#284 – Saifedean Ammous: Bitcoin, Anarchy, and Austrian Economics

Saifedean Ammous is an Austrian economist and author of The Bitcoin Standard and The Fiat Standard. Please support this podcast by checking out our sponsors: – GiveWell: https://www.givewell.org/ and use code LEX – Scale: https://scale.com/lex – Uncruise: https://uncruise.com/pages/lex – BiOptimizers: http://www.magbreakthrough.com/lex to get 10% off – Athletic Greens: https://athleticgreens.com/lex and use code LEX to get 1 month of fish oil EPISODE LINKS: Saifedean’s Twitter: https://twitter.com/saifedean Saifedean’s Website: https://saifedean.com The Bitcoin Standard podcast: https://saifedean.com/podcast Books & resources mentioned: The Fiat Standard (book): https://amzn.to/3FmNfsy The Bitcoin Standard (book): https://amzn.to/3LRrcwA The Blocksize War (book): https://amzn.to/3LORQ9o The Theory of Money and Credit (book): https://amzn.to/3ykreZT Human Action (book): https://amzn.to/3w9LzP4 PODCAST INFO: Podcast website: https://lexfridman.com/podcast Apple Podcasts: https://apple.co/2lwqZIr Spotify: https://spoti.fi/2nEwCF8 RSS: https://lexfridman.com/feed/podcast/ YouTube Full Episodes: https://youtube.com/lexfridman YouTube Clips: https://youtube.com/lexclips SUPPORT & CONNECT: – Check out the sponsors above, it’s the best way to support this podcast – Support on Patreon: https://www.patreon.com/lexfridman – Twitter: https://twitter.com/lexfridman – Instagram: https://www.instagram.com/lexfridman – LinkedIn: https://www.linkedin.com/in/lexfridman – Facebook: https://www.facebook.com/lexfridman – Medium: https://medium.com/@lexfridman OUTLINE: Here’s the timestamps for the episode. On some podcast players you should be able to click the timestamp to jump to that time. (00:00) – Introduction (07:53) – Money (20:58) – Gold standard (34:09) – Collective hallucination (39:59) – Austrian vs Keynesian economics (1:12:20) – Free market (1:28:49) – Monarchy (1:34:23) – Fiat money (2:21:13) – SWIFT system (2:34:03) – Bitcoin (2:40:20) – Satoshi Nakamoto (2:48:04) – Criticisms of Bitcoin (3:03:16) – Football/soccer (3:06:58) – Criticisms of Bitcoin continued (3:17:17) – Bitcoin Maximalism (3:29:40) – Proof of stake (3:46:46) – Central bank digital currency (3:57:59) – Michael Malice (4:00:12) – Advice for young people (4:06:21) – Palestine (4:18:00) – Mortality

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Lex Fridman?

  The following is a conversation with Sefiin Ammous, one of the central and most impactful economists, philosophers and educators in the world of Bitcoin. He's an Austrian economist, an anarchist, and the author of The Bitcoin Standard and the new book, The Fiat Standard. Sefiin does not mince words in his criticism of economists and humans in general with whom he disagrees. For example, Paul Krugman, who is a Neil L. Kenziean economist and a previous guest of this podcast. Sefiin's opinions are strong and often controversial. I do push back in this conversation, playing devil's advocate or trying to steel man each

• 0:40Lex Fridman?

  side, but as always, I do so in the service of exploring the rich space of ideas that Sefiin has about human nature and human civilization. I trust the intelligence of you, the listener, to come to your own conclusions. That is the burden of being a free-thinking human. It is on each of us individually to dive into this chaos of ideas and from that chaos, discover long-lasting, universal wisdom to live by.

• 1:12Lex Fridman?

  And now, a quick few-second mention of each sponsor. Check them out in the description. It's the best way to support this podcast. We've got GiveWell for charity, Scale for machine learning, UnCruise for adventure, Buy Optimizers for health, and Athletic Greens for performance. Choose wisely, my friends. And now, onto the full ad reads. As always, no ads in the middle. I try to make these interesting, but if you skip them, please still check out our sponsors. I enjoy their stuff. Maybe you will too. This show is brought to you by GiveWell. They research charitable organizations and only recommend the highest-impact, evidence-backed charities. Over 50,000 donors have used GiveWell to donate more than $750 million.

• 1:58Lex Fridman?

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• 2:41Lex Fridman?

  Podcast at checkout. They tell me to tell you to make sure that they know that you heard about GiveWell from the Lex Fridman Podcast. Again, that's givewell.org. This episode is also brought to you by Scale, the machine learning assisted data labeling platform. Scale Rapid works with any use case or task, including image, video, text, annotation and classification, 3D data, and it has support for 20 plus languages. Can I just tell you that as a fan of machine learning, as a researcher in the field, I have always believed that, at least in this point of history, data is much, much, much

• 3:24Lex Fridman?

  more important than the architectures, than the machine learning models, or rather the architecture of those models, if you want to have real world impact with those models. So quality data, the annotation of data, based on which the models are trained, is essential, and you have to use the best tools for the job. That's why you should go to scale.com/lex. Today, you can get your first batch of data labeled up to 50 bucks for free. Again, that's scale.com/lex.

• 3:57Lex Fridman?

  This show is also brought to you by UnCruise Adventures. Small ship cruises sailing to Alaska, Mexico, Costa Rica, Hawaii. It goes on and on. Choose from hiking, kayaking, whale watching, seeing the northern lights, and much, much more. I would like to go to those places now. I've never been to Alaska. I've been to Hawaii a long, long time ago. I feel like I'm afraid to go to Hawaii because if I go there, I may just stay there forever. I feel the same way about Alaska, actually. I'm not afraid of the cold. I don't love the cold, but I'm not afraid of it.

