79. Would Hard Money Fail in a Recession?

In this episode Saifedean talks to regular seminar attendees about some common criticisms of hard money made by inflationist economists, and why these criticisms represent a misunderstanding of why recessions happen and how they are resolved. The conversation touches on the reluctance of mainstream economists to address the causes of The Great Depression, why they mistakenly attribute its length to the inflexibility of the gold standard, and how Austrian Business Cycle Theory provides the only coherent explanation for what happened. Saifedean draws parallels between these criticisms and popular hard money criticisms of bitcoin to show why they are also mistaken.

Resources

• A Monetary History of the United States, 1867-1960 by Milton Friedman and Anna Schwartz
• Golden Fetters: The Gold Standard and the Great Depression 1919-1939 – Barry Eichengreen
• Mastering Bitcoin: Programming the Open Blockchain by Andreas Antonopoulos
• Platform for running your own personal bitcoin and Lightning Network node
• Budgeting software recommended by Pavao
• Bitcoin debit card recommended by Pavao

Enjoyed this episode? You can take part in podcast seminars, access Saifedean’s courses and read chapters of his forthcoming books by becoming a Saifedean.com member. Find out more here.

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Transcript

Max: [00:05:07] Hey Saifedean! On that note, I have a question. I saw you answering to a thread on Twitter. She was talking against the Bitcoin standard and was saying, in times when you need monetary extension, [00:05:21] you need to print money, and the Bitcoin standard wouldn't help because you can't print the money you need.

 And I totally agree with what you answered, which is if a country is on a Bitcoin standard, this country wouldn't even have to print in the first place because the crisis wouldn't happen. And I would ask you to elaborate a little bit more about that.

Saifedean Ammous: Yeah. Somebody on Twitter I just looked up the thread right now, she was saying why Bitcoin will never become the global reserve currency.

But in fact, Bitcoin as the global reserve currency would be one of the worst ideas of the 21st century, which like sounds quite an achievement given that we've already had lockdowns and face diapers, and we have people who believe that cow farts are boiling the oceans. So that's pretty tough competition for Bitcoin [00:06:21] right off the bat.

So she says number one, ultra sound money makes it ultra difficult for anyone to get out of recessions. People are having a knee-jerk reaction to monetary policy excess right now, Fed prints do much, asset prices all inflate, your money is worth less. It helps the rich and hurts the poor boohoo. I'm adding the boohoo.

All of these little tiny insignificant problems are brushed over. She says, all true, but, and this is where you know the good stuff is going to come, but having the pendulum swing to the other extreme is not the solution, in fact extremely short-sighted. The world got off the gold standard bandwagon for a reason.

It was super clunky and made recessions crises worse than they should be. So of course, this is right at the heart of The Fiat Standard. The [00:07:21] argument is that gold, people got off gold because it made recessions crises worse than they should be. And now this is a very common meme that you learn if you had the misfortune of going to an American university or pretty much anywhere, any university.

It's a very common idea among economists. It's amazing how pervasive it is. It was written about in the 1930s, and it's been in the textbooks ever since, and nobody challenges it.

And it's built on the idea that what caused the great depression was the gold standard. What prevented the recovery from the stock market crash was the gold standard. And that's what turned the stock market crash into a long recession. And the US and the world economy only started recovering from the recession of the great depression only after they abandoned the gold standard.

And this is completely ridiculous propaganda for several reasons, which if you read The Fiat Standard will become very apparent because the first few [00:08:21] chapters of The Fiat Standard get into this history. First of all, the main problem is that the gold standard, the world did not get off the gold standard in 1936, the world got off the gold standard in 1914, and that's what created the economic crisis at the end of World War I.

 And that's what then drove the inflationary monetary policy throughout the 1920s. And that's why we had the stock market crash, and that's why we had the depression. It was going off the gold standard that created the global depression in the first place.

Max: Which they went off because of World War I. And they could just issue more bonds.

Saifedean Ammous: Exactly! And that's the key point which they always ignore. They think that the gold standard was, it broke down. We had this good technology for running money that was working in the 17th and 18th and 19th century. But then the 20th [00:09:21] century comes along and gold suddenly breaks down in the 1930s, and it's no longer conducive for the tools of monetary policy, and so we have to abandon it.

Which is ridiculous because the reason they abandoned the gold standard was to finance war, that's why all these governments went off the gold standard. Once they went off the gold standard, the reason they did it was to finance the war.

 I get into the history in England, and it is discussed in depth. And there's an interesting story that just came out three years ago, how the whole thing started. This is quite amazing. It was discovered by a bunch of interns at the Bank of England. I'm not sure if it's an intern or a staff economist, but people were doing some digging in the archives of the Bank of England.

And I've discussed this in detail in The Fiat Standard. And while they were digging, they found out how the bank of England essentially engaged in quantitative easing in [00:10:21] 1914, in order to finance the spending for the war. The treasury had issued bonds for the war and they expected the British people to just buy them up.

They issued I think something like £400 million at that point. And the British people bought only a third of these bonds, which was a huge surprise for the treasury because they were going down there to fight a war against those pesky Europeans and finally sort out Europe. And all they needed was just a little bit of money and then they would all be happy.

And we would just support our allies in World War I, and win this August Bank Holiday, as it was expected to be called. But what they did was, since two thirds of the bonds weren't sold, the Bank of England went and bought two thirds of the bond issue. And they bought them in the name of two members of the Bank of [00:11:21] England staff.

The treasurer I think, and some other guy. Two people in the bank of England, they went and they bought the bonds under their own name, but using The Bank of England is money. And that's what subsidized the war. And of course, that then led to inflation. And that led to the Bank of England having to hoard the gold coins because they were running short on gold.

And so they confiscated gold effectively by telling banks to receive payment in gold and only make payments in paper money and to return all that gold to their banks and their central banks. And so the central bank spent four years collecting all the gold in England and Scotland and the rest of the UK.

And they used it to borrow, they used it as collateral to borrow from American financiers to keep the war going. And of course, as the war going they expenditure and increased and they needed [00:12:21] more money. So effectively they took the gold from the British people. They confiscated it and used it as a collateral to borrow in order to finance war spending. And effectively, that's what allowed the British to last in the war long.

But of course everybody did the same thing. The Germans were doing the same thing and the Austrians, everybody was printing. The reason that the British and the Americans won was that the Americans were the last to go off the gold standard. So in fact, this is another common stupid statist argument for inflationary money, which is that if you print inflationary money, then you win the war. Wrong.

If you print inflationary money, you devalue your currency. And when your currency devalues, you lose the war. So if you look at The Bitcoin Standard in chapter four, I have data on the exchange rates [00:13:21] for World War I countries currencies, and you see that the Germans and the Austrians began to witness the value of their currency collapse.

And that's when they lost the war. So the more inflation you have, the more likely you are to witness your currency devalue, and that would be a major disaster. In other words, you can't really cheat and win a war through inflation. You could achieve the same objectives by taxation, and if you don't have enough money from taxation, inflation is not going to make a difference.

What actually caused the British to win the war was the fact that the US was the last to go off the gold standard. The US was still on the gold standard until 1917, because it didn't enter the war until later. And so during the years from 1914, until 17, we had three years of massive bleeding of gold from Europe to the US. A lot of Europeans who [00:14:21] had money sent a lot of their gold from their European banks, because there was war in Europe.

And because there was inflation and they were worried about inflation, they sent it to American banks. So a lot of gold accumulated in the US and that strengthened the US financial system and strengthened the dollar. And that's why when the US entered the war, it had a strong currency. A little bit of inflation could go a very long way against countries that had already been inflating for 2, 3, 4 years.

So it wasn't the inflation that won the war. It was the lack of inflation that the US. That's I think the key. And inflation is was what allowed the war to go on very long. If it wasn't for inflation, if they were still all on a gold standard, if they couldn't go off the gold standard, like they did in 1914, most likely the war would have ended in a month or two or three or six or whatever, like most wars in the [00:15:21] 19th century would end.

