Robert Breedlove: Hey guys! Welcome to Episode 5 of The Saylor Series here on the “What is Money?” Show! Super excited for this one! This is episode 2 of us getting into Bitcoin theory, and things are just starting to really heat up and get interesting at this point! So it’s a big episode — I don’t want to waste a lot of your time here, I’m just gonna run through a few of the topics that we’ll be hearing today. If you haven’t checked out Episodes 1–4 yet I suggest you do, because a lot of the foundation that we’ve been building upon up until this point really starts to throw off some good energy here! So today we’re going to be talking about money as power, also, talking about one of my favorite ways to describe money is as an insurance policy on the uncertainty or the entropy of the future. And then we’ll also be looking at debt and how it’s actually a form of anti-energy. And then Saylor delivers a really interesting take on fiat currency in that it’s a way of politically toxifying money, and he drops some really interesting analogies there that I think you’re gonna like. And then we’re gonna deliver a thought experiment that I think is a really simple way of clarifying the value proposition of Bitcoin and its superiority as a store of value in comparison to all other assets. Maybe something you can use in your own arguments with precoiners. And then we’re gonna be talking about some lessons of history and how essentially the most organized group of people tend to win out. We’re gonna be looking at store of value versus medium of exchange in terms of monetary functionality. We’re gonna look at the utility of money and how that tends to drive its market value. We’re also gonna look at the productivity of market participants in a monetary network and how that drives market value. And then finally we’re gonna look at Bitcoin as — you know, what I’ve argued in the past and what we get into a bit here — is that Bitcoin is an American technology! Now I do not mean America the nation state, like it was invented in America, I mean the idea of America: the principles of free market capitalism. Bitcoin positively embodies them. Saylor and I get into a unique discussion on that topic. And then we’ll look at and compare and contrast the nature of fiat currency inflation and Bitcoin appreciation and see how they’re polar-opposite forces. And then we conclude by diving into some philosophy! We’re talking a bit about truth and how Bitcoin relates to truth and civilization’s relationship with truth. So, big episode today, excited for you guys to see this! Let’s jump in!

Michael Saylor [06:10]: We’re talking about Bitcoin as the first digital monetary network! I’m positing this thought experiment: I have a $100 Million block of energy. I can generate $100 Million worth of energy through chemical processes, kinetic, gravitational, electrical, atomic power. Let’s just assume that I did some amount of work in order to generate that energy. I converted that energy into money. Money is the highest form of energy! Now I’ve got $100 Million block of money! You can do a lot with $100 Million! It equates to about 3,000 lbs worth of gold, it converts to $100 Million of currency, and we could do the calculation in Bitcoin — a little bit less than 10,000 Bitcoin at this point in time. Now, I want to do two things with it: I want to channel it through time, and I want to channel it through space. The beauty of Bitcoin channeling through time is that there really is no loss over time, there’s no inflation. You’ve only got the 21 Million Bitcoin, so as a ratio to 21 Million it’s infinitely hard! And so that’s a big check, and if we contrast it to gold and fiat: you’re gonna lose 99.5% of your energy in fiat. You’re gonna lose 98% of your energy in gold. You’re gonna keep all your energy in Bitcoin! So clearly, channeling energy through time is important and it’s critical. Channeling it through space really refers not just to moving it around the world, but it means moving it across domains at well from counterparty to counterparty. We can see the inefficiencies in fiat counterparty to counterparty is: you’re locked into 9-to-5 banking hours, you can’t do big transactions on a Saturday, there are certain jurisdictions where you can’t do transactions at all, you’re always working through a counterparty which is its own risk. And of course if we go to gold, fiat is faster, but it’s still got complexities. Gold is slower — it’s gonna take a month to physically deliver gold, and so: super slow, super expensive. Neither fiat nor gold make nearly so much sense for channeling energy through time and space! I think that the best metaphor when I think about this is it’s like I want to cross from London to New York City and I need to cross the Atlantic — and that’s the journey. And if I’m gonna do it with fiat currency it’s like a big rubber raft with a leak in it, and I’m gonna be continually blowing up that raft every day to keep it from sinking on me! And I’m going to get battered this way and that way, and it’s a bit of a venture! On the other hand with gold, it’s like getting in a wooden ship. And it’s gonna rot over the course of many many years, but maybe for the first 2, 3, 4, 5, years — compared to the rubber raft — I feel pretty good! But it’s a heavy ship! Wood is heavier than rubber, so it’s kind of harder to get going and it’s harder to maneuver it but it’s a bit more solid. But ultimately it’s organic and it’s going to decay! And then if I put it into a crypto container — a Bitcoin — it’s like a steel vessel. I have a steel hull — a steel hull container ship really, is the best metaphor — 1,000 feet long, 60 feet wide, moves 30 knots! The thing that’s special about steel is: steel is indestructible as long as you maintain it! The maintenance means: you have to keep it from corroding! It can be attacked by a corrosion, and the way you maintain it is you paint it. You sand it down every 5–10 years, you repaint it. If you maintain it, it will last longer than you will last! In fact it will last essentially forever — hundreds of years! If you punch a hole in a steel hull and then you weld it, the weld is stronger than the original steel. So it is the indestructible, extremely strong, repairable element. And it doesn’t take a rocket scientist to figure out that if you’re going to actually engage in commerce all around the world, you want a bunch of steel container ships! You do not want wooden ships, and you certainly don’t want inflatables! And that’s the distinction and that’s why Bitcoin is really such an extraordinary invention! We talked about getting out of the gravity well — the other metaphor is: I have $100 Million worth of energy. If I can get it into a vacuum and vacuum seal it—it’s like when we want to keep food forever we vacuum seal the food—we want to keep bacteria from attacking it. We want to keep natural parasites and pathogens from attacking our food energy! And so the way that you protect your food energy and stabilize it forever is you vacuum seal it! And the way you protect your monetary energy from parasites and from decay and from rotting is you vacuum seal it! And that is the genius of Bitcoin! When I say that the destiny is to be encrypted, it’s like vacuum sealing your food. You’re taking monetary energy in fiat that can decay, debase, diffuse, and you’re encrypting it in an encrypted container such that no one else can touch it, no one else can screw with it. And when you think about all these miners, these miners are power plants, they’re plugged into analog energy, but they’re modulating the analog, physical, pure energy through the SHA-256 protocol to make it a wall of encrypted energy, if not a cloud of encrypted energy and the rails of encrypted energy! If you want to pass through that, if you want to attack that, you have to go through that wall of SHA-256 encrypted energy! And all of our monetary energy is protected and floating in the cloud behind that wall! And it’s a fairly unique wall. And that’s the majesty of Bitcoin.

Robert Breedlove [13:55]: Right! Already the most powerful computing network in the world! We’ve never had something as cryptographically secure as the Bitcoin network! In it’s early stages it’s already the most powerful computing network humanity has ever seen, with still a lot of room to grow!

Michael Saylor [14:12]: Yeah! And I guess that takes us to our next interesting question, which is: So how big can the Bitcoin network get? And how is it going to absorb more power? I’m measuring: money is power —by the way, the cliche, Money is Power, it’s not a cliche! — it’s a deep reality! Money is the highest form of power, the superset of all power. Kinetic energy?—I can take bows and arrows and guns, club you to death and take your money — take your value! With a war, I can convert kinetic energy into power. Atomic energy into power. Chemical energy I can burn and create power. Gravitational energy — dam a river and create power. And ultimately that power becomes money! But I can’t do the opposite —maybe I can do the opposite — I can take a money and I can convert it back into the other things. But money is the amalgam of all powers that mankind has managed to collect! And so the question really is: How much money, how much power can fall into Bitcoin? And there’s a lot of debate in the community. For example the most famous model is the S2F model. And a lot of Bitcoiners talk about stock to flow and it’s like, Well, as Bitcoin gets harder, its price is going up! Well I mean the power in the network is directly proportional to the price because it’s equal to 21 Million times the price! That’s the power in the network! You could almost think of it as a voltage or something too — the higher the voltage, the more energy passes through the electrical network. So I see the price as the voltage, and I think that its stock to flow is an interesting transcendental model — a particular model — as we’re moving through a short period, early history of Bitcoin, where the rate of block rewards is falling dramatically! But I think that as you look toward the future of the chain as it asymptotically goes to 21 Million and as the block rewards go to zero and the entire network flips over to transaction fees, then you start to think, Well just because it’s hard, that’s not gonna explain why it’s valuable! [16:50] It’s hard to synthesize Polonium or Uranium! By the way, it’s really hard to create steel! Really hard! Like steel power plants, if the steel overflows, it hits the concrete, it blows up — kills everybody! It’s hard to deal with nitroglycerin. There’s a lot of hard things in the world. And there’s some things that are nearly impossible — I will probably never walk on the sun! Impossible! But, the impossibility of something doesn’t make it valuable. What makes it valuable is some other dynamics! And I have a simple model, and I Tweeted this model the other day: I think the success of Bitcoin and the network power ultimately is a function of the adoption, the utility, the productivity, and the inflation. Those four. And they’re big brand concepts that are vectors, they’re not like one number — they’re ideas! But the adoption idea is: a monetary network is gonna be as big as the amount of asset holders that adopt it as their primary treasury reserve asset. So for example: if a million people with $100 each decide to HODL their $100 and they put $100 Million into Bitcoin, the Bitcoin network’s worth $100 Million! If a company $100 Million decides to HODL their $100 Million in Bitcoin, the lowbrow or the historic colloquial term is HODL — Hold On for Dear Life or just HODL or save, whatever — and the highbrow term would be, Adopt as a treasury reserve asset!

Robert Breedlove: Same thing! Yep!

Michael Saylor [18:46]: If I’m filing an SEC statement I would say, We’re adopting the treasury reserve asset! And if I was just a Bitcoin maximalist, I loved it and I got it — I’m HODLing! And that’s why I love the HODLers! That’s why they’re my people — I love them! They’re HODLing! And they figured it out before I figured it out! And I give them credit: they figured it out and that’s genius! But I’m not too proud to learn. Some other — you gotta believe, if I looked a million years ago and some dude comes up with fire, I’m like, I’m not the guy that’s gonna say, I’m not doing that — that wasn’t my idea! Could I borrow some of that fire, Sir? And thank you! Thank you, for bringing life to me! So, adoption: the number of individuals and the number of entities that adopt Bitcoin as a treasury reserve asset — not measured in numbers, measured in monetary energy in whatever US dollar equivalents, but they’re converting their fiat (Euros, Yen, Pesos, Dollars) — the total US dollar amount of fiat that is converted into Bitcoin for the purposes of holding as a treasury reserve asset! You see that the traders, the speculators — they’re short term interesting, but over the long term they don’t really have any value to the network, right? Someone that’s going to buy $1 Million of Bitcoin today and sell it tomorrow? They’re not going to drive network energy, because they’re going to rob the network of energy as fast as they fed the network. They are mercenaries! The Roman Empire was built on citizen soldiers willing to fight and die to protect what they believed in! At the point that you’re hiring mercenaries to fight and not die as long as you pay them — your empire’s over! So, the HODLers — people that adopt Bitcoin as a treasury reserve asset — they’re citizens of Bitcoin! They’re citizens of the network! And if you decide it’s 20% of your treasury reserves — like, it’s a matter of faith! How committed are you? If you really committed like, say, Microstrategy — I had $500 Million worth of money I didn’t need! I had two choices: I can buy the stock back or buy Bitcoin with it. Well I bought as much stock back as the shareholders wanted to sell to us, because that was the appropriate, respectful thing to do — to put a tender offer! And then whatever’s left, we convert! The treasury is our reserve asset, which is our reserve energy! It is our life force! Treasury is life force! It’s not unlike fat. Fat is nature’s organic battery. You carry 30 lbs of fat, that means you’ll probably be able to live an extra 60–90 days without food when the going gets tough! And so it’s an organic battery. A treasury is an organic battery. Or it’s a monetary battery for a family, an individual, a company, or a country! You have no treasury? You’re gonna die very quickly when the crisis hits! You’re gonna be insolvent!

Robert Breedlove [22:24]: In some ways, through an economics lens, I often describe this as a cash balance. Whatever you’re holding it in is basically an insurance policy on the uncertainty of the future! Because this cash balance or this treasury reserve gives you pure optionality in the marketplace, you’re best able to contend with unforeseen developments! Another thing, just to jump back to the power and money relationship, I think it’s very interesting to look at power through the physics definition. Physics defines power as work over time! That’s what gold was: it was reflective of our collective work over time, and it was a claim on that work over time in the form of capital! And the other thing—you were drawing the analogy to the vacuum sealing to protect it from parasites — I think we could all agree that work is kind of the opposite of theft, right? You don’t create any value by theft, you just steal the value of others’ work. And that’s essentially what inflation is! So, money being power, there’s a big incentive to store it in a medium that is as much protected from theft as possible! And I think that’s getting to the core value proposition of what Bitcoin represents!

Michael Saylor [23:49]: Yeah that is definitely the proposition, right? It’s an encrypted energy crucible in which we store the precious energy of life! And we’re insulating it via an encrypted vacuum layer from all the things that would bleed off or steal that heat or steal the energy, be it a political exchange or just physical — there are a lot of ways to lose the energy of life! And Bitcoin solves that problem! Now how do we get energy into this system? There are a lot of metaphors for heat exchange, and if you look at closed systems, a closed system in thermodynamics is: mass cannot leave or enter — only heat! So let’s assume that 21 Million Bitcoin is the mass—it cannot leave or enter! Heat can come! If I’m buying Bitcoin at a price higher than the rolling 3-year average, or the rolling 200-week average — I’m heating it up! And if I’m selling it at a price lower than the rolling average for whatever time frame you care about — let’s say that 4 years is your time reference frame — if I’m selling it at a price lower than the 200-week moving average, I’m cooling it down! So people see Bitcoin trading day-to-day, and they’re like, Oh it’s lower than yesterday! That’s not what I see! I see it as: If it’s trading at $10,000 and the 200-week rolling average was $7,000, I see it heating up! I see its capacitor gathering energy! And that’s a very important way to think of it. Now we come back to this issue of adoption: you can adopt Bitcoin with varying degrees of commitment. It’s like joining a religion, right? So I adopt Bitcoin as my treasury reserve asset, and then do I commit 50% of my reserves to it? Or 1%? Or 99%? Or 100%? What is the true adoption rate? How much do you really believe it? Is it a hedge? Is it a 1% hedge à la Paul Tudor Jones? Or is it a 100% commitment à la Michael Saylor? Right? I said, No hedge! No speculation! 100% commitment! Just like your body is 100% committed to storing excess energy in fat! 100% commitment! There’s no other thing! I like your analogy of an insurance policy, except that I would say: an all-powerful insurance policy with no caveats! Because the problem with most insurance policies is: I have an insurance policy on my restaurant, but it doesn’t cover pandemics! And so I’m bankrupt! Have you noticed how many insurance policies are not paying off in the pandemic? Because there’s a carve-out: Well we only insure against a — only if this happens and that happens, and if you didn’t do this and if nobody said that and if the government didn’t do this, then in that case I will give you some money!

Robert Breedlove: Right!

Michael Saylor [27:41]: If you were driving your car and you were drunk, I don’t pay the policy! If you were sober I pay the policy, unless someone says that you were erratic and I don’t pay the policy! And so that’s the problem with buying an insurance policy! If I have $100 Million of energy and I buy a $1 Million insurance policy that pays off $100 Million—if it pays off! Well that’s cheap! And I get to take the $99 Million and buy something else with it, but I’ve assumed risk — I’ve taken on counterparty risk in order to get the insurance policy. You could say that $100 Million of Bitcoin in your treasury is an insurance with no counterparty risk!

Robert Breedlove [28:27]: This I think brings up a very deep point! I actually Tweeted about this today. There’s a quote from Carl Schmitt that says, “He who gets to decide the exception is sovereign.” So there’s rules they’re all abiding by — or protocols — but whoever gets to make exceptions to those rules or protocols really has the power to act as they see fit in the world because they get to bend the rules! And that’s what is so deeply profound about Bitcoin is that it is a set of rules that we cannot break! It is an exception-proof money supply! And it’s unlike anything we’ve ever had! And by eliminating that attack vector such that any group could be sovereign over the money, it effectively makes everyone individually maximally sovereign! And that’s one of the great breakthroughs of Bitcoin!

Michael Saylor [29:24]: And that’s why it should be a treasury reserve asset! If you look at the corruption and the decimation, the destruction, in our society, and the devastation in our economy, there are two things that everyone fears: individual bankruptcy and corporate insolvency. Becoming insolvent as an individual or as an entity. How many times have you heard the story, That was a really good company, but they took on too much debt and they couldn’t make their interest and they were broken up and they closed the factories and they moved away and now we’re eat manufactured slop from a machine because our favorite vendor got destroyed. There are a lot of companies that get destroyed. How does it happen? Well they have treasuries in fiat, the fiat’s inflating, so the CFO thinks, Well I cannot afford to invest this! It’s not politically acceptable to invest in stocks or equity that keeps up with inflation. If I invest in bonds, I can’t keep up with inflation, and so I start buying my stock back, and I borrow money to buy my stock back. So if I have $100 Million in treasury and I borrow $100 Million and then I buy back $150 Million worth of stock, I get the stock up, but now my treasury is -$50 Million in net treasury instead of +$100 Million, right? So I went from having a positive position—it’s like you have enough fat to live for 30 days without food, to a negative position — you have no fat, you’re in debt, and there’s a banker that clicks on a Feed You button every day, and if the banker decides to pull the plug on your credit line, you’re instantly eviscerated! And so a company in debt with no liquid assets has no energy! It’s in energy debt! So what that means is, Maybe you generate $100 Million in cash flow a year and you’ve got $500 Million or $1 Billion in debt and you need $90 Million as EBITDA to cover the covenants. That means you have a $10 Million cushion! That means you have a $2 Million a quarter cushion! That means that in any given quarter, if you were short $3 Million on a $500 Million number, that $3 Million kicks you into default on your debt and renders you potentially — it renders your capital worthless! It can drive your equity to zero! And it can render you insolvent, you lose your sovereignty and the creditor can take control of your company — you lose everything! It’s the same as: I go onto an exchange and I’m trading at 50:1 or 100:1 leverage. The idea that I’m going to pledge 1 Bitcoin and get control of 100 Bitcoin, and if it goes down by 100 bucks I’m going to be utterly wiped out is a pretty silly idea! I would not recommend it to anybody other than an addicted gambler! If your goal is, I’m okay losing all of this—and that’s just like going to Vegas or going to Bitcoinville — if that’s what you want to do, then call it a gambling habit! But there’s nothing rational about it! The leverage could be thought of as every entity — be it a government or a corporation — is draining their life energy, pouring it out, when you flip from having a positive treasury to a negative treasury. I have drained my entity of my life force, and I’m living at the pleasure of my creditors or my counterparties, wherever and whoever they may be! I’ve lost my sovereignty!

Robert Breedlove: Absolutely!

Michael Saylor [33:55]: Individuals do it too, right? Corporations do it and individuals do it!

Robert Breedlove: Absolutely, and I think you’re plucking the thread of how the incentive schema related to fiat currency fragilizes the economy in a systemic fashion! To your point, there’s no adequate store of value, so people at the individual and corporate level are forced into the use of leverage! The assumption of debt! Because the real debt load is actually eroding via inflation over time, so there’s an incentive to take on debt. But this is a very short-sighted strategy, because now you are hyper-exposed to the inherent volatility of the future! So once there’s any form of shock—COVID or any other form of economic shock — you can go to zero immediately! You get wiped out! Versus holding cash — makes you antifragile! You can absorb these shocks! You can actually capitalize on these shocks, such that if things get priced lower in the market, you can go and acquire things at a discount!

Michael Saylor [34:57]: And in a simple world, if you had cash that was non-inflationary, if the politicians adopted Austrian economics and said we’re gonna print cash with zero inflation, then it’s simple for the citizens of the society to save in cash, and you have deflation! And the cash will actually be worth more over time! And that’s what Jeff Booth points out. But every technologist knows this! If there was no inflation, the cash would buy more over time, and my entire simple monetary strategy would be: save cash and over time I’ll improve. But in a currency war, the political system declares war on the currency and makes the cash toxic! And if it’s 2% toxic, that’s like injecting a mild drug into your veins. When it becomes 10% toxic, it’s like a poison in your veins. When it becomes 20% toxic, this is like basically saying I’m gonna put a healthy on chemotherapy, and I pump toxic chemicals through a healthy person’s bloodstream, because current — current is like blood current — it’s carrying the energy of life, the oxygen. Oxygen is energy. Your blood carries energy to keep you alive — currency is carrying energy! If a sovereign nation is injecting massive inflation into its own currency, it’s injecting a toxicity into its own circulatory system, and it’s somewhere between either — one metaphor is chemotherapy — another metaphor would be Type 2 Diabetes. I’m injecting so much sugar into your system that your insulin response is failing and you’re becoming insulin-resistant, and your body becomes diabetic and I give you metabolic disease because I am just pumping the liquidity too hard into the currency, which is the blood of life!

Robert Breedlove: Which is possibly where we are today, right? The stimulative responses by the central banks don’t seem to be having the same effects as they used to!

Michael Saylor [37:34]: Yeah arguably like, if I pump enough sugar into your body, you could become diabetic first, and then the pancreas fails and the liver fails, and you have organ failure, cancer, and death! That’s what happens if you overdose on pure sugar. I guess the equivalent would be hyperinflation. If I inject enough money in the system that the currency loses all of its energy carrying—like oxygen carrying capability? — energy carrying capability! I just lose it all! At that point the organ failure is, Now how do I buy electricity? How do I buy food? How do I get on a bus? Like all the transit systems, the food systems — how do I pay soldiers and policemen and firemen? That’s organ death of the society. That happens at hyper-hyperinflation!

Robert Breedlove [38:27]: That’s a great point! You said it loses its energy carrying capacity. And it’s also — there’s a connection here to information, because the price signals become totally disrupted! The money means nothing in that instance! So capital is not being allocated efficiently whatsoever, because prices are completely — you completely lose this economic nerve signal that we call the price signal. So it’s losing its energy carrying capacity, its information carrying capacity, and you end up with cash in the streets like we have in Venezuela today!

Michael Saylor [38:58]: The phrase, Toxic shock, comes to mind! Toxic shock! The toxic shock of the system. But, let’s move back to our happy subject! How does the Bitcoin energy network grow? Well, adoption! So a million people adopt it as their 90% treasury reserve asset and they have $1 Million each, and now you’ve got $1 Million times a thousand is a billion, a million times a million is a trillion, right? So a million millions gets you to a trillion in the network, they put the money in the network and the network is the syndication of all of the treasury energy of the people that choose to adopt it as their primary treasury reserve. So when a million people put a million dollars in it’s a trillion dollar network. When a thousand companies put a billion dollars in, it’s another trillion dollar network, so now you’re up to $2 Trillion! When a hundred companies put a billion in or $100 Billion in — you go the next level! So as individuals, families, private companies, public companies, government agencies, small governments, municipalities, states, small countries, mid-size countries, big countries, all the non-profit organizations — as they adopt this as their treasury reserve asset, they don’t need to adopt it as their currency, medium of exchange! They don’t need to adopt it as their unit of measure! As it becomes their store of value, their treasury reserve asset, as they adopt it, the network syndicates all their energy, and the decision of Apple to buy $100 Billion worth of it would accrue to the benefit of a million HODLers that bought $100,000 each or $1 Million each or $50,000 or whatever they bought! The beauty of it is that everybody is pro rata, pari passu benefiting. And it’s in everybody’s interest to bring everybody else in, right? And it’s a network effect, that as someone comes in, someone else comes in, the price moves up, the people that were in it get a benefit, and now we get to this next dynamic — with me pausing to say: without adoption, without people believing that this should be their treasury reserve asset, without that, you have nothing! So it’s not enough to say it’s just hard! People have to love Bitcoin more than they love gold, silver, Apple stock, Amazon, Facebook — whatever! By the way, we didn’t touch on it much, but if we consider Bitcoin as an energy network versus Facebook or Apple as an energy network, the issue there is: I gotta look out 100 years and say, Will I be able to put $100 Million in Apple stock, hold it for 100 years — and what’s my exposure? And of course your exposure is: income tax on the company, sales tax on their product, tariff exchanges, regulatory interaction, income tax on their employees, all sorts of other taxes you can come up with, plus many other regulatory actions including and likely being the ultimate regulation of these things as public utilities, because if they weren’t regulated as public utilities, the richest guy in every city would be the guy that owns the electrical power plant! And that guy would be richer than Jeff Bezos or Bill Gates or anything! The only reason that these guys are rich is because they’re in a new novel unregulated area that was not deemed to be important! And the problem is, as soon as it is deemed to be important enough that you can’t live without it, then it becomes a God-given right to have access to your YouTube or to your iPhone or to your whatever, and now the entire value proposition differs! I mean we live in a society right now where people think equity is the perfect store of value! What they don’t realize is: it’s possible for the equity to go to zero! For example, a nationalized power station has zero equity! It still works! When stuff gets nationalized, be it education, power, electricity, technology — the equity goes to zero! You can have something with an equity zero and the debt has value. You can have something where the equity has no value, the debt has no value, but the underlying vendors are getting paid. It can shift back and forth — it’s a political thing! So with regard to Bitcoin and the value of the network, it comes down to people making the commitment to adopt it as their treasury reserve asset at all levels. It’s just as good for us if Norway adopts it for their treasury reserve as it is some big charity as it is the Rockefeller Foundation or the Hughes Institute or Harvard or Stanford or MIT or for a private company or a public company or an agency of the government. Maybe the county or a city that you live in or the fire department or a union or a pension fund! And then there’s all the investors, right? Hedge funds, pensions funds, insurance companies! There are a lot of entities that have monetary energy. They either need it to operate or they stored it up in trust for their shareholders or for future generations, etc. So as that energy flows, the network strengthens! Now that’s the first order dynamic. It’s simple network effect. We’re syndicating our power. No different than — let’s say that there are a hundred of us in a football field, and you organize 50 people to be on your tug-of-war team, and I can only get 5 on mine, and the rest are all singletons — your team wins! If there’s a lesson of history, the lesson of history is: the most organized team always wins! Usually the Romans kicked everybody’s ass for nearly a thousand years! Because they were the most organized! When they put their petty differences aside for 700 years, they beat everybody else. And then when they started fighting with each other there’s the decay and eventually when they were disorganized, that disorganization causes a deterioration in power. So it’s the most organized that wins. It doesn’t matter if you’re in 8th grade football or whether you’re in high school or in college. Whatever it is! Organization is always critical!

Robert Breedlove: And I think you’re pointing to another strength of the Bitcoin network here! And also debunking what I would call the alternative narrative that money needs to be adopted as a medium of exchange to proliferate as a network. You do have to HODL or adopt it as a treasury reserve asset—in an economic sense — to create reservation demand for that asset. You’re taking that asset off the market. You’re reducing its supply, thereby increasing its price. And that’s what creates the bootstrapping effect, this monetization process. And that again hearkens back to this evolutionary path where you have it as a store of value first. After it’s created enough value, it can be used as a medium of exchange, because those early HODLers had more of an incentive to use it as a medium of exchange. And then finally when its been widely accepted enough, it’s being used as a unit of account. To your point about organization, HODLers are all perfectly aligned to 21 Million! It’s just the energy efficient strategy is to just HODL! It’s very simple, hard to disrupt, hard to disorganize because there’s not a lot of activity on the part of the HODLer, so it seems like an indomitable strategy in the market for money!

Michael Saylor [47:59]: That’s why, if you understood Bitcoin, you would never say something so silly as, I know when to buy it and I know when to sell it and I just trade! The people that are trading in it don’t really understand it, because if they understood it they would just buy it and HODL it! And sometimes people think they’re accomplishing something, but they’re accomplishing not that much! If a hundred entities buy $1 Billion each, then the value of the network’s gonna go up by more than $100 Billion, and if they just buy it and park it in a cyber-vault and don’t touch it for 100 years, it doesn’t matter! It’s going up! The fact that they poured their energy into the container is actually what caused the energy network to grow! The moving in and out is actually wasting and dissipating energy! You’re just dissipating energy to come and go, and ultimately the success of the thing — I hear these people, they talk about store of value, medium of exchange. Well, Bitcoin is the high frequency store of value and a low frequency medium of exchange! That’s what it needs to be and technically that’s what it is! And if you understand that, once you get it, you realize you shouldn’t fight that! So for example: I buy $1 Billion of Bitcoin. Every second, it keeps anybody from stealing my Bitcoin! Every second, it’s storing the value! No government, no parasite, no thief, no hacker is taking my billion dollars every second for the next million years! It’s working! In the same way that I put that energy into a vacuum package and every second it’s staying vacuum sealed, and the whole point was to live forever! And so if I gave you a little crypto-field that made you live forever and never age, you would say, High frequency longevity device — it works pretty well! And you wouldn’t have a problem — there’s nothing wrong with living forever! It’s immortal energy! So that’s high frequency. The problem is, people don’t recognize that every second of the day they’re being attacked. You are being attacked! Every second of the day there’s bacteria and there’s viruses trying to kill you! If I said, I’m gonna spin up a field that stops them from killing you, it’s gonna work a million years, and you’re not gonna notice it — you would think that’s a pretty good trick! But that is in fact what happens when you actually store value! Now, low frequency medium of exchange: in order for Bitcoin to have its antifragile properties and utility, we have to be able to move it on occasion. Maybe once a year I move it from one cyber crypto bank to another one, or one cyber vault to another one, or once a decade. Or maybe when I’m gonna die I need to transfer it to somebody or split it between my daughter and my son. Or maybe not, maybe I just have one key and I give it to my one child. They give it to their one child, they give it to their one child — then it never gets transferred! Maybe once a year I have to take 5% of my Bitcoin out of my vault, convert it to fiat, and then break that into 100,000 little parts and put it on Apple Pay and use it to pay for Ubers and Domino’s Pizza and credit card bills. Okay! Once a year I take a chunk out of my piggy bank, my crypto bank, and I put it into fiat, and I do whatever I’m gonna do with it — maybe! And maybe—if the world works the way you’d think it might work—I just put $100 Million into the vault, I never take it out, I just borrow against it! I just borrow $3 Million a year, $1 Million a year — tax free! I don’t recognize income, I don’t generate a capital gain tax, I don’t generate an operating income tax. If I borrow money in cash and if my Bitcoin is going up 20% a year — that’s the real yield—and I can borrow money at 5%, then my effective arbitrage is 15%! So it never makes sense to sell it, ever! In fact, if you look at people that use real estate as a store of value, the way it works is, My family buys a block in Manhattan for $10 Million in 1900. It goes up 8% a year—it doubles every 10 years. It’s worth $20 Million, then $40 Million, then $80 Million, and then $160 Million, and by the time you get out 80 years, you got a billion dollars worth of real estate in Manhattan. You’re not selling it! You haven’t done one transaction in a hundred years! All you’ve done is pledged it as collateral against the loan and you’ve borrowed $42 Million against it and you’re paying 3% interest. And that $42 Million — that’s not income! You didn’t pay 42% tax on $42 Million — that’s not income! That’s not a capital gain! It’s not a long term capital gain! It’s not a short term capital gain! It’s a liability! You’ve generated $42 Million of liabilities against a non-taxed asset. The only way it’s getting taxed is you’re just suffering from real estate taxes, right? But, if you’re in a jurisdiction where inflation is high, real estate tax is low, interest is low, then your secret to living well forever tax-free is just borrow against your stationary assets! And so that’s the news of this week: Donald Trump has $400 Million in debt and paid no taxes for a decade. But he’s not unique! You could substitute every real estate magnate, a family that had generational wealth in real estate, they all did it! All of ‘em! How do rich people live well and pay no taxes? Not by selling stuff! Not by transacting stuff! The way that they actually live is they just park an asset on the balance sheet, and they never ever ever ever trade it! They just finance it or borrow against it — and once in a blue moon, once in a decade, somebody wants to pay me triple what it’s worth — and maybe I do it, but oftentimes, the Warren Buffett school of thought is, The taxes kill you! And so the ideal holding period for an asset is forever! He says it’s forever like I’m committed to it — yeah! But it’s the taxes that murder you, and so the ideal holding period is forever because then you can pledge it and borrow against it. How do you get rich? You buy an asset, it goes up, you borrow against it to buy another asset, and it goes up, you borrow against it, you buy another asset, and it goes up, and pretty soon you’ve generated all these assets that are highly appreciated with massive built-in capital gains that you’re never ever gonna recognize! Obviously that can change in different types of jurisdictions where politicians decide they’re just gonna tax you on unrealized capital gains, but —

Robert Breedlove [56:01]: Let me ask you: How do you balance that with not becoming fragilized by leverage? Is it just kind of a threshold that you would never borrow more than say 10% of the value of the collateral — something to that effect? Is that how you protect yourself?

Michael Saylor: The fragility comes from two primary metrics: collateral coverage and the mark to market frequency of the loan — the duration of the loan. How frequently is the collateral marked to market? So for example, if you borrow money to buy a house and it’s a 30-year mortgage and if the bank says to you, they’re never gonna mark it down. Right? There’s some loans like a mortgage loan where they’ll never get marked down. They might get marked up — you can go to the bank and you can petition them to revalue your loan but nobody ever went to the bank and said, Mark my house to the market after the real estate market crashed! So if you buy a $1 Million house with an $800,000 loan, and you got $800,000 in debt and it’s never marked to market then there’s not that much fragility as long as you can make the $25,000 a year interest payment, assuming 3%, right? So that’s not that risky — I mean a little bit risky, you can’t make $25,000 and you lose it — but on the margin, if I didn’t have the million bucks or I didn’t have the $800,000 and somebody was willing to give me the $800,000 house for free, and all I did was pay $25,000 a year — I think that’s a pretty good trade off! The worst that happens is they take the house back and I go do it again somewhere else. So that’s not very fragile! How does it get fragile? It gets fragile when you buy a $1 Million worth of stock on a $800,000 loan and you’ve got loan-to-value of 80%. And now, the stock trades down 20%! And the stock trades down 20% and the banker marks the collateral every day. And if you’re in a swap with the bank, they will mark it to market every day. Every single day, they calculate the value of collateral, and if you’re under you have to wire them the money the next day! And if you’re over, they in theory have to wire you the money! And you have to mark it to market every day — that’s risky! So if you were gonna buy $100 stock, you probably don’t want to borrow more than 50%, but if you borrow 50% you damn well better think that the volatility’s not gonna be 50%! You can’t afford to! So probably in that case, if you thought the volatility was that it could lose half its value, you’d want to borrow no more than 25%! And if you wanted to hold the stock even if it loses 80% of the value you can’t borrow more than 20% loan-to-value, right? So the big risk, the hyper-risk is one of these Bitcoin exchanges that go 100:1 in leverage and I mark to market every hour! What if I mark to market every minute, Robert? I mean that the BitMex liquidation! I basically bought 100 Bitcoin, I pledge 1 Bitcoin, it gets marked to market every minute, and if the price goes down $100 I get wiped out and there’s a crash! And it happens in 3 seconds. So that’s risky. If you want to take the opposite point of view, I have 100 Bitcoin and I’m gonna borrow the equivalent of 1 Bitcoin or 10 Bitcoin in value, and as long as it doesn’t go more than 90% down, I’m good. But if you wanted to save for one, you would say, I’m gonna borrow against the collateral but I want you to agree that you won’t ever mark it to market — that’s what real estate loans are! Or a bank: I’m gonna loan you money against your artwork or against your boat or against some other interesting collectible, and every year or every 5 years our appraiser is gonna reappraise it. So the issue is the frequency of the appraisal, combined with the volatility of the asset combined with the political regime you’re in combined with the loan-to-value! If you’re in a political regime where it’s unacceptable to let real estate values go down, then you can reasonably expect that it’s not likely your house is gonna be worth 20% of what you bought it for because the politicians won’t let that happen! But they might not protect your Picasso painting! So if I borrowed money against a Picasso painting and the banker said we’re gonna mark it to market every month, that’s not as good as once a decade! So when you’re thinking about risk, you’re thinking about, How liquid is the collateral? And how frequent is the mark to market? And then how much is the loan-to-value? And that’s how you get to a question of risk and what you should do and not do! I’m not saying you have to do it, by the way! You could just sell the Bitcoin highly appreciated for cash, pay the tax, and take zero risk! And look, if the interest rate was 18% and you thought that the economy was gonna grow at 3–4%, then you would sell and you wouldn’t take on the debt! So it’s a function of interest rates as well, and productivity. Let’s go back to this issue of our power equation: adoption, utility, productivity, inflation. We talked about adoption, and my point there was you’re just syndicating — if the world was static, in a static world where there’s $1 Trillion of assets, if you get $100 Billion on the network then that’s better than $10 Billion! And $500 Billion is better than $100 Billion! And in a static world it’s just all about recruiting and getting people to join the network. But the world is not strictly speaking static! The next thing is dynamic, and technology is what makes it dynamic! And that’s where utility comes in! So if I can take Bitcoin and I can buy it from Square Cash, it’s got more utility! If I can send it as $22 — if I can send it from Square Cash — if Square will convert my Bitcoin into dollars and send it in a split second, it’s got more utility! If Apple Computer builds it into Apple Pay, and I can link a small wallet with 1% of my Bitcoin into Apple Pay and I can zap that around on my iPhone, it’s got more utility! If Kraken creates a crypto bank and they offered me 4% interest and they’ll offer it to me with institutional low-risk counterparty and they represent to me that they’ve got $100 Billion of insurance and I can give them my crypto wallet and I get 4% interest on it or 6% and I trust them, the utility just went up again, and Bitcoin becomes more valuable! If I get to the point where I can manage my crypto keys using my retina scanner face ID and give speech instructions and I can say, Send Robert $37 of my crypto in cash — and if it always works and I just did it and it’s more secure than a hardware key and I don’t have to remember my 12 [word] seed key or whatever and it never fails — utility went up! Right? If I can say, Robert — maybe I’ve got a girlfriend, Lisa— I could say, Send Lisa flowers on her birthday every year for the next decade — click! And it’s jacked into my crypto—utility went up! There’s a lot of ways utility can go up. Buying stuff, selling stuff, etc. It’s all a function of technology. If the Lightning Network works. In the ideal world, back to my example, I have X money — $10 Million — I have $100,000 in my checking account. I say, Move $100,000 in checking, leave the rest in the bank yielding 7% interest — tie my checking account into Apple Pay, link that to my Uber account, my sister’s Uber account, my Domino’s account, and use it to pay off Netflix, Google, this, that, and the other thing, and pledge it as trusted collateral on some dating network to show that I’m a real person, and then use it to automatically pay all my fees on my domain registrations every year when they become due. There I just set it! I just did it — that’s utility! That’s [what we’re looking for! 1:06:09]

Robert Breedlove: It’s connecting it to productivity, right? It’s enabling you to accomplish greater results with the same or less efforts! So the utility is a reflection of your productivity!