• 4:41Lex Fridman?

  And there's something about the isolation, the honesty and the beauty of nature that is Alaska is just, it humbles the mind. So even for just a little bit of time, maybe it's a good place to visit. You can save $500 on Alaskan adventures through June for bookings made within 30 days of departure. Go to uncruise.com/pages/lex. That's uncruise, U-N, cruise.com/pages/lex. The next sponsor is BI Optimizers. They have a new magnesium supplement. When I fast or I'm doing keto or carnivore, sodium, potassium, and magnesium are essential.

• 5:26Lex Fridman?

  Magnesium, I think, is a tricky one to get right. Of that, of the sodium, potassium, magnesium, magnesium is the hardest. That's why I use magnesium breakthrough from BI Optimizers. Most supplements contain only one or two forms of magnesium, like glycinate or citrate. When in reality, there are at least seven that your body needs and benefits from. Obviously, one of the things you really have to get right on keto is the electrolytes. Andrew Huberman, you should listen to his podcast called The Huberman Lab Podcast, talks about the importance of magnesium quite a bit. So this just takes out the thinking out of getting your magnesium supplementation right

• 6:09Lex Fridman?

  by going with the magnesium breakthrough. That's what I do because thinking is hard, friends. Go to magbreakthrough.com/lex for a special discount. That's magbreakthrough.com/lex.

• 6:24Lex Fridman?

  This show is also brought to you by Athletic Greens and its newly renamed AG1 Drink, which is an all-in-one daily drink to support better health and peak performance. It replaced the multivitamin for me and went far beyond that with 75 vitamins and minerals. It's the first thing I drink every day. I drink it twice a day now. It's a source of joy. It's a source of contentment because I know whatever the crazy diets I do, whatever the crazy work hours I put in, the stress, the lack of sleep, the madness, the beauty, whatever I do in my life, I can always count on having a nutritional basis for my all-too-short

• 7:06Lex Fridman?

  existence on this earth if I take Athletic Greens every day. Also, perhaps as importantly as it's just delicious. It's refreshing. It's delicious. I love it. Anyway, they'll give you one month's supply of another important thing I take, which is fish oil, when you sign up on athleticgreens.com/lex. That's athleticgreens.com/lex. This is the Lex Friedman Podcast and here is my conversation with safety and a moose.

• 7:53Lex Fridman?

  Let's start with a big question. What is money and what is the role of money in the history of human civilization?

• 8:00Speaker 01

  Money is a medium of exchange. The thing that defines money is that it is a good that you don't buy for its own sake because you want to consume it itself or because you want to employ it in the production of other goods, which is what capital goods are. So we have consumption goods. We have capital goods. Money is distinct from those two because it is a good that is acquired purely to be exchanged later on for other goods. So it's not something that you acquire for its own sake. You acquire it so that you can then later on exchange it. And that's a market good. That's a market good like all other goods. You know, it's a you acquire food because you eat it. You acquire a car to move you around. You acquire money so that you can exchange it for other goods. And that's something that many people have a hard time grasping of the concept of money

• 8:44Speaker 01

  as a market good, but it is a market good, just like all others. And the importance of it is that it allows us to trade. It allows us to develop, um, to develop the division of labor, which would not be possible at any kind of sophisticated level without money. So if, um, you know, if we live in a small society of 10 people, then think about all the things that we can make, all the things that we can produce. If we're only 10 people isolated from the world, there's only very few things that we can make. And therefore, um, we can exchange those things directly with one another. But as, you know, if we get in contact with other societies that have more people, then the opportunities for specialization increase. You know, if there's 10 people, the only thing that you can make is

• 9:29Speaker 01

  the very basics you need for your survival. But if you're part of an economy of 10 million people, there's much more room for specialization. You can make a car, you can make a house that's very sophisticated. And that relies on the division of labor. That relies on you specializing in doing one tiny little thing, which is not what you consume. You know, you, you can, and you trade that thing for all the things that you consume. So as the economy becomes more sophisticated and involves more people, and currently we're all part of a, of an economy of almost 8 billion people. Each one of us produces one tiny little thing, and they exchange that thing for all the things that they want.

• 10:10Speaker 01

  And so because we specialize, we become more productive in doing the thing that we're good at. So, you know, there's people out there who are engineers, who are designing windshields in cars. It's a very specialized thing. They sell windshield design to Mercedes Benz. And then from that, you know, that windshield design is added on to millions of cars around the world. And from that, they're able to get enough money to meet all of their needs. So the division of labor is enhanced enormously with money. Because without money, it's very difficult to be able to exchange a large number of goods. It's very difficult to have a sophisticated economy with a large degree of specialization because it's, it's very difficult to find people who want

• 10:54Speaker 01

  the thing that you have and have the thing that you want. We call this the coincidence of wants. And that's really the problem that money solves. So you make apples and I make oranges. I'd like to have some of your apples, but you don't want my oranges. And that's, we have a problem of coincidence of wants. So what do I do? You want bananas. I need to find somebody who has bananas. Give them my oranges. Take their bananas, give you their bananas. And then I take the apples. In that case, bananas are a medium of exchange. So it's natural that a medium of exchange will evolve and will emerge in an economy as an economy becomes more sophisticated. As we move beyond 10 people and 10 goods, it's inevitable that we're going to come to a situation where we have the problem of coincidence of wants.

• 11:38Speaker 01

  And the way to solve that is to use a medium of exchange. And it can be anything. It can be a banana. It can be food, stuff. It can be any kind of good. As long as I acquire the good with the purpose of passing it on to you, not with the purpose of me consuming it or using it, then that's a medium of exchange.

• 11:56Lex Fridman?

