[00:03:21] Lyn Alden: And so these things really matter from a domestic perspective, a geopolitical perspective. And anytime someone studies a field, they tend to believe that that thing is like the core of a lot of other things, right? So I, I try not to overstate things and say, okay, literally everything in the world can be tied back to money.

[00:03:40] Lyn Alden: You know, it’s not really the case. I mean, we have, the world’s a complex place. There’s human nature. There’s just the rules of physics, for example. There’s just limitations for how the world works. There’s always going to be conflicts and challenges and things to overcome, but money along with energy and a few other key things like that, are clearly among the foundations of power and how we interact with each other and who really has kind of control over others.

[00:04:05] Preston Pysh: In the first part, we talked about ledgers. We talked about commodity money. We talked about why each of them exist, why each of them have benefits and setbacks in their use. We, you so eloquently lay out the importance of, of the telegram, being able to communicate and send information at the speed of light from Europe to the United States and how you can manage ledgers this way in a much more cost efficient way, but you’re not able to immediately settle.

[00:04:37] Preston Pysh: So as we look at this new innovation, Bitcoin, blockchains all of this, what is this enabling that has never been like truly at the essence and first principles? What is that enabling that hasn’t been able to be enabled historically up until, I would say two, two things.

[00:04:55] Lyn Alden: One would be instant settlements throughout human history, information and material could only move as fast as humans.

[00:05:03] Lyn Alden: So, you know, you can’t, a thousand years ago, Europe and China could not instantly send information or value to each other. You had to move along the Silk Road to do it. And ever since the invention of the telegraph, and specifically the deployment of the telegraph throughout the 1850s, 1860s and globally, by the early 20th century, we’ve had the ability to send information around the world instantly, which includes transaction agreements.

[00:05:26] Lyn Alden: Whereas of course, physical settlement of precious metals and other value can only happen at the speed of matter transportation. And more importantly, not just transporting it, but also identifying it. Basically all the logistics of securing and authenticating that value. And once we had more bandwidth, once we had more complex encryption, once we had more complex organizational structures, what the invention of Bitcoin is in a way, is the first introduction of a credible way to settle final value nearly as quickly as we can do transactions.

[00:06:01] Lyn Alden: The kind of the first period of human history was everything slow. And then the period of history from the telegraph up till right before Bitcoin was, transactions are fast, but settlements are slow. And post Bitcoin, we’re in a world where final value is fast as well. So transactions and settlements could all move roughly at the speed of light.

[00:06:20] Lyn Alden: The second thing, I think, is the ability to build a credibly decentralized ledger. So, you know, until this point, any ledger is controlled by humans is centralized. So you know, a central bank runs the monetary ledger for their country. For example, a bank runs the ledger for their clients, and we basically build ourselves with a hierarchy of ledgers.

[00:06:43] Lyn Alden: So there’s like smaller ledgers built on top of bigger ledgers, and the foundation is the central bank and it’s just a centrally controlled ledger where they get, determine how many units there are. They could determine who gets to use those units. They could take units from some others. They could re, they could redeploy those units and they can double the amount of units.

[00:07:02] Lyn Alden: They can triple the amount of units, they can cut the number of units in half. And what Bitcoin is interesting is that it’s a ledger, but no single entity is in control of that ledger unless they’re willing and able to expend so much physical resources that they can control the majority of the hash rate.

[00:07:19] Lyn Alden: And even then, they’re still like stuck by the rules of the nodes, which are themselves decentralized as well. And so it’s very hard to gain even partial control over the ledger and it’s nearly impossible to, to gain complete control over the ledger. So it’s easier to censor transactions than it is to make more Bitcoin, for example.

[00:07:38] Lyn Alden: But that’s what this kind of represents. It’s a way for humanity to have a credible scarce unit, ledger system backed by energy and backed by encryption. Essentially controlled by a more distributed set of users rather than say, 12 people to Federal Reserve.

[00:07:55] Preston Pysh: So you say it’s backed by energy, so it’s not just a ledger.

[00:08:00] Preston Pysh: It’s also this commodity money simultaneously, and we’ve never, we’ve never seen something like that before. That you’re able to have saleable commodity money that instantly settles. You write in your book, and I’m, I’m just going to read this quote here. It’s not an accident that it took approximately a century and a half after transactions were enabled to occur at the speed of light for bare asset settlement to also occur at the speed of light.

[00:08:27] Preston Pysh: If I were to describe in one paragraph why money has been broken around the world for so long, while almost everything else has improved substantially, and you list energy, abundance, technology, abundance, and so forth, it’s due to this gap between transaction and settlement speeds that the telecommunication era created.

[00:08:45] Preston Pysh: Any comments on, on that summarization of, ’cause really you’re saying in that paragraph, this is what this is all about in the future is, is exactly that.

[00:08:55] Lyn Alden: Yeah, as, as I would say during the century and a half where that gap existed, the problem is that the only way to fulfill the gap is basically centralization.

[00:09:03] Lyn Alden: You know, you have gold that doesn’t move quickly. You have transactions that can move quickly. And so the question becomes who do you trust to manage that gap between transactions and settlements, because that necessarily exists in a state of credit. So who is the ultimate arbiter and maintainer of that credit ledger?

[00:09:20] Lyn Alden: And so basically, throughout human history, and especially this past century and a half, most of the physical shortcomings of money, you know, whether they’re lack of divisibility, whether they’re lack of speed, whatever the case may be. Most of those were handled with various technologies or, or new procedures that make them more efficient, but at the cost of centralization.

[00:09:41] Lyn Alden: So it’s far easier to use bank notes or credit cards and things like that than it is to exchange gold and silver coins with each other, especially for operating in a, in a complex global society. And so we give up, you know, we get all these benefits, but we give up control towards these central entities that can control that abstraction layer, which in this modern era has been nation states nation states and their, the banking systems that they control.

[00:10:06] Lyn Alden: And so what’s interesting is that Bitcoin is kind of this first kind of trend change, potential trend change, where it says, here’s another efficient way to do it. And this is the first one that doesn’t further centralize it. It actually decentralizes it while still giving you those benefits of speed.

[00:10:23] Lyn Alden: And other capabilities. And I think that’s kind of why so many people are interested in Bitcoin. You know, from an outside perspective, if you’re in the United States or Europe and your money works well enough, you know, you’re not worried about getting cut off in your bank and you’re, you buy your groceries every week and it’s not a problem.

[00:10:41] Lyn Alden: When you look more globally, it’s a much bigger problem. You know, there’s 160 different fiat currencies in the world. The long tail of most of them are, don’t hold their value, don’t have any global acceptance. And so it’s very hard for people to save in liquid value. You know, we, we, in the United States, we think, okay, so the dollar degrades slowly.

[00:11:00] Lyn Alden: So you got to buy real estate, you got to buy stocks, you got to buy all these other things. And that’s, you know, it works, works well enough. You know, I think as I cover in the book, there’s downsides to that whole system, but it’s workable. Whereas, say you go to Egypt, the currency degrades much quicker. The stock market is not robust enough to put serious money into, so people put it into real estate, which is illiquid.

[00:11:21] Lyn Alden: And then you have all these like empty homes because for lack, it’s like if you want to save, well go, go build a home and maybe you’ll build a rent out in the future. And so it’s very hard for developing countries, people in developing countries to accumulate liquid capital. And that is a friction that is significant and exists.

[00:11:39] Lyn Alden: And it’s so, you know, literally in 2023, there are doctors in Egypt, if you ask them, how do you save money? They say, well, I go to the black market. I exchange Egyptian pounds for physical US dollars. I then hold this physical US dollars in my apartment with no interest, like liability to be stole or lost in a house fire or something.

[00:12:01] Lyn Alden: And that is the best monetary technology. They know what to save in. Wow. Because they’re not going to hold Egyptian pounds, they’re not going to put the dollars in Egyptian banks because Egypt often has a dollar shortage. So they, there’s, they’re always prone to say, okay, well we have to take these dollars and we’ll give you an equivalent amount of Egyptian pounds at the exchange rate we decide.

[00:12:19] Lyn Alden: It’s very hard for them. And of course the other option is gold. Many of the basically houses gold and physical dollars are their variety of options that they have. And none of those are perfect. It just shows kinda the frictions around the world and especially like then if you want to send money, it’s like, well, you try to send money there.

[00:12:35] Lyn Alden: And it’s like, well this service doesn’t allow you to send money to Egypt and this, this service doesn’t let you send money out of Egypt. So you have to like find the, you try a second way that doesn’t work either, so you find a third way and that one works, right? So there’s frictions both in terms of saving money and in terms of transacting money globally that, you know, a hundred plus countries, billions of people in the world encounter that is kind of abstracted away from us in the United States and Europe and Japan.