Michael Saylor [1:06:21]: And that’s a great segue to element 3 of the network power, and that’s productivity! Well we have a million HODLers and they put $1 Million each into the network and now we have $1 Trillion in the network. Adopting it as your primary treasury reserve assets means sweeping your excess cash flows into Bitcoin, so those million people put $1 Million each, but how much money do they make each year, and how much do they save each year? So let’s say they make $100,000 a year, and they save $10,000 a year. So $10,000 times a million — $10 Billion! So in that case $10 Billion in fiat gets converted into Bitcoin every year! That’s the productivity! If they all get a raise — next year it’ll be $11 Billion. The next year it’ll be $12 Billion. If they all start their own business, the near year it’ll be $30 Billion. If the economy’s growing and they’re inventing cool stuff and one of them becomes the next Michael Dell or Bill Gates or whatever, that person’s gonna put in $100 Billion or $50 Billion! If you get lucky and one of your HODLers is Jeff Bezos he’s gonna put in $37 Billion! So the productivity of the individuals is going to sweep cash flows into the network. And the same is true with the productivity of the corporations! So Microstrategy, we put $500 Million into a network, we make $50 Million a year. If we generate $50 Million a year after tax, we sweep that into the treasury, right? And do that 10 years in a row, our initial $500 Million is going to become $500 Million more of discounted cash flow! So now we’re just back to some basic finance theory: What’s the value of the stock? It’s equal to the balance sheet cash value plus the discounting of the cash flows. The discounted value of the cash flows over time! So, the treasury that gets put in is the initial slug, and the discounted value of the cash flows of all the people in the network is the next value proposition. Of course, this kind of dovetails nicely with economic theory, because if the overall worldwide economy is flat and not growing, then the cash flows are not gonna grow! If the overall economy tanks and starts to deteriorate, the cash flows will deteriorate! If I destroy the economy, cash flows are going to zero, no value will accrete! And if I invent an atomic overthruster that gives you infinite energy in a sugar cube, presumably productivity is gonna go through the roof and cash flows are gonna go through the roof! So ultimately we’re getting a bunch of people to join the network and then all of our fates are intertwined with all of our productivities! We’ve created a cyber economy! Just like Warren Buffett said, Never bet against the United States. The United States was a 20th century physical economy and every business in it was working to the benefit of every other business in a competitive capitalist Darwinian ecosystem. Well now we’re actually creating a cyber economy where you can be in a relationship with anybody else to the extent that, Robert, you adopt as a HODLer and I adopt as a corporate treasurer! If I’m successful, you benefit! If you’re successful, I benefit! Obviously, if we can get Apple Computer to put $100 Billion in and then sweep $50 Billion a year, we all benefit! And when a country does it, they benefit. And of course, if the people that join the network are more responsible, if they actually are productive and they save more than they spend, or they earn more in revenue than they spend in cost, then the network grows. And if they spend more on revenue, flip it the other way — a million HODLers all of a sudden save their money and then they start going crazy and partying and quit their jobs and buy Lambos and blow it all on champagne and gambling, they start drawing down their balances in the Bitcoin network and they sell their Bitcoin for fiat! And if they’re selling it for fiat they’re draining it out of the network! So the network is going to accrete with virtuous economic behavior and debase and dilute with vices!

Robert Breedlove [1:11:18]: I love the example that you use of the United States as being this Darwinian economic ecosystem of value creation! Because it was indeed a place in the world with the lowest impediments to free trade that actually led to America creating the most wealth and the most capital. And in many ways I think Bitcoin positively embodies a lot of the founding principles of American free market capitalism. You have inviolable property rights in Bitcoin, which in the American ecosystem actually marginally disrespected through Quantitative Easing and fiat currency printing. There’s a rule of law here in the US, so we have non-violent dispute resolution and enforcement of contract law, and clearly the Bitcoin network is the most adept network at reaching global consensus we’ve ever created! And then kind of from the first view, honest money or hard money would be something else that a real capitalist system puts out. So it’s almost as if America as an experiment was the closest thing to pure capitalism we had prior to Bitcoin. Because again the nation state always gives in to that temptation to violate the money supply and thereby violate the private property rights of the citizens.

Michael Saylor [1:12:46]: Now Robert, you jogged my memory, or jogged my thoughts. I’ve described Bitcoin as a swarm of cyber hornets behind a wall of encrypted energy. Well the United States is a swarm of military assets: the navy, army, and air force, behind a wall of water! The insulation is the Pacific Ocean, the Atlantic Ocean! 3,000 miles of water — you have to go through the army, the navy, and the air force, and that protected a bunch of capitalists, a bunch of entrepreneurs. In service of the goddess of wisdom, in this case in service of the American way! The American businesses pursuing the American Dream unhindered by interruption because they’re behind a wall of water. You know if you go to Poland, they’re good people too! I’ve been there! I have a lot of Polish employees — they’re brilliant! Between Russia and Germany. Again, Trotsky’s point, You may not be interested in war, but war is interested in you! It’s kind of hard to go about your business when people are rolling over you with tanks this way and that way. And the equivalent of that in a monetary system or an energy system is with someone stealing your energy! Okay? How do I keep my coffee warm? I put it in a thermos! I need to insulate my energy so that no one steals it! If I take your Starbucks coffee and I put it in a cooler of ice and I drop it in the ice your coffee’s getting cold! And so the wall of encrypted energy is the insulator. The wall of water is the insulator. The insulator is the insulator. The vacuum is the insulator. If you want a crucible of virtuous innovation, you need that vessel that serves as the insulator against all the forces that would attack it from without or [within] from fear with this process. And that is Bitcoin, right? We’re creating that! And having said all that, right: adoption, utility, productivity — those three things create that monetary chemical reaction of sorts. And the last piece is inflation. But inflation is almost just the way that we translate the energy — it’s a translation coefficient of the energy into a frame of reference of the dimensionality or the domain where I’m spending it. I mean, I’m gonna have to translate my monetary energy into Rubles or Pesos of Dollars or Euros of Yen if I cross into one of those domains, because it’s their world, not our world! So if the Dollar didn’t inflate, then would Bitcoin go up? If the United States had a perfect monetary policy — no inflation — could Bitcoin succeed? Yeah! It could succeed! If people adopt it — because it’s got technical advantages, right? If they adopt it as a reserve asset, I mean their choice is that versus stock versus bonds versus property — you still have the issue of: How do I commute energy through time and space? So I would still adopt it! Technology will still get better! I mean if there was no inflation you would still like the iPhone. You would still like Zooming to me if there was no inflation! Technology would get better, and we’d have productivity! We’d be inventing stuff: fusion, better materials, etc. And when we created stuff like Zooming and we put together Zoom with YouTube, we would talk, and someone would put it up on YouTube and 100,000 people would see it and 3 people would have an idea and something would happen that wouldn’t have happened otherwise! You don’t need inflation for Bitcoin to be successful anymore than you need it for Google or Apple or Amazon to be successful — it just happens that in an inflationary environment it accelerates — 2% inflation will grow it 2% faster, 10% inflation will grow it 10% faster — in theory if a bond is pure energy and if bonds are inflating at 20%, then that means that Bitcoin will have a 20% real yield in that currency where you see that energy inflation! And it’ll be different relative to the frame of reference of every single domain or every country depending upon how they choose to manage their currency. They could in theory — I could peg the Dollar, like in Singapore or the UAE I peg to the Dollar. I could peg to gold. If I peg to gold, it’ll be a 3–4% differential. If I peg to the Dollar it could be a 10–15% differential. If I peg to the Peso it could be a 32% differential. So all of the value of Bitcoin relative to the people in the ecosystems in the domain will vary! And of course, that’s why if I’m in Lebanon or Argentina, this is even more insanely valuable to me than if I’m in Switzerland!

Robert Breedlove [1:18:48]: Absolutely! I would just maybe add that 2% inflation would increase adoption say by 2%, but as you increase the inflation rate, I think it would actually be non-linear, because if you take the extreme example of hyperinflation, everyone would pile out of their currency into the Dollar or into Bitcoin — something that was more reliable, such that, as you increase from say 2% to 10%, people’s inflation expectations actually increase, which gives them further incentive to move into Bitcoin or something alternative.

Michael Saylor [1:19:24]: It’s multivariate, non-linear, and one dynamic is: Hyperinflation panics people into it, high inflation pushes them into it, low inflation encourages them into it, but we’re marking the value of the Bitcoin to all the assets — the tangible assets, all the products and services and assets in the domain which is being inflated — and that’s also having a frame of reference impact. So the frame of reference changes literally when it’s $1 Million for a cup of coffee — Bitcoin’s gonna be worth $1 Billion, right?

Robert Breedlove: Yeah. That is the Number Go Up technology!

Michael Saylor [1:20:09]: So it becomes powerful in that regard. So each of these four effects — I haven’t written them out as a formula or equation. If I was writing it I would be writing: f(adoption), f(utility), f(productivity). Because in fact, they’re all vectors that are all the time dynamically varying across many dimensions. Each of these is a general idea and they all convolve with one another in order to drive network power. But when you take them all into affect, then you just realize Bitcoin is this energy network! It’s gonna gather energy and as people perceive it, they will adopt it, as people adopt it they’ll want to integrate it with more utility, as they do that it’s natural we can expect human productivity will increase, we can expect technology to advance. If we only have 0.1% adoption, it’s like having all of the gas in 1% of the chamber and I take away the barrier. You could expect it will — it’s not getting less! The genie is out of the bottle! The genie is going to expand! And then betting on some governments to inflate is not a highly risky bet.

Robert Breedlove: That’s a good bet!

Michael Saylor: Probably you will get that! And that is Bitcoin network power dynamic. That is the dynamic there, and everybody that’s marketing Bitcoin, they’re contributing to it. Everyone working on Bitcoin technology is contributing to it. Everyone simply HODLing Bitcoin is contributing to it. Everybody that hates it, or everybody attacking every other asset or every time another asset fails or another currency weakens it contributes to it. And then just the relentless passage of time contributes to it.

Robert Breedlove [1:22:23]: I think this is a brilliant and unique way to look at the network effects of Bitcoin! And I also find it interesting that at the center of this vortex is the highest expression of truth we’ve ever had! Bitcoin is literally this system of converting energy into indisputable truth about who owns what UTXOs, and the 21 Million again is kind of like the third certainty in life. We’ve had Death and Taxes, and now in the socioeconomic sphere at least we have this number 21 Million we know that can’t be violated. And that’s what’s spurring all these effects!

Michael Saylor [1:23:01]: Bitcoin is a cyber economy based upon the principles of truth, respecting the laws of thermodynamics, respecting Newton’s laws. If you’re gonna worship the goddess of energy, you better respect the laws of conservation of energy! And it is that conservative monetary energy system. The first conservative monetary energy system that we’ve ever invented—anybody can choose to be a member: any individual, any family, any company, any government, can choose to become a member of this closed energy system. And conservative energy is truth! It starts with this simple principle: energy can be neither created nor destroyed! You could lose control of it! You have it — you could lose control of it and it can dissipate and you can lose it! And so that doesn’t mean you can be lazy or sloppy. You have to channel the energy! But Bitcoin is the best system in the history of the world for controlling, storing, and channeling energy, and that’s why it’s destined to be successful!

Robert Breedlove [1:24:24]: I love — I’ve never heard it put like that! That conservative energy is truth! That ties it back to how we started this conversation of the eagle dragging the goat off the cliff side: it’s employing the least energy necessary to accomplish the greatest result. And that’s what you want to bet on. That is the winning strategy on which you want to bet. And it points towards the kernel of all economics, which is: scarcity gives things market value. Scarcity is the driver of market value. Things that are hard to obtain and have utility are what give them value in the marketplace.

Michael Saylor: The ultimate scarce asset in the universe is energy! You can’t create more of it! If I give this much to you, you can’t wiggle your fingers and make it twice as much! If you lose it, it’s gone! And you can play all these games and thermodynamics — it’s a great field because everybody thinks — they’re all looking for that perpetual motion machine. The laws of thermodynamics, we used to paraphrase them at MIT in a snarky way, we’d say, You can’t win, you can’t break even, and you can’t get out of the game! The laws of thermodynamics! It’s like, from a layman’s point of view: You can’t cheat! There is no cheating in thermodynamics! It might look like you got something for nothing — even Maxwell’s demon. He posed, Maybe I could actually fight or reverse entropy and get order from disorder by dividing a chamber and I have a demon and there’s a little door and molecules are bouncing around, and what if my demon opened the door when the molecule bounced from the right to the left and closed it before the [molecule] bounced from the left to the right? I could over time with randomness get all of the bouncy molecules on one side of the chamber and I could reduce entropy. And they couldn’t figure that out! They called it Maxwell’s demon. Well what’s wrong with that argument? Doesn’t that break the laws of thermodynamics? And the answer came along 100 years later when some IBM computer scientist pointed out that information is building up in the head of the demon, and the information is in and of itself creating entropy, and so no you’re not cheating! Once you actually account for all the information, disorder, and energy in the system, it did respect the laws of thermodynamics! You can’t cheat time. You can’t cheat space. There is ultimately conservation! And Isaac Newton — all of Newton’s laws: conservation of mass, conservation of energy F = ma, it’s the basis of physics, the basis of mechanics, the basis of every machine we’ve built that works, it’s the basis of all of our heat exchange, and it hasn’t been —I mean scientists and engineers don’t have a high opinion of economists. And one of the reasons why is that it hasn’t been important for economists to understand closed systems, isolated systems, servomechanisms, conservation of mass and energy, E = mc⌃2. E = mc⌃2 matters! What it means is: If there’s mass, it becomes exponentially expensive to move it around. E is the energy! You wanna move stuff fast? You need to take the mass to zero! And that’s how you move stuff fast! So economists, maybe what they were doing didn’t matter before Bitcoin! You could say, maybe Bitcoin is the first time that technology crashed into economics! You have energy, you have technology, you have math crashing into economics and now you couldn’t really be a competent economist without appreciating closed systems, energy efficiency, math, conservation of everything!

Robert Breedlove [1:29:01]: Yeah! Another thing this calls to mind and maybe a unique way to look at Bitcoin: We can’t break the laws of thermodynamics. Those are the rules of the game within which we are operating in physical reality. And Bitcoin in a way maps onto that system very nicely, because it gives us an economic system in which we cannot break the laws. It perfectly respects and aligns itself with the laws of thermodynamics in the economic sphere! And another thing this made me think of was — this was a framework I got from you on inflation — was that, CPI is low, but everything you want is inflating rapidly. You could probably plot that on a spectrum as, The things that are more energy intensive to create are inflating more rapidly, and the things that are created easily are tweaked and controlled and dumped into that CPI bucket!

Michael Saylor [1:29:56]: Because the laws of thermodynamics apply even if you don’t wish they did! You can’t get out of the game!

Robert Breedlove: No free lunch in the universe!

[END]

Commentary:

Robert Breedlove [1:30:15]: Alright guys! That was Episode 5 of the Saylor Series and, man! What a big episode! We hit on some major concepts today! I just thought it was super interesting, as always! Mr. Saylor brings the heat! I think first of all we talked about how fiat currency is basically implemented as a means of augmented the portability of gold, because gold is heavy and physical, it’s difficult and expensive to transact it across space, although gold is really good at holding its value across time and has a high relative scarcity. But the point there that Saylor brought up was, Although gold-backed paper currencies were great at moving value across space — that was their purpose of introduction — they actually suffer because they have all of these frictions between different regulatory and intermediary environments, such that when you try and move cash from say China to the US, you hit different types of capital controls and whatnot. So it can be very expensive and cumbersome to actually move fiat currency across different jurisdictional domains which actually inhibits its original purpose, which was to increase the portability of money! And I like the analogy he drew with a boat: If you consider that the moving value across space function of money is something like putting goods on a boat and selling it across the sea, he’s saying effectively that gold was dingy—very unlikely to move value across space well, whereas fiat currency might be something more like a wooden ship — a little bit better at doing that but still not idea, whereas Bitcoin is actually like a steel ship — it’s an extremely strong protocol and as long as you maintain the steel by painting it it’s basically indestructible. The analogy there being: So long as Bitcoin is maintained by the mining network — which generates its revenue through the block revenue and the transaction fees — that essentially makes the monetary network itself self-reinforcing and indestructible in a lot of ways. And then the last analogy is that steel is super repairable! If you weld a steel plate onto the hull of a ship, the weld actually has a higher tensile strength than the original steel itself, which I think again analogizes [to] Bitcoin, is that: It can absorb superior competitive features from the marketplace, so it can actually repair or improve itself in a way that makes it even stronger than its original form. So that was a great analogy! And the other one that I liked that we touched on was the vacuum sealing of food, which if you think about it it’s just a way of restricting the stored energy — whether it’s food or money — from contact with entropy of the environment. In the case of vacuum sealing, we’re removing all of the air — all of the microorganisms that might exist in that air, water, or moisture — from the package itself, such that none of them can attack the energy content stored therein. And the analogy there being: Getting the entropy or uncertainty out of the monetary channel. We can think of the SHA-256 algorithm as an encrypted vacuum sealing of the monetary energy stored in the Bitcoin network. So it gives it this super-high resistance to impurities or uncertainty or nefarious actors — it doesn’t even have to be nefarious necessarily depending on your perspective on central banks—but it gets the uncertainty out of your money! So it gives it this energetic vacuum seal, so I thought that was a really cool analogy too. [1:34:38] And we talked about money being power. And that money itself is this superset of all power that humans have been able to create in the world. Again the physics definition for power which I really liked — because it ties back to the importance of proof of work — power is the capacity to do work over time. So to be able to apply force over distance over time — that’s what power actually means. It makes sense that we would generate power, or be able to allocate energy into a power storage network through proof of work. That’s what gold mining was, and that’s what the mining expenditure related to Bitcoin is! So we think of money as this amalgam of all the powers that human beings have had over time and looking at Bitcoin through that lens, we see that the power of the network — which was another analogy that Saylor used was the voltage in a closed source system — so the supply of Bitcoin doesn’t move, but the amount of energy stored in the network is the only thing that can be increased! So it’s a perfectly closed system that mass can neither exit or leave, but only energy can be added to it! In that way we can think of the power of the Bitcoin energy network as its price, effectively. We dug in a little bit in that and talked about stock to flow model and Bitcoin supply issuance. It’s not actually the supply that is driving the value necessarily — as we go into later — it’s more a function of its utility. Because as Saylor said the impossibility to produce something is not what makes it valuable, it’s actually the impossibility of producing something that already has relevance to someone’s goal-directed action! So value is this subjective quality where if a particular object or even a service or a piece of knowledge is relevant to you accomplishing the aims of your goal-directed action — if it’s an accelerant for you towards you achieving your goals — then we can say that thing has value! Even if something is an accelerant towards you achieving your aims — say like oxygen, we all have the aim of breathing and surviving — it doesn’t actually have a lot of value because it has no scarcity! So the scarcity can amplify the value, but the value itself is actually a function of the individual good, service, or knowledge’s relevance to your goal-directed action. So we actually put it in these buckets of what actually defines the monetary network value of Bitcoin. And he classified it as: adoption, inflation, utility, [and productivity]. And I loved this quote he used. He said that Bitcoin is, “An encrypted energy crucible in which we store the energy of life.” So we touched on it repeatedly in this show that money is life force. It’s this meta-energy that allows us to access essentially any other form of energy that’s available in the marketplace. [1:38:08] And in that way we need a system that maps onto the scarcity of the thing that it represents, if that makes sense. So in thermodynamics, energy can neither be created nor destroyed, so it makes sense that the money which best maps onto that will become naturally selected in the marketplace! And then we went into another definition of money—and this is one I’ve used several times. I say that, Money is an insurance policy on the uncertainty of the future. The ineradicable uncertainty of the future! No matter how much technology advances, we’re never going to get rid of uncertainty! Uncertainty itself by the way is another expression of entropy! We live in a universe pervaded by entropy, and in fact entropy is the only thing that defines the flow of time in the universe. Everything — often these processes are symmetric — but the one thing that imparts a directionality to time is this flow of entropy: things left unmaintained becoming increasingly uncertain or breaking down or more chaotic over time. So money, since it gives us pure optionality in the marketplace — it’s like, no matter what unforeseen consequence we encounter, money is the best tool for dealing with that uncertainty, because it gives us a claim on the collective savings of the world! So we can access whatever it is we may need—assuming it’s available in the marketplace—to resolve that uncertainty when we encounter it. And Saylor made a good caveat to this analogy because he said that one thing about an insurance policy is that it carries a lot of counterparty risk. So even today we’re sitting in 2020 with this global pandemic striking, many insurance policies are not being paid out because it had exclusions for a pandemic or other force majeure I guess they call a lot of them. So we could say that Bitcoin is actually even more valuable than just a standard insurance policy in that it’s a non-counterparty insurance policy! It’s a money that does not have any political exposure to pay out. So if you’re holding cash in a form that can’t be confiscated, inflated, stopped, then no matter what eventuality you encounter or what circumstances you encounter in dealing with the uncertainties of life, you have a pool of pure capital optionality with Bitcoin! And that cannot be said for any other asset! There is no other money that can provide you that degree of assurance! [1:40:53] I mentioned that quote from Carl Schmitt that, Sovereign is he that decides the exception, so this really important because by totally removing counterparty risk from money, Bitcoin has removed all exceptions from money or the monetary policy if you will. And by doing that, you’ve taken away the ability to make exceptions in the game of Bitcoin, so all of a sudden—Sovereign is he who can make the exception — if no one can make the exception, then no one’s sovereign so there’s no sovereign over participants in the network, which means you’ve maximized the individual sovereignty of all network participants! And this is something that’s really radical! You really have to think about this for a long time! Again we could define sovereignty somewhat simply as just, The authority to act as one sees fit. The ability to conduct an action consistent with your purpose of aims. And Bitcoin’s the only money in history that maximizes our ability to do that! As I argue in one of my latest pieces, Bitcoin is Hope, that Bitcoin is money purpose-built for entrepreneurship. It maximizes not only their sovereignty but also their accountability, and their ability to engage in adventure! To engage in business dealings and taking on risk to try and solve problems for the market and generating value in the process. So I thought that was a really interesting way to look at it. And then we got into debt, and I love the way he described debt as almost an anti-energy, where you’ve actually, instead of having this capital cushion against uncertainty, that debt actually can amplify the negative consequences of encountering uncertainty! Now it can also be used to enhance the positive consequences! That’s what leverage is, that’s what amplifies gains or losses, but it tends to be a poor strategy over time, because the one thing that’s unavoidable in an entropic universe is volatility. It makes positive volatility more beneficial, but it can make negative volatility cause you total destruction. It puts you at risk of ruin, which if you’ve any of Taleb’s work, it’s just the number one thing we all must avoid! We got into some specific examples of how fiat currency — because it’s depreciating over time and large corporations have access to really cheap loans, it’s actually incentivizing them to take negative treasury positions! To borrow money on the market at low rate and buy back their own stock, because again you would expect that the scarcity of that stock and the performance of the underlying capital tend to outperform the borrowing cost in a market where the cost of borrowing is suppressed by central banks, effectively. [1:44:13] So this puts corporations in a weird position because the incentive structure is such that it’s causing them to fragilize their own business model into — instead of having a positive buffer against uncertainty in their treasury they’re actually carrying negative treasury balances — which can make them subject to their creditors! The wishes of their creditors, which again — Sovereign is he who makes the exceptions. All of a sudden, by marginalizing your own capital position and putting yourself in the hands of creditors you’ve now given away your sovereignty in the world to your creditor, and taken it away from yourself and your shareholders. So I thought that was brilliant as well! And then we went into the politics of currency, and this is another way to look at the importance of Bitcoin is that people for years have talked about getting the money out of politics. If we get the money out of politics that would make for a more fair equitable system, but Bitcoin’s gonna flip that on its head! If you’re getting money out of politics, that would require legislating away human nature somehow which in a way that’s not possible! What we would do instead with Bitcoin is just get the politics out of the money. All of a sudden we have a money that can’t be manipulated or confiscated based on political will. And Saylor’s analogy here is that politics actually toxify the currency. And we could think of Quantitative Easing or monetary inflation is actually like putting a healthy individual on chemotherapy just to enrich the physician — the physician being the government! The physician is administering this “medicine” to the patient, but the patient — being the productive economy — doesn’t actually need it! Quantitative Easing again is not infusing any new value into the economy, it’s just reallocating it away from those holding the fiat currency as a store of value to those holding assets that inflate: typically real estate, stock, reliably scarce assets. So the other part of that is that over time this analogy holds because like even sugar or drugs like maybe heroin or chemotherapy — it loses its efficacy over time! So the stimulative effects of fiat currency inflation actually diminish over time as well! And that’s what we’re seeing today in 2020 is that central banks have pushed all the levers to the metal so to speak and they’re getting very little economic response as a result. And through that biological lens we can consider hyperinflation as being a form of socioeconomic organ failure or a toxic shock where all of a sudden these energy centers—in the form of our institutions or economic networks—the life blood that flows through them in currency has been so diminished in terms of its informational energetic carrying capacity that the institutions start becoming unraveled! People can no longer interoperate between themselves and between these institutions. The trust that maintains the social cohesion is basically diluted along with the currency! I thought that was a great way to look at it as well. And then this — I just think this is just a wonderful argument — this next point — on how to just diffuse anyone’s counterpoint to Bitcoin! Assuming they have a relatively sophisticated understanding of a store of value function—and it’s just a very simple thought experiment: How do you store value effectively for 100 years into the future? How can I store value today in the most lossless way to transmit it 100 years into the future? So we could say, Alright, what’s being used today as a store of value? FAANG stocks or other high-performing equities! They’re being used today — why not those? So the problem with those is that clearly by owning an equity you’re taking on industry, regulatory, and counterparty risk. There’s not really many equities you could’ve invested in 100 years ago that would still hold their value today! Maybe none actually—I could be wrong on that! But very very few, so you’d have to be the stock picker of the century so to speak for that to work. So you’d say, Ah well let’s look at something like real estate! Real estate also suffers from all of those issues! It does have reliable scarcity but it’s an asset that’s out in the open, it can’t be hidden, in the event of a war or an escalation of property taxes or even just outright confiscation as in the US with Eminent Domain — your property could just be taken away completely! Even if it worked perfectly, say you’re paying a low property tax rate of 2% a year, you’re still getting cut in half every 35 years! So that’s not a very effective way. So historically the most trust-minimized asset or trustless store of value was gold. But as we covered in the last episode, gold has 2% inflation per year. If you’re trying to circumvent the counterparty risk related to it you need to move it every quarter or every few years. That can be another 25 basis points to 1% per year. So now even looking at gold as the hardest economic store of value historically, you’re talking about getting cut in half every 22–35 years, and over a 100-year period you’re approaching a 90% loss of value. You could say fiat currencies — the US Dollar! The US Dollar is strong today, but I would argue that there’s scarcely a worse choice than that! That is the wealth storage medium that least holds its value over time. I think your best case of holding a fiat currency for 100 years — at least the past 100 years, say in the US Dollar you’re above 99% total loss of value — and that’s if you pick the right currency and yours doesn’t hyperinflate or is invaded by another country and deauthorized or whatever it may be. So you’re somewhere between 99%-100% loss of total value in fiat currency. So what does that leave you with? It leaves you with Bitcoin! There’s only one store of value that is totally free of counterparty risk, has a fully diluted or a universally transparent and predictable supply schedule — so we all know the inflation, there’s zero unexpected inflation — and it can be stored in any number of ways in these custom, ultra high security custody schemas like multisig and things of that sort! So I think if you just zoom out on the store of value argument, it’s a clear winner! There’s just not even competition! I mean your second best choice is maybe I guess gold or possibly real estate, and you’re still looking at — say in the case of real estate, if everything went perfectly and you only had your 2% property tax per year, you’re looking at an 87% total loss in 100 years! Whereas Bitcoin you have essentially 0%! It’s not that Bitcoin doesn’t have inflation in the system, but the inflation is a fully-diluted cap table if you will. Everybody knows what it is! So you’re playing off of 21 Million even though only 18.5 Million Bitcoin have been issued so far to date. So I thought that was brilliant! A great way to look at it. Zoom out! In the store of value area, Bitcoin is — undisputed — the best contender! I mean the one argument against it would be that it’s new! It’s only 12 years old, so how could argue that it’s gonna last for 100 years — and that just comes down to faith and the existing track record of Bitcoin and the protocol and the math defending it. So it’s not a surefire bet, but assuming Bitcoin continues to function in the same flawless way it has to date then it’s not even a contest! Bitcoin is far and away the best store of value! [1:52:55] So that goes into a discussion about history, and Saylor made the point that the greatest lesson of history was that the most organized group of people win. Clearly, right? We are more than the sum of our parts when we can coordinate our efforts! And again, by getting the politics out of money, Bitcoiners are essentially perfectly aligned! We can compete and fight amongst ourselves and argue and all of these things, but the one thing that doesn’t change, that’s not subject to politics, is 21 Million, no confiscating, only private keys can generate and spend transactions — these fundamental rules of money that are not subject to politics enhances the cohesion of Bitcoiners, effectively. And so that’s another perspective on why Bitcoin wins! It’s just gonna have a more organized, more disciplined human force behind it! And the way it — I Tweeted this the other day — and this gets back to the Sun Tzu thing, Territory is the most decisive factor in determining the outcome of any battle. And as Bitcoiners, the moral, intellectual, and philosophical high ground that we occupy is virtually unassailable! So in my mind that’s why we win! We are operating from a place that is the most protected and gives us the most optionality against all competing systems, and therefore that causes Bitcoin to outcompete all of the other systems over time! That’s just Darwinian. And then going back into the SOV store of value versus medium of exchange argument, Saylor had a brilliant way of describing this, that, Bitcoin’s a high-frequency store of value and a low-frequency medium of exchange! So that every second you’re holding Bitcoin, it’s performing its function! Anyone that’s saying Bitcoin doesn’t have utility, they don’t understand inflation. They don’t understand store of value. Because every second you’re holding Bitcoin and it’s adhering to that fixed and diminishing supply schedule and you’re storing it in a custody model that’s really difficult to confiscate or to corrupt, it’s performing its function! It’s storing your monetary life energy in an encrypted vacuum sealed container! And one of the things he said there was, In the sphere of money, Bitcoin is immortal energy! We’ve never had anything like this! And this too got into how preserving this wealth will impact Bitcoin’s relationship with fiat currency. So Bitcoin — which is historically yielding about 200% annually — if you can go out into the market and borrow at 5%, you have an incentive to never sell! You have an incentive to just keep accumulating Bitcoin and borrowing up to these intelligent thresholds, of ideally never being marked to market, and having favorable loan covenants. The incentive is to borrow, and acquire Bitcoin! Again he analogized this to how generational wealth is handled, where a lot of families just own, say, a block of New York City, and they just borrow against it little by little over time. So Saylor’s point is, In the sphere of money, Bitcoin operates as this immortal energy. And the incentives related to Bitcoin are interesting because historically it’s been yielding say 200% annualized return, so if you can go into the marketplace and borrow let’s say 5% or anything below the annualized return, then you actually have an incentive to do so! To actually go out and borrow and acquire more Bitcoin! And more recently — this was recorded before Saylor’s latest announcement most recently —he actually used Microstrategy’s balance sheet to go out and raise some convertible notes and do this very thing! Where he can borrow at a rate below Bitcoin’s expected annualized return, and he’s using it to acquire additional Bitcoin! And this points toward something really interesting: Pierre Rochard wrote a great piece about this years ago. I think it’s called Speculative Attacks. And so what’s effectively happening is that, since Bitcoin tends to outperform broader investment indices, and since debt and interest rates are being artificially suppressed by central banks, this opens up an attack vector on the fiat currency itself where market activists can go out into the marketplace, borrow fiat, and then actually sell that fiat to acquire Bitcoin! And if you do this at scale, this can actually induce inflationary pressure on the fiat currency undergoing the speculative attack. So this is to say: Saylor’s recent move with the convertible note play is in some ways a speculative attack on the US Dollar! So again it just points towards how the economic principles underpinning money and the incentive schemes related to both fiat currency and Bitcoin sort of all point towards the ultimate success of Bitcoin in the long term! Then we got into the utility of money. It was another one of these factors that drive Bitcoin’s success. And the general point here is pretty straightforward. It’s: Bitcoin is extensible. Meaning, it’s protocol is adaptable. You can add other features to it, you can build businesses on top of it, you can connect APIs to it. There’s a great degree of programmability that Bitcoin enables that something like gold just does not! Gold is this dumb rock that essentially just sits in a vault and provides assurances of supply scarcity, but offers none of the feature sets that Bitcoin enables! And looking at it as technology, we can also say of fiat currency, it suffers because it has these technology backdoors in the form of issuers being able to inflate the supply and steal wealth from everyone else. Whereas something like gold or Bitcoin does not! It has these backdoors closed! And this spins up a number of interesting possibilities with Bitcoin which Saylor went into in a little more detail, but basically, by interfacing this base monetary protocol that we call Bitcoin with digital technology, we now gain a huge degree of customizability and unique ways to channel our will or intent across time and fund it in many unique ways. And you can do this with things like smart contracts that actually mitigate or minimize counterparty risk. Whereas if again you wanted to send flowers to your niece on her birthday every year for 100 years after your death, to do that with something like gold you’d have to put all your trust in a custodian and some type of payment mechanism to get to the flower delivery guy, and then the flower delivery business itself you’d have to bet on one that was gonna stay in business! Whereas with something like Bitcoin you can actually write a lot of these things into the code or into the smart contract that can go into the marketplace and search for say a good payment service to deliver the payment, a good flower delivery service. So it gives you a much higher degree of adaptivity and resiliency and projecting your will and intentions beyond the grave if you will, so super interesting way to look at Bitcoin. And then he touched on another aspect of Bitcoin that really drives its valuation, and he was referring to the productivity of the Bitcoin network participants themselves. So when market actors — whether they’re individual, corporate, or government — have decided to go long Bitcoin, they’re making a similar decision to what Saylor did, where they’re deciding to use Bitcoin as a primary treasury reserve asset, or said differently, just to hold it on balance sheet as a means of storing wealth. And what this does is that this is a two-phased approach because the initial phase is, Hey, I’m putting my treasury into Bitcoin. I’m selling the cash and buying Bitcoin. But the second-order effect of that is, once you’ve made that decision, you as a productive and effective entrepreneur are going to continue sweeping profits or excess cash flow into your treasury over time! So not only is the value accreted to the Bitcoin network — it’s not even that initial slug of capital in the form of the treasury transaction — but also the discounted future expected cash flows from future sweeps into that same treasury! And I think this is an incredibly way of looking at it, because I’ve never seen anyone in Bitcoin that studies it closely that becomes bullish — that ever becomes less bullish! So it’s almost like once you’re allocating capital in and you’re studying it more closely and you see all of these things we’ve covered in depth and more things we will cover on how significant of a monetary innovation this really is, and it just causes you to escalate your allocation into your treasury. Maybe 20% of your treasury initially and creeping up to 30, 40, 50%! And this is all just a self-reinforcing feedback loop, because every decision you make to increase your allocation of Bitcoin is putting game theoretic pressure on all other market participants to do the same! It’s a game of frontrunning or taking as much territory on the network as possible! So this has a really interesting effect of intertwining the fate of Bitcoiners together in a way that — it’s like a compounding incentive structure that incentivizes us not only to become more productive to generate even more free cash flow to put into this superior savings technology, but it also incentivizes us as HODLers to want to educate others! We want to describe to the rest of the world — not only for financial purposes but also for moral purposes — how the existing system is rigged! And you are being robbed! And this is not only pragmatically the best system but also philosophically the best system for savings the world’s ever had! And even evangelize! Once you’re a Bitcoin HODLer and you’ve found this way of saving your own wealth — your own life energy — in an uncompromisable medium across time, you want the same for others! The natural human proclivity towards helping one another I think comes to the surface in that you want others to succeed in the same way because why would you want anything else? Actually—other people succeeding in true free market economic competition — it’s a positive sum game! Every time someone’s doing something better, faster, cheaper, that solution they’re providing accretes to all of us! So Bitcoin really—not only does it intertwine all of the fates of its network or market participants, but it’s also encouraging all of us to think differently and communicate differently! Versus a fiat currency paradigm which is much more zero-sum—much more rent seeking focused. So on this topic of Bitcoin as an American — in the idea sense — technology, Saylor had this great quote that, A crucible of virtuous innovation requires a vacuum insulation layer. Again, to preserve the wealth whether that’s the productivity, the energy generated, the profits, the cash flows of any entity requires an insulating layer of some kind! Otherwise the entropy of nature — whether it’s the greed of man or the uncertainty of nature or the taxes of moving capital from one jurisdiction to another — they just eat up that wealth itself! So again we’re back to Bitcoin being the ultimate vacuum sealing of capital we’ve ever had! We got into inflation a bit and the one thing I really wanted to point out here is that contrary to what Bitcoin is — this virtuous feedback loop of incentives and game theory — fiat currency is actually the reverse! So not only is inflation theft — it’s eroding real wealth through fiat currency supply inflation, but there’s also a psychological element to it as well! If inflation is growing, market actors are smart! They start to attempt to frontrun future inflation, so actually inflation expectations tend to outpace actual inflation in a nonlinear fashion! So inflation’s coming in at 2, 3, 4, 5%. If it’s growing, people expect it to continue growing and they’ll actually start selling their fiat today in anticipation of further fiat currency inflation in the future. And if you sell fiat currency, you’re inducing further inflationary pressure on it. You’re actually increasing the velocity of money itself. It becomes this game of hot potatoes — you don’t want to hold the dollars. And this can add fuel to that vicious cycle that ultimately culminates in hyperinflation. Again that’s just the precise opposite of Bitcoin’s quantitative hardening technology — it’s disinflating over time, causing it to appreciate! And finally we got into one of the topics I like to talk about a lot which I think is eternally mystifying — is this concept of truth! Saylor presented it in a way I never heard before in that he said, Conservative energy is truth. Meaning that: Whatever strategy or organism or organization best adheres to the first law of thermodynamics and optimizing its inflows and outflows of energy or money or anything else — that’s how you succeed! You wanna maximize your cash inflows, minimize your cash outflows, for instance, to be a successful organization. In that context Bitcoin is the first conservative monetary network in history! We could say gold was one — it was the most conservative monetary network in history — but Bitcoin’s the first one that maps perfectly onto thermodynamics! As Saylor said sort of jokingly how they talked about thermodynamics at MIT in that, You can’t win, you can’t break even, and you can’t escape the game — Bitcoin maps onto that really well! You can’t manipulate 21 Million, you must incur transaction fees — so you can’t really break even — and you can’t ignore the game! You can’t escape the game of Bitcoin! It just imposes its rules on everything! So that was it! I think it was a great episode! He concluded with saying that perhaps Bitcoin is actually the first instance of technology crashing into economics, so possibly it’ll cause a rewriting of history books, which I’ve intuited it would! More so in the sphere of say capitalism versus socialism, but we may actually see economics become more focused on these physical principles of say energy and everything that we discussed today — thermodynamics and things like that. And actually the new book by Saifedean — he’s writing a book called Principles of Economics, and it goes into energy! Which is not something that you typically see in economics textbooks, so he might be right at the cutting edge of something really important! That was Episode 5, I hope you can tell things are heating up at this point! We spent a lot of time building this foundation and now I think you’re starting to see the fruits of that. Things are only going to get more interesting in future episodes. Thanks for listening, and we’ll see you soon!

6/9 Bitcoin is Digital Gold

 

Robert Breedlove [03:27]: Alright guys! Welcome back to Episode 6 of the Saylor Series here on the “What is Money?” Show! So today we’re gonna be talking about how Bitcoin is harder, smarter, faster, and stronger than any form of money in existence! Specifically we’ll be drawing a lot of analogies to gold, which Bitcoin—as we’ve discussed—is disrupting too! And we’re gonna look at this through a number of angles. And a lot of this is building on things we touched on early on in the series like specifically getting into Stone Age technologies and actually how the use of tools and the harnessing of energy is what let’s man be harder, faster, stronger, smarter than any other animal on the planet. So in fact these characteristics define the utility of both innovation and evolution! So the tool that best exhibits them tends to outcompete in the marketplace. So we’re drawing back to some lessons we made earlier. This is Episode 6 and if you haven’t checked out Episodes 1–5 yet I suggest that you do, because it all culminates into what we’re getting into now. We’re gonna look at this through a number of angles. One is custody — how Bitcoin custody is very unique! We’re also gonna get into the specter of quantum computing — there are a lot of people out there that like to think quantum computing is some kind of big threat to Bitcoin so we’ll dismantle that one. We’re also gonna get into the hardware and software updates of a technology like Bitcoin versus gold and fiat. We’re also gonna look at the programmable aspects of Bitcoin and how that makes it unique! We’re also gonna look at the defensibility of Bitcoin and how it’s one of the most defensible assets — if not the most defensible assets — in the history of mankind! And then we’re also gonna look at how — as monetary energy, Saylor likes to call it — Bitcoin let’s us place capital more quickly and more intelligently than any other money before in terms of generating yield. So we’ll get into some discussion on that as well. And then finally we’ll get into Bitcoin as being the first truly digital native money — it is pure information! It’s massless, it can be moved at the speed of light! And this enables a plethora of high frequency and micro transactions that were simply not possible with any other monetary technology historically! Finally we’ll look at how all these elements are combined to give Bitcoin users and HODLers more optionality than any other money in history. And at the end of the day that’s what money is — it’s the instrument for freedom. So with that, I’m exciting to dive into this one! We’re digging deeper into Bitcoin theory. And yeah — with that, let’s get into it!