  So when we look at the entirety of human society of millions, of billions of people, you think of them just a bunch of individuals running around. I love the, the term coincidence of wants. So each one of them, it's like a stochastic system. They have desires. It's like random collection of desires, somehow rooted in our evolutionary history, but mostly random in terms of preference of banana or apple, that kind of thing. And then they also have the capacity for competence and excellence in particular kind of labor. So like specialization, they're able to be like incredible at a particular set of tasks.

• 12:38Lex Fridman?

  So there's a bunch of ants running around with consciousness and intelligence and they have desires and they have capabilities. And then there's a coincidence of both the, the wants they have and the capabilities they have. And you wanted to create a system that kind of exchanges those things. So when you imagine, like, what is a good? What is markets? When you imagine a market is like a hierarchical system, what do you imagine? What is a market?

• 13:12Speaker 01

  A market is just the name for the naturally emergent phenomena of people voluntarily exchanging things. At any scale. At any scale, yeah. It could be a market of two people on an island on their own. It could be eight billion people across the planet. Naturally emerging. Yes. This is the thing I think that is very hard for many people who don't have a good understanding of economics to grasp, that capitalism and markets are not something that you need a central planner or a government officer to make happen. Capitalism is just what happens when people are left to their own devices. It's just our cognitive capacity allows us to develop tools that we can use for production. And that's what we do.

• 13:57Speaker 01

  That's what humans have been doing since they started, you know, making spears to hunt. That's the first capital good, probably. So we're constantly accumulating capital. We're constantly trading with one another. We find an opportunity. You know, you've got a lot of oranges, I've got a lot of apples. Then I'll take some of yours, you'll take some of mine, we're both better off. This is just a naturally emergent thing. And money is what makes it enormously powerful. Money is what allows it to scale, really. Money is what allows it to go beyond small societies into just something that is global. Because with money, again, as I was saying earlier, you know, all you need to do is specialize in doing one thing, the thing that you do best, and then you exchange that for money,

• 14:39Speaker 01

  and you don't have to worry about whether the other people involved in this want what you have and have what you want. You just sell it for money to whoever wants it, and you buy whatever you want from whoever has it. And that's an enormous reduction in the mental burden of how a market economy functions. So the first thing that I would say about money is that it allows for the division of labor, and it allows for the market system to grow. And the second thing is that money is a mechanism for storing value into the future. So again, as humans, we develop the capacity to think for the future. We, you know, we, we make a spear so that we can hunt. And then we see that it works. And then we take it out of the animal that we hunted it with.

• 15:23Speaker 01

  And we keep it for the next day's hunt. And then we start making a better spear and we make a better fishing rod. And then we make a fishing net and then we make a fishing boat. And that's our ability to think of the future. And as we start building durable goods, we start thinking more and more of the future. We start becoming more and more future oriented. And that's really the process of civilization, the process of denying our needs now in order to think for the future. So instead of spending all of our day on the beach, enjoying ourselves, we take time off from leisure on the beach and spend some time making a spear or making a fishing rod so that our productivity in hunting or fishing tomorrow is going to be higher.

• 16:08Speaker 01

  And so that ability to think for the future is enhanced by our ability to provide for the future. And we do that with durable goods. But then money ends up being the best mechanism for providing for the future. Because you, the future is uncertain. So, you know, you can save your apples and oranges, you can save the spears, you can save the animal that you hunted. But these things, you know, first they rot. They're not very good at holding on to their value over time. But even if they were, even if, you know, have objects that are durable. The problem with them is that you don't know if you need them tomorrow or next month or next year. You're not sure if you're going to be needing them. And you might end up not needing them.

• 16:52Speaker 01

  And you might end up not finding anybody who needs them or finding somebody who needs them, but doesn't value them much and won't give you much in exchange. Money allows you the optionality of saving the most liquid good, the most saleable good. So it's something that you can sell tomorrow with the least uncertainty. It has the most liquidity, the most ability to be sold without a loss in its value. So money is our most advanced technology and our best technology for moving value into the future. And so I think history, really, I argue this in all my books, is that really history, we see, we can think of it as a process of our money gets harder. And so our money is gets better at holding on to its value for the future.

• 17:36Speaker 01

  And by harder, I mean harder to produce. We find things that are hard to produce that are better at holding on to their value. So they hold on to their value better for the future. And that allows us to plot and plan for the future. That makes the future less uncertain. And that makes us more future oriented. In other words, it lowers our time preference. And the harder the money is, the better it is allowing us to think of the future.

• 18:01Lex Fridman?

  So people should know that you've written the book Bitcoin Standard from 2018, I believe.

• 18:08Speaker 01

  Yeah.

• 18:08Lex Fridman?

  And then a new book called Fiat Standard. The Bitcoin Standard is considered kind of the Bible in the cryptocurrency space and the Bitcoin space of just a very rigorous systematic explanation of why Bitcoin, what is it? Why should it be? Why is it good? So you're describing in that book and in the new book, different implementations of the technology of money. In the new book, you talk about fiat money, which is another way to do money. So obviously, there's a lot of different ways to do money. And maybe we haven't discovered the best way to do money yet. Our conversation today is how to do money better. Maybe we'll go back to bananas eventually, right?

• 18:53Speaker 01

  Very good reasons why we won't.

• 18:55Lex Fridman?

  Well, we can disagree. We can agree to disagree on this. I'm open minded to the bananas. They, the, one of the biggest source of joy to me when I first came to this country is eating bananas. And so I'm, maybe money.

• 19:11Lex Fridman?

  Happiness, perishable happiness will eventually become the best medium of exchange. I don't know, open minded. Anyway, so you mentioned hard money and soft money. So there's different ways to do money. What is hard money? What is soft money?

