[00:03:00] Preston Pysh: So here’s Michael Sailor talking about inflation and inflation as a vector.

[00:03:05] Preston Pysh: Some of your comments around inflation risk premiums, the impact that this has as you think about it from a business owner and the hurdle rate that you’ve gotta achieve. Talk to us in depth. Don’t hold anything back. on this particular topic and teach people how you’re thinking about things from an economic calculation standpoint as the CEO, the founder of a billion dollar company.

[00:03:31] Michael Saylor: Okay. Look, I, I think we start with this premise of, of your CEO, your job is to preserve shareholder value, you know, per preserve wealth. That it’s the same challenge you’d have if you ran a family office and, and you were, you were responsible for the wealth of the family. The question is , how do I preserve the value of my individual treasury or corporate treasury over time?

[00:03:58] Michael Saylor: So let’s say I have a million dollars, so in a hard money environment, if the currency is, is utterly deflationary. If, if, if the Federal Reserve or the Central Bank was going to print no more currency for the next decade. Then I’ve got a million dollars next year. I’ll have a million dollars. If I’m looking at the value of my cash, my million dollars, I can presumably have it sit in an account.

[00:04:33] Michael Saylor: And a decade from now, I’ll still have a million dollars of purchasing power because the currency is not being devalued. Now if if the goods and services in the economy are growing at 2% a year and the currency is flat, then a fixed amount of currency is going to be chasing after an increasing amount of goods and services.

[00:04:56] Michael Saylor: You know, and in that particular case the currency’s going to appreciate and value, and so the prices are going to fall. And so that’s a, a good thing. It means that all I have to do is just sit on the money and wait. and the economy will be larger. The value of my treasury will accrete. If, if the banks print 2% more currency and the economy grows 2%, then you’ve got a net equivalence.

[00:05:28] Michael Saylor: The value of my treasury won’t accrete, but it won’t dilute, right? So in theory, if you think about the, the, the good old days of the gold standard, if gold has a stock to flow of 50, then it’s it’s inflating at 2% a year. And traditionally, the economy of the world and the economy of most large countries grows about 2% a year.

[00:05:53] Michael Saylor: And so there’s the, it’s kind of ironic that the 2% gold inflation is offset by the 2% economic expansion, and you have a stable gold dollar or a stable amount of value. And and over time, That kind of makes sense. So what happens when I start to increase the currency? If I increase the currency 5% a year, well now will the economy grow 5% a year?

[00:06:26] Michael Saylor: If the economy grows 0% a year, the currency increases 5% a year, then I’ve got more money chasing after a fixed amount of products. Therefore, the price of the products have to keep going up and they’re going to go up five per the, the stuff that you’re wanting to get, the scarce stuff. Something that you can manufacture infinite supply of, like a copy of a Picasso, a digital copy of a Picasso, that’s not going to inflate, but the actual Picasso is going to inflate to the extent that everybody in the society wants that one painting.

[00:06:59] Michael Saylor: And of course what you see is that as you start to print more money, inflation is not distributed equally. There’s not really a single inflation number. There’s a vector of inflation. In fact, I can come up with a set of pro. You really need linear algebra. You need a vector math to describe this.

[00:07:20] Michael Saylor: One set of products that are information rich with no variable cost, like a digital copy of a Picasso. And there used to be a million digital copies and now there are a billion digital copies. And even if I print a cazillion percent inflated currency, the billionth of digital copy of the Picasso is not going to be any more expensive.

[00:07:43] Michael Saylor: In fact, what’s going to happen in with a certain bucket of, of goods that are high inflation, high, high information content is they’re just going to get cheaper over time. They’re deflationary products. and, and what’s a good example of that? Digital music. Digital video. Digital photos, digital services running on networks that have a fixed price, a fixed cost once you’ve actually paid to deploy wifi and LTE networks.

[00:08:12] Michael Saylor: And once you’ve built the routers and once you’ve built the electrical power plants, and once you’ve run all the fiber optic cable, that’s all the fixed cost. The variable cost of deploying a Netflix movie to a million people is the cost of electricity. And deploying the Netflix movie to a billion people is the variable amount of electricity, right?

[00:08:38] Michael Saylor: So in essence, that’s gotta be like 0.1% variable cost. There is no variable cost, there’s no energy content in the product that is say, oh, I mean the, the perversity, right? Is that it’s all energy. , it’s 0.1% of the value of the product is energy . I’m just shipping electrons and energy. It’s fairly cheap. So with things like that, they’re deflationary because the fixed cost was is a sunk cost, which is amortized across all of the products.

[00:09:16] Michael Saylor: You’ve got one iPhone, you’ve got one television, you’ve got one fiber optic cable to your house. And therefore everything I can push to the iPhone and everything, I can push down the fiber optic cable I can deliver at the variable cost of electricity, which gets, which starts to look like a, a product with a 99.9% gross margin.

[00:09:40] Michael Saylor: Okay, so what’s interesting, well, in the history of the world, if you roll the clock back 50 years, we didn’t have any products with a 99.9% gross margin. , 99% gross margin products are a product of modern digital networks. So Apple created a mobile network. They dematerialized everything you could hold in your hand, and that means that your VCR and your CDs and your cameras and your Polaroid photos, right, and your phones and your tape recorders you know, and your weather, your, your atlas and your maps, and little books and reminders and yellow post-it notes.

[00:10:26] Michael Saylor: All these things had energy content in them and made a variable cost. I mean, traditionally variable costs run anywhere from 40 to 60% of the value of the product. , you know, you like, you have to produce it for 60% of the, of the retail value and you sell it down a retail distribution channel. And eventually the true margin is like 7% or, you know, Walmart 3%, whatever it is, and the other 97% gets eaten up.

[00:10:55] Michael Saylor: That’s what the world looked like. And then what happened with the mobile wave over the last decade is Apple dematerialized all of the, the mobile products or all the handheld products, and converted them from 40 to 6% variable cost to 1% variable cost. And apple then accrued a trillion dollars of value because it was that network, it’s crystallization and of of sorts.

[00:11:24] Michael Saylor: You’re collapsing from a high energy state to a lower energy state. And when you crystallize what energy gets given off, right? And that energy took the form of wealth created for the Apple shareholders. Google did the same thing. They pretty much dematerialized every library and every piece of inf, every book, and every piece of information, and every video and every home video and every V h s and all the music on the earth.

[00:11:49] Michael Saylor: And it collapsed into Google and YouTube and the like, and as it collapsed, right? Like I, this is a real library behind me, okay? I’m sitting in a library of books and it, I don’t know, it’s a hundred thousand dollars worth of books in this room. Worthless because, because you go get yourself a $500 iPad and you can have the entire a hundred thousand books.

[00:12:14] Michael Saylor: And by the way, the a hundred thousand bucks on the iPad is more valuable because they’ll read themself to you and you can resize the faw. I’ll walk past like this perfect book, and it’s a beautiful book, and I open it up. You know, and it’s classic and it’s like in a really small font, and I’m like, I can’t.

[00:12:32] Michael Saylor: I pension Zoom the book and then I go on a trip and I’m like, I really want to take that book. Or those 10 books, they’re really heavy. I leave, you know, the books have mass, the books are static. The books have to be shelved. You know, someone can take the book. I might lose the book. Google took, every library on Earth collapsed.

[00:12:52] Michael Saylor: It just like Apples got their iBooks, right? They collapsed these things. The variable cost goes to zero. So you have, you have all these things that Google touched that became deflationary. Everything that Facebook touched became deflationary, everything that Amazon touched. The part that Amazon eliminated, by the way, was like the 40% of the retail supply chain.

[00:13:16] Michael Saylor: There was a storefront, well, 40% of everything anybody wanted to buy collapsed into a mobile app on an iPhone or collapsed into a website. , 40% of the cost of the, of the energy cost and the, you know, it’s, you know, conservation of mass and energy, right? That’s, that’s thermodynamics. Well, every product you buy, it either has mass, right?

[00:13:42] Michael Saylor: Like the books have mass or it has energy. I had to deliver the comic book to the news stand, and I had to some, or pa I was a paper boy, right? Preston, I was a paper boy growing up, and I sometimes I fall into that. Like, what about the paper boy? And then I notice there’s probably no paper boys left on the planet.

[00:14:01] Michael Saylor: That’s not a job anymore. Like, who would deliver a, a paper? If I deliver a paper? You’ve got the mass, and that’s the paper, the, you know, paper’s made of titanium. By the way, titanium dioxide is the primary element in paper. There’s no pacifier. . I got my start in business studying titanium. It’s heavy. I remember carrying stacks of papers around, you know, it’s like a hundred pounds worth of information.

[00:14:29] Michael Saylor: It had to move through the supply chain. And then there’s the energy mass and energy. The energy was like me with my red wagon hauling a hundred pounds of papers on a Sunday morning through the neighborhood and the freezing snow. And you gotta bu you know, and at some point, my angelic mother at getting up at 5:00 AM to drive the family station wagon, keeping the heat on while I, you know, while I haul papers through the neighborhood, I, I delivered them, by the way, on Wright Patterson Air Force Base where I grew up.

[00:15:04] Michael Saylor: I know every single street, because I had to get up and deliver a two pound paper to every house across the entire military base when and when it was like 20 below zero. So, Mass and energy in the news business. I expended the energy, I hauled the mass around. It was quite visceral. It was expensive. It’s so expensive by the way that no newspaper could afford to hire an adult to do it.