Or at least the key difference was not so much in the duration, it was in the fact that the wars were fought between combatant armies in battlefields, rather than these total wars where the entire economy and the entire civilian population was deemed targets.

And so people were fighting in cities and the war was extremely destructive. And pretty much nothing came out of World War I that mattered. It's not like the US took over central Europe and turned it into the 51st state. They didn't occupy Europe, the Americans. They had no intention of taking over these countries or invading them or winning territory. And if you look at the territorial changes that happened between the countries of central Europe, they were largely inconsequential. It wasn't a big deal. Poland, Germany, it wasn't this [00:16:21] massive realignment.

And the main effect was to get rid of the monarchies, to replace monarchies with republics, which has worked out catastrophically of course. But whether it was a monarchy or a public, still Austrians were still in Austria ruled by Austrians and Hungarians the same and Germans and Poles and French.

So there were very little territorial wins. The four extra years that of murder that fiat gave us wouldn't have really changed the world significantly. It's not like, this is what allowed us to win and therefore now we've liberated all of Europe from its native inhabitants and turned it into a civilized American colony. You can't even say that.

There was there wasn't really anything that was worthwhile as a war objective. It was just insanity because these governments had printers and they [00:17:21] could just continue to destroy each other. Milton Friedman, one of my favorite stories about Milton Friedman is that he's considered the prime monetary historian of the US and he has got a huge amount of following and fans. And his book, The Monetary History of The United States, it's about 800 pages or something like that.

It's an enormous book, but it's mainly just a bunch of statistics which are cherry picked and selectively interpreted in order to achieve the conclusion that he wants which is one simple conclusion. Which is that the central bank should always reflate the monetary system and the financial system whenever there is a stock market crash or any kind of liquidity problem.

 That's why the chapter on the great depression begins on the mourning of the stock market crash. [00:18:21] And the chapter before it ends in 1921. So this entire book, which studies the monetary history of the US in hundreds of pages and whose main focus is the chapter on the great depression has exactly zero pages dedicated to the period leading up to the great depression.

It's not even like they discuss it, and then not mention the causes. It's just, you finish chapter seven and it ends in 1921 or 1922 or something like that. And then you start chapter eight and it moves to 1929 or something like that. Absolutely no mention of anything that happened before. The starting point is that one day everybody woke up and the stock market was crashing.

The stocks were crashing and then things started getting bad. And then the money supply collapsed because of the deflationary crash that happened in the stock market and in the housing market. So the money supply collapsed and the central bank did not stop the money supply from [00:19:21] collapsing, and that's what caused the Great Depression.

That's the story from the monetarist perspective. And that's also the story that the Keynesians stick to. But the Keynesians don't focus on the reflationary part of the story, the Keynesians focus on the initial inflationary parts. So the Keynesians are the ones who are in the 1920s telling you we need more inflation.

When that causes a stock market crash, the monetarists are the one who say, oh no you shouldn't listen to the Keynesians, you should listen to us, we know how to fix it. And guess what? It's also money printing.

The Keynesians get you drunk, and then the monetarists come and tell you, I have the best hangover cure and it's more alcohol. And that's how basically you keep the economy going where it's just one bender after [00:20:21] another and delaying all the hangovers and turning them into one massive liver damage episode that's going to end very badly. So they skip that part, of course. They don't teach them that.

The person who wrote this tweet has a PhD in macroeconomics. So obviously they don't teach her anything about the lead up to the Great Depression. Then it just looks like the world was on the gold standard and then the stock market crashed and then the gold standard prevented us from fixing the stock market crash.

Sounds like a reasonable idea, if you have no idea what has been going on, and which most economists have. And there was a guy called Barry Eichengreen who wrote a book called Golden Fetters, which was all about this. Which is [00:21:21] the gold was what held back the world economies and it's such a stupid book.

 The struggle of the heroic, brave central bankers who are trying to help the population and help the economy recover and help the government achieve the economic recovery. But they were being held back by these golden fetters of the gold standard. And then finally they abandoned the gold standard, and then the recovery begins.

And of course this is nonsense. Another reason that it is nonsense, we've been going through the reasons from 1914, but they went off the gold standard in their definition in 1934. That's when Roosevelt confiscated the gold in the US and banned private ownership of gold and bought gold from people at a 40% discount.

 There something [00:22:21] like a 40% discount of the price of gold. So it was effectively a sovereign default. Nobody likes to call it that. And of course the macroeconomics textbook don't call it that. But the US did have a sovereign default in 1934. And it also of course had an sovereign default in 1971, 50 years ago today.

The default that happened in 1934 took the us off the gold standard, but there was no recovery in the US until World War II ended, and until the new deal practically ended. Until most of the statutes of the new deal ended. This is where the Keynesian statistical nonsense begins.

The government was producing a bunch of statistics in the 1930s and government economics departments became a huge deal in the 1930s because they were the ones producing the statistics. And so there were all these indicators of recovery in the 1930s, which meant nothing because there was no real recovery.

And then in the [00:23:21] 1940s, of course, there was also no recovery because people were struggling badly because half the workforce, a very large number of the workforce was out fighting all over the world. Now of course in Keynesian economics, if you're fighting and producing dead Germans, or if you're working and producing food and houses, it all counts as GDP, right? It doesn't matter.

 The free market is not paying for dead Europeans and dead Japanese people, but people want to eat and they would pay for food, but it's the government takes you from producing food and puts you into the production of dead foreigners, then that's also part of GDP.

So you can show a recovery in World War II. And this is in my mind, one of the most criminal aspects of Keynesian economics, which is how they glorify war as a tool of economic recovery. And it just shows how absolutely dumb their economics is, but it [00:24:21] also shows how these people have absolutely no sense of morality or conscience or and any kind of moral compass whatsoever.

Because if you can think of war as being a tool of economic recovery where you are effectively saying that getting GDP number to go up is something that's worth killing human beings for. And it just shows that you must be a sick person. And so in the 1940s, if you think there was a recovery in World War II, then congratulations, you're a sick Keynesian idiot.

 But the reality is the recovery only came after that. Abandoning the gold standard failed by their metric abandoning the gold standard in 1934, it did not produce a recovery. The recovery only came after WWII and it only came when essentially the US moved the world onto a dollar standard and started printing dollars and handing them out to the [00:25:21] world and handing them out to Americans.

That's how the economy was built. The world needed dollars because the global trading system rested around the dollar at that point. So the US could issue a lot of dollars and gain a lot of seniorage in the 1940s, fifties, and sixties after World War II ended.

And this they did with complete abandon. The generations of people who grew up in the 1950s and sixties and seventies in the U S, up until the seventies, they call this the golden era, they really love it. And in a sense it was, because if you were an American, you have the magic printer.

And the Cantillon effect was really strong at that time. And the US had taken a lot of the gold from the rest of the world and had held it in its own vaults and giving them pieces of paper. [00:26:21] And then they told them, don't come looking for the gold. And then when they started to come looking for the gold, when they start feeling the inflation, that's when things started to get complicated in the US in the 1960s.

And they did something called the gold pool, which got governments to come and bring a lot of gold from their reserves and bring it onto the market to bring the price of the gold down. Because apparently there was a gold crisis, but of course the gold crisis was really just the dollar crisis.

The gold wasn't becoming more expensive, the dollar was getting cheaper. And they kept trying to do those things throughout the 1960s. But then in 1971, the US just went off, it removed the last form of redemption of gold for fiat money. So then between 1934 they stopped, in 1934 they stopped letting Americans redeem gold for dollars, but they still allowed foreign central [00:27:21] banks to take gold from the US or at least that was the plan.