[00:12:59] Lyn Alden: And you know, we have our own problems with money, but on a global scale the problems are much bigger and it’s in large part because of this, this gap between transactions and settlements. And therefore, in order to rely on a solid unit of account, you need to rely on some sort of central entity, which in the modern era is really the, the Federal Reserve.

[00:13:19] Preston Pysh: So you wrote extensively about Bitcoin prior to writing this book, and I would argue understood it as one of the top thinkers in this space for quite a while. After writing a book of this magnitude and all the history and everything that you studied and then wrote about a Bitcoin there at the end of the book, what is something that you learned or that you took away that you didn’t really know or think about prior to writing the book?

[00:13:49] Lyn Alden: So it’s an amazing question because in Broken money I inject my own kind of thoughts and organization and emphasized key points that I don’t see emphasized enough. But it really draws from hundreds of other people that have, have created so much amazing literature or podcasts or books or various mediums of information.

[00:14:07] Lyn Alden: So whether I’m talking about older technologies or the Bitcoin world, you know, if you look through the citations you’ll see a lot of familiar names that people that have put out amazing content. I think kind of what sparked me to write the book was the realization of how big that, how important that gap between transaction and settlements is.

[00:14:28] Lyn Alden: So the fact that transactions occurred at the speed of light and settlements don’t is like an a technological accident of history that I think shaped a lot of the past 150 years. So I think that the learning about the importance of that. I also enjoyed diving into the arguments between commodity money theorists and credit money theorists.

[00:14:46] Lyn Alden: And to really kind of tease out those nuances. So I tried to steal even arguments I disagree with. I would try to steal man and find out, okay, who’s the smartest person that that makes this claim? And find that person and read what they wrote and then try to deconstruct it. You know, see where I agree or disagree.

[00:15:01] Lyn Alden: I also enjoyed reading about the nuances of the classical gold standard because I enjoyed seeing how people like economists and magicians of that era, like Jevons would analyze that current system at the time and described the various pros and cons, which are kind of like lost to history. We kind of look back, we just kind of say, oh, it’s this great time of a classical gold standard.

[00:15:22] Lyn Alden: Whereas like when you actually go back to when it was operating, this guy’s like, Hey, this thing’s levered 20 to one. It’s working really efficiently, but we got to be careful with how we’re running this thing. And it’s like that kind of nuance is really, you know, it’s when you go back to initial source material, it’s really fascinating.

[00:15:37] Lyn Alden: And so I would say that whole progression’s just been very interesting. Also, I was fortunate to have Joachim book Serve as a research provider and editor of the book, and he is a professional monetary historian. Hmm. And he was got a master’s in Oxford from it. And so he fact-checked everything I, I looked up and so there’d be occasionally something where I didn’t state it the right way or there’s a certain historical nuance that he knew that I wasn’t familiar with, and I would go and rewrite that paragraph and kind of, so I learned from working with great people.

[00:16:08] Preston Pysh: Wow. That’s really cool. Okay. After chapter 20, I tried to look at the introduction because this is where you give the introduction to Bitcoin and you kinda lay it out for a person that’s maybe never even read about it. And I was just trying to think about it in terms of, of that person or that reader who’s seeing it for the first time.

[00:16:28] Preston Pysh: And I just suspect they would be really skeptical as they’re reading through it. And, and I would imagine a lot of it is just, they just don’t have the technical competence on how it all works to really have any type of faith or trust in, in that type of new protocol or system. So like one of the, I’m just trying to think of ideas that maybe they would have and they’d, they’d look at the, the way that the node system works and the way that you have it laid out in the book.

[00:16:53] Preston Pysh: And I think a beginner would say, well, if I’m a government, why don’t I just create 50,000 nodes and then start interjecting those nodes into the network to maybe sow discourse or confusion amongst the, the, the way that the nodes coordinate with each other. Why wouldn’t the government do something like that and sow seeds of chaos in the Bitcoin?

[00:17:12] Preston Pysh: Or why doesn’t that work from a technology standpoint?

[00:17:14] Lyn Alden: Well, they can certainly try, I mean, there’s various attacks that are possible. The question is how, how powerful they are. As people point out with this whole kind of recent BlackRock spot, ETF question, you know, if a ton of Bitcoin value gets concentrated, what is, and let’s say it’s also concentrated in the hands of a government so they can kind of impose laws on miners and stuff like that.

[00:17:34] Lyn Alden: Could you have power over a, a hard fork, for example, or soft fork and could you kind of, could a sufficiently powerful entity shape Bitcoin to their will? And the way I would describe it, when we look at kind of institutions, so one of the things that humans do is we abstract things. So back in the day, if a person was king, you know, that person is king.

[00:17:55] Lyn Alden: There’s no abstraction, that person is the ruler. Whereas, for example, in the United States and, and, and other places like that, the office of the president is abstracted from the person holding it at the current time, right? So the, the president is a powerful institution, whereas the person holding it is, is not necessarily so, and we build up kind of part of the reason why the United States has been successful is ’cause we build up these separate institutions, these divisions of powers.

[00:18:18] Lyn Alden: And so you have the Supreme Court, you have the Congress, you have the president, you have semi separate in central Bank. That came up later. And then at the foundation of the whole thing is you have a constitution that is purposely very, very hard to change and gives you a foundational set of rules to work with.

[00:18:36] Lyn Alden: And the way I would argue it is that none of these institutions are incorruptible. None of them are invincible, but they’re robust. They’re, it’s very slow to corrupt them. It’s very hard to be corrupted, and that’s why they’ve been able to last as long as they have. But it still requires some degree of social maintenance to work with these very robust systems.

[00:18:55] Lyn Alden: And I would describe Bitcoin similarly, which is similar to the US Constitution, is this like open source, robust, highly incentivized thing that distributes the power as much as possible. And while it may not be, it’s not, it’s certainly not invincible or impervious to any sort of corruption or attack.

[00:19:13] Lyn Alden: But it is highly robust and resistant to such attacks as long as there are a sufficient number of people to do their best to try to maintain it. So it gave, it basically serves as an organizational tool that allows people to come together. And the burden of effort is always on those trying to change it.

[00:19:31] Lyn Alden: And I think that part of the monetization process of Bitcoin is us testing how good it’s right. So we throw every attack we have at it and see can it survive this one, can it survive this one, can it survive this one? And what if we copy it and change these variables? No, that doesn’t work. Okay. What if we copied again?

[00:19:49] Lyn Alden: And so it’s like this whole series of attacks on it. And so to answer your question, I mean, you, you could spin up a lot of nodes, but what makes a node valuable is that it’s your node, you’re playing, your part in saying, this is, this is what I accept as Bitcoin, and this person might control 50,000 fake nodes, but it’s really just one person or one entity behind it.

[00:20:08] Lyn Alden: And they’re not changing what I’m defining as bitcoin. So then it becomes how many real human actors and how much real capital is behind the ones that are not changing. And so again, I would say that Bitcoin is resistant to attacks. It’s not invulnerable to attacks, but it gives us one of the most credible set of organizational tools to build a, what I would argue is a very good monetary foundation.

[00:20:29] Preston Pysh: And if somebody’s running these 50,000 nodes with like a different type of software, or there’s different consensus rules on those 50,000 nodes, I can look at that and say, I’m not connecting to any of those 50,000 nodes because it, it looks like they’re a bad actor or they’re trying to do something.

[00:20:45] Preston Pysh: And so they’re almost immediately excluded from the network because it’s very detectable. It’s fully auditable. And I think the honest participants in the network are going to just identify it for what it is. Just to kind of compound on, on your point, when we look at where Bitcoin is today in excess of 10 years of history, And it continues to progress.

[00:21:09] Preston Pysh: The, the, the adoption continues to go up, but I think people would look at it and say, you know, it’s quote unquote better money, but why hasn’t it? If it’s so great, why hasn’t it really kind of taken over? And they’re looking at the, at the timeline of this adoption curve and they’re saying, yeah, I just, I don’t think there’s any way that the dollar’s ever going to be overcome or beat by this thing called Bitcoin.

[00:21:31] Preston Pysh: It’s, it’s already had a decade plus and it still hasn’t done it yet. When I talk to people and they say like, what they think is going to cause that adoption to take place, there’s really kind of two schools of thought. And I know the truth is usually somewhere in the middle of this, but I’m kind of curious to hear your, your opinions on these two schools of thought.

[00:21:50] Preston Pysh: One is all the developing nations around the world, they need better money because they’re dealing. You, you gave the example of like what you’re seeing in Egypt. They need some type of reliable uncensorable money that doesn’t get the base at a breakneck pace, and they’re going to start using it in more and more, and then that’s going to drive global adoption.

[00:22:09] Preston Pysh: The other side of the argument would be global credit markets are so broke. You’re having this breakdown in global cooperation and inflation is far outpacing the yields that you’re getting in these really large, multi-trillion dollar credit markets. And because they’re not going to be able to get that under control, they’re going to have to turn to something that isn’t getting debased because, you know, credit markets go to zero in, in a scenario where a new money emerges and it’s, it’s a better form of money that that’s going to be the thing that that drives global adoption.