[00:15:32] Michael Saylor: Hence 12 year old to 18 year old high school kids hauling newspapers around on their backs. That was the world that we used to live in, and of course now it’s kinda laughable. No one’s going to haul that stuff. Yeah, you probably couldn’t get a 12 year old to get up during, I remember a blizzard. It got to like, it was 60 below zero, Preston, and we’re trying to figure how to deliver newspapers, on a Sunday morning at 5:00 AM The wind is blowing mass and energy, so Facebook, Google, Amazon, apple.

[00:16:12] Michael Saylor: They dematerialize the mass and the energy from the products. All the products are information and electricity, and that explains why they’re trillion dollar companies. And that explains why inflation as a metric doesn’t work. It might, you know, it’s a, it’s a 20th century idea and it might have almost by, by, I’m not sure it ever worked, but it wasn’t hideously misleading until the last decade and the last decade.

[00:16:50] Michael Saylor: We got to the point where half of everything you’re, you’re consuming is pure information with no variable cost.

[00:16:58] Preston Pysh: So when you say it, it’s, it’s been a hideous metric. You’re specifically talking about CPI, right? I am, yeah. You’re saying CPI is just not something that can actually measure what that, what in the world’s going on right now.

[00:17:12] Michael Saylor: I, I’d say it’s, it’s a metaphysical metric. It, it has no relation to reality. It’s, it’s, it’s been def it’s been defined almost, almost specifically cherry picked to define, to, and define in such a way that there will never be any inflation. And, and, and so the first irony is we’ve defi decided that inflation is a bad thing.

[00:17:36] Michael Saylor: And the second decision is we’ve decided that inflation equals CPI. And the third, you know, irony is we can’t find any inflation. But of course, in order to really understand store of value, in order to, in order to get to the bottom of an, of, of investment rationale and make rational investment decisions, you have to first go to first principles.

[00:18:00] Michael Saylor: And, and, and what I find. 95% of macroeconomists and analysts and, and the, the traditional investment community, they, they rely upon metaphysical abstractions that they learned early in their career or that are repeated to them over and over again by mainstream media. And because they just repeat these metaphysical abstractions long enough, they kind of convinced themself that there’s some veracity to them and there isn’t any veracity to them.

[00:18:32] Michael Saylor: But they, but the difference by, and I, and this takes me back to m i t at m i t, they taught you to think for yourself, you’re an engineer. If you’re trying to solve a problem, you’re expected to think for yourself. Like, for example, the first class I walked into, it was a class in Material science. The professor walked out to all the freshmen.

[00:18:56] Michael Saylor: It was our first week at m i t. He said, this is a tile from the space shuttle. It burned off the space shuttle on reentry. Nobody at NASA knows why it burned off. They’re not sure what to do about it, but they’re afraid the space shuttle is going to blow up if they don’t actually solve the problem. Why do you think it burned off?

[00:19:14] Michael Saylor: And what do you think the solution is? And he looks at a, these are 18 year old freshmen that showed up to school. And you can see everybody’s looking at each other like, is there some reading that we missed before this lecture ? And, and then they’re thinking, I, I didn’t read the answer to the question.

[00:19:33] Michael Saylor: And then there’s this horrifying realization that a guy with a PhD with 20 years experienced just asked you a question that nobody on Earth knows the answer to. And he expects you to think for yourself and reason from first principles. And solve the problem. , you know, that’s the scientific way and there’s not a lot of science and there’s not a lot of engineering in the modern macro macroeconomic landscape or with mainstream media.

[00:20:04] Michael Saylor: They just repeat tropes over and over again as though they’re meaningful and they’re not. I mean, you couldn’t provide

[00:20:12] Preston Pysh: a better example for what we’re seeing right now from an economic standpoint. It’s almost like we’re seeing parts of this shuttle call it the economic machine that we’re looking at literally following a following apart right in front of our eyes.

[00:20:27] Preston Pysh: And you still have many academics with PhDs going on Cn B, C, and talking about, well, you know, our, we, we just don’t have any inflation and, and these types of things. So this is, this is what I would frame it for you. How would you, Michael Sailor. Define inflation today because you, you still have to do economic calculation as a, as a, as a business owner, how are you looking at inflation and how are you saying, well, I think if inflation’s this, that’s my hurdle rate plus whatever risk premium, talk us through how you would define it.

[00:21:02] Preston Pysh: Considering CPI is so broke.

[00:21:05] Michael Saylor: I think the way you define inflation is the rate of price appreciation in a, in a basket of goods, services, or assets that you wish that you desire to acquire in the future.

[00:21:22] Preston Pysh: All right. Yeah, hard to top Michael and some of his descriptions and ability to just kind of drill down into things.

[00:21:28] Preston Pysh: There’s much more if people want to go back and listen to the full one. I think it was our fifth episode. So let’s go to this next one. So this isn’t a real long clip, but this one really had a profound impact on me. I’m talking to Pablo Fernandez. Pablo is a super smart technical programmer, and he’s from Argentina.

[00:21:51] Preston Pysh: And so his perspective of, of growing up in, in this inflationary kind of environment, really just he understands the economics of Bitcoin which is very hard for a lot of people with this us European or Japanese lens where they’re, where we’re not used to dealing with high inflationary prints.

[00:22:11] Preston Pysh: And so we got into this discussion about Central Bank digital currencies. And Pablo made this just amazing insight to me that I, I really just hadn’t put a lot of thought into, and it was this, it was about this back and forth between net producers and net consumer. and how, as they try to cram a central bank digital currency down the throats of all the, the citizens around the world so that they can control the duration of money and basically turn money into these short duration coupons.

[00:22:42] Preston Pysh: He had this brilliant insight about how that’s going to be an accelerant to Bitcoin. So without you know, talking about the , the, the clip here, I’m going to go ahead and play it for you guys. But this was such a profound insight for me personally, that I had never really thought about until I had them on the show.

[00:23:00] Preston Pysh: So here’s the clip with Pablo.

[00:23:02] Pablo Fernandez: What if there was this magical button that they can tap and they say, no one is physically able to trade fiat tokens for fiat dollars.

[00:23:14] Pablo Fernandez: CBDs allow you to do that. CBDs allow you to say, no one is able to spend pesos for dollars. They can perfectly do that, and it takes no effort.

[00:23:25] Pablo Fernandez: It just takes one button. If the Rian government had that power, they would do

[00:23:30] Pablo Fernandez: it in a split second, but this isn’t good. But you’re saying because they w are being tempted by such a button and you think they’ll probably hit the button that it’s just going to cause mass, hyper Bitcoin ization, everybody’s going to run the Bitcoin because of it.

[00:23:49] Pablo Fernandez: I think it’s, it’s going to create a natural split on the, on the society between people that produce and people that only consume. Hmm. And if you, if you look at, if you look at Argentina, the producers, the business people the people that are, the entrepreneurs, the people that are running companies, they’ve done everything in their power to escape being siloed into the, the, the Argentinian peso economy.

[00:24:15] Pablo Fernandez: So, for example, America, one of the biggest companies in, in Latin America, They move their offices across the pond to u i and they are operating from u i because they don’t have this type of regulation. The only businesses that weren’t able to do this are the people that worked on the fields. Mm-hmm. the companies that work on the fields.

[00:24:34] Pablo Fernandez: But every single producer has found a way within the realms of possibility to escape these type of regulations. And I think if producers see themselves being tied to remaining on fiat rails, and like Lagar said, that we need to plug every, every skate bar because she, she said something, I don’t know if you remember, maybe like a year ago, she said something around, we need to, we need to prevent people from escaping something like that.

[00:25:07] Pablo Fernandez: If they don’t plug every single hole, the producers will. . And as people see this type of action and these type of powers, I, I think, I think the people that are producing and are using their energy and their effort to create wealth, and they see themselves being cornered in a way that they are not able to protect their wealth, they will increasingly sick to escape into something.

[00:25:33] Pablo Fernandez: And that’s something, I think it’s Bitcoin.

[00:25:34] Preston Pysh: This is a really profound thought right here. This idea that you, that the money itself is going to separate the consumers, which when you look around the world right now, they are professional consumers, that are GS waiting for the next, the next government check their, their next QE, their next ubi, next QE, the next QE.

[00:25:58] Preston Pysh: And I like how you, how you throw that in there because some of these consumers are effectively, wall Street itself, they’re just waiting for the next QE dump. so that they can then splurge it into the market as a consumer. Right.

[00:26:13] Pablo Fernandez: And, and if you think about it, that’s crazy. You think about it, one of the, one of the issues of the existence of this link between Fiat and Bitcoin is that all that liquidity being just created out of thin air and pumped into Wall Street or through Wall Street, some of that liquidity is going into Bitcoin.

[00:26:39] Pablo Fernandez: And that means that value that was not created because of economic creation of, sorry, wealth work, that from work is be going into the Bitcoin network. So there is misallocation, there is a distortion that is coming from fiat and it’s leaking into Bitcoin. And there are non economical, non-producers who are playing really well.

[00:27:06] Pablo Fernandez: The fiat game. Who are doing really well on the Bitcoin game, so we have like this, this leaking of misallocation. So the moment we break that , the only way to get Bitcoin is from creating actual value that someone is willing to do away with their Bitcoin for that. All right. So yeah, just, just awesome insight on this next one.

[00:27:34] Preston Pysh: Boy, when we went through the bull market 2020 to into 2021, and things got overheated and the quote unquote crypto tokens galore, just flooded the market. And this was a, this was frustrating to see how much market cap was applied to some of these, these quote unquote projects and quote unquote blockchain experiments.