• 19:28Speaker 01

  In the Bitcoin standard, I present the argument that money is always whatever is the hardest thing to make. Historically, I think we see many examples of that. So for instance, in prison, people use cigarettes as money because nobody can make cigarettes in prison. In societies, we have the example of Yap Island, for instance. It's an island that doesn't have any limestone, but there's a nearby island that has a lot of limestone. And it's very expensive, obviously, with primitive technology to move limestone from Palau to Yap. So on Yap, limestones were money. Seashells, rare seashells that are not easy to find, end up serving as money in places where they're rare. Glass beads were money in West Africa where there was no glass making technology

• 20:12Speaker 01

  because they were imported from abroad and they were very hard to make.

• 20:17Speaker 01

  And I think there's a conscious effort of some people might recognize the hardness and the scarcity and choose this as money, but I think what's more important is just a natural evolutionary process whereby people choose all kinds of random things as money, bananas maybe even. But then the people who end up making these bad choices don't end up with any wealth left. Whereas the people who store their wealth in the things that are hard to make end up acquiring, end up maintaining their wealth and maybe even increasing it over time. And of course, this culminated in the 19th century, in the end of the 19th century, by the, basically the entire planet being on a gold standard.

• 20:56Lex Fridman?

  What is a gold standard?

• 20:58Speaker 01

  The gold standard is basically when money is gold, or at least government currency is backed by gold. But the reason gold became money and not copper, not nickel, not bananas, is that gold is the hardest metal in the world and it is the hardest metal to increase the supply of. And the reason for that is based in chemistry, so. Gold is indestructible. You can't destroy gold in any meaningful sense. It's been accumulating stockpiles for thousands of years. You know, the gold that was worn by Nefertiti back in ancient Egypt is today probably in somebody's necklace or in somebody's gold coin. It's still there. So for thousands of years, humans have been digging for gold.

• 21:41Speaker 01

  They dig it out of the ground, they refine it, and then they put it in jewelry or a coin, and then it just stays there. It gets melted down into new other forms. You know, the jewelry gets turned into coins, or coins get turned into bars. But it's just stockpiles that are accumulating. On the other hand, every year, we get better at our technology of looking for gold. You know, there's more people all over the world. The population increases, the technology improves. So we keep finding more and more gold, and we keep making the stockpiles bigger. However, because we're constantly adding to a stockpile that is not being devalued, sorry, that is not being consumed, because there's no way of consuming gold. You can't eat it, you can't burn it, you can't, it doesn't rust.

• 22:25Speaker 01

  Because of that, we're constantly adding to a constantly growing stockpile. So if you look at the numbers, you see, over the last 100 years, we've got pretty reliable data on gold production worldwide. We see that pretty much gold stockpiles increase at around 1.5% to 2% per year, every year. So yes, we're making more every year, but we're making more. So we're adding to the stockpile, the stockpile grows more. So every year, we're adding only around 1.5% to 2%. Compare that to the second highest, the second hardest metal historically was silver, and that increased historically at around maybe 5% per year or so. Now it probably increases at something like closer to 30% because it's now getting used extensively in industrial uses.

• 23:10Speaker 01

  So when you use it in industry, you know, when you put silver in a laptop or in a camera or in a machine. Effectively, you are consuming the stockpile because it's not used as money. It's taken out of the monetary stockpile. So over the last 150 years, since 1870 in particular, and I discuss this in detail in the Bitcoin Standard. What happened in 1870 was Germany won the Franco-Prussian War. And Germany was on a silver standard. But the value of silver was declining. So Germany did something very smart, which is they took their indemnity from France in silver, in gold. And used that big chunk of gold to switch to going on a gold standard.

• 23:53Speaker 01

  And since then, silver's been collapsing in value next to gold. So back then, the price of an ounce of gold was around 15 ounces of silver. Today, it's closer to 100. It's just been declining for the last 150 years. And so because of that, because of the fact that it's lost its monetary role as people shifted toward gold. The value of silver went down. And so it became economical to use it in more and more industrial applications. So the stockpile declines. And then as a result, that weakens its monetary properties more and more and more. So that's why at the end of the 19th century, I mean, at the beginning of the 19th century, gold and silver were money. By the end, it was basically only gold.

• 24:34Speaker 01

  And the countries that were still on a silver standard, China and India in particular, suffered enormously from it. Because their money was devaluing very quickly next to gold. And so Europeans who would come to China or India were able to buy things at practically a big discount.

• 24:50Lex Fridman?

  So I hope it's okay if I ask very simple, very basic questions. There's few people in this world that are good, as good as you are at answering very basic, almost ridiculously basic questions. Because I think exploring questions like what is money is a really great way to think from first principles. To really think deeply about this world. So I really appreciate you doing that. When you say standard, what does it mean? When you say silver standard, gold standard, again with the basic question.

• 25:19Speaker 01

  The term really, I think, was based out of gold. The first time this came out was the gold standard. Because, um, so I, I said gold was money at the end of the 19th century. But it wasn't just that everybody was using gold coins and trading with gold coins. Because that's got a problem of divisibility. So, um, a lot of things are worth less than one gold coin. So how do you buy that thing? And the answer was that you created monetary instruments that were backed by gold. And so currencies, national currencies under the gold standard, were specific units of gold. And that's how a gold standard functioned. Money was gold, but you had pieces of paper that were redeemable in gold.

• 26:03Speaker 01

  So you could go to the central bank, you could give them the piece of paper, the $100 bill or the $10 bill, and they'll give you gold in exchange. And they give you a specific quantity of gold in exchange. Effectively, the paper was just a receipt for gold.

• 26:16Lex Fridman?

  So the paper exactly represented the amount of gold?