[00:22:43] Preston Pysh: When you look at these two arguments, how do you kind of shore it up as to what you think is actually going to potentially drive this new form of money to take hold around the world?

[00:22:55] Lyn Alden: So it’s a great question, and I’ll be the first to admit I don’t know the future, and so I instead I, I try to use whatever economic or technical knowledge I have to kind of shape or reason kind of the, the general direction of the path.

[00:23:05] Lyn Alden: I see. The first thing I’d point out is that Bitcoin went from zero to a trillion dollar market cap faster than any other asset. And so it’s already doing quite well. I’d say it’s gone very far in 14 years. You know, Satoshi wrote 20 years either Bitcoin’s going to have a ton of volume or no volume. It’s kind of a bullying outcome whether or not this thing works.

[00:23:25] Lyn Alden: And I would say so far, 14 years into his 20 years, we are on the path of a ton of volume. I mean it, the amount of value settled per year in the, in the trillions. And so I would say it’s on the path of being successful. Now, one of the challenges with Bitcoin adoption is the volatility. When you look at most technological adoptions, whether it’s electricity or radio or the internet or smartphones, when people transition to that technology, they rarely ever transition back.

[00:23:54] Lyn Alden: You know, most people don’t get electricity and decide they don’t want it, and they go back to not having electricity. They don’t get a smartphone and then decide, you know what? I want to, I want to live in a flip phone world. And so you, you tend to be, you tend to see very smooth adoption curves with most technologies, and that allows it to be very quick.

[00:24:10] Lyn Alden: The problem with an inherently monetary technology, specifically the unit of account itself, is that as it gets adopted, people naturally lever it and naturally rehypothecate it and play games with it. And human euphoria takes over just like the stock market. And so you get these boom bust cycles, and that discourages a lot of people.

[00:24:30] Lyn Alden: So you actually, unlike, you know, people that adopt electricity and never go back, there are people that adopt Bitcoin and then decide, no, it’s too it’s, it’s too volatile, it’s dead. Now I made a mistake. And they, they get out of it. And then it takes years to rebuild the next base to the next larger bull market.

[00:24:45] Lyn Alden: So I think that a monetary technology inherently takes longer to, and we never really, it’s, it’s not really, if we were to go back and look at the initial gold adoption, how long do you think that took? Right? It’s like monetary network effects just take a long time to build, you know, we’re going against an incumbent 10 to trillion dollars system with, you know, a very small starting point.

[00:25:07] Lyn Alden: And so I think it’s inherently understood to be a multi-decade process with this level of change. I mean, you don’t, you don’t rip out the base layer of money and put in another base layer of money globally in 14 years. It’s just, it’s not realistic. It’s the disruption from that is immense. And the accounting systems, the legal systems, the human conceptions of what money is, all of that takes time.

[00:25:28] Lyn Alden: And arguably generations, you know, like just newer people kind of grow up with it. It’s more natural to them. And it just kind of slowly puts itself in, in society over time, as long as the incentives make sense, which, you know, Bitcoin’s fixed supply and decentralization helps it be robust through that process.

[00:25:43] Lyn Alden: So that’s my first answer to the question. The second answer to the question is that people often assume that the dollar is a steady state, that the dollar as it looks now is roughly going to look like the dollar in 50 years, except of course, you know, it’ll have gradual inflation along the way, but that it, it’s essentially going to look the same as it does now, one of the problems you see is that if you look at developing countries in particular, Bitcoin is often too volatile then to accept, even though they have a, a major, the basement problem with their local currency.

[00:26:09] Lyn Alden: And so a lot of them jump to stable coins. You know, if you look at Argentina, you’ll say you’ll see someone okay, says, why? I understand Bitcoin and I hold some of it long term, but if I want to hold money for six months, I, I don’t want to hold in Bitcoin because I could lose value. So I’ll hold it in in tether.

[00:26:24] Lyn Alden: From their perspective, it’s, you know, a dollar’s way better than the Argentine peso. And even though Tether centralized, the central hub is not an Argentina, which is for them the key thing. And this thing, well sure I’m not going to put my life savings in Tether, but it’s like a really good six month option.

[00:26:40] Lyn Alden: And they might, that’s why a lot of them will actually hold more value in, in Tether than than Bitcoin. So it’s, as long as the dollar itself is robust enough to work and is less volatile, a lot of people gravitate still towards the dollar. Well, rather than going directly to Bitcoin and becoming like instant Bitcoin, you know, Maxis and there’s just only focusing on Bitcoin.

[00:26:59] Lyn Alden: And that’s just a reality on the ground in a lot of these countries now, I think what can eventually interrupt that system, so one is that Bitcoin’s going to keep, I would argue, keep getting larger and more adopted and eventually less volatile. That’s one variable that’s happening. It, it just takes a long time.

[00:27:14] Lyn Alden: And the other variable is that the dollar is increasingly becoming less stable. You know, as debt as a percentage of GDP keeps building up, you eventually get to a point where you get some sort of reset. That sounds like that’s like a conspiracy theory, that’s like a heterodox way of thinking of it.

[00:27:29] Lyn Alden: But when you look at just monetary systems throughout history, every two or three generations, you tend to have some big deeg or devaluation or reset. It’s just how, it’s how things work, especially when you have such layers of abstraction and centralization. And historically when you get developed countries with this much debt to GDP, eventually the system just breaks down.

[00:27:49] Lyn Alden: It’s just the, the interest expense becomes too immense. It becomes too exponentially comical. And people, even something as robust as the dollar eventually becomes quite inflationary. It’s just very hard for it to use it relative to other assets. The, the amount of new currency creation becomes so significant.

[00:28:08] Lyn Alden: And so I would say the combination of, although over the long arc of time, the eventual breakdown of the dollar and the ascension of Bitcoin through multiple, multiple cycles is what can allow it to gradually compete with something as large as the dollar. I think the variable that ties into the second one is that when the dollar system was born so Bretton Woods, the United States was like over 40% of global GDP.

[00:28:32] Lyn Alden: We had the biggest industrial base, we had the most gold, we had the biggest military. Basically we were just completely dominant. And as the world has recovered from World War ii and as it’s, as it’s kind of rebuilt aspects of itself, you know, we see China and India reasserting themselves as major global powers, like they actually were prior to this, you know, past 200 years or so.

[00:28:52] Lyn Alden: They were always major economic powers, those regions at least. And they’re reasserting themselves as being very dominant. And so we see more decentralization across the world in terms of where is the percentage of GDP, where is the industrial base, where’s the gold? And it becomes increasingly untenable for the entire world to use a dollar ledger system when the United States is, you know, diminishing for 40% of global GDP to 25%.

[00:29:18] Lyn Alden: And right now, when you look at it, depending on how you measure it, whether perching, power parity or nominal, we’re somewhere between 15 and 25% of global GDP, and as we keep slipping, it just becomes increasingly untenable for that. That one currency has such a big lock on the world. So I think we’re gradually moving towards decentralization, and I think developed market currencies are becoming increasingly unstable compared to how they’ve averaged of the past 50 years.

[00:29:41] Preston Pysh: In your book, you get into a little bit of Gresham’s law and Thier’s law, and you talk about how when you’re looking at Gresham’s Law in this money that is less desirable, the velocity of it keeps picking up as you approach almost like a terminal velocity and then a flip into Thier’s Law. When we look at stable coins and we look at how they’re immediately saleable.

[00:30:07] Preston Pysh: And the desire for more. I mean, when we look at the amount of stable coins that just keep popping up and the size, these assets that are contained inside of these, these stable coin markets and how large and how substantial they are in such a short amount of time, and we look at that velocity as part of the overall like global equation.

[00:30:27] Preston Pysh: Is this something that you think could help us understand whether that flipp over to Thier’s Law is, is taking place is by contrasting the stable coin velocity to Bitcoin’s lightning network? Is that how we should maybe look at that flip happening and maybe where we’re at in space and time by comparing and contrasting the, the speed of, of money between those two markets?

[00:30:54] Preston Pysh: Or is there some other way that you could think through understanding that potentially happening that Flipp part.

[00:31:02] Lyn Alden: So I think mon like monitoring both relative market capitalizations and monitoring velocity are both very useful metrics. In some ways it’s apples and oranges because bitcoin and, and, and dollars are not quite used the same way, especially at their current level of adoption.

[00:31:17] Lyn Alden: The larger and liquid, more liquid money is generally going to be the one that’s the of account. And so until Bitcoin say rivals the dollar, it’s, it’s, you know, we’re going to, most people are going to think in dollars are going to, things are priced in dollars. And so Bitcoin is the thing that’s kind of volatile relative to the dollar rather than the other way around.