But then in 1971, they closed that as well. Then there was no more link between the US dollar and gold. Yeah, the idea that it was the gold standard that stopped this is I think ridiculous.

And getting back to the tweet storm that we had started with, imagine if we had the Bitcoin standard when COVID hit. Everyone fled to safety, Bitcoin price would go up. Governments would rush to raise interest rates to counter the incentive of converting to Bitcoin so that they wouldn't lose their Bitcoin reserves.

Now this is confused of course. Because first of all, if we have a Bitcoin standard governments could not be setting interest rates, there would be no such thing as government monetary policy setting interest rates, because interest rates would be determined by the market. The government can't print Bitcoin.

So the government can't tell anybody how much to sell their [00:28:21] Bitcoin for. The way that they manage monetary policy, the way that they control the interest rates is that they can control the quantity of the production of dollars, they can't do that to Bitcoin. But she is correct in the fact that everybody would flee to Bitcoin.

Not everybody, but a lot of people would you go and buy Bitcoin, because a lot of people who had useless thing that they needed to buy are not going to buy it. If there's a crisis, there's a war, there's an earthquake, there's a pandemic or something of the sort, you don't spend money on your vacation.

You keep the money in cash. You are going to be buying an expensive car, you decide maybe I'll put the car aside, I'll stick with my old car for another year or two. So you keep cash on hand. So the demand for cash increases because there's uncertainty, because you might lose your job.

You might lose your income. You [00:29:21] might not be able to make payments on your mortgage or something like that, so you want to hold cash in case of uncertainty. And of course, for the Keynesians, this is the cause of the recession. Well, not the cause, this is not the cause of the original crash, but this is how the recession deepens.

So there's a crash and then people are scared, so they start holding the money. And because they're holding the money instead of spending it on stupid things that they don't need like buying cars and buying vacations. Because they can't do that anymore, they end up holding the cash, holding large amounts of cash.

And so they're not spending and that creates unemployment and that creates economic uncertainty and that worsens the crisis. If people would stop spending, then the economy would be fixed. And so the role of monetary policy, and that's what these PhD economists think is that the government is there to teach you to stop being responsible during times of crisis, to become a degenerate high time preference, [00:30:21] irresponsible person.

And if you won't spend your own money, they are just going to take the money that you've saved and devalue it so that they can spend, and then that will fix the economy. So if they devalue your money by 10% let's say, then you have 10% of the price of that car or the vacation that you wanted.

You have 10% of that now has been lost to you. But the government has increased the total amount of spending in the economy because they've printed that new money and they've handed it out to their cronies. And so now you should be grateful because their cronies are going to buy stuff.

And that will cause people to start hiring. Of course this is nonsense. The reaction to a crisis is the correct way in which people interpret their actions that best protect them. So you think there's a crisis coming? Yeah, you cut down on spending and you hold your cash and you know what that does?

It increases the value of cash, which is exactly the bailout that you [00:31:21] want. It's exactly the fiscal monetary policy support that people want because now everybody who's got cash. They watch their cash appreciate in terms of real goods and services. In other words, people stopped buying the things that they don't need so that they can hold more cash.

So the growth and the value of cash as a result of the fact that you are buying fewer cars and apples and oranges, and all of the things that you could possibly be buying you start cutting down on it. So what does that do to their prices? It lowers their prices. So if you need to buy a car, if you need to buy a house, if you need to buy any of these goods, if you need to buy food at that time, what do you do?

You find yourself that your cash, you've lost your job, but at least their cash is appreciating, and all of those things are depreciating. So it's how the market naturally adjusts to this condition. It's how people adjust, it's how the market adjust. The value of the cash rises, and then the [00:32:21] purchasing power increases.

And so people who lost their jobs or people who have financial difficulties, they are able to use their savings more effectively. And of course, in a world like that, this is the thing that also they don't teach them, in a world like that people would expect their money to appreciate over time, rather than be an inflationary mess.

So people would have savings. Everybody would have savings. in that kind of world, everybody has savings. And you know, having savings is like having a home almost. Everybody would need to have savings because the money appreciates.

 If you buy the house today, you get this kind of house. But if you wait one more year, the same amount of money can buy you an even better house. So you wait, everybody saves and everybody delays consumption. And when a crisis like this comes along, your savings go a longer way. Because people are reducing their demand for consumer goods and increasing the demand for cash, which is what you have.

So your cash is now more desirable. So that's [00:33:21] how a hard money counters a recession. First of all, it doesn't cause recession, there are no monetary recessions when you have a pure hard money, as the Austrians explain. And when we did have recessions on the gold standard, it was because the banks were always able to issue more credit on the gold standard that they had gold in reserve because they had monopolies.

And because you had no choice but to put your gold with them rather than send it and spend it around the world. All of this leads us back to the point, which is that Bitcoin or a proper hard money or a free market economy would not have these crises happen for economic reasons. You don't just get a recession because stock markets collapse, you get a recession because there's an inflation, there's a central bank that's engaging in an inflationary monetary [00:34:21] policy.

And that leads to a big giant crisis eventually down the line. But what she says is, in her mind there would still be monetary policy and there would still be a central bank that has to issue a credit, a monetary policy and has to control the interest rate.

Soyou'd end up with monetary tightening at the worst timing, when the economy did the exact opposite. Counter cyclical monetary policy is like oxygen. When it's around, you take it for granted when it's missing for five minutes, you scream.

I doubt that you can scream, if you've been deprived of oxygen for five minutes going to let this slide, Stephano you're a doctor, right? I think.

Oh your wife is, okay. No, it's not really going to allow you to scream, but we'll let that one slide. We have bigger fish to fry in her thread. So then she goes on about the COVID recession, blah, blah, blah.

Flavio: I [00:35:21] love the analogy that you put out there that if you're saving money and then the government will tell you, you're not going to spend that money, I'm going to spend that for you by inflating, by printing more money.

So you're not going to spend it, I'll spend it for you. The government is basically saying that.

Saifedean Ammous: That's exactly what they're doing. That's exactly what they're doing. And then she goes on and says, the monetary policy action may be excessive, but saying the cure is to tie the hands of central banks completely is like chopping off your leg to cure a broken toe.

Where do we even start with this? First of all, she clearly doesn't know what she's talking about because she says the cure is to tie the hands of the central banks completely. You don't know what tied hands in the central banks completely, you still think there's monetary policy. You still think the central bank has monetary policy, that is not tying the hands.

That's not the hand tying that we're going after. We're going after complete disarmament. And by disarmament, I don't mean [00:36:21] weapons. We're not tying hands, we're cutting off the hands and we're throwing them away and we're throwing away the keyboards and all the keys and all the printers.

There's not going to be such a thing as a monetary policy. And in fact, that's not the cure, that's taking away the cause. You're not taking away the ability to cure, you're taking away the ability to cause these recessions, which are always caused by the inflation, which these people don't want to come to terms with because of course that inflation is what pays their salaries.

And so of course, needless to say, she continues with this long thread of a bunch of nonsense. And then she goes on to shill a shitcoin later on. Because apparently Bitcoin doesn't have what it takes, but that shitcoin will have it. And so she can continue to enjoy Keynesian shitcoinery.

But I think anybody who's actually studied how the world [00:37:21] economy actually works will be quite clear on the fact that this is not how things work

Flavio: In a society with sound money, if a crisis like say aliens land on Earth and you have to fight the aliens. That would be reasonable for the society to mobilize and finance that effort.

You know what I mean? Something that needed effort, if there is sound money. There's still no need to print because if it's a reason good enough, society needs to fight the aliens, people would finance that effort. You know what I mean?

Saifedean Ammous: Yeah. I think this is really the key thing that Keynesians don't want to come to terms with. You can finance government spending without inflation with taxation or with bonds or with borrowing. So if you have a war and you have an actual real threat that [00:38:21] actually drives people to understand that, oh shit we are in deep trouble, you're not going to have trouble raising money in the same way that you're not going to have trouble finding people to fight.

