1 00:00:00,240 --> 00:00:07,840 Kitco News special coverage of Bitcoin 2022 is brought to you by CoinPayments. Crypto payments 2 00:00:07,840 --> 00:00:14,320 made easy. We're back at Bitcoin Miami and joining us right now is Paul Sztorc. He is a self-proclaimed 3 00:00:14,320 --> 00:00:18,720 Bitcoin maximalist and independent Bitcoiner. Welcome to the show, Paul. Hey, thanks for having 4 00:00:18,720 --> 00:00:22,960 me. Thanks for being on Kitco. Paul, I read your bio with great interest. What does it mean really 5 00:00:22,960 --> 00:00:27,360 to be a Bitcoin maximalist? I've heard that term used a lot. I've spoken to people who claim to 6 00:00:27,360 --> 00:00:31,600 be Bitcoin maximalists. Everybody seems to have a little bit of a difference when it comes to 7 00:00:31,600 --> 00:00:37,600 their thesis on Bitcoin. What's yours? Well, I think Bitcoin maximalism is the idea that it's 8 00:00:37,600 --> 00:00:44,000 better to focus all of your energy on Bitcoin and not these competing attempts at constructing an 9 00:00:44,000 --> 00:00:50,480 internet cryptocurrency. This thesis has gone through a lot of transformations, but it began 10 00:00:50,480 --> 00:00:56,560 a long time ago when people would make, for example, Litecoin. The effort it took to create 11 00:00:56,560 --> 00:01:01,120 Bitcoin from a blank piece of paper, like what Satoshi Nakamoto was able to achieve, 12 00:01:01,120 --> 00:01:06,560 that was an enormous amount of effort. Litecoin just copied and pasted that and changed one or 13 00:01:06,560 --> 00:01:12,320 two things, and then it purported to be this new thing. That was, of course, probably the beginning 14 00:01:12,320 --> 00:01:23,200 of the cultural movement to suppress the competitors. With money, you only have one. 15 00:01:23,680 --> 00:01:30,880 If you go to Japan, you mainly use yen. You don't use U.S. dollars there. In any given place, 16 00:01:30,880 --> 00:01:37,520 there's usually one currency. That's the maximalist broad strokes. 17 00:01:39,440 --> 00:01:44,480 Let's go a little bit deeper and maybe clarify for the audience. I'm just going to give you a 18 00:01:44,480 --> 00:01:51,920 series of true and false statements. If it's false, tell me why I'm wrong. A Bitcoin maximalist 19 00:01:51,920 --> 00:01:57,520 thinks that Bitcoin has better potential as an investment than any other altcoin. 20 00:01:57,520 --> 00:02:01,760 Yeah, I think that's true. That's also what most Bitcoin maximalists would say. 21 00:02:01,760 --> 00:02:07,360 Okay. BTC, Bitcoin is the only crypto that has the potential to be a store of value. 22 00:02:08,560 --> 00:02:13,120 I think most Bitcoin maximalists would say that. It's true. I think I would also say it's true. 23 00:02:14,320 --> 00:02:17,520 Nothing is 100% certain, but yeah, I think that's basically true. 24 00:02:18,080 --> 00:02:23,520 Finally, Bitcoin is the only coin with the potential to be a widely adopted currency. 25 00:02:25,360 --> 00:02:27,200 Yeah, I think that's also true. It's not guaranteed. 26 00:02:27,200 --> 00:02:32,400 So you don't see Ethereum, Solana, anything else potentially taking up the mantle? 27 00:02:32,400 --> 00:02:37,520 Well, I'm a proponent of this idea called the sidechain, which is this idea where you have 28 00:02:37,520 --> 00:02:42,480 a second piece of software that is basically emulating Ethereum or whatever. It's like 29 00:02:42,480 --> 00:02:48,880 BitEthereum, and it does everything Ethereum can do. You take coins from Bitcoin Core, 30 00:02:49,440 --> 00:02:55,120 where there's already these 21 million coins, 19 million coins, and you move your coins over 31 00:02:55,120 --> 00:02:59,920 into the Ethereum world, and you can do whatever you like over there. And then that way, you 32 00:02:59,920 --> 00:03:06,640 replace all the technical features of the rival piece of software. So you get all the different 33 00:03:06,640 --> 00:03:12,720 pieces of software you like, Solana, Ethereum, whatever, and you can do whatever. Any idea you 34 00:03:12,720 --> 00:03:20,400 like, good or bad, you copy. The sidechain is an altcoin without its own coin. Instead, 35 00:03:20,400 --> 00:03:24,640 