[00:31:34] Lyn Alden: You know, we like to say everything priced in Bitcoin, it’s not Bitcoin that’s volatile, it’s to everything else that volatile, but really your ability to buy, say apples or copper, when you hold Bitcoin, those things are more volatile for you, not for the dollar holder. So really you know, even as a big Bitcoin enthusiast, It’s not that the dollar is volatile to Bitcoin, it genuinely is the Bitcoin’s volatile relative to the dollar.

[00:31:55] Lyn Alden: That’s the larger, more liquid saleable unit. Now it’s a worse unit. It’s controlled, it’s centralized, it devalues, but for unit of account purposes, that’s still the one that that has the power. And you know, I think over time that as we, as I just discussed, that that degrades whereas Bitcoin hopefully strengthens and has been strengthening.

[00:32:14] Lyn Alden: And when we look at Gresham’s law on tiers law, so the originally way to like think of Gresham is say that a gold silver ratio, so let’s say you peg, you know, United States pegs it a 15 to one, but the global exchange rate is 15 and a half to one. And so you’ll get this like mismatch. And so whatever metal ends up kind of being pegged at a, at like an undervalued rate, that’s the one that’s going to, you know, circulate.

[00:32:38] Lyn Alden: Actually, no, the undervalued one’s going to be hoarded and the overvalued one’s going to circulate. You’re going to spend the weaker money. Into the economy and you’re going to hoard or you’re going to move offshore, the, the stronger money. That’s, that’s not being valued appropriately. The second way that, that I agree, this can apply, is when you have a tax on the better money.

[00:32:56] Lyn Alden: So if every Bitcoin transaction’s a taxable event and every dollar transaction is not a taxable event, well then, unless you specifically need the properties of Bitcoin, or unless you’re so into the space that you’re kind of just doing it on purpose, you want to pay with more things in Bitcoin because you want to support Bitcoin, most people will generally pay in the units that are not taxable.

[00:33:17] Lyn Alden: Right? And so now if it gets to a point where there’s so many Bitcoin holders that are all talking to their politicians and saying, Hey, take away these taxes, that’s what I want. Right? So you have to, you have to chip away at that over time. And so I would say, yeah, a combination of existing network effects, existing size and stability, existing understanding and brand of how it works, the dollar is like, you know, like.

[00:33:43] Lyn Alden: Coca-Cola is not that special, but it has a brand. Everybody in the world knows what Coca-Cola is. Similarly, everybody knows the brand of the dollar, and that’s a combination of the network effects, the liquidity of the brand. These take time. It’s a gigantic ship that has to turn slowly and then when you add onto that tax authority and things like that, I think either until Bitcoin gets large and and stable enough or the dollar breaks down or the United States decides to cut off stable coins, you know, like Argentina can’t do anything to Tether, but the United States could if they decided they, they didn’t want these digital Euro dollars to exist anymore.

[00:34:17] Lyn Alden: And so I think there’s multiple paths where it can happen, but I think it’s inevitably going to be a long one.

[00:34:24] Preston Pysh: Doesn’t the treasury need stable coins? Like as we go further down this road, five, 10 years from now, you need a buyer for all of this stuff. And I find so miraculous as the buyer really kind of emerges as these stable coin entities.

[00:34:40] Preston Pysh: That are going to be willing to buy short duration debt, not long duration, because there’s just too much inflation risk there for them to squat on long duration. But I think that you have this natural relationship that the treasury here, at least in the United States, and I would argue any G7 country needs stable coins.

[00:35:03] Preston Pysh: Do you agree with that idea? And if not, I’m, I’m curious to hear why.

[00:35:08] Lyn Alden: We often think of governments as monolithic entities, but in reality, most governments have multiple different factions or people that understand things differently. And as an example, when it comes to Bitcoin mining, there are some government officials that say, Hey, for environmental reasons, we want to kick out Bitcoin miners.

[00:35:23] Lyn Alden: And there are other ones in the government that say, no, no, we want to encourage all the mining to come here so we can sense the network with our laws. Right? And it’s just different priorities or different understa levels of understanding of what they’re trying to accomplish. Those two factions do exist.

[00:35:37] Lyn Alden: When it comes to stable coins, you know, on one hand there’s, there’s groups that say we don’t like the fact that there’s this, you know, unregulated or like, not unregulated, but there’s like an offshore digital Euro dollar that we don’t have full control over. On the other hand, there are people that say, well, this is a huge new buyer of treasuries and also it, it, it helps extend the dollars reach globally and it’s a useful new technology that we shouldn’t interfere with that.

[00:36:01] Lyn Alden: That’s kind of the different factions. And when you look at the concept of de dollarization, that’s, it is in the news a lot because of the whole bricks thing and, and you know, sanctioning of Russian reserves and all this stuff, there’s all these attempts at the sovereign level of various powerful countries to try to distance themselves from the dollar.

[00:36:17] Lyn Alden: But what’s interesting is that there’s, there’s two levels here. So there’s a, there’s the so sovereign level and then there’s the people themselves. So are people themselves in developing countries De dollarizing? No. You don’t see Argentinians deciding, you know what, I want to hold Chinese Juan. Now they don’t see Egyptians saying, you know, I want to hold physical Chinese, Juan.

[00:36:35] Lyn Alden: In my apartment as my monetary savings, you don’t see that it’s not an accident that like nine over 99% of stable coins are dollars. That’s just where the demand is. You know, when you have kind of the ability to make dollars globally, people want them, you could have stable coins with other currencies and they, around the margins, they exist, but there’s just, there’s no demand or liquidity or saleability for them.

[00:36:56] Lyn Alden: Yeah. I think basically, like, I think the smarter faction in the United States would basically say, okay, support stable coins. They’re a major buyer of our treasuries. Even as sovereign nations try to de dollarize, this is a way for us to keep the dollars among all those foreign people at the people level, and it, it keeps the dollars reach going for a longer period of time.

[00:37:15] Lyn Alden: So, yeah, I think it depends on how, how many orders of thought they think through this and how well they understand the technology and the dynamics involved.

[00:37:23] Preston Pysh: In one section of your book, you get into what a Bitcoin eyes world would look like and how it’s different than what we’re accustomed to today.

[00:37:32] Preston Pysh: One of the things you mentioned is no unit abstraction, no financial middleman, better global connections without the friction in between the currency exchange. But the one I I want to hear from that you cover in depth here, is the idea of credit and how what we view as credit and being so abundant in our society today really kind of whittles itself down to just the pittance of the overall broader economy.

[00:38:00] Preston Pysh: People who are not Bitcoiners that would maybe hear that would be like, what in the world are you talking about? The credit will always be around. So help explain to them why you have this opinion.

[00:38:09] Lyn Alden: Lyn and I would agree that credit’s always going to be around in some degree. It’s just a matter of how much formal credit exists relative to, say, the monetary base, for example, or how.

[00:38:19] Lyn Alden: How much do businesses or individuals finance themselves with equity versus credit, and how long duration is that credit? Those are things that are impacted by the type of money. Generally what we see when we look in history is monetary, hardness, and debt is almost like a bell curve, where if money is very strong, like let’s say a gold standard or a Bitcoin credit exists, but it tends to be used judiciously because if you’re a borrower, how much long duration debt do you want to borrow in a hard unit of money that appreciates relative to most things?

[00:38:49] Lyn Alden: You want to be obviously pretty careful with that. I mean, so from, there’s less borrower demand for a very robust, solid money. When you look at the other side of the spectrum, if you have a very weak money, let’s say Argentina for example, nobody wants to lend in that unit of account because it’s very hard for them to determine what value they’re going to get back in five, 10 years.

[00:39:08] Lyn Alden: Right? So, so there might be people want, like if someone wants to gimme a loan in Argentine pesos, I’ll take it, but no one’s going to gimme that loan. Whereas ironically, the middle of the bell curve, we have a gradually devaluing unit of account, like a developed market fee currency that tends to accumulate the most debt because it works for borrowers and it works for lenders reasonably well.

[00:39:29] Lyn Alden: And it, it’s stable enough that it kind of builds up this more and more and more debt to GDPay. But then ironically, that becomes the source of instability. So it’s own stability is in what part? You know, it kind of fine tune, that’s like the fine tune point for debt maximization, which inherently is its own undoing.

[00:39:46] Lyn Alden: And so what I would argue is that in a, in a world with an even scarcer unit of account than gold, so Bitcoin in this case, the incentive to borrow large amounts of it for long duration is very limited. You know, there’s still going to be various types of credit. You know, anytime someone owes someone else money to say, Hey, I need some money, can you, can I lend some?

[00:40:07] Lyn Alden: It’s an emergent phenomenon credit, it just happens, but, and there’s still high rate of return impacts where you might want to borrow bitcoin. But the idea of just having constant debt on your balance sheet would make less sense. So we can kind of, we can kind of separate money debt into two types.