[00:28:02] Preston Pysh: That in, in my mind as I was going through it, I was like, there’s nothing behind any of this. None of this is actually decentralized. This is all just marketing. And many of us in the space knew that a lot of these Silicon Valley VC firms were. Behind so much of this, the, the marketing of these, of these tokens and the market cap of these tokens, but nobody laid it out nearly as well as Cory Klippsten did.

[00:28:32] Preston Pysh: This was, this wasn’t too long ago. I think we were out in LA and then we recorded this shortly after, at the end of 2022. And Corey just clobbers this description and goes into a lot of granularity that I had never thought about before as to how intertwine the, the Silicon Valley VC world was with all of this, this crap that was just piled on top of all this easy money that was coming out of the Central Bank.

[00:29:00] Preston Pysh: So listen to this clip. It’s pretty powerful and definitely one of my favorite moments of doing the show.

[00:29:06] Cory Klippsten: So this gets at the problems with crypto vc, right? And so now I think finally, finally, we Bitcoiners and the journalists that care about truth, Just like Bitcoiners care about truth, appear to have enough of a microphone or enough of a megaphone to start going after the absolute scam fest that has been going on for the last four or five years in Silicon Valley.

[00:29:32] Cory Klippsten: Talk to people, people about strong enough to really go out with a hard hitting thread about Andresen Horowitz that I posted this morning. Oh. So I haven’t talked about this anywhere, but walk us through it. Walk, walk through. We can talk about that a little bit. But, you know, and, and I’ve talked about these themes and kind of what’s going on, but essentially there’s never been a better industry vertical for the venture capital business model.

[00:29:58] Cory Klippsten: Then crypto meaning non Bitcoin altcoin scamming. Why? Because they can, they benefit from information arbitrage and regulatory arbitrage. and at the same time, and basically they can, so any crypto VC deck when they go and raise from LPs only needs two things on it. Really. It’s just literally, one is short time to liquidity.

[00:30:25] Cory Klippsten: And the second is we make our own weather. And these are the two things that when I came into the space, as lots of people know, I was in Silicon Valley ecosystem advising startups, cutting angel checks, you know, starting in 20 12, 20 13, all the way through going Bitcoin full-time in 2018. That first 11 months from like May of getting caught up in the, in the ico, runup and Bitcoin and everything.

[00:30:48] Cory Klippsten: Through about April of 2018 when I had decided Bitcoin was the only thing that mattered, I was heavily immersed in all aspects of, of the, the crypto space. And I heard this said over and over and over again and didn’t see the obvious. The obvious lie in that and just how immoral it is to hinge a business model on short time to liquidity.

[00:31:12] Cory Klippsten: Meaning that you don’t need to have revenue, you don’t need to have product market fit, none of that. It doesn’t need to be real because you can just dump this token on retail or undo institutional and there’s no mark or there’s no product, there’s no service, there’s no product. It’s literally nothing. It’s just self, it’s just self referential gambling and gambling tools and that’s it.

[00:31:30] Cory Klippsten: On something that has no inherent value or no, no real world use case. And then we make our own weather is that they’re all just, they all are just marketers. And so this is where it becomes really important that the genesis of Andreson Horowitz is in partnership essentially with CAA. The, you know, it was basically modeled after CAA.

[00:31:50] Cory Klippsten: This is the talent agency down in Los Angeles. So, Mike Ovitz, the founder of CAA, was the senior advisor to Ben and Mark. When they started the firm, they kind of modeled it after CAA. The whole point was that they were going to treat the founders of these companies as talent the same way a Hollywood talent agency would treat their talent and would be kind of in service of them.

[00:32:08] Cory Klippsten: What it also came with is in the DNA of that firm from the very beginning, was to make your own weather to put out your own media. So this is where you see them always putting out podcasts and trying to get everybody at their firm to blog all the time, and hosting conferences and just being in the media as much as possible.

[00:32:24] Cory Klippsten: They even created a new media arm a couple of years ago, basically specifically to push their crypto agenda called Future. Essentially they, they push out and market and make their own weather with these crypto scams that get short time to liquidity. And as long as the window is open where these things are unregulated, and you can say whatever you want about magic bean stocks on the blockchain or whatever, that will save the world.

[00:32:51] Cory Klippsten: You can go over and over again and push World coin helium, token Axi, infinity. You can buy 300 million worth of Solana and get all your friends at CAA and the other agencies down in Hollywood to have all these celebrities go on talk shows talking about their Solana, which happened in the summer of 2021.

[00:33:09] Cory Klippsten: And then they can dump it as soon as it pumps and, and get out of their cost basis and still let some ride. And as long as that window is open, they’re going to continue doing it because you stack these funds, you raise a fund. If you can get out of the J curve where you’ve made your investments and you start to have exits, if you can start to show that you’ve actually returned the fund, the faster you can do that, the faster you can raise another fund.

[00:33:33] Cory Klippsten: So Dre Horowitz is on like fund number four now. I think it’s between 12 and 15 billion that they’re collecting 2% on of these crypto funds. It’s so much money that they can hire people out of DC over and over again as partners in these funds deliberately to get around the regulations around lobbying.

[00:33:51] Cory Klippsten: So if you spend more than 20% of your time in DC lobbying, you have to register as a lobbyist. But that doesn’t count if you’re a partner in a company. So they just hire people straight out of dc, make them partners of these funds, and they can basically be in DC full-time arguing for Ethereum matters or , whatever it’s that they’re trying to get across.

[00:34:12] Cory Klippsten: And you know, the, the game that SBF was up to over the past year and a half, two years was essentially trying to rest control of crypto, oversight of crypto away from the s e c and put it under the cftc. And they’ve been working on this with Paradigm, which is Fred Asom. Brian Armstrong’s, co-founder at at Coinbase.

[00:34:32] Cory Klippsten: This is in Dresen Horowitz. This is ftx. This is also Coinbase. And obviously the entire Ethereum Foundation and Joe Lubin and Novogratz at Galaxy and all these guys essentially trying to have crypto regulated by anyone other than the SEC because the s e C obviously knows that this stuff all passes the Howie test and these are all securities.

[00:34:54] Cory Klippsten: So they’ve basically just been dangling millions and millions and millions of dollars in front of the CFTC and saying, if you regulate us, please charge us tons and tons of money so that we can staff your office. And you guys will get super, super powerful out there at the cftc because you’ll oversee this burgeoning crypto industry.

[00:35:12] Cory Klippsten: Just, just, you know, wink, wink regulate us with the light hand.

[00:35:16] Preston Pysh: You gotta love Cory. All right, so this next clip here was one of my favorite moments in doing this show. We had Sam Callahan and Alex Gladstein on to talk about the IMF in the World Bank, and Alex wrote this banger of an article just laying it out how it all works and like, what is the scheme that they’re running with this.

[00:35:40] Preston Pysh: And I’ve struggled for, for years to really be able to wrap my head around like, what is it, why does, why is it set up? What is its true purpose? And, and who’s basically being exploited through this mechanism where the IMF and the World Bank are working together hand in. to do what? Right? Like that was the question.

[00:36:03] Preston Pysh: And in this show and Alex’s article, which we will have in the show notes, and it is a, an extremely powerful article, and I would encourage people to go back and listen to this full episode, but Sam provides, I’m sorry, not Sam, but Alex provides this unbelievable example of how the IMF exploits many of these developing nation states by getting them heavily indebted to the point where they can never repay it.

[00:36:31] Preston Pysh: And then they have these, these developing nations focus on one product or one service to the G five G seven type countries. . And it’s just such a powerful example and, and just really enlightened me personally as to how bad and how deep this scheme really goes. And I think it’s important that for people that would see this, there’s a similar initiative called the Beon Road Initiative out of China that is basically in, in competition with the IMF and World Bank for similar type policies.

[00:37:09] Preston Pysh: So just, just a really powerful clip. I’m going to go ahead and play it now so people can hear it and be sure to check this out if this picture interest. because of central banking policies that have consolidated enterprise and there’s only a few vendors now that can supply whatever part of the supply chain you look into, you talk about this idea of mono crops, which you were just talking about, right?

[00:37:35] Preston Pysh: Mm-hmm. , what I find so fascinating is what we’re seeing at a company level inside of unique supply chains. You’re talking about at a country level, that because of the manipulation that was happening through the IMF in the World Bank has caused these nation states to have a mono crop. Like they’re just exporting shrimp.

[00:38:02] Preston Pysh: And this is all through, and I think this, this term is really important and it’s, I, you know, as I look at your entire article, I’m saying this idea of structural adjustment loans that have. Loans that have these ties back to things that your G seven Nation states want into the global economy. And I, I, I really want to go down this path of the first example you have in, in the story with shrimp and Bangladesh.

[00:38:31] Preston Pysh: Yeah. Tell people this story so they can really wrap their head a around this idea of structural adjustment, the damage that it does to, to the nation state because now they got this monocrop and they have no robust biodiversity of enterprise and business inside of their, their organic country. And they’re not, they’re relying on everybody else and they can’t be self-sufficient.

[00:38:56] Preston Pysh: Tell us the story of the shrimp.

[00:38:58] Alex Gladstein: Yeah. I wanted to start with Bangladesh. I just was so moved by this story. I came across it in a bunch of books written in 94 because that was the 50th anniversary of Breon Woods. So there was a lot of retrospective material written at the time. and one, I just came across this story.