• 26:19Speaker 01

  Exactly. That was the plan. Or that was, that was what it's supposed to do. But arguably, we never had a pure gold standard. Because the nature of gold means that the people who are in charge of the gold,

• 26:32Speaker 01

  they have an enormous amount of power because the gold is concentrated with them. And as long as not everybody shows up at the same time asking for their gold, then you can make more receipts than you have gold.

• 26:40Lex Fridman?

  Sure. So there's always shady stuff going on. But at least that's the stated goal, is the receipt should exactly represent the amount of gold there. And also, when you say standard, it means that governments

• 26:56Lex Fridman?

  sort of publicly stated that this is the approved, the main way of making transactions that are monetary. So this is the money. This is, this is the official money that you should be using if you live in this country.

• 27:08Speaker 01

  Yes, although I would say it's more like the other way around. It's not that the governments established gold as money. It's more like the... It's more like gold gave the governments the credibility for their currencies. So governments were not the ones that made gold money. Gold has been money before states were invented. States, if you have a government and you'd like to have some legitimacy and you'd like to be able to deal with other governments on an equal footing, you had to go by the gold standard. You had to have a currency that was redeemable in gold so that you could trade with the rest of the world, so that people could, in your country, use that currency. So it's not that governments were choosing gold.

• 27:52Speaker 01

  It's more like they were having to adapt their own currencies to gold in order to give their currencies credibility.

• 27:59Lex Fridman?

  So there's a dance there, though, because if they had to, then why did they switch away from it after? So there is a dance where the governments, you know, the people pressure. So first of all, the basic characteristics of the hard money pressures the governments and the people in terms of what should be used. Then the people, based on their community, the network effects, the way they, the narratives they tell each other, all that kind of stuff, they pressure the governments to take on a particular money. Then the governments, you know, they like power, they like control, all those kinds of things. They pressure the people and tell different kinds of narratives.

• 28:42Lex Fridman?

  There's a dance going on in this evolution of what technology to use for a monetary system. So the reason I don't know if governments had to, because they clearly didn't have to, because they eventually moved away from it. So it, but there was pressure, probably.

• 28:59Speaker 01

  Yeah, but even after they moved away from it, you know, central banks, until today, they still hold a lot of gold reserves. In fact, if you look at 1914, when they, when the world really went off the gold standard, the amount of gold reserves held by central banks was a tiny fraction of what it was. As time went on, central banks accumulated more and more gold. What ended up happening is they prevented their citizens from using the gold, but they continued to use it. So gold continued to be money up until 1971. Because effectively, the world was on a dollar standard and the dollars were backed by gold. But then after nineteen seventy one, even then, you know, central banks continue to accumulate gold because

• 29:38Speaker 01

  why would you as a central bank want to accumulate pieces of paper effectively or credit liabilities of another central bank that can produce them infinitely? And it's it's it's a lesson that's becoming more and more obvious to governments today, you know, as we see US sanctions taking, say, Russian reserves or Ukrainian reserves. And this is why, you know, we see China and Russia have accumulated a lot of gold over the last ten, twenty years.

• 30:04Lex Fridman?

  So just to return to the question of definitions, so what is hard money versus soft money?

• 30:10Speaker 01

  Yes, so hard, I mean, it's a relative thing, but the hardness refers to the difficulty of producing more units of the money supply. So an easy money would be a money that is relatively easy to make, so you can increase the supply by ten, twenty, thirty, forty, fifty percent or something like that. So pretty much all commodities, all market commodities, other than gold and silver, they're easy money and they're not suitable as a monetary medium because they're being consumed. So if you look at, and in the Bitcoin standard, I mentioned this metric called the stock to flow ratio, which is the ratio of the annual production, the flow, to the stockpile, the existing stockpile.

• 30:51Speaker 01

  If you look at all the other metals, they're easy money because they're being consumed. So think about how much stockpiles of copper there are in the world today. So copper companies obviously have some stockpiles of copper. Major copper consumers will have stockpiles of copper, but the vast majority of copper is essentially on a conveyor belt of production from the mine straight to the consumer good that it's being used for. So the existing stockpiles are roughly in the range of one year's production. If you take all of the companies, I don't have exact statistics, it's very difficult to get these, but you know, it's roughly in the same range. Like if if if copper production were to stop completely today.

• 31:37Speaker 01

  We'll have about a year's production stored in various places. So that makes copper terrible money. Because if you started using copper as money, and this is why, you know, a lot of people say, well, money is a collective illusion. Money is a social construct. If we all agree that something is money, then something is money. I think this is completely clueless. And it's usually Marxists who believe this. So obviously, no understanding of economics. It's completely clueless because even if everybody in society decided we wanted to make copper as money, even if we all decided to collectively take part in this hallucination or illusion, it would not make copper money. It would just make everybody who decides to take part in this hallucination poor. That's it. It would make copper miners rich.

• 32:21Speaker 01

  It would make all of the people who chose copper as money poor. And copper would not be money. It can't work. Because what happens is, because of the fact that the stockpiles are so small, if you buy, you know, even if you get the 1,000 richest people in the world, all of the world's billionaires, they get together and they all dump all of the money that they have. All the stocks, all the bonds, all the gold, all of the bitcoin, everything that they own, they dump it and they buy copper with it. What's gonna happen? Price of copper is gonna go up a lot. But what's gonna stop copper miners from flooding the market with even more copper than what the billionaires bought? Nothing. They're gonna dump all of that extra copper production. If the price of copper is gonna go up, so you know,

• 33:03Speaker 01

  there will be a lot more copper mining than all the other metals. A lot of, you know, nickel companies and gold miners are gonna switch to focusing on copper. And then we're gonna dump an enormous amount of copper on the market. The value of copper is gonna crash. And the people who chose copper as money are just gonna end up with large warehouses of very cheap rusting metal.