That's the reality. And that's why legitimate wars will witness mass, people will volunteer to join the army in a legitimate war, but when it's an illegitimate war, people don't care. And so people in England in 1914, they were highly civilized people who had many decades of peace and prosperity, and they hadn't experienced conflict in England and they didn't want to fight.

And they saw no reason to want to invest in the murder of Germans and Austrians and various others European peoples. And they didn't. And I think the same thing, if we'd had [00:39:21] Bitcoin at that time, I think the government wouldn't have been able to do what they did. If we had Bitcoin, then they would have had a small amount of money for the war and they would have had to revise their military strategies.

They wouldn't have to decide, all right, what we're going to do is maybe invade France or Italy or pick one and just invade there and fight a limited war in some area. They wouldn't have gotten in into a four year war. That's really the key thing, but if there was a legitimate war, if there was a legitimate attack on England, you would not have had trouble mobilizing people.

So I think it's very telling that people didn't want to, of course the propaganda today makes World War I sound like it was really important for England and America to defend the war against the German Kaiser. Why, what was he doing? [00:40:21] There was really no reason behind the first world war.

There was no logical reason. It was just a bunch of small tensions that escalated into massive conflict because these people have money printers. And so with other money printers, the war would have ended and it was England, what would England have lost if it hadn't gotten into the war in the first place, or if that stayed in the war for a few months and then have to pull out? Most likely, in whatever case nobody was going to invade England. That was never on the cards during World War I. But continuing to do this eventually did bring German aerial bombardment of England, which was deeply destructive.

If you have legitimate wars, you can raise money for it. If aliens really do come, people are going to want to join [00:41:21] anybody who thinks they have a good way of fighting the aliens. You don't need inflation to make it happen. But you know, that's not likely to be very convincing with people whose salaries depend on inflation.

Flavio: And kind of like a small conclusion is that inflation is basically removing the choice of people to choose where they want to allocate their money. It's the government making the choice for you.

Saifedean Ammous: Yeah. Although I have to say, I think to be fair, it was coercion up until 2009. Before then you had no choice, but to use government money and you had no choice, but to have a bank account, if you wanted to engage in economic activity to expose yourself to the risk of government inflation destroying your livelihood and your business. But today you have an option, you have an [00:42:21] exit.

And so now you can't really sympathize with victims of inflation as been victims of coercion as much because you know, they choose to hold their cash balances in fiat, and they choose to use fiat. And they should expect, when you play stupid games, you win stupid prizes.

Anybody else got any other Twitter threads that they want to go through?

Stefano: So about the topic of education. You know, from the call we had yesterday, which was very interesting and also some of the comments you made today. So I'm relatively new to Bitcoin, I'm trying to get my way around and I'm finding it very interesting.

So my question is about the following: first, you mentioned that economics is extremely complex as a discipline and I had the same observation. [00:43:21] It's extremely difficult to understand what economists are talking about and they make all these wild assumptions, try to simplify a complex system, a lot of mathematics that it's very difficult to understand.

And when you understand something, you realize that it's really disconnected from human nature. So there is all the complexity behind economics. One thing I'm finding with Bitcoin is that there is some complexity there too. And after a few months, I'm starting to get a better idea of what it is and how it works.

But to be honest with you, to the lay man, if you need to explain Bitcoin, is just very difficult. And most people don't understand what it means, what it is or how it works. You are doing a great job and try to simplify that. So the first question is, if you were to explain Bitcoin to a lay man, how would you do that?

Saifedean Ammous: I would write The Bitcoin Standard.

Stefano: In a shorter way. You know, something that I can explain to my wife or my daughter or my family member who is not interested in that.[00:44:21]

Saifedean Ammous: I think the starting point that allowed me to start explaining things, and I've been trying to do this for quite a while and it's not easy to communicate it, but I think a lot of Bitcoiners get stuck in the quicksand of trying to explain the technical aspects of Bitcoin, which I think is completely counterproductive for beginners, because when you want to learn to drive, you don't learn how the electric fuel injection works and you don't learn how the internal combustion engine works.

You focus on the user end of things. This is where you put the gas, this is where you hit the brakes, and this is where you steer the wheeling and you have the gears. Most people don't know how cars work, they don't know how airplanes work. What they need to see is they need to see it work.

And once they see it work and they [00:45:21] can demonstrate, they can try it out and they can see that it works, that's it. Once you understand that the refrigerator works because you put the food in it, then you come back three days later and the food is still looking decent, that's it.

You see it with your own eye. You see that it does it. You don't need to dig hours and hours of studying the engineering behind it. That's ultimately what I think is the case at least when you're beginning with beginners. If you want to make it intuitive, if you want to make them understand what's going on, you want to begin from the point of explaining the end user experience.

And so for me, what I say is this is a currency, just like any other currency with the difference being that there's no central bank behind it. And there's nobody in control of it and nobody can take it away from you and you can send it anywhere you want in the world, and nobody can make more of it. This is functionally what it is. It's a currency.

The [00:46:21] under the hood it is very different from the dollar, but for the user experience, you're going to end up with, you know you can use dollars, you can use Bitcoin. There are different ways of using dollars and Bitcoin, on your phone and on your computer. And with physical forms and physical wallets and open dimes and checking accounts and there are all these different possibilities, but at their essence, there's a thing called the dollar behind them.

And Bitcoin is like the dollar, it's just another currency. It's like the dollar in being a currency, functionally speaking. Even though people might have different definitions about what a currency is and Bitcoin is, or isn't a currency. I don't care much about definitions and I don't care about arguing about definitions.

And if you see in my book I don't spend a lot of time on definitions. I prefer to focus on the function. Whatever you think is the underlying technology, I think it's difficult to communicate. So you focus on the function, [00:47:21] you focus on the fact that you can use this and you can make more Bitcoin out of it.

You can have more possibilities for sending and receiving Bitcoin around the world by using this. And you can protect your wealth from inflation. These are really the selling points that you want to tell people. I think this is really the most productive way of going about it. Then here you get into the kind of what I find to be the counter productive questions for beginners and this is like the standard course of particularly people who aren't very bright, is when they start poking holes with kind of asking those gotcha questions.

I'm sorry, but from my experience, I think this is, when you start [00:48:21] approaching this from the perspective of the gotcha, then I'm sad to report that you're not likely to be very bright because sure, there are ways in which this can break. But you're not going to discover them after three minutes of somebody explaining to you what Bitcoin is, three minutes ago, you didn't know what Bitcoin is and it's been running for 12 years.

If your first reaction is to find a way how this is going to stop working without first asking yourself why hasn't this stopped it from working for 12 years and feeling confident enough to waste the time of somebody who's been doing this for a while with this idea.

If you think you're so smart that you can just come up with a way to break Bitcoin in five minutes or 10 minutes or the way why it can't work and you think you're so smart that a) nobody has thought about it and b) the person in front of you who has studied this thing extensively has not thought about it and thinking of it as a gotcha, and becoming a little bit you know, as most no corners are aggressive about it [00:49:21] because you're challenged by this thing and you think, oh no, but obviously it can't be working because there's not. Then I'm sorry you were born in the wrong side of the bell curve, but I wish you a quick recovery and I think Bitcoin can help you recover.

At this point, what I find constructive is I'll tell them you know, yeah, maybe it's going to get hacked. By all means, please go ahead and try and hack it. And if you don't want to hack it, at least try and ask yourself why nobody has hacked before and go study the technical aspects of it.

And, you could point them to some technical references. Like my book provides a good introduction to how it works and how the economics of it works. And then they can dig into other books for the technical aspects of it. But I think when I'm talking to people, I like to focus on the user experience.

I'm trying to give them, at the end of the day this thing is useful because it's the best saving account ever [00:50:21] invented. If you accumulate money in it, you figure out how to store it safely and you accumulate money in it and you keep accumulating and you benefit from the built in number go up technology.