[00:39:15] Alex Gladstein: It wasn’t super fleshed out, but it was a kind of a testimony of a worker in Bangladesh. And again, this was 94, so a long time ago, but talked about how, and I, I quoted from her and, and she, it’s just her testimony of like how her life has changed because of the shrimp farming and thought it was so powerful.

[00:39:30] Alex Gladstein: So I wanted to open the essay with it because it’s kind of this like grimly perfect me, you know, example of, of structural adjustment, but basically like here was a country that, again, poor country, but pretty independent, had a very rough history in the sixties, seventies. Not only did it suffer enormously at the hands of colonialists, basically the British, you know, around pre-World War, war ii, world War ii, I learned in my research that in what is now Bangladesh, the, the, the British basically took all the.

[00:40:03] Alex Gladstein: From the local population to use it during, in the war theater in World War II and ended up starving millions of people, and Churchill and Kanes, John Mannard Kanes were, were responsible for this. I learned about this. I did not know this. So Kanes was, was literally the, you know, an architect of massacre, you know, a mass atrocity of killing millions of people.

[00:40:25] Alex Gladstein: It’s crazy. But, you know, these are, these are people who had constantly been under foreign pressure in the seventies. They had a huge, you know, br war. I mean, there was br breakaway of, of what was then called East Pakistan, and the people suffered again. And they had another famine where the US government was involved actually.

[00:40:45] Alex Gladstein: And, you know, they, the, you know, look, it was all called war politics, right? So Bangladesh had been selling stuff to Cuba and South Soviet Union America didn’t like that. So we, and this was all Kissinger stuff. Like we, we withheld grain from them. You know, by this time, by the seventies, we had, we had been pretty effective at becoming kind of the dominant, like kind of controller of a lot of the world’s food.

[00:41:06] Alex Gladstein: This was obviously a strategy we used in the, in the Cold War, but, you know, they, they were like, they were in a tough place and they were running out of food and the US just like did not let the food in. And this killed like another million people in the mid seventies. So this society was, had been through a lot, and to make matters worse, they always were hit by these crazy cyclones.

[00:41:25] Alex Gladstein: So there’s one cyclone in the seventies that killed a million people. It’s like a deadly storm ever. And this is a lowly country on the, on the coast of the Bay of Bengal. And it’s kind of, the bay is shaped like a tunnel. So these storms come in and they, they, they get, they deem powers, they move north, and they, they send these massive waves out over the population.

[00:41:42] Alex Gladstein: A third of the population lives along the coast. So in the sixties, the pop, the, the authorities built like these big dykes to protect people. And then they had these like mangrove forests, which were the natural protection. So, You know, this was all they had. These were the defenses they had. And what ended up ended up happening is the World Bank and imf, you know, kind of take a look at Bangladesh in the seventies and they basically say, you know, you’re not exporting enough.

[00:42:08] Alex Gladstein: They had started to lend the lot to the country’s autocratic rulers and they would send teams of analysts and try to figure out, well, how, how can we generate more exports for this country so it can pay its debt back , basically that mean that was sort of the deal. So they said, look, let’s do aquaculture.

[00:42:26] Alex Gladstein: Let’s do shrimp because you guys have a lot of shrimp off your coast. So World Bank Loans financed this in Bangladesh at the same time that the IMF was extending these structural adjustment. Which were also sort of targeted at, at shaping the economist way. What ends up happening is you’ve got all these farmers who traditionally grow again, like rice, cattle, et cetera.

[00:42:48] Alex Gladstein: They’re on these low lying parts of land near the ocean. A lot of it had actually been reclaimed through the dyke system. And now they’re, they’re being incentivized to take out loans, to upgrade their farms, quote unquote upgrade by drilling holes in the dykes to let water in. And, and they make ponds.

[00:43:04] Alex Gladstein: And then they would, they’d go into this like often freezing water, and they spend all day like catching like little shrimp, they call it shrimp fry. And then they bring the shrimp into these ponds, and then they wait for the shrimp to grow. And then when they get big enough, they, they sell them to these like shrimp lords, who then seldom to the government, and then those go out to the international markets.

[00:43:23] Alex Gladstein: So this is the change that, that, that happened in the seventies and eighties, nineties in this area, and did a couple things. It, it really impoverished a lot of people. Because again, these, these, these people had very little, and they, they borrowed to, to the money, to, to change their farm in this way. And in many cases, like it took them a long, long, long time to even pay back that initial loan.

[00:43:45] Alex Gladstein: I have some data in my essay about this, but it’s, it’s like, in some cases, essentially they, they were experiencing wage deflation. Like they were just sort of getting poorer over time. And they were also depleting the environment around them. Like not only were the mangrove forests that protected them getting cut down, about half of them got cut down as a result of shrimp farming and the dykes were getting damaged.

[00:44:07] Alex Gladstein: So this left them really vulnerable to these storms, which keep happening. But it also, like the farmland itself became super salty because of all the water coming in. So rivers were destroyed, you know, a lot of like crop animals died. Like, so, so basically this is like a, this is like an environmental disaster now.

[00:44:24] Alex Gladstein: It it does one thing. It, it raises shrimp and, and shrimp is the second largest export today in Bangladesh. I mean, it’s gone from. Something that was like a couple million dollars a year to it, you know, an industry where I

[00:44:36] Preston Pysh: think it was like 80 or something, 80 million or, yeah.

[00:44:40] Alex Gladstein: No, I mean, I, I it grew, grew national shrimp profits grew from 2.9 million.

[00:44:45] Alex Gladstein: And in 73, which is when these things sort of just start these loans to 90 million in 86 to, to almost 600 million in 2012. So it, it’s sort of an exponential rise in these profits. And, and again, after textiles, it remains the second largest export of this country. And, and, and again, these loans were taken by autocratic governments for the most part, who, who were not accountable to the people.

[00:45:05] Alex Gladstein: And I just think that this is a really vivid example of like of what structural adjustment is. Now that’s kind of like a, a detailed example of one country.

[00:45:14] Preston Pysh: No, Alex, people would hear these numbers. This is important. People would hear those numbers and say, well, what’s wrong with the numbers going from 1 million up to these really high numbers that you just said?

[00:45:24] Preston Pysh: Now you talked about the damage that was done to the farmland and everything else, but I think for a listener that would hear that, I don’t think that they understand that you’re just talking top line. You’re not talking other impacts and the payback that’s associated with the interest on these rolling loans.

[00:45:42] Preston Pysh: Right? Like there’s a whole lot more to those numbers.

[00:45:45] Alex Gladstein: Yeah. No. Well, so first of all, like, well, let me just do a brief overview of structural adjustment. Now I’ll explain why those numbers sound a lot more rosy than they really are. Yeah. Right. Yeah. Okay. So structural adjustment again, are loans given out primarily by the I MF ever since its inception, and then since 1980 by the World Bank.

[00:46:02] Alex Gladstein: Before 80, the World Bank largely gave project inspector sector specific loans that didn’t really have conditionality. But since 80, these structural adjustment loans have been a big, big part of the Wolf Bank’s policy as well. So these, these loans are, are attached to conditions. So basically, classic example would be country like Indonesia in the seventies would have balance of payments crisis.

[00:46:25] Alex Gladstein: The dictator would call it the I mf. I MF would fly in. First class business class, they’d never flown a flu economy. They always, they always had a lot of perks. They came in, they’d iron out a deal and they would say, okay, you can have what was called like a standby agreement, just like a line of credit.

[00:46:39] Alex Gladstein: And you can draw that down at, at certain milestones, but you need to like fulfill these conditions to do so. And these conditions were basically things that like would never fly in in a Western country, right? Would never fly like in a democracy where people could actually protest. But they’d be like, for example, currency devaluation.

[00:46:57] Alex Gladstein: Total kind of abolition of for foreign exchange and import controls, shrinking of domestic bank credit, jacked up interest rates, jacked up taxes, and any sort of subsidies on food and energy ceilings, on wages, restrictions on governments spending and healthcare and education. Favorable legal, legal conditions from multinationals.

[00:47:16] Alex Gladstein: And then sort of selling off state enterprises at cheap prices. Now, so some of your listeners may say, well, some of those things sound really good, like we’re free market people. But the problem is that. Is the double standards. Like you have Britain coming into a country like Sri Lanka, for example, which used to give free rice to its people.

[00:47:34] Alex Gladstein: Now is giving free rice to your people a good economic idea? No, probably not. But you know, you have a colonial power coming in or a former colonial power coming in, and they give all kinds of free crap to their people. And not only do British enjoy free healthcare and all this other stuff, but a lot of their agricultural policy and stuff is, is basically subsidized by the government.

[00:47:52] Alex Gladstein: So you have a total hypocrisy. You have a government that uses a lot of central planning to protect its economy, coming into a poor country and saying you can no longer do the same thing. And on top of that, you have all the policies that that Bitcoiners would, would find, you know, horrifying, like, you know, again, raise taxes, raised interest rates, currency devaluation, et cetera, et cetera, et cetera.

[00:48:11] Alex Gladstein: So essentially the structural adjustment policy was meant to squeeze the poor country and to to reduce consumption. At the, at the prioritization of exports. So when we go back to those numbers from Bangladesh, now that we know this, we’re looking at, oh, like there’s a lot more exports happening, there’s a lot more shrimping sold.

[00:48:28] Alex Gladstein: Well, what you don’t realize unless you dig into it, is that at the same time, there is a tremendous amount of, of debt being incurred, and the debt service is just getting bigger and bigger and bigger. So, for example, in the Bangladesh case, I just want to, because up here, what, what a, where I think what people don’t see is the, is how many times the debt keeps getting rolled over.