• 33:26Lex Fridman?

  So that's a brilliant description and that that kind of pushes towards gold, where the stock to flow ratio, I guess you would say is 1.5 to 2%, like you mentioned earlier.

• 33:36Speaker 01

  Well, that would be like the inverse of the stock to flow. That's the supply growth rate. So the stock to flow is the inverse. It's around 60.

• 33:42Lex Fridman?

  60, got it. But let me push back on, as somebody who likes human psychology, let me push back on the collective hallucination and the illusion. So that's for copper. But what about paper money? That, you know, that's not, you can't smoke it, you can't eat it. It's just, it's supposed to represent, it's supposed to just be the medium of exchange. And in that sense, what role does collective hallucination play in the effectiveness of money?

• 34:16Speaker 01

  Exactly zero. Because all of the paper money, first of all, there's never been an instance, and again, this is flies in the face of a lot of what a lot of people like to think about money. There's never been an instance where a government came out and said, all right, we're printing out these pieces of paper, use them as money. This one is worth 10 apples, or use it for buying things. And here's the piece of paper. This has never happened. They've always taken fiat money, paper money, all of these things were always born out of fraud. Initially, it was a receipt for gold. And then they told you, well, you know, you don't need the gold anyway, and you have to use this.

• 34:56Speaker 01

  And then if you don't use it, we throw you in jail. And then, so first of all, it doesn't, it can't, you can't enforce this thing. So it's never really just happened. And it's never been hallucinated into existence. People can hallucinate this kind of nonsense in writing textbooks and books and in academia. But in the real world, people don't hallucinate money. People are very careful about what they put their money in.

• 35:20Lex Fridman?

  For people listening, we're gonna have fun in this conversation. Because you're like, you already said Marxist, fraud, hallucination. Just because we use these words doesn't mean they're true, but they're fun to talk about. So you have a strong certainty about the way you talk, which I think is fun. But allow me and my dumb self to push back, to play devil's advocate. And I'll actually ask you sometimes to play devil's advocate if possible. Because you're smarter than me and all this stuff. So we want the smartest devil devil's advocate possible. And I'm certainly not that. But anyway, so but nevertheless, we are currently on a fiat standard. So money does have value, paper money.

• 36:10Lex Fridman?

  And the reason it has value is because we believe it has value. To what degree, if we put the hallucination word aside, the belief that something is worth value is actually valued and is the thing that helps money work. Because you're saying it's fraud and the belief is almost valueless. But how much value? Can we quantify the value of the belief? The collective belief?

• 36:38Speaker 01

  I should say, like, all economics is subjective. I consider myself an Austrian School economist. And the starting point of all Austrian economics is that all value is subjective. So, obviously, you know, value only exists because humans choose to make the valuation. However, the economic reality of the way that money works means that it's just a technology like all others. And so, if we, for me, when people say, well, if we hallucinate that this thing can be money, then it'll be money. If we can hallucinate bananas to be money, then it'll be money. For me, it's not saying, well, if we hallucinate the bananas can be spaceships, they'll be spaceships. I mean, you can call them spaceships if you want, but a banana's not going to get you to the moon.

• 37:19Lex Fridman?

  But nevertheless, that's true. There's, so you're drawing a big distinction between physical reality and the space of belief. But it seems like so much power of human civilization, so much destruction, so much creativity, creation, happens in our minds.

• 37:41Speaker 01

  Absolutely. Everything does happen in the mind.

• 37:43Lex Fridman?

  You're not going to get to the moon, but you might still have a significant impact on human civilization if a lot of people believe a thing.

• 37:51Speaker 01

  True, but economic reality exists in a way in which your beliefs are rewarded when they match up with economic reality. And they're punished when they don't. So if you ride a banana, jump off a cliff, thinking you're going to get to the moon, you know, that solves the problem of people thinking the bananas are spaceships by killing people who think that bananas are spaceships. And I think, to go back to your question in terms of paper monies. So, yes, even though, you know, ignoring the original sin of the creation of fiat money and ignoring everything that happened before 1971, all right, well, here we are. People are using, well, it's not really paper money. We should say, like, fiat money is predominantly credit. So, like, it's also a digital currency.

• 38:35Speaker 01

  So, more than 90% of dollars. Are digital, less than 10% of dollars are physical. So it is a digital currency and all over the world, all these governments are using digital currencies effectively with some physical manifestations in paper. But yet, even within these currencies, it's still the same analysis. And I discussed this in chapter four of the Bitcoin standard. You look at government monies, you see that the currencies that have held on to their value, the ones that have the biggest value, the ones that play the biggest role in global trade, the ones that are used as currency reserves all over the world, are the ones that have the lowest supply growth rate. The ones that grow, whose central banks are the least inflationary. And on the other hand, the ones that, who supplies more inflationary, similar to copper,

• 39:20Speaker 01

  end up failing. You look at Lebanon, Venezuela, Zimbabwe, these are currencies whose supply increases very quickly and therefore their value collapses. Whereas the dollar, the Swiss franc, the euro, the British pound, the Japanese yen, they increase at a much lower rate in general than the, than these terrible currencies. And that's why all over the world, you see people are looking to get more dollars and more of these harder currencies than the easier ones. So I think this analysis of the hardness of the money and the ease of money is pretty well supported empirically.

• 39:57Lex Fridman?

  So like you said, you're at least in part or in whole, consider yourself an Austrian economist. So you're perhaps a great person to ask about the basics. What is Austrian economics? What is Keynesian economics? How do you compare the two? What should people know? Some interesting, what are interesting defining characteristics to you about these schools?

