[00:03:17] Tuur Demeester: I mean, who knows where it’s going to go this year. So it’s it’s a problem that is solving itself. And, but it’s true on the other hand that a lot of people have the same question. And I think it’s understandable because there’s always a bit of an eternal September that happens in Bitcoin where there’s always newcomers.

[00:03:34] Tuur Demeester: There’s always new people that need to be educated. And so it’s, it’s great that people are asking these questions.

[00:03:40] Preston Pysh: I love the example of not hanging the picture on the foundation, and you have so many people that are literally trying to buy the picture and it literally put it on the foundation of Bitcoin.

[00:03:52] Preston Pysh: Talk to us about the, like what inscriptions are and when this became capable to even do on the base layer, because I think there’s people that hear inscriptions and they have no idea what we’re even talking about. So give them a little bit of context and kind of your thoughts at large at what this is and what it means.

[00:04:11] Tuur Demeester: Actually, I’ve been leaning back about this. I haven’t dug in deep because I felt like, you know, from the get-go, it seemed like an odd thing to do on the main layer. I do think in the main layer it can be a place for preservation. Like, you know, literally what you inscribe on the main Bitcoin blockchain could be stored for hundreds of years.

[00:04:29] Tuur Demeester: So there, there is a, there is a, a meaning to it potentially. But I, I haven’t taken the deep dive. I, I still felt like I was a bit of a hype. So maybe you can take my role here and, and share us with the audience what you’ve learned so far, and we can kind of tell us a little bit about this.

[00:04:45] Preston Pysh: Yeah, I mean, and just in general, the intention is, is that the storage in each block is for transactions.

[00:04:51] Preston Pysh: I don’t think that there was an intention for some of that storage on the base layer blocks to be used for things beyond payment. But through the latest updates with the Taproot update and SegWit and some of these other things, that there’s now a way that you can actually inscribe data into the base layer.

[00:05:12] Preston Pysh: You’re going to pay a fee to do it. And as we’re finding out, I think there’s 150 blocks or something like, I mean, it’s a really high number that are in the queue of the mempool waiting to be. What’s the proper term I should use? Minted or found by the miners? What would be the correct terminology for…

[00:05:29] Tuur Demeester: Yeah, I mean maybe you could say in inscribed or waiting to be to be broadcast, you know, broadcast on the network and then inscribed in the ledger forever. And so in, in a way, it doesn’t even really matter what it is that the, these people are wanting to inscribe, like clearly it’s related to some kind of a perceived idea of scarcity. Like a, there’s, there’s a collector’s value to having something particular inscribed in a particular block, and then you get to claim something.

[00:05:57] Tuur Demeester: I mean, people have always, you know, for status sake, like people have built statues in the past and all kinds of things that cost money and that, that don’t have like clear utility. Other than to like say something about the author or the owner. And so I think it’s actually really interesting to think about the quote unquote waste because there is an ongoing concern that the Bitcoin block rewards are getting less, less every four years, so, so this is what people generally think about when they think about mining Bitcoin, is that there’s new bitcoins being minted and are given to the miners, and then on top of that, there’s transaction fees that are earned by the miners.

[00:06:37] Tuur Demeester: But for the first, I don’t know, five, 60 years, there’s so little transactions happening that there were no fees basically. And so that was the reward. But then the concern has been, well, if this keeps going and the new Bitcoins get less and less, because we know it’s going to stop at 21 million. So by probably in, in about 20 years from now, it’s the, the new supply is is going to be virtually zero already.

[00:06:59] Tuur Demeester: And so if we wouldn’t worried, like, well, how are the miners going to keep making enough money to build that firewall, to keep protecting Bitcoin, to have enough hash power and, and, and throw enough electricity at the network to deter attackers? And the answer is, is of course, fees, right? Transaction fees. And so you could argue that when transaction fees are artificially low, say for example, in a bear market, people will come up with some kind of use for the main blockchain, whatever it is, it’s ordinals or it’s NFTs or whatever, some smart contract that sounds funny or fancy or, or profitable.

[00:07:31] Tuur Demeester: And they’ll, they’ll stick it on the blockchain and in a way they’ll clog up the, slowly the, the mempool until it’s high enough. Which is the mempool by the way, is like the queue, the queue of transactions, until finally the blocks are getting full and the fees go up again. So in a way, you could say it’s this self-regulating mechanism if there’s not enough naturally occurring, just very kind of pragmatic transactions that there’s other uses that are eventually generating profits for the minors.

[00:08:00] Tuur Demeester: So it’s an argument to say that rather than calling this spam, and we have to fight it at all costs, we can just be like, look, the, the block size is fixed, like blocks are never going to be more than about four megabytes in size. And so yeah, let them throw whatever in those blocks because it’s going to help us fund the Bitcoin firewall.

[00:08:19] Preston Pysh: So Dylan LeClair had a tweet yesterday that I think encapsulates my opinion and probably your opinion quite well. He wrote, Bitcoin has a security budget problem. Fees aren’t sufficient. It needs tail emissions, which is the argument that people were making when the fees were too low. Now that the fees are really high, this is the continuation of his tweet.

[00:08:42] Preston Pysh: Bitcoin has a throughput problem. Fees are too high, it needs bigger blocks, and so then he writes, your inherent desire for human intervention at every turn is exactly what Bitcoin solved. Please just shut up.