it uses the 21 million Bitcoin. Let me just posit a counter argument, 36 00:03:24,640 --> 00:03:29,120 not necessarily my own view, and feel free to challenge me on this. So when you're talking 37 00:03:29,120 --> 00:03:34,640 about the utility of Bitcoin as a peer-to-peer form of payment, some would argue that's failed 38 00:03:34,640 --> 00:03:39,040 because there's other coins that are better as a peer-to-peer system. When you're talking about 39 00:03:39,040 --> 00:03:45,040 Bitcoin as a form of payment, there's other coins, payment coins, that are better in terms of their 40 00:03:45,040 --> 00:03:49,440 transaction speeds, transaction costs. When you're talking about Bitcoin as a store of value, there's 41 00:03:49,440 --> 00:03:55,600 things like stable coins that provide a more stable value. You can also stake stable coins 42 00:03:55,600 --> 00:04:00,240 for a yield. So there's a lot more utility in the altcoin space for whatever you need 43 00:04:00,240 --> 00:04:08,560 than Bitcoin, hence making other coins potentially more viable as a form of investment, 44 00:04:08,560 --> 00:04:11,040 depending on what you want to use it for. How would you respond to that? 45 00:04:13,040 --> 00:04:18,000 Being able to use the altcoin for some purpose, like I said with the sidechain point, 46 00:04:18,000 --> 00:04:23,920 does not necessarily mean that in the long run the investment will succeed. Because you could 47 00:04:23,920 --> 00:04:28,160 introduce something new. This is like what Microsoft used to do all the time, where 48 00:04:28,160 --> 00:04:31,840 someone would come up with something new and Microsoft would look at it and just sort of copy 49 00:04:31,840 --> 00:04:34,480 it. I think it was called, I don't remember exactly what it's called, people are going to 50 00:04:34,480 --> 00:04:39,040 Google it, and it was something like embrace, extend, extinguish or something. But just because 51 00:04:39,040 --> 00:04:43,920 something has a new feature doesn't mean that the underlying investment will prevail. sidechains 52 00:04:43,920 --> 00:04:52,560 is directly, a lot of my maximalism does hinge on the sidechains concept. So in my view, the ways 53 00:04:52,560 --> 00:04:58,560 in which these alternative pieces of software have achieved more transaction throughput, 54 00:04:59,120 --> 00:05:06,800 sometimes more privacy, that is something that could be copied and emulated by Bitcoin. 55 00:05:06,800 --> 00:05:10,880 Do Bitcoin maximalists have a fair value for the price of Bitcoin? 56 00:05:12,080 --> 00:05:19,120 Well I think the real way to do the valuation is just to, and this was done a long time ago by 57 00:05:19,920 --> 00:05:25,360 Hal Finney and then done in various other degrees by people in various levels of specificity, 58 00:05:25,360 --> 00:05:29,280 but what people really just do is they say what's the value of all the money in the entire world 59 00:05:30,160 --> 00:05:36,080 and we'll divide that by the 21 million coins and that would be the purchasing power equivalent. 60 00:05:37,200 --> 00:05:41,600 Even though there would be no U.S. dollars in that scenario, but that would be how much stuff 61 00:05:41,600 --> 00:05:46,160 you could buy with. And that's something like, estimates vary, but that's like between 10 and 62 00:05:46,160 --> 00:05:50,960 20 million dollars per coin. But then you say that's assuming that it prevails and destroys 63 00:05:50,960 --> 00:05:57,280 everything, which of course is not certain. Even one million dollar a coin, assuming 21 million 64 00:05:57,840 --> 00:06:07,040 bitcoins, that implies a value of 21 trillion dollars, which is roughly equivalent to the U.S. 65 00:06:07,040 --> 00:06:10,960 GDP right now. Obviously by the time it reaches that, the U.S. GDP will be even higher, but 66 00:06:11,360 --> 00:06:16,160 I mean that's a large number. When people bring up GDP, of course it's hard because numbers are 67 00:06:16,160 --> 00:06:20,960 so big there's no context for anything. But GDP is something that has to do with time, 68 00:06:20,960 --> 00:06:24,560 so it has to do with a year. It's the value of everything produced in the United States in a 69 00:06:24,560 --> 00:06:29,280 year. So what's so special about a year, right? You could make it so that it would be 10 minutes 70 00:06:29,280 --> 00:06:35,680 and then Bitcoin's current market capitalization would be higher than the gross world product in 71 00:06:35,680 --> 00:06:40,480 10 minutes or you could make it 100 years and it would be different. But I agree with the number 72 00:06:40,480 --> 00:06:44,560 is so big that you have no context. The only thing you have is the price per coin, I think. 