Michael Saylor [06:26]: We talked about Bitcoin as money, but sometimes money has a lot of elements — as store of value, medium of exchange, unit of measure — and it an be simplifying and clarifying if we just focus in on Bitcoin as an asset! So Bitcoin is digital gold. And if we use that metaphor some people look at it in a very constrained sense and some people look at it more broadly, but when I say Bitcoin is digital gold, it’s harder, smarter, stronger, and faster than traditional gold! There’s a lot of depth behind it, and I don’t know that it’s fully appreciated. Let’s just start with harder: We talked a bit about how Bitcoin is harder because of its 21 Million cap, and its stock to flow is exponentially going to infinity. And that’s the easy part of harder because you’re exactly comparing it to gold! And if gold has a stock to flow of 50 and Bitcoin has a stock to flow of infinity then it’s harder! But, there’s another element of harder that we don’t talk about much, and it’s really Nicholas Taleb’s Antifragile harder! Bitcoin is an antifragile element. I’ve used the metaphor cyber hornets but I think people think it’s a cute metaphor but I’m not really thinking it’s a cute metaphor! What I’m meaning is, it’s literally a swarm of cyber hornets that keep getting more powerful that you can’t kill that are going to get harder and stronger and faster and they’re going to eat you if you try to stop them — and that’s really hard! People don’t think about it like that! But I’ll give you an example, or another metaphor from history: The Great Wall of China. So the Great Wall of China was a defense, and it’s a material defense — it’s like a bunch of stones stacked up and it’s very expensive to create it, and it was meant to keep the Mongols out! And it’s a fragile defense, because it’s literally a static stone structure and it didn’t keep the Mongols out. Eventually they found a weak point in one of the gates, cracked through, and then they slaughtered all the Chinese, defeated the empire — took over! Now how is that similar to what Alexander the Great’s father said — Philip II of Macedon — he’s attributed this quote: No citadel is impenetrable as long as it has a road wide enough for me to fit a donkey up it with a pot of gold on its back!

Robert Breedlove: Interesting!

Michael Saylor: And what he meant was: It doesn’t matter how strong your defenses are if I can bribe the gatekeeper! The third example we have in modern history is the Maginot Line, where the French built this impenetrable defense against the Germans and the Germans simply went around it through Belgium — by cheating! They hacked it! They just ducked it! And if you think about the lessons of military history, one of the lessons is: The best defense is a good offense. And another way to look at it is that if you want a good defense, you need an active defense — a moving defense! You’re a boxer in a ring and someone wants to hit you — your best defense is that you move quicker than them and you hit faster and harder than them while they’re getting ready to hit you — and so they can’t!

Robert Breedlove: Right, it has to be adaptive! The defense has to respond to the nature of the offense continually.

Michael Saylor: Continually! Continuous adaptation, absorption of your enemy’s capabilities and reaction and you play them back at them! And so when we think about gold — I’ve affectionately deemed gold the dumb rock — it’s a rock! It’s not intelligent! It’s not a life force! A coral reef is a life form! All forms of life — they’re living! They’re adaptive! If you kill the weak element, the ones you didn’t kill get stronger! With regard to Bitcoin, it’s composed of a number of elements: there’s software — the software is running on hardware. The hardware is running in facilities that are plugged into the firmament of some domain. There are people that are running that software, that are operating those facilities, that are building that hardware. And those people are also acting in the political domain and the economic domain, right? There are people in the Bitcoin ecosystem that are improving the Square wallet, they’re improving the Binance exchange. So they’re improving the back end server exchanges, they’re improving the front end client software, they’re improving the hardware wallets, they’re improving the Bitcoin Core software, they’re improving the ASICs that the miners are running, there are people negotiating with governments everywhere on Earth to get better electricity, there are people that are negotiating with politicians to get better regulatory treatment, there are people that are marketing Bitcoin and there are educators — yourself, on YouTube! There are people on Twitter, there are communicators, there are analysts that are creating analytical functions that are being used to drive and channel the network. They’re all moving! They’re all evolving! They are strong exchanges getting stronger! There are weak exchanges getting weaker, right? We see that all around us! There are countries where Bitcoin mining is flourishing, there are countries where Bitcoin mining is under attack. Gold is a dumb rock — it is sitting on the floor. Gold is not going to move itself! Gold is not going to feel pain! It’s not gonna feel pity, it’s not gonna feel inspiration — it’s just going to lie there and wait. And Bitcoin is a different thing! So the antifragility of Bitcoin comes from the fact that everybody in the ecosystem feels the same pain in the same way. If Bitcoin’s price goes down, every Bitcoin HODLer feels it! If Bitcoin is hacked and goes to zero, every Bitcoiner loses their life’s energy! We are a hive creature all integrated with one another—and when there is that pain it spreads very quickly through the entire ecosystem! The information flows rapidly! So if we consider threats to Bitcoin — a lot of people, they always whine — I hear this whine, Well what about the quantum computer? What about the quantum computer? And I wanna say, Yeah! And what if an asteroid hits the Earth and kills us all? Or, what about a pocket thermonuclear pencil that blows up the entire universe and what if your enemy gets it before you did? I mean there’s a lot of silly notions of that — What if somebody had the impossibly powerful weapon and they’re evil and they decide to use it on you? You could look at it that way, but I think a more constructive way to look at it is: If someone comes up with a computer that runs twice as fast as the current computers! The most profitable use of the computer is Bitcoin mining! If someone comes up with something which mines, that generates SHA-256 crypto hashes faster than the current generation of Bitcoin mining equipment, the most lucrative thing you can do with it is plug it into the network and start to contribute more hash rate! And so, who do you think is gonna notice first when that thing happens? If someone comes up with a better — Well what happens when it gets so powerful that it can break SHA-256? Well, dudes, we’re just gonna go to SHA-512! Or we’re gonna go to the next thing — 1024! And anybody that ever studied computer science knows: We start with 16, go to 32, go to 64, go to 128, 256, 512, 1024, and so on and so forth — and the numbers get pretty fricking big! And then when they get done with that they flip to the next protocol, the next protocol! [16:16] Who do you think is gonna figure that out? The people that have $500 Billion of risk to figure it out? Or someone that’s got no money at all but thinks they might just want to solve the problem just so they can crack the world? And it’s like, Yeah, maybe! But it’s just as likely that some dude’s gonna come up with a revolver that shoots like photon bullets and they’re going to crash the United States government because they’re the first dude with a photon bullet revolver. It’s an interesting idea — I’m a lot more persuaded if the Pentagon with their hundreds of billions of dollars is gonna come up with a photon bullet gun or the laser rifle or the whatever. So the entire network is channeling innovation. You come up with better hardware? It’s gonna go into the miners. You come up with better client software? It’s gonna go into the wallets. You come up with a better software, or a way to write software? Don’t you think people in the Bitcoin Core community are gonna use that way to write better software? And if it’s too dangerous, the community is gonna slow it down — otherwise, if there’s a political threat, everybody that’s adopted Bitcoin as a treasury reserve asset has a vested interest in dealing with the political threat. And if they can’t deal with it — if you are a creature with two arms and I wrap a tourniquet around one of your arms and I choke off the blood flow, the arm dies — use the other arm! When you’re an octopus, you’ve got eight. When you’re a hydra, you’ve got a million. So the entire creature’s just going to move to a place where there is oxygen where it can live. And if it can fight, it will fight. And if it can’t fight, it will morph itself into a different domain, and unless you figure out a way to kill it everywhere at the same time — utterly, down to the last node — you’re probably not gonna kill it. And it seems to me that nobody’s really got a vested interest in doing that and if they did it’s just not clear. Pick one government — one government attacks it, it becomes more useful to every other government. And they all can’t agree on anything, ever. And even if they could agree on anything, ever, they still can’t do it, right?

Robert Breedlove [18:58]: Yeah! I love the quote from Philip II of Macedon about the road being wide enough for a donkey with a pot of gold. That relates to me to the famous quote from Charlie Munger: Show me the incentive and I’ll show you the outcome. And I think that is one of the key aspects of Bitcoin is that, even if you have this breakthrough — quantum computer, whatever it is — you’re still incentivized to contribute that innovation to the network. That is the most lucrative, most energy-efficient strategy possible, even in that breakthrough environment. And to your point about cryptography — it’s always been a cat and mouse game. It’s always been kind of the defense, someone trying to crack it, and then the defense adapts. To your point it’s a dynamic defense, and that’s why it’s ongoing. That’s why it’s so relevant. And when you look at it through that lens, the most brilliant aspect of Bitcoin is that incentive schema, frankly — you’re always incentivized to contribute to its longevity. Which seems to make it antifragile, to your point.

Michael Saylor [20:06]: The one thing in the Bitcoin ethos is they hate gatekeepers. So gatekeeper is a very powerful metaphor: The reason that the Great Wall of China fell was because there were gates and there were gatekeepers. And the prosperity of 100 Million people could be destroyed by corrupting the one on the gate. As soon as the one gatekeeper opens the gate, the 100,000 person army comes through. And herein you see the problem with hiding behind a wall, or hiding behind a wall with a gate in it. A much better idea would be: I have my own 100,000 person army and when that army comes I stand against them. And that’s what the Romans knew. The Romans never sat and cowered behind a gate, they knew — and anybody in a war knows — you have to go and leave the citadel and you have to actively fight the army that would kill you, because if they manage to surround you and isolate you, no amount of defense is going to hold [them] back. They will find a way through, and that’s the story of history. Gatekeepers are your weakness! There’s no gatekeepers in Bitcoin, and there’s no gatekeepers in a decentralized proof of work network that’s energy-intensive. That’s one of the problems I think of like proof of stake networks or the — every time someone tries to come up with a “more efficient way to do it”, well if you’re going to secure a $1 Trillion network with $1 Billion of stuff staked, the problem with that is all I need is another $1 Billion to bribe that person. Or half a billion! Half a billion bribes half that network and then I topple the entire trillion and I get it all, right? So when you have anything where I’m playing games where I’m trying to use a small amount of energy — and money is energy, right? — a small amount of money, a small amount of energy. If you’re trying to use a small amount of energy to secure a large amount of energy, you created a gatekeeper! And so you need to flip the pyramid, and that’s why there’s no shortcuts here: There’s no such thing as a free lunch. And it doesn’t terribly bother me that Bitcoin channels a lot of energy. By the way — through encryption facilities! A miner is an encryption facility, it’s generating SHA-256 hashes and you’re gonna have to get through that hash wall, and the only way you’re gonna get through it is you’re gonna have to buy yourself 51% of all of that equipment on Earth, and then you’re gonna have to harness 51% of all the energy, and then you’re gonna have to attack and it still may not work!

Robert Breedlove [23:07]: And you’re still incentivized to honesty, even if you’re executing a 51% attack.

Michael Saylor: And the joke of course is, If you really could buy 51% of the encryption equipment and harness 51% of the energy, you could have 51% of the block rewards and 51% of the transaction fees, and the value of owning half of the transaction fees is higher! When the thing’s worth $10 Trillion and the transaction fees are 1%, there’s gonna be $100 Billion worth a year worth of transaction fees, so it’s $51 Billion a year. If you cap that at 20x, it’s $1 Trillion just to go along with the program! So someone’s gonna have to have $100 Trillion and be really mad in order to want to spend $1 Trillion to destroy other people — it just doesn’t make any sense. Plus, you’re not gonna get to attack the thing without a counterattack, right? Because at the point that you have 100 Million people that all have all of their life’s energy — all of their hopes, their aspirations and all of their economic security and physical security invested in the network — they’re probably not gonna roll over and let you do it. It’s pretty hard for one evil genius by themself to plot a trillion-dollar war on a cyber network. How are you gonna gather the software and the hardware and the monetary energy and the political support by yourself? And if you’re not by yourself, I’m reminded of the phrase, Three can keep a secret if two of them are dead. [24:56] So when I think about Bitcoin I think, It’s harder, but it’s harder because it’s an evolving herd creature, an evolving swarm creature. And it’s evolving as fast as it can, and it feels pain. As Nicholas Taleb says in Antifragile, Pain is a good thing! You can tell the difference between people that get it and people that don’t get it. There’s a group of people in life that run from pain, and they’re attempting to anesthesize themselves and always isolate themselves from pain. And there’s a group of people that run toward pain, or at least they embrace pain. Pain’s a good thing! The more pain you feel, the faster your reflexes. Put your hand on a hot stove, it moves quickly — you have reflexes. So that system is learning and pain is one of our number one information signals — maybe the most important information signal, in order to provide a living organism with vitality.

Robert Breedlove [26:10]: That’s right! Yeah Taleb says that, Stressors and pain are indistinguishable from information at the organic level. That it’s the only way that an organic system learns is by exposure to something that is resistive or conflictive to it. And even at a genetic level, when a virus invades a host organism and destroys its cells, there’s always a few cells that survive. And those cells that survive actually take some of the DNA from the virus that wiped out 99% of their cellular comrades and incorporates that DNA into its own such that it is resistant now to that virus. So it’s happening at an informational level even deep in biology. This isn’t just something that happens kind of at the physical layer here. It happens really — it’s quintessential to life, is I guess the point I’m getting at.

Michael Saylor [27:10]: I agree. And I think that if it’s not a living thing, it can’t be hard, it can’t be hardest! People think gold is the hardest thing because it’s a rock, but it really isn’t the hardest thing. The hardest thing is like the Mongolian horde if you’re in its way. When the horde with 100,000 comes at you and they’re terrorizing, blood-curdling with their missiles — and if you read the history of Genghis Khan, they would ride across the plain, they’d find a city, the city is surrounded by a moat, they would go upriver and divert the river, they would divert the river, choke the city, starve them of water for three days, and they’d ride underneath the gates in the riverbed. It’s just horrifying, blood-curdling, living horde creature. And you want to attack it? It’s moving. You could go to it, retreat, they stop, they turn around, they throw you off balance, they murder you. That’s what happens when you’re dealing with living creatures. Go into a hornets nest, attack the hornets with your revolver — see what happens. The most horrifying thing, right? You have 1,000 hornets — you see these videos of 20 hornets taking apart 20,000 bees?

Robert Breedlove: Yeah I saw that on Twitter recently!

Michael Saylor [28:41]: Frightening! Frightening. And they’re all examples of that. There’s bacterial examples, there are cancer examples, there are single-celled organism examples, there’s invertebrate examples. When something is a decentralized, organic creature that is rapidly evolving and adapting, it becomes excessively antifragile, because every time you kill it or kill an element of it, the elements you don’t kill get that much stronger.

Robert Breedlove: I’m reminded of a quote too when you’re talking about the possibility of Bitcoin being disrupted or attacked from the outside, that you are attacking the life energy of the HODLers, if money is energy. And there’s a Sun Tzu quote from the Art of War and it said that — I’ll paraphrase — but basically you never want to attack an enemy whose back is against the wall. They have nothing to lose. Therefore they will come at you with everything they’ve got. It’s almost just an unstoppable force. And it seems to me that’s what you’re facing when you face Bitcoin. You’re facing this swarm intelligence of individually self-interested but collectively organized life force that’s defending their own life energy. So it seems just really hard to attack that. Almost as if you’re attacking the honey in the wasp nest — they’re gonna come at you with everything they’ve got.

Michael Saylor [30:17]: Yeah gatekeepers are like centralized banks or centralized regulators. Those are gatekeepers and political financial systems and gatekeepers on the wall of China on a wall are literally gatekeepers. And the result is: one person has the power to destroy the lives of a million by opening the gate. Because Bitcoin doesn’t have a gate there’s no gatekeeper, therefore there’s no asymmetric payoff. It’s not economically feasible to break through. Now another big advantage in the antifragility of Bitcoin is this idea that I can run my own node, I can take my own keys off the network, I can choose to trust them with a custodian, or I can choose to take ownership of them myself, and I can choose for example to put a million dollars with a custodian that’s going to run a bank or maybe lend it out or give me yield on it or protect it. But then at the point that I lose confidence in them, I can shift all those assets to another trustee, or I can take physical possession of them myself, and because you have lots of different entities — individuals and corporations — choosing to do different things at all times, even though someone might entrust their keys to a bank, the security of the entire system is being protected by the someone that doesn’t! So the diversity with which people choose to engage and support the network actually makes it more antifragile. And the potential—for example: if I know that you are gonna take possession of your keys, and then if you set up an organization that’s custodians that will hold my keys and charge me 10 basis points, then if another organization charges me 50 basis points, I would just say to them, I’m gonna shift to the 10 basis points. The competition drives their rate down or I move to 10 basis points. If I hear that your exchange or your custodian is not secure or it might not be secure, or if I heard that there’s a new multisig protocol that more secure and I ask you and you don’t support, I move my keys or I move my assets to the next wallet, the next technique. That means that you cannot afford to ignore me because you don’t have a monopoly, right? There’s no regulator saying I have to leave my keys with the Breedlove Trust in order to get a tax deduction, or in order to qualify for a 501c3, 413, 509, etc. IRA, this or that. As you start to have pure competition, you get this ferocious evolution in all aspects of the ecosystem. And we saw it with miners for example: they started with CPUs, and they flipped to GPUs, and then they went to ASICs. And like every 3 years there’s another generation. The thing that really destroys the quantum computing argument is, if anything, Bitcoin has proven that people that believe in the Bitcoin network are going to pursue the highest performance special-purpose client and server hardware before everybody else in the world! If you look at the state of the art with Bitcoin wallets, they’re more secure than any other mobile client device. And if you look at the state of the art with Bitcoin ASIC miners, they’re higher performance than AWS or any device you’ll find on a public cloud. And that’s because Bitcoiners have skin in the game. Back to one of Nicholas Taleb’s books, it’s like everybody that writes the software, runs the software, uses the software — everybody has skin in the game. If you go to business it’s gonna be obliterated if you fall behind. As a miner you can’t make any money. As a wallet you can’t sell anything. As a crypto bank exchange — look how fast the money moves out of one exchange to another this week. Everybody has skin in the game, nobody can ignore the pain, agency bias is very hard to come by, and you can expect every year forever, it’s gonna get harder! Now back to this issue of Apple and Amazon: Apple’s the most valuable company on Earth because they can ship a software update to a billion people for a nickel. That’s pretty powerful! Well with Bitcoin, you can rewrite the software that runs the nodes to make it smarter, right? You can rewrite the software or the firmware that works on the mining devices. And so the hardware cycle — what’s the upgrade cycle on hardware—2 years maybe? 1, 2, 3 years? In that range. What’s the upgrade cycle on software? Well it depends on whether it’s the node or the client software — 1, 2, 3, years. In the greater scheme of things, it doesn’t have to be super fast, you just have to compare it to the number of hardware and software upgrade cycles on gold.

Robert Breedlove: Zero!

Michael Saylor [36:09]: In 5,000 years! In 5 Billion years! Gold’s pretty much 5 Billion years — God made it, and left it that way. And there’s a lesson to be learned from that, but the point is: it’s not upgrading, it’s not going to move. And if it doesn’t move, invariably when human beings come in conflict with mountains, we move the mountains! We move the rivers, we chop up the granite. Go look at a citadel, it’s literally moved the mountain. You might have to move it 2 tons at a time. Look at the pyramids. 5,000 years ago someone figured out how to move a mountain of rock. And that’s 5,000—4,000 years ago! Are you gonna bet against 100,000 humans with their channeling gravity, channeling water, channeling whatever? Or are you gonna bet on the mountain? And the answer is: you’re gonna bet on the human beings! When you roll forward and you look at human beings versus animals, it’s the same thing: us versus elephants, us versus lions, us versus nature — anything living. Generally we figure out how to beat it because we channel energy better! So now we’re talking about, What are we competing with here? Well, if we’re competing with gold it just seems like no contest whatsoever! Let’s talk about smarter, stronger, and faster. Because harder is relevant to money, but smarter, stronger, and faster is the source of all tech value in the past 20 years — maybe in the past 2,000 years. Let’s talk about smarter. Well if Bitcoin is programmable money — it’s a pure energy token and I can move it around — that means that I can write software on the clients and I can software on the server that will actually move the money. And that means you can hold keys to 100 Bitcoin and then you can write software that will prove that you’re credit-worthy, that you own the keys to 100 Bitcoin. Then you can actually use it to register and certify a transaction or information or a title channeled into that. I can write a piece of software that will — what do I want? What if a million people wanted to borrow money pledging Bitcoin? And what if another million people wanted to loan out money and generate interest? And what if I write a program where everybody on one side says, I’ll pay 1, 2, 3, 4, 5, 8% interest, and everybody on the other side says, I’ll make a loan assuming a collateral coverage of 4:1 in Bitcoin and I can mark it to market every hour. Okay? You’re offering me terms, you’re offering the loan, I’m offering to borrow, we create a piece of software, it runs every day, every minute, every second. Robert, what if you had 10 Bitcoin and I scanned everybody — 100 Million people — what if I scanned them today and I found someone willing to pay you 8% interest with a loan to value of 10% and you could mark it to market every minute? Good deal? Maybe! Maybe a good deal! Maybe you wouldn’t be willing to loan it, but if you did — what if I went through all 100 Million of ’em and I found someone that needed the money real bad and would pay you 27% interest? Smart. Smart? What if I actually ran the algorithm every hour? What if I ran the algorithm every second? What if someone wants to borrow the money for a year and they’ll pay you 10%? And what if they want to borrow for 30 years and they’ll pay you 15%? What if they want to borrow for 1 year and they’ll pay you 5%? What if they want to pay you overnight and they’ll pay you x%? You could generate the yield curve with a piece of software, and then that software will connect all of the lenders with all of the borrowers on a server. It could be a centralized server. The logic doesn’t have to be decentralized. In fact a centralized server runs a billion times faster than a proof of work network, so it’s likely that the logic will be smart, and that’s an idea. Another idea is: put the intelligence on your iPhone and be able to talk to your iPhone and when I talk to my iPhone I can tell it to chop my money into 37 pieces and send it off — Send my money to my daughter and let her spend it on ice cream but not on Uber rides because I don’t want her running off with her boyfriend somewhere. So I can condition the money using all manner of software, and I can turn on servers that will move my money around while I’m sleeping, and I can turn on clients that will handle my money. And of course, if I walked into your bedroom and I picked up a gold bar and I walked out with it, the bar’s not gonna complain — it’s a dumb rock! On the other hand, if I took your Bitcoin and I wrapped your multi-factor authentication around it and your retina scan and your voice scan, I could geofence it and I could say, Nobody can move a mobile device with this Bitcoin key outside 100 meters of where Robert lives. You could do all sorts of magical crazy things with software that you can’t do in mechanics — machines. So gold is in essence mechanical, and Bitcoin is virtual. And of course, it’s tokenized, and that means it can get as smart as the computer can get smart, and eventually the computers can talk to other computers and that opens up all sorts of applications like credit ratings, authenticity, insurance. Maybe I want to buy insurance for you but I want you to pledge the full value of my house and I want to know that you have the proof of the reserves to pay off the insurance, right? So you can create very interesting pieces of software with less risk or more transparency and more speed. We know it doesn’t work with gold. It doesn’t work with tokenized gold, because you’ve got the counterparty risk and you don’t know whether the tokens actually are backed by real gold. It doesn’t really work with other tokenized assets because stocks, bonds—they move too slow — and there’s no API between the bonds and the tokens and if there was an API you end up with regulatory compliance issues and you’re not delivering the physical instrument, ever. So that’s just not likely to happen.

Robert Breedlove [43:42]: It seems to me the general theme is we’re betting on dynamism over the static state. Like the reason the human beings can overcome the mountain is because we have time and dynamism on our side and the mountain is static. It’s not responding —

Michael Saylor: Dynamite, nitroglycerin — literally we can blow through the mountain by unchaining chemical energy!

Robert Breedlove: And the mountain is not mounting a defense of any kind. It’s not adapting, it’s not changing. I wonder if — so today, to kind of change the lanes a little bit, the US Treasury is considered the risk-free rate in the world, being that it bears low to no interest, but it [presumably] has no risk of default, or the lowest risk of default. As you see us moving into more of a Bitcoin-denominated world, there have been talks of a risk-free rate for Bitcoin developing on the Lightning Network, such that you would fund these Lightning channels in time-locked contracts that the market would determine — anywhere from a minute to 30 years — and it would bear some interest rate. Do you think that’s the direction the risk-free rate goes? Is that how we develop a Bitcoin yield curve? Or how do you see that evolving?

Michael Saylor [45:04]: Yeah. I think on a chain like Lightning above the base chain — by the way you could do it with a centralized or a decentralized solution, right? So Lightning is one solution, but you could do it on any exchange too if they chose to do it. There’s a lot of ways to solve the problem. The key idea is to create a free market yield curve. Rational people of their own volition would never willingly loan you for 30 years for 1.4% interest. There is no person that would think that’s a good idea to do it. In a free market you would expect that you would see — 30-year rates would definitely be north of 10-year rates and north of 1-year rates — you would see things like 3, 4% short term, 5, 6% 10-year, 8% long term risk-free rates. And that’s what they used to be! When Volcker finished his work and he kind of like reset everything, for a while — the conventional wisdom back in the 80’s was the long term risk-free rate was about 7–8% and then the risk premium was 4% and so the cost of capital was about 12% on making an investment. And that’s how they came at it. And the interest rates typically mirrored that — you could get a savings account for 4–5% — anywhere from 4–8% on the yield curve. It’s only state intervention that will deflect it below that. We could talk about that when we get to interest, but that’s my thinking on that. With regard to Bitcoin as an asset, we talked about why it’s harder and why it’s smarter — because you can program it — but it’s also stronger. And the stronger is an important thing. Strong is about channeling energy with force and acceleration. I walk into the ring—we’re gonna fight. If I punch slowly, I could be strong. But if I’m slow I don’t win! The fighters that win have explosive force. You could be stronger than me but I can strike you before you strike me I can knock you out. And so it’s all about how explosively you can channel that energy. And that’s what an arrow is, or a sling, or a bullet. It’s not the guy that’s the biggest, strongest, fastest, that wins — it’s the guy that puts a bullet in your head first that wins. And so we know that in military combat. If we think about stronger in the context of money, it’s all about channeling monetary energy with force and acceleration. So that means on a Saturday afternoon from a standing start, if you have $10 Million, can you figure out where to put the $10 Million to generate the most yield? Like, I need software! If I had $10 Million in gold, I can’t do anything with it on a Saturday afternoon. On the other hand, if I have $10 Million of Bitcoin and I wrap it with a server, and if the server scans through 1,000 institutional counterparties and then I finance the bid, then I could chop my $10 Million of Bitcoin into 10 pieces. I could send $1 Million to Tokyo, $1 Million to Beijing, Berlin, London. I could leave some of it outstanding for a 1-week loan, some for a 1-month loan, some for a 1-year loan. If their circumstances change — if you’re pledging some other kind of collateral and I’m marking it to market and it changes, I could snatch back my assets. And so the ability to channel the energy and move it where I need to move it intelligently, fast — what if I make you a loan of $1 Million at 12% interest on Saturday, and then you come back to me 4 minutes later and you want another million and you’ll pay me 12% more? And what if I like your credit? In the virtual world, in the Bitcoin world, I can just send another million! What if you come back and say, Okay I’ll take $10 Million and give you 14% — I just need it for 3 days? 3 hours? That’s [fast], right? You can’t do that with gold, ever! And if I had a bond or Apple stock or something like that on a Saturday, it’s not moving! But realistically—I’m giving you an extreme example because it’s kind of magical that your computer server is making you money by scanning the networks on a Saturday afternoon—well I don’t have to be that extreme. For example, if you have $100 Million of Apple stock sitting with the wire house, a big bank — pick up the phone and tell them you found someone that’s willing to give you 3% interest on the Apple stock — they would laugh at you! Ha ha ha, ha ha ha!—Well we don’t give interest on that! Well could you just like loan it out to this other party that’s willing to give me — ha ha ha, no. When’s the last time you got interest on your stock assets from the bank or the trustee that’s holding the stock? Never! They don’t do it! Okay so let’s go through the thought experiment: You have $100 Million in cash, you put it in a savings account back in 1988 that gives you 5% interest. You have $100 Million and you put it into Apple stock and they give you a dividend. Okay good. Now the bank loans your Apple stock to someone that’s gonna short the Apple stock, they short it, they sell it for $100 Million, they take their cash, they put it into something yielding 5% interest, they keep the 5% — what you get? Nothing! Your Apple stock got hypothecated, you didn’t get paid, and yet if you had $100 Million in a market basket of stocks, why shouldn’t you get a yield on it? The reason you don’t get a yield on it is because conventional financial industry doesn’t have an incentive to do it nor a need to do it, they just [have the power? 52:03] and you don’t! And what causes people to do that is competition. Sometimes by the way [the reason you don’t see] competition across regulatory domain is because if I can get all the regulators in my country to agree that we won’t do this then it’s collusion and regulatory capture. And so when you have a cross-domain asset, it’s less likely you’d have regulatory capture. Ultimately, the strength of Bitcoin comes from the fact that an individual can self-custody and so if the individual can custody and they can do it in any of 200 different regulatory jurisdictions, they can find a jurisdiction where they will have the strongest money where they can generate the most yield and they can move to that jurisdiction. Whereas you’re not gonna be able to convince that mega [inaudible 52:58] bank to move to that jurisdiction and give you the most favorable terms, because they have no interest in that. So that’s what stronger is all about. And then faster comes back to the idea that we’ve dematerialized the gold, and because we’ve dematerialized the gold there’s no mass. And if E=MC² and the M goes to zero, then we get the C² with very little E! Well at least get the C. We can actually get to the speed of light because we have no mass, and when we think about $100 Million of gold, back to my 3,000 lb metaphor, that’s $250,000 every time you go around the Earth — so what if I want to send it around the Earth every week? Every day? Every hour?

Robert Breedlove: Can’t even do it, yeah.

Michael Saylor [53:59]: The amount of energy that you consume is just prohibitive. And so faster means that I can send it at the speed of light, and if I can send it at the speed of light, then there’s all sorts of high-frequency transactions and microtransactions that make sense now that never made sense before. How about a world where one rich person makes loans to 10,000 middle class people every week? That’s inconceivable with gold. That’s not possible with stocks or bonds. Because sometimes it’s regulatory compliance issues, or it might be systems issues, right? But it is possible to imagine with Bitcoin — someone will just create the eBay of social finance. What about one rich person that wants to lend money to 10 institutions? What about 10 institutions that want to work with each other? Ultimately, the things that make something slow, it might be physical mass like the weight of gold that makes it slow, it might be impedance, and the impedance might be a systems impedance. Like it’s Friday afternoon and I cannot move money between 4pm on Friday and 9:30am on Monday. That’s a systems impedance — it’s not a law, it’s just a custom. And if it’s on Thanksgiving or Christmas well then that doesn’t count either. And then there’s compliance: there is a law. There might be a regulation in a city, a state, or a country, that keeps the energy from moving. There might be a system that keeps the energy from moving. Or there just might be laws of conservation of mass that keeps the energy from moving. And so by moving out of that domain into the cyber domain, you get speed, which is somewhere in the order of 1,000 to 1 Billion times faster! You put all those together: something that’s just continually getting — and by the way, it’s getting smarter every year, right? We’ve all seen on Google the computers beat humans on chess playing. The computers are all beating us all on everything. The algorithms just keep getting smarter. Wouldn’t you like an algorithm that figured out how to make you money while you’re sleeping? Because I would! Programmed trading, right? The manifestation is programmed trading right now! And the issue is: consumers don’t have the power of programmed trading algorithms to protect their financial interest when their financial, their monetary energy is denominated in traditional assets because they can’t plug their assets into that new system.

[END]

Commentary:

Robert Breedlove [57:13]: Alright guys! So that was Episode 6 of Michael Saylor here in the Saylor Series. And wow. What can I say? We’re just addressing Bitcoin from every side and putting it in the context of technological development on the whole — as an essential—as all technologies develop, essentially we’re really putting Bitcoin in that context. Again if you haven’t seen the earlier episodes please go check them out because a lot of this hearkens back to that and I mean I hope you’re enjoying it, I just think it’s getting so good. So as Saylor goes into, Bitcoin is a better tool because it’s harder, smarter, stronger, and faster than gold. And gold historically is the best monetary technology the world has ever had. And we go into this a number of ways. The one very obvious instance that’s most often discussed in Bitcoin is that Bitcoin is the hardest money that has ever been. Meaning that it has the highest stock to flow ratio, or said differently the lowest inflation rate — that one’s obvious. We’ve touched on that one a lot. But another way to look at it is that Bitcoin is also the hardest money that’s ever existed because it’s the most adaptive to entropy. It’s the most antifragile money we’ve ever had, if not the only antifragile money we’ve ever had. And Saylor gives a great example when he talks about a fragile versus an antifragile defense with the Great Wall of China. So the Great Wall of China was a static defense, it had a single point of failure, and despite all the effort that went into building and securing that perimeter, the Mongols were able compromise one of the gates, and that’s all it took! The rest of the wall didn’t matter so long as you could compromise a single point. And I think this is very interesting because it’s pointing to the fact that gatekeepers and gates are weaknesses. They are single points of failure in a standard, static defense like that. And I really liked the quote — I forgot who said it, Philip II of Macedonia perhaps — but he said that, No citadel is impenetrable if I can fit a donkey with a pot of gold up a road leading to it. Meaning that the defense itself doesn’t necessarily matter if there is a gate or a gatekeeper because you can bribe the gatekeeper! And this is another way that Bitcoin’s outcompeting the legacy system because the legacy system is built on gatekeepers! That’s what central banks are, that’s what governments are — they’re all just gatekeepers for these flows of economic vitality or monetary energy. And they’re all siphoning it in a tax or a transaction fee with every movement. But Bitcoin as we know doesn’t have any gatekeepers, and in fact Bitcoiners are actively engaging with gatekeepers in the legacy system every day to negotiate better deals with regulators, energy producers, users, businesses in the space, etc. So I think this is a really important point, that gatekeepers are a weakness, and Bitcoin suffers no gatekeepers! That is a breakthrough that it is the first fully disintermediated money. We can just transact peer-to-peer. So that may sound kind of like a nerdy abstraction but it’s really fundamentally important in terms of defending the monetary energy. The other point too going to the antifragility aspect is that the best defense is an adaptive defense, one that responds to the nature of the threat and the character of the aggressor in ways that adapt and respond to changes of circumstances. And I think this is very interesting with Bitcoin because the more the market cap grows, the more monetary energy is stored on its network, the more incentivized all network participants are to defend it, to defend the 21 Million hard cap for instance, or to defend fungibility or privacy at higher layers and to figure things out on behalf of Bitcoin. Everyone’s fate in Bitcoin is intertwined and everyone’s pointed in the same direction. And I think this is heavily discounted in the price in my opinion! Bitcoiners are by nature very adversarial thinkers, but what we don’t often consider in the network design is—we look at worst-case scenarios all the time — but we fail to account for how highly motivated Bitcoiners actually are to defend the network and to defend the ecosystem. And I would argue even in the market price of Bitcoin this is highly discounted. Bitcoin on balance is relatively highly discounted because it’s just so misunderstood. But I would say even those that understand Bitcoin fail to account for this properly. Again, all of these highly motivated network participants all engaging with other market participants in the broader market, making better deals, and feeding capital into Bitcoin — in that way everyone ends up on Bitcoin’s payroll in a way — once you become a HODLer you have these huge incentives to defend the network, to evangelize, to educate, to build businesses in this space. So it’s just a radical vortex of incentives that bootstraps and protects itself. And that’s why so many people call Bitcoin a living thing. And to Saylor’s point, to be truly hard and antifragile, the system needs to be alive. It needs to be adaptive, it needs to respond spontaneously to changes in the environment. And for an antifragile organism, by definition, when you kill any part of the antifragile organism — even if you kill 99% of it — and you don’t destroy all of it, then whatever pain inflicted on that animal, it’s going to generate a response to that and it’s going to come back stronger. So that’s what antifragility is, it’s the ability to become hardened through hostility. We see this in most organisms but Brandon Quittem has written about this a lot comparing Mycelium to Bitcoin in that it’s this decentralized network archetype. It’s learning at the edges by having conflicts with different adversarial characters and yet incorporating those learnings into the whole of the organism. And Bitcoin is very similar. So in the sphere of money Bitcoin is the first and only antifragile money we’ve ever had. And if you haven’t read Taleb’s book by that title, Antifragile, one of the best books I’ve ever read. I’ve read it twice. It’s really hard to stop something that’s antifragile. Antifragile things or organisms or organizations or tools, they dominate the world. They live in a universe pervaded by entropy. Uncertainty is always unfolding in real time. The things that can adapt best to that uncertainty and learn from it the most quickly become dominant. That’s just a principle of the universe. So that’s a lot to chew on and a lot to get your head around, but when you come to see Bitcoin in that light I think it makes a compelling case for it. And again it’s Bitcoin — this antifragile beast — going up against gold, something that doesn’t feel pain, inspiration, motivation. It’s an inorganic commodity. And also going up against fiat currency, which is probably the most fragile institution in history. The one certainty that we know about fiat currency is that it collapses time and time again. Then we got into another aspect of Bitcoin’s hardness, and that is — it has this diversity of custodianship and custody schemas that we’ve never before seen in any other asset. And again this is because Bitcoin is just pure information. The switching costs for custodianship are very low, and that threat of self-custody — to Saylor’s point — it always forces custodians to behave honestly. And to deliver custodial services that are very high quality at a very low price. So it’s very frictionless to move your capital from one custodian to another — it’s what keeps everyone honest and competitive. It imposes this free-market paradigm. The way I’ve described that before too is the five properties of money. Bitcoin is optimized for perfected portability because it’s pure information. So it’s just information, it can move at the speed of light. And because it’s just information that can move at the speed of light and it’s massless, you can code it into so many different hard to find custody schemes. There’s people that have put their private keys into a song or written it into a public article that only they know how to decode. So it’s just radically new and interesting in terms of how you can safeguard this asset. And then we got into a bit of this specter of quantum computer, it’s one of the most popular ways to discredit Bitcoin. Everyone says, Oh when quantum computing breaks through, Bitcoin’s over with! First of all it’s totally ignorant of the fact that if quantum computing did actually occur it would break all of the commercial Internet as we know it: everything that’s protected under cryptography would be rendered useless essentially. So there are massive incentives even outside of Bitcoin to develop quantum resistant encryption in response to a quantum computing breakthrough. But the other point Saylor makes is that Bitcoiners live at the vanguard of this space and they have, again, north of $300 Billion of market cap to protect, and they are interacting with these client server hardware implementations on a daily basis, especially on the mining network. So they’re gonna be the first to see or smell or detect this type of breakthrough coming through and they’ll be the first to adapt! So we left off talking about Bitcoin’s hardware and software update cycles and how they compare to other forms of money. With Bitcoin the hardware refresh cycle for mining hardware specifically tends to be around 1–3 years. It’s sometimes a little more extended the closer we’re getting to the 4-year halving cycle. But as more producers enter the space — producing ASICs — that cycle is subject to change. But the point is that the hardware protecting the Bitcoin network is always being refreshed. Whether it’s 1 or 4 years. And then the software cycles for Bitcoin vary as well depending on whether it’s node or mining software. That tends to take place within the scope of a year. Regardless, when you compare this to gold, gold is a dumb shiny rock. It undergoes zero hardware or software updates in its 5,000-year use as money. Bitcoin is just so much faster in that respect. Again it’s constantly adapting to new circumstances at a rate to which gold could never hope to do because gold does not have hardware or software — it does not adapt at all. And that hearkens back to the example Saylor gave: Which one are you gonna choose to bet on? Are you gonna choose the mountain? The static mountain? Or are you gonna bet on the humans that encounter that mountain? Humans that can adapt, develop new tools and ways and innovations of moving the mountain and destroying the mountain. We’re back to this static defense versus an active offense. If the defense is unable to adapt to the dynamic nature of the aggressor then it’s always going to lose! When humans encounter that mountain with this swarm intelligence of ingenuity, we’re figuring out how to drill holes into the rock, plant dynamite in there, blow it up, clear it out, build a road through it. So we’re pointing to where it’s better to place your chips. Whether it’s on the static defense of something like gold or the dynamic defense of something like Bitcoin. Then we got into how money, specifically Bitcoin versus gold and fiat — it’s much stronger, smarter, and faster. And these aspects, as we’ve touched on early in this series, they’re actually the source of all innovational and evolutional value. Again, the reason mankind dominates the world is because he’s able to coordinate his efforts with others and harness energy and tools in a way that makes him smarter, faster, stronger, than all other creatures in the world. That’s what we’re doing with innovation! We’re not physically becoming faster, stronger, smarter necessarily, although we do become smarter, clearly. But our collective efforts are becoming smarter, stronger, faster, is the point there. This reminds me of that quote Saylor brought up early in the series that as far as he can tell, Mankind is the only animal that plays with fire. So we figured out—we’re able to self-reflect on the nature of the natural universe and figured out how to harness its gifts and allocate them towards our ends. And that makes us very very unique. This gets into Mises. Mises is one of the fathers of Austrian Economics. He wrote a great book called Human Action. And in Human Action he describes the science of praxeology, which is actually the study of purpose-driven behavior. And it’s: man always takes action with means towards ends. So everything is a means or an ends to man! But things themselves are not means. This table is just a materialist item in the universe, but it becomes means when I allocate my purpose into resting my computer on this table. So we have this very special gift of projecting our intellect into the universe and then actually channeling energy through it. That makes us just radically different than all the other animals. So to get back to money, in terms of how Bitcoin is smarter: first of all it’s programmable. You can imagine—the example he gave was being able to write some automated software that actually created a marketplace for Bitcoin lending and borrowing. And this is a super interesting aspect because it actually has the possibility of facilitating a yield curve for Bitcoin. Yield curve simply means typically a market-based time series that shows you the rate of return you can get on capital by lending it out. Anywhere from 1–30 years in the case of US treasuries. That is the last element Bitcoin lacks to become a truly preferable global store of value. That’s the one thing that US treasuries and other government bonds currently have over Bitcoin is that they have a built-in yield. I’ve had some talks with people in Lightning Labs about this. I actually think that could be the route this goes. And if we can develop these time-locked Lightning smart contracts where people are actually putting Bitcoin into a time-locked channel to facilitate Lightning Network liquidity, and then the markets matching that demand for Bitcoin borrow with an interest rate yield — maybe they’re getting a piece of the transaction fees for the routing fees through Lightning Network. That time series set of smart contracts could become the Bitcoin yield curve that actually leads Bitcoin to becoming this long contemplated pristine collateral, which US treasuries serve the purpose of today. In fact this actually points to another way to think about hard money. If you’re holding gold on a gold standard or you’re holding Bitcoin on a Bitcoin standard, that money tends to appreciate roughly approximate to the aggregate productivity growth of the world, because again it’s holding its scarcity, so as goods and services become relatively more abundant, that money—holding demand constant — would fetch more goods and services. So if the global GDP is growing at 3% per year, we would expect that on a hard money standard, the hard money itself would grow at about 3% per year. So this is really interesting because that makes hard money on a hard money standard similar to a non-counterparty investment in an index fund invested in global equities. It’s like whatever business is doing whatever in the world to create more goods and services, this hard money that I’m holding with no counterparty risk — it’s a bearer asset so I’m holding it, I’m custodying it, I’m not subject to default risk with anyone else — it actually acts as a passive index investment in all of those global equities creating more goods and services! That’s just another way to think about it that I thought was really interesting. Another way that Bitcoin’s smarter is that it’s more defensible. With gold you could put it into a vault, you could secure it with armed guard, put it in a fortress — whatever. But Bitcoin’s unique in that it can be wrapped in technology layers of security. So you can wrap it in 2FA, Face ID, biometrics, geofencing — all of these unique software-enabled security schemes are only possible with something like Bitcoin. With gold it’s just not possible because gold will always suffer from the oracle problem. You’ll always need to ultimately trust the custodian of the gold at the end of that chain of security features. Whereas Bitcoin can actually be directly integrated with the software security features. So then looking at Bitcoin as stronger money: to clarify we don’t mean strong like Bitcoin can benchpress a lot of weight, what we mean is channeling energy with force and acceleration. So forcefully channeling energy. That’s what a gun is, right? A gun is one of the strongest offensive technologies because it can repel a bullet with more force and acceleration than a sling or a bow, so a gun is preferred. But in the realm of money it’s all about channeling monetary energy with force and acceleration into the right place and the right time to generate yield, as we were talking about earlier with the lending market. And this is yet another way Bitcoin is superior to inferior stores of value like gold or equities, because with equities your custodian is gonna hold it, they may be lending your stock to short-sellers and generating yield for themselves. But as an industry standard they do not share that yield with you at all! They also do other weird things like rehypothecation and naked short selling and all types of fraud that are just industry norm today. But with Bitcoin, since it has such a high degree of mobility and visibility, you actually could demand that your custodian lend it to short sellers or do different things — put it into different buckets of risk to create yield for yourself as you see fit. And that’s just something that you don’t have the option to do with gold or with equities. Because Bitcoin is so mobile, it’s this cross domain asset you can settle with finality anywhere near instantly. It’s highly resistant to custodial collusion and regulatory capture, where the reason you don’t get yield on your equities right now — whereas the bank does — is they’ve colluded and made that an industry practice! So Bitcoin, by being this near-instant means of final settlement, it’s collapsing the event of trade with the event of settlement, and it is between those events in traditional finance where all corruption and systemic risk accumulate. Because you can execute a trade but you don’t have to settle with say T+3 or T+5 depending on the asset. And between those times a lot of games are played on Wall Street and in the broader financial landscape! Bitcoin closes that window. Trade and settlement are now effectively the same thing — you can demand final settlement 24/7 from anywhere in the world to anywhere in the world. So it just again speaks to Bitcoin’s incorruptible character. Finally getting into how Bitcoin’s faster: as Saylor described it, we’ve essentially dematerialized gold, so we’ve taken the monetary properties of gold but we’ve transitioned them into a tool that’s fully dematerialized, purely informational. And when you look at that through the Einsteinian equation lens of E=MC², we’ve taken M to zero — it’s massless — so what we’re left with is this massless money that can be moved at the speed of light! And that’s just radically new and interesting. And as we talked about earlier it’s also related to the security aspects. Because it’s pure information you can do a lot of really unique things with it that just aren’t possible with any other asset. So this dematerialization of money, it enables a plethora of high frequency and microtransactions that were simply not possible in the past. And the other thing is that again all of these gatekeepers in traditional finance are the ones taking the vig on market participants, but in Bitcoin we have this economic network that’s bigger than even money — it’s a global economic network that has almost no gatekeeping essentially, if you’re just transacting peer-to-peer, and therefore has much lower transaction and taxation costs which means there are just less frictions to free trade overall. So this thing is just moving capital much more quickly and with much less friction and impedance. So all this means for market participants — for Bitcoin HODLers — is they have more optionality, they’re gonna benefit from more aggregate wealth creation, and the wealth that they do create through this enhanced free trade, they can actually store it in a medium and preserve that wealth in essentially a theft-proof form, or a highly resistant to confiscation form. So all of these things just make Bitcoin much faster and much more securable and when you compare that to something like fiat you just can’t move that off business hours, on holidays, and between countries unless you’re suffering high fees. There’s KYC/AML delays, there’s just all of these frictions to doing business. Whereas Bitcoin you can just send it to anyone, from anywhere in the world, to anywhere in the world at any time of day, and that is just a radical enhancement to the speed or velocity aspects of money! That in a nutshell — Bitcoin being smarter, stronger, faster, and harder than any other money in history — is why Bitcoin is freedom money! It is a form of value communication, a language of value if you will, that cannot be muted or manipulated. A guy I talked with today actually called it a super-language object, which I think is interesting! We’ve collapsed a lot of things into speech in the digital age, if you think say the 3D printing of firearms, we would say that’s a 2nd Amendment right, the right to bear arms in the US. But we’ve now collapsed that into the 1st Amendment because code is speech. And Bitcoin interestingly enough has collapsed money into speech, so something really big is going on here! And Bitcoin is at the center of it. And I hope this episode helps show you some of that. I’m excited for the next one. This is Episode 6, we’ve got 3 left and we’ll see you next time!

7/9 The Virtues of Strong Money

Robert Breedlove [03:28]: Alright guys! We are back with Saylor Series Episode 7! Today we will be diving even deeper into Bitcoin theory and as always if you guys haven’t seen Episodes 1–6 that led us to this point I highly suggest you go and check those out. They build a lot of foundation that we draw upon continually as we progress further into this series. So today we’re gonna discuss Bitcoin as a monetary missile, which if you remember from Episode 1, missiles are one of the quintessential Stone Age technologies so we draw analogies to that. We also talk about Bitcoin as the creature that never sleeps. Again to the great Kraken itself and why this makes it a superior form of money. We’ll also look at the effects of humans intervening into complex systems and what that does to complex systems and the consequences that it generates. And finally we’ll look at some of the reasons why Bitcoin may actually be the sole sound store of value for the 21st Century, we’ll compare it to alternatives and draw the reasons why it is superior across a number of dimensions. Then we’ll get into the Talebian concept of via negativa and how it relates to Bitcoin and technology more generally. Finally we get into a really interesting aspect of Bitcoin not often discussed. And that is the — we look into the fanaticism of Bitcoin maximalists as an asset, as a value creator for this asset class itself. And that leads us naturally into discussion of Bitcoin as a religion. We’re gonna go deep again today. I’m really excited for this one. So let’s dive in!

Robert Breedlove [05:20]: Bitcoin is a monetary technology that we’re able to deliver with much more force. Force in the physics definition being Mass x Acceleration, or Mass also being equal to Energy. So we’re able to channel this energy in a very targeted and specified format at a very high speed and recalibrate almost instantaneously to always optimize our yield.

Michael Saylor [05:49]: Doesn’t it sound like a cruise missile?

Robert Breedlove: Yeah!

Michael Saylor: Or a projectile weapon? And we’re back to the issue of, What happened to the guys without the guns when the guys with the guns showed up? What happened to the guys without the airplanes when the guys with the airplanes showed up?

Robert Breedlove [06:08]: So you’re holding the proverbial high ground behind the wall of encrypted energy, but you can also send these financial — I guess you can call them financial weapons — out in a very targeted fashion based on what the market’s signalling. Right? What’s the demand for loans or what have you.

Michael Saylor: Yeah in theory isn’t a crypto bank the smartest, fastest, strongest financial entity in the world? Because it’s going to be working while everybody’s sleeping! Just like YouTube and Facebook and Apple networks — they’re working while you’re sleeping, 24/7/365. And to a certain extent you see that metaphorically if you just look at a crypto exchange and you look at the trading of Bitcoin and it’s working while you’re sleeping. And if you try to watch it you get exhausted. All traditional assets are constructed to trade from 9:30 in the morning till 4 in the evening because human beings need to watch over them and that’s about the maximum endurance of a human being. And Bitcoin — when you go beyond that, you’re going from 35 hours a week to 168 hours a week — it’s 5x as much! People think, Oh it’s just a little bit more! It’s not a little bit more — it’s 5x the bandwidth, just the trading. And then when you consider that it’s trading every hour in every currency pair —

Robert Breedlove: Everywhere, yeah.

Michael Saylor [07:59]: Everywhere, on a host of exchanges. This is extremely high bandwidth price discovery and transparency, right? The highest bandwidth price discovery, the highest bandwidth market of any security, of any asset ever! I mean, Bitcoin really is the perfected asset, or at least the apex asset in the financial jungle, because it’s the creature that never sleeps, that’s an octopus that’s working everywhere all the time. The metaphor — Kraken — it’s a pretty good metaphor because it’s always going and it’s never stopping. And remember back to our previous discussion, I was saying in Jurassic Park the guy picks a fight with the little dinosaur and then he realizes that there’s a hundred of those little dinosaurs and they don’t sleep. And when you pick a fight with a swarm and the swarm doesn’t sleep and you sleep, you realize you’re gonna lose! You’re doomed! There’s that point you’re gonna realize you’re doomed because you can’t keep up with a software creature with a million heads that is continuously working everywhere all the time. And here’s the thing you know: the thing that’s working that’s dominating the market in Bitcoin all the time — it’s the strongest version of the creature in that domain, not the weakest! The weak parts of the herd get culled out, they’re being deprived of their capital, they’re being squeezed out. You see it with the Mt. Gox disaster — anything that doesn’t quite work. And so this asset class is a living asset class. And it’s strength comes from the fact that it’s being developed — it’s not constrained by the lowest common denominator, it’s strengthened by the highest common denominator! If there’s somebody in the world, if there’s an exchange in the world that can actually do this better, faster, stronger and it comes onto the Bitcoin network, they will set the price. Even if you’re just HODLing, if you’re just sitting there holding an asset — let’s say I’m HODLing $100 Million of Bitcoin and I’m wishing it would go up in value. And then let’s say there’s a million kazillion laws in the United States that prevent people from trading index futures on Bitcoin. But somebody in Malta is able to do it, or somebody in Singapore is able to launch that exchange. So Singapore launches an exchange that matches billions of dollars of forward index buyers or option buyers to billions of dollars of call buyers, and that attracts tens of billions of dollars of capital in the market because it solves the yield curve problem. Let’s say hypothetically somebody on a centralized or decentralized or Lightning Network exchange solves the yield curve problem. If I could give you 8% risk-free yield on 10-year money, presumably you can take $100 Billion and you can take that money and you can short fiat. Short the dollar, go long the Bitcoin, squeeze the 8% yield on $100 Billion, make yourself $8 Billion a year. If you can figure out how to do that in Singapore, you set up in Singapore, you do it in Singapore — what happens to the price of Bitcoin? Goes up! What happens to the HODLer sitting in Schenectady, New York — that never did anything, that didn’t touch it, that doesn’t know about it, that doesn’t understand it — with their little 1 Bitcoin?

Robert Breedlove: It’s been strengthened!

Michael Saylor [11:59]: The network is getting stronger based on the highest common denominator! Anybody in the world with a better idea that plugs into the network is lifting everybody! And that’s totally different than a conventional centralized traditional structure where one regulator might create one set of rules that constrain and hobble. [Inaudible 12:25], buddy!

Robert Breedlove: Right! The asymmetry has been inverted from the Great Wall of China! If there’s one failure at any point the whole thing is compromised, but now you’ve inverted that asymmetry such that if there’s one benefit it benefits everyone.

Michael Saylor [12:40]: And that’s what it’s like when you’ve got this swarm. If the herd is attacked by a predator and one of the creatures figures out how to kill the predator then the ones that couldn’t figure it out die, the ones that do figure it out live, they procreate, pretty soon they can all kill the predator. They all have that immunity. That’s herd immunity, whatever that might be. And that’s the beauty of Bitcoin. I had this Tweet—I put it out there, I said, You know, lions get tired of chasing the antelope. Lions complain to the ranger. The ranger hobbles the antelope. Lions get fat, dumb, and happy. Antelope all die. Lions all die. Ranger blames it on the weather! And that is a metaphor for a lot of stuff. Generally it’s a metaphor for how you destroy a crypto network by trying to make transaction fees lower. It’s like, Someone complained about transaction fees so we tried to change everything to drive the transaction fees down because somehow it’s an abomination in the eyes of God that people get charged for transactions! The antelope ran too fast! Not fair! Slow them down! The transaction fees were too high! Not fair! Make them lower! We’ll hobble them for you. Okay? It’s also a metaphor for interest rates. Interest rates are too high! I can’t afford a loan! Make them go down! It’s also a metaphor for competition. My competitor goes too fast! They’re making it too difficult! Slow them down! Make the foreigners stop that! Make somebody do something! Right? It’s somebody trying to regulate or manage something because they think it’s a problem. But at the end of the day, you’re messing with Mother Nature. You’re in a war with Nature—it’s not gonna end well. At the end of the day lazy lions should die, and slow antelope get eaten, and fast, strong, healthy antelope procreate, and fast, strong, healthy lions feed, and the lions get better, and the antelope get better, and they live in an ecosystem. And if you remove the predator, all sorts of crazy, bad things happen.

Robert Breedlove: Right. You throw off the balance! This goes all the way back to your original point that there’s no fair fight in the world. And that when human intervention tries to make that fight more fair, the intervention into a complex system throws off all these unintended consequences. That is one of the things that’s gotten us into the situation that we’re in today with low and negative interest rates. We’ve constantly tried to introduce an economic analgesic to paper over the business cycle or paper over losses. And we’ve distorted the natural price discovery function of the market, and so now we’re in these totally asinine times with stock market at an all-time high and 40 Million people unemployed. And this is one of Taleb’s main theses is: Human beings have to strive to not intervene with Mother Nature. Mother Nature has been executing a certain strategy for a long time — we have to assume that it’s being done for a reason, no matter what Science tells us!

Michael Saylor [16:30]: You know, interest rate is the time-value of money, but if interest rate’s the time-value of money, it’s the time-value of energy. And if it’s the time-value of energy, interest rate is the value of time. And maybe if we come back to thermodynamics — the rule of thermodynamics is: time cannot go backwards. Entropy is at [work]— time must move forward. Trying to drive interest rates to zero or negative is a war on time. You’re trying to make time go backwards! You’re trying to make water flow uphill. You’re trying to reverse gravity. You’re trying to reverse the laws of thermodynamics. It’s me saying to you, Robert, will you give me everything that you own — give it to me — you go without, I’m going to keep it, and when you die I’m going to give a third of it back to your heirs! And so the only way you would do that is if you thought the future of your life had negative value! If you knew you were gonna be serial axe-murderer killer and you knew it in advance and you thought, You know, I should be deprived of the future of my life because I’m really a liability to humanity. Maybe! But if you actually thought that the future had any value, you couldn’t make that trade. No rational person would say, I’m gonna give you everything I have in return for half of it back when I’m dead. It’s so moronic it’s just insane! And so when I’m trying to drive the interest rate to zero or negative, I’m actually trying to reverse time and make it run backwards. I’m first trying to stop it, and then trying to make it run backwards. I’m trying to reverse entropy. I’m trying to put the genie back in the bottle. Thermodynamics, the laws of physics, the laws of humanity, they all say: It can’t be done, and only something catastrophic will ensue!

Robert Breedlove [18:52]: Let me ask you. So — this is interesting — we have a legacy financial system that’s trying to grind against or move countervailing to the laws of thermodynamics or the thermodynamic arrow of time, and here we have this new system introduced in the form of Bitcoin that nearly perfectly mirrors the laws of thermodynamics. It aligns itself with the thermodynamic arrow of time. It seems almost serendipitous that Bitcoin is released at this time when the system is starting to come apart in this decade. Do you think that this is almost like an autoimmune response by the global human hive mind?

Michael Saylor [19:41]: Yeah! I do! Because look at what Satoshi put in the Genesis Block. It’s pretty clear that Satoshi was troubled, was inspired, antagonized, irritated enough to do this! Humans solve problems, and so if I introduce a pathogen into your body, your body reacts. Living creatures react to protect themself. So if someone is sensitive to a given issue — and Satoshi was sensitive to financial integrity, and obviously had some decent sensitivity and awareness of Austrian economics and the perils of inflation and the moral hazard of bank bailouts — so that was a sensitive individual that tapped into a bunch of other sensitive nodes — individuals — who shared that. And it’s almost like: I pricked you with a needle and I introduced this little pathogen and then you swelled up with some inflammation. And the inflammation grew and festered and some antibodies build and the organism builds and the organism got bigger, and it got bigger, and it got bigger. And then it got fed. If we had zero inflation — if the US Dollar monetary supply expanded by 0% for the past decade — how much passion would there be in the Bitcoin community compared to the amount of passion there is today?

Robert Breedlove: It’d be much less!

Michael Saylor [21:42]: So we’re back to this issue: It’s a great technology, and it’s inevitable. We’re back to this issue of: Zoom was inevitable. YouTube was inevitable. Virtual business models were inevitable. Bitcoin was inevitable. But it sure did get accelerated by certain things that happened! Bitcoin had 10 years of I would say a 7% forcing function with the dollar, and it got goosed a bit harder with Argentina and other developing world countries and, you know, the anxieties of Syria and the anxieties of Iraq and the anxiety in Africa and the anxiety in South America and the like, so those stressors — that goosed it. And the currency wars pushed it a bit harder. And then I think the pandemic crisis lit it on fire! I could say Robert, like, there’s no way I’m talking to you if there’s no pandemic! But I don’t think for a second that Bitcoin wouldn’t be successful without me, and I don’t think anybody’s gonna stop it, but I do think there is an avalanche of energy — individuals and corporations — that got inspired and driven into this ecosystem because of the pandemic. Again, back to war: Wars cause paradigm shifts. And this year there’s a currency war, and that’s a war on money as a store of value, right? And that war on money as a store of value creates massive dislocations in the bond market and the equity market, and there are consequences to everything. Ultimately, Bitcoin is an antifragile but scalable platform serving as a store of value. And so the best possible circumstance would be if the entire world plunged into a war where value was dissipating in every currency everywhere at a rapid rate. And I think it describes what we have today!

Robert Breedlove: I think that’s exactly correct, and it’s almost as if the Mongols breached the Great Wall of China. The Mongols being central banks that are basically robbing value from currency, and it’s giving people more of an impetus to evaluate alternatives and — for those that see it — to retreat behind the wall of encrypted energy. You have to defend your life force, your energy, your money, from confiscation. And the most prevalent form of confiscation in the world today is inflation.

Michael Saylor [24:57]: I guess that takes us to our next subject: it’s that Bitcoin is a store of value. Bitcoin is an incredible store of value. I think that’s its primary use case, or its killer value proposition now and probably for the next decade — maybe forever! The entire world is looking for a store of value right now, and you have to look across $250 Trillion of assets. If we think that asset inflation is running north of 10% — and I think it is, I think it’s pretty clear it is — and if you have capital, you have to choose between bonds, $80 Trillion in sovereign debt or corporate debt or municipal debt, or mortgage-backed securities, or you gotta choose equities, tech equity, conventional equity, or you gotta go to precious metals, or you go to real property, real estate property. And when you look at all of those things, the problem is half of all real estate is impaired because of the political response to COVID, and it’s not likely that’s gonna change in the next 10 years. We’ve probably got 10 years of uncertainty about real estate assets, especially commercial real estate assets. The other challenge with real estate is the taxes on it. It’s illiquid, immobile, and highly taxed. Generally real estate is taxed annually everywhere, it’s just a question of whether it’s 20 basis points or 200 basis points. So that makes real estate a challenging store of value. And that takes you to bonds: Bonds have worked as a store of value when the interest rates keep going lower. You can see that everybody that’s been on the bond train and benefiting from it, they’re screaming as loud as they can: They want negative interest rates! Because they’re like — The secret to success is lower the interest rates 50 basis points a year or 100 basis points a year and it’s a no-lose proposition — for them. But at this point it’s getting kind of ridiculous silly because when interest rates go negative everybody takes their money out of the bank, it creates bank runs, all the bank systems break. It’s kind of a morally bankrupt — I mean a lot of people, they don’t really understand that they’re being abused at 2% instead of 5%. But pretty much everybody can figure out that when you’re being billed 1% of the money you have at a bank, you’re being abused!

Robert Breedlove: Yeah! And again if you look at money as an insurance policy on uncertainty and all of a sudden that policy has negative value — it’s just asinine! It doesn’t make any economic sense!

Michael Saylor [28:02]: Yeah so that doesn’t work, and so where does that take us? It takes us to equity. We’ve got an equity bubble that’s a very crowded trade, but the real issue with equity as a store of value is that the revenue gets taxed as sales tax, the cash flows get taxed as income tax, the expenses — the cost structure gets taxed as employee and payroll tax. Then the trade gets taxed — there’s a tariff. Then you have the existential threat or regulatory risk of onerous regulations. Pick up the paper and see maybe Australia’s gonna bill Google every time they link to a newspaper article, and then if Google doesn’t link the newspaper articles they’re gonna get fined for not linking the newspaper articles! And as these things become more powerful, they become regulated utilities and politicians start to think that they can and should be regulated — and maybe with good cause! If there’s only one provider of information anywhere in the country then it definitely becomes a political issue. So that’s the challenge with equities: they might work for 2, 3, 4 years, but they’re valued as a multiple of cash flows. So if all of the liquidity of the civilization gets squeezed out of debt — when interest gets to zero — the government and the Fed owns all the debt. Okay, they bought me out — now I gotta put it in something else so I jump on equities so now equities double. But now the P/Es double or triple, and the revenue multiples triple. What’s the value of an equity? The value of equity should in theory be tangible assets on the balance sheet plus the sum of the discounted cash flows. And so people are using equities as store of value today. In fact you could make the argument that equities are the most popular store of value for the majority with their Robinhood trading — they’re all buying Apple, Amazon, Facebook, NASDAQ, SPDRs — everybody! Even though nobody thinks revenues are going up this year, nobody thinks earnings are going up this year, but equity values have doubled this year. Well that means that they’re getting riskier! So if you contrast Bitcoin to equity, the problem is: if the price of an equity goes up by a factor of 10, you’ve got more risk because it’s delaminating from its underlying cash flows and its fundamentals. Because it is a centralized, regulated entity, and the only way that the cash flows are going to grow into that value is they keep raising the price. And if they’re a monopoly and the raise the price, the regulators will react. If they don’t raise the price, they can’t grow into the multiple! And so you kind of have a chicken and the egg thing, right? And if there’s any competition and their cash flows deteriorate, eventually you’re trading at 200:1 or 200 P/E, and then any degree of disappointment causes massive volatility. And how are they different than Bitcoin? Well, Bitcoin’s value proposition is the liquidity, it is the store of value — that is it! If you’re going to function as money, you want to be a single-celled organism — like the algae of the ecosystem. The base layer of the ecosystem that’s plankton or bacteria or single cells. You don’t want to be a vertebrate! And these companies are vertebrates with a brain and a backbone, and that means — for example, WeChat or TikTok has a headquarters — and if it’s in the wrong country, it gets its head chopped off. And Apple and Facebook, they’re subject to a certain court, a certain country’s jurisdiction. So that means they’re foreigners somewhere else! They’re vertebrate. If you’re a vertebrate, I can kill you with a needle. A human being I can figure out how to kill: there’s a heart, I take a needle, I poke there — you’re gone. You’re very fragile. Hard to do that with a swarm of hornets. Hard to do that with all the plankton in the ocean. It’s very difficult to do it with an amorphous decentralized invertebrate of some sort. So if you want a store of value, you don’t want a company that’s valued based upon the ability to engineer hyper-complicated products that have to keep getting upgraded. You want something which is simple, that can just keep things simple. This is again where some of the crypto-enthusiasts, they keep wanting to tinker with a better blockchain, a better crypto. You know, they never saw an upgrade they didn’t like so they just wanna keep revving it every year. Like it’s the iPhone version 37. There’s a fundamental difference, which is: if there’s a bug in the iPhone version 37, everybody in the world’s heart doesn’t stop!

Robert Breedlove: Right! I think this analogy you’re using with the simplicity of plankton being the base layer for the ecosystem is apt. I want to say plankton makes up the majority of the biomass on the planet by a pretty substantial margin because it’s so simple and it’s so efficient at converting solar energy into biological energy. And then it is the base layer for this multiplicity of layered ecosystem that we have in the world. And another thing I think is interesting is that you make a great point that equities are becoming more risky as they increase in price, because they’re delaminating from their valuation fundamentals as you said. And Bitcoin’s the opposite. Actually the more valuable Bitcoin is, the more secure it’s network, the greater the liquidity, the more resistant it is to attack. So it’s a very interesting counter-trade to equities as a store of value.

Michael Saylor [34:24]: And of course, if you have an individual entity with an individual headquarters and a CEO, as it gets bigger it becomes a bigger target. But maybe everybody in your home country loves you! But what about everybody in every other country? So you don’t want a head, and you don’t want to be a target, and you don’t want to be valued based on cash flows if you’re going to be money. They’re the right creature to be building a device or maybe creating an exchange or creating an application, because — there — I want the software to run a billion times faster, and so it’s okay to have one company write software! The question is: I want it to run a billion times faster, but do I need it to last for a thousand years? And the answer is: I could throw my phone away and Western Civilization will not end if I lose my phone or if you screw up my phone, right? It will not end! If I put all the energy of civilization into a crypto network, I can’t afford for someone to, like, ship a buggy release! And again, what people forget is: if I put $1 Billion into Bitcoin on January 1st, 2021 and I don’t touch it for 100 years, the thing is working! Truly insanely great technology is — okay we’re back to Nicholas Taleb haunting our thoughts — via negativa, right? Add by taking away. Insanely great technology is when it does a thing without you doing a thing! You know, a junior technologist, they create gadgets. I have a mobile application that has 150 features and 150 buttons and then you click and there’s a billion different things it can do depending upon the combination of the buttons and the features you click on—okay that’s one thing. How about another mobile app? You download a mobile app and everywhere you walk on Earth it kills all your enemies and gives you infinite food and water and protection and plays whatever music you wanted to hear around you without you touching it — hands-free. If I walk around and someone walks behind me and they do everything I want before I ask them to do it — without me opening my mouth — isn’t that a heck of a lot better than a gadgety thing with features?

Robert Breedlove: Yeah! It’s higher utility!

Michael Saylor [37:30]: Well, it’s Saint-Exupéry — the design’s not done, it’s not a perfect design until there’s nothing left to remove. And so if I told you: Take all your money, put it into Bitcoin, and then you’ll be rich and happy and prosperous for all of eternity without doing a single transaction — that’s a lot better idea!

Robert Breedlove: Yeah, that’s a great point.

Michael Saylor: I don’t need more features and more gadgety things. I just need it to always work. And all that work is vapor around me.

Robert Breedlove [38:13]: You’re right, absolutely! Just to give the listeners a little bit of context for via negativa — for those who haven’t read Taleb: His canonical example in his book The Black Swan where you can see as many white swans as you want, but you can never prove by virtue of that evidence that all swans are white, but with a single sighting of a black swan you have disproven that all swans are white. So the moral of the story is that disconfirmation is more rigorous than confirmation. And I think that’s getting to your point here is that it’s getting stronger by taking away. Your factual base on which you’re building your premise and strategy in the world is strengthened by disconfirmation moreso than it is by confirmation.

Michael Saylor [39:08]: And I’ll give you another example that we see all the time with Google: You go into Google, you ask the wrong question and misspell it and it gives you the right answer! That’s a truly great piece of software: You ask the wrong question and it gives you the right answer because it knows which question you should’ve asked and it knows how you should’ve spelled it and said, We’re gonna answer this question for you instead because the odds that you really wanted to know this question answered is 99,000,000:1! The odds that you really were asking a unique question that seems foolish and misspelling a popular name while you’re asking it—that’s 1 in a billion! So if you really wanted to ask the wrong question the wrong way you try it twice, but 99.999% of the time they give you the right answer to the wrong question and they do it because they built this very fault-tolerant, common-sense, rational interface. So back to store of value, right? Bitcoin is an ideal store of value because it’s got the ability to convey your energy not across 10,000 miles but across 10,000 days. 30 years into the future. 100 years into the future. Most people when they’re investing in assets, they’re taking this very short term view of like the next month, the next year, the next two years, and I find that if you’re looking at a 3-year time frame, everything gets very very noisy and complicated and there’s all these debates. But if you really want to end the debates, go out to 100 years and just take $100 Million and go through the exercise of giving it to someone — your heir’s heir’s heir in 100 years. And then all of a sudden, all this noise drops away. Can I put it into real estate? No, it’ll be taxed out of existence in 100 years. Can I put it in gold? No, 98% of it will be gone if 100% of it isn’t gone in 100 years because we mine it to death. Can I put it into fiat? No it’s gonna be inflated to death. Can I invest it in a company? No, name one company that’s around today that was around 100 years ago that hasn’t been diluted, recapitalized, etc. Can I put it in a stock index? Well, you’re trusting a human being to rebalance the index over and over again. What stock index do you trust for the next 100 years? And by the way it’s got counterparty risk at the nation state level. The nation might not be there, and 90% didn’t make it! So what are you left with? And the truth is, when you just do that thought experiment it’s pretty obvious: You would put it in a crypto network, in a decentralized proof of work network if the adherents — the maximalists — were fanatic zealots about protecting the integrity of the network against meddlers who would screw it up. If the network is supported by those with a religious conviction to the network such that you could imagine 100 years from now there will still be people protecting the network — the phrase is, Keepers of the flame. Every great religion, every great institution has keepers of the flame, and there must be passion. Do you believe in your religion? Do you believe strong enough that you’ll flee persecution to continue to practice it? The United States was built on the foundation of separation of church and state, and it’s a pretty important and interesting metaphor: People came here because they could practice their religion! That’s why they came here! And they came here because their religion was above their government. They would not sacrifice whatever it is they believed in. If you look at every institution that lasts more than 100 years — name them: Harvard University, Cambridge, Oxford, the Catholic Church, Islamic sects, the Jewish faith — there’s not that many! There’s churches or religious sects and then there’s some educational institutions — and I see the educational institutions being shaken at their core this year! I mean literally you could’ve said for 500 years — Ivy Leagues, the elite universities — they’re stalwart institutions. They have lost a huge amount of credibility this year! When you send all of your students home and you close the campus and people are studying virtually, people’s affiliation to the bricks and mortar of the institution has been dramatically weakened unless they morph into a virtual institution. The virtual institutions by the way have dramatically strengthened, right? Your affiliation with YouTube and Facebook and Apple TV and Bitcoin and Square Cash has dramatically strengthened. If it’s virtual. And your affiliation with the bricks and mortar physical institution has been weakened. And those that will survive have dematerialized and virtualized and they’ve learned how to project their ethos in cyberspace. So yeah, back to the store of value: You need people — human beings, flesh and blood people — that are going to keep the flame. And the flame of Bitcoin is the node and the mining rig. We’re getting into Bitcoin as religion or as faith now, but imagine 1,000 years ago, I want to keep a religion alive — I have an altar in my home. Every wealthy person had a chapel in their home. If you look at religions, go to the Far East, there are altars in Buddhist, Shinto, other faiths. So the idea of an altar or a shrine or a cathedral or a church — these are structures where people go to worship, and the worshiping is the feeding of the flame. And oftentimes during the worshiping they’re tithing and they’re channeling 10% of their money as energy into these religions in order to keep them relevant! If you look at fantasy fiction, in fantasy where they have gods, the strength of the god is a function of the devoutness of the worshipers, of the followers. Such and such was worshiped as the god of the forest, and they are worshiped as the god of the forest and all of their adherents — all their acolytes — are feeding energy to the god of the forest. And when they’re no longer worshiped, their energy goes away! If you lose your faithful, if they won’t feed you with the fire of truth, with the energy that you need, your efficacy falls and you die. And so how do you feed a fire, right? If it’s a physical fire you have to throw wood on the fire. How do you feed a religion? You have to tithe — the Catholic Church, or any church — you have to give it money, and maybe you have to give it your life service. Onward Christian soldiers! I will fight for the cause. I will donate to the cause. That’s how you feed a religious institution. How do you feed a crypto network? You gotta spin up facilities of encrypted energy that adhere to the protocol. Every time a miner comes onboard it’s feeding the fire. Every time a node comes onboard it’s gonna certify and validate. It’s protecting. It’s creating one more chain in the fault-tolerance structure. And that’s why a smaller crypto — a crypto that’s a technical experiment, that’s an application — isn’t the good store of value. Because if the people are willing to fork it, if they’re willing to fork it and abandon it in order to [move to 48:44] a new technology, then the flame dies. And so it’s pretty clear that Bitcoin maximalists, they have a lot of the faith and the conviction of true believers in any religious faith for the past 2,000 years. And why wouldn’t they? Because they share the same values. Their values are: Truth, Nature, Natural Laws, Laws of Physics, Laws of Thermodynamics, Math, Austrian Economics, No such thing as a free lunch, Self-Reliance, Honesty, Fairness, Technology Advances. They share those values. They’re taking their monetary energy and tokenizing it on a Bitcoin network with Bitcoin. Bitcoin is that single shared store of value. If money is energy and energy begets life and a crypto decentralized network gives you sovereignty, that’s a path to immortality, and that means that everybody in the Bitcoin community that believes in this for the long term is engaged in the pursuit of immortal life. And pursuit of immortal life sounds like a religious mantra, I think! And I grew up in the Southern Baptist faith so I’m very familiar with the ideology of Christianity and pursuit of immortal life is pretty paramount there.

Robert Breedlove: I did as well! That’s interesting.

Michael Saylor [50:41]: And if Bitcoin is a store of value for 100 years, then it is a technique through which you can project your values through time. So if you’re not actually providing for a better life for yourself, you’re providing for a better life for your family or your loved ones of your friends. Or perhaps your values are you want to support a dog park and you want to endow the dog park for 100 years. Or what if you want to endow an environment cause or Save the Seals or Save the Whales. It doesn’t really matter what the cause is — cure cancer, do this, go to the stars — when I die I want all of my wealth to be used to make education free for everyone forever! That actually is one of my values and I have a foundation, the Saylor Foundation, which gives away free education to hundreds of thousands of people. That’s a value! Other people want to go to outer space. If I can channel my energy and put it into a network and that network can be used to fund and power an endowment that will do that thing, then that Bitcoin network or that crypto network is going to be my mechanism for achieving all of my hopes and aspirations from now to eternity.

Robert Breedlove [52:18]: That’s an amazing point! And I would even conceive of that as a mechanism almost of the afterlife. It’s a way to carry your will beyond your own life. And the American mythologist Joseph Campbell, he described religion as a story that points toward the transcendental mystery that we all experience but cannot articulate. And so all religious traditions, mythological traditions, are stories pointing toward a higher truth. And I find it interesting that Bitcoin has higher truth embedded in code! This 21 Million number is quite literally transcendental: We can’t touch it, we can’t change it, we can’t do anything about it. Every 10 minutes it’s promulgating the most indisputable truth that we’ve ever had. It’s true global consensus. So it’s not just a metaphor I think to call Bitcoin religious, it quite actually is religious!

Michael Saylor [53:32]: If you worshiped Science, if you worshiped the Laws of Physics and the Laws of Thermodynamics and Mathematical clarity, then Bitcoin’s your religion! And that’s what takes us out of the range of simple asset debates. If your time horizon is 10 years we can debate Bitcoin this versus Apple stock that versus Amazon versus bonds versus whatever. And when your time horizon is 3 years, by the way, it all is just in the domain of macro traders and cute arbitragers and everyone wants to tell you about the Fibonacci this, triangle thing, and that’s over-bought and this is over-sold and my head kind of explodes trying to figure that out, but the truth is I just don’t care! Being right in the next 2 years strikes me as being a bad idea because in order to be right as a trader in the near-term, I have to turn off the part of my brain that thinks about what’s true and honest and morally hazardous or rational. You literally have to be like, I know it’s stupid to go this way but since everybody else is gonna go this way I’m gonna do something stupid now because I think I’m less stupid but more stupid than they are stupid — it’s just not a way to live.