That's really the best way to do it. So get in with money that you don't need over the next few years, puts for yourself a four year time horizon minimum so that you won't need to sell this money in four years. Save in Bitcoin with money that you are willing to sit on for four years ideally, and keep adding as much as you can into it.

 And then over time it accumulates. So I'll show them a DCA calculator sometimes and tell them, here's what would have happened is five years ago you bought a hundred dollars worth of Bitcoin every week for instance, this is what it would have ended up today.

And honestly I don't [00:51:21] see there's much point, it's honestly like I've wasted so much of my life arguing with smart asses who don't know anything, but they want to tell you that, oh no this clearly can't work. It's honestly something that I truly avoid. Like I just try to end these conversations because there's no limit to how many stupid ideas idiots can come up with in terms of, oh no, I'm going to hack it or, well of course they're not going to hack it.

They don't do anything, they just come up with words. They're going to hack it, they're going to ban it, they're going to confiscate it, they're going to do this and that. And you know, ask yourself why this hasn't happened and try and answer it and I'll tell them, if the approach of asking questions is positive in a sense of okay, so why is that only 21 million?

Why can't it be increased? [00:52:21] Then yeah, you can elaborate on that and point them in directions of, why this and this and that. But I think generally when the tone is hostile, then you just have to disengage and tell them to have fun staying poor, and a lot of people hate Bitcoin.

Don't take it personally when people in your friends and family start getting aggressive about it, because first of all you underestimate how much people who watch TV don't think. These people just don't have brains of their own. You know how cloud computing works, where you're running, let's say you're using Google docs.

The Google doc is not stored on your computer. It's stored on Google servers. And so effectively you're working with Google servers. And you need to remember that when you're talking to a lot of people, that you're not talking to your friend John, you're talking to CNN. They [00:53:21] watch CNN every day, and the way that it works is if you hear an idea repeated seven times I think, I've heard this somewhat, I'm not sure if seven is the right number, for most people if you hear an idea to repeated, then you take it for granted.

And then the more it gets repeated, the more it becomes part of your worldview. And then the more challenging this worldview becomes threatening to your identity. You're saying I'm wrong.

And for people on the left side of the bell curve, being wrong is a massive blow to the ego. It's something that they can't really stomach. They can't accept the idea that you're contradicting my server. You're contradicting the cloud computing server that controls what you're interacting with at this point.

So I heard on CNN that masks work, I heard on CNN that we need to stay home for six years in order to stop respiratory diseases. I [00:54:21] heard on CNN that I should wear sunscreen at home to protect me. And it's very hard to argue with those ideas because, and you see the reaction, you know that it's hopeless when the first reaction is not, oh really why this, why not that? What is your perspective?

No, the first reaction is that's so stupid or that's so silly and that'll never work once you're starting off from that, you know, you're dealing with a cloud computing device that's connected to CNN or New York Times or something like that.

And there's no point in spending much time engaging. Because with Bitcoin, there's been so much negative propaganda against Bitcoin over the years. It's the price we have to pay for getting in early. It's just all a constant stream of people who are just laughing and pointing and telling you what their server [00:55:21] has instructed them to say.

Flavio: I feel there's also an aspect of time preference. When I'm talking with friends about Bitcoin, they always talk about, oh but hey, Dogecoin went up 10% yesterday. And I'm like it's a matter of time preference. People are looking to get something out of it immediately. And I think learning and studying Bitcoin helps you lower your time preference and understand that you're not thinking about how much I'm going to get out of it.

If it's only number of go up, you're looking for, you're not looking for it for tomorrow. You're looking at it in a four year horizon, in a 10 year horizon. The study of Bitcoin helps broaden the time horizon and expand it.

Saifedean Ammous: Yeah, a lot of people just don't have that idea. I think this is something that I am coming to terms with, with a lot of people I know, which is that it's impossible [00:56:21] to communicate to a lot of people who are alive in this world today the idea of providing for your future self four years from now. It's just, what do you mean four years from now?

Why would I save for four years from now? Four years from now, I'm going to be working and I'm going to be making a lot of money and I'm going to be spending from that. I don't need to be saving. I want to be borrowing today and paying back tomorrow. So everybody thinks like that. So when you tell them, yeah go save money.

They think, why is this weirdo acting like my grandmother? That's their kind of initial reaction. My grandmother or great-grandmother who lived under the gold standard and remembers a time when she could save, she used to always tell me to save. Clearly she is familiar with all of the intricacies of the way that fiat works. And it's true, in the fiat system you want to borrow. And that's what I talk about extensively in The Fiat Standard. The Fiat Standard, the fiat system works in a way in which every time you borrow money, new fiat is created.

And so if new fiat is created, that's basically [00:57:21] mining new fiat and that increases the money supply. And there's a huge incentive for it. Every time you borrow, you're devaluing everybody else's money. You win from borrowing. So everybody needs to borrow and everybody should use their money as collateral for borrowing.

And everybody understands this and everybody sees it and it takes a lot to be able to make the jump to the Bitcoin world where I'm not going to use this money as collateral for borrowing or as a down payment I should say, not collateral when I was saying earlier.

You don't buy a house, if you have a hundred thousand dollars, you don't buy a house for a hundred thousand dollars, you borrow and buy a house for a million. Then you keep paying for 30 years. And in effect it is rational because it's going to end up being much cheaper to buy the house in debt because your debt is in fiat.

You're shorting fiat, you're shorting an asset that's devaluing. You're gaining from the devaluation of the asset. And it's going to become much, much cheaper [00:58:21] if there's hyperinflation, because then you effectively get the house for free or for close to free. So this is a major impediment I think. A lot of people just don't, can't get it.

Stefano: And Saif, one other comment is that, at least that's been my experience and I can see playing out in some friends and families, that hardly anyone really thinks about what is money. It's not something that we've been taught anywhere, we just assume it exists.

We assume that the government creates it and maintains it. And you go to school, high school college, there is no personal finance education and there is hardly anything about these kinds of topics. And so for most people, they just assume that they are what they are, because that's the way it's always been.

And I think your book does a great job about that, but personally it's been the first book I read that actually explains or tries to explain what is money? How does it impact our [00:59:21] life, our society and the functioning of a good society. How is that connected to money? I never thought about that before.

And I'm realizing that it's very important, that's why I'm attracted to it. But this is something that's missing in every education system that I can see. And that's why for most people it's difficult, at least that's my observation.

Saifedean Ammous: Yeah. We we're just talking about education with Daniel and with Jeff Davidson from the Saylor Institute.

And I think it's a great example of how institutional education, Fiat education will tend in ways that suit the bureaucrats. And so you're constantly getting all kinds of irrelevant bullshit propaganda and trivia. There's a lot of trivia that you learn in schools that is completely irrelevant for your life.

Why the hell do they teach people about dinosaurs? It's incredible. It's incredible. They teach school children about [01:00:21] dinosaurs. They make them memorize names of dinosaurs that have been extinct for 80 million years. It's amazing. It's like an exercise in establishing dominance over your brain by making you sit there and remember the names of things that you will never encounter and have no reason to know anything about, some kids get obsessed with dinosaurs and they like to collect toys.

Okay you know, if you like to collect dinosaur toys but nobody is going to need the dinosaurs in their daily life. Nobody's going to meet them. Nobody's going to eat them. Imagine how much more benefit we would get if they were teaching school children, instead of dinosaurs, they were teaching them about the animals that they eat and, the uses of those animals and how we've lived with them and how our culture in this part of the world has co-existed with this animal for very long, very little about that kind of useful stuff.

And of course very little about money because there's [01:01:21] very little market feedback on what is necessary and what is important, but even more important than that is that you have very little about, I mean the reason driving that it's not just fiat education isn't competent, it's also because obviously there's an interest in not exposing that.