73 00:06:44,560 --> 00:06:47,680 Do you think Bitcoin is a replacement for the U.S. dollar? People are talking about 74 00:06:47,680 --> 00:06:52,160 the U.S. dollar's value being eroded away by inflation amongst other variables, 75 00:06:52,160 --> 00:06:56,400 maybe the decline of the U.S. empire, some people would argue. And so people are talking about a 76 00:06:56,400 --> 00:07:01,520 replacement for the dollar as a global reserve currency. Some people have speculated the Yuan, 77 00:07:01,520 --> 00:07:03,520 some people have speculated Bitcoin. What's your thought? 78 00:07:04,400 --> 00:07:12,160 Well, I definitely think that it's in the cards. I think that there's a long way to go, 79 00:07:12,160 --> 00:07:19,200 but I think you're designed for success, right? So in order for Bitcoin to succeed, 80 00:07:19,200 --> 00:07:25,120 it would have to be able to accommodate the transaction needs of everyone on the planet. 81 00:07:25,120 --> 00:07:31,840 And that would include the desire of people not to pay inflation taxes, the desire of people to 82 00:07:31,840 --> 00:07:37,600 not have their accounts frozen, the desire of people to have control and privacy over their own 83 00:07:38,640 --> 00:07:43,840 income, and things like that. So what gets it for me is I don't understand 84 00:07:44,640 --> 00:07:52,320 how the United States plans to run its long-run fiscal situation, really. We have this national 85 00:07:52,320 --> 00:07:57,520 debt that increases every year, and it accelerates every year. And in general, the pace of the 86 00:07:57,520 --> 00:08:03,760 acceleration also accelerates every year. And the political will to do anything about it seems to 87 00:08:03,760 --> 00:08:10,000 just have shrunk over my entire lifetime. I mean, I remember when it was a Republican primary debate 88 00:08:10,000 --> 00:08:14,640 topic, like how are we going to balance the budget or whatever. People used to talk about it, 89 00:08:15,360 --> 00:08:20,560 but no one talks about it now. Have you heard anyone talk about that? Today, it's the problem 90 00:08:20,560 --> 00:08:26,320 that everyone is afraid. It's the elephant in the room. So I don't understand where that road is. 91 00:08:26,320 --> 00:08:31,200 There's a lot of other people at the conference that think that Bitcoin is the solution to the 92 00:08:31,200 --> 00:08:34,960 economic problems that we're facing right now. I don't know if you share that view, but let's just 93 00:08:34,960 --> 00:08:38,480 back up a minute and talk about some of the economic problems that we're facing as a nation. 94 00:08:38,480 --> 00:08:44,720 Can you list a few that bothers you the most? Well, I mean, I don't know if I have the right 95 00:08:44,720 --> 00:08:52,000 specialization to answer a question like that. I do think, though, that as a citizen, I'm owed 96 00:08:52,000 --> 00:08:57,120 some kind of explanation for how what eventually with the national debt, it's the thing that 97 00:08:57,120 --> 00:09:03,440 everyone refuses to talk about. It's a mathematical fact that eventually the interest payments on the 98 00:09:03,440 --> 00:09:09,200 national debt will just, if the trend continues, will exceed the GDP of the entire country. 99 00:09:09,200 --> 00:09:11,920 Yeah. So what exactly is the plan when that happens? 100 00:09:13,200 --> 00:09:18,000 Fair question. I think that's a fair question. What's the answer to that question? 101 00:09:18,000 --> 00:09:23,600 Then the answer is going to be something like, we'll cut spending, but that doesn't seem like 102 00:09:23,600 --> 00:09:29,680 that's in the cards. Or we'll raise taxes, which also seems dubious. And then it'll be like, 103 00:09:29,680 --> 00:09:34,800 maybe economic growth will pick up. These all seem very difficult. 