Robert Breedlove: The market can stay irrational longer than you can stay solvent, right?

Michael Saylor [55:10]: Yeah and the problem is if I lose trying to act stupid then I really was stupid! And if I win acting kind of irrational, crazy, then I don’t respect myself. And meanwhile a much simpler idea is just figure out what’s gonna go up by a factor of 100 or 1,000 and just go stand there and wait for entropy to take its course, and wait for gravity to take its effect, and let the water flow downhill, and let the fire burn, and don’t dash around while the fire’s burning everything — stand up and watch it! So the solution there is: You move from 3 years to 10 years, and then you move from 10 years to 100 years. And at the 100-year time frame it’s pretty clear what’s an asset and what’s a store of value! And it’s just very obvious: (A) Bitcoin is a store of value if its believers have religious conviction in it. It becomes very simple. Now, if you step out to a 1,000-year time frame and you say, What’s this thing gotta be in order to last 1,000 years? It better be the worship of Math and the Laws of Thermodynamics and the Laws of Physics and Einstein and Newton! That might make it! And if we just focus upon that and don’t let all this other stuff get mired — I mean, that’s reasonable! People have been studying and honoring Math and Algebra for 2,000 years, they’ve been honoring Calculus for 400 years. You could say this is truly the adoption of economics as a science. It’s that critical inflection point where economics went from being a political preference to being a science, and if you adopt it as a science then you actually get massive advantages technically. And if you reject it, I guess it’s kind of like the guys in the Dark Ages and they could accept Calculus or they could reject Calculus.

Robert Breedlove: Right.

Michael Saylor [57:39]: No bridges. If you reject Calculus — make a bridge, see what happens, have at it! There’s a lot of stuff in life — if you look back at the guy that did more than anything — probably Isaac Newton is responsible for 90% of just about everything we have around us, and if you rejected Principia Mathematica because you just thought it was inconvenient, you probably rejected 90% of everything that we have today that we hold near and dear.

Robert Breedlove: And natural selection takes care of the rest! If you reject these truths that are uncovered, it’s the end of your legacy in the long run.

[END]

Commentary:

Robert Breedlove [58:24]: Alright guys! That was Episode 7 with Michael Saylor here on the Saylor Series. And wow what an episode! We have gone really deep into the topic of Bitcoin and I think we had a really strong finish today. So I’m just gonna run through a few of the things we talked about. We started out with this concept of Bitcoin as a monetary missile, and this took me back to Episode 1 when we were talking about fire, missiles, and hydraulics being these primary Stone Age technologies that allowed mankind to come into dominance in the world. And I thought the analogy was very interesting that, using Bitcoin we have this ultimate high ground behind a wall of encrypted energy, but we can also accelerate our monetary energy and deploy it anywhere in the world across any domain nearly instantly with virtually no frictions at all. And so not only does it give us this advantage of asymmetric terrain, but we also get maximal force with how we deploy that monetary energy in the generation of capital. So I thought that was a super-apt analogy. And then we talked about how that effectively makes Bitcoin the highest bandwidth price discovery, transparency, and security asset in the world. So we have this pure money that propagates pure price signals so it would allow for pure price discovery — all of that is premised on the open source ethos, which is essentially just absolute transparency — and that gives it the ultimate security. So there’s a bit of a paradox there, it’s that: By being totally open to inspection, Bitcoin actually resists manipulation or emulation even, in that everything about it is out in the open. So it’s more a quality of its network effects, its liquidity, its first-mover advantage, even actually the disappearance of Satoshi which we’ll get into a little bit later — all of these things sort of wrap this open technology in an apparently disruption-proof casing. So I thought that was a really powerful discussion point. And Saylor calls Bitcoin, The creature that never sleeps. We have this swarm intelligence, if you will, that never stops growing, changing, adapting, trading — it is just a fully autonomous and perpetual monetary network competing against these other monetary networks that are rigidly controlled in certain time windows. And to his point, an individual organism has to sleep, but a swarm creature does not! So the swarm creature necessarily out-competes the individual organism because it doesn’t need to sleep. It just keeps adapting, growing, becoming more fit. And as we know from Darwin, it’s the most fit competitor that wins out in an ecosystem. And I thought this was a great point too and I never thought of it this way, that: In a swarm, the weakest elements are actually weeded out. So it’s constantly sacrificing its weaker elements to natural selection and thereby strengthening the ensemble. Whereas the individual organism is subject to any singular attack vector. If its defense is penetrated, the whole entity or organism is lost. [1:02:17] So in that way centralized entities are only as strong as their weakest link, or as Saylor says, Are constrained by their lowest common denominator. Whereas a decentralized entity like the swarm is gonna be strengthened by its highest common denominator. So we can think about this as kind of like something that learns at the edges. So if one member of the swarm figures out how to effectively deal with a predator or a threat, then it will tend to reproduce and its genes will be replicated into the rest of the swarm. So the entire decentralized entity or organism is actually learning at the edges and incorporating those lessons into its whole body. Whereas the centralized entity, if it encounters a predator it doesn’t know how to deal with or even figures out how to defeat, it doesn’t spread that adaptivity to the rest of its body, essentially. It’s just a one-to-one relationship versus the one-to-many. So the one-to-many gives it just much more intelligence and adaptivity in the long run. And tying this back to Bitcoin, it’s as if — to Saylor’s point — any market participant in the Bitcoin network figures out a way to deliver a solution smarter, faster, stronger, better, that’s where the capital will flow! Because again, the capital is unrestricted. It is not siloed to any particular jurisdiction or institution — individuals have maximal sovereignty over their Bitcoin capital so they can move it anywhere in the world. So in his example of: Say someone is setting up a centralized or decentralized institution in Singapore for instance that solves the yield curve problem — so matching lenders and borrowers of Bitcoin in a way that establishes a long term yield curve for Bitcoin — that this would create all of a sudden this risk-free rate on Bitcoin which is the one thing that it lacks, as we discussed in earlier episodes, to make it a truly pristine collateral that would be competitive to say US Treasuries. So Bitcoin currently just doesn’t have a yield. But if you could match borrowers and lenders you could actually create that curve. So his point was, Say we create this 8% risk-free rate on Bitcoin on 10-year money which could be used—and you have fiat deprecating at say 2% a year best-case — then all of a sudden this opens up an attack vector on fiat where you could actually go long Bitcoin and short the Dollar and squeeze the difference in yield. This is called a speculative attack. And this would have the effect of strengthening the speculative attacker himself, but it would also strengthen the HODLer in Schenectady or in whatever town that doesn’t know anything about this, just by virtue of more price appreciation pressure being applied to Bitcoin. So more energy being drawn into the network actually benefits all network participants! And this is contrary to a centralized entity. And if you flip this back to the Great Wall of China example, it’s like you’ve inverted that security model. So whereas the Great Wall of China — it’s just a perimeter defense, it doesn’t adapt, and if you can penetrate at any point of it the whole defensible area is lost, that’s actually what happened when the Mongols penetrated the gate—whereas Bitcoin is effectively this swarm intelligence. So any network participant that can figure something out is benefiting the entire network, and then you’ve also further capitalized or further energized those network participants to go out and solve other problems on behalf of other network participants. So there’s this virtuous cycle built right into it that just does not exist with any other form of money. [1:06:33] Then we take a bit of a pivot and we got into how human intervention negatively and adversely impacts complex systems. And Saylor gave the example of the lions complaining that the antelopes are too fast so the hunter hobbles the antelope. The lions kill all of the antelope, get lazy because they aren’t being pushed to their limits, so then after all the antelope are eliminated, the lions starve to death and then the hunter blames it on the weather! This is a core concept in Talebs’ books where he says that human intervention moves us from what he calls Mediocristan to Extremistan. Meaning essentially that the non-linearity of effects goes through the roof once we try to intervene in natural systems, because there are all these dynamic equilibria that we’re unaware of. And when we offset, when we try and press one lever to cause one result, there’s a cascade of unintended consequences surrounding that. One common example here is called the Cobra problem. And you can look this up on, say, Wikipedia, but the gist of it is that — I forget what country — but they had a problem with an overpopulation of cobras, so they passed a law that offered a ransom for every dead cobra brought to the government — they’d give you $10 — whatever it was. And this had the unintended consequence of incentivizing people to actually start breeding cobras and killing them and then to take them into the government and get this reward! So it actually further exacerbated the overpopulation problem and financially compromised the local government. So that’s just one example where good intentions go awry, and history is just full of these! So tying that back into money: I guess you could say the central bank or interest rate manipulation — intentionality aside — we could possibly argue that it was done with the attempt to make things better. You can argue both sides of that. Let’s just say for instance that it was done with good and wholesome intentions to benefit the economy or stimulate demand or keep prices stable and unemployment low and predictable and all these things. That still — when you’re talking about suppressing interest rates to induce money creation and borrowing — you’re going to war with the temporal and energetic principles of thermodynamics, because again the price of money—the interest rate — is the price of time! I’m gonna give you money now that you’re gonna give me back later. There’s a price associated with that which you’re paying me—it’s called the interest rate. If a centralized body is artificially suppressing that, you’re actually trying to — and what Saylor said — was to reverse the flow of time. You’re discounting the price of time! And this has just so many disastrous unintended consequences around it! Which we went into. You’re pushing back against thermodynamics, which is the inviolable rule set of the universe. And I would argue that, actually, trying to suppress the price of time causes us to discount the value of our own time and the time of others. You could say time or energy, actually. And I think that is kind of the culprit at the heart of this moral hazard related to fiat currencies, is that we’re discounting time and energy, which is the intrinsic value of human beings, effectively. And that’s the one case by the way where I use the term intrinsic value, because I do think humans are the only intrinsically valued — you could probably expand that to life more generally — but there’s no objects that have intrinsic value, value is subjective, but life itself as living beings, that seems to be an absolute is that we should have value for life! Anyways, bit of a philosophical aside. And in that way this organism aspect — actually discounting the value of life — we see all the moral hazard that central banking has created, all the warfare its funded, it’s as if Bitcoin is an autoimmune response, somehow, from society to central banking. As Saylor said, clearly the message in the Genesis Block solidifies that. And he goes a little bit deeper actually to say that Satoshi was clearly an individual sensitive to these negative socioeconomic consequences of central banking, and his own sensitivity was a response to the sensitivity of others: People who had been marginalized or victimized by the system throughout the ages. You could call that a form of inflammation, basically, in the socioeconomic super-organism. And then Satoshi was just the cell of the organism that figured it out! He figured out the correct response, launched it into the world in the right way at the right time. So I thought that was just really interesting. And Brandon Quittem — I talked to him about the Fourth Turning. He made the point — and I haven’t actually read this book yet — but he made the point that in these long cycles, there’s First, Second, Third, Fourth Turnings, there tends to come a kind of pivotal moment or innovation or something that comes just at the right time to reverse course. And it feels and seems like Bitcoin is definitely becoming that in the modern age! The world is just going in one direction on central banking and we needed some autoimmune response and it appears Bitcoin is that! Then we got into Bitcoin as a store of value. I think he made very strong arguments — especially when you zoom out to a 100+ year time frame — that Bitcoin is basically the sole 21st Century store of value. It just is incomparable to anything else. And this 2020 war on currency and escalating government overreach, this has just pushed an awareness of Bitcoin on people and sort of accelerated that autoimmune response in a way. And to just compare it real quick, because we went through alternative stores of value, you have bonds, but they’re not bumping up against the zero-bound, and to Saylor’s point, it’s harder to discern when you’re being taken advantage of when the natural interest rate is 5% and you’re getting 2%, but it’s much easier for market participants to understand that they’re getting screwed when there’s a negative yield. There’s something very special about crossing that zero barrier and that’s where bonds are at today. And they are getting quickly decimated as a viable store of value because there’s no yield. Equities, they’re way overvalued across all fundamentals and valuation metrics — historic all-time highs, P/E ratios, multiples on EBITDA or enterprise value, etc. And that is—what I would argue as a Bitcoiner — is a function of: we’ve compromised the store of value function of fiat currency, so that function is now — the market’s figuring out it needs to assign that function to any other asset! And equities are somewhat reliably scarce at least. But this has a perverse effect in that—as Saylor says — the price of equities are delaminating from their fundamentals. So they’re overvalued in the marketplace. And they’re actually becoming more and more risky. There’s this perverse effect of: the more we use an equity as a store of value, the less effective it is as a store of value in the long run, which is really strange. And Bitcoin is the opposite of that! Bitcoin is actually becoming more secure as a store of value as its price increases, and therefore more attractive. And this is an economic concept called a Veblen good, which you could look up, but basically there are certain assets that the demand tends to increase as the price increases, which is contrary to most other assets. But I think Bitcoin fits that category. Commodities are another alternative — we destroyed those in earlier episodes as Saylor checked those out. And finally real estate, which has been a really popular one for the past 50 years especially in the US — real estate cannot be hidden and it’s being taxed every year. It’s the easiest thing in the world to tax because you can’t hide it, and that is the dominion on which the government projects its power. So I think there’s really high valuations there, plus there’s no concealability so that sort of compromises real estate as a good store of value. He makes the point that, to be a good store of value, you really want to have a technology that’s focused on that function. Equities, you’re creating all kinds of other value in the economy, granted albeit riskily — they’re taking on risk and trying new ventures and figuring things out and innovating. Property would be probably be a little more stable but it still has other uses — there’s actually a utility use there. So the point being: You want the pure store of value. That’s what gold effectively was — it was the purest store of value we had historically. [1:17:03] And now that’s what Bitcoin is today. And we could say it’s kind of like being a single-celled organism. As Saylor said, You don’t want to be a vertebrate with all these complex features, because the additional features open you up to more risk and attack surface. What you want is something very unidimensional, single-cell, just holds value in a trust-minimized way across time and space. And that’s what Bitcoin is! That is the big breakthrough! And that led us into via negativa, which is another Talebian concept that I really like. And in a way this ties back to a quote that Saylor Tweeted once. He said, A designer knows he has achieved perfection when there is nothing left to take away. And as we discussed previously, money has 5 properties: divisibility, durability, recognizability, portability, scarcity. So what did Satoshi do in the creation of Bitcoin? The reason it’s so genius, and the reason Satoshi’s an artist, and the reason Bitcoin is effectively a perfected money is because Satoshi took away all of the indivisibility, all of the decomposability, all of the unrecognizability, all of the immovability, and all of the unpredictability from money! Right? He maximally removed all of these negative aspects of money to deliver us the quasi-perfection that is Bitcoin. And that speaks again to this minimization of attack surface. You’ve reduced all of the features of money to strip it down to its bare bones. Just its bare monetary properties. And you’ve taken away all the negative aspects from those properties, so you’ve effectively perfected those properties. And this speaks again to Bitcoin’s resistance to disruption! We’ve achieved attack surface minimization via monetary property optimization. So this is via negativa! The more you take away, what you have left becomes more valuable, essentially. And another way to say that is: We commonly hear that, Oh, this new crypto-asset can do this or that that Bitcoin can’t do! But the lesser feature set of Bitcoin is a feature itself, not a bug! Because it’s whole value prop is survivability. It cannot be stopped. It is just perfected store of value that adheres to 21 Million and no one can shut down the network. No political or military action can shut down the network. That is the core value prop of Bitcoin. That is what it optimizes for. [1:20:05] And as Saylor puts this — again in one of his Tweets — he says, Bitcoin has no country, has no company, has no competitor. So that’s what makes it so special, is that it’s something that actually exists beyond us, which turns out to be really important! And I would add to that too that Bitcoin has no identified creator. We know it’s Satoshi but no one knows who Satoshi is. We don’t have his person to point toward. And the absence of that personality — the creator —I would say actually gives Bitcoin mythological bedrock, which really underpins its decentralization. If we knew who Satoshi was and he was in the news every day, he was out getting drunk at the bar or something and everyone knew he had a million coins, it would just open him up to a lot of attacks and call a lot of things into question that his disappearance basically nullified. So this godhead of Bitcoin we call Satoshi I think really reinforces the value proposition of survivability and decentralization. And that gets us into what I thought was the most interesting part of the discussion today! And that was when Saylor pointed to the fanaticism of Bitcoin maximalists as an asset, as a contributing factor to the value of the Bitcoin network. And I love the analogy where the defenders of 21 Million effectively — the network participants themselves — we are the keepers of the flame. We are the mythological keepers of the flame. The point being there: to preserve an institution adequately over time, you need adherents or fanatics if you will that are so convicted in their belief that they’re willing to flee persecution to preserve the institution. And he drew the analogy to people coming to the US. People came to the US largely to practice religious freedom. People wanted a refuge that they could freely put their spiritual preferences above politics, and the US provided that. Then to bring it forward a bit, we’re seeing the faith shaken in existing institutions worldwide, whether it’s your government, your bank—all these legacy institutions —faith has been severely shaken, especially in the wake of COVID. Saylor made a great point: even at the universities where no one’s going to campus anymore and they’re taking their classes online, you’re reducing the affiliation with a brick and mortar university, and you’re strengthening the affiliation with the digital university. So the institutions and companies and brands that adapt to the digital age more quickly will actually benefit more at the expense of legacy institutions. So that’s a mega-political trend that’s under way. And the flame for Bitcoin, if you will, is kept between the nodes, the miners, and the HODLers, which are basically preserving this dynamic equilibrium centered on 21 Million. And I love this analogy of worshiping at the altar, where people in the past all worshiped at the altar, they would actually feed the flame even by tithing say 10% of their income. So they’re funding this religious institution — they’re also preaching these values to their contemporaries or their kids, so they’re passing these values forward in time using both money and language, which I thought was very interesting. And ritual — I would add to that! So in the Bitcoin world we’ve gotten miners energizing the fire. They’re adding additional energy to the network that is its security budget, effectively. You have nodes protecting the fire, which are basically selecting the rule set that the miners are enforcing. And then we have the HODLers themselves which are the fire! They’re the living flame that’s centered around 21 Million, so it’s like this group of people, this social layer, that’s all oriented to preserving 21 Million which benefits everyone and intertwines everyone’s fate. And each one of those is just another element in this composite fault-tolerant structure that we call Bitcoin. So it’s this radically new way to think about it as more of a religious-like institution. And maybe you could even say that nodes, miners, and HODLers are kind of like the Holy Trinity of Bitcoin. Maybe 21 Million is the God or something that they’re oriented around. Might be a stretch, but I thought I’d mention that nonetheless. So Bitcoin as religion — the question comes naturally: What are its values? And Saylor declares: Truth, Natural Law, Thermodynamics, Self-Reliance, Honesty, Fairness, Technology, Self-Sovereignty — all of these things are embedded in the value system of true Bitcoiners, and they carry that into the world in their word, in their deed, in their investments. And I just can’t think of a more robust, powerful, effective, well-organized group of people in the world than the Bitcoiners I’ve interacted with! I’ve said it before: There’s nothing in the world that makes me more bullish on Bitcoin than Bitcoiners. And again, if we go back to the purpose of Man or at least what distinguishes him and what makes him superior to the other animals, it’s our ability to channel energy across space and time. And I love Saylor’s point: Energy begets life. So Bitcoin is being this tool for immortalizing the channeling of energy. We can channel it across space and time in any direction we want with essentially no loss. That 21 Million — or Bitcoin itself — it’s actually in a way kind of the pursuit of immortal life. We’re pursuing a medium that maximally preserves energy across space and time. So it’s like, Pfft, well of course it’s a religious institution—we’re pursuing immortal life! Not immortal life in the sense that you live forever, but a network or institution that lives forever for the betterment of all, and one in which you can project your own wills and values beyond your own life. The example there was the Saylor Foundation, which is: his value — Saylor’s own personal value system — is free education for all. He thinks that is something that’s really important for the human race, and now with Bitcoin he has a way to finance and project those values beyond his own life. He can now do something to fund and strengthen this institution beyond his own life in a way that was not possible before Bitcoin, and you could say that this is a way of him projecting values and willpower and intentions and preferences into his own afterlife, if you will. It doesn’t mean Heaven, but just beyond his own life. And then we touched on another religious aspect of this: it’s that 21 Million is truly transcendent. It is something no one can do anything about. And I think that speaks to its religious qualities in a way as well. He had this great quote, it said: If you worship Science, the Laws of Physics, Thermodynamics, and Mathematical Clarity, then Bitcoin is your religion! I thought that was beautifully said. It points back to us. The strength of Bitcoin as a store of value, as money, is rooted in the faithfulness of its adherents, of its believers, if you will. So it is up to all of us to preserve the principles embodied in those fields of study. And that’s what Bitcoin is. We concluded with: Perhaps economics through all of history was just more of a political preference or much more just a social science. Even in Austrian Economics, there’s a very low use of objective measurements because there are no constants in human action, effectively. But it seems like with Bitcoin we do have this collision of computer science and everything underpinning that with the softer social science of economics. So maybe this is the emergence of something really different and unique, like a more objective economic science. These things like Value, Supply & Demand — supply is the objective side, demand is the subjective side — these things are still gonna hold the same qualities, but the introduction of absolute scarcity and a money that cannot be monopolized and resists corruption certainly changes the game, right? I don’t know that it will cause us to rewrite the history books per se, but we will move more towards this engineering-like mindset in the field of economics. So yeah! That was it, man! A monster episode. I hope you guys enjoyed that. Episodes 1, 2, 3 built a lot of foundation. I think 4, 5, 6 really started to build some crescendo here, and 7 was a big peak for me personally, especially the later stages of this discussion. I definitely think we’re routing around the bottom of the Bitcoin rabbit hole! I hope you guys enjoyed this and I’ll see you back here soon for the next one!

8/9 Bitcoin and Immortal Sovereignty

Robert Breedlove [03:27]: Hey guys! Welcome back to Episode 8 of the Saylor Series here on the “What is Money?” Show! Today we’re gonna talk about a number of interesting concepts getting even deeper into Bitcoin theory and how it has effects on the future of humanity. So if you haven’t seen Episodes 1–7, I highly recommend you check those out. A lot of the material we built upon there, it’s compounding as we get deeper into Bitcoin theory. So today we’re gonna talk about a number of things. Firstly is the divinity of engineering, actually, and how this creative impulse is sort of what defines Man and fulfills Man. We’re also gonna look at Bitcoin as a medium of exchange and talk about why Saylor thinks it’s actually a low frequency medium of exchange and a high frequency store of value. We’ll also learn why it’s a pretty bad idea to compensate people with Bitcoin. It turns out the tax codes are pretty hostile to that at the current time. We’ll also look at another monetary function of Bitcoin, and that’s as a unit of account. We’re gonna look at Bitcoin too in a macro context: How it sits as an asset class adjacent to other asset classes. We’re also gonna do a deep dive into crypto versus digital networks. This is a delineation that Saylor makes to distinguish decentralized crypto networks versus centralized digital networks. And we’ll talk about the trade-offs between the two. Then we’re gonna get into the really interesting topic of immortal sovereignty, which is something that crypto networks enable and actually allow us to project our preferences beyond our own life. I think that’s a really interesting part of the conversation. We’re gonna revisit money as power, we’re gonna talk about advanced technology as magic, and we’re gonna see what the two of those look like when they come together. And then finally we’ll discuss Bitcoin as a pure and principled ideology, which is something somewhat unique in the modern age. So this is another big episode! I hope you guys have seen 1–7. If not, again, go check those out now. And with that, let’s jump in!

Robert Breedlove [05:49]: I’m gonna bring up one more point on the religious aspect of Bitcoin that I’ve thought about. My religious tradition too was Southern Baptist — I was raised Southern Baptist — so I have Judeo-Christian underpinning in my thought. But the ancient idea in Genesis was that God was the force that confronts chaos with courage, truth, love, and converts that chaos into good, inhabitable order. So when we look at that through a thermodynamic lens, we know that the whole universe is everywhere and always trending towards increasing chaos and entropy, and that the only thing that works against that thermodynamic arrow of time is life, actually! Life converts entropy into order. So in a way we could say that life or even the God-aspect of life is the anti-entropic principle that propagates through all of life. And I can’t help but relate that and see Bitcoin in that lens, too, where we do have this system that’s actually reaching deeper into chaos than anything else. The SHA-256 mining algorithm is quite literally finding a single atom in an entire universe — that is the mining race, if you will, is identifying the single atom in the universe — and with that reach into chaos it is forging the most profound order we’ve ever had! You can’t argue with the Bitcoin blockchain. Whoever has those UTXOs has them! So it seems to me like there is a profound connection between truth and this principle of converting chaos into order, and the quote that took that home for me with G. K. Chesterton was, A dead thing can go with the stream, only a living thing can swim against it. So Bitcoin in that sense is quite literally alive!

Michael Saylor [08:06]: Bitcoin and beavers! The beaver is engineering the stream to create a dam, human beings are engineering systems. Bitcoin is an engineered monetary energy system. It’s the first well-engineered monetary system that we’ve built. Human beings through their intellect channel that energy, and within the [Bitcoin] system we extract order and we have a very efficient structure, and the price we pay is some disorder outside of our system. Some energy dissipation. But I’m not terribly concerned with that. The universe has got more energy than it needs and we’re just dipping our fingers into 0.000 — with a million kazillion 0’s after it — 0001%, right? So it can spare a little bit of energy! And when we create something beautiful — be it a railroad or Bitcoin network or social network or the like — we find a way to do something millions of times faster, smarter, stronger than before, and that drives forward the human race. So this is not the only great achievement of the human race, it just happens to be the most interesting achievement of the human race!

Robert Breedlove [09:39]: Would you say that’s the struggle then? We’re sort of pushing back entropy? That’s what civilization is, right? We’re creating a larger bubble of order within the universal bubble of entropy.

Michael Saylor [09:52]: I would say the highest calling of Man is to extract order from the chaos. And you could also say humans are divine when they engineer — through their intellect — a better habitat for themself and those that they love. The human that bridges the chasm. The human that constructs the city. The human that creates the machine. And that’s been going on for human history! That’s the most honorable and admirable thing that human beings can do. And if we didn’t do it, we’d be running around naked on the plains being chased by wolves and probably eaten by wolves. And that’s that. So to engineer is divine. Look at a problem, engineer a solution. That’s why we respect the engineers. You wanna talk about Bitcoin as a medium of exchange?

Robert Breedlove: Let’s do it!

Michael Saylor [11:08]: You know, a lot of people, they focus upon the whitepaper and we debate it ad infinitum and I think that everybody that we agree with notes that peer-to-peer cash means a settlement network for a bearer instrument. And it’s important that, in that regard, you be able to exchange assets. It’s, in my opinion, utterly unimportant that you be able to engage in high frequency small transactions on the Bitcoin network. And I think that it’s dysfunctional to pursue that vision. I think that Roger Ver is just wrong! I mean it was a nice idea. Roger Ver thinks the magic in Bitcoin is to be able to pay for coffee with your phone. And it’s a tragic error of insight — that was not the magic of Bitcoin then and it isn’t now! The magic of Bitcoin is being able to catapult energy 100 years into the future and not lose the energy. And then the other magics are the magics that come from wrapping the Bitcoin with software to make it smarter, faster, and the stronger — that’s the magic! The ability to do a minor transaction, it’s trivially inconsequential. Number one, only 1–2% of your wealth needs to be in these high frequency transactions. So a logical thing for anybody is just to keep 1, 2, 3% of their wealth in fiat. And then operate it on the Paypal network or the Visa network or the Apple Pay network or some centralized network. I think Saifedean’s already made the point: A proof of work network is a billion times or a trillion times less efficient than the centralized version. So you’re gonna get a billion times more speed and a billion times more economy by running the 1% of your life on a centralized network. And if you didn’t need to move it to off-chain — I don’t even think it’s a crypto, I just think off-chain’s just a centralized network! You might as well just put it on Square or Apple, because nobody cares whether they go out of business in a year, 2 years or 5 years. And if you’re in a country, the fact that those transactions are being monitored just means that, well, 1% of the value of your transactions are being monitored! If you want to do something illicit, you would do it 0.01% of the time on the Bitcoin network! So the one time in your life when you need to flee Iraq or Syria as a refugee, and that’s when you need to do your on-chain transaction, well then you use Bitcoin and you can wait 30 minutes — you’ll probably be okay. By definition: If you move $1 Billion once, it’s a billion times more valuable than moving $1 once. And so the use case of moving $1 Billion back and forth is valuable, and you can pay high transaction fees. And the use case of moving $1, $2, $3, $5, $10, or $50 or $100 is not valuable, because it falls exponentially or at least linearly with the amount of money being moved. Now there’s some other reasons why Bitcoin doesn’t make sense as a medium of exchange right now. And maybe never! I tend to think never. I think what’s gonna happen is — well we can debate semantics about what medium of exchange means — but I think Bitcoin is a high frequency store of value, low frequency settlement network. Or low frequency medium of exchange. Once a month is more than enough! Once a year? Maybe enough! Once in a lifetime? Might be enough! If the rest of the ecosystem develops, there will be a point at which there’s a crypto bank and Robert Breedlove has 200 Bitcoin in the account and he points the bank toward the Bitcoin and the Bitcoin’s worth $1 Million a Bitcoin and the bank will forward you fiat on credit at good rates to do whatever you want your entire life — the Bitcoin will never move. And the bank will do whatever, and if the bank fails, what do you care? The bank failed, not you. It doesn’t matter, you’ve got 1%, you’ve got nothing at risk, they actually took all the risk! So you don’t need to do things with a high frequency to create value other than protect the money. Now there are some accounting and systems and tax reasons why it doesn’t make sense as a medium of exchange. The obvious thing is: Every time you actually take revenue in Bitcoin, it would be a taxable event. You would mark the Bitcoin. So if you paid me in Bitcoin while Bitcoin is trading at $10,500, I have to mark it. You pay me $27 in Bitcoin, I have a ledger entry: $27 of Bitcoin with $10,400 basis. If your friend bought another $32 book, I have another ledger entry! If I sold a million things in Bitcoin, I’d have a million ledger entries with a million different basis prices. And then if I paid you a salary in Bitcoin, I would then have to figure out capital gain on it, and then I’d have to pay the tax. So if I have $100 Million in Bitcoin and then next year I pay $100 Million in expenses in Bitcoin and Bitcoin went up by a factor of 2, I would actually generate $100 Million in capital gains and I would owe $20-$30 Million to the federal government within 12 months for the privilege of running Bitcoin, which runs a billion times slower than Apple Pay! So how many ways is this awful? Well first of all, it takes a decade to get your accounting systems to work. It’s worthwhile to note: How does a global multinational work? I have 27 subsidiaries in 27 countries. I do business in about 10–15 different currencies: US, Euro, Yuan, Yen, Pesos, Real, Mexican Peso, Argentine Peso — you name it! We’ve got lots of currencies! By law we do that. By law we pay all the medical bills in those currencies, all the insurance, all the vendor relationships — took 10 years. It takes 10 years to set up a global multinational from start to finish! [18:17] It probably takes 5 years to get all your accounting systems to work right, $20, $30, $40 Million to get it all working right. If I buy $500 Million in Bitcoin, I put it in the treasury, I stare at it, I never do another transaction hopefully for the next decade. Until we’re in an insolvency event, we’re not moving it, right? Why would we? The truth is, we want to put it in the vault and throw away the key! Like, I would say to anybody, I don’t want to be able to move it! I just want it to sit there! I’m gonna wait for it to appreciate. Then we sell stuff in Yuan and Yen and Euro and Dollar, and we put that into our accounts. We sweep all the fiat into maybe one currency, into one thing: Dollar. We balance, and if we need to shuffle some stuff around in working capital accounts we put it back. If we don’t need it for working capital we sweep it into the treasury. If it’s in the treasury, we convert it to the treasury reserve asset — Bitcoin! It goes in, never comes out! You know, a vendor wants — they send me a bill, I pay them in a local currency. No vendor’s gonna bill me in Bitcoin. People say — I’ve heard this — Well, don’t your employees want to get paid in Bitcoin? Well the answer is, No, they don’t! But let’s say the answer was, Yes. Let’s say all of them were Bitcoin maximalists. Exactly how much Bitcoin do they want to get paid in? They have mortgages. They have bills. So the answer is, We pay them in the local currency, and if they want to buy Bitcoin, or if they want Bitcoin, they buy it! Why would it be an awful mistake to pay them in Bitcoin? Because we would accelerate the tax bill by 100 years. And as Bitcoin is volatile, we will generate all sorts of tax obligations. The second thing is, we would increase our accounting complexity by an order of magnitude. And the third is, our employees will then have to sell the Bitcoin and generate their own taxable accounting complexity in order to get cash to pay their mortgage and pay for their kids’ school or whatever they’re doing, right? So you’re creating lots of complexity here. If I’ve got 2,000 employees and 200 of ‘em want to own Bitcoin then I pay all 2,000 in Euros and Dollars and Pesos and Yen and Yuan and they go on their local exchange and they buy the Bitcoin and they HODL it! Because like, Do I want to HODL it? So the point is, when you’re running a company with Bitcoin as an operating system, the logical thing to do is you just sweep your fiat into your treasury, convert your treasury into Bitcoin, let it sit there, and then let every — if a vendor wants to get paid in Bitcoin, I pay them in Dollars, they buy Bitcoin! If an employee wants to get paid in Bitcoin, I pay them in Dollars, they buy Bitcoin! The whole ethos of Bitcoin is: Take responsibility for yourself! Don’t treat adults like children. So it’s patronizing in a way for me to say, Well Robert you work for me, but I’m gonna help you by paying you in Bitcoin! It’s like, You’re a smart enough person — if you want to buy Bitcoin with it, here’s the money. Buy Bitcoin with it — have at it! It’s what you do. The money has a constant value at the time I’ve transferred it from me to you, and the thing that really cripples a cryptocurrency and a thing like Bitcoin as a medium of exchange is the tax treatment that the local regulatory domain makes. At the point that the United States IRS decided that this was going to be taxed as a capital gain on the moment of sale, it was utterly impossible for it to be a currency. It’s just that simple. It’s done. For anybody to even maintain it — the only way you could think that you could use it as currency is if you’re gonna run a black market, grey market operation with no accounting, no accountants, no lawyers on staff. And it’s like, Good luck with that! I mean, how many discos and bars got shut down for sales tax or income tax evasion, right? What was it, like — most of them! Small businesses, they’re eventually going to all run afoul of the regulators and get shut down. So it’s just not practical from a systems point of view. It would take me a decade to rewire the systems. It’s not practical from a complexity point of view. You’ve just made your accounting a hundred times as complex. And it’s not practical from a tax point of view. [23:38] You’ve just tripled the tax rate. And it’s not practical from a whatever employee point of view because it’s making everybody else’s life more complicated too. So that’s why I think that Bitcoin really isn’t a medium of exchange as much as it is just a low frequency settlement network. I’ll make one more point, this is back to via negativa: The fact that you could settle peer-to-peer means that you might not have to for 100 years! The fact that I say to you, Robert you do as I say, or else! — if you have the ability to leave the country and depart with all of your wealth and I know you have the ability — right? Robert Heinlein has a phrase, An armed society is a polite society. I live in Miami Beach. Sometimes I run around, and people have guns in Miami. You can carry concealed carry permit, right? A young debutante that looks harmless could be walking around with a gun in her purse, and you think twice when it’s 2 in the morning and you’re in a bar and everybody’s drunk, before you’re pushy or rude. And then you think, Maybe I shouldn’t be in a bar at 2 in the morning when people are drunk! And then you think, Maybe I shouldn’t mouth off to someone that just cut me off on the highway. Somebody pulls over and they shoot you dead! And you think, I just oughta be very polite to everybody walking down the street, because every single person could have a gun concealed on their person. And maybe I’ll be nice to people today! It’s a deterrent, right? So the ability to cash settle, or the ability to settle and exchange, that’s the deterrent. Because the fact that I know you could means that I’m gonna treat you with respect! If I knew you couldn’t, if I thought that you were trapped — if you were stuck in my monopoly and I had total power over you—then I start to take you for granted. And then I start to abuse that power. Because as Lord Acton said, Absolute power corrupts absolutely. So the power to do a thing is more important than the doing of the thing. And that’s what the Bitcoin Cash guys, they miss. They miss the fact that: If I can move all the money when I need to, then I won’t need to! And so yeah I need to be able to move it so it will hold $100 Trillion in value, but no I don’t need to move it now! And maybe I don’t need to move it more than once, ever, just to make an example. It’s like nuclear deterrence. I use it once, maybe I used it twice — I haven’t used it since. But do you think that doesn’t — you know, it’s not effective? You think it doesn’t matter to have it?

Robert Breedlove [26:56]: Yeah I think that’s a great point. And this gets back to the difference between a free market and a monopoly. In a free market, you know that your customers have options. They can go to other providers, they could settle elsewhere, they could move their capital out. And because they have that optionality, you as the producer or provider are accountable to their preferences. You have to listen to the customer. You have to listen to their wishes and desires and make sure you’re satisfying their wants. Whereas on the other end of that spectrum is the monopolist that, to your point, he just doesn’t care about the preferences of his customer because his customers have no choice! They’re stuck in his little fiefdom. I mean it’s the difference between an economic democracy and an economic dictatorship. So the fact that Bitcoin is just totally movable anywhere, anytime and you can’t put the gate around it and monopolize it is what makes it such a game-changer!

Michael Saylor [28:00]: Just because you can do a thing doesn’t mean you should do a thing. That’s basic Stoic philosophy. And there’s the line that comes from the movie, the guy says, The loudest man in the room is the weakest man in the room.

Robert Breedlove: American Gangster, I think!

Michael Saylor: That’s it! American Gangster. The loudest man in the room is the weakest man in the room. If you know I can do it, if Robert Breedlove can teleport anywhere on Earth anytime with all of his energy and I can’t stop it, that gives you a lot of power! I’m gonna give you a lot of respect, but that doesn’t mean you want to flit around back and forth like a firefly. You know you can do it — now do something constructive with the knowledge that you can do it. It’s quiet confidence. And don’t get distracted by shiny objects. Faster transaction rates, low transaction costs — they’re shiny little lures at the end of the hook that the stupid fish grabs. It doesn’t matter! It’s the Cracker Jack box prize or something like that! If you look at the value on Earth, there’s $250 Trillion of value in assets. What’s the value of being able to move money back and forth to buy coffee? And what’s the likelihood you’re gonna beat Apple in that race?

Robert Breedlove [29:55]: Right. This is the picking up pennies in front of a steamroller type thing, right?

Michael Saylor: Basically! It’s just not worth doing. And given the fact that it’s a million times more expensive from a tax point of view, and given the fact that it’s a billion times more expensive from a computing power point of view, the only reason to want to do it is regulatory arbitrage, i.e. grey market, black market operation. Not a very profitable pursuit of human ingenuity! You know, you ask Meyer Lansky, What’d you learn in all your years as a gangster? He said, It was so hard I realized if I’d have to do it again I just would’ve gone straight! It’s a lot easier to make money just being legitimate, so inventing some kind of technology to evade the regulators explicitly? It’s like, they might let you invent something that will carry energy 100 years forward, because it seems like something that legitimate law-abiding citizens might want to do. They’re not gonna let you invent something that allows you to evade taxes, and so: Why try so hard? It’s just not worth the trouble! I’m reminded of the stories of Pablo Escobar, and he made the billions of dollars selling all the drugs and cocaine and they said at the end of his life he’s sitting on the run and they’re burning $100 bills in order to stay warm! It’s like, Yeah! Good luck with all that!

Robert Breedlove: Talk about money as energy!