If people actually understood what and how money works, it's not going to be very pleasant. If you started thinking really hard about why do we need inflation, you can't escape the conclusion that this is benefiting some people a lot more than others, and that it is hurting a lot of people and, schools don't want to do that.

Schools don't want to teach that stuff. They want to teach you everybody's equal, everybody's fun, everybody's being fairly treated by our very wise and generous overlords.

Stefano: And Saif, one [01:02:21] follow-up on the education part. I would like to learn a bit more about the technical aspects of Bitcoin.

I know that yesterday Jeff Davidson mentioned that there will be a more technical course coming up on Saylor in a few months. So until then, do you have any recommendation in terms of some sort of seminar, online class, in person class? Anything that would allow me to learn a bit more about the technical aspects?

Saifedean Ammous: I think Jimmy Song has a good book called Programming Bitcoin. We've hosted Jimmy in the podcast before. And he also organizes an in-person course where he meets with people and you know, around Bitcoin events and conferences he'll organize a course where they'll, and it's like a two day course, but it's high in intensity and you walk out, you have to have some Bitcoin coding, some coding background.

It's not for complete beginners, but if you have some coding background, you come out of it, knowing how [01:03:21] to program things on Bitcoin and how to work on Bitcoin. I think that's highly valuable. A lot of people have recommended it to me. I haven't taken it myself, but a lot of people have recommended it.

So I think that's a good place to start.

Flavio: Stefano, do you run your own node?

Stefano: No, no. I'm very new to Bitcoin.

Flavio: I started like really diving into it just this year, but I bought one of those, the Raspberry PI, then I'm running the Umbrel node and it's super user-friendly, the interface is beautiful.

It's very simple. But I think it helped me so much, like really understand the blocks and how you're sending a transaction and you choose your fee, put the fee too low, then it went to the next block, it's not getting through.

Stefano: Okay, can you repeat the name?

Flavio: Yeah, it's getumbrel.com.

Stefano: Okay, thank you. [01:04:21]

Flavio: They give you the list of items to buy to run your node and it's open source. I think someone here in the group might probably also run a node.

Saifedean Ammous: Yeah, I use the Nodl node which comes ready with all of the things in and ready to rock and roll straight out of the box.

And they're also in the sponsors of this podcast. I recommend these.

Flavio: Oh, that's good, yeah. In general running a node I think gives it like hands-on experience on seeing how the network is, how crowded it is, how much you pay for your transactions. You can start running some lightning channels, which is fun as well.

I'm like starting to forward some payments through my node and seeing like the lightning network growth, it's pretty interesting.

Saifedean Ammous: Very nice.

Nathan: [01:05:21] Stephano, Andreas Antonopoulos' book Mastering Bitcoin is still, it's an old book, but it's pretty relevant still for just explaining Bitcoin structure.

Stefano: Thank you, Nathan. I'm actually reading The Internet of Money by Antonopoulos which is more high level. But yes thank you, this is very helpful.

Nathan: I saw something yesterday that I spent 50 years developing software and when voiceover internet protocol started being a thing, I could not wrap my head around that and I still can't. It just should not work. Yesterday I heard an explanation of level three, they don't call it voice over internet [01:06:21] protocol of course, but that's what it is.

But it's over the lightning network. It's a level three protocol. And the explanation of it is absolutely mind boggling. And it's already being tested. This isn't pie in the sky stuff. And after you listen to that, these phone calls can be made and they're all paid for and financed through the lightning network.

And no one knows they happen. There's no evidence that this phone call ever existed.

Anyway, if you start thinking about that and branch it out, what sense does Ethereum make? What sense do any of these other coins, I mean look at what Bitcoin is doing! And people just do [01:07:21] not seem to see it. I hear the complaints about how Bitcoin is constrained, yet all the evidence suggests just the opposite.

There's such a, it's just a massive resource behind this thing. Anyhow, I found that pretty Mind boggling.

Flavio: What's the name of this protocol?

Nathan: There's several of them. I apologise, I don't remember. I think if you just search for level three protocols, level three Bitcoin protocol.

Flavio: That's amazing. Yeah, I think it's high time preference too. People just want the centralized solution to solve everything for them, yeah.

Nathan: It's nuts because [01:08:21] these phone calls can actually involve thousands of lightning network champs. It's totally impossible.

Flavio: You're not relying on Facebook or Google to transfer your call, to transmit your call.

Nathan: Yeah, you're relying on the world and relying on no one.

Kiki: Wanted to add something about why it's hard to talk to other people about Bitcoin and certainly agree with Saifedean that people are getting your information from one place and that's all they know. But additionally, I think over the last two years or from like the Trump years leading up to the recent election, people on social media, they've been so polarized.

And so everybody has been deeply divided into two camps and there's all this mounting suspicion. If someone is with you or they're against you. And if you're talking about [01:09:21] something like Bitcoin, it probably means, people become suspicious. They get defensive, you're not in their camp, suddenly you're like a fiat denier or something like that, or a government denier.

So I think we can see very quickly, like Saifedean says, if there's a little defensiveness that there's some pushback, I just let it go and walk away. And I think yeah, enjoy staying broke, I don't actually say it, but for people that there really is a little bit of interest there, definitely the approach of talking about how it can change your life and also just understanding no one trusted the internet when it came out.

So if anyone here remembers it was like, what's the internet for, what would you ever do on it? I remember people saying I would never have a website, I would never shop on the [01:10:21] internet, I would never put my credit card information into the internet. So that's how we can look at Bitcoin too, is we might not understand the whole thing, but look where the internet went. Bitcoin is whatever, saves the world, but yeah, there's so much polarization now.

It's very hard to talk about things that people have been polarized to hate or be suspicious of.

Saifedean Ammous: Very true.

Student: If I can just just add something quickly, Stefano I know I'm pretty new to this as well. I just think that in this group and not to flatter Saifedean or anyone here, but I just felt like learning at this level.

There's a lot of Bitcoiners that don't even really discuss it at this level. And a lot of people are still into crypto in general. So it's just, I feel like the focus here and this [01:11:21] community is very real and something you can actually use going forward. And it just, it takes away a lot of the noise. I think another thing is the age group.

I find talking to folks over certain age, they're not as technically savvy sometimes. They're very opposed to it, or they may have their savings and feel very comfortable with their finances already. So they're just not interested, whereas young folks in their twenties and even younger, they're all over this.

And they look for those opportunities. So it's just, I just think it depends on who you talk to.

Stefano: I agree. I think one of the challenge, at least something I'm thinking about is you mentioned Markita is, I have some savings, what do I do with them? Do I leave them in cash? Do I put them in gold?

Do I buy stocks? Do I buy Bitcoin? Do I buy real-estate? My approach now is to do a little bit of everything, but I'm trying to figure it out. [01:12:21] Having a 10, 20, 30 years window, what should I do? So I'm looking for practical, actionable knowledge that I'm trying to get to best position myself and my family and my friends and ultimately my community, for the long term. That's my goal.

Student: Then you're in the right place, that's for sure. I wouldn't question that, but Saif like you said, depending on the questions, these are great questions. I make sure I come up with amazing questions to help me think further into my rabbit holes to understand it more. But the constructive questions will get you where you need to be.

Stefano: And Saif, can I ask another practical question?

Have you tried to live off Bitcoin, meaning use Bitcoin for, I'm not to say the day-to-day transaction, but some of the key expenses and necessities that you need in your life? If you [01:13:21] want to, where would you be able to do that? What do you think?

Saifedean Ammous: I have not, I have not tried to do that.

The vast majority of people I buy things from don't take Bitcoin. I mean, there are places where you can get a Bitcoin credit card or debit card. But I haven't found that compelling and it's not available where I am, so generally I just think, I don't have this kind of activist mindset of let's spend money with Bitcoin in order to make Bitcoin win.