• 40:20Speaker 01

  Yeah. So Austrian economics, the way that I say it, Austrian economics is economics. It's, we call it Austrian economics because economics has been hijacked by a bunch of frauds, really.

• 40:31Lex Fridman?

  People who are wrong.

• 40:32Speaker 01

  Well, it's much worse than wrong by people who are just essentially propagandists for inflation.

• 40:37Lex Fridman?

  Right. So it's like your opinion, man.

• 40:40Speaker 01

  Yeah, well, that's also like your opinion, man.

• 40:43Lex Fridman?

  Yeah. But you asked. That's true. Well, I also talked to Paul Krugman on this podcast, so he's.

• 40:51Lex Fridman?

  The O speaks enough, but he is uh he's one of the people that is perhaps most harshly criticized by folks in Austrian economics perspective and vice versa, which is a fascinating tension.

• 41:05Speaker 01

  Yeah, he's um he's done a great job as an actor who plays an economist on TV and the internet.

• 41:12Lex Fridman?

  So anyway, uh now tell me what you really think. Uh no, but so the basics of what is Austrian economics? What is the what perspective does it take on the world?

• 41:20Speaker 01

  Yeah, so I mean Austrian economics really is uh the continuation of a tradition that it goes back to the ancient Greeks of studying economics. Historically, it's really just um economics and that has evolved over time. And the um the establishment of the Austrian School per se came in eighteen seventy one, a hundred and fifty years ago, when Carl Menger, the father of the school, wrote a book called Principles of Economics and essentially invented marginal analysis, which is a big deal in economics. Marginal analysis is the idea that in economics, individuals carry out decisions at the margin, that it's um.

• 41:59Speaker 01

  When you when you make a choice, you're not making it. For instance, if you're making a choice between uh what should I spend my money on? You're not making a choice whether it is um this thing is object A or B, which one is more valuable for me in general? Which one is more valuable for me for the rest of my life? You're choosing about the next unit right now at this point, at this stage. And if you analyze economic decision making at the margin, it makes a lot more sense and you can understand why people decide and make the decisions that they do. Whereas if you uh don't apply marginal analysis, things don't make sense. The key thing that marginal analysis helps us solve is what is called the water diamond paradox.

• 42:39Speaker 01

  So you will die without water. We all need water and yet water is dirt cheap. Whereas diamonds are extremely superfluous. Nobody needs them. Um nobody is gonna live or die because they have a diamond and yet they're extremely expensive. So why is it that as human beings we pay maybe say a dollar a liter uh for water? Whereas we pay thousands of dollars for a few grams of diamonds. Why is this the case? Do we value water less than diamond? The answer is no, but at the margin, where we are right now, you live in a place where water is very abundant because cities are only built in places where water is abundant.

• 43:19Speaker 01

  And you're only making a choice about the next unit of water. And so water is extremely abundant and you're choosing about whether to spend the next unit of money on water. The valuation that you give to water, given that you have a lot of water at home and that you live in a place that has abundant water, is pretty low to the marginal unit. But it's very high for water overall. So if I asked you, how much would you spend for water in general? You know, how much would you pay for water for all of your life? It would be a lot higher than diamonds. If I told you, you can only have water or diamonds for the rest of your life, you choose water, obviously. But nobody's ever had to make that choice.

• 44:05Speaker 01

  You only make your choices at the margin. So at the margin, where we are, modern civilization, we have an abundance of water. That's why we have civilization. And diamonds are very rare and scarce. And people are only buying, you know, you buy your first diamond when you're gonna get married. You give it to your wife. And that's, it's gonna be the first few grams of diamond that she's ever gonna own.

• 44:27Lex Fridman?

  I'm giving my wife water.

• 44:30Speaker 01

  Smart move. You should definitely give her Bitcoin instead of diamonds. I tell my wife, I occasionally remind her what, what we, how many Bitcoin we could have had if I'd bought her Bitcoin with the price of the diamond ring.

• 44:40Lex Fridman?

  What's the downside of, by the way, diamonds for, from the analysis of like gold and so on?

• 44:45Speaker 01

  Ah, it's a great question. Arguably, diamonds are a scam.

• 44:52Speaker 01

  Because they became popular as a thing in marriage after gold was banned, after gold ownership was banned in the US in the 1930s and in many places around the world. So before that, you'd give gold. And the reason you'd give gold in a dowry, in a wedding. Is because, you know, it wasn't just that it's pretty and shiny, it's because it's money. So, you know, if you die, your wife can take the gold and she can live off of it. It's a demonstration that you're giving her something valuable. And that's because nobody can make a lot more gold that has the high stock to flow ratio. But then they banned gold ownership, or they allowed people to only own very tiny quantities of gold.

• 45:32Speaker 01

  And that's when the diamond industry stepped in and marketed diamonds as, you know, the thing that you need to give. But the problem with it is, of course, that diamonds aren't like gold. They're not very hard to make more of. And the reason we have scarcity in diamonds is really artificial. There's a, there's effectively a monopoly of diamond producers. They restrict the supply. And it's a pretty dirty business. And the way that they do it is, you know, all of the, all of the talk about blood diamonds is a way for them to ensure their monopoly. So if you're part of the monopoly of diamond producers, then it doesn't matter how many people get killed producing your diamonds.

• 46:14Speaker 01

  If you're out of the monopoly, then human rights organizations descend on you and call for shutting you down for selling blood diamonds. And they're also restricting the production of artificial diamonds. This is the other thing. You can make artificial diamond, you can't make artificial gold. So they restrict the production of artificial diamond and they try and insist that, you know, you shouldn't take artificial diamonds. But they're indistinguishable from real diamonds. So it's an artificial scarcity. And I think there's going to come a point, at some point, that this monopoly is going to break. And a lot of people are going to be left with essentially highly devalued jewelry.