Michael Saylor [31:36]: I mean the vignette, just sitting burning stacks of $100 bills because no one will let you spend it. It’s an example of just trying too hard—not worth the trouble! So let’s talk about unit of measure. Bitcoin as a unit of measure: I think Bitcoin is the universal language of economic truth. I think it will evolve as a unit of monetary energy. It makes sense in that way. Before Bitcoin, if you go back 50 years, people talked about ounces of gold. So I think a Bitcoin will be like an ounce of gold — an immutable, self-sovereign unit of economic energy — it makes sense to think of it like that! On the other hand, it will generally always be converted into local fiat in the political domicile in question for buying and selling things. And that’s okay. There will be countries that allow stronger, better currencies. There will be countries that’ll have weaker currencies and they’ll crash their currencies and they’ll replace their currencies. And as long as you HODL Bitcoin in your account you’ll be able to go into a new country. You know, I’ve been to a country after they crashed their currency. We’ve all been to Germany, they crashed their currency, we bought the new currency. Then they got rid of the Mark and it was the Euro, we bought the Euro! So the right way to think of it is as just a standard unit of economic energy or monetary energy and not overthink it, anything more than that. It can be interesting to say divide stock price by gold ounces — you can divide the cost of living by ounces of gold or by Bitcoin — it’s interesting! It’s okay. It’ll give you a pretty good read on inflation. If 1 Bitcoin buys you a car in the US but 1 Bitcoin buys you a skyscraper somewhere else then you’ll have relative cost of living. People did that with the Dollar, right? They used to say you could live in Mexico on the beach for $187 a month and live like a king. There are relative strengths. I think Bitcoin will be like that! But I don’t think we need to stretch it any further than that. I think that’s enough! I think ultimately, people focus too hard on medium of exchange, unit of measure, and they underestimate the value of Bitcoin as a store of value and as an asset. I think they undersell it and they don’t do it justice! Because it’s so much better than every other asset! And then I think the entire community of crypto, it’s too much engaged in debates between the various crypto networks, with each other. Because I’ll post something — Bitcoin is a great way to transmit energy into the future — and then the Ripple people will start fighting, and the Bitcoin Cash people, someone gets triggered and takes offense. The way I see it is: Crypto is a $300 Billion pond sitting on the beach next to a $300 Trillion ocean of capital, of energy. That’s 99.9% of all energy of humanity, is sitting in alt-assets, not altcoins! Not cryptocurrency! So I see all the crypto enthusiasts working on all the altcoins and they’re just trying to drag down Bitcoin. It reminds me of a bunch of crabs in a bucket and the bucket’s kind of hot or overheating and the one crab wants to crawl out and the other crabs just want to drag it back in instead of crawling on its back and getting out! It’s like, all the crabs just keep pulling each other back into the bucket. It’s totally self-sabotaging and it doesn’t matter, because what they ought to be thinking is, How do we get $30 Trillion of the $300 Trillion to flow into our pond? In fact, they ought to be thinking, We want to go from $300 Billion to $3 Trillion, and from $3 Trillion to $30 Trillion, and from $30 Trillion to $300 Trillion. And the way you’re gonna get there is not by attacking each other. The way you’re gonna get there is by dividing the market and focusing! So if you want to be a cryptocurrency, well currency means you have to have a stable asset value because the IRS is gonna tax you to death if it changes. So Tether can be a currency, and it cannot change! Do we need one? I don’t know. It’s a centralized stablecoin, and maybe we need a decentralized stablecoin. The market will decide that. But that’s a thing in its own. And if you want to build a crypto application, there are applications of things that people might want that Bitcoin doesn’t do like: total privacy, or maybe you want to issue title or provenance, or maybe you want to do a decentralized exchange or wrap something or implement insurance or lending. That’s fine — DeFi. There are applications — have at it! You’d be better off to, say, Ethereum is 60% of the application market, Tether is 52% of the currency market — cryptocurrency and crypto app — and then Bitcoin is 95% of the crypto asset market. And if you believe in another type of asset, I don’t think that it’s impossible to ever come up with one, I just think that right now the only clearly successful crypto asset is Bitcoin.

Robert Breedlove: Right, agreed!

Michael Saylor [38:05]: And all the crypto enthusiasts would be better just to accept the success of Bitcoin, because it’s the gateway drug for all the alt-asset holders to move into crypto, and they really ought to be encouraging the next $3 Trillion to come and the number one way to do that is not to relentlessly, ruthlessly attack and sabotage and undermine Bitcoin, but rather to celebrate its success, because as it gets bigger, the opportunities for other crypto networks to interact with it will also get bigger.

Robert Breedlove: Absolutely! And to people that don’t understand this space, I like to articulate it that Bitcoin is digital gold. It has essentially already run and won that race. And that for the same economic and game-theoretic reasons there’s only one analog of gold, there’s only ever likely to be one digital gold. So it’s almost like you just have to accept that. And then I describe the rest of the crypto-asset universe as liquid venture capital subjected to little, if any, due diligence! Some of them may succeed meaningful in markets orthogonal to money, but it’s very high risk. And the fact that anyone can spin up one of these assets in 15 minutes on the Ethereum blockchain, there’s a very low barrier to entry, very low diligence, so invest accordingly! I’d suggest no one — if you’re gonna have a crypto-asset portion of your portfolio, I think the highest risk position you could ever be in is 80:20 Bitcoin to everything else. And the conservative position would be 100% Bitcoin, 0% everything else.

Michael Saylor [39:52]: I would agree with you. I think we see it the same way. And I guess it’s a good segue just to general crypto theory: the emergence of magic in cyberspace. What’s a crypto network, what’s a digital network? How do I view it? And you tell me if I’m right or wrong. I’m a newcomer — you’ve been around for a while. My view of crypto network is: A crypto network is a software application running on a decentralized network with a consensus mechanism, ideally proof of work, arguably maybe proof of stake or some other consensus mechanism that theorists would agree promotes decentralization and antifragility. And a digital network is a centralized network. It’s a Facebook or Twitter or Google or Apple or whatever—a more conventional client-server network. So as we look in the future of cyberspace we’re gonna see crypto networks and digital networks. Why would you want a crypto network? You want a crypto network for immortal sovereignty and antifragility. We know Bitcoin is doing that right now. If you want to convey humanity across time and space — especially across time — maybe across time and domain, domain might be even better than space. You know, crypto networks aren’t necessarily faster than digital networks for moving shit through space, but they’re better at moving it across domains, and the reason for that is that sometimes you have lowest common denominator regulatory or compliance constraints that cripple the innovation in a digital network. Apple Computer will never do certain things because they’re subject to the US law, even though they could do them in 98 countries! And so a crypto network may in fact develop faster across regulatory domains if digital networks are crippled. There’s obviously trade-offs between digital and crypto, and I think about it as like: Trust, Security, and Duration are attributes of crypto. Economy, Performance, Functionality, and Compliance are attributes of digital. If I want to do it cheap, it’s a billion times cheaper on a digital network. [42:37] If I want performance, it’s a million times faster on a digital network. If I want functionality, it’s likely much more functional. There’s nobody that would dispute that Apple Pay or Apple or Google, they’re beautiful, functional products. Apple or Google Maps. Trying to do Google Maps on a decentralized crypto network would probably be a disaster! And then compliance — digital networks are better at compliance. Sometimes we regret their compliance. They shut down stuff and they censor things. But they’re better at compliance. So the very things that make crypto attractive — Trust, Security, Duration — are purchased at the price of giving up Economy, Performance, Functionality and Compliance. The conclusion is: Some stuff makes better sense to be doing digitally, and other stuff maybe with crypto. It’s early days, and the only obvious conclusion we both agree on is Bitcoin is a successful crypto network as a store of value. We know that. Everything else is an experiment and when it hits $100 Billion it’s not an experiment anymore. And we can debate whether it’s an experiment at $50 Billion, but I would say at $100 Billion it’s a thing, and it’s pretty clear. And it might be a thing we all know and recognize below that, but you’d need a lot more education to determine that.

Robert Breedlove [44:18]: I think — just to throw in my 2 cents here — it is distinguishing between a decentralized network and centralized. And this reminds me of an old quote, If you want to go fast, go alone. If you want to go far, go together. So the centralized solution is kind of like going alone, because it’s just according to one single plan, it can innovate very quickly and move in a certain direction very quickly. Decision-making is concentrated. Whereas the decentralized solution has more of a dynamic equilibrium that lets it persist further across time. So the centralized solution is going to be really compliant, really fast, really innovative, but the decentralized solution is really only useful when you need censorship resistance. You need to know that it will persist across the maximum duration of time, and that no individual group or individual for that matter can shut it down or manipulate it. So Bitcoin is at the extreme end of that decentralized end of the spectrum, whereas something like Apple would be at the other end.

Michael Saylor [45:27]: Yeah you could use a metaphor like an Aspen forest or some massive biomass versus an animal. A vertebrate versus invertebrates. Different life — plants versus animals. They’re different creatures. And they have different life spans! You want to live for 2,000 years? Or do you want to live for 80 years? One of them moves faster than the other, but one of them is more vulnerable than the other. I think from a human point of view, the real question for humans is: Do you want to put your trust in Man, trust in the organization, trust in a company, trust in a government? And/or: Do you want to put your trust in a crypto network? And we’re gonna solve our problems with a segmentation, mixture of these trusts. We’re probably not gonna put the functionality into Bitcoin—in a total decentralized proof of work network — that will do what Amazon does or Uber does or Pandora or YouTube does. Probably not! But do we really need to? We probably don’t need to. So when we think about the crypto industry segmentation, I think you really want to divide and conquer. A crypto network is a life form. And I think that’s different. I mean there’s a genetic encoding in a crypto network, and it’s very different than solving the problem with a human being or solving the problem even with a digital network. When you design the protocol, Bitcoin, and you let it go, it becomes a life form and it multiplies and all these nodes spread and all these miners spread. And you can’t easily pull the genie back in the bottle and re-engineer the genetics of it when you’ve released it into the wild. In fact, you would almost say that once plankton is spread out to dominate all the ecosystem — if God had a better idea — he created that and made those minnows! Or he created bacteria — he created a new species. You have a better idea? Create something different, and if that something different is in the same energy ecosystem as the plankton it’s not gonna make it! [48:01] If you take a bird, the bird can coexist with a deer, but it’s hard to create two apex predator birds and put them in the same space at the same time—one of them eats the other one! One apex predator creature. And that’s the same thing with crypto, I think. You gotta think of it as an evolution of a new life force in cyberspace, and the genetic code is of paramount importance! So if you really hope to be successful — and this is my opinion — when you release the privacy coin, you need to say, This is for this thing, and this is what it is, and we’re going to get it just right and we’re gonna let it breathe and let it live and we’re not gonna mess with it or monkey with it. And we’re not gonna decide that we wanted the monkey to have wings and also have gills and swim. And if I’m watching TV and I see these cool antler things and I want to put the antlers on it! You can’t be a technology-tinkering enthusiast with a crypto. You have to have more of the mindset of, It’s the crazy guy in the lab coat in the laboratory creating a new kind of life, virus, creature. It’s like you get one shot, and it’s at a lab — and you’re done! You can’t get it back! And so you should be aware of just how important it is. It’s a protocol. Life is a strand of DNA and that DNA is going to go and it’s going to do whatever it’s going to do. You’re creating life. And so how devastating is it for God to say, I created human beings. I made a mistake. I’m gonna recall them and then tinker and then do a human being 2.0. It’s a problem, right? [50:04] In the Bible, the biblical analogy is the flood where everybody just gets killed. Or some crazy stuff in the Garden of Eden. But with things like Ethereum, right? You’ve got Ethereum 1.0 and now you try to do Ethereum 2.0 — you’d almost be better off just to do something different as opposed to like retrofit something, because it’s going back and trying to force-fit the DNA. You could do it with a digital network. It’s okay if you’re running on a single server and you can throw a switch and everybody switches with it. But the whole point of a decentralized life form is that they’re all different and they all get to make their own decisions! And if you can order them to do something, it doesn’t feel that decentralized anymore, does it?

Robert Breedlove: It’s not decentralized, exactly.

Michael Saylor [51:09]: So with regard to this, I look at the crypto industry and I think, The logical segmentation is: Assets versus Applications versus Currencies. It is the purpose of the crypto network to be an asset, and Bitcoin clearly is. And then Bitcoin Cash and Bitcoin Satoshi’s Vision and the rest are trying to be. It seems pretty clear that Bitcoin is 93–94% of all the assets and the other ones are probably going to zero! And the only way you don’t go to zero is: You have to be differentiated in a way that the marketplace appreciates you. It’s a species, right? I can’t be almost like a bunny rabbit, I need to be a wolf! I need to be different than a bunny rabbit! And it’s an important caveat: Differentiated in a way that the marketplace appreciates. In other words: Differentiated in a way such that Nature gives you an advantage in natural selection. So taking Bitcoin, forking it, and making it do transactions 10 times faster isn’t good enough because you’re a million times slower than the other way to do transactions. So that’s just not a genetic mutation that works. It’s an example of a faulty genetic mutation that kills the carrier — it’s an extinction-level mutation. Genetic mutations happen all the time in Nature. Most of them are mistakes. But some of them might work! If I can stand up on two feet and if my eyes start to work 10 times better than your eyes and I can fashion missiles then maybe that’s gonna work for me. And maybe I will procreate. So it’s not impossible to have a genetic mutation on Bitcoin that would be naturally advantageous. It’s not impossible. It’s just, the ones you look at right now, like, what do you have? I mean, transaction speed? That’s really no good. Privacy? It’s a regulatory threat and so therefore it’s probably a nice thing but it’s a bullseye in its forehead which means that when the regulators go to shut down crypto exchanges the first thing they’ll do is pass a law against that, right? And so, give me an example of a mutation on Bitcoin that would make it a distinct asset as a store of value that would deserve to have its own life?

Robert Breedlove: I’ve thought about this a lot and written about it, and I have yet to identify one. Like Bitcoin sort of perfects the main properties of money that you need, and then the added caveat to that is that even if a mutation or innovation occurred such that the market identified it as useful and you saw this reflected in its market cap, Bitcoin also has this capacity to absorb feature set from competitors. So if something becomes market proven, Bitcoin can assimilate that into its existing UTXO set!

Michael Saylor [54:24]: Just as living organisms do! Just as companies do! You get a tough competitor: That which does not kill me makes me stronger.

Robert Breedlove: Right! Instagram absorbing Snapchat’s Story feature, right? Totally destroyed Snapchat.

Michael Saylor [54:39]: So we don’t see another one right now. It’s not impossible to conceptualize that maybe there would be one, but right now it looks like Bitcoin is 94% of the crypto-asset market. You can’t include Ethereum because although it’s proof of work now it’s going to proof of stake, and they don’t even have an intellectual commitment to be proof of [work 55:04]. And proof of stake is—it’s not clear to me that proof of stake is intellectually defensible over the long term. It’s not proven. It seems like it may be defective as an idea, right? It’s like an example — we’re back to this issue: It’s like I want to hobble the antelopes. It’s like somebody complained we’re using too much energy! It’s almost like the environmentalists took over and they’ve decided that they’re just mad that someone’s using too much energy so they want to pass a law to stop it. But it’s a law against Mother Nature, and it’s [brooding 55:44] to hobble the antelope. So the 4–5% of crypto-assets that are left — the Satoshi’s Vision, Bitcoin Cash — none of them are differentiated enough that they would seem to have any future in a Darwinian world that I can see. So they’re destined to [hugely 56:04] to go to zero. So then we go to cryptocurrencies. That’s a simple one — stablecoins. People go ballistic if you say they’re cryptocurrencies because everybody wants Bitcoin to be a cryptocurrency! But if the definition of currency is money that you can legally spend in a country without incurring taxes, Bitcoin is not a currency, but Tether is! Because—it’s kind of simple — read the IRS tax code. You’ll find, most places on Earth, they’re gonna tax it as an asset. And there’s nothing wrong with that! In fact, that’s better. It’s actually a mistake: Why would you want to create a short-term currency that’s a billion times more expensive to implement computationally than the other way? It’s like, the only reason you’d want to do something a billion times more expensive is for immortality — immortal sovereignty! That’s a good reason. But you’ve got that. If you had that on 99% of your assets 99.9% of the time, then you’re good. Then you could afford to have a little bit of risk in order to have a billion times faster performance on a digital network. So that’s currencies. The only reason for a cryptocurrency is for regulatory arbitrage or maybe innovation due to decentralization. If you can make the argument that we’re gonna innovate faster because we’re governed by the laws of Singapore and people in Malta can use a Singaporean cryptocurrency and it’s not technically illegal, it’s just a hundred times better because we’re able to tap into that regulatory arbitrage opportunity, you could call it a [free? 57:55] market, then I think, Okay! Fine! Then I think there’s a place for a cryptocurrency.

Robert Breedlove: I guess you could add the speed factor too. That Tether can be moved 24/7, whereas US Dollars would face certain restrictions in terms of time or jurisdiction — capital controls as well.

Michael Saylor [58:16]: On the other hand you can move Apple Pay 24/7, you can move Square Cash 24/7. So there’s no reason why you couldn’t have run a digital network 24/7. By the way, Binance is a digital network, and you can trade 24/7 on Binance. So Binance could simply move it — if I’m moving money on an exchange or between exchanges, I could do that on a digital network. I don’t need a crypto network to do it! So whether or not people use a digitally-based stablecoin or a crypto stablecoin, it’s a function of regulatory arbitrage. I mean there are privacy issues that people have. And then there are trust issues.

Robert Breedlove: I guess you could say Tether is a digital network in this framework. It’s not decentralized. You trust a counterparty.

Michael Saylor [59:11]: Because there’s a central authority that can actually redeem, right? And so you could almost argue that if Tether is the king of stablecoins, it’s running on a digital network, not a crypto network. Like, DAI — the irony is that DAI is a truly decentralized one — but people don’t like it because it’s inefficient and it doesn’t quite peg the value. But you could create a cryptocurrency as a stablecoin using an oracle, using some information feed, and using Bitcoin as the underlying collateral and create a synthetic Dollar and a synthetic Euro! You could! And will we need it? It depends. I mean that takes us to crypto applications and digital applications. I mean Binance and Coinbase and Huobi and the like, they’re digital exchanges. They’re digital networks for exchange. And then you’ve got the decentralized exchanges, right? Uniswap, SushiSwap. There’s a very romantic notion, like, Decentralized exchanges will beat digital exchanges. I’m not so sure! We’ll see! The point that I made in one of my Tweets is: So I buy $400 Million worth of Bitcoin. I do it in 7 days. For 7 days, I have some exposure on a digital exchange. I move it to cold storage for the next 10 years or 20 years. So for the next 7,500 days it’s off the digital exchange. So 99.9% or more of the time I’m not exposed to the risk of a digital exchange, and so everyone that days, Well digital exchanges are risky. Well it’s risky in the same way that walking across the street is risky, Robert. But you do it! In theory when you cross the crosswalk, if the red light failed, couldn’t you get slammed into with a truck and killed? Okay, so are you gonna take the position that we’re gonna have to build flyovers on every crosswalk in the world? Eh, pretty expensive! You know? So what will happen there? I don’t know, but it seems to me that Binance is doing just fine as a centralized exchange. And it seems that Square works fine as a digital client application. And if Apple Computer announced that you could send Bitcoin or cash via Apple Pay or iMessage tomorrow, I think a lot of people would be pretty happy to do that! No one would be complaining about it! And it really comes down to this issue of: Economy — it’s a million times cheaper, Performance — it’s a million times faster, Functionality — it’s a million times more functional, and Compliance — they’re probably more compliant in the country you’re in! So if you can do it on a digital network, you probably will! When you think about crypto, you really have to ask this question: What is so important that I want immortal sovereignty? What is so important? And certainly my life force. If you said to me, Michael, I’m gonna take all of your energy and I’m going to protect it and I’m going to fulfill your wishes from now to 1,000 years from now — I think that’s worth it! That’s a religion! That’s a crypto! You know, I have a park. I’d like for the park to be trimmed and the trees to be kept nice and I’d like for the park to be beautiful for the next 1,000 years and it’ll cost $1 Million a year. And so if I put $50 Million into endowment and it generates 2% yield, then I could reasonably say to Robert, Robert, why don’t you take my $50 Million endowment and put it into Bitcoin. And then it becomes the question of: How am I gonna see my wishes through for 1,000 years? Well the current way you would do it is you would create an institution like the Rockefeller Institution or the Hughes Institute. [1:04:08] And you trust human beings. What we’re really talking about is: We’re talking about the crypto-asset network of Bitcoin taking the base layer and holding all the monetary energy for 1,000 years. Or 100 years, if you think 1,000 years is crazy — we’ll go 100 years. And then we’re talking about a digital network. Maybe it’s gardners.com or Amazon will probably do it because they’ll probably do everything by the time we get through the decade. There will be nothing that they’re not doing! Let me make it easier: Let’s just say I want to send flowers to everyone in my family on their birthday for the next 100 years with a little note from me telling them how much I love them — that’s a simpler thing. I endow an account with Bitcoin, I create an Amazon account, I wire it up with flowers, I create some kind of mechanism so that when children are born they get added to the family unit, and the thing drips out a little bit of monetary energy in Bitcoin, converts to fiat, buys the flowers for $187,000 a dozen roses in the year 2047, and it ships them for the person, and I die happy, and for the next 100 or 1,000 years, flowers get delivered to people in the Saylor family line because that was my last will and testament! And how would I do it if I was John D. Rockefeller 100 years ago? I would have a crapload of assets, probably a lot of gold and stock — and he owned every oil company and they’re still around — and then you would put some of that into a foundation. A non-profit foundation, because you need tax-free, tax-advantaged. That’s why you need to go non-profit. By the way, all of your capital gains become tax free, tax-advantaged, and all your income becomes tax-advantaged, right? So that’s a good idea. And then you have a board of governance and you have 5 advisors and they appoint a money manager and they appoint a business manager and when one of them retires they have a selection committee process that puts someone else. We’re probably on the 7th generation of advisors to the Rockefeller Institute. By the way, John D. Rockefeller created the University of Chicago. It’s still running. Rockefeller created a lot of stuff that’s still running! Rockefeller University. So I can do it the old-fashioned way, but to do it well you’re probably talking about $100 Million of assets and a $5 Million a year operating budget. You get down to $1–2 Million it’s not really — $5 Million a year is the minimum. Your best bet is you have to become a university, a religion, a church, or a non-profit, a Hughes Institute. So that’s the way that you get immortal sovereignty, or like some long-range sovereignty. Another standard way people do it is like, Rockefeller bought up all the land on the Hudson River and he gives it to the state of New York, turn it into a state park or national park like Grand Teton National Park, and you get the federal government, the state government to agree to fund it in perpetuity per the Smithsonian Institution. The problem with all those things is that sometimes you just can’t even trust the governments, right? But your best bet is you lay it off on a state or a federal government, and that’s okay until the government fails or it reneges on something or other. The bottom line is that it’s not really within the grasp of a small or mid-size business or the individual. What is YouTube? YouTube allows you to become your own TV station! So what are we talking about here? The cliché, Be your own bank, if we look at it a different way it’s like, I’m a normal person, I endow my own monetary energy into Bitcoin, I plug it into to some digital network, I give the keys to someone I trust — family member, heir — maybe I do multisig, right? Instead of having 5 people on a board — if you have 5 people on a board of an endowment with $100 Million or $1 Billion in the endowment, they’re kept honest by filing annual tax forms with the IRS. And in theory they could be personally liable if they defraud the foundation or abuse their fiduciary trust. But you know it’s kind of like a 20th Century idea! A better idea would be: I put the money into Bitcoin and I have 3 or 5 digital keys. And it takes 3 out of the 5 to vote on anything. And every 3 months they have to register that they’re online and of healthy mind and spirit, and if someone stops registering then that remaining 4 automatically appoint a 5th, and whenever anybody retires they automatically transfer their key, and then what I’ve done is I’ve dematerialized an endowment, board of directors, corporation, institution. And it’s just become maybe a simple application in cyberspace plugged into a base layer of monetary energy. And it’s doing something! Whatever the something is. And so that’s a combination of (1) people and (2) digital networks and (3) crypto networks in order to allow people to achieve their hopes and desires over long periods of time.

Robert Breedlove [1:10:19]: That’s really interesting that you can lock up the base layer money and then appoint this multisig schema as almost a decentralized organization, in a way, among these 5 members. And then that gives the ability for your will and testament to be carried out in a more dynamic way across time. As governments fail, organizational landscape changes, or other macroeconomic conditions change, these 5 people can adapt. So they’re sitting on this money that you’ve put behind the wall of encrypted energy, but it also gives it some dynamism in a way, that they can adapt to your will and testament.

Michael Saylor [1:11:00]: Until computers get so smart that they do it all for us, the most likely outcome is: I appoint 3 or 5 people, and then they plug into digital networks that do all the stuff that we want done. Maybe you want to host all of your writings and all of your videos for the next 1,000 years in cyberspace. Okay so you appoint 3 trustees of the Breedlove Institute, you endow it with some amount of Bitcoin. You live a fine life, you depart, and their rules are: Every 10 years they have to find someone to replace them. You put your own term limits in there! By the way, you could put all sorts of rules in. You could say that everyone that actually reads my stuff and passes the test can vote on who the 5 trustees are gonna be. Or, you can’t even be a trustee unless you’ve watched and read everything and understood everything and passed my quiz that I left for you. What if Ludwig von Mises left all of his stuff in cyberspace and we’d need to read all his stuff and pass it and pass an oral exam by him in order to become a fellow. And if we become a fellow we’re invited into the academy of Austrian Economists, and that goes on to all eternity. And then the academy adds to the body of knowledge and they can upgrade the protocols and they can upgrade the tests and they can pass the flame down from generation to generation and the entire thing becomes antifragile and it’s the religion of Austrian Economics! I’m thinking the guild system. If you want something to be an immortal sovereign crypto network, then you think like the guilds. It’s gotta be something that people are so passionate about they’ll pass it down from parent to child, father to son, mother to daughter, master to student. There are things like that: schools of martial arts, Brazilian jiu-jitsu, religions, etc. And the medieval guilds were like that! Maybe there would be a — for example, I like environmental causes. What if I had a park and I said, Well people have to go in and they have to work in the park and support the park, but the park is this private/public entity where you can be a member and you get to use it but only if you can contribute to it and protect it. And then I endow it and it becomes a self-sovereign entity for 1,000 years. It’s like a park-owner’s association, right?

Robert Breedlove [1:13:50]: Yeah that’s really interesting! You’ve called previously I think domain names akin to digital real estate. And so what’s coming to mind is that you could also do this with a domain. You could fund a domain in perpetuity and then populate it with these institutional factors that you’ve described.

Michael Saylor: Bitcoin.org.

Robert Breedlove: Yeah!

Michael Saylor [1:14:12]: Or any domain. It could be wisdom.com and people put wisdom in and there are curators and there’s a governance mechanism and there’s a support mechanism and you just want it to go on forever like a monument in cyberspace. Think of it as a monument in cyberspace! It’s something that has some functionality. But you know the real question here is just: What do you love? And what is it you want to achieve in your lifetime? Are you a family man? Are you a political man? Are you religious? Do you love art? Maybe you want to create a website that allows people to upload their art. You can upload digital art, and then other people can check it out or use it subject to some licensing and you just want that to become a Wikipedia-type thing, right? It’s a commons service that you just want it to go on forever, not subject to fragile or human failure.

Robert Breedlove [1:15:28]: It’s so interesting that another way to think about money is a medium for expressing preferences. When you buy a car or sell a house the economy responds dynamically by making more cars and less houses. So now with Bitcoin you can actually express these preferences transcendentally of space and time! You can express them, in theory, for all eternity.

Michael Saylor: I’ll give you two examples: All the time you have examples of rich donors if they endow a professoral chair at a university and the money gets hijacked to build a new football stadium. Or, I want to endow a professorship of Austrian Economics — but then someone takes over the university and so they divert the money to buy a new hot dog truck. So—I’m dead — how do I make sure that someone doesn’t, that they really fulfill my last dying wish? How do I make sure? Well I can do it if I have a Rockefeller Institute and they hold the purse strings and they dole it out annually and then they watch. But then I have to actually have a bunch of people that I trust that 100 years from now will remember what my wishes were! And maybe nobody cares about that. It’s a challenge for people. I went to Naples this year. And if you go to Naples, you go into the port, you have all these superyachts in the port, and very very wealthy people on the superyachts. But if you walk out of the port there’s puddles on the floor and there’s this park in the middle of Naples right next to the port and it runs about 10 blocks. And 50 years ago it was beautiful and the jewel of Naples and it was like Central Park and everyone could come there and enjoy the day. Now if you walk through it, all the buildings are spray-painted, they’re all closed, there’s pooling stinking water, no grass grows, it’s just mud. It looks like something 40 years after the apocalypse! It’s in the middle of like the third largest city in Italy. There’s money everywhere, and yet somehow neither the municipal government nor the state nor the federal government of Italy, nor any wealthy person, can manage to come up with $100,000 Euros a year to water the grass and mow the lawn. In the middle of a city of a million people — the public jewel the city, the single most important piece of real estate in the entire city—is suffering from a tragedy of the commons. Now I ask myself: If I was that wealthy person and I wanted to bring that park to life, if you wanted to do it top-notch you need $1 Million Euros a year. You want to do spectacular? $10 Million Euros a year. If you want to just mow the lawn and water it and keep it from being a stinking, mud-infesting war zone? $100,000 Euros a year. How do I actually endow that park without having the money hijacked by whoever hijacked the money? Because obviously none of the economic energy is making it to that park in the middle of Naples. It might be a more worthy cause just giving a third of my money to the government as tax on my death, or two-thirds when I die for them to — whatever they’re doing, like, What could you say about a civilization that can’t keep its central park in its most important city in the province from being a stinking, post-apocalyptic zone?

Robert Breedlove: Right, it’s terrible.

Michael Saylor [1:19:29]: It’s one of my values! So people have wishes. They have a hard time realizing their wishes. There’s a lot of ways to do it, and the theoretical magic way to do it is: I create a program on a crypto network in cyberspace, it runs on a blockchain network — nobody can stop it, ever, it’s unstoppable code — it’s literally a magic spell! A less intense way is: I power it with crypto network and I use a combination of people and digital networks to do it. I think ultimately people can achieve what they want in a variety of ways. If I want to be fed, I can feed myself by hunting a deer, hunting some chickens, growing some corn — these are all different ways to achieve what you want. The real key is: I need to have mastered the technology of hunting, cultivating animals, wildlife, and farming. And if I have all three of those technologies on my fingertips that I can mix and match, then I can actually do something interesting. I think that’s the potential here. We talked about: Money is power. Any sufficiently advanced technology is indistinguishable from magic. So if you apply advanced technology to money, then you can give someone magic power. The source of magic power is providing an instruction into the digital and crypto network space and powering it with crypto network space such that you cast a spell in the future, or cast a curse into the future when you’re long gone. That’s real magic, right? Like, casting a curse 30 years after I die — that’s impressive magic! Less interesting but more practical is: I just want to cast a spell while I’m alive. And the magic spell I would cast, were I a magician, is I would go to that park in Naples and I’d wave my hand and it would become a beautiful paradise with gorgeous trees and nice grass and water flowing and cleanliness and safety and free ice cream cones for the kids and flowers and happy music and concerts on the green. And it would be like that forever, because that’s my magic! By the way, in fantasy, the great magicians, the demi-gods, the powerful wizards, they have magic power — they can do that! And the more powerful they are, the longer the spell lasts. So if I have $1 Million, I can do it for a year. If I have $100 Million, I can do it forever. If I have $1 Billion, I can allocate 10% of my power to do it there forever. Magic power, right? Money is power. You got enough money, you can snap your fingers, materialize a jet, it’ll fly you to Tokyo on 10 hours notice. It’ll cost you about $250,000, if that’s how you want to expend your energy. If you don’t have enough energy it doesn’t matter. If you don’t have $250,000 — right? The other part in those magic stories is the mere mortal that wants that same trip, their life force is sucked out of them and they’re aged 82 years and they die! If I take a middle-class person making $72,000 a year and they need to fly from New York to Tokyo for $250,000, that’s all the savings they’re ever gonna have! I just sucked their life force out of them to cast that spell. And so how much power do you have? And how much magic can you bring to bear? Look, John D. Rockefeller had magic. He just did it the old fashioned way. And his son did, John D. Rockefeller, Jr. They went to all the beautiful places on the Earth, they bought them all up, and then they ended up turning them into national parks. The US Virgin Islands is a Rockefeller Park. St. John, they bought. Acadia, they bought a lot of Mount Desert Island, made it a national park. Grand Tetons, they bought all that land, made it a national park. Most of the land up and down the Hudson River — between they and J.P. Morgan — they bought it and made it a state park. They were casting spells.

Robert Breedlove: And they turned it over to the governmental organization which was the best method he had at the time based on the technology, right?

Michael Saylor [1:24:40]: They gave it to the longest-lived sovereign power. They did the best they could do. And they played the cards that were dealt them: they had gold, they had state governments—by the way, most of the state and federal trusts, that law was written by lawyers paid for by Rockefeller — so they created a political system. You think 501c3 law just came out of nowhere? I mean, all of these laws, they were created! John D. Rockefeller’s son married Abby Aldrich. And Abby Aldrich, who became Abby Rockefeller — the richest woman in the world at the time — was the daughter of I think Nelson Aldrich. And Nelson Aldrich was the head of the Senate Banking Committee — happened to be key in the creation of the Federal Reserve — but he was one of the most powerful men in the country for quite a long time. And so there was an example where they were working to influence the political system, and critics say they influenced it to the detriment of people, but you can also see many ways they influenced it to the benefit of people! If you’ve ever enjoyed a national park, half of them are endowed by guys like Rockefeller!

Robert Breedlove [1:26:13]: Right. Interesting angle, yeah. Aldrich, of the Aldrich Plan, that failed right before the Federal Reserve Act.

Michael Saylor: Yeah he was — from all the way through 1920 or something — for 30 years he was dominant. The senator from Rhode Island. So I think that in a nutshell is my views on crypto. I think ultimately we’re moving into an exciting world where people are gonna be able to achieve great things with a variety of digital networks and crypto networks. What we can see right now for sure is: There is at least one successful crypto network — Bitcoin — there are many successful dominant digital networks — YouTube, Google, Facebook, Amazon, Apple, etc., plenty of them —and the future is gonna be defined by these networks, and you just gotta decide what’s the best tool for the problem? You can solve problems with people. I can pick up the phone, I can call you and I can say, Robert, buy me $100 Million worth of Bitcoin! And I solve the problem with a person. Or I can solve the problem with a digital network. I can go online on Binance and I can start like typing and trading, and I can buy $100 Million worth of Bitcoin. Or I could solve the problem with Uniswap — with a decentralized total crypto network. What will happen? The market will determine—what we know is that over time, what was done by people will start to be done with digital networks, and what was done by digital networks may in fact float into crypto networks to the extent that sovereign immortality is worth the trouble. And if you’re gonna make a crypto network — if they’re just doing it for regulatory arbitrage it’s probably got a 10-year life span and it’s shaky — because who’s gonna lay down in front of a tank for something like the difference between Binance and Uniswap? Would you sacrifice your life to try to trade on Uniswap instead of Binance? Because I wouldn’t! Let me tell you what they’ll lay down in front of a tank for: They’ll lay down in front of a tank for Freedom, for their Religious Values, for the Future of their Family, for the Future of their Ideology. If they have a passionate belief, they will lay down in front of a tank in order to defend it. The principles of Science and Justice and Humanity and Truth. Not everybody! But you don’t need everybody! You need the keepers of the flame. You need the maximalists. The 1% who are willing to fight and die for the principles. We hold these truths to be self-evident. We didn’t come up with it here today in this call. It was a basic truth that founded a lot of things including the United States of America. And if you go back to the Roman Republic, there were a lot of Romans when the Roman Republic was healthy, and they were willing to fight and die for Roman principles. To a certain extent, a lot of good Romans assassinated Julius Caesar because they thought they were fighting for Roman principles. And a lot of wars were fought over it. So if you really want a crypto to be successful over 100 years, the technology is only a part of it, right? It’s the ideology paired with the technology. And you’re gonna have to have an ideology that is so pure and so straightforward that people will fight to the death to defend the ideology. And that’s why I’m probably not gonna sacrifice my life for the 13th iteration on smart contracts! It’s not that important! On the other hand, if you tell me that we’re about to suck all of the economic energy out of the civilization and plunge ourselves into the Dark Ages, then I think I’ll fight for it. That’s worth fighting for.

