172 --> 01:11:57,092
the next 12 months this will be the bullet to get the globe of non-crypto people
involved in Bitcoin,

859
01:11:57,092 --> 01:12:05,652
or do you think it will still be a multi-decade shift into Bitcoin? I don't know.
That's quite

860
01:12:05,652 --> 01:12:11,092
a question. I don't know. Maybe. I think, you know, actually, people are still
pretty

861
01:12:11,092 --> 01:12:16,372
uncomfortable with it, I think. Now everyone is sort of it, but I still think people
are not,

862
01:12:17,252 --> 01:12:22,292
you know, I don't know. I like stuff about... It depends on... Because, you see, a
lot of people

863
01:12:22,292 --> 01:12:26,212
have different... In the United States, people have very different levels of wealth.
You have

864
01:12:26,212 --> 01:12:32,852
bottom 20 percent is actually has a negative net worth. They have more debt than
assets. And

865
01:12:32,852 --> 01:12:38,212
then you have two fifths that basically have no money, and they live paycheck to
paycheck,

866
01:12:38,212 --> 01:12:43,572
and they have basically zero dollar net worth. So it depends on... If you only want
to convince

867
01:12:43,572 --> 01:12:52,612
that top fifth that has, you know, Scrooge McDuck and has piles of money, that's a
much smaller

868
01:12:52,612 --> 01:12:57,572
problem then. But then it's all related to network effects as well. So it becomes
quite

869
01:12:57,572 --> 01:13:02,212
a complicated tangle. But yeah, I think it's definitely possible that people will
suddenly

870
01:13:02,212 --> 01:13:08,052
adopt Bitcoin very, very, very quickly. I'm hesitant to think that it will be a U.S.
dollar

871
01:13:08,052 --> 01:13:12,852
country, actually, though, because the U.S. dollar is just so dominant throughout
the world,

872
01:13:12,852 --> 01:13:18,212
throughout even the eurozone in Central Asia. You have these euro dollars. The euro
dollar

873
01:13:18,212 --> 01:13:24,052
market is ten times as many euro dollars as like regular dollars. So it's this
huge...

874
01:13:24,772 --> 01:13:30,292
There's just this huge U.S. dollar infrastructure. I think it probably was... The
story I

875
01:13:30,932 --> 01:13:35,412
held in my head is where it breaks out in some smaller country, and they're just
like,

876
01:13:35,412 --> 01:13:40,852
what do we have to lose? They sort of switch over in a big way, or at least their
banks do.

877
01:13:42,052 --> 01:13:46,772
So, you know, some New Zealand or something. Probably not New Zealand, but something
like

878
01:13:46,772 --> 01:13:52,292
that. So I kind of still think that's sort of pat... I mean, you saw what happened
when the

879
01:13:52,852 --> 01:13:59,012
virus hit. Everyone moved to U.S. dollars. U.S. dollar just has that beautiful,

880
01:13:59,012 --> 01:14:04,132
beautiful network effect that Dan and I agree is so powerful in general.

881
01:14:05,092 --> 01:14:11,012
I think the one-liner for me here, to kind of keep it simple, is that I believe all
humans,

882
01:14:11,012 --> 01:14:16,132
whether acting on their own behalf or via a corporation, will choose to preserve
their

883
01:14:17,012 --> 01:14:24,852
value or their wealth. I think that humans... I can bet on that. And if I can bet on
that,

884
01:14:24,852 --> 01:14:30,852
Bitcoin offers a very attractive proposition. It's an asset that can't be seized
very easily

885
01:14:30,852 --> 01:14:36,932
and is immutable when you want to send it. So I think those core parameters and the
tendency

886
01:14:36,932 --> 01:14:40,132
for all human beings, being the animals that they are, to preserve their wealth,

887
01:14:41,092 --> 01:14:45,732
sets Bitcoin up to be in a really cool spot. Yeah, I agree with you there, Dan,

888
01:14:45,732 --> 01:14:49,812
and Paul, wholeheartedly. And I guess the thing that's pushing me there as well,

889
01:14:49,812 --> 01:14:55,892
even further, is I saw Bill Ackman, who's a major American investor, for those who
don't know him,

890
01:14:55,892 --> 01:14:59,812
of Pershing Square. He was on CNBC yesterday basically saying,

891
01:14:59,812 --> 01:15:02,532
the end of the world's coming. You went to the bank to take out cash.

892
01:15:02,532 --> 01:15:06,052
Makes a lot more sense that I could store my wealth in something that I could

893
01:15:06,052 --> 01:15:10,772
literally remember the words in my head and travel around the globe and transact and
store my value

894
01:15:10,772 --> 01:15:15,092
in it. I think it makes a lot more sense. Dan, Paul, it's been a pleasure having you
guys on.

895
01:15:15,092 --> 01:15:19,172
I think the debate helps a lot of people understand both sides of the arguments.

896
01:15:19,172 --> 01:15:22,052
Dan, let's start with you, then we'll go to Paul. Dan, where can people

897
01:15:22,692 --> 01:15:25,972
follow you and learn more about you? And then afterwards, Paul, please share as
well.

898
01:15:27,172 --> 01:15:31,492
Yeah, so on Twitter is primarily where I publish most of my content. So it's

899
01:15:32,852 --> 01:15:38,692
Dan Held is my Twitter handle. And you can go to my personal website, which is
danheld.com,

900
01:15:38,692 --> 01:15:41,412
and on there you can read my long-form blog content.

901
01:15:42,372 --> 01:15:48,532
That's awesome. Paul, what about you? Yeah, I have a blog, but it publishes very
long,

902
01:15:49,652 --> 01:15:56,052
painfully long blog posts. But that's Truthcoin.info. Truthcoin is the original name
of

903
01:15:56,052 --> 01:16:02,772
the paper for the peer-to-peer oracle system that I designed, but I renamed that to
Bitcoin Hivemind.

904
01:16:02,772 --> 01:16:08,372
So I think if you want to know what I'm about, you should go to bitcoinhivemind.com
and look

905
01:16:08,452 --> 01:16:13,412
at this 20-minute video that I have on the front page over there. That's kind of
like the good

906
01:16:14,292 --> 01:16:19,892
of how I got into Bitcoin, what I hope to accomplish. I also have a project called

907
01:16:19,892 --> 01:16:26,292
Drivechain. The website for that project is drivechain.info. And on Twitter, I am
Truthcoin,

908
01:16:26,292 --> 01:16:31,652
T-R-U-T-H-C-O-I-N. I love that, guys. I appreciate your time. If anybody has any

909
01:16:31,652 --> 01:16:35,732
questions, feel free to reach out. And until next time. Thanks, Tom. Thanks a lot.

910
01:16:36,372 --> 01:16:40,292
Hey, everyone. Thanks for listening to the podcast. If you enjoyed it, please
support the

911
01:16:40,292 --> 01:16:44,852
show by hitting subscribe on iTunes, writing a review, or sharing this episode on
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912
01:16:44,852 --> 01:17:01,012
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