104 00:09:34,800 --> 00:09:40,480 I've wondered this myself. With the advent of cryptocurrencies, people in general, the economy, 105 00:09:40,480 --> 00:09:46,400 we're essentially creating more money supply. How would that impact inflation? Let's say, 106 00:09:46,400 --> 00:09:53,120 all of a sudden, on top of US dollars, I'm also transacting in Bitcoin or Ethereum or any other 107 00:09:53,120 --> 00:09:59,840 coin. One of the purposes of the cryptocurrency is to just, you could say, avoid paying the inflation 108 00:09:59,840 --> 00:10:07,440 tax or whatever. The inflation tax is borne by all the people who hold dollars. If you have dollars 109 00:10:07,440 --> 00:10:14,320 in your back pocket, or if you have a job where you get paid a fixed amount of dollars per year 110 00:10:14,320 --> 00:10:19,200 or whatever, then you're paying the inflation tax. Why pay something if you don't have to? 111 00:10:21,440 --> 00:10:26,240 When the treasury spends money it doesn't have, that increases the money supply, that increases 112 00:10:26,240 --> 00:10:31,200 the rate of inflation. Paul, I know you're not a trader, but can you comment on the state of 113 00:10:31,200 --> 00:10:35,520 the price action we've been seeing? Some people are speculating that we're in another crypto 114 00:10:35,520 --> 00:10:41,040 winter. Recall that in 2017, we had a price high in December. It came back down. Bitcoin was trading 115 00:10:41,040 --> 00:10:46,640 around $4,000. It traded range-bound for quite some time before it finally found new momentum in 116 00:10:46,640 --> 00:10:51,600 2020, late 2020. Are we seeing that now? Are we seeing a stalling in the price growth for the 117 00:10:51,600 --> 00:10:58,880 next couple of years? Well, who knows? I believe in the efficient markets hypothesis. I think that 118 00:10:59,600 --> 00:11:04,480 you take your fundamental value. There's enormous potential of Bitcoin if it goes the whole, 119 00:11:05,120 --> 00:11:09,280 if it completes this project of being better money for everyone, which 120 00:11:10,400 --> 00:11:13,760 it's not certain that it will, and it's not certain that it will anytime soon. 121 00:11:16,480 --> 00:11:22,960 That's how I view these things. I have been around for a little while. You can never really 122 00:11:22,960 --> 00:11:30,000 tell. The crypto winter is only two or three announcements of good news away from ending. 123 00:11:30,400 --> 00:11:35,200 When the price goes up, it tends to keep going up in Bitcoin because 124 00:11:36,720 --> 00:11:40,480 there's a lot of people on the fence or people who are confused. Then when the price goes up, 125 00:11:40,480 --> 00:11:46,160 they think, oh, I was right. This really was a good idea. Then they pile in or something. 126 00:11:46,160 --> 00:11:49,520 There's much more momentum in Bitcoin than in anything else I've ever seen. 127 00:11:50,640 --> 00:11:56,160 That's a fair point. Do you think that the rise of altcoins in other areas like NFTs, 128 00:11:57,120 --> 00:12:02,000 with the rise of the metaverse, for example, Web3, a lot more utility in other places, 129 00:12:02,000 --> 00:12:06,000 do you think some of that will take momentum out of Bitcoin in terms of investment flows, 130 00:12:06,000 --> 00:12:10,800 capital flows, interest and whatnot? Yeah, I think that is the unfortunate 131 00:12:10,800 --> 00:12:17,200 state of affairs is that Bitcoin had all these things long, long, long before Ethereum ever 132 00:12:17,200 --> 00:12:23,280 existed. There was MasterCoin, Omni, colored coins. There were all these things that were 133 00:12:23,280 --> 00:12:30,960 very, very old. Those were like NFTs on Bitcoin before Ethereum ever existed, like 2012, 2013, 134 00:12:30,960 --> 00:12:41,120 2014, Counterparty. Bitcoin had a lot of things. There has been a decline in what you might call 135 00:12:41,120 --> 00:12:46,480 assertiveness. People have become very conservative in Bitcoin. 