[00:08:57] Tuur Demeester: That’s it. Like people should like print that on a poster and hang it on the wall or something.

[00:09:02] Tuur Demeester: Or it should be like a one of those car stickers.

[00:09:04] Preston Pysh: You know, Saylor did an interview and he was talking about how not tinkering with the base layer. And it being so difficult to implement changes at this point in the process, at the base layer is akin to not being able to tinker with the laws of physics and how everything can be built and constructed upon such a base layer because people can base their development and base their engineering around these things that are core principles.

[00:09:37] Preston Pysh: That aren’t going to be changed. And it really goes to Dylan’s quote that he, that he has there. And I really challenge people to think about how important that is. Your inherent desire for human intervention at every turn is exactly what Bitcoin solves. It’s something we can build upon.

[00:09:55] Tuur Demeester: Yeah. And, and the Bitcoin’s immutability is, its bedrock.

[00:09:59] Tuur Demeester: Like that is what everything is built on. And so what you’re saying, exactly what you’re saying is Satoshi intuited this, there’s this brilliant little throwaway message that he wrote on the forums back in 2010, I think, where he’s like comparing Bitcoin to a boring gray metal. He’s like, imagine a boring gray metal that has like no clear use in industry or, or technology.

[00:10:24] Tuur Demeester: It’s just sitting there. The only properties it has is that it’s scarce and you can send it through a communications channel. Like you can send it around digitally at very low cost. Like what would happen? Oh, that, you know, he was referring to Bitcoin, right? In his mind, Bitcoin is like one of the atomic elements.

[00:10:42] Tuur Demeester: It’s like a boring gray metal with fixed properties that you can just send around the world. And so, yeah, it’s immutability and this is a learning process. People have to understand. They’re so used to everything being that you can engineer everything. And, and then we come from a financial paradigm where literally you want higher interest rates.

[00:10:59] Tuur Demeester: We’re just going to sit in a room and push a button, and the interest rates are higher. Like we can, you know, we’re like the Wizards of Oz, like the, the man behind the curtain. Like we’re so used to having that man around. So I think it’s understandable that people are trying to, whenever they’re anxious about something, they think the, the protocol needs to be tinkered with.

[00:11:17] Preston Pysh: I was at the Micro Strategy Conference last week and I had the pleasure of having a one-on-one chat with Michael Saylor and I, I said to Michael, well, how about from like an attack standpoint with the inscriptions? And they’re just inundating it with endless supply of fiat. And he just kind of like smiled and he says, okay, so now they’re incentivizing use of the Lightning Network and everybody kind of moving to building that out and loading that up with additional channels so that they can transact with near, you know, frictionless fees on layer two.

[00:11:50] Preston Pysh: He’s like, so it’s a win. It’s a win for layer two. And I just kind of like smiled and I was like going back to things that you and I have been talking about for years. It just seems like every attack made on Bitcoin is an opportunity for it to grow and expand and become stronger in the area that maybe the attacker isn’t thinking is necessary, and then it doesn’t even address the fact that these higher fees are going straight into the pockets of miners that then are either retaining that in Bitcoin or buying more rigs to deploy in the lowest cost energy environment, or location possible. I don’t necessarily know whether the whole inscription thing is good or bad, but whenever I’m looking at this idea of not intervening and not messing with the code, it seems like the build, it naturally incentivizes building in, in places where it needs to happen.

[00:12:45] Tuur Demeester: Right. I mean, Bitcoin is an ecosystem with clear rules, and so if you put stress on an ecosystem like that, it’s going to grow around it and, and, and creatively build around the problem. And that’s why like, it’s brilliant like that. We have these pressures. The fees are going up, people are starting to get uncomfortable.

[00:13:03] Tuur Demeester: That’s what gives the impetus for people to be like, I’m going to install a lightning wallet on my phone for the exchanges that I’ve been like, I mean, Coinbase has been resisting it forever. The same with Binance and all the big exchanges like the, the exchanges that have been cutting edge, that are kind of like, you know slower players and they’re probably going to win in the long run.

[00:13:21] Tuur Demeester: To be honest, they have been implementing lighting for quite a while, like Bitfinex, Kraken, and it’s, it’s kind of like the big ones that have been running these casinos. They’re the ones that are finally coming around now, and that I think is closing the circle almost. I think that, you know, once these last chains are starting to be lightning compatible, people are going to really experience the power of lightning.

[00:13:44] Tuur Demeester: And I think you could even make the argument that would El Salvador have adopted Bitcoin if lightning wasn’t around? Because as far as I understand, I think Chivo was integrated with lightning so that if people wanted to buy $20 worth of Bitcoin or $10 worth of Bitcoin, it would. Maybe they had some kind of centralized, they were like the central relay or something, but I, I think that’s important.

[00:14:06] Tuur Demeester: You know, these kind of things, they’re little stepping stones. So, yeah, and sometimes people just have to kind of experience network effects for themselves. Like it, it or logarithmic evolution of things like, yeah, it’s growing at 20% a year, but they don’t think it’s fast enough. It’s like, well, let’s give it a few years and you’ll see what that means.

[00:14:25] Preston Pysh: Yeah. I had a moment recently talking about layer one versus layer two, so, I was using Nostr, everybody’s familiar with basically zapping Satoshi to other people, almost like their likes, you know, on Twitter. And I tried out Cash App, so I was using Wallet of Satoshi to use the apps and I was like, you know what?