Initially when I first got into Bitcoin, there was a little bit of that but I quickly got over this because thinking of it from the Austrian perspective Initially, the initial idea was when you start believing that Bitcoin works after a couple of [01:14:21] years of being skeptical that it can work. When you start thinking, all right maybe this thing is going to actually work.

You think, I'm going to tell somebody this is better money. They'll tell somebody else they start using it. Everybody tells everybody else, and then within a couple of months or a couple of years, this whole thing takes off and it'll take off from the grassroots. You tell your barista and I'll tell my waiter.

And, you tell your taxi driver and then this'll take off. But you know, obviously first of all, it's very hard to tell them on it. And secondly, I really don't think this is you know, as I studied it more and more, I think the adoption for Bitcoin is not going to be determined, it's not going to be driven by transactional demand.

It's not going to be driven by people going out of their way in order to spend Bitcoin to buy their coffee. The adoption's going to be driven by people, accumulating cash [01:15:21] balances in Bitcoin. That's the key driver of adoption. We have a scoreboard of all the cashes in the world, all the things that can be used as cash.

And that includes bonds in my mind. It includes a AAA rated bonds, which are effectively cash, and it's the most liquid market. And it's what people use as a cash substitute for holding value into the longterm to compensate for inflation. I think if you want to help Bitcoin, you want to make your Bitcoin cash balance grow as much as possible.

And so you want to spend and earn and organize your finances in the way that is the most efficient and not in the way that makes a statement. Not in a way that is activist. You don't want to waste time trying to talk to the waiter. You don't want to waste the waiters of time incidentally, please stop talking to your waiters about Bitcoin.

They have better shit to do with their life. On behalf of all the waiters of the world, I'd like to [01:16:21] petition all of my listeners to please stop trying to sell your waiter or taxi driver. Taxi driver makes sense because he's sitting next to you and if he's willing to listen then, okay.

But waiters generally are busy. It's not gonna matter, it's not going to be driven by consumer saying okay, I'm going to start accepting Bitcoin in my cab or in my restaurant. That's going to come as a step after that person already has a significant cash balance in Bitcoin and a large number of their customers and clients and suppliers also have large cash balances in Bitcoin.

So with that, I think it's the struggle to grow the cash balances and that's what's going to matter the most. So for me, I don't particularly care about all of these ideas of let's strengthen the Bitcoin circular [01:17:21] economy by accepting only Bitcoin. I accept Bitcoin on my website and I think it's great.

And there was a time when I had trouble with my banks because I was moving around and I wasn't able to do the paperwork necessary to keep the website running at some point. And for a few months, the fiat payments were down on my website when I first started and it was great to have Bitcoin then.

 I was Bitcoin only at that time. But then I got it fixed and I went back to Bitcoin and fiat and I have no problem with it. I don't look at Bitcoin as as the kind of cause that requires you to sacrifice in order for it to succeed. This is the thing, this is not a political revolution where people need to sacrifice themselves and sacrifice their financial wellbeing in order to bring Bitcoin about if this was the case, if that was needed for Bitcoin to work, I would not be interested in Bitcoin, I think.

 I don't think political activism is something that is likely to succeed. [01:18:21] Then it's not something that I would like to spend my time on. I think Bitcoin succeeds precisely because it is compatible with economic incentives. In other words, Bitcoin makes it so that you benefit from it. And if you're not benefiting from it, then trying to force it as counterproductive.

I think people should just, I mean I speak for myself obviously, people should do whatever they want, but I think for myself, I find it more productive to just you know, spend the fiat and keep your Bitcoin as much as you can. But I recognize that this isn't going to last forever.

I think the opportunity of spending fiat is going to dwindle with time as Bitcoin cash balances continue to increase, you're going to get more and more people that prefer to get paid in Bitcoin that offer you discounts in Bitcoin. And then maybe even refuse to get paid in [01:19:21] fiat. I think eventually that's the end game because that's where it leads.

But for now, we still need to increase the size of the Bitcoin economy by maybe another 100 X to start thinking about that.

Stefano: So you think we're still very early in the Bitcoin economy?

Saifedean Ammous: Very much so. I think if you look at the global cash balances and global cash substitute balances, you've got national currencies, checking accounts and government bonds and AAA rated bonds in general, if you have all of these, if you look at all of these there's maybe a hundred trillion dollars and you have gold and probably index funds as well.

These are a form of store of value. Saving people aren't actually investing. And so you add all of that demand. I think, Bitcoin is still, probably less than 1%, depends on how you count, but it's less than 1% overall of all of that demand. [01:20:21] And so therefore when you are trading with somebody else for anything.

The odds that their cash balance is in Bitcoin and that they are willing to accept the payment in Bitcoin and make a payment in Bitcoin are very low. It's 1%, probably less than 1% even. Because these balances are usually for most people, a smaller fraction of their overall wealth. So for most people, it's a low chance that you're going to come across somebody who's willing to sell you apples for Bitcoin.

If they have an apple business, they have suppliers and workers that they want to pay, and those people are still plugged into fiat and he still needs to meet his payroll from fiat, and he's going to prefer to get paid from fiat. Adding steps of conversion in my mind, is just adding friction and adding transaction costs that ultimately ends up [01:21:21] taking away precious sats from you.

Obviously this is how I see it from my perspective, given the options that are available for me. But perhaps for somebody else, it might make more sense to get a Bitcoin debit card and only spend from Bitcoin. And I think some people do that. I haven't looked into this personally, and there is a risk there, which is you can't really manage your budget properly because of Bitcoin's volatility against fiat.

So if you're keeping only cash money for spending in that account, you need to actively manage it. Because if the Bitcoin price falls, then you don't have enough money for the rest of the month. So you need to top up from your other Bitcoin balances. It's up to you, whether you think that the cost of running this balancing stuff is worth it, in terms of the extra Bitcoin appreciation.

 I see Pavao is saying I [01:22:21] have a Bitcoin debit card and use it for everyday spending for the last eight months, but it does need active zero-based budgeting. Can you tell us more Pavao about what you mean about this?

Pavao Pahljina: Yeah, hi. So yeah, basically, what happened over the last I would say six to eight months, is that naturally my cash balance kind of grew so much my cash balance in Bitcoin, grew so much that it kind of dwarfed my fiat balance. And since in the last year, most of my income is also paid in Bitcoin, I just found myself having to exchange Bitcoin to Fiat in order to pay for my living expenses. And currently, it's actually extremely convenient.

I actually use Apple Pay every day. [01:23:21] I do use Binance as my kind of Bitcoin bank and I deposit some Bitcoin on Binance from my cold storage. And they do have the debit card, which they issue you for free. And at the point of purchase, you are basically selling the appropriate amount of Bitcoin to fiat, and they are processing the fiat payment, and all of that is done instantly, and it's very convenient.

As I said, I use it on my Apple Pay. So everywhere where Visa and MasterCard credit cards are accepted, I can pay. I can also withdraw cash on every single ATM from every bank. The only issue with this is that you do need to have a zero based budgeting system, which means [01:24:21] that all of your money, all of your cash balance needs to be assigned to categories before you spend it.

And I use a software for that, which I use for three years already. It's called You Need A Budget. So you can go to youneedabudget.com, it will take you around I would say a couple of months to get used to it. They have extremely well done knowledge base. And you get used to assigning all of your cash balance to the categories that you need, and use the app when you're spending.

So for me, whenever I spent for anything I do enter that transaction in the app and then because of Bitcoin's volatility, I do reconcile my balances every day. [01:25:21] This takes a couple of minutes per day, but it allowed me to basically be almost zero, have almost zero exposure to fiat inflation. And pick up all of the gains on Bitcoin.