[00:48:53] Preston Pysh: So it’s almost, first you had 10 structural adjustments.

[00:48:57] Alex Gladstein: Yeah. Again, 10 times the government took, got a bailout essentially, and then agreed to restructure its economy by the IMF. Between 72 to today, there’s 10 times this has happened. So the debt, the foreign debt has gone from 140 million in 72 to, to almost a hundred billion today, almost a hundred billion.

[00:49:16] Alex Gladstein: So yes, on one part of the balance sheet you’re seeing, you know, more profits from exports. But what you’re not seeing if you just look at that is that a country is slipping further and further and further into an inescapable debt trap.

[00:49:31] Preston Pysh: And dependence on foreign, on foreign imports for most total depends dependence on foreign imports.

[00:49:36] Preston Pysh: Yeah. Alright. So some really powerful stuff. Make sure you guys dig into this more if, if you, if you did find that interesting. Okay. So the last thing that I’m going to play here is actually three different clips and something that I think is just insanely important for people that are coming into the Bitcoin space.

[00:49:58] Preston Pysh: And just trying to wrap their head around everything. And it’s this idea of proof of work versus proof of stake and also how energy is required and, and you should want energy to be a part of Bitcoin. And then you, and then you wrap the whole ESG big banker narrative piece that is all intertwined with this.

[00:50:22] Preston Pysh: So I have three different clips that I’m going to play. The first one is from Gigi talking about the importance of proof of work and what it is. Michael Sailor talking about how important it is that energy is injected into the money. And he also covers some of the ESG. Pieces that are intertwined with some of this.

[00:50:44] Preston Pysh: And then for the third clip, I have Jeff Booth talking about the same stuff, but from just kind of a different angle. And I think all three of them do such a profound job of describing what is proof of work, , why proof of stake is different, and why Bitcoiners at large. And people who just want free and open money really, really need to understand these ideas.

[00:51:09] Preston Pysh: So this, this goes pretty long, but I think it’s so important for people to get this on your journey and that’s why I’m going to go ahead and play these three clips. So let’s talk about proof of stake versus proof of work. This is, in my opinion, one of the most important things. The difference between these two is probably one of the most important things for somebody that’s new coming into this space to, to fully understand.

[00:51:37] Preston Pysh: So if you were going to characterize the two of them, please do so and then talk to us about the concerns that you have for proof of stake, because I know you have quite a few .

[00:51:50] Gigi: Okay. I try . I’ll have to, I’ll have to collect myself. I, I did not anticipate this question. I have to be honest. So, okay. Proof of sake is basically a.

[00:52:01] Gigi: Period. Like it doesn’t work. It cannot work. Just in terms of timing, proof of stake systems always need to do some proof of work in secret to fight off these race conditions and so on. Like, okay, explain where, when should I, where, where should I even start?

[00:52:15] Preston Pysh: Well, no, explain that. Cause I’ve never heard that , I’ve never heard that point of view before.

[00:52:19] Preston Pysh: Explain that.

[00:52:20] Gigi: Either they’re doing some proof of work secretly just a little bit, you know, so as an anti anti cheat mechanism, or they have a centralized timing server. There is no other way. There is no global time on earth. There is no global time in the universe. You know, there just isn’t because of relativity.

[00:52:36] Gigi: So a, a light signal takes like 50 milliseconds to travel from one place of the earth to the other. And that’s not like an Arabic, like that’s not. So there is no global state, you know, like you cannot snap with your finger and decide this is the global state of the world because you will always have like a 50 millisecond fussy period where it’s indeterminate.

[00:52:59] Gigi: You cannot, like signals need to travel back and forth. There is no global state in the universe and there is no global state on earth. And, and so if you reduce the block time to lower than 50 milliseconds, for example, it would be absolutely impossible to find consensus. And that’s also why chains that have slower shorter block times, they have more orphan blocks because it, it, you know, like , the, the risk of running into consensus problems is higher.

[00:53:26] Gigi: Bitcoin’s 10 minutes. It’s just like, okay, that’s good enough. Even if you have latency issues and so on. 10 minutes is long enough for the earth to agree on a state and this is like a physical problem and proof of stake cannot solve this problem, period. You need to have timestamp service that are centralized, two or three of them that tell you the time because for transactions and an order of transactions, you need to know the time because otherwise you would be able to spend money that you do not have.

[00:53:55] Gigi: You would be able to spend money that did not arrive yet. For consensus to rise, you need an absolute order of events and in the universe there is no absolute order of events. It’s all relative and that’s why you kind of need to build up your own area of time and only proof of work is the only thing that works.

[00:54:11] Gigi: Alright? That’s one thing. That’s just a time aspect with the proof of stake who, like one of the biggest problems that PR that become solve was how? Who gets the tokens? Who gets the initial supply? How do you distribute the money? First of all, who is allowed to print the money and how do you distribute it?

[00:54:29] Gigi: How does proof of stake solve it? How do, how, who decides? Who can print, who decides about the, the, the money supply and who, who, who gets it? You know? And if you don’t have like the, the, are you aware of the term steak grinding and, and validator selection and all those kind of things?

[00:54:45] Preston Pysh: I’ve heard, I’ve heard some of it through the Ethereum.

[00:54:48] Gigi: Yeah. That’s a big problem. You know, what solved this proof of work? You know, like if you are a validator or if you control most validators, you are the one who selects the next validator. So who gets the money next? And if you control all of it, then you just give yourself the next s slott and you and so on and so forth, and so on and so forth.

[00:55:04] Gigi: And the, the systems that run into that, how do you know how they solve it most of the time? Which is something that’s truly random, which is proof of work. You know, like it’s all stupid. Why are we playing these games? Bitcoin exists. Bitcoin works. Bitcoin is fair. Why are you trying to print your own money?

[00:55:19] Gigi: Why are you pri trying to print your own money into your own bucket? It’s all unethical. It’s all very, very unethical. And I am, I’m starting, you know, I’m starting to lose my patience. , because Bitcoin has been around for a very long time. And you are proof of work. Your, your proof of steak Shitcoin talking that you mind yourself or pre mine yourself.

[00:55:39] Gigi: Most people don’t know. Ethereum had a 70% pre mine, seven oh, 70% pre mine. Very few people, like five or six people have se had 70% of the Ethereum supply before it launched, you know, and all the other projects are very similar. You know, like there’s always a, a few selected people that print the money because it’s a hard problem.

[00:56:00] Gigi: How do you generate money fairly and, and distribute it across the earth just like gold was distributed, you know, distributed fairly all around the earth. Without anyone deciding who gets the money. It’s a really, really hard problem. And Satoshi Salt did, and he didn’t take anything for himself, and he disappeared.

[00:56:17] Gigi: And that’s why Bitcoin can’t be repeated. You know? Like that’s, it’s, it’s, they immaculate conception of sound money. So why, why, why do people continue to like, improve upon that? And, and, and they don’t even know the problems, the proof of work solves. That’s the, that’s the, that’s the thing. The proof of stake.

[00:56:33] Gigi: People have no idea what kind of problems, proof of work solves. And so they are, they’re not even understanding the problem correctly, and they’re trying to come up with a solution and all the solutions are flawed. And you always, as I said in the beginning, you always have a certain quorum of people that decide what the truth is.

[00:56:52] Gigi: And in summary, in like one sentence, Proof of work relies on physics to tell you what is true. And proof of stake relies on human judgment. And I will tell you what is true. And that’s the big difference. And we want to, we want to move away from human judgment, and we want to, we want to remove humans from the equation.

[00:57:11] Gigi: When it comes to the, to the ver ver very moral and ethical question of money production and who can control the monetary flows, we have to remove humans from the equation. And proof of stake does not remove the humans from the equation. It reintroduces them. And that’s why I’m, so, that’s why I’m so worked up about it, that I’m, I’m apologies to all the listeners that I’m, I’m, I’m, I’m ranting so so hard than that.

[00:57:36] Gigi: But it’s a more of an ethical question. Who should, who should be able to print the money and who should, who should be able to de platform you? Who should who? Who can stop the money flows? Who can freeze the accounts? Who says what is true and what is not? And Bitcoin and proof of work. It uses physics and mathematics and something you cannot cheat.

[00:57:55] Gigi: and all the other systems like proof of stake and also the current fiat system. It’s all the same thing. It’s a quorum of people that decides what’s true. It’s the central bank. It’s like the 12 people in the room that decide on monetary policy. And we see this all the time. Just look at, look at the proof of stake systems that exist.

[00:58:10] Gigi: Like it’s, it’s, it’s human judgment all the way down. And, and that’s why, you know, like that, that’s why these systems, they pause and they restart that, they change the monetary supply and they blacklist people and de platform people and blah, blah, blah, blah, blah. We’re back to the old system. Proof of stake is the system, the central bank system that we currently have.

[00:58:28] Gigi: And it’s immoral, it’s unethical. And proof of work is a safe and secure and fair system that is based in reality, that is based in mathematics, that is based in physics itself, and it actually solves these problems all the other people try to solve.

[00:58:45] Preston Pysh: Okay, so here is Michael talking about some similar ideas but from a different vantage point.

[00:58:52] Preston Pysh: When you say conservation of energy, and you talk about how this is so important to the physical universe, is it possible to create a digital money without injecting energy into it? That is sound. It sounds like you’re saying that’s impossible. Is that correctly summarized?