[00:40:23] Lyn Alden: So there’s very, like, high, highly productive debt, right? Let’s say you want to expand your business and you don’t want to give up equity. So you, you borrow a one year loan that’s like, pretty small relative to your total business value. Someone might make that loan rather than equity because they’d rather have a defined and lower risk outcome that’s higher in the capital stack.

[00:40:42] Lyn Alden: Maybe you want to get education, so you’re willing to take on some debt to get like a, you know, a STEM degree, for example, whatever the case may be. ’cause you know it’s going to, it’s going to increase your earning potential. There’s various ways where credit can make sense. Now, the the less productive types of credit or debt are ones that are just kind of permanent parts.

[00:40:59] Lyn Alden: And what you’re primarily doing is shorting it. So, for example, Coca-Cola has debt. Now, this is like a century old corporation. Why do they have debt? And the reason is because they choose to have debt as a permanent part of their capital structure because that debt devalues, they’re basically, they’re using their economic strength, their high credit rating to borrow plenty of dollars at low interest rates for long duration to basically short it.

[00:41:23] Lyn Alden: And that doesn’t make sense in gold or Bitcoin, whether it’s governments running these massive gigantic debt to GDP ratios, whether it’s people with 30 year mortgages, whether it’s corporations with debt as a permanent part of their capital structure. That’s the type of debt that makes a lot less sense when the unit of account is very hard.

[00:41:40] Lyn Alden: So, and I’m not the first to make this argument that basically in a, in a Bitcoin world, you would have much less debt relative to equity because the types of debt where you’re practically only sorting the currency go away. And it just becomes highly, highly accretive types of debt. And then also when you, when you think of fraction reserve banking, One of the reasons that fractions or banking works moderately well in the current era.

[00:42:03] Lyn Alden: You know, we, we have all these booms and busts and, and things like that, but the reason it works well enough is because if your interest rate you’re earning on your deposits is lower than the monetary growth rate, that the growth of money supply that ends up being relatively safe. I mean, you’re getting devalued, you’re getting all sorts of problems, but the fact that a central entity can just create more of it means you’re, you’re unlikely to lose nominally in a default.

[00:42:30] Lyn Alden: So people, people kind of put up with this ’cause it works well enough, whereas in a world where it’s inherently unsafe to have a deposit rate that is higher than the supply growth rate of money, right? It’s just inherently the case. You’re either taking on serious credit risk by having that interest rate.

[00:42:48] Lyn Alden: Or you’re taking on serious liquidity risk. One of the two, maybe both by having that rate of return, so in a unit where their supply rate of growth of money is zero, any interest is inherently taking on risk. It doesn’t mean people won’t do it. It’s it’s investing. It’s it’s investing, it’s speculating, it’s putting capital to work, but it’s not a passive risk-free activity in a way that we think of banks today.

[00:43:13] Preston Pysh: How about taxes in a Bitcoin world?

[00:43:17] Lyn Alden: One of the, and I talked about this in the book, one of the kind of downsides of the whole fee of currency system is that when the government doesn’t feel like taxes are going to be popular enough to do and to fund what they want to spend, they just print the difference.

[00:43:31] Lyn Alden: So they say, well, we can’t fi, we can’t finance this as transparently as we want to, so we’re going to finance it opaquely. An example I use is that during World War I. The UK wanted to get involved, even though they, I mean, they weren’t being attacked. There’s conflict’s going on in, in, you know, in, in Europe and they say, well, we want to get involved for geopolitical reasons.

[00:43:52] Lyn Alden: We don’t want Germany to win, and so we’re going to get involved. And so they try to, they know that taxing everyone, they’re not going to tax a UK steel worker and say, yeah, we got to go fight the Germans in Europe, so we have to raise your taxes. That’s going to be very unpopular. You’re going to get a revolution if you tax too much.

[00:44:07] Lyn Alden: Maybe you can do a little bit, but if you try to tax a ton, you’re going to, you’re going to, it’s not going to be workable. The other option is you raise debt. You say, well, okay, you know, we’ll pay you interest, buy these bonds and we’ll use it to go do war. And those, in UK’s case, not enough people subscribed to those bonds.

[00:44:22] Lyn Alden: They were like, no, I don’t, I don’t think that’s a good investment. And so instead the UK just printed the difference. And what they did was they devalued everyone’s savings without telling them advance, without them being able to even know or measure what’s happening. And it just got taken from them. And so in a Bitcoin world, if more people hold their own hard money that a government can’t print, then basically all of government expenditure has to be financed by either taxation or small amounts of, of debt, you know, to kind of smooth things out here and there.

[00:44:53] Lyn Alden: But basically it kind of forces governments to be somewhat more transparent and say, okay, if you want to do this expenditure, how are we going to finance it? Because we can’t, you know, just print the difference.

[00:45:04] Preston Pysh: Lyn, I’m going to read a quote that you put here in the book. And this all relates to trade-offs.

[00:45:10] Preston Pysh: As the, as any cryptocurrency blockchain is created, there’s trade-offs that are constantly being accounted for and, and what they’re creating. And this is the quote that you wrote. Proponents of newer cryptocurrencies often criticize Bitcoin for being old technology, when in reality it’s just strict about the trade-offs that it was designed with.

[00:45:33] Preston Pysh: Was built to maximize security and decentralization over all other attributes. Why are those two attributes, security and decentralization? I think the decentralization part we’ve covered pretty extensively, but more on the security side. Maybe talk to that and any other comments or or thoughts that you have about this idea that a newcomer that’s coming to this is going to look at this and say, yeah, Bitcoin’s like really old.

[00:46:01] Preston Pysh: There’s Solana. There’s all these other things that have come out in the last couple years. How in the world are they not better? Is really kind of the argument that I think a newbie that would be showing up to this discussion and, and looking at it would be saying, because technology’s always better now than it was 10 years ago.

[00:46:17] Preston Pysh: Or you know, you go back historically in time, how are the new ones? Not better.

[00:46:22] Lyn Alden: Yeah. And I think when we put ourselves in their shoes, it’s very rational for them to assume that’s the case. Like you, so you said most technologies. Are better over time, and therefore they’re like, well, Bitcoin was the concept, but it’s, you know, that’s clearly not going to be the end.

[00:46:35] Lyn Alden: That’s they’ll thing. They’ll say, okay, what, what’s the newer one? What’s the better one? You know, it’s been 14 years. Of course there’s better technology. One point of contrast is that when we look at protocols, they tend to stick around for a very long period of time. When you make things purposely simple and robust, the design space is very limited and the technological growth and upgrades tend to happen in layers on and around that very simple foundation.

[00:47:00] Lyn Alden: So for example, ethernet is like 50 years old, right? And it’s, and it’s nowhere near being outta date. You know, they upgraded the speeds over time in backward compatible ways. And it’s this evolving protocol that ultimately is very slow to change. And we think of why are we still using ethernet? It’s a 50 year old technology, but it’s because it’s literally still the best we have is why?

[00:47:21] Lyn Alden: And it has that dominant network effect. Even if you make something marginally better. Well, you’re competing with the fact that every computer has an ethernet port and not this other protocol. And then two, any, any changes you might make, future ethernet versions could maybe incorporate, and so they just get absorbed into that dominant protocol.

[00:47:38] Lyn Alden: The same is true for TCPIP. The same is true for USP, but these protocols tend to be very long lasting technologies and ultimately, when we look at Bitcoin and, and block size wars and crypto and stuff like that, a lot of it comes down to trying to figure out what problem we are trying to solve.

[00:47:56] Lyn Alden: And so some of the initial assumptions were, I want to make transactions easier, so I wanted to use base layer money to buy coffee, for example. But it turns out for a lot of people, that’s not the problem that they have. I mean, in the United States, I don’t have a problem buying coffee. My Visa card works well enough, my cash works well enough.

[00:48:13] Lyn Alden: I don’t go out every day and think like, man, my money’s so bad at transactions. Now in certain countries that might be the case, but even then it’s, it’s often not what a lot of us have instead is, I want to build a store, a liquid value and move it around globally, I have nobody be able to stop me, or at least it’s very hard to stop me.

[00:48:31] Lyn Alden: And that I know that the rules, I’m not going to get rug pulled in the next 20 years. Right? That I’m not going to just, I don’t have to watch it too closely because it’s not just going to get change. There’s no central entity that you just double the number of units or sense me or something in that sense they’re probably trying to solve is an immutable foundation of money.

[00:48:50] Lyn Alden: You know, basically a decentralized central bank, a decentralized ledger that is robust and backed by energy and distributed so that it’s very hard to corrupt, you know, to the extent that it’d be corrupted, it’d be a very long and slow process, and the burden of proof’s always on the corruptor. But the whole block size wars, I think people aired in the wrong direction for trying to, you know, sacrifice that decentralization to make it faster.