[END]

Commentary:

Robert Breedlove [1:31:00]: Alright guys! That was Episode 8, and man! Just another big, deep dive into Bitcoin and its implications! Globally, really. So we started the episode out talking about how divinity of engineering. As Saylor mentioned, the beaver — which is the mascot for MIT — the reason the beaver is the mascot of this engineering-focused school, MIT, is because the beaver is really special! He actually goes into nature and harvests materials and re-sculpts the flow of rivers, frankly, by damming it and using his wits and ability to build a habitable structure for himself and his family when he goes to reproduce. So the beaver ends up being this symbol for this divine quality — that really life has — which is engineering. This divine quality of engineering has found its highest expression in Man. At least as far as we know, we are the animal most capable of harnessing this quality that the ancients would call the Logos, which is the ability to confront the chaos of nature, dissect it with the categorical capabilities of our mind and our words, communicate about its properties and qualities to learn about nature, and basically convert this unexplored territory into explored territory, and convert chaos into good and habitable order. And this is a really deep and ancient idea, but it’s something fundamental to life and to humans. And civilization itself we can think of as just a bubble of this habitable order amid the unlivable entropy of the universe. And you can see this even in like the Southeast United States, there were areas in say Mississippi that were just not habitable whatsoever prior to the invention of the air conditioner! So that’s maybe one extreme example but there were literally places — geographic locations on Earth — that we simply could not live until we became sufficiently advanced technologically. And Saylor has a great quote on this. He says, “Humans are divine when they engineer a better habitat for themselves and those they love through their intellect.” So again this to me points back to work, which Bitcoin—as we’ve discussed — it’s money rooted in proof of work as gold was. Work itself is a noble pursuit, right? It is the means by which we convert chaos into good and useful order, and I would argue that it elevates our timelessness. It’s actually allowing us to accomplish greater results with less efforts in terms of making productivity gains. It’s also lowering our time preference, making us more long-term oriented. And in this process we develop more morality, more selflessness even, and we also develop greater survivability as a species. So when the entropy of nature inevitably creeps in, we have the ability to respond to it. If there’s a natural disaster or something out of sort, we can harness resources from other pockets of civilization and channel them into the affected areas such that they can recuperate. So I thought that was just a really interesting topic, and it points towards the instrumentality of Bitcoin in helping us better focus on this divine quality. Bitcoin really is money purpose-built for entrepreneurial experimentation which involves engineering and problem-solving. Whereas you could look at something like fiat currency: much more based on bureaucratic theft. We’re talking about individuals and organizations that add no value to the productive economy and just siphon value off of those that do [out in 1:35:30] the world and engineer. So in that sense, by re-enabling and re-energizing work itself, we could view Bitcoin as a form of divine money, in a way. And then we got into Bitcoin as a medium of exchange. And in 2017 during the Bitcoin Cash fork wars, there was a bit of a delusion in related to this word “cash” in the whitepaper where Satoshi called Bitcoin originally peer-to-peer cash. And the thought was — at least by the Roger Vers of the world who represented Bitcoin Cash—that Bitcoin needed to be used in day-to-day transactions. What this is ignorant of actually is the original meaning of the word cash, which comes from the French word caisse, which meant money box. And this was used as a term in the 19th Century to indicate final settlement. So it was a bearer-asset money. Physical gold, physical silver was said to be cash. And only in the modern age have we sort of repurposed this word to mean the government debt certificates that we trade with today and call money. And knowing what a genius Satoshi was, I am confident he was clear on this meaning of cash, and did not mean Bitcoin needed to be used as a day-to-day medium of exchange to proliferate. And by the way, even if he did, it doesn’t matter, because the market selects the purpose and utility of a tool. So Bitcoin is being selected — has been selected — by the market as a store of value. And that’s the direction we think it’ll keep going. So the magic of Bitcoin if you will — as we’ve discussed in earlier episodes — is this ability to transfer monetary energy in a loss-minimized way. So you can send energy across time and space with minimal loss, essentially. And that’s what’s important, not the ability or speed or low transaction fee to move it at a high frequency — it just doesn’t make any sense. So to Saylor’s point on that, the Bitcoin network is optimized for suviveability — that’s what decentralization is, is that it’s a very slow and inefficient database, but with that slowness and inefficiency comes maximal redundancy. And with that redundancy comes resistance to large attacks, specifically nation-state level attacks, which would be the most powerful organizations in the world today. So if you needed a medium for high frequency transaction, so you’re always going to get more economy and efficiency by moving to a centralized system like PayPal, Venmo, Apple Pay, Visa, whatever. Because the database only needs to be updated once. Versus Bitcoin has to be replicated everywhere and nowhere across all nodes and miners. So that’s the trade-off and we’ll get into more of that shortly. But in a nutshell I like the description Saylor uses that Bitcoin is a low frequency medium of exchange, meaning you only need to move it occasionally, maybe never if you custody it correctly. But it’s a high frequency store of value. So every time you’re HODLing, you’re using it. So the people who argue that Bitcoin has no utility, they don’t understand this economic principle whatsoever. And further to that, even if you absolutely wanted to use Bitcoin as a medium of exchange, most tax codes in the world today are hostile to that. They’ll actually trigger capital gains realization at each transaction. [1:39:31] So it really suppresses its use as a medium of exchange. And another way to think about this — it gets a little more complicated — but actually when you’re holding something as a store of value, trades are not just with other people. Trades are also with ourselves. Like infinite slices of our future selves. So every time you choose to hold cash or hold Bitcoin or hold gold — cash in its original sense — and not trade it, you are basically trading with your future self. So you are giving away the opportunity that the cash could have otherwise been traded for — whatever its cash value in the market is, it could go out and buy you X assets — you’re forgoing those assets and choosing to hold the optionality of cash. Whereas those assets may have real yield! They may be productive assets, rent-generating real estate or whatever it may be, whereas hard money doesn’t actually create yield. So you’re actually—the most trades you do in life are not actually with present others but they are with your future self. All these infinite slices of your future self. Every action or inaction even is a set of trades with those future slices of yourself. So we could look at the actual store of value function truly being much more important as a medium of exchange than a present medium of exchange with present others. So that’s just an interesting way to conceive of money, that it’s something that you’re holding onto to have maximum optionality into the future, and that holding is a trade with you even though it’s not a trade with others. And this also dovetailed into why Saylor chooses not to compensate people in Bitcoin and why he thinks it’s a bad idea to do so, because again if you’re using it primarily as a store of value you may not sell it ever or for say at least 100 years. By choosing to compensate people in Bitcoin you’re accelerating that tax bill 100 years into the future, so that’s a really bad idea. You’re also increasing the accounting complexity of the business which would be the payer and the payee. They both need to mark Bitcoin to market at each point of transaction. You’d also be forcing — say if you’re compensating your employee with Bitcoin — you’re forcing them to sell it later to actually cover the tax bills generated as a result, so that doesn’t make a lot of sense. In a nutshell, as Saylor said, the ethos of Bitcoin is self-responsibility. So you should pay and settle in whatever the generally accepted medium of exchange is, the one the tax code is not hostile against, which tends to be currency. And then if you have savings — you have excess currency or excess assets — you would, as Saylor does, sweep them into your savings or your treasury for long-term storage. That’s the optimal and intelligent and low-complexity strategy. We get into a bit about how optionality itself is freedom. The more options you have the more free you are. And this has direct impact on the stability of society. Saylor quoted Robert Heiland who said, “An armed society is a polite society.” So to tie that back to Bitcoin and capital it’s like, when people have this option of capital flight — they have this perpetual option to move their money across domain, across time, across custodian — and settle finality nearly instantly, that governments and institutions and service providers, they’re gonna tend to be more respectful because the customer holding the capital has such a high degree of optionality. So you could think about this too: When you go to the amusement park, the food and drink cost in an amusement park tend to be really high. A soda that you may pay $3 for at your local convenience store might be $8–10 in that amusement park. And it’s because the amusement park has what’s called a captive audience premium. You have no other choice. You have no other options to buy food or drink once you are within the bounds of that amusement park, and they can effectively charge you monopoly-style prices. And if you look at Bitcoin capital through that lens it’s kind of removing that captive audience premium that legacy institutions or nation states tended to have over users. And we could say that if users have the ability to move the money whenever they want, they don’t actually need to, it’s just the fact that that option exists keeps everyone honest, keeps everyone listening to one another’s preferences, because no one wants the capital to move. So the point of this is that a symmetry of options, a symmetry of optionality between buyer and seller and stability of the rules and the protocols through which they interact, this is the bedrock of peace. This is what preserves peace. But when you get asymmetries, when one group has a lot of optionality over another, that’s when you get predatory treatment. And I would say central banking falls much more into that model, where they get this perpetual call option on society basically, that they can allocate cash into businesses, the shareholders values being increased, the dividends being paid, and if there’s ever a shock to the economy and the institutions that have deployed that capital into risky positions get wiped out, well the central bank just siphons more value from the productive economy through printing money and allocates again. So it’s a Heads I Win, Tails You Lose situation for central banks over productive economies. So Bitcoin is just eliminating this, this captive audience premium or asymmetry of optionality. Another way to think about this too is — to get back into Bitcoin is Money — we can actually consider the monetary premium itself on an asset as its optionality value. So the more tradable an asset is, the more a component of its market value is its expected future exchange. So for instance if ammo has a very specific use — it can be put into a gun and fired and a gun can be used to kill people or animals or whatever — but if in an environment of ammunition scarcity, people may also be willing to trade other goods and services for that ammunition, so that ammunition will start to trade at a premium not just for its utility value — not that its utility value has increased necessarily — but that its exchange value or its optionality value has increased. The extreme example of this would be gold. Gold has a — I think we’re at an almost $12 Trillion market cap for gold — the industrial demand for that is less than $2 Trillion, I want to say it’s closer to $1 Trillion. The rest of that demand or the rest of that market cap for gold is reservation demand for gold as money. It best fulfilled the properties of money which made it maximally exchangeable across space and time. In that lens too we could say that Bitcoin is like the world’s first pure money. It’s pure monetary premium. There’s not really an industrial use beneath it. Some have argued that actually the transaction network was kind of the original utility that bootstrapped its monetary premium into existence. Maybe you could make that argument. But the point is that it’s a tool of pure optionality, because it’s pure monetary premium. Whereas you could look at things that are less tradable, where a much larger part of their market value would be their use, their industrial use value versus their trading value. So money exists on this gradient is the point. Something that’s very not-tradable, high non-fungible, very specific — purple telescopes or something weird like that — it’d be valued just on its use, mostly just on its use. Not on its future expected exchange value. But something like Bitcoin and money itself — at the other end of the spectrum — is valued on its expected future exchange value. I think it was Naval said that Money is the bubble that never pops. Because this delta between market and industrial use value has been called a bubble by some people. But what it actually is underlying that is the value of the monetary properties giving rise to that exchangability. So that got us into Bitcoin as a unit of account. Saylor had a great quote on this. He expects that, “Bitcoin will be a universal language of economic truth.” I fully agree! It is the predictability of the supply of money that gives rise to its utility and pricing of goods and services with it. That’s what gold was, it had the most predictable supply of any monetary metal and that’s why all of the liquidity and market capitalization coalesced to gold. And that’s too for that reason we used to think actually in ounces of gold. Even dollars themselves represented ounces of gold originally. The time and energy of market actors that produce every good and service in the world, this tool — money, or gold — most closely mapped onto the absolute scarcity of time and energy. So gold was the supply curve that was closest to the absolute immutable perfectly scarce supply curve of time and energy. And this gave it the ability to basically generate prices that were generally the most stable — not saying that they enforced stability — but they tended to be most stable because gold had the lowest and most predictable inflation which also meant prices were more useful in calculation. They weren’t fluctuating wildly over time. And they were communicable. So we could actually start to just think in ounces of gold for goods and services instead of needing to think in all these countless exchange ratios — how many chairs a car is worth or whatever it may have been. So I agree that Bitcoin is gonna go that way. But as far as where it is today — I love this point — Saylor was saying there’s a lot of in-fighting in the crypto community about is Bitcoin gonna be the thing or Ethereum or this or that, but it’s all essentially pointless. The crypto-asset ecosystem at the time we recorded was around a $300 Billion pond sitting next to a $300 Trillion ocean of assets which a lot of them are just intended to hold value over time. Store of value assets — gold, bonds, real estate — all fall into this ocean. And that’s where our energy should be focused is actually carving a little spill-away from the ocean into the pond here, not competing amongst ourselves because frankly as we’ve covered in previous episodes, Bitcoin is just highly resistant to disruption as money. It’s not like other crypto-assets won’t succeed in something orthogonal to money, something that’s not in the market for money. There’s technology that may have other use cases, there’s a lot of theory out there. But today it’s just not proven! So I agree completely that our focus as educators or ambassadors for Bitcoin needs to be geared towards those still holding and interacting with these other alternative stores of value so they can understand why Bitcoin is possibly the sole store of value asset for the 21st Century, the only way you could successfully transfer value 100 years into the future with the least loss. So I agree with that completely. We then jumped into crypto versus digital networks. Again crypto network we can think of as a decentralized consensus model. And this is using Saylor’s nomenclature: The digital network would be centralized consensus. So just sort of one entity or decision-making body deciding. And there are different use cases for the two and there are different trade-offs between them, clearly. So crypto network would be useful for establishing what Saylor calls immortal sovereignty or antifragility, which means that they are able to persist over time. Decentralized crypto networks have a high degree of survivability and they impart properties like trust-minimization, security, and duration. So you don’t need to trust the centralized decision-making body. Instead you trust the aggregate self-interest of all market actors in a centralized network. And this is clearly gold or this is Bitcoin. Again gold — it’s not built on cryptography per se, but the inability of producers to create gold in a lab basically meant that the whole world was decentralized around gold as money. There was no political actor that could control it until central banks accumulated a large stake in the supply and started manipulating it in the gold derivatives market which we talked about before. On the other hand of the spectrum from a crypto network is a digital network. Which as opposed to survivability is useful for squeezing efficiency out of a system, eliminating redundancy. Where a decentralized network is gonna be fully redundant—you’re talking about all these nodes and miners all over the world all running a copy of Bitcoin and updating all the time, so it’s a huge expenditure of energy to establish your redundancy — a digital network is gonna just have one record base that can be updated very quickly, very low latency, very low redundancy. So the properties that it imparts are Economy, Performance, Functionality, and Compliance. And to draw back to — where you could say gold is decentralized money — you could say fiat is more like a centralized money. So because gold was expensive to move across space, we could introduce this centralized database on top of it called fiat currency that let us do ledger entries really quickly in gold. So we picked all of this transactability across space but we introduced this attack vector for intermediaries that actually compromised gold’s store of value function over time. The only market-proven crypto network in the world today is non-state digital store of value Bitcoin — everything else is theoretical. This is not to say that actually a digital network can’t evolve into a crypto network! It kind of reminded me of our earlier discussion of the Steel Age where newly charted industrial spaces tend to have monopolists won out in the beginning, and then those monopolists set standards, and then over time that market becomes commodified and tends back toward a more freely competitive domain based on this standard. So it’s as if a digital network could establish certain protocol standards for a decentralized network and then turn over the keys so to speak to the market. And then if there was sufficient demand for whatever utility it’s providing, it could become decentralized over time if you handled it correctly. We haven’t really seen that yet. We’ve seen some attempts at it but I don’t think we’ve seen it done really cleanly yet. But this evolution, a successful evolution from a digital to a crypto network, would require sufficient differentiation. One that would end up being useful as a competitive advantage in this market-driven natural selection process. Again I think Bitcoin has already run and won the race for money, so it would have to be a different market. And it’s difficult! It’d be really difficult to accomplish this differentiation given Bitcoin’s capacity to absorb a competitor’s feature set. In a biological sense we call this horizontal gene transfer. Where — Brandon Quittem has written and talked about this — Mycelium has this ability when it encounters a threat in the environment, if it neutralizes the threat and consumes it, a competing Mycelium or an insect or whatever, it can actually digest its genetic code and incorporate that information into its own genetic code! So we typically think of animals having vertical gene transfer from parent to offspring, but there’s something more competitive in nature — this horizontal gene transfer where you can just slurp up genetic material from competitors. And Bitcoin exhibits that in the digital domain! So the point is that the differentiation necessary for a digital network to evolve into a crypto network would have to overcome this horizontal gene transfer of Bitcoin as well, which would otherwise just absorb it and render the attempted evolution unnecessary. So finally we got into this concept of immortal sovereignty which I thought was just incredibly interesting. [1:59:33] You can think about this as channeling ones preferences beyond ones own life, and this is not a new idea actually. Saylor gave this general example of: If he wanted to buy flowers for everyone in his family for the next 100 years on their birthday, how would he accomplish that? He drew on examples from John D. Rockefeller and he said, Rockefeller would have established — using the tech of his time — to accomplish this “immortal sovereignty” by either establishing a non-profit foundation, an endowment, a university, or possibly even a national state park. But this necessitated really big numbers and was limited to just a few ultra-rich people that could do it. And again these are — when Rockefeller was alive I guess almost 100 years ago now, you’re talking about $100 Million in assets with $5 Million a year operating budget in 1920 Dollars. So big, big numbers were necessary to achieve this immortal sovereignty that Bitcoin delivers to us in a much more cost-effective way today! Additionally, no matter what you set up — foundation, endowment, university — you would still encounter this counterparty risk because you’d have to trust the institution, you’d have to trust the government protecting the institution. But Bitcoin gives us an interesting thing which is a monetary layer that enables us to dematerialize these institutions but still achieve similar — this immortal sovereignty if you will. And it does because you can actually assign the trustees — in say a multisig setup — keys to the funds to accomplish the aims of the digital foundation. But because their property rights wouldn’t be exposed to counterparty risk in the form of an institution or a government, they would actually gain a great deal of dynamism to roll with or get through geopolitical changes such that they could preserve the original mission of that institution. So you could think of it as immortal sovereignty at just a much lower cost! Which I think just speaks to the grander vision of Bitcoin, right? It’s like: Why do we have these stories like the nation state and universities organizing us, and what is possible when we instead maximize the sovereignty of the individual? Like how relevant do those institutions remain? The other example he gave is if you wanted to host your website reading material for 1,000 years into the future, you could code all kinds of interesting rules around that! Maybe requiring people to pass a test and become a certified student of your knowledge, and then maybe they gain a voting right to choose the next trustee of the institution, and it becomes this dynamic digital autonomous democratic organization that just rolls forward in time. It’s really wild when you imagine the possibilities. It points towards all the new institutional possibilities enabled by Bitcoin. Which in my opinion it calls into question the structure and the purpose of the firm today. So Bitcoin gives us this monetary layer capable of dematerializing these institutions we’ve needed in the past for sovereignty, to establish what Saylor called immortal sovereignty. And it does it in a way that empowers the trustees of these organizations to be self-sovereign, so that they can actually resist geopolitical sea changes and adapt to changes in political climates of the time. Whereas historically you would’ve needed to trust that institution itself, and should it be invaded in wartime or broken down due to a civil dispute within the country, then you would’ve lost the sovereignty that you would’ve vested trust in the state park or whatever the will you were trying to project beyond your life — its fate would’ve been vested with the survivability of the sovereignty of that institution. So Bitcoin—by being a monetary base layer that maximizes the sovereignty of individuals and being optimized for survivability —actually gives us a whole new way of establishing this immortal sovereignty across time! Another way to think about that is: Bitcoin is collapsing the cost of money, it’s collapsing transaction cost, it’s collapsing the costs of satisfying the functions of the central bank, and it also just collapses this cost of immortal sovereignty. Which again, the Rockefeller’s needed $100 Million in assets and a $5 Million annual operating budget to achieve to establish the Rockefeller Foundation. Now you can do that in theory at least with just a much smaller Bitcoin stash, some software, and some really long-term strategic thinking! So I like the analogy too that Saylor used: If you wanted to host your website reading materials for the course of 1,000 years, you could actually chop up the keys to that institution — the Bitcoin endowment for that institution — give it to 5 trustees, encode a set of rules such that people have to read your materials and pass a test to maybe gain a voting right so that they get to decide the [successor] to each trustee. And in that way the thing kind of becomes this decentralized autonomous organization over time that just preserves your will and testament which was to have this body of knowledge go into the future for the benefit of humanity. So I thought that was really cool and points to just the new possibilities that Bitcoin brings into the world! It not only causes us to question the purpose of the firm itself and other organizational models we use, but it’s also creating something that’s truly timeless. And this is where— Saylor called this, Creating monuments in cyberspace — I thought that was a really cool way to look at it, is that by gaining immortal sovereignty through Bitcoin-enabled institutions, we can actually create things that well-outlive us yet still are shaped and influenced by our living will and testment beyond our own life. Finally we got into a topic we touched on earlier which was that money is power. And we combined it with another topic that we touched on previously which was that sufficiently advanced technology is magic. So by combining these two concepts we’d say that a sufficiently advanced monetary technology is magical power, effectively! And it lets its users cast spells or cast curses. On the spell side we went into this park in Naples that as Saylor described was surrounded by wealth but for whatever reason was not receiving an allocation of that wealth to preserve the park and keep it pristine. So again to establish that immortal sovereignty historically they had to go out and buy up this land and basically turn it into national parks because they were then vesting their will and testament with the longest-lived sovereign power of the time — which was the nation state — to maximize the chances of preserving their intention across time. The point there was that the 501c3 non-profit foundation laws — they were actually written by Rockefeller’s attourneys! So this shows the relationship between money and government. The common misconception is that the government is the originator of money, but what is in fact true is that money is the originator of government! That wealth itself tends to shape the laws around it that determine its management, preservation, and distribution over time. On the other side where we were talking about casting a curse — we didn’t talk a lot about this but just thinking out loud, if you had an organization like Anonymous, which is this anonymous set of computer hackers distributed all over the world, you could in theory fund them in perpetuity with a Bitcoin-based smart contract enabled endowment that would effectively fund their hacking attempts or attempts to say dissolve the power structures of government or to remedy any government mistreatment of civilians — things like that. So it could be used in both a defensive way — say to defend the park in Naples — but it could also be used offensively to attack hostile organizations like national government. So that’s just an incredible way to think about how many ways Bitcoin not only shapes and influences our willpower and intention by lowering our time preference and elevating our morality, but also gives us this medium through which to project it over much longer time and space horizons! So it really is one of those tools that is just radically shaping who we are. We touched on the religious aspects of Bitcoin, but even if you just strip that out and said it’s just an ideology, it is perhaps one of the most pure and principled ideologies there’s ever been! If you respect Fairness, Equality, Natural Law, Thermodynamics, Mathematics, Freedom — that’s what Bitcoin positively embodies essentially! And such a pure and pristine ideology is something people find worth fighting and even dying for. So it does have these qualities of a religion or of its own independent nation state if you will. It’s just challenging all of our language even to describe what it is. Although we focus on its monetary properties exploring it as money by asking this question, What is Money?, I think we come to see Bitcoin as even much more than that. Or perhaps even saying money is much more than that! Money is foundational. It’s like the base operating system to all these other higher order operating systems we have like the nation states and religious institutions, etc. As I said once before, people come to Bitcoin for the profits, I think almost everyone’s drawn in by Number Go Up, but I think the people that really come and stay and find roots in Bitcoin and purpose and meaning and devoting their lives to this space, they stay for the principles! Bitcoin — come for the profits, stay for the principles. So that was it, that was Episode 8 guys. I hope you enjoyed that one. This has just been a dynamite series so far. We’ve got at least one episode left so I look forward to that and I’ll see you at the next one!

9/9 Economics, Inflation, Interest Rates, and Natural Competition

Robert Breedlove [03:27]: Alright guys, welcome back to Episode 9 of the Saylor Series. Today is another deep episode. We’re actually getting towards the end of the line here and covering some of the last ground in the macroeconomic domain and tying it back actually to some philosophy towards the end. Today we’re going to talk a bit about how Bitcoin is an elemental innovation, tying us back to Episode 1 where we discussed Stone Age technologies including Fire, Water, and Missiles. We’re making the case that Bitcoin is an elemental invention akin to one of these Stone Age technologies. Which as a reminder if you haven’t seen those prior episodes I highly recommend you go check those out because they build a long and strong intellectual edifice to get us to this point. Secondly we’re gonna talk about fiat currency and how it’s a contaminated form of money that leads to socioeconomic decay. And we’re gonna go into interest rates, an area that’s commonly misunderstood by even people that are typically considered financially sophisticated. Then we’re gonna talk a bit about central bank price manipulation, how that influences markets. We’re also gonna talk about market competition and the law of decimation and how that plays out in nature and throughout history. Then we’re gonna get into the philosophical domain, and we’re gonna touch on a bit of Stoicism and how Saylor has used this in his own life and how he sees its importance in markets in general. Finally we’ll leave off with a bit of discussion on antifragility and the vitality of life. So I’m excited for this one, another crazy episode with the incredibly brilliant Michael Saylor. So with that let’s dive in!

Robert Breedlove [05:30]: Sort of the purpose of humanity has been to channel energy through our intellect. It’s how we’ve developed everything, essentially! And I’m reminded of a quote by Alfred North Whitehead that I’ll paraphrase. He said that it’s common wisdom for people to say you should think before you act, but that in fact civilization advances by us being able to execute more important operations without having to think about them! So we’re actually — when we can embed these certain important actions in a protocol that we don’t need to think about as much, it frees us up to do other things — that’s kind of the layers upon which we’ve built civilization. It just seems like this Digital Age we’re going into is something radically new! It seems to be as profound as the Renaissance, or as profound as the Enlightenment! Do you see it that way? Are we co-evolving with the tools that we’re creating and that the next 500 years are gonna be something so fundamentally different than what history has been that it will be difficult to recognize it in a few hundred years?

Michael Saylor [06:48]: I do think that the creation of Bitcoin and the creation of the first effective crypto network is an elemental force that is a true invention akin to the discovery of fire or the discovery of atomic energy or the discovery of — we can make a list of a lot of fundamental things. Maybe one interesting thing is just the science of sterilization. Germs — modern medicine and the awareness and the importance of sterilizing instruments and the way that the disease spreads! Immunology. Once we figured that out, we were able to go from living 50 years to living 70 years because we realized that every time we entered into a medical procedure including the birth of a child, we were entering into a non-sterile environment that was life-threatening, soul-sucking, life-stealing. The death rate from childbirth was huge, right? The average life expectancy was short, and we needed that breakthrough to realize that we were swimming in germs, and the very simple solution is: Wash your hands! Sterilize your instruments! And you put that together with antibiotics and human life expectancy jumps by 50%! What if we’re actually doing economics with dirty money? And so we’ve been using monetary energy which is bleeding, right? It’s the same way as operating with non-sterile instruments, and the patient keeps dying and we don’t know why. The significance of Bitcoin is: We’re going from defective money, which is somewhere between toxic — it may just been ineffective, bleeding 2, 3, 4% a year—or it’s toxic when it gets to -10% or -15% real yield. So using toxic money, how is that different than using toxic instruments when I commit surgery on you? How is it different than feeding you toxic food? I think we’re breaking through this new world, we sterilize our instruments, we encrypt our money, we’re moving to a science of non-toxic economic energy. Madame Curie died of radiation poisoning. She died of cancer from the radiation. They didn’t realize that radiation killed you, that it caused cancer. There’s a lot of basics in life that we don’t understand. A big breakthrough in health was when we realized that sugar was toxic. My mother didn’t know that sugar was toxic! Conventional wisdom and governmental advice was you need your four favorite food groups and pursue a low-fat diet but starch and sugar was fine. And of course now we know that too much starch and too much sugar makes you insulin-resistant, makes you Type-2 diabetic, gives you cancer. My mother became diabetic, became overweight, got cancer. We thought it was just unfortunate. The doctors said, We don’t know why these things are happening, it’s just unfortunate. If I could go back in time I’d be like, I know exactly why it happens! I know exactly how to solve it now! Like, don’t eat sugar, don’t eat starch — stop eating! Fast! I never eat before 1 in the afternoon, I only eat in an 8-hour window and I’ll go 2–3 days and I won’t eat. I adopt fasting and I won’t drink anything with sugar in it. You want to live a long time, don’t dose yourself with sugar, it’s toxic! The instruments are toxic. The germs are toxic. We killed George Washington — we bled him to death! Toxic. The money is toxic. That’s fundamentally the issue. The money is toxic. I mean, that’s the fundamental issue with inflation, and if we segue into the discussion of inflation, everybody keeps thinking there is no inflation because everybody focuses upon a market basket of consumer goods. And if you look in the US and you look in Europe, they leave food and energy out of the basket of consumer goods and they say, We left out the highly volatile food and energy from the index. Well highly volatile means it went up! [And if you put them in, 12:06] the number would change! Volatility in other words is the signal! We’ve left out everything that actually changes in price from our price index. It literally is like a Jedi Mind Trick, and it’s like a triple mind trick. It’s like: We have a consumer price index and we’ve left the prices that vary out of the index. We have a consumer price index — well first of all it’s not a scalar, it’s a vector. It’s an indimensional vector dynamically changing in time — you’ve just created a scalar. We’ve created a market basket of things that we think you want. Yes, your basket is what I want! The market basket of things that you want does not include assets. No! I would never want to buy assets, only rich people buy assets! Poor people do not buy assets! How did poor people get rich? You have to buy assets to go from being poor to being rich. I didn’t go from being poor to being wealthy by not buying assets or not creating assets — you create them or you buy them. So the entire field of inflation is defective, and the irony is that 99% of the economists that talk about it, they’ve already accepted the notion that a market basket of consumer products and services is acceptable, and it’s acceptable to throw out energy and good. And I’ve never seen an economist say, Why don’t we actually define the things that a working 22-year old is gonna want to buy by the time they’re 32? And here’s one thing: Early retirement! I want to buy early retirement by the time I’m 32. How do I do that? I need to buy a bond that pays me $75,000 a year in interest risk-free, and I need for the $75,000 a year to pay my living expenses. And if the interest rate was 7% then I’d need $1 Million for that. But if the interest rate goes to 0.7% I’d need $10 Million for that. So from 2010 to 2020 the interest rate went down to 60 basis points on a 10-year government bond which meant that the bond went from $1 Million to $10 Million, which meant that the 22-year old was suffering from 22% inflation on early retirement! But because that’s not in the basket —because that’s not something that you would ever want to give them — there’s no inflation! You can actually track it and you can see that the inflation rate changes across a thousand different — if you just started with a simple principle: Inflation is a basket of products, services, or assets. If you just did that, that’s kind of the equivalent of saying, Oh it’s possible the Sun revolves around the Earth, it’s possible the Earth revolves around the Sun — let’s find out which! Has anybody ever asked the question whether or not the basket should include assets? Or products or services? No one’s even questioning the most basic premise! It’s pernicious rule of propaganda, and it’s attributed to Joseph Goebbels in the Nazi regime who said — and it’s also attributed to [Ogilvy 15:31], so maybe it’s apocryphal — but he said, All of our focus groups show us and tell us we can’t tell people what to think. But we can tell them what to think about! I cannot change your mind once you’ve made it up—and if you have an opinion — but I can get you to focus upon something. So if I just keep saying inflation, CPI, and it didn’t go up and this is what it is—When’s the last time 100 Million people said, What we really wanted to buy was early retirement? I didn’t even know that was a product I could buy! Because I couldn’t conceive of it! Well it is a product you can buy: It’s a government 30-year bond that yields 6% interest in a non-inflationary environment — that’s a risk-free retirement. You can buy that! Right now, the problem is at 140 basis points that would cost you $30 Million for $60,000 a year. How do I make that at $75,000 a year salary saving $15,000? If I’m making $500,000 a year and I save $100,000—you know, I pay $200,000 in tax, I make $300,000, I save $100,000 — if I save $100,000 for 20 years I’ve got $2 Million, and investing that in a government bond at 60 basis points or 100 basis points, you get nothing! [17:07] So the problem starts with the fact that inflation is misdefined. The right way to think about it is: Every single product, service, or asset has an inflation co-efficient. And the inflationary co-efficient, that’s the rate at which the price will change as I pump fiat into the money system. And so the co-efficients vary, and they’re a function of the scarcity of the asset, the demand of the asset, the information content of the asset, the material cost or the variable cost of the asset, and then the modularity of the asset. If I can stamp out the asset a million times out of a factory, it’s gonna be less inflationary because the fixed cost is higher and the variable cost is lower. Mobile phones will not be inflationary because everything’s in the fab. Software will not be inflationary because there’s no variable cost. Streaming music on Amazon Music or Apple Music will not be inflationary because I can stream it a billion times. A Picasso will be inflationary because there’s only 20, 50, 100. The best 5 acres of beachfront property in the middle of Miami Beach will be inflationary to the extent people want Miami Beach. 5 acres in Ohio will not be inflationary because there’s a lot of land in the world. The only land people want is in the middle of New York, the middle of London, the Hamptons, Miami Beach, the middle of LA, the middle of San Francisco, the middle of Tokyo. You fly across this country and look down, there’s enough land to park 10 Billion people on 5 acres each! It’s just gotta be in demand and scarce.

Robert Breedlove [19:05]: May I ask you a question about this? So the co-efficient itself in my mind would be a product of the scarcity of the good or service relative to the scarcity of the money it’s denominated in, such that if the money supply is outpacing the production of the good or service, that good or service would inflate in price, right? So to your point it’s not a single variable — it’s not CPI is inflation — everything has its own inflation rate. The second part of that question would be: Why is the narrative surrounding inflation so distorted? Do you think it’s intentional by governments that are clearly heavily indebted? I don’t see any equitable benefit to inflation whatsoever, it’s purely a mechanism for reallocating wealth, and I don’t understand why the narrative’s so distorted!

Michael Saylor [20:00]: 200 years ago people thought they had to bleed George Washington to death to save his life, and everybody agreed on it! The whole point of paradigm shifts is: Everybody agreed that the Sun revolved around the Earth. Everybody agreed the world was flat. Everybody agreed that humans would never fly. Everybody agrees on stuff until they realize that they’re just utterly and totally and horrifically wrong! So in this particular case, I blow a bunch of liquidity into the system. Let’s say there’s $50 Trillion worth of energy and I blow $10 Trillion worth of money in the system. So there’s still $50 Trillion worth of energy, but now the money is diluted by 20%, right? So if I have a product and I can measure the pure energy content of the product, then if it’s 100% pure energy, the price has gotta go up by 20% if I expand the money supply by 20% assuming it’s completely liquid and in demand. What’s an example of that? Maybe a bond! A pure financial instrument, something that —

Robert Breedlove: A ribeye!

Michael Saylor: Something that is tangible and you cannot produce it with any less energy. This is why proof of work in Bitcoin is [inaudible 21:36]. If it takes me a tangible amount of energy to produce that thing then it’s inflation co-efficient is going to be like 100%. And on the other hand, the cost to produce a streaming YouTube video, the energy content is 1% of the value added or the value of use. And 99% of the value-in-use is information and non-scarce information. So it’s got a variable cost of 1%. An iPhone’s got a variable cost of 30, 35, 40%. Everything’s got a different variable cost. Gold’s got a much higher variable cost, right? Because it’s holding its energy. So when you look at all these things you’ll be able to calculate different inflation co-efficients and therefore different inflation rates across an array of thousands of things. It’d be different inflation rates in New York City, Manhattan versus farmland in Kansas. It’d be different! So you can’t really say, Oh this asset class. There will be different inflation rates on different stocks. You notice that if the cash flows are likely to continue from the stock, or less affected by inflation, then it’s gonna go up. So I think the pernicious mistake everybody makes is: They don’t really think about energy density and information density of their products, services, and assets. They’re not applying conservation of energy. If the law of conservation of energy applies, when I increase the money supply by 20% and if the energy is constant, then all of the numbers have to change. And if they didn’t change on the deflationary products, they must have changed more on something else! So you can’t very well be printing 10% more money and not have the inflation. It’s just: We’re choosing to pick just 1% of the things that are inflated — the deflationary assets we put them in a bucket. And it’s almost too easy. If I get to throw out all assets, all real estate, all stocks, all bonds, and then I get to throw out energy, and then I get to throw away food, well how could you possibly generate inflation? Because you could print a hundred-kazillion-trillion-billion dollars and the cost of free, streaming Twitter and YouTube is not going up!

Robert Breedlove: Yeah! You’re throwing out anything that changes! So it’s self-defeating.

Michael Saylor [24:45]: So bottom line is: There’s no such thing as a free lunch, but the inflation that’s being reported is an irrelevant metric. I call it a metaphysical metric that’s been artificially defined in order to provide some comfort. And it’s working! The great majority of people, not only do they not think there’s inflation, you literally have politicians lamenting that they can’t create inflation and how important it is to create inflation, even as they’re inflating every scarce asset on Earth to the point where no one can afford — look, Robert, like, I’m a rich man! I’m a very wealthy man! I can’t afford to buy a house in the Hamptons! Like I’ll go look at these things and I’m like, Who’s paying $47 Million? They’re selling houses for $25 Million on 2 acres! I’m like, Are you guys out of your minds? Or you go to New York City and someone’s paying $25 Million for a 5,000 square foot apartment. $5,000 a square foot! At the end of the day, it’s obscene. And what you can see is: We’re running 10–20% inflation for the past decade, we’re just running it on all of the scarce luxury assets that have high energy value. I mean, what’s the definition of scarce, right? Maybe the definition of scarce is that it has high energy value, because if I could stamp out a billion-trillion of ’em for the same unit of energy I must be diluting the energy down, right?

Robert Breedlove: Right, right. Just take things that are hard to produce! So gold and Bitcoin are all inflating. And I would say that it is a lie, right? I’m not sure necessarily about the intentionality, you could argue about that. But it’s definitely a lie, that CPI is inflation. And it seems like it’s being used to cover up this widespread system of theft that is monetary inflation.

Michael Saylor [27:08]: I’m not even sure that they realize that it is theft or that they’re doing it! I’m half-convinced that 80% of the people in government don’t even realize that the inflation metric is a wrong metric and irrelevant! It’s like I’m burning myself to death and I’m calculating the temperature on the counter 6 feet away and I’m burning but I need to keep turning the thermostat down. And I guess it’s like they’re just not feeling the pain. And because of that it takes us to the issue of interest, right? If you think inflation is not coming so you keep printing money and you keep driving the interest rate down, the problem we have is really just a war on currency, a war on time, we render the money toxic if you hold the money. Once you understand that the real inflation rate is 10–15% because that’s how the assets were [clocking 28:10], then you realize that any currency you’re holding is draining energy from your life at 10% a year. It’s almost like I put in a battery that drains 1–2% a month. I can’t store energy! You know another metaphor for what happens in the human body when you can’t store energy? It’s like, Robert if I took you and I dropped you in the middle of the Arctic Circle and it was 20 below, your body would start losing energy at a rapid rate, you’d freeze to death. It’s literally like I come into your office and I crank the temperature down 20 degrees and I’m freezing you to death because I’m pulling the energy off your skin. And so what do you do? Insulate, cover up, right? But what if you can’t? If you’re a wealthy person you put on a fur coat, right? Or maybe you’re smart enough to realize: What do wealthy people do? You drop them in the Arctic and they get on their jet and they fly to the Caribbean where it’s warm because they can! And what do you do if you’re poor? I drop you in the Arctic, or even worse I go to your hometown and I just turn the temperature down to 20 below and you can’t leave! But you know it’s like I slowly freeze you to death. I don’t do it fast. You don’t even realize it’s happening if it happened at a gradual enough rate. It’s like, I know I’m working hard I’m just not getting ahead. I’m working hard but I’m not getting ahead, because every time I put money in the bank the price of everything keeps going up. The price of a house in Miami Beach it was $1 Million on the street where I live, and then it’s 2, 3, 4, 5, 8, $10 Million. I’m not talking about every decade, I’m talking about every year! I’m talking 2000–2010 during that administration we were printing money so fast that we had this housing boom and everybody that owned houses were happy — they’re refinancing their houses — but you look at it and you’re like, How is it possible that people bought this house in 1998 for $1 Million and I’m being asked to pay $10 Million for the same house? If you happen to be working for cash — it’s what Pomp would say — if you’re working for cash and paying taxes and then you’re putting the cash in the bank, then you’re suffering from inflation —

Robert Breedlove: Shadow tax.

Michael Saylor: Your life energy is being robbed from you! And so that actually takes us to this issue of real yield, right? If the actual nominal yield is 1.5% on the 30-year T-Bill or it’s 0% on short-term money, and if the asset inflation rate blended across all liquid assets — stocks and bonds and the like — it’s probably 15% right now, maybe 12, 13, 14, 15%. But let’s just say it’s only 10% just to be nice. Well then you’re looking at a real yield of -10%! You’ve never seen that number printed in any kind of public media. No one would dare say we have a negative real yield of -10%, it would create a panic! But if you did think negative real yield of -10%, what happens next? You cycle through and you say, Well, if my cash flows of the stock aren’t going up by more than 10%, that’s diluted. The only equity you can buy where you’re gonna make out on is where the company’s able to grow its cash flows more than 10% a year, right? And then you gotta buy it at a decent price. So if your cash flows are growing 20–30% a year maybe it’s good deal. That’s why people like tech like Facebook or Google or Amazon because they did for a while! I don’t know if they will going forward. It’s a lot harder, over the next 36 months it seems much less likely that you’ll see 20% cash flows. Will you see 10%? I don’t — what percentage of the S&P 500 will grow cash flows more than 10% this year? Any? 5%? 10%? Probably not more than 10%, right? We could figure it out but if you’re not doing that then you’re diluted. Of course that means that any fixed bonds that aren’t generating 10%, they’re long-term diluted. So where does that leave Bitcoin? Well Bitcoin’s got a positive real yield because you’re not getting hit with that -10% currency debasement.

Robert Breedlove: Let me ask you: Just to jump back a little bit to Bitcoin as a unit of account or a financial frame of reference. Do you suggest here that it is actually useful—I guess you could do this with either Bitcoin or gold — to look at the historic price charts denominated in Bitcoin or gold to strip out a lot of this central bank induced market manipulation via inflation?

Michael Saylor: I think that that will be a lot more useful in the next 10 years with Bitcoin. The first 10 years with Bitcoin, it was so developmental going from zero. You have this asymptotic zero number, so I think that if you look over the next 10 years that’ll become a valuable thing. People have done it in gold and I think it’s a more stable application because gold is a bit more stable through this time period. But again it’s manipulated to a certain extent and its got its own problems.

Robert Breedlove: This would help eliminate some confusion I think for people that think the S&P is just going up forever. If you actually denominate it in gold the chart doesn’t look that great, right? It had a boom in 2001 but it’s not been good ever since.