[00:59:11] Michael Saylor: I don’t think you can. I don’t think you can.

[00:59:12] Michael Saylor: I think that we only have discovered one way that is settled and universally agreed upon to create digital energy or a digital commodity. And the one way is proof of work. I take electricity and I run it through some kind of hashing algorithm. So you could do it with shot 2 56. I mean, you could probably come up with another hashing algorithm.

[00:59:37] Michael Saylor: You can go with certain other algorithms that do it, but I’m modulating electricity to do work. So I’d say bitcoin’s an example of. The creation of a digital commodity. As I said before, if you took away the difficulty adjustment and you took away the havings, you could have a commodity more so than a scarcity.

[00:59:59] Michael Saylor: The brilliance of Bitcoin is not just that it’s a digital commodity, but that it’s a digital scarcity. If I uncap the amount of Bitcoin, or I just let you continue to create it, well, I, I’ve got a digital commodity. Well, I mean, oil is a physical commodity, and so it’s uncapped. So, I mean, the reason that oil is not necessarily as good an investment as Bitcoin over the long term is a, it’s not digital, and so I can’t.

[01:00:23] Michael Saylor: Carry 10 billion worth of oil on a USB stick, right? And I can carry two 10 billion worth of Bitcoin. And the second reason is it’s not a scarcity. You know, a hundred oil miners or oil refiners can produce a hundred times as much as one. Whereas with Bitcoin a hundred Bitcoin miners can’t produce any more Bitcoin than one Bitcoin miner can produce.

[01:00:46] Michael Saylor: So oil’s not a scarcity, it’s a commodity and it’s a physical commodity. Bitcoin’s a digital commodity. Now, other people have launched, I mean, other groups have launched crypto networks that use proof of work. I mean, our, you know, Ethereum was a proof of work network. You know, you’ve got the Bitcoin forks, a handful of other cryptos that are proof of work networks that might make them, what would I, I say it might make them an ssat or a an architecturally, an architectural digital commodity.

[01:01:19] Michael Saylor: It doesn’t guarantee a, a specialty or it doesn’t guarantee their digital scarcity, like for example, Dogecoin. Keeps increasing its supply, right? Mm-hmm. Mm-hmm. , it’s not a scarcity, it’s a proof of work protocol that creates more and more and more, right? So it’s commodity in the same way that someone creates more silver or more soybeans every year, right?

[01:01:41] Michael Saylor: It doesn’t necessarily make them regulatory commodities or ethical commodities. And the distinction there is if Apple computer launched a proof of work network tomorrow, and it kept half the coins, it wouldn’t be an ethical commodity. it would be an architectural digital commodity. But Apple computer makes it a security because there’s a pre mine.

[01:02:06] Michael Saylor: And so if there’s a pre mine or if there’s an ico, or if I created a protocol where 10% of all the coins that were mined were funneled to a wallet that I control, that I use to pay developers, right? All of those things make it more of an investment contractor or security, even though it’s using energy.

[01:02:27] Michael Saylor: So the use of energy doesn’t guarantee that something is a commodity. The use of proof of work doesn’t guarantee it’s a scarcity. Right. , because the protocol is what makes it a scarcity. And the providence. Is what makes it ethical and a commodity. So Bitcoin’s special because it has a providence of Satoshi disappears that Satoshi coins never move.

[01:02:51] Michael Saylor: There’s no ico, there’s no central development organization, there’s no protocol that funnels energy to developers, and there’s there’s no pre mine. So the ethical launch of a digital commodity could create a regulatory commodity or an ethical commodity, which would be deemed as an asset without an issuer.

[01:03:12] Michael Saylor: Right? An asset without an issuer is a, is a technical definition. You know, the regulatory definition of a commodity. So the oranges, wheat, coal, steel, so soybeans, oil, natural gas, are all assets without an issuer, but they’re not. Bitcoin is the asset without the issuer because of the ethical providence.

[01:03:35] Michael Saylor: And the way, the way that it becomes without an issuer is you have to have a consensus mechanism that doesn’t require the coordination of engineers. So the, the problem with proof of stake is that proof of stake as a simulation of the universe or an imaginary universe, you’re imagining energy and you’re cutting a virtual machine.

[01:03:59] Michael Saylor: They literal call it a virtual machine, a virtual machine with virtual energy in the form of virtual tokens for virtual security, all manifested in software code. Someone has to write that software code. And if you write that software code and you keep changing it over and over and over again, then you’ve got this problem, which is, how can I continually change the software without someone having influence over the software?

[01:04:26] Michael Saylor: Yeah. Un UN assets have created a software company. So with Ethereum, the Ethereum Foundation is a software company. There’s a lot of software engineers that have to write the software. They have to be paid, someone has to budget for the payment of the engineers. The only hope you have of something based on software becoming a commodity, is you write the software once you gift it to the world, and then you stop changing it, and you distributed across 20, 30, 50, a hundred, a thousand different parties.

[01:04:59] Michael Saylor: And if everybody can run the software and if there’s no need to change it, and if no one organization controls it, now it becomes sufficiently decentralized. So you see, that’s the fact pattern with Bitcoin. The reason it’s important for Bitcoin to be. Is the software and the protocol needed to be substantially finished when it was first released by January 3rd, 2009.

[01:05:25] Michael Saylor: They kind of needed to have it done. They couldn’t keep changing the protocol because otherwise you end up with a software company. So proof of work allows you to place the consensus and the security and the integrity of the network in the hands of Bitcoin miners and Bitcoin node runners. So you’re using electricity and you’re using 2 56 a six.

[01:05:48] Michael Saylor: In order to create the security and the integrity of the network, and that’s generally thermodynamically bound and it’s open and everybody can participate and anybody can create their own Bitcoin miner. Anybody can mine Bitcoin. Anybody can, you know, electricity is broadly found in the universe and you’re not waiting.

[01:06:07] Michael Saylor: You don’t need the permission of anybody to allow you to get on a network and mine, nor do you need the permission of anybody to run a node. It’s permissionless and that’s what makes it without an issuer. As soon as you decide that you want to get rid of the energy, then you’ve decided to create a virtual machine, virtual energy.

[01:06:25] Michael Saylor: And when they create the energy and a proof of stake network or any other non-energy protocol, you’re not just getting rid of the electricity, you’re also getting rid of the material energy, which is the Shaw 2 56 mining asic. So the application specific integrated circuit is matter. The electricity is energy.

[01:06:49] Michael Saylor: You’re limiting the matter and the energy. Hmm. And the hardware’s important here, just as important as the energy because the electricity is a commodity. Whereas the thing that creates, that makes this a specialty or makes it a scarcity, is the fact that you are modulating the energy through a Shaw 2 56 mining chip.

[01:07:14] Michael Saylor: And that mining chip is, is special purpose. That’s important. It’s not a general purpose chip, and it’s also getting exponentially more efficient. So the genius of the Bitcoin protocol is that the hardware is proprietary, there’s no other use for it, and it gets exponentially better over time. Such that the energy efficiency of the network is improving with Morris Law.

[01:07:39] Michael Saylor: And with the having protocol. So that makes this a, an increasingly efficient security protocol and it protects the protocol from someone that has a huge amount of commodity computing power. Mm-hmm. , or a huge amount of electricity power. It doesn’t matter that you build a fusion reactor that generates thousands of terrawatts because it’s not the pure electricity that secures the network.

[01:08:07] Michael Saylor: It’s the encrypted energy. It’s the Shaw 2 56 hashes that secured network. So if it was only the electricity, it would be vulnerable to an attack from someone that harnessed the power of the sun.

[01:08:21] Preston Pysh: I think what you’re talking about is one of these questions that I have coming up here, and I’m going to just read this because I think it, it ties into what you’re saying here.

[01:08:28] Preston Pysh: In 2017, the World Economic Forum posted an article that said, by 2020 the Bitcoin mining could consume the same amount of electricity every year as is currently used by the entire world. This is the World Economic Forum just a couple years ago. Well, as we know, that calculation was grossly misstated, but that doesn’t stop other experts from still stating such salacious headlines right now that we’re seeing in 2022.

[01:08:52] Preston Pysh: What is it that these experts fail to understand about Bitcoin’s energy consumption? That I think you’re getting at with what you were just talking about.

[01:09:00] Michael Saylor: I think what they’re missing is that the efficiency of the network is improving with Moore’s Law exponentially. Yes. Yeah. That’s what they’re missing.

[01:09:07] Michael Saylor: The other day, I I walked through one of these Newport mansions and now you can actually download a mobile app to your phone. And then you can download the audio tour and you can listen to the tour guide, you know, using AirPods, walking through a mansion. in the year 2022. Well, I watched this, I’m downloading it.

[01:09:27] Michael Saylor: And sometimes the audio tour is 80 megabytes, you know, and sometimes it’s 160 megabytes or something. And then I thought back to when I was at M I t, when one of my classmates had a five megabyte hard drive or something. And if you simply took the afi. And then I thought about the efficiency of audio in the 1980s.

[01:09:48] Michael Saylor: And you could have easily said, if people continue to use computer music or you know, if Napster spreads computer music, By the year 2010, all of the hardware and all of the electricity in the world will be socked up listening to rock and roll music. And it would’ve been true if you extrapolated the efficiency of music compression and the cost of hard drives.