[00:49:12] Lyn Alden: But it’s, you’re, you’re solving the wrong problem. And when it comes to crypto, a lot of it is about trying to make them more expressive and complicated, but again, that often, that generally comes with the cost of decentralization and security. So when we think of decentralization of security, we want something that, one, the code base is as simple as possible to minimize bugs and hacks and, and problems and and incentive breakdowns.

[00:49:33] Lyn Alden: And then two, we want it to be sufficiently decentralized so that any entity that wants to either change the rules of the network or it essentially the network has a massive up to uphill battle.

[00:49:43] Preston Pysh: Even if you think out 10, 20, 50, a hundred years because you can’t transmit value into the future and it’d still be worth the same amount because the units are just constantly getting to base.

[00:49:55] Preston Pysh: So like, you know, if it’s a hundred dollars worth of buying power today, or one Bitcoin’s worth of buying power today, you want to be able to transmute that 20 years into the future and it still can go out and buy me the same amount of buying power as what I’ve got right now. And yeah, let, let me read something else here.

[00:50:14] Preston Pysh: This is a little long, but I think this is such a great quote and from such a, an important figure in this movement. Adam, back, you put this in your book, Lyn, he said this, there’s something unusual about Bitcoin. So in 2013, I spent about four months of my spare time trying to find any way to appreciably improve Bitcoin, you know, across scalability, decentralization, privacy, fungibility, making it easier for people to mine on small devices.

[00:50:41] Preston Pysh: A bunch of metrics that I considered to be metrics of improvement. And so I looked at a lot of different changing parameters, changing designs, changing networks, changing cryptography. And you know, I came up with lots of different ideas, some of which have been proposed by other people since. But basically to my surprise, It seemed that almost anything you did that arguably improved it in in one way, made it worse in multiple other ways.

[00:51:07] Preston Pysh: It made it more complicated, used more bandwidth, made some other aspect of the system objectively worse. And so I came to think about it that Bitcoin kind of exists in a narrow pocket of design space. You know, the design space of all possible designs is an enormous search space, right? And counterintuitively, it seems you can’t significantly improve it.

[00:51:28] Preston Pysh: And bear in mind, I come with a background where I have a PhD in distributed systems and spent most of my career working on large scale internet systems for startups and big companies and security protocols and that sort of thing. So I feel like I have a reasonable chance if anybody does, of incrementally improving something of this nature.

[00:51:47] Preston Pysh: And basically, I gave it a shot and concluded, wow, there’s literally basically nothing. Literally everything you do makes it worse. Which was not what I was expecting to find out. I find that, and for people that Dunno who Adam Back is, I mean he’s literally referenced in the, in the Satoshi White paper.

[00:52:06] Preston Pysh: And for him to say that he spent this time really contemplating on all the trade-offs and trying to improve it and saying there was nothing I could do to really objectively improve this, I think is just a really important highlight that you put in in the book. And I don’t know if you have anything else that you want to add, but I just think it’s important to kind of read that out for people.

[00:52:27] Lyn Alden: I’ll add two things. One is that, like I said about protocols, it’s very, if you analyze ethernet and think, how can I make this better? The design space compared to what ethernet already does is very tight. So basically the answer is that as Moore’s law gives us better speed, we can speed it up gradually over time.

[00:52:42] Lyn Alden: And that’s about it, right? I mean, there’s little marginal things you can do. Same thing for TCPIP, when you have a, when you have something that’s simple and at the foundation, you want that to be simple and robust. And you want complexity to be on the edges. That’s generally a good design principle.

[00:52:57] Lyn Alden: And that’s, that’s historically the way that the Bitcoin ecosystem has developed. And I think that’s what he touches on there. And then two, I would point to the I made the analogy on Noster yesterday about Bitcoin and the US Constitution. I’m, I’m not the first one that’s made this, which is to say, is the US Constitution a perfect document?

[00:53:13] Lyn Alden: No. In fact, and we might disagree, what we think a perfect US constitution looks like, you know, I could probably write down 10, like a new bill of rights that are like added to the Constitution. I want additional rights for citizens that I wish in my perfect world that be in the Constitution, let’s say I want the next amendment to say, you have the right to use whatever money that you deem appropriate, right?

[00:53:35] Lyn Alden: That citizens have this right? I can, and I can picture nine other additional rights that I want included in, in the document. But at the end of the day, what makes the Constitution valuable is that it’s very, very, very hard to change. You need a super majority in Congress and a super majority among states to change it.

[00:53:52] Lyn Alden: So a document that is good and nearly immutable is better than a document, that’s great. But that five years from now, we have no clue what it’s going to look like because it’s easy to change. Right. And so that, I would argue that Bitcoin is in this design space similar to ethernet or similar to TCPIP, where it solves a certain problem in as simple as a way as possible.

[00:54:12] Lyn Alden: And then much like the US Constitution is what it tries to maximize is difficulty of change. So it’s not impossible to change ’cause that would also be a design flaw, but it’s very, very, very hard to change.

[00:54:25] Preston Pysh: One of the trade offs that you talk about in the book is privacy. And I know from participating in this community for a long time, privacy is something that a lot of people are really passionate about.

[00:54:35] Preston Pysh: They look at projects like Monero and they’re saying this is a better form of money because it’s more private than bitcoin. I think you do a really good job talking about that trade-off and why Bitcoin is a better solution for people and where you can maybe push the privacy into a second layer. So can you explain some of that for folks?

[00:54:55] Lyn Alden: So when you look at cryptocurrencies, you know, a lot of them are just outright scams, but there are in a handful of areas where intelligent people truly propose things, say, Hey, what if you make a more private currency? Or, what if you make a more expressive currency? And these are, you know, I think if we were to rerun this multiple times, it’s natural that people are going to test all these different answers to see what works and what doesn’t.

[00:55:14] Lyn Alden: There’s no world where only Bitcoin exists. No one tries any other crypto networks. And, you know, it’s Bitcoin wins, right? There’s, there’s always going to be these tests and these market challenges and these iterations to see what works in practice rather than just theory crafting. And one of the downsides of Bitcoin is that it’s not super private.

[00:55:31] Lyn Alden: You know, it’s private enough that no one formally knows who Satoshi is. If you use it very skillfully, it’s private, but it’s hard to use it privately. And so there’s these privacy coins that makes it easier to use the coins privately. And the downside is that they sacrifice some degree of auditability, so it’s easier for undetected inflation, bugs and things like that to occur.

[00:55:52] Lyn Alden: There’s a little bit more layers of trust in the code and the encryption and the proofs compared to Bitcoin that is more inherently auditable. And so if you’re trying to build a foundation of money, you know, if you’re trying to, if you want a network that’s worth $10 trillion or more, that robustness, that audibility, that decentralization is arguably a, a more important component than privacy or touring completeness or whatever the case may be.

[00:56:18] Lyn Alden: And so to the extent that you can build those things on layers on top of it, I think is, it makes a much better engineering model than trying to incorporate those things right into the base layer where you sacrifice some degree of decentralization or robustness or auditability in order to achieve something that sure might be useful.

[00:56:35] Lyn Alden: Privacy and turning completeness can be useful things, but if we’re kind of getting down to the very base layer, you know, down to ethernet, down to TCPIP, down to the constitution, we want something that’s easy for us to all agree on. And then when we build these, these little silos or complexities on top of it, we can kind of pick our own paths that all tie into this very simple and audible and robust base layer.

[00:56:57] Lyn Alden: And so the problem with Monero is that it generally degrades in value versus Bitcoin. It’s hard for it to establish the same level of trust and and adoption. And so you might get more privacy, but you don’t want to hold your value there long term. And then when you get in and out of Monro, that’s where the privacy breaks down ’cause there’s not a lot of liquidity there.

[00:57:15] Lyn Alden: Privacy’s limited by liquidity, especially the entry and exit points. And so you’re still somewhat stuck. Whereas I think there’s a lot of good tools on the horizon that can make Bitcoin more private. We already have coin joins that are significant. Lightning network is relatively private for the sender, and over time gets generally more private.

[00:57:34] Lyn Alden: There’s, there’s more proposals to further fix some of its privacy issues. We have fetis, we use 40 year old charming mint technology that works quite well to make it hard to, you know, it’s near your complete privacy as long as you have sufficient liquidity. And so in general, I think that while privacy is a very important tool, I think so far the, the market and just engineering design observations, I’ve shown that it’s not the best for the base layer.

[00:58:02] Preston Pysh: You get into a thorough discussion between proof of work and proof of stake protocols and the advantages, the disadvantages. I mean, you just do a really fair job kind of laying them out. But with that in mind, Lyn, I I just want to emphasize your discussion points around with proof of work that, that you lay out in the book, how there’s this, you can leave the network, you can come back and you can get basically back up to date.

[00:58:30] Preston Pysh: But in proof of stake, it’s, that’s not necessarily the case. I think this is really important. When you have a newcomer that comes to the space and they come with this pretty common question or concern when they come into Bitcoin, they, they say, I see Target and I see these large companies that you would think would have really superior cybersecurity in place.