136 00:12:46,480 --> 00:12:49,680 Well, Paul, finally, you're making a series of presentations here at the Bitcoin Miami 137 00:12:49,680 --> 00:12:53,360 Conference, the largest crypto conference in the world. Tell us about some of the topics you're 138 00:12:53,360 --> 00:12:58,640 talking about. You already talked about sidechains. I will be talking on Friday. I have a panel on 139 00:12:58,640 --> 00:13:06,800 sidechains. Then tomorrow, on Thursday, I'm talking about the soft fork, which is how the 140 00:13:06,800 --> 00:13:13,680 Bitcoin protocol moves from version to version. We upgrade the protocol through this technical 141 00:13:13,680 --> 00:13:18,960 technique, but it has a lot of curious features. I'm doing a panel on that. 142 00:13:18,960 --> 00:13:21,280 A couple of months ago, Bitcoin had the taproot upgrade. 143 00:13:21,280 --> 00:13:22,880 Yes, that was a soft fork. 144 00:13:22,880 --> 00:13:26,560 Yeah, that was a soft fork. Now, are you an advocate of soft forks, or do you think that 145 00:13:26,560 --> 00:13:29,680 Bitcoin should be left alone and just Layer 2 is built on top of that? 146 00:13:29,680 --> 00:13:34,640 Yeah, well, because of the institution of the sidechain, I think sidechains should replace 147 00:13:34,640 --> 00:13:39,120 soft forks. We should soft fork to add sidechains and then not do anything anymore. I think it 148 00:13:39,120 --> 00:13:45,520 would be better if Bitcoin stopped changing at all so that it could just be exactly what it is 149 00:13:46,160 --> 00:13:50,160 and people could just write books about it and they could write whatever. There's one version 150 00:13:50,160 --> 00:13:54,720 of the software and it's just like what long division is or something. It's like long division 151 00:13:54,720 --> 00:14:01,120 is just what it is. I think that would be good because the sidechain can actually replace all 152 00:14:01,120 --> 00:14:06,240 soft forks and also all hard forks, which hard fork is even seen as not even possible in Bitcoin, 153 00:14:06,240 --> 00:14:09,840 but both of those are under the umbrella of the sidechain. 154 00:14:09,840 --> 00:14:12,400 Development challenges of the sidechain, what are they? 155 00:14:13,360 --> 00:14:19,200 Well, it's very easy to add the port into Bitcoin, like the kind of interoperability 156 00:14:20,160 --> 00:14:27,200 feature into base Layer 1 Bitcoin is, I think, very easy, actually. It's then the development 157 00:14:27,200 --> 00:14:33,760 moves to the side. Most of the work, the code work, is moved up into the Layer 2 sidechain 158 00:14:33,760 --> 00:14:37,440 piece of software. But we have a template that does all that for everyone already, 159 00:14:37,440 --> 00:14:41,440 so the ideal thing is that either you fork this template, which is taking care of all 160 00:14:41,440 --> 00:14:45,520 the coins moving back and forth between pieces of software, you take that template and you just 161 00:14:45,520 --> 00:14:50,160 add whatever you want into there. And we have a different template that is sort of like a bridge 162 00:14:50,160 --> 00:14:54,400 where you take an altcoin like Ethereum, you can run it in a kind of like a test mode, 163 00:14:54,400 --> 00:15:01,440 like a reg test mode, and this software will take that software and kind of bridge between 164 00:15:01,440 --> 00:15:07,040 Bitcoin Core and that and it will kind of be like a sort of zombie version of the altcoin. 165 00:15:07,040 --> 00:15:11,760 So it converts altcoin into a sidechain. So there's a lot of technical issues. I don't know 166 00:15:11,760 --> 00:15:15,360 how well anyone will understand what they are, but I think it's actually quite easy to turn an 167 00:15:15,360 --> 00:15:19,280 altcoin into a sidechain. Okay, well, excellent thoughts. Paul, I appreciate your time. 168 00:15:19,280 --> 00:15:21,600 Okay, thank you. Thanks so much. 169 00:15:23,120 --> 00:15:26,720 It'll survive. It's got through worse. Thank you for watching Kitco News. I'm David Lin. 170 00:15:26,720 --> 00:15:27,840 Stay tuned for more in Miami. 171 00:15:28,480 --> 00:15:34,560 Kitco News special coverage of Bitcoin 2022 is brought to you by CoinPayments. 172 00:15:34,560 --> 00:15:44,080 Crypto payments made easy.