• 46:50Lex Fridman?

  I'm going to take this segment of the podcast. When I'm getting married, I'm going to send it. And then instead you're getting water or Bitcoin.

• 46:58Speaker 01

  Yes, water and Bitcoin is all you need.

• 47:00Lex Fridman?

  So marginal analysis, focusing on the margin is the thing that allows you to most accurately capture human nature. The actual day-to-day decisions that we humans make.

• 47:11Speaker 01

  Yeah, that's really revolutionized economics, so 1870. And that's, that was Menger's work. And then he had a student, Eugen von Berg, who developed capital theory. And then he had a student, Ludwig von Mises, who is arguably the most important economist ever. And he developed Theory of Money. And he wrote a book in 1912 called The Theory of Money and Credit. And then in the 40s, he wrote Human Action, which is a big treatise on economics. And I think this is, this is the correct tradition of economics. And before World War I, this was just known as economics.

• 47:52Speaker 01

  And then after what happened in World War I, and I discussed this in detail in the Fiat Standard, is that the Bank of England essentially went off gold and tried to pass off their own credit as being as good as gold in order to finance the war. And incidentally here, this is part of the history that is not discussed often. This is presented as an innovation. Later on, they needed essentially a propaganda school that would justify what they did. And later on, it's presented as, oh, hey, we realized that gold was not good. And now, look, we've built this thing that is better than gold, where now the government can just print money whenever it wants.

• 48:34Speaker 01

  And now, gold, money is not an issue anymore, which is extremely idiotic, because the whole point of money is that it's not easy to make. If it's easy to make, it's not money anymore. It's just destroying the entire function of money. And we've seen that happen extensively in the 20th century, after countries went off the gold standard. So essentially, Keynesian economics is just inflation apologia. It's just propaganda to justify inflationism. And it's profoundly nonsensical. It's built on the idea that if you just make more money, you can stimulate economic production. And of course, this is very self-serving to the central banks and to the banks and to the governments who promote this nonsense. And this is also very pervasive.

• 49:18Speaker 01

  If you've had the misfortune of studying at a university over the last century, you were taught Keynesian garbage economics. You were taught that if there is a problem in the economy, the way to fix it is that the government prints money, the government lowers the interest rate, and then that leads to more economic production, which is completely nonsensical.

• 49:41Lex Fridman?

  So you're again, for the listener, you're using strong words and I'll push back just to find, to please devil devil's advocate to hopefully one day arrive at the truth. So just because it's in the interest of the central banks and the government, the interests and the models of Keynesian economics and the government are aligned doesn't mean they're wrong. So let's, let's give them a chance. So the conventional wisdom, perhaps economics wisdom, is that inflation is good in moderation as it encourages spending. But too much is bad because, you know, it completely devalues, destroys people's savings.

• 50:25Lex Fridman?

  So a little bit of inflation is good to stimulate spending. And I mean, I suppose this is one of the things that's supported by Keynesian economics.

• 50:37Speaker 01

  This is basically the whole point of Keynesian economics. Let's try and find an endless array of explanations to explain why inflation is a good thing.

• 50:45Lex Fridman?

  Well, it could, the chicken and the egg. So that's, that's the cynical take.

• 50:50Speaker 01

  Yeah.

• 50:50Lex Fridman?

  This is a propaganda machine to sell the government's narrative. The less cynical take is this, a bunch of economists who are telling, who.

• 50:58Speaker 01

  Who figured out this thing and it happens to be good for banks and governments. And just because it's good for them doesn't mean.

• 51:03Lex Fridman?

  And it justifies the existence of government and your basic, I don't think it's your basic assumption, but a foundational principle of your thought is that a lot of government is not a good thing. Your first gut instinct, government bad. Like I mentioned, I live next door to Michael Malice, who probably beats you on the intensity and how quickly he says government bad. So, so but there, you know, there's a potential argument for government good. Some government is good, maybe a lot of government is good. Maybe we need a lot of centralized management for resource allocation and so on because we humans specialize, we're too busy and so on.

• 51:46Lex Fridman?

  So there is an argument for that that exists. You probably disagree with any possible argument on that side. But anyway, so why is that idea of Keynesian economics wrong?

• 51:56Speaker 01

  I'm going to focus for this on the money idea, the idea that a little bit of inflation is good. The idea here, I mean, the criticism is that without inflation, people wouldn't spend and then the economy would come to a grinding halt. And that's nonsensical because people spend not because they want to keep this magical monster called the economy going. People spend because they need to consume because, you know, that's how we live, that's how we survive. You need to eat, you need shelter, you need clothes to keep you warm. And as technology advances, the capabilities of the things that we can do with our time increases and so we want to buy more things. So people buy things because people want to consume.

• 52:39Speaker 01

  There's a limitless desire to consume, you know, that there's no shortage of reasons for people to consume, whether it's food or Ferraris or private jets. People just always want to buy more.

• 52:55Lex Fridman?

  Can I interrupt just really quick? What about the fear about the uncertainty of the future where they might want to, they might want to buy things, but they're really afraid because it seems like there's a lot like a pandemic going on or whatever it is.

• 53:10Speaker 01

  Yeah, that's good.

• 53:11Lex Fridman?

  So the fear of uncertainty is, can you have too much fear of uncertainty?

• 53:15Speaker 01

  Here's the thing, what I was saying is, I was making the point that we don't need to be motivated to consume. Like we have the insatiable desire to consume. Everybody would like to have more of all kinds of things. Everybody would like to have a bigger house. Well, not everybody, some people have a big enough house, but everybody would like a house, everybody would like a car, jet, all kinds of things, you know, electronics, machines. So we don't