[00:58:53] Preston Pysh: And they all, every one of them always get hacked and the information is compromised. How in the world do I do, I know that something like that will not happen with Bitcoin, and how can I place trust that this thing could literally be the global settlement layer for the whole planet when the targets of the world are getting hacked all the time.

[00:59:15] Lyn Alden: Yeah, so that goes back down to keeping it as simple and audible as possible. And then the other available is why that proof of work, that energy component is so important because you’re tethering it to real world resources. And I use the comparison between volatile and non-volatile memory. So with volatile memory, it’s faster, but if you lose power and turn it back on, you’ve lost all your data.

[00:59:36] Lyn Alden: Whereas non-volatile memory, it has limitations, but if you de power it and turn it back on, the data’s still there. And so with proof of state, the complication is that there’s no immutable. The network itself does not prove that it’s the original, no. Satoshi originally pointed out, the reason he picked proof of work is because you don’t have to trust who sent the information to you.

[00:59:56] Lyn Alden: The information itself is self identifiable, at least once you’ve gotten past the bootstrapping phase. So the proof of work speaks for itself. You don’t have to trust whoever sent it to you. The problem with proof of stake is that there is no, inherently, there’s no foundation that speaks for itself. So the, the person or entity that sent that information to you is an important variable to consider.

[01:00:17] Lyn Alden: There’s no immutable history there. And so if you’re a node that that leaves and joins the network in a proof of work system, you can pick up where you left off. Whereas as long as there’s been no hard work. So any, anytime there’s a inception or hard work, there’s a, a little bit of a bootstrapping phase, but other than those, it’s self-evident.

[01:00:35] Lyn Alden: Whereas in a proof of stake system, if you’re a node that leaves and comes back, there’s no immutable proof of what happened while you were gone. All you can do is look around at the current validators that are saying, this was the, this was the objective history, and you have to trust them. There’s no proof that that’s actually what happened.

[01:00:50] Lyn Alden: That’s just proof of what the majority’s saying Now, because they can go back and they can, they can create alternative histories, nearly costlessly for what, what transactions were signed and where another way of putting it is that the coin holders determine the state of the ledger and the state of ledger determines who the coin holders are.

[01:01:05] Lyn Alden: So you have this circular logic system. The problem with the circular logic system is that if there’s a critical issue, a governance problem, or imagine something crazy, imagine a solar flare shuts off most of the global internet for a period of time, and it takes us a week to get back online. The problem with proof of stake system is that the network shuts down.

[01:01:24] Lyn Alden: Solana shut down, finance change, shut down. If these systems shut down either because of an internal bug or because of loss of internet and power, when they restart, there’s no node that’s always been online. There’s no objective immutable history of this network. Whereas it literally, if you somehow shut down the Bitcoin network, like with a bug, or the entire internet just goes off for a week and comes back on, we can reconstruct what the objective history of the network was because all that proof of work is still distributed among the nodes.

[01:01:55] Lyn Alden: So as the nodes come back online and start trying to communicate with each other, there is an objective source of truth they can find for what is the longest chain that meets the the rules of the network. I would generally argue that proof of work is a more robust system. It’s less corruptible and it’s something that I, you know, I think is very important.

[01:02:12] Lyn Alden: You know, despite any costs or benefits it might have in terms of its energy usage, it’s totally worth it because what you’re trying to replicate here is a system that relies on something. You know, it’s not circular logic. At the end of the day, transaction ordering is not based on the amount of coins you hold, which is determined by the ledger.

[01:02:30] Lyn Alden: Transaction ordering is determined by your ability to put external energy into the system. Wow.

[01:02:36] Preston Pysh: So well put, let’s talk about, you have another section in the book where you’re talking about how proof of stake is inherently a centralizing force with enough time. Talk to us why that’s the case.

[01:02:49] Lyn Alden: If you look at Bitcoin miners, even though mining pools can get pretty big, individual miners generally don’t.

[01:02:55] Lyn Alden: And of course, miners can always redirect their hazard rates to another pool. Should a pool be giving a problem? So what we really care about is minor centralization. And mining is inherently a, and this is true for physical mining, like if you’re a copper miner or a gold miner, there’s never really like a copper, you know, monopoly or a gold monopoly because you’re expending almost as much resources to get the, the commodity As you’re earning revenue from the commodity, you don’t really control your expenses.

[01:03:21] Lyn Alden: You don’t really control what your commodity sells for. And so other than trying to make sure you execute well and you know, make good kind of counter cyclical decisions, it’s very hard to run a a commodity miner. And the same is generally true for Bitcoin mining. It’s inherently distributed. Coins tend to distribute over time.

[01:03:39] Lyn Alden: And the initial proof of work, the whole point is it’s a bootstrapping mechanism. Whereas if you start a proof of stake system and you say, well, okay, the existing coin holders get to determine, you know, what new transactions get added in, the question is who are the initial coin holders? Right? So then, then basically you have to kind of do some sort of like ICO.

[01:03:59] Lyn Alden: Basically, you’re making your project into a security, a capital race. So you’re starting out with that. And then two, you know, validators, they earn revenue over time by validating, but they’re not really spending almost any resources. So as you have more money, you now exponentially grow your money, and there’s no cost to maintain this over time.

[01:04:21] Lyn Alden: That’s a system that’s likely going to centralize the validating power, whereas Bitcoin tends to inherently stay more distributed. Now, we still have to monitor kind of incentives of the network to make sure there’s nothing that changes about Bitcoin that might make miners more centralized. That’s kind of at the heart of some of these discussion around possible soft forks and stuff like that.

[01:04:40] Lyn Alden: But basically, as the systems are laid out, fundamentally proof of work is inherently a more distributive type of system, whereas proof of stake inherently tends to exponentially accumulate coins in basically a more and more powerful set of validator hands.

[01:04:55] Preston Pysh: This is my last one. ’cause Lyn, we could, we could go for hours here.

[01:04:59] Preston Pysh: I’m trying to wrap it. There’s so much content to cover here, Pysh. This one here is, I’m curious your opinion. So when we look at the, the rise of stable coins, and we’re not even getting into the CBDC stuff, but just stable coins like Tether and all these others and the fact that they’re all being stood up on top of Ethereum and Ethereum, like protocols that are proof of stake protocols, which are, you know, what we just talked about as far as centralizing forces and how the people with the most amount of coins on these networks are the ones that are validating and, and it’s this self-reinforcing or circular loop type system.

[01:05:37] Preston Pysh: When we look at that and we look at the sheer velocity of fiat, that’s seems to be accelerating and the use is Ethereum and these other protocols that are proof of stake and necessity. For this legacy system to meet Bitcoin where it’s at as the proof of work energy backed system that it is. And that the world is, and this is just through proof of the adoption curve, more and more demanded of the global population is something like that needed because government bureaucrats aren’t able to keep up with the speed of technology that’s happening with the legacy financial system.

[01:06:21] Preston Pysh: You understand where I’m going with that? I don’t know that I phrased the, the question all that well.

[01:06:25] Lyn Alden: I’ll try to see if I answer the question. If I, if I go in a different direction. Yeah. Let me know. So I think again, stable coins serve a demand. There’s a demand for stable coins and therefore supply is made to meet that demand.

[01:06:37] Lyn Alden: It’s a market demand that exists. If you talk to people in Argentina, they say, here’s why I want stable coins. And there are people that are happy to issue those stable coins to them. Now in general, because the stablecoin is centralized, you know, so if we’re talking about traditional fiat collateralized stable coins, the issuer is centralized, the issuer can freeze certain addresses, for example, they tend to not care too much whether the blockchain that those stable coins are issued on is centralized because the stablecoin itself is centralized.

[01:07:05] Lyn Alden: So stablecoin started out on Bitcoin, you know, a turn complete blockchain like Ethereum was naturally a little bit easier to do them on, and so they gravitated over there. When Ethereum got kind of expensive in terms of transaction fees, they would gravitate towards an even more centralized system like Tron, where the, the purpose is just, you know, keep minimizing fees and people are sitting around these stable coins, and you have multiple layers of centralization that you have to worry about, which is why, you know, no one should put money in a stable coin and expect that it’s going to be fined for 10 years.

[01:07:34] Lyn Alden: It’s, that’s too risky of an assumption. There’s too many points of centralized attacks and rug poles compared to Bitcoin. That’s much more likely to be robust 10 years from now than any, any of these other systems. But it’s serving kind of that intermediate demand. And if you’re a government or a, an enterprise, a banking enterprise of some sort, one option is they can develop their own in-house systems.

[01:07:54] Lyn Alden: So like, you know, kind of closed central bank digital currency type of things. And another option is they can look at these, you know, kind of open networks that they have all these centralization problems, but there’s a workable enough medium there that they can issue their money on top of it. Like we just saw, for example, PayPal is interested in using Ethereum to, to launch stable coins.