[00:14:43] Preston Pysh: Let me try out Cash App. And I used Cash App and what was so amazing to me was I went into Cash App, I bought, call it $20 worth of Bitcoin into the, into the Cash app if I wanted to send that layer one to another wallet. You know, I just put in the, the wallet address for a layer one Bitcoin address and it just sent it.

[00:15:04] Preston Pysh: But everything happening on these Zaps on Nostr is layer two. It’s immediately settling lightning layer two. I go there and I’m zapping somebody’s account with some SATs and I use cash app and it just immediately sent the SAT. And I know that’s layer two, that’s that’s happening. So, It’s already completely seamless on Cash App, whether I’m using layer one or layer two, and I never, like, I just put the the address for layer two in there and it’s just naturally new.

[00:15:36] Preston Pysh: And if I put Layer one in there, it’s just naturally new. And so from a user experience standpoint, the user doesn’t even have to understand any of that. And I can’t, I mean, this is, I don’t know the market cap, size of Cash App and Square, but I mean it’s probably like a 30 billion company that has implemented this.

[00:15:52] Preston Pysh: And I think they’re the first one that I’ve come across where it was literally just seamless. Whether, I didn’t even have to know what I was using. I just knew I was using quote unquote Bitcoin and I could put any address in there and it just worked.

[00:16:04] Tuur Demeester: Right. Yeah. And this, this is the kind of stuff that is known as like the 10 year overnight success.

[00:16:09] Tuur Demeester: Like if you’ve been in the Bitcoin ecosystem, you understand that people have been working on lightning for so long. But if you’re an outsider, you’re going to, all of a sudden it’s like the light is switched on. It’s like, oh, whoa. Like this is possible. Yeah. And and, and all of a sudden all these, like, all this concern monitoring about like, Bitcoin is slow and you can only do three, three transactions a second and it’s never going to scale.

[00:16:32] Tuur Demeester: Like all that is just going poof. Yeah. And then the same thing is happening, I don’t know if you’ve been following that, is Andrew Pool Star’s mini script. And all the incredible new solutions that are opening up for Bitcoin custody and basically smart contracts that are blowing, totally blowing out of the water.

[00:16:53] Tuur Demeester: These altcoin projects that have been huffing and puffing that you needed individual professor coin that is like specially designed for smart contracts that is just also going to go poof, and that’s also going to be part of Bitcoin’s 10 year overnight success. Is that like, Oh, but the fear mongers were always saying like, no, no, no.

[00:17:14] Tuur Demeester: Bitcoin is just some kind of weird E gold. You can never build contracts on that. And then all of a sudden, here we are with, with Oros, with confidential asset issuance. All of a sudden all the stuff that supposedly you could only do on Altcoins, it’s right here. It’s in the Bitcoin world and it’s nuclear proof.

[00:17:32] Tuur Demeester: Like it has that like really solid bedrock of code that is carefully designed, carefully, pen tested for years so that if you built something, it’s not actually all apart. Let’s say it’s like the Lego blocks, like, you know, it’s, it has that internal logic where you almost can’t do it wrong. And that’s just so exciting.

[00:17:51] Tuur Demeester: And that’s, that’s coming, that’s happening right now.

[00:17:53] Preston Pysh: And what I’m so excited about is if they’re trying to do this and inscribe it into the base layer. If they do it and there’s no actual users and there’s nobody that’s actually using this thing that they’re engineering, they’re going to go bankrupt, they’re going to run outta, they’re going to run outta money, and they’re not going to be able to afford the fees.

[00:18:11] Preston Pysh: In order to make these inscriptions and use up the space on layer one, I’m hopeful that it’s all just going to naturally like the fee, and as the fees go higher, it’s just going to naturally solve demand for a limited scarce amount of space every 10 minutes. And it’s going to incentivize miners to make, continue, to make the, the network more secure. And, yeah, I don’t know.

[00:18:37] Tuur Demeester: I mean, people have made this comparison with, you know, the Bitcoin, blockchain and international shipping, you know, the, the, the whole ecosystem of international shipping and, and, and the, the, the format of the shipping container and that you know, one, one Bitcoin block you can compare to like a big container ship and you know, there’s only so many ships and they go pretty slow.

[00:18:58] Tuur Demeester: But every block can contain a huge amount of data, right? And just like a, every single container can contain all kinds of stuff, and it’s making the world wealthier, and it’s such a, a great system. And like, no, we don’t want bigger containers, right? It just trickles down, like people just have to slowly understand these, these concepts.

[00:19:17] Preston Pysh: Why do you think people have this urge to always step in and think that they have to fix the base layer of Bitcoin? Because isn’t that kind of like inherently the issue we’re talking about is how can we cognitively, how can we convince people, Hey, keep your hands off of it. That is truly the thing that was solved for was this, you know, laws of physics type.

[00:19:39] Preston Pysh: Going back to that example, why, why do people feel like they have to step in and that they have to do this change?

[00:19:46] Tuur Demeester: Yeah, that’s a good question. It’s probably like, there’s probably a multitude of like factors that play into that. I think one is of course, that we’ve been living in the fiat era since 1913.