Michael Saylor [34:32]: If you simply divide it by the monetary supply, if the monetary supply is going up by 7% and the S&P is going up by 8%, then the overall market’s flat. And that makes sense because why do people think that stocks should always go up 8%? I’m in business, Robert, it’s hideously competitive! Do you think that we don’t have a competitive market for everything in this country? It’s obscenely competitive! And so what you’ve got if you look at the NASDAQ is you have like 5 companies — Apple, Amazon, Facebook, Google, Microsoft — those 5. And aren’t they responsible for like 80% of the game? Everybody else is competing and it’s a competitive market! And what does that mean? It means it’s hard to grow 20% a year because whenever you do anything someone else is copying you and they’re pushing on you. So unless you get a dominant digital network with a near-monopoly with these massive, exploding economies of scale on a zero variable cost, low variable cost, it’s very very difficult to perform. And most of the S&P isn’t! To the extent that the S&P isn’t Apple, Amazon, Facebook, Google, Microsoft, they’re just a bunch of companies competing with each other, so you would think that they would grow at the productivity growth rate of the overall company which is 2–3%. If you had hard money — by the way, coming back to that theory of Bitcoin network value — Bitcoin network value goes through the roof, skyrockets in the early days when there’s massive adoption and massive technology explosion, but in the later stages of the S-curve when it’s fully diffused and when it’s mature, it just grows with the GDP. It grows with the productivity of the people in the network. If they grow 2% a year, it grows 2% a year! So in a mature equity market you would expect equity indexes, equity prices to grow with the GDP. If they’re growing faster, it’s the monetary expansion, right? Expand the monetary supply 7%, expand the GDP 1%, S&P should go up 8%! It’s gonna be disproportionate. The big tech, the leading-edge, innovative tech, is gonna be double, triple, quadruple that, and then the trailing-edge laggards are gonna be tanking, and then everyone that’s working their asses off as hard as they can is gonna be barely keeping up! Because you have to do 100,000 things right just to stay in business in a real Darwinian capitalist economy. It’s like: Being flat means defeating 99% of the rest of the market — being flat. To be up, you have to, you know — Amazon’s up because they beat 15,000 companies! The next two are just slightly okay, and there’s some that are flat, and everybody else is destroyed because of the natural effect there.

Robert Breedlove [38:03]: This reminds me of the Red Queen from Alice in Wonderland who said, In my kingdom, everyone has to run as fast as they can just to stand still.

Michael Saylor: I’ll give you another example. There are 3,500 publicly traded companies. [To be the best you have to better than 38:36] 99.99% of humanity. That makes you the number 1 out of 10,000 people. If you were smarter than 99.99% of humanity, there are 750,000 people on the planet smarter than you! And 99% of them want what you have, if you have a billion dollars. If you have a publicly traded company, 99% of the people that are smarter than 10,000 other people don’t have what you have, and they can probably raise $1 Billion and chase you, right? They’re harder, they’re smarter, they’re faster, they’re stronger than you are! Like I’m sitting at a company — one of 3,500 — and the world is full of people that are smarter than me that can raise $1 Billion that want what we have, want what I have. That’s Darwinian competition! There’s the view from one side of the table which is, Oh yeah well you made it, you’re successful. There’s the deal on the other side of the table, which is: There’s a guy that’s gonna work 80 hours a week that’s gonna be surrounded with 100 other people that are gonna work 70 hours a week that are gonna raise infinite money that are going to target you and do everything they can to take their market from you. Now that’s a very humbling observation, that’s why you can’t rest on your laurels. There’s something beautiful in that terrifying concept! That’s what drives humanity forward!

Robert Breedlove: It keeps you honest, right?

Michael Saylor: It is the core of Stoicism and it reminds you, your best chance is to focus all of your energy, all of your assets on just this one thing that you’re gonna be the best in the world at, and you better stay humble! If I take my own business — I became public in 1998 — there’s a 99% mortality rate. 99 out of the 100 companies I competed with are gone. Out of my peers, I’m the only person — I’m talking about 100 publicly traded companies — there’s probably 500 CEOs that launched a company with 20, 30, 50, $100 Million of capital, and they’re all gone! That’s what the open market, the free market, will do. And it is what it is. I mean that’s why the human race is what they are. There’s always someone. And when they attack, if you’re distracted, if you’re arrogant, if you’re fat, dumb, happy, comfortable, they’re going to eat you! And if you’re half-focused or de-focused, they’re gonna take your arm off! And if you’re completely focused, you can react. If there’s something they’re doing that’s good, you channel it, you inherit it, you evolve, you live and you grow stronger. And otherwise you shrink and they squeeze you out of the entire market. There’s something I observed and again it’s very Stoic, it’s: Everybody thinks when you’re young you wanna acquire as much as you can acquire. So young men are acquisitive. Young business people are acquisitive. Can you acquire the thing? That’s generally the easiest hurdle to jump. The next question is: Can you maintain the thing? Can you stay competitive? That’s 10 times harder! And the biggest hurdle is: Are you going to be able to commercialize the thing or profit from it? Can you buy something or build something and continuously improve it forever so that you’re competitive and then do it in a manner that is cheaper such that you can charge more for it than it costs you to do that thing. That’s obscenely hard! So typically everybody think that they can acquire something, then when they realize the maintenance requirements they fail, and then very people ever get to the point where they could commercialize something. By the way you can apply it to a boat: Everybody wants to buy a boat, and then they’re like, Oh my God! This is really expensive to maintain a boat and I can’t afford to maintain the boat. But if they buy the boat, they gotta spend 10% a year to maintain it. And then at some point the question is, Can you enjoy the boat? They’re like, Oh! I’m spending all this money on the boat but I never have time to go and use the boat — this is just crazy! This is weighing around my neck! I gotta get rid of this! It’s an example of being too ambitious in your acquisitiveness, and it illustrates the law of decimation. And the law of decimation is: In the ancient Roman republic if the legion screwed up, they killed 1 out of every 10 men in the legion. Actually the made the 9 kill the 10th in order to remind them that they should stay disciplined.

Robert Breedlove: At random, right?

Michael Saylor [44:12]: Yeah, random. They didn’t kill them all because then there would be no legion left! But 1 out of 10 is gonna die if you break ranks and retreat so it was their ultimate punishment, the law of decimation. But you can apply it to anything in life, Robert, but it goes like this: The universe tends towards entropy and disorder. If something will go wrong it does go wrong. That’s Murphy’s law. The law of decimation is: 1/10th of all the moving parts in anything will break in any given year. If you have 10 employees, 1 will quit or become unhappy. If you have 10 moving parts, 1 will break. If you have 10 plans, 1 will blow up in your face. If you have 10 features, 1 of them will stop working. If you have 100? 10 of them will stop working. If you spend $100 Million on something, you have to spend $10 Million to maintain it. You’re gonna have to divert 10% of the cost of anything to maintain something. I talked about, Steel will last forever — if you maintain it! Most people don’t maintain it! It costs a lot of money to paint a steel ship. Most people, they budget for the acquisition, and then they underestimate the maintenance because they don’t have the humility or the life experience. This is the problem with building Rube Goldberg devices in the crypto network. That’s the problem with all the complexity with Etherium and all the complexity with some of these things: It sounds good on paper, but when you put 187 moving parts into something and when 1 of them breaks and the entire thing crashes and burns and you die, it wasn’t worth it! When you’re young, you overestimate the value of functionality and acquisition, and you underestimate how expensive it’s going to be to maintain things, and then you really underestimate this last issue: Can you enjoy it? This is a basic rule of life: Can I buy the thing? Can I maintain the thing? Can I enjoy the thing? Men are always reaching beyond their fingertips. Sometimes women too. They want too much. They’re empire-builders. This is why Napoleon should not have gone to Moscow. This is why Hitler should have not have gone to Moscow. This is why you don’t fight a war on two fronts. And this is the essence of Stoicism, but Stoicism is really a philosophy that is very consistent with thermodynamics and entropy and complexity theory. And if you’ve ever run anything complicated or built anything complicated or have been responsible for anything complicated, you know stuff breaks!

Robert Breedlove: Do you think this — we’ll call it a law of nature, this 10% of the components in a complex system break down yearly, annually, and require maintenance — is this connected to the religious tithing, do you think? Where you’re actually supposed to feed the flame with 10% of your profit to maintain the institution?

Michael Saylor [47:46]: I think it’s interesting the extent to which you see this 10% number pop up on an annual basis. 10% is the maintenance obligation on a boat. 10% is the tithing obligation for thousands of years. 10% is a reasonable estimate for a house with 187 light bulbs, 18 of ’em will burn out, right? It just pops up over and over again! And my only real explanation is just: friction, randomness, chaos, life, corrosion, weather, termites, bugs, bacteria. The same would be true with your body, right? If you’re talking about maintaining yourself. You’ve got to actually allocate time and energy to maintain yourself and a lot of times people under-invest in their own health. And then when they under-invest in those things they blame it on genetics or they blame it on some unfortunate occurrence. We don’t know why these this happened it’s very unfortunately — these things just happen sometimes. I’ll end with one thought on Stoicism. And Nicholas Taleb would appreciate this one too. It’s like, The words don’t matter — the action matters. Okay? Words are just words. And that applies to Stoics: you and me and Marcus Aurelius. I think one of the great paradoxes of history is Marcus Aurelius was the last emperor in the line of the Antonines during the golden age of Rome and there was Trajan, and there was Hadrian, Marcus Antoninus, etc., and for about 100 years that was the Pax Romana, and each of those emperors was elected based on virtue as an adult and he adopted his heir, and they typically adopted a 40-year old emperor who had had a career in the military of virtue and he was tough and responsible and grounded in reality. And if you’re a general in the army campaigning and you get drunk and screw around your soldiers put a knife in you! You’re not gonna make it! In order to keep the respect and stay alive in war-time around a bunch of guys with weapons, you better be a good leader and they better respect you because you’re leading them to their death, if they don’t respect you! So if you actually rose through that meritocracy, maybe you had a chance. So Marcus Aurelius writes the Meditations and it’s the quintessential text on Stoicism. And he says, Just because you can do a thing doesn’t mean you should do a thing. He said, Soon you will have forgotten all and all will have forgotten you, and you should know your place in the universe, and you should submit yourself and do the right thing for everyone else, and that’s all good! But at the end of the day, the single most important decision Marcus Aurelius made in his entire career, in his life, was the decision on an heir, and when it came time to make that decision he failed miserably and he appointed his son Commodus to be the emperor. And Commodus was a minor and of weak moral and intellectual constitution and in no way shape or form qualified to be emperor of all the known world. And by so doing that Marcus Aurelius plunged the Roman Empire into chaos and turmoil for hundreds of years, resulting in the deaths of millions if not tens or hundreds of millions of people — awful! Awful! And there’s your philosopher-king! He’s remembered today as somebody that’s written a good book and had been a great Stoic. But if you look at his actions, the actual action he took was the least Stoic, most foolish, most painful action of any of his forbears and it just makes the blood curdle!

Robert Breedlove [52:21]: Yeah! I’ve been anxiously waiting to talk about this actually because I’m a huge fan of Marcus Aurelius. That particular episode is documented somewhat well in the movie Gladiator for people that want to go out and watch it. But he is also known to have been one of the greatest emperors of all time, right? Up until that point where he made that fateful decision.

Michael Saylor: He was great until the succession. He had all of the power of the Western World in his hands. He had the keys, right? The crypto keys to all the wealth and power in the Roman Empire! In Gladiator it was implied that he was murdered by his son, but in the history books they’re pretty candid that he handed those keys to Commodus and Commodus was a disaster.

Robert Breedlove [53:14]: And he was that Platonic ideal of the philosopher king! Arguably the only successful philosopher king throughout history. And I think one of his other quotes that I really liked is, No man can lose any other life than he now lives, nor can he live any other life than he now loses. Stoicism’s been big in my life personally and I think it’s necessary for everything we’ve talked about today, for this eternal contention we have with reality. If you don’t adopt a Stoic philosophy, how do you keep yourself together?

Michael Saylor [53:55]: I think Stoicism is critical, and I think he was a good writer. I would even probably admit he was a good emperor until that final decision, which I just lay out as a paradox. And maybe it’s a warning and the warning is: You could live a great life and you can be a great writer and you can be a great thinker, but at any given point it’s always that last decision. You still have time to snatch defeat from the jaws of victory.

Robert Breedlove: Did he choose love over his principles? Was that what it was? Love for his son over principles of succession?

Michael Saylor: Presumably. You can read up on it and come to your own conclusions. It’s a short chapter. Our last point just on vitality: A synonym for antifragility could be genetic vitality, Darwinian vitality. If I’m evolving in response to threats as a life force, then I’m antifragile.

Robert Breedlove: And this was Darwin’s famous quote, It’s not the strongest, fastest, or smartest species that survives, but the one that’s most adaptive to change. Which makes it antifragile.

Michael Saylor: Which makes it over time the strongest! It’s just not in the near-term. Yeah, there’s a certain terrifying beauty in nature. There are no ugly animals. You look at a bird that is beautiful. You look at a lion in the wild, it’s beautiful. No one’s got a mangy coat, there’s no unhealthy anything, and that’s our ideal of beauty, right? We think nature is beautiful, all the trees are beautiful, the plants are beautiful, the birds are beautiful, they chirp their beautiful sounds, the flowers are beautiful. What they don’t really think about is what’s going on behind the scenes, because they’ve got this simple zoo backyard view of nature. The truth is, everything’s at its finest when tomorrow is uncertain. When the life of the creature is uncertain. I’ve actually got this beautiful banyan vine trees in the back of my house in Florida. One day on a beautiful sunny day I walked by and I stood and stared at the tree and I saw a bunch of ants running up and down. And when I traced the ants I saw that there were thousands of ants and I saw that there was a centipede. Some kind of millipede about a hundred times bigger than a normal ant. And those ants had decided that they’re going to eat that. They were actually gonna haul that millipede back to their queen as dinner. And they attacked it relentlessly, relentlessly. And I watched hundreds and hundreds and then thousands and then thousands of ants going into this one millipede. And it’s fighting for its life and I swear I watched for 45 minutes like a war non-stop on a beautiful sunny day. If you looked around you would’ve saw grass and blue sky and pretty water and birds chirping, but there was knock-down, drag-out war to devour this millipede and it’s fighting for its life. And I watched it crawl up the tree and the ants dragged it down and it did everything it could and they kept coming and it just had this horrific, terrifying, sad conclusion. It’s gonna die. Unless a massive rainstorm spins up to blow water down and create some disruption it’s got no chance. It’s going to get eaten alive. And it’s horrific and it’s terrifying, and that’s life! That’s nature! And then you start to realize, on all those pretty National Geographic TV shows, you see the lions attack the antelope or the gazelle and they try and this miss like, Well, no dinner for you tonight! No, the antelope trot off happy with their babies and the lions trot off happy with a little smirk. And everybody’s like, That’s about as much nature as they want! Nobody wants any more nature! When you think about it a bit more you realize, Well they’re gonna miss 3–4 days, they’re gonna hit 1 of those a week, and the 99% of them are gonna live but 1 of them is gonna die, and over 3 years they’re all gonna die. And over 3 years they were all gonna be eaten by the lions. And that’s nature! Every week that goes by, it’s like they’re clicking on a carousel. And the oldest one is getting slower, and a little bit more tired, and a little bit less flexible, and if they don’t get the old one, they’re gonna get the unlucky one. And that’s why every one of them is beautiful! Because they’re all in the prime of their life! And the same is true with all the predators: they’re all in the prime of their life. When they get a little bit old, a little bit hurt, they get driven out of the tribe or out of the pride and that’s the end of it. So in nature the life expectancy of those wolves or those predators or those lions is 5 years, and in the zoo it’s 15 years. Now if you want to see a fat, mangy, lame one, you’ll find one in the zoo. You won’t find one in the wild. And the same is true with the rest. And when those two herds, when they go at each other like that viciously, they’re both strengthening. You take away the wolves from the deer, the deer overpopulate, they eat all of the trees, the trees all die, the trees die, they destabilize the embankment of the river, the river erodes, the riverbank gets screwed up, all the greenery dies, all the deer are gone, all the wolves are gone. You wanna fix the river? You put the wolves back in. The wolves scare away the deer, the trees grow, the roots stabilize the bank, the river flows, all the wildlife returns. This beautiful thing we call nature is in continual dynamic equilibrium, and everything about it is getting stronger and harder and faster and getting culled all the time. And mother nature is supreme, and men with delusions that they will defeat her are gonna be disappointed, right? I guess the great challenge is this paradox: the paradox is the paradox of the engineer versus the zookeeper. We see nature, we want to engineer a better world for ourselves, and it can be done. But we can also reach too far and try too hard and try to make water flow uphill and try to make time flow backwards. We can try to shake our fist at mother nature, we can defeat all of those natural forces, and if we try to do that, the energy consumption goes up exponentially. And eventually it goes up to such a level that we deplete ourselves of energy, and we end up like those natives on Easter Island where you chop down every tree to build your monuments to your gods and pretty soon there’s no canoes and pretty soon there’s no fish and pretty soon there’s no food and pretty soon there’s no you! All you’ve got is your monuments to your god and you’re all dead because you depleted the energy in the ecosystem in pursuit of over-engineering your reality.

Robert Breedlove [1:02:11]: Let me ask you about that point, which I think is fantastic: it seems to me like the free market is the economic expression of that Darwinian equilibrium, and that possibly with the implementation of central banking, which is antithetical to a free market institution, that is it’s a monopoly. I guess in our attempt to over-engineer the economy we have disturbed that Darwinian equilibrium in the economy and that’s why we have all these haywire consequences like inflation and negative rates and so on and so forth?

Michael Saylor: Yeah we’ve stopped it, right? We’ve attempted to stop time and interfere with nature. We’re trying to freeze that dynamic equilibrium that’s being continually calculated all the time. We’re trying to turn nature into a zoo.

[END]

Commentary:

Robert Breedlove [1:03:38]: Okay! So that was Episode 9 of Saylor here at the Saylor Series and wow! What an episode! We started off this series actually with a discussion of Stone Age technologies, which Michael laid out his thesis of how mankind is the dominant animal in the world because we channel energy across time and space more intelligently than any other animal. And he really built the foundation by drilling into our use of fire, one of the primordial energy networks, our use of water as a hydraulic energy network for overcoming gravity, and our use of missiles for actually competing at a distance. And in that lens, if we consider that that is the overarching goal of humanity is to more intelligently or more precisely channel energy across time and space, Bitcoin is an elemental innovation. It’s the only system we’ve ever had throughout history that allows us to channel energy effectively at the speed of light, and store it in a way that is virtually totally loss-minimized. There’s no unexpected inflation for instance, and there’s very minimal transaction fees, just enough to sustain the network. [1:05:06] And you could contrast this with something like gold, which we touched on earlier, that just depreciates at 2% per year at least, or something like fiat currency which tends to depreciate much faster. So it takes a lot maybe to get to here. It’s a whole re-framing of your worldview, but I think Saylor just does an excellent job of that. And I love the example he gave describing immunology — another one of these elemental innovations — where we figured out antiseptics, we figured out how to use clean medical instruments and disinfectants and whatnot, and the discovery of penicillin for instance — all of these things that helped us insulate ourselves from the entropy of microbes to conduct medical and biological experiments and operations with less exposure to the entropy of nature just catapulted our life expectancy! Almost overnight it went from say 50-year average life expectancy to 70 years. So I wonder — and I love the way he described it as, Doing business, we’re conducting economics thus far in history with dirty money, with contaminated money. And you could analogize this to doing surgery with contaminated medical instruments! If you don’t decontaminate your medical instruments and you try to perform surgery on someone, you’re going to cause an infection and you’re going to cause death. And this was actually a major cause of death throughout most of history. So through a similar lens, if we’re trying to build socioeconomic systems using a money that’s contaminated with the uncertainty of inflation or confiscation or de-authorization, it tends to make me believe that the system that we would build would be more vulnerable to death as well! And I think that a quick study of history will show you that typically the debasement of money tends to presage the collapse of the civilization. So when the money becomes extra contaminated, this tends to be a specter or a harbinger of its ultimate demise. So I love this analogy! And it really gets into the entropy aspect again. We just consider that entropy is uncertainty. [1:07:35] We want medical instruments that are free from the uncertainty of microbial infection. We want economic instruments that are free from the uncertainty of inflation and de-authorization and confiscation. Like, it just makes sense. The more certainty we can add to our tool set whether in the medical or the economic domain, the more longevity we can give the organism or the organization, right? It just makes sense. And as Saylor said earlier, Monetary energy being the highest form of energy that humans can channel, and channeling energy across space and time being the highest aim of man, that effectively monetary energy is life energy! It gives us a claim on all other forms of energy. So we can think of encryption actually — I think Saylor Tweeted this at some point — that the destiny of all money is to be encrypted. We can think of encryption itself as a sterilization function or process for money. We’ve actually disinfected the money by encrypting its rules and its supply. That hearkens back to consumer packaged goods, when we’re able to vacuum seal foods and store food energy in a stable fashion at room temperature — that was a game changer! All of a sudden we had this abundance of economic surplus in food energy that we could distribute around the world, and this led to a surge in population growth. So all these analogies pointing back to this breakthrough that is Bitcoin that again we’ve been building on in earlier episodes I just found to be super-exciting! And then in that lens, Saylor also talked about the story of his mother being diabetic. And the connection I made there was that she was essentially following a governmental food advisory, just eating the typical food pyramid that governments — at least the US government — used to advise, which had carbs as the staple, the big thing at the bottom: bread, pasta, etc., and worked its way up. Whereas in fact, anyone that studied ketogenics and the paleodiets and whatnot, it tends to actually be the opposite: you want low-carb, high-fat or high protein diets. And it’s not the same, it’s not one size fits all, but a lot of diseases we suffer from today like diabetes is from excessive carb consumption. So the connection I made there was that this government food pyramid scheme or mistake — whatever you want to call it, whether the intention was good or bad — it’s actually rooted in the government fiat currency pyramid scheme, where we have contaminated the money. So we’ve contaminated even the ideologies we put out in terms of nutrition, and it just has these cascading effects. Inflation is not just contaminating our economic efforts, but it actually bleeds over into the biological domain. So as Saylor said, Fiat currency is toxic money. It’s just not sound. It is not entropy-free. It’s infected with entropy, and this has all these second-order effects with everything that it touches. [1:11:10] And the main problem is this misunderstanding about inflation. We have this whole economic sphere today focused on CPI as inflation. But it doesn’t make any sense at all. There’s deeper reasons why if you read a book like Human Action by Mises that you can can never have an index for inflation, because, sort of like value itself or beauty, it’s subjective, right? It’s based on the things that you individually desire, based on the course of your own goal-directed action, so there’s not a universal index that can fit everyone. Your own inflation number is a basket of these goods that you’re seeking. And the government metric is just taking what they assume to be things that are desirable, but exclude assets. So it’s like they’re excluding the fact that anyone wants to get wealthy, which is absurd. Also excluding food and energy and other volatile assets. Volatile meaning they changed in price! We’re talking about a metric that is intended to reflect price changes excluding things that changed in price. It is a non-starter, it’s absolutely crazy! And this is still the benchmark number that so many people are focused on and it’s just amazing to me that it still goes on. And the discussion flowed into understanding inflation, which for me I think this makes more sense which is: If you think about it in rate of change terms, as in how many Dollars are being produced? The growth in Dollar production relative to the growth in good or service production. If you pace a fiat currency production that’s outpacing the productivity gains or the output on a particular good or service, it’s going to inflate in price because you’re going to have more dollars chasing the same or only slightly growing goods or services. So another way to say that is: How energy-intensive is the good? The example that I like to think about is ribeye steak. We’re not gonna invent a technological breakthrough that makes cows grow faster. It still requires the same amount of sunlight and energy and time and processing to deliver a ribeye steak, and it turns out historically that actually the purchasing power of gold maps pretty nicely to ribeye steak, or cows more generally. [1:13:48] So in that way inflation is not a single universal phenomenon that we can peg to one index number. It’s occurring differently for every asset and every person in every place at every time. It’s just this undulating sphere of changing economic values. You can’t possibly just put a number to it and say that is inflation. Another way to say that is it’s just uneven across space and time. So you’re dumping new money supply into the system, that money itself is distributed unevenly, and then the aims of economic actors are shifting unevenly as well, supply and demand. So it’s just hubris to think that we could peg it all to one index number! To that point, Saylor makes a more sound argument that a more appropriate measure of inflation — knowing that we can’t peg it to a number — but what we can do is say, What are things that people generally desire, and how much are their prices changing year over year? He gave the example earlier of retirement, premier real estate, things like this — things that people actually want in life! You don’t go to work to think, I just want to put food on the table for the rest of my life. At some point you’d like to work towards an aim or a goal whether that’s a nice home, living in a nice neighborhood, possibly I love the example of early retirement where you can just buy a government bond that pays you a “risk-free” rate for the next 30 years, and looking at the price of government bonds and how much that’s jumped based on monetary policy. So I thought that was just a great example. It’s interesting because when you really get to first principles on it, fiat currency inflation as we define it is just an arbitrary increase in the money supply that adds no economic value to an economy whatsoever. It’s very important to understand that by “printing money”, you’re not infusing an economy with any new factors of production, whether this is human time, ingenuity, tools to put in factories, there’s nothing being added to the economy. You’ve just reshuffled the paper claims on those productive factors. You’ve taken away from those relying on fiat currency or the Dollar as a store of value. You’ve reallocated those claims to whoever can get their hands on the new printed money first and spend it first. So it is a mechanism for theft. I don’t know what else to call it, frankly. It only has one purpose. You can argue about the intentionality — whatever. I’m not going to debate that. I can just tell you that the tool, fiat currency — the inflation of fiat currency — has only one purpose: To reallocate wealth from some and allocate to others against their will. So I don’t know what else you could call it really besides theft. And it seems to me like this Keynesian ideology feels like a coverup! I don’t if they just believe what they’re saying about inflation. Saylor was arguing that they bled George Washington to death and they thought that was the best course of action — maybe that is the case! Maybe Keynesian economics are so deeply steeped in this ideology that they just can’t see their own hand in front of their face so to speak. Or perhaps it’s something more nefarious, more of a propaganda stick thing. But regardless, I love the point that — he tied this into an old German propaganda machine. He said: The studies show them that they can’t tell people what to think, but they can tell people what to think about. And it is amazing to me how many sophisticated investors I’ve talked to about Bitcoin and macroeconomics over the years, and people are just anchored to CPI as inflation. It’s as if this wool has just been pulled over their eyes, that they are satisfied with the answer presented to them versus thinking more deeply about it. And I can’t help think it’s related to this, right? It’s pushed as the representation of inflation and people just accept it at face value, which is just a really bad deal all the way around. [1:18:37] So we got into a bit of discussion about interest rates, and his analogy of actually suppressing interest rates is freezing out market participants or sucking the air out of the room. If you consider that the interest rate is the price of money, money is this tool for trading time and energy, we could consider that the interest rate is the price of time or energy, effectively. And when you try and suppress it, you’re fighting against the natural flow of time, if you will. It’s this misguided attempt to try and mute entropy that causes — Taleb would call this an iatrogenic effect. So it’s harm caused by the healer. When someone overmedicates — again back to George Washington — they thought they were helping George Washington by bleeding him, but they were actually hurting him. They actually killed him by doing that. You know, many doctors today will prescribe you a pill for your cholesterol or your anxiety or whatever it may be. Whereas in fact the right treatment of the core problem — not just a drug to cover up the symptoms — could be something more like removal. Elimination of certain foods from your diet or fasting or whatever it may be. And this to me, it points towards what central banks ostensibly at least have been trying to do, is that their explicit aim is price stability and low unemployment. So price stability, you’re saying that you want supply and demand worldwide to be like consistently close enough to keep prices stable. It just doesn’t make any sense. You’re arguing against the entropy of nature again. And when you try and artificially inflate the money supply to create this veneer of stability, you’re actually just delaying — first of all you’re manipulating market prices — supply and demand, buyers and sellers, are having trouble getting matched up correctly, which is what the market does because of this distortion in the marketplace. But you’re also delaying and exacerbating the ultimate correction, because you can’t fool economic reality. In that way I see — the vision I have in mind — is central banking is kind of like an air conditioner. An air conditioner is a heat pump, so it’s pulling entropy out of the room. It’s not actually putting cold air into the room, it’s pulling hot air out of the room, or heat energy out of the room. And if you’ve ever stood behind an air conditioner, you’ll feel it! You’ll feel the heat coming off of it that it’s pumping out of that room that it’s air conditioning. And it seems like a central bank is trying to accomplish that in a way, it’s trying to paper over the entropy, the natural entropy of price stability and unemployment. But in doing so it’s pumping out — it’s creating certainty for its shareholders, let’s say , so it’s decreasing entropy for its shareholders—but it’s pumping out entropy onto broader society in the form of price distortions, an exacerbated boom and bust business cycle, and you could even throw warfare in there! Central banks were originally set up to fund warfare, to give governments a virtual limitless mechanism for funding the war. Where instead of just needing to rely on their own savings they could just print money and siphon savings off the entire productive economy. So that’s my central banking air conditioning analogy, that it’s trying to cool the room for its shareholders but it’s pumping heat onto broader society and it’s just disastrous. [1:22:52] So we got into the relationship between inflation rates and the risk-free rate. The risk-free rate would be yield on government bonds. So in finance we say that — and this is a “risk-free” rate — that the US government for instance cannot default on its debt because it can always just print more money to pay its principle. What that actually means is that it can never default on its debt because it can externalize the cost of that debt onto society via inflation. So that’s your risk-free rate, whatever the US 10 or 30-year treasury is yielding. And then there’s the inflation rate — again not CPI — our proxy is how quickly is the US M2 increasing on a percentage basis. And the delta between these two is a negative real yield! If I can only get 2% on US treasuries — it’s lower than that today — but US M2 is growing at 15% year over year, it’s expected to do that over the next few years, then I’ve got a negative real yield of of -13%! So unless I’m growing my business or my own personal cash flows by more than 13% year over year, then I’m being diluted! I’m losing money! So this is the hurdle rate, basically, to use another investment term. You need to at least exceed the delta between inflation and the risk-free rate to even be accretive to your business or your household, whatever it may be. So the only way to do this is you need to buy an equity — and a lot of people are doing this — they’re buying equities as a store of value that is expected to appreciate faster than that negative real yield. A lot of this is in tech because tech has just a ton of productivity gains associated with it, and it had a great decade so there start to be market actor expectations built into the price, where if you look at the P/E ratio of something like Zoom or even Tesla or Facebook, they’re astronomically high relative to historic averages! Another way to think about that is: There’s nowhere to store your value that’s safe except these equities that are expected to grow and outpace the hurdle rate and remain relatively scarce. So that leaves with these bonds that are yielding less than the inflation rate, they’re long-term dilutive, and then those negative real yields, that’s driving and incentivizing people to buy scarce assets. Again: equities, real estate, gold, and then this is also the bucket you put Bitcoin’s value prop in, is that it’s the scarcest liquid asset in human history, so of course it’s gonna benefit from this centrally planned market manipulation in both the bond and the fiat currency markets. And we talked a bit about this, just one way to strip out central banking market manipulation and get an honest assessment of what’s going on, is to just price the index in gold or Bitcoin — again Bitcoin’s a bit more noisy because it’s emergent — gold has a much longer history. Or to Saylor’s point you could also price it in the change in money supply. And this will strip out a lot of the manipulation. So if you look at the past decade in the S&P, it’s been one long bull market — you price that same chart in gold, it’s flat. There hasn’t been a lot. So that’s I think really important as far as changing your economic frame of reference, which is what’s so tricky about talking about these things, about like What is Money? [1:26:51] Because it’s an a priori perception. An a priori means “no priors.” You’re looking at what is looking, so to speak. And people just — the a priori economic way in which we’re in today is Dollars for most people: this is what they think in, that’s what they trade in and negotiate in. But you have to look at the dilution occurring in that frame of reference, which is the Dollar. So it’s a bit of a meta-thinking, but it’s really important for coming to sound economic conclusions and calculations. Then we got into the competition and the law of decimation. Saylor made the point that, Even if you’re smarter than 99% — say you are one of the top 0.1% most intelligent people in the world, you were smarter than 99.99% of humanity, there are still on this planet 750,000 people smarter than you! That was just crazy to me to think of it that way. And in the digital age, I think what we’re entering into is this Age of Excellency almost where because the bounds of location have been lifted through digital tools and technologies, it’s no longer good enough to just be the best local guy at whatever it is — singing, for instance. Maybe you’re a Billy Joel impersonator or something. It’s no longer a good career strategy to just be the best Billy Joel impersonator in your neighborhood. Because people have YouTube now! They can go and look at the best Billy Joel impersonator of all time, or maybe even Billy Joel himself, and they can seek their entertainment there. So you start competing for audience with the best of the best in any domain that can be conducted remotely, which increasingly is every domain. So this means that excellency is gonna have more of a tendency to rise to the surface, and that markets more typically are gonna converge on winner-take-all dynamics. It changes things a lot! This non-locality or not being bound by geography really changes the game a lot in a lot of ways. So Saylor’s point was: You’ve got to focus your energies to compete well on your speciality — whatever that is, whatever skillset or unique ability you have, whatever gift you might have — and you’ve got to stay humble, and you really have to focus on that, developing it to the best of your ability, but also maintain the humility I think necessary to succeed and learn and grow. [1:29:44] Any time — as he was describing his experiences at Microstrategy, it’s ferociously competitive! — any time you become arrogant or comfortable or resting on your laurels, 1 of those 750,000 are just gonna eat you up! They could go out, raise a bunch of money, they want what you have by definition if you’re successful. If anything, digital tech has made the world more fiercely competitive, which I thought was really interesting. As far as the law of decimation, we brought up the point that in Ancient Rome, the law of decimation was: Any time the soldiers broke ranks or retreated, 10% of them would randomly be put to death, and they would make the other 9 put the 10th to death. And what this was was a massive disincentive to malperformance. Everyone had a big incentive to hold the line so to speak, and to act in a concerted effort, because if they didn’t, if they got fearful or started operating in their own individual best interest in a battle, when you need the collective effort of the battalion to win, then they’re engaging in this lottery where either they’re gonna be put to death or at least 1 in 10 of their friends is gonna be put to death. A really good system for inducing skin in the game. And it turns out that this is—again getting back to the natural law — it’s sort of a reflection of what we observe in nature, in that 1 in 10 of any system with 10 moving parts, 1 is gonna break down over a year, roughly. A 10% breakdown in parts or features per year! I observe that as just being —again we’re creating these systems that are intended to confront the entropy of nature and deal with it in certain ways — well that has a cost, right? And every year, by some universal magic that number tends to be about 10%. And this pointed back to steel: as Saylor referred to, Steel will last forever if you maintain it! So you need to expend the 10% per year painting it to maintain it. Maybe this is also related to the religious tithing which we see as a 10% contribution annually to the institution — and that’s across a number of religions. And I think this too points to a strength of Bitcoin, is that it actually has minimized moving parts. And it’s open source so anything that does break down, there’s as many eyes on it as possible to repair it. But it minimizes its — say in comparison to Ethereum that just has countless moving parts — it’s gonna suffer more from this law of decimation over time than something like Bitcoin will, which optimizes for survivability. Finally we got into the philosophy of Stoicism. And this is a philosophy which ties back into everything that we’ve been talking about: It’s consistent with thermodynamics. So again if we’re just saying it in a purely physics sense, Truth is an accurate portrayal of reality. We know that everything in the universe is energy. So therefore conservation of energy — which is the first law of thermodynamics — that is truthfulness! So the systems, the strategies, the techniques, the businesses, the individuals that optimize for energy conservation — this doesn’t just mean defending all of the energy you have, you can actually increase energy efficiency through innovation. So being exploratory, figuring out a new way of doing things can actually add to your energy efficiency as well. So there’s this ratcheting effect between defending what you’ve gained and gaining new innovation. So Stoicism is this thermodynamic philosophy if you will, which I think is so cool, that it’s a way that many of the ancients accorded their behavior, and it directly maps onto innovation and general biological success. So the Stoic — again we had this law of decimation, we had these systems encountering the chaos of nature, there’s a little bit of breakdown over time — the Stoic embraces that! The Stoic knows and willingly embraces death, the potential death of your child, the potential loss of your business or your fortune. There are all these practices when you get into Stoicism like negative visualization, where you may imagine for instance the next time you hug your mother, you just imagine that that may be the last time that you ever hug her. And through that mental practice you’re actually training yourself to be more grateful for something in the moment, and you’re preparing yourself for the inevitable loss that will come, right? Your mother will be gone one day. So Stoicism is a deep rabbit hole in an unto itself. And I’ll just leave it at one example. I just thought it was really cool that Stoics embrace entropy and choose to accept it and strive on valiantly nonetheless. And I think that’s the only proper approach to life if you’re gonna be successful. Saylor went into a paradox of Marcus Aurelius which I had ever heard before — I’m a big fan of Marcus. Marcus was this great philosopher king, great writer, but in the end, sort of blew it on one decision. And Saylor’s point here was, Words don’t matter, actions do, ultimately. And even one action can undo a lifetime of good action. This reminded me of Taleb’s, Don’t tell me what you think, just show me what’s in your portfolio. It’s more about what actions you take with skin in the game versus your cognitive beliefs. And for me personally I tied this back to religion actually is that, people always want to argue, Do you believe in God? Do you not believe in God? I love Jordan Peterson’s answer to this: I act as if God exists! God doesn’t care about my cognitive beliefs, it’s more about my embodied action and my moral behavior that really matters in the world. So it’s a bit of an Occam’s Razor thing there. But anyways, the story of Marcus is, he had the keys to the kingdom. One of the most successful emperors of all time, he was the Platonic ideal of the philosopher king, and on his final decision essentially as emperor of Rome, decided to break duty, break with tradition, break with the Stoic protocol if you will of appointing the most competent man for the job for succession, and instead appointed Commodus, which was his son. And there’s something really deep here. There’s this age-old struggle between duty and love. I don’t know—this one left me thinking! So I’d be excited to hear some of your guys’ feedback on this. But it’s really fascinating to me that we had this guy we’d held in such high regard and then at the last yard-line so to speak he just fumbled the ball! But I don’t know if this was based on love for his son or something else, but it’d be really interesting, right? If he made this decision out of love so to speak, yet it still proved to be wrong decision for civilization. Just a mind-bending thing, but I thought it was super interesting. And the warning there is: You can live a good life, you can be a good leader, a good writer, whatever, but you have to always remain humble and never become arrogant no matter how much success you’ve had because there’s always that opportunity to snatch defeat from the jaws of victory, as Saylor put it, which I thought was brilliant. Then finally we completed the episode with a discussion of antifragility and vitality. And I love this point that animals in the wild are all beautiful because they’re constantly being conditioned against the chaos of nature! Once they went past the tipping point of misfitness they’re no longer serving their highest and best function in the world, something else eats them. They’re gone. So it’s nature rolling forward and becoming better through this process, this dynamic equilibrium between predator and prey, and it’s this Darwinian natural selection that’s constantly promulgating excellence and beauty in the world. And it’s great to behold! If you’ve ever watched a nature documentary it’s one of the most awe-inspiring things I think that we can watch! So another way to think about this is just nature constantly sharpening her own strategies against herself. So the strategies of animals — the survival strategies — are constantly being tested against the environment. And those that succeed roll forward and those that do not are weeded out and so you’re left with by definition the most fit creature for its environment. When we try and disturb that dynamic equilibrium we’re just exacerbating that correction. Instead of having these little corrections along the way, we’re giving time for the strategy and the environment to diverge significantly to where an ultimate cataclysmic return is necessary. That’s what nature does! It always selects and it always restores balance. So all of that tying back into — again when I think that central banking is just a failure of an institution because it’s tried to over-engineer this dynamic equilibrium of nature where we have price instability and unemployment as a natural product of the business cycle, it’s trying to paper over that, it’s trying to eliminate this dynamic equilibrium and create something that’s predictable. It’s trying to subdue the entropy of nature if you will, which could be a good intention but clearly has a poor result, which leads to suppressed interest rates which is like trying to reverse the flow of time. So it’s all of this effort going countervailing to nature that always fails! That’s the core point here. It turns nature into a zoo! Right? We said that every animal is beautiful, but if you really want to see some not-beautiful animals you can actually go to a zoo. They’re sad, they’re in a cage, they’re not fulfilling the function for which they were evolved, and I think central banking sort of turns society into a zoo. It softens us — in this process of trying to “protect us” from price instability and unemployment, it’s actually reducing our skin in the game, softening us, externalizing entropy onto society. So yeah! Just another awesome episode. Hope you guys enjoyed this. Saylor and I are gonna do at least 1 more episode, maybe more after that, we’re gonna see how it goes. But I hope you enjoyed this one as much as I did, and I’ll see you here again soon! Thanks!