[01:08:13] Lyn Alden: Right? It’s just this is a, this is a, a substrate that they’re finding useful this period of time. Yeah. I wouldn’t be surprised if at that becomes a tool that governments and banks use or these, these different types of tools, you know, and it’s hard to say where it ends up because it’s like, do they want Ethereum?

[01:08:28] Lyn Alden: Do they want Solana? Do they want Tron? Do you know? It’ll, it’ll vary. We’ll see where it goes. In general, I think that as long as the dollar network is as big and robust as it is, it’s going to enter all these different technological areas. Whatever technology is available, dollars are going to leak into that technology.

[01:08:45] Lyn Alden: That’s just how it’s going to go. These are just new ways to deliver dollars and so it’s, it should be expected that that’s going to be a thing. Ultimately, I would say that Bitcoin is competing against Fiat currencies and ultimately the dollar, and that all these other technological layers are just extensions.

[01:09:03] Lyn Alden: Really? Of those fiat currencies. Especially when it comes to stable coins. And so I think Bitcoin long-term is the most robust thing, but it does have that volatility. People have to be able to absorb the volatility to be able to hold it. And you know, like you have a bank account in dollars, I have a bank account in dollars.

[01:09:20] Lyn Alden: There are people in Argentina that can’t have a bank accountant dollars, and so their bank accountant dollars can be tethered. Right. And there’s pros and cons with that. It’s, you know, kinda like how our dollar accounts have risk. Their tether exposure has risks, and that’s the trade off that they’re making.

[01:09:36] Lyn Alden: I think it’s important to educate people on the risks, very centralization risks that exist in these other networks and that exist in stable coins. And I also think, like I said before, eventually the dollar itself becomes unstable. That’s a, a long-term outcome. It’s something that’s, that’s a process rather than an event, but it’s something that I also think is a, a long-term option to consider that.

[01:09:57] Lyn Alden: Sure. Right now, from many economic perspectives in various countries, the dollar is attractive to them, at least as an intermediate term instrument. You know, like the Egyptian doctor might say, well, maybe it makes sense to the whole stable coins instead of physical bank notes. In my apartment, I. Subject theft and stuff, right?

[01:10:14] Lyn Alden: So there’s various, you know, and maybe they, maybe they don’t, maybe they say, you know what, I, I like the fact that I directly hold the bare assets that, you know, only the Fed can devalue, right? So there’s, there’s various trade offs for how they might want to hold some of their liquid money, but as long as the dollars, the unit of account for the world, it’s natural that it’s going to leak into various technology protocols to extend its reach.

[01:10:35] Preston Pysh: And it really de-risks the government by having these entities stand up and do this because it really kinda, they can put their hands in the air and like, well, this wasn’t our fault. Like, we’re not controlling those rails. These are independent companies that, like Tether, that are buying treasuries or buying dollars and they’re custodying them and then they’re doing all these swoopy things with technology on whatever protocol in order to, to put it out there.

[01:11:00] Preston Pysh: So, like, that’s not on us, that’s on anybody who was trusting them. And I think they can just kind of wave their hands and wash their hands of any type of responsibility as the demand for dollars and immediate settlement of dollars continues to pick up because of the velocity of dollars continues to pick up around the world.

[01:11:19] Lyn Alden: Yeah. And it’s hard to say what the US government will eventually want to do. I mean, it’s possible that they eventually want to go after the stable coins, but like we discussed before, it seems to be in their best interest if they’re intelligent, to let those stable coins proliferate because they basically, that’s a way of increasing demand for treasuries.

[01:11:34] Lyn Alden: Because if you’re an Argentinian that holds tether, in some ways what you’re holding is treasuries. Yeah. You’re basically making treasuries more fungible as a savings instrument or, or you know, more liquid, more spendable you’re kind of inre, you’re kind of turning treasuries into a medium of exchange in a way.

[01:11:50] Lyn Alden: And because money is often an emergent phenomenon, you know, this demand for dollars emerges. Now the demand for gold exists for long-term savings. The demand for Bitcoin exists for long-term savings and they have to deal with the fluctuations of these assets. But in the intermediate term, there’s a demand for dollars in many countries, and it’s just, it’s one of the ways that, that that demand is met.

[01:12:12] Lyn Alden: And it’s from the government perspective, they monetize treasuries. Now people argue that stable coins slow down Bitcoin adoption, and that’s probably true, but I would argue that the existence of the dollar ultimately is what challenges Bitcoin adoption. That as long as the dollar is a larger network effect and less volatile, that’s the 800 pound gorilla in the room.

[01:12:31] Lyn Alden: It doesn’t matter if it stable coins are just an extension of the dollar. And they’re just using the dollar’s going to use whatever technology is available to it to extend itself. Stable coins are just one arm of the final boss. You’re thinking about Bitcoin adoption and ultimately that is, that is the dollar.

[01:12:48] Preston Pysh: Is that the only value that you find in a lot of these other quote unquote block proof of stake blockchains is basically stable coins?

[01:12:57] Lyn Alden: I think that’s been the killer app. I mean, you know, ever since I began covering the space, I kept saying it’s, it’s Bitcoin and stable coins. Yeah. You know, what is blockchain good for money?

[01:13:06] Lyn Alden: And that’s, you know, just kind of seeing how it plays out. Now, I always try to steelman, I think of like, what, what else could this technology be used for? You know, we see with Noster that you don’t need a blockchain to make something that’s reasonably decentralized. Generally, when you need a blockchain is two things.

[01:13:20] Lyn Alden: You want it to be decentralized, but also you want be able to monitor the entire ledger. Right. You want it to be a bound system. So with Bitcoin we care about that because we want to be to monitor the entire supply. Whereas with something like Noster, we don’t care. The fact that we can’t necessarily say how many messages exist in Noster.

[01:13:37] Lyn Alden: We care about the part of the network that we want to see. Right. So we want decentralization. We don’t want auditability of the entire network. And that’s why we don’t need a, a blockchain for Nostr. Now, Bitcoin makes Nostr better by being the money of Nostr and help trying to finance some of these relays and, and keep the system operating.

[01:13:56] Lyn Alden: But it’s not like block, it’s not like Nostr has to run on a blockchain. I think that the technology of blockchain is over applied. Because it’s, you need a lot of trade-offs to run a blockchain and most things don’t need a blockchain and therefore blockchain just adds expense to whatever you’re trying to do other than money.

[01:14:13] Lyn Alden: I try to think of things like crypto gaming or digital collectibles, and I generally, my steel in argument is that these things are basically just tech layers. They’re competing for a market that I’m not, I’m just not as interested in as the market for money because as I talk about in broken money, one of the biggest problems in the world is that vast swaths of people around the world don’t have good money.

[01:14:35] Lyn Alden: Right? So those of us in the United States and Europe, we have like, you know, it’s decent money. It’s not good money, but it’s like decent. It causes all sorts of problems under the surface that are subtle. When you go out to the developing world, those problems are more obvious, right? So one of the biggest problems that humanity faces, like the a hundred trillion dollar problem is lack of good money, right?

[01:14:54] Lyn Alden: So that’s the market that I care about, and so I don’t, I kind of just don’t even care about most crypto unless they’re trying to say that they’re better money. Then I’ll examine that claim and say, well, here’s why I don’t think that’s the case, right? So, other than if they’re trying to compete for like base layer money, arguing that they’re more robust or something, I’ll explore them as like little technology projects.

[01:15:16] Lyn Alden: But ultimately, I think that the, when we think about this whole space, we’re thinking about what technologies are robust and powerful enough. To try to fix this problem. We found ourselves in, we have a world with 160 different fee currencies. Like clearly, this is a local maximum. It’s not the best of all possible worlds of money.

[01:15:34] Lyn Alden: This the system we’ve had in place for the past 50 years. There’s clearly a lot of improvements to make, and I would argue that, that out of all the technologies that exist, Bitcoin is the most powerful tool we have to keep building on and proliferating and adopting in order to try to solve this problem of, of bad money around the world.

[01:15:52] Preston Pysh: I cannot tell the audience enough. You guys got to read this book, Lyn. Where can they pick this thing up? I’m assuming it’s on Amazon. Anywhere else that you want to point people towards.

[01:16:04] Lyn Alden: So Broken Money’s on Amazon and over time it’ll, it’ll appear in in other stores as well. It’s a process of distribution.

[01:16:10] Lyn Alden: But yeah, check it out.

[01:16:13] Preston Pysh: Awesome. And we’ll have links to, Lyn has an amazing newsletter that I personally subscribe to. I’ll have links to that. We’ll have links to the book. Lyn, thank you so much for making time and coming on the show. This was just an incredible discussion and just really appreciate everything you’re doing for the Bitcoin space, for the finance space, and wow, what a book.

[01:16:36] Lyn Alden: Thank you for having me and I appreciate that.

[01:16:38] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm.

[01:16:55] Preston Pysh: So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

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