[00:19:56] Tuur Demeester: Yes. And that there’s all these economic theories that, that are trying to justify why we need to print money, why we need to intervene, and so in a way that that’s just been, and also why capitalism is flawed and free trade is flawed. And so we need all this interventionism. It’s almost become the norm, right?

[00:20:14] Tuur Demeester: It’s, we, we’ve literally been spoonfed this stuff ever since we went to school. And, and you don’t even have to have studied economics like it’s in the newspapers. It’s, and, and every time something goes wrong Yeah. Like the sourcer apprentice has to, has to come up with some kind of big intervention. And, and I think now, interestingly enough, that paradigm is running, running on fumes.

[00:20:37] Tuur Demeester: It’s kind of like at a dead end and, and it’s going to start deteriorating. And you know, in places like Argentina, like people have been like, yeah, but I already voted for the interventionist. Like even young people, they’re like, I voted for Christina. Five years ago, 10 years ago, but like everything got worse and worse.

[00:20:52] Tuur Demeester: So what’s the alternative? And so I think that’s the beautiful thing, is that Bitcoin is such a constructive project. Like it doesn’t, it’s not, it embodies very naturally all these, all these principles that I think people will, through osmosis and, and just by handling it, they will start learning.

[00:21:08] Tuur Demeester: Learning a, a different way of thinking, like kind of like integrating some of the thinking that engineers naturally have into people’s everyday life when they think about economics and finance and maybe even moral things like that.

[00:21:23] Preston Pysh: One final question on this. At what point would you say maybe we need to look at a change on the base layer?

[00:21:30] Preston Pysh: Would it be something like the fees associated with conducting a transaction exceed that of Fed Wire and they’ve been like this for four or five years? Is that when we have to maybe as a community, take a closer look at what’s actually happening? Or do you think that even raising the issue is, you know, not appropriate?

[00:21:51] Tuur Demeester: I once was like flipping on Twitter and I said like one day the cost of broadcasting a Bitcoin transaction on the, on the Bitcoin blockchain is going to be the same as leasing a shipping container. I know that’s probably, that’s probably out there, like that’s probably excessive. Still the principle is there, like there are certain things that are done in the real world on a daily basis by people who are just very deep into a certain market, like, you know, moving a ton of physical gold, for example.

[00:22:21] Tuur Demeester: That happens all the time. And it’s just a very specialized thing, and it’s handled mostly by corporations and those kind of things. And so if he, you know Gregory Maxwell had a great way of, of explaining what the blockchain really is from a principal point of view. He said it’s, it’s basically a court system.

[00:22:40] Tuur Demeester: You know, it’s a going to court to resolve disputes and courts are expensive, you know, and, and there are many other ways to prevent disputes, to mediate disputes by technology or by using mediators, et cetera. And that’s the stuff that happens in the higher layers. But if, if you want to go to the highest court, that’s going to be the blockchain.

[00:23:01] Tuur Demeester: And so, yeah, it’s, it’s, I don’t think that would be a good enough reason. The cost of the court are too high. It’s like, no, no, no. We capped the amount of disputes that can be resolved every 10 minutes at this. This is the cap. And so if you cannot afford to get in that pool you got, or, or to wait long enough to get it, you know, integrated in one of the blocks, then you going to find another way.

[00:23:23] Tuur Demeester: But I mean, if you, you, your question was like, is there any role to maybe, you know, tinker with the blockchain, I think, or, or with the rules, the consensus rules. The only thing over the years that I’ve encountered that I, that would give me pause, is if there was some if SHA-256 was somehow compromised and, and, you know, the basic cryptography was compromised because of quantum computing or something like that.

[00:23:47] Tuur Demeester: But even then, some people I’ve talked to said that you could probably solve it with a soft fork, which makes sense. It would. It would mean that people who want their, it’s almost like there’s this biblical flood, right? All of a sudden the land that we thought was safe is not safe and we have to move to higher ground.

[00:24:05] Tuur Demeester: So you could do that with a soft fork is you create a certain type of Bitcoin UTXO that is more protected against this aggressive form of computing. Something like that, or a different form of mining, or, I’m probably not explaining it right, but it’s, it’s in that direction so that a lot of people would have to take action, but you would still not hard fork the the protocol.

[00:24:25] Tuur Demeester: Yeah. So, so just to be, to give a short answer, no. I haven’t found a reason why anyone would have to hard fork Bitcoin ever.

[00:24:34] Preston Pysh: You have been writing epic profound pieces for quite a while. I’m just going to name a couple. You have an article called the Bitcoin Reformation one called Bitcoin and Heavy Accumulation.

[00:24:46] Preston Pysh: These were both in 2017. You have another one. How to position for the rally in Bitcoin. This was back in 2015 when the price was $200 a Bitcoin. I’m going to have links in the show notes to all three of these articles so people can go back and, and read them. They are very robust. They go into a ton of detail.

[00:25:04] Preston Pysh: Some of the themes that you were writing about back then was scalability, which we discussed on the first part of the show user experience, which we also talked about with the cash app and other wallets that are just way like insanely profound compared to what we were looking at back in this period of time.

[00:25:24] Preston Pysh: Regulatory issues, disrupting power structures, commitment to this long-term vision. When you look back and you audit yourself in what you were writing about, is there anything that you feel like you missed or something that you feel like you got really right? And I bring this up because we’re about to talk about your latest behemoth of a report that just came out.

[00:25:45] Preston Pysh: That’s phenomenal. And so I’m, I’m trying to kind of highlight that to the reader as you’re just kind of assessing and auditing yourself.

[00:25:52] Tuur Demeester: When I read through these old reports, it’s easy to kind of be like, oh, I could have, you know, tweaked this or tweaked that. But overall, I am really proud. I, I am, you know, I feel good about the general content if I have to think about that particular report.

[00:26:06] Tuur Demeester: I would say I was a bit overly optimistic about the liquid network, about how that fast that was going to be developed or side chains in general. Which is basically somewhere in the middle between the main chain and the Lightning network. It’s like the idea that you have a faster settlement and more flexible settlement network.

[00:26:26] Tuur Demeester: I do think that the conclusion was talking about the next five years, so we’re still within that range. Like five years from the portably, 2024. So some of those things could really happen. Yeah, and the financialization actually happened, like options and futures have become an important part of the Bitcoin project.

[00:26:43] Tuur Demeester: And then I’m glad I didn’t venture too far into speculating about what all coins could do and the things that we could see there because it’s, it is kind of by nature, such an unpredictable space, and a lot of it plays on the what is alive at the moment, you know? Yeah. Like these fads that come and go.

[00:26:59] Tuur Demeester: And so I’m glad I did. I didn’t really pay much attention to that.

[00:27:03] Preston Pysh: Total clown wear.

[00:27:06] Tuur Demeester: A lot of it, and a lot of it is, is kind of showing us what doesn’t work. So maybe we should be grateful.

[00:27:11] Preston Pysh: Yeah, no, that’s a great point. It really is showing you what doesn’t work, and I think some of the technology is, things that people can think about is, is how can you incorporate maybe some of these ideas into the base layer.

[00:27:22] Preston Pysh: So that’s a great way to look at it. Okay, so let’s talk about your newest report. How many pages was this? This is like 20 pages or 25 pages or something like that. So some of the themes you have in this that we can just kind of go one by one here. You say Bitcoin is on the brink of decoupling with stocks and crypto.

[00:27:42] Preston Pysh: What are you getting at here?

[00:27:45] Tuur Demeester: That’s a good question. I think that the year 2021 was a culmination of, I don’t know, something in the air that was like peak irrationality or something like that, or peak animal spirits, or whatever you want to call it. There was the, what was it called again? For markets at large, you’re saying?

[00:28:04] Tuur Demeester: Yeah, markets at large. So like the Wall Street bets were going nuts, and they were going, you know, buying short-term options on a M C and all these crappy companies. And then real estate just totally boomed and peaked. And then in the, you know, I think NFTs were also such a big part of that huge rally, and Bitcoin was kind of caught up in that, in that slip stream.

[00:28:25] Tuur Demeester: And then what we’ve seen since, like we’re only two years later, is that both those markets like crypto. And the stock markets, but also the bond markets and housing, they’re all deteriorating. It’s all kind of coming down and, and it makes sense because we had a huge rise in inflation followed by that.

[00:28:44] Tuur Demeester: I think Michael Sailor had a great metaphor of like, it’s like a fighter jet that like, you know, goes down to the earth and then goes up straight into the air and, you know, and then the, and then the pilot loses consciousness, you know. It’s like that’s kind of what the Fed is doing to the markets kind of –

[00:28:58] Preston Pysh: And the wings get ripped off. Don’t forget the wings getting ripped off. He, he also included that, right?

[00:29:04] Tuur Demeester: Yeah. And so then it’s like, all right, well, so this is the economy, this is the 500 trillion economy, so where do we go, right? And so Bitcoin to me, is a huge part of the answer. It’s, it’s like we’ve been stuck in this theater that’s now actually on fire and a lot of the exits are starting to look really bad.

[00:29:21] Tuur Demeester: You know, people used to flee in bonds and they used to flee in real estate and, and maybe even, you know, some of the utility stocks are not looking so good anymore. So anyway, so that, that’s my general framework for why do I think Bitcoin is going to decouple? Basically because, and this has been my thesis since 12 years ago, is like, if you want to position.

[00:29:40] Tuur Demeester: For an economic depression, you want to have assets that have high liquidity and low counterparty risk, and of course scarcity because that that speaks for itself. And that was the big aha moment when I found Bitcoin is like, oh my God, this is a depression instrument. Mm-hmm. If, if we’re going to have a giant wealth transfer where the economy needs to recalibrate, because it’s been overinvesting and, and overextending, Bitcoin is going to be the funnel through which a lot of that is going to happen.

[00:30:09] Preston Pysh: One of the other main things that you talked about in this new report is Bitcoin Nation State adoption is set to become a big theme. I think everybody’s well familiar with the El Salvador, but I think a lot of people were looking around and saying, okay, so there’s one country. There’s really nobody else that’s done this.

[00:30:26] Preston Pysh: And you’re saying at this moment in time, you think moving forward, what in the next two years that we’re going to see a lot of other nation states start to do something similar?

[00:30:36] Tuur Demeester: Yes, I think the price will speak volumes. I think the reason why there’s been a delay in adoption, because you think like, oh, El Salvador is first, but they kind of announced pretty close to the top of the market.

[00:30:47] Tuur Demeester: And so then it’s like once the, the market goes sideways and it goes down a bit and there’s more skepticism. Politicians are pretty whimsical. Like they’re not going to risk their whole career on, on, you know, some high volatility, that it could be a bubble. They don’t really understand it. And so I think in a way it’s good that we had this consultation period even though for some people it was brutal financially speaking.

[00:31:08] Tuur Demeester: Yeah, I think it’s really good. I do think based on what I’ve, the conversations I’ve had with people that know a lot more about this, because they’re working on, you know, Chivo wallet, they’re working, they’re talking to politicians all the time. Is that there’s still a lot of hesitation when it comes to like boldly doing something so boldly as El Salvador.

[00:31:29] Tuur Demeester: You know, he is a bit of a maverick and he is seen that way. But it, it is possible that we’ll have new mavericks being elected. You know, that’s possible. People that run on a Bitcoin ticket that are not in power now. And then also central banks are starting to get really uncomfortable because like they’re claim to fame.

[00:31:48] Tuur Demeester: The reason why they have supposedly a strong currency or a strong position, is they have that balance sheet that has all kinds of fancy assets and it has gold and this and that. And now those assets, those balance sheets are deteriorating like the bonds and, and the four x reserves, they’re all kind of declining and, and looking very, very shaky.

[00:32:08] Tuur Demeester: And so, and then they’ve been investing in tech stocks, some of these, you know, central banks and I don’t know. And so I think it makes total sense that in the next two years we’ll have some central banks start putting some money in Bitcoin. And also interesting, there’s also kind of a game theoretical element at play where of course if you’re the first central bank to buy, you’re going to get a lot cheaper.

[00:32:30] Tuur Demeester: Bitcoins of obviously, but there’s also like politically speaking, People have noticed that the IMF has gotten really uncomfortable about El Salvador. Yes. El Salvador being so bold and being like going against IMF and, and no longer being so subservient. And so even to like, let up a little balloon, it’s like, hey, we’re thinking about adopting Bitcoin.

[00:32:51] Tuur Demeester: You know, you’re talking to the IMF. It’s like, you know, maybe if we don’t like your terms, we’re just going to switch and we’re just going to follow El Salvador. So it doesn’t mean they’ll do it right away, but, you know, this is starting to become like a political bargaining chip potentially. And the same as with mining, right?

[00:33:04] Tuur Demeester: If, if you’re cut off from the world. You can be like, let’s just build a bunch of Bitcoin mines or just, you know, have low taxes and we want to foster Bitcoin, a Bitcoin economy in our country because we’re a brick, one of the brick countries. Or you know, like, I mean it does, I don’t think it’s a coincidence that El Salvador adopted Bitcoin because they’re landlocked and they have huge amounts of volcanoes.

[00:33:25] Tuur Demeester: I think there’s over a hundred. So there is that long-term potential of becoming a kind of a mining powerhouse. And there’s many other countries that have the same problem of energy. Rich, but, but kind of constrained in terms of energy transportation.

[00:33:41] Preston Pysh: Speaking of country adoption in Argentina, there’s a political candidate right now who looks like he could be a member of the, of the Beatles, and he’s pro Bitcoin.

[00:33:50] Preston Pysh: I know you’re familiar with Argentina, so what are your thoughts here?

[00:33:53] Tuur Demeester: Yeah, Javier. Yeah. Yeah. I, I am familiar, although I haven’t been in a long time, I, I really want to go back. I actually learned about Bitcoin in, in Buenos Air for the first time. Yeah. Javier Melay, from what I’ve seen so far is he is a economics professor.

[00:34:09] Tuur Demeester: He is been teaching economics for over 20 years. When he was a kid in the early, I think it was in the early eighties, he was 12 years old and there was hyperinflation raging through Argentina, and he said that when he was 12 is when he decided he’s going to become an economist. And and actually his, his his sideburns are probably a, a nudge to I forget his name now, but a famous general in Latin American history who kicked the Spanish out kind of likes and equivalent of Peru and Argentina and Brazil, I believe.

[00:34:43] Tuur Demeester: And so young people, they, they grew up with these stories about this general, and all of a sudden there’s a guy who very much looks like him. Apparently he’s pulling tremendously well among the young people. People are saying that, you know, likely they don’t agree with all his economic ideas, because everybody’s been raised very much in the interventionist mindset, but at least they understand that he stands for something different.

[00:35:06] Tuur Demeester: He’s been advocating for competing currencies. So he wants to put, allow for the dollar to just circulate freely again and so basically re dollarize the economy and then he’s not been critical of Bitcoin at all. When people ask him about it, he, he explains that it’s very important that we have private currencies and that central banking is a scam because it robs people the, the populace of money by means of the inflation tax.

[00:35:29] Tuur Demeester: And it’s very, very interesting how millennials are so galvanized by this new person and new movement.

[00:35:35] Preston Pysh: And for people that aren’t familiar with Argentina, their inflation for their local currency is a hundred percent annual. Right now. Bitcoin has already made new highs in that country, in their local currency terms, and I recently read that they have cut off citizen’s ability to use apps to buy Bitcoin and basically accumulate it through like traditional exchanges like we have here in the US and and abroad.

[00:36:03] Preston Pysh: Yeah, I mean, it’s getting really interesting. One of my main concerns on this one Tuur, if I just have to be quite frank, is I’ve been talking a lot about this idea that if you’re not a net producer, it’s near impossible for you to store your savings or your retained earnings in Bitcoin because you’re a net consumer, right?

[00:36:22] Preston Pysh: And all of those bills and all those expenses for net consumers are often in the local currency that they’re living in. And so why introduce the insane amount of volatility that you get with Bitcoin when you’re a net consumer and you have all these bills that need to be paid. By introducing that volatility, sometimes you’re making it way harder for yourself in order to complete the obligations that you’re already accumulating liabilities on your personal balance sheet.

[00:36:51] Preston Pysh: So this applies for the individual. This applies for the business, this applies for the country. And so when I look at a lot of these countries where they have really poor currencies, Argentina, you name it, like just go around the world. I’m, most countries are dealing with insane issues with their local currencies.

[00:37:09] Preston Pysh: A lot of these same countries are net consumers. They’re not net producers. Not all but, but a lot. And so where I think it’s hard for these, and you also look at these same countries and they’re heavily influenced by the IMF and the World Bank that just snow continues to snowball and roll their debt so that in nominal terms, the debt just keeps getting larger and larger and literally impossible to repay as they roll into the next loan, which is an even larger amount that they have to borrow just to have liquidity in their system.

[00:37:41] Preston Pysh: And so when I look at what’s happened in El Salvador, and he absolutely is a maverick because they fit that complete description that I just explained, right? And so many other countries are in that same situation, and they’re looking at the IMF and they’re like, okay, I can get liquidity, which will solve my short term issue.

[00:37:59] Preston Pysh: I understand Bitcoin is the solution, but there’s no way for me to actually save and store this thing because I’m a net consumer. I’m not a net producer. So there’s kind of this quandary that’s playing out where maybe the citizens are getting it and maybe the, the, some of those citizens are net producers and they can store their savings in Bitcoin, but as you go up the architecture to the business, to the country, It’s really hard for that to flow up just because of the sheer overreach that has occurred with the IMF and the World Bank for a lot of these domains that we’re talking about.

[00:38:33] Preston Pysh: So I’m curious to hear kind of not that I disagree with your, with your thesis. I think your thesis is true, and I think we are going to see more of this in the coming years. But that’s the hurdle I guess, that I see as we’re, as we’re looking at it.

[00:38:47] Tuur Demeester: I definitely think that it would be wrong to completely to kind of impose Bitcoin or something like that, right?

[00:38:56] Tuur Demeester: I think that what we want is let a thousand flowers blossom and we all speak our minds freely, and we have competing currencies in the world, or that the artificial tax on Bitcoin is removed, which we totally have, right? If, if you save in Bitcoin, in, in the us, you’re going to pay capital gains tax whenever you sell your money.

[00:39:14] Tuur Demeester: It’s kind of weird, right? You spend money, but the reason why, because it’s treated as an investment in many places. So that’s basically the only thing you would need to do is just remove that tax and then let the economy slowly via osmosis and, and kind of like, you know, Bitcoin is going to flow where the resistance is leased and, and people that have low time preference and who have the luxury of being able to save will be able to save some in Bitcoin.

[00:39:37] Tuur Demeester: And then when there’s a big bull market, then they have the money to build, to build out some infrastructure and start a business. I mean, it’s. You, you’re probably familiar, the the little richest man in Babylon book, right? I mean, the Bitcoin is that kind of money. Well, you can, that was the advice of the wealthiest man in Babylon is like, you just save a little bit of your money over the long run, and then when the opportunity comes around, you invested in a business.

[00:39:57] Tuur Demeester: But with fiat that is taken from you. That opportunity to build a nest egg, is it, is rug pulled from you? And, and also there’s that, you know, I, I don’t know if it’s a fair analogy, but I, I do, you know, when I, the Bitcoin reformation, I drew some analogies between organized religion and, and and money and Bitcoin.

[00:40:15] Tuur Demeester: Today there is some example, right where there was a new movement, the Protestantism was first just kind of rebelling against the church, but then they did certain things their own way. And in continental Europe, a lot of Protestantism became almost like that imposed version, like we’re going to impose the Bitcoin standard and then you’ve got a lot of conflict because it was either or, either you were Catholic or you were Protestant and they kind of both became calcified and, and just the source of incredibly bloody conflicts and, and poverty.

[00:40:45] Tuur Demeester: Whereas, you know, the, the, I think the stellar example of the other way was New York new you know, new Amsterdam, and then New York City, which had freedom of religion from the get-go. And it just kept on flourishing and flourishing because the market just adjusted. And there was this general tolerance where individuals could make their own choices.

[00:41:05] Tuur Demeester: And that’s what I would like, let these technologies coexist. And it’s way too complicated for you and I individually to figure out what technology needs to be used were. I mean, that’s what the Soviets tried to do, right? How many tractors do we need in this area? I’m like, this is impossible. We need markets to figure those kind of things out.

[00:41:24] Tuur Demeester: Amen.

[00:41:25] Preston Pysh: Amen to that. Hey, this was a powerful quote in your new report, you said, generally speaking, we can expect for economic activity to switch from emphasizing the production of consumer goods and services towards goods at the very beginning of the value chain. Explain what you mean by this. I think this is a really profound comment and I think it can help guide people as they’re trying to navigate the chaos in these markets.

[00:41:51] Preston Pysh: Kind of as a guidestone to how to think about things from a very first principles kind of way.

[00:41:57] Tuur Demeester: Yeah. I’m going to draw an analogy and it’s a very simple one and I know a lot of people are going to say, that’s too simplistic and it’s not. So let, let’s try and go there. Basically, we know that many economies have been living above their means.

[00:42:12] Tuur Demeester: They’ve been, you know, getting into debt way too much because the interest rates were artificially low for so long. And so this is the equivalent of having a family living. And they are, they have the opportunity to borrow as much as they want at a half a percent interest per year for however long they want, unlimited time to pay it back.

[00:42:33] Tuur Demeester: So what are they going to do? They’re going to borrow lots of money. On average, of course. They’re going to borrow lots of money. They’re going to build a pool in the backyard, all kind. They’re going to really have a lot of their spending be focused on consuming consumer products, clothing, and all these nice things. And then imagine the same situation.

[00:42:51] Tuur Demeester: The debt stays the same, whatever they, they’ve accumulated in debt. And then you’re like, oh, sorry guys. We’re changing the rules. The debt is now to be paid at 20% interest per year. Like that kind of shock is all of a sudden happening. So how’s the spending going to change within that family? Well, I mean, it’s going to be focused on just having enough heat.

[00:43:11] Tuur Demeester: Having some food on the table, very basic foods, maybe having some gas for the car. They’re probably going to sell some of their cars. They’re probably going to downside live in a smaller house. So I imagine that happening on almost a global scale, like that’s what we’re talking about. And that’s that shift, and that’s what Austrian econ economists talk about.

[00:43:30] Tuur Demeester: When they talk about credit expansion during the, the bull phase of the bubble, right? We, we’ve seen a huge bubble accumulate over 40 years of credit expansion and, and all this spending above your means. And now the piper’s going to be paid. And so, so just think, keep that in the back of your head when you’re thinking about investing like Apple.

[00:43:48] Tuur Demeester: Yeah. But it’s a great company. Yeah. Yeah. But they sell consumer products. A lot of the NASDAQ companies, great companies, but it won’t matter if the consumer doesn’t have the funds to keep consuming those products. So it’s very simple. And so then what you go back to is basically the market realizes we’ve been underinvesting in just simple things like pulling oil out of the ground and, and, and, you know, growing grain and having like a store of value for your family.

[00:44:14] Tuur Demeester: Like because all of a sudden my pension fund blew up. All of a sudden, my insurance company apparently was invested for 75% in bonds that are evaporating. So my insurance is not going to be worth anything. I need to self-insure. How do I do that? Hard money, gold, Bitcoin, those kind of basic things. So that’s my framework going into this depression.

[00:44:34] Tuur Demeester: I think it, honestly, I think it started with the pandemic. I think that’s 2020 is is kind of my marker. And in my mind it’s like this is going to be a 10 year period where we’re going to have some flareups and things going to look better for a while, and then they’ll kind of look worse and we’ll try and muddle through.

[00:44:50] Preston Pysh: You know, I think it’s really profound because you’re talking about in your example, these, these families at locked in rates at 0%, but it’s even more profound than that term because if you’re 60, 65 years old or younger, all you know is that the rates have continued to go down for your entire life, and so there’s a cognitive conditioning bias that everybody has that they can roll their debt.

[00:45:17] Preston Pysh: Like let’s say you took out a loan for 10 years and you didn’t really pay back the principle on it. You were making interest payments and you need to roll it. It was always easier. To roll it at a lower rate for everybody under the age of 60 or 65 years old that are alive today. That was their experience is I could just over consume.

[00:45:38] Preston Pysh: I don’t actually even have to pay back the principle. I can just roll it at a lower rate. And so they’ve been totally conditioned into thinking that they can live in exuberance and just kind of expand their debt load for their whole life. And then at the very, the, the icing on the cake is what you’re saying, which is then it got down to literally like a half a percent interest and they really loaded up and they really went out on the risk curve at the absolute worst time possible.

[00:46:07] Tuur Demeester: Often at the advice of their parents who knew the same thing, who knew the exact same thing.

[00:46:11] Tuur Demeester: My parents bought their first house in their early twenties in, in 1982. 14% interest rate and they’ve only ever seen it decline. Yeah. It’s exactly what you’re talking about. And so, yeah, you’re right. I mean we millennials, I dunno if you’re still part of it or not, but Barely. Barely. Oh, it’s kind of like.

[00:46:28] Tuur Demeester: It’s going to mean incredible, incredibly difficult adjustment. You’re totally right. There’s that mental cost of, of making that switch. And it’s also what we’ve seen is that people who double down on the rolling over, they’ve gotten the rewards, like all the books about how to get rich. We’re always about get one apartment, buy one apartment, and then use that as collateral to get more, and then use that as collateral.

[00:46:51] Tuur Demeester: It’s like the, the sky’s the limit. And then meanwhile, if you’re like the, the prudent saver, you kind of look like a schmuck.

[00:46:58] Preston Pysh: Well, yeah, there was no way for you to, to outperform somebody who was levered like that in a system where, you know, rolling debt just got easier and easier to to play. So, yeah.

[00:47:07] Tuur Demeester: Until Bitcoin.

[00:47:08] Preston Pysh: Until Bitcoin, yeah. Yeah. What an exciting time.

[00:47:12] 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.

[00:47:32] Preston Pysh: 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. 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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