So in the last three months we had a little downturn, I just found myself spending a little bit less. And when Bitcoin is pumping, I do find myself having a little bit easier time spending. And this can work, if your government is very heavy on intrusion and requiring you to file your taxes and whatever, which is not the case here in Croatia so much, then [01:26:21] it may be hard because you would have to spend a lot of time accounting for filing your taxes.

But if you don't, if you have a situation where we don't have to do that, at least for some time still, then I think it's worth it. But the prerequisite for all of that is that your cash balances, your cash balance has to grow so much in Bitcoin. That basically it's like, you don't have any more fiat to spend.

Flavio: And Pavao, do you pay capital gains on Bitcoin in Croatia?

Pavao Pahljina: Yeah that's what I mean, in Croatia we do not have very clear regulation on that. We have only one kind of opinion of our tax office from 2017. So there is no law or anything [01:27:21] yet. So no, so to speak. I would assume that, I mean if they have a very well thought out and elaborated system on, I even wouldn't mind paying a capital gains tax if I would get a receipt in the end of the year saying this is 10% of the capital gains tax that you need to pay.

I would say yes. But I'm not going to account for them and prepay them because they don't have, they by themselves don't have the regulation sorted out.

But that's a situation here in Croatia, in Europe. It may not be elsewhere, I understand that. But living on Bitcoin can be done.

Even if merchants do not accept [01:28:21] Bitcoin you can still, you can still use it as a cash for paying. So it just needs a conversion. And the point of sale.

Flavio: Yeah. And as the transition to the Bitcoin standard continues, I think they'll adjust that because it doesn't make sense to pay capital gains when you're converting to cash value to make an everyday transaction. No, they'll come to terms for sure. Just a matter of time.

Stefano: Can I ask you about a quick question on that?

Saifedean Ammous: I'm just wondering, do you think there's software out there that makes it easy to facilitate this if you do have to report taxes. Cause a lot of people in the US say they don't like to spend their Bitcoin because the tax reporting is complicated.

Are there software solutions that just [01:29:21] make it so that you can automate this process?

Pavao Pahljina: Yes there are. For example, almost every exchange will have some sort of exporting option for all of your transactions. I know that Binance has that. And then there are a couple of software options that I have been looking at.

I have to dig them up again, this was last year. They calculate all of that for you and give you the reports. It can be done. And even some accountants here in Croatia, they started accounting for, but those are more for the crypto traders.

They do that service. It can be done, although it would be a lot of transactions for me personally. I literally use it for everyday [01:30:21] transactions for just paying everything. Just as I would use my local fiat currency, because I am paying at the end of the day in my fiat currency.

It's just that I'm converting SATs at the point of spending, I'm converting SATs to Euros and then Euros to Croatian Kuna, which is our local currency. And all of that is done instantly. And the exchange fee for that is like 0.1% on Binance because it's such a massive exchange. It's so liquid and the software works very well.

Flavio: That's something that puzzles me a little bit because of the fungibility of Bitcoin. How do you tell if the Bitcoin you're spending is the one that you bought in February this year or the one that you bought in July last year, right?

It's so subjective. It's not like a property, I'm selling this property that's [01:31:21] on this street, no. What coin? Which coin is which? It's fungible right, after all.

Pavao Pahljina: Yeah. It's just a huge mess to account for that. But I don't think anyone is going to, practically speaking, account for that. They're just going to use it as cash.

Nathan: Here in the US, you move some Bitcoin off, split it so you move some over to Coinbase, then you transfer that to a retailer to make a payment. What's your cost basis for tax, right? There's going to be some interesting IRS audits off and on.

Saifedean Ammous: Yeah, for sure.

Stefano: Saif, out of curiosity, do you pay your employees in Bitcoin, fiat or do you give them a choice?

Saifedean Ammous: Well, two of them are here. [01:32:21] Well generally I give them a choice. But yeah, I do pay them. There's a mix between Bitcoin and fiat. Mostly, it's hard to say mostly which one it is, but yeah it's both.

I'm not ideologically opposed to spending Bitcoin. My book and I think a lot of the shitcoiners have usually accused me of you know, when you want to criticize somebody you make a ridiculous absurd version of their ideas. And so a lot of people like to say that, I'm out there telling people don't spend your Bitcoin. Bitcoin should never be spent. Spending Bitcoin is bad. But that's not the case. I'm not out there.

In fact, you we had this discussion earlier today and if you read my books and all of my public writing, my Twitter feed, all of my podcast appearances, I've never told anybody what [01:33:21] to do with their Bitcoin. I have never, even as a libertarian, I don't talk from the perspective of people should. I don't say that.

And I caught myself saying it by mistake earlier a few minutes ago and I corrected myself. That's what I should do. But of course I don't generally think from the perspective of, this is what people should do. That's just not how my libertarian brain works.

 I totally understand that for the the conditions for everybody can be different in particular cases. And so for many payments, in my case, I've got people working in my website from all over the world, going through the banks system can lead to lost funds and can take a lot of time. And it's a pain in the ass and Bitcoin is highly convenient in that case.

So it makes sense. So I'm happy to pay Bitcoin to my employees in this case. [01:34:21] But I also understand that some of them don't want to get paid in Bitcoin and they prefer fiat for whatever reason that they need to establish income to show the bank, or they need it for spending money.

And that's perfectly fine as well. My view is that it's not something that I think of ideologically. It's an economic transaction. You're trying to figure out what works easiest and fastest and cheapest.

I'm constantly looking to know, and I'm thinking maybe it might be worth looking into the debit card business, but might be complicated as well, depending on where you are in the world.

Pavao Pahljina: Essentially, naturally you are going to have less and less fiat.

 Let's say you have maybe three months or six months [01:35:21] of expenses in fiat. And this amount of time is just going to shorten over time. So right now I don't have, I have like maybe a week worth of expenses in just in a little bit of cash for paying things that I just cannot pay with with the debit card, but for all the rest of that, I just like to have, I like holding Bitcoin instead of fiat. I don't mind the volatility because the, the savings in Bitcoin are so large that the volatility is not really, it doesn't affect everyday spending.

So, but it does take a while to get there, but over time I think pretty much everybody will get there. But as Saif says, it's a process of [01:36:21] replacing the cash balance of the world one person at a time, and everyone is different. Everyone has different income spending, net worth, the amount of assets, liabilities. It may be very stressful if you have liabilities of any kind, especially when Bitcoin goes down.

When the downturn hits, it may be stressful. So I would recommend simply using it as a cash balance, get out of debt completely. And then it can be done. I certainly expect more and more people to accept Bitcoin payments. Just spinning up their lightning merchant node.[01:37:21]

I think we are going to see that more, maybe not in this cycle, maybe in the next cycle.

So then you will be able to spend it directly without a custodian. Because right now you do need a custodian to convert it to fiat at the point of spending.

Saifedean Ammous: Yeah. I think we're just going to see more and more of this. With every cycle it grows more. 2013, we may have had more merchant adoption because that was the meme back then when a lot of merchants got into this and they started installing BitPay. But that was an example of why this didn't work. And it helped inspire The Bitcoin Standard in understanding why it was that these things weren't picking up and becoming very popular because it's just adding the transaction costs on the end of the consumer and on the end of the producer in most [01:38:21] cases. There's a small minority of diehards that are willing to incur this, but it's not going to pick up. What we need is, we need economic incentive and therefore we need number go up technology to get people's cash balances up.

That's how it works.

Peter Young: Just a very quick one from me. The book you mentioned earlier in the conversation, was it Golden Fetters, the Gold Standard in The Great Depression by Barry Eichengreen?

Saifedean Ammous: Yes. Okay, great. All right thank you guys for joining and I will see you next week. Next week, we're going to be having Terrence Kealey, the author of the book, The Economic Laws of Scientific Research, a great book, heavily influential on me. I'm looking forward to interviewing him. So stay tuned for the email with the time for when that seminar's going to be held. All right, take care.[01:39:21]