[01:10:14] Michael Saylor: You know, you pretty much would’ve said that we can’t allow teenagers to listen to music on a computing device because the world will come to an end. You know, and you could have said the same thing about like digital photos, right? If this keeps up, then teenage girls taking selfies will suck up all of the electricity and all of the minerals in the earth’s crust by the year 20 something or other.

[01:10:38] Michael Saylor: And of course, what happens in all cases is the efficiency. Of computer music and the efficiency of storing files and the capacity of memory, the capacity of computer memory, the capacity of computer drives, these things are increasing exponentially, such that it turns out that people can listen to music on their phones and take photos, and the world doesn’t come to an end.

[01:11:03] Michael Saylor: And so when people make these statements about Bitcoin, what they’re doing is the same thing. They’re missing the point. It’s not secured by energy, it’s secured by digital energy or encrypted energy, and the efficiency with which that encryption is taking place. Is improving somewhere in the range of 36 to 40% a year.

[01:11:27] Michael Saylor: Ironically, you know, Moore’s law is every 18 months should double. Mm-hmm. . So if you have an 18% improvement every year due to having protocol, and if you have an 18% improvement every year, because like every four years the a Asics double, okay, you got 36% a year. You know, and when you start dividing that into 70 with a few twists, you realize in about 18 months, You double the efficiency of the network and you keep doing it, you know, for the first 30, 40, 50 years, maybe you continue to do it for a long time to come.

[01:12:02] Michael Saylor: So, you know, as of today, as far as we can see, we run the numbers. Bitcoin has taken up maybe 15 basis points of the world’s energy, and it’s not clear to me that it’s going to grow that much more. At some point it hits some maximum and it actually starts to decrease because the proprietary protocol is such that ultimately in the year 2100, it won’t matter whether you have harnessed all the power of a star, it won’t matter because that won’t allow you to build, to create hashes.

[01:12:36] Michael Saylor: I could give you all the electricity, the powers, New York City tomorrow, but you can’t generate hashes with it. Unless you can get your hands on 2 56 mining rigs, set them up in a world-class mining center, get the transformers. And turn it on. So you can see there’s already a limiting factor there.

[01:12:54] Michael Saylor: And on the other side, if Google and Microsoft and Amazon, they all decided tomorrow they’re going to turn all of their data centers into Bitcoin mining. Data centers, their cost, you know, to generate a Bitcoin would probably be like a million dollars coin, if not 10 million coin, because they don’t have Asics.

[01:13:16] Michael Saylor: Right. And the ASIC isn’t thousand times it’s million times more efficient. So it’s this specialization of labor, you know, like the, the driving of the tractor is a better idea than a, a hand plow. Right. In every field of human endeavor, everything humans put their mind to. We find when we create a specialized machine and then we power that specialized machine, then we overcome any generalist who’s well-intentioned.

[01:13:43] Michael Saylor: You know, I, I toured the DuPont gunpowder factories, right? So the DuPonts showed up. They sought up a factory on a hill where the Brandy Wine River runs down it. And the reason they wanted this creek is they had to harness the creek for hydropower to turn their water wheel to turn the mills to grind the gun powder.

[01:14:05] Michael Saylor: And so here are some smart immigrants. They use the power of gravity, the power of water. Then they mix, you know, three elements together. They create gun powder , they hand you the gun powder and you blow your way through the mountain. Okay? And someone starts by saying, I have this idea. I’m going to build tunnels through mountains.

[01:14:25] Michael Saylor: You know? And some non-tech says, no, no, no. We can never build tunnels through mountains that will take every single human being in the world and we will all starve to death because it’s too expensive using our little rubber mallets or our little chisels to chisel our way through the mountains. Exactly.

[01:14:43] Michael Saylor: Right. And you know, and the, the point is, we’re not doing it that way. Yeah. We’re going to use our brains in technology. If you actually back calculate, someone says, okay, I’m going to connect San Francisco to New York. And you back calculate, well, how much energy is it going to take to haul a bucket of water on my back?

[01:15:03] Michael Saylor: You know, 10 million times. Like, well, we can’t do that because the human race will suffocate. Trying to connect New York and San Francisco. And then if you calculate what it cost to build the railroad, you would conclude it’s too much. And if you calculate the maintenance cost on wooden rails, that’s too much.

[01:15:21] Michael Saylor: And the answer is, I invent explosives, I invent steel. I come up with some, you know, technique to get through. Then I create a locomotive. Then I go and I drill for oil. Then I put the oil into the locomotive and I drive the train back and forth. Every single one of those things would have used all of the energy in the world.

[01:15:42] Michael Saylor: Yeah. If you were to attempt, we, we can’t give public transportation to people that will use all the energy. All the ox carts in the world will be allocated to letting people commute back into work. We can’t let them live. Michael, this, the suburbs.

[01:15:58] Preston Pysh: This is hard, I think, for a lot of people to wrap their head around because the examples you’re providing are physical examples that people can relate to and they can, it makes sense to them when you describe it in that way.

[01:16:09] Preston Pysh: But when you think about asics and you think about Moore’s law and you think about how these things that like people can’t touch or really kind of understand at the level that you understand and that many in people in this space understand it’s just completely lost on them. It’s intangible. It’s, it’s not something they can feel or touch.

[01:16:27] Michael Saylor: Yeah. Bitcoin minor is, it’s a machine to create security and cyberspace. Right? That’s what it is. You have to see it as like a digital vault.

[01:16:38] Preston Pysh: A digital vault, if you will. Is that how you’d describe it or?

[01:16:41] Michael Saylor: I would almost describe it as a transmit. Of encrypted energy, it creates a wall of encrypted energy, right?

[01:16:50] Michael Saylor: You’re, you’re putting, you’re feeding electricity into one end, and out the other end comes a hash wall, like a bank vault building.

[01:16:58] Preston Pysh: Like a bank vault, but virtual, right?

[01:16:59] Michael Saylor: Yeah. Yeah. That’s, that’s probably an energy vault. You’re putting electricity in and you’re trading a vault of encrypted energy, and that’s what you’re using to build as your foundation to build civilization in cyberspace, like I said, and a lot of people can’t figure it out.

[01:17:17] Michael Saylor: They can’t work it out. But you ever cross a bridge and you look it down at, you know, at the, the Cains or the structures, the bridges are built on, and the bridge is resting, resting on these, what are they, caissons, I suppose, resting on these structures and they’re buried 30 feet down into the East River or the Hudson River, and the average person can’t figure out how to create that bridge.

[01:17:40] Michael Saylor: But that doesn’t mean that the bridge doesn’t work. Yeah. And this particular case, I see the Bitcoin miners as the foundation to hold up the entire digital ecosystem. And we’re feeding them electricity and then we’re running them through an asic. And the asics just keep getting more and more efficient.

[01:17:57] Michael Saylor: And just like you know, you take a history of civil engineering and you look at Greek architecture and they’re using stone archer trades, arch architraves, those things crack. And then they replace them with some wooden beams and they kind of crack. And then they come up with the idea of a trust.

[01:18:15] Michael Saylor: And a trust creates this dramatically, increases the strength of the beams. And now things start, stop cracking. And that works well for a while. And then they come up with, you know, arches and then buttresses. And of course, ultimately they solve the problem when they figure out. How to put enough energy into iron to create steel.

[01:18:35] Michael Saylor: You know, iron works and steel works, and steel is a material energy. It’s massively dense energy. And if you want to build structures, you have to create the steel. I think about a steel refinery and I think about how much energy goes into the refining of steel and the, the heat and the the energy. And then you think about what comes out.

[01:18:53] Michael Saylor: And then if you want to build any structure in the world, right, that steel is the material to build that structure. Bitcoin miners are energy refiners in a way, right? And what they spit out as digital energy, they not, not only create it, but they secure it. You can also think of them is supporting the railroad in cyberspace, right?

[01:19:14] Michael Saylor: Like it’s, it’s a railroad and there’s a fixed cost to build the railroad and, and there’s a fixed cost to maintain the railroad. When something breaks. But, but once you’ve got the railroad and it’s properly maintained now the cost to move tons of cargo from one end of the line to the other in the line has decreased, not by a factor of 10 or a factor of a hundred.

[01:19:37] Michael Saylor: It’s probably decreased by a factor of 10,000 to a hundred thousand. It might have decreased by a factor of a million. Yeah. If you, if you want, you did the energy calculations, you know, try to move 80 tons of coal from New York to Chicago in one day without the railroad, without the road on an oxcart. I mean, it, it’s such a silly comparison, right.

[01:19:58] Michael Saylor: Because no one would ever think to do it, because it’s almost impossible to do. But when we created the railroads, we created this extraordinarily expensive upfront. Engineering project that required a lot of capital investment. Mm-hmm. very capital intensive. But then after you’ve created it, then for a, you’ve got a moderate maintenance cost, and then you get this super conducting effect where you’re able to move material orders and orders of magnitude less cost.

[01:20:28] Preston Pysh: Michael, I have a, I have a friend that has sent me an article kind of getting at some of the things that we’ve been talking about throughout this interview. I’ll have a link to that in the show notes. He goes by Baseload btc and he made the comment to me, he said, Bitcoin is basically the, the best ESG investment vehicle and tech ever invented.

[01:20:49] Preston Pysh: And so I think for people on the outside, they might hear that statement. They might laugh hysterically and say, how in the world could that possibly be true? It uses energy. But when, when you look at the incentive structure of what Bitcoin incentivizes. Especially on the long tail, 10, 15, 20 years from now, how do you envision Bitcoin miners being integrated into the grid and do you agree with his statement that it’s the best, quote unquote, ESG investment vehicle and tech ever invented?

[01:21:22] Michael Saylor: I do agree with the statement. I think that it’s pretty clear that environmentally it’s the most efficient use of electricity to create value that the human race has come up with. And so on the energy side or the environmental side, it seems to be pretty obviously clean and useful. If you look at the other two, the S and the G, from a societal point of view, you’re giving economic empowerment to 8 billion people, you know?

[01:21:49] Michael Saylor: Mm-hmm. digital money. Mm-hmm. to the human race. So it’s obviously good for the society. You’re banking everybody. And then from a governance point of view, it’s a digital asset or a digital network without an issuer. Yeah, so the de you know, corporate governance or governance normally is all about fair governance and, and this phrase popped up because there were companies that were thought to be poorly governed, maybe for the benefit of the family or, or for, or for the benefit of the community to the detriment of the shareholders, et cetera.

[01:22:24] Michael Saylor: Bitcoin is literally without a CEO o without a board of directors. It is the most fairly governed thing in the universe. It’s more fair than any country, any city, any state, any company. So in terms of of ESG, it, it definitely checks all three boxes. In fact, it hits home, runs out of the park on all three.

[01:22:46] Michael Saylor: Yeah. I’d probably just make one more point here, which is, look, if you’re, if you’re concerned about ESG, right? You really asked the question, what is a universal entitlement? to the human race. Like the most ESG friendly stuff is clean water. Yeah. Power bandwidth, like internet access, steel functioning materials, transportation, and just pure energy food.

[01:23:16] Michael Saylor: So any, these are things that life is based on. And so if you want to create a civilization, and the, the Romans knew this, you know, a famous a famous historian, he said, I admire the Romans for their aqueduct, their roads and their drains. And you think about this, oh, really? Drains well, the aqueduct bought water, brought water to the city.

[01:23:37] Michael Saylor: And the normal consequence, of course is the city population grows by a factor of 10. And without the water, you can’t flush away the waste byproduct. If somebody dies of typhus or you. Some cholera, some nash, not awful disease. So you need the water and then you need the roads to be able to move, right?

[01:23:59] Michael Saylor: And then the drains carried away the rate, the waste and they carried away the waste water and also shed water so that the buildings didn’t collapse and kill everybody. So if you think about that, you know, and a and aqueduct is ESG friendly, it’s very expensive to build the first one and Lord help you.

[01:24:21] Michael Saylor: And it’s hard to build the first one. I mean, no one else could figure it out. That’s why the Romans dominated because no ones could figure it out. And then after the Romans disappeared, people forgot how to do it and the civilization collapsed. And you know, 90% of the people died in some of these cities because you run out of water three days and you’re dead.

[01:24:41] Michael Saylor: So I think if you think about Bitcoin in the same framework, it’s, it’s a digital energy network. It is providing, you know, the ultimate gift, which is clean money. Yeah. Clean money to go along with your clean air, clean power, you know, clean food, clean water. And what happens if the water is dirty? We die.

[01:25:08] Michael Saylor: If the air is dirty, we die. If the food is dirty, we die. If the money is dirty, it kills us. Right? The, the money is dirty right now. And you want to see what happens in a, in an environment where the money is dirty, just go to, you know, any economy where the currency’s collapsing. Like all those people in Lebanon that are robbing banks to try to get their own money back.

[01:25:32] Michael Saylor: They don’t count the number of people that commit suicide, probably after they get wiped out from that. But it’s quite a lot. So I. Anybody that really cares about ESG ought to, ought to care about a fair equitable monetary network. And establishing a a stable financial foundation or monetary foundation for the human race to stand on there could be nothing more important at this stage, I think.

[01:25:58] Preston Pysh: Okay. And here is Jeff Booth. Taking it one step further, I’m going to read a quote out of your uh, article here that kind of hits at some of this is what you’re talking about right now. Because the existing system is credit based, it cannot allow ongoing deflation without collapse because the credit would wipe out, and the credit is the system.

[01:26:19] Preston Pysh: Society would never vote to have their entire way of living collapse, which means a paradox exists where society will always eventually insist on manipulated growth for fear of the consequence of collapse. And that manipulated growth is the primary source of the problem that society is dealing with, including environmental damage.

[01:26:40] Preston Pysh: So this last part, this last little note that’s kind of slapped onto the end of this is where I want to go next. And I got into this a little bit with Michael, asking him if there’s an interconnection between energy not being infused into the money and all of this propaganda narrative control around environmental, you know, narratives that are out there.

[01:27:12] Preston Pysh: How is this interconnected, Jeff?

[01:27:15] Jeff Booth: Many understand kind of methane reductions in Bitcoin gas flaring where this moves and they fight head on at why we should use Bitcoin and why it’s okay to use energy now, number one. And by the way, and by doing that, they miss fighting on the higher ground and Bitcoin owns the higher ground.

[01:27:36] Jeff Booth: The higher ground is this. That human coordination requires, and what we call that trust linking the super computer requires more energy, not less. It’s a race for more and more energy. And every developed nation in the world uses more energy for living standards. So unless you want living standards to collapse completely, we have to find a way to increase energy a lot now.

[01:28:03] Jeff Booth: But the higher ground to that is you need a free market function to be able to do that. Because if you could just print more monetary units to create global wealth, and don’t you think in the last 3000 years, 5,000 years, societies would’ve figured that out. And what you see is you see those ideas driving us to more energy, better energy, better sources of energy are best left to entrepreneurs in the free market that are driving that and mis allocating through through misallocated resources by printing money creates the exact opposite.

[01:28:36] Jeff Booth: It drive, it drives energy scarcity. It drives confusion. It drives polarization of society where you don’t get that drive for more, more productive energy because it has to be centrally controlled. That central control makes terrible decisions cause they can’t see all of the ideas in the free market.

[01:28:55] Jeff Booth: And so the higher ground is, if that worked, then if these policies worked well based on manipulated money more, more manipulated money for more growth for, and remember that growth is defined as g p growth and it’s largely defined as G G P growth because you have to pay back the debt. And what’s happening against that growth is you’re getting a different type of growth.

[01:29:20] Jeff Booth: The growth that we really haven’t seen or haven’t seen at this scale is the productivity is typically net negative GDP. That where does, where do all your extra photos you take today show up in GDP. Where does all the extra music you consume today, where does your calculator app that you get for free show up in GDP, that pro, those productivity gains are so profound.

[01:29:44] Jeff Booth: They drive down gdp. That’s the pro, that’s what productivity is. And so now you have less and less components of GDP that are able to pay back the debt and it relies. And so the entire thing, and then the credit that you have, and you have this credit problem that’s growing exponentially, that prepos you could grow forever on a grow forever.

[01:30:06] Jeff Booth: Like I’m like the world’s talking about now grow forever on a finite planet. And the result of that is more and more people working harder and harder on one side, two jobs, three jobs, hamster wheel, trying to race to, to buy more things to save in a system or to save enough money to escape the system, only making the system worse.

[01:30:28] Jeff Booth: And every single thing that you’re doing on the other side, on the free market. Because the free market is trying to drive price down in your productivity app. And when you see those ideas, you use them fast. Why you use Google? It gives you more value. Why you’re, we’re using Zoom as it gives you more value.

[01:30:45] Jeff Booth: It connects us, you use them fast and then what ends up happening is because those drive price down so much we’re air drive kind of, you have to inflate worse. You have to, or you have to drive more credit con to, to keep up that Ponzi scheme and that Ponzi scheme as diametric like so many consequences for the world we’re in.

[01:31:07] Jeff Booth: Because we measure that world from the system and it says we could grow forever. We could keep on doing this forever. We could manipulate money forever, which is not just higher con. Fire production, fire consumption, it’s, most people need two jobs in their family, or 2, 2, 2 people working to do the same. To have the same thing that one person working 30 years ago would require.

[01:31:31] Jeff Booth: My first job as a lifeguard was, I think I got paid $20 an hour. That was in 86. That $20 an hour job as a lifeguard, it would, in adjusted, in adjusted terms, would be 60, $70 an hour. Today, what lifeguard’s making my kids were lifeguards this summer, they made $16 an hour, so they made less that many years later in real terms.

[01:31:57] Jeff Booth: And what you can see is why people are so frustrated by the system. Mm-hmm. , because they’re racing harder and harder based on a, based on some, and they’re objecting from the system. So they’re saying, well, I can’t make that work, so I’m just not going to, I’m going to trust the state to give me more money and the system gets stronger and all of that is.

[01:32:17] Jeff Booth: A system that can’t solve if you believed in climate change, is actually the creation of that climate change because it presupposes misallocation of capital and monetary growth forever in a system that just wastes our time.

[01:32:32] Preston Pysh: All right, so that wraps up my top five favorite moments throughout the podcast.

[01:32:38] Preston Pysh: I know I played more than five, but five main ideas I guess is what I was shooting for. This has been such an honor for me to have these conversations with these folks and hopefully people listening have learned some things along the way right there with me as I’m learning. And just plenty of other powerful moments throughout the hundred plus episodes that I’ve done on Bitcoin.

[01:33:04] Preston Pysh: But these five here, I think were just really, really important for people to kind of wrap their head around and, and so just want to thank everybody for listening and supporting the show. And yeah, I look forward to a hundred plus more as as we keep going and hopefully we can continue to get great guests on the show to help us learn more about this wonderful thing called Bitcoin.

[01:33:26] Preston Pysh: So thanks and we’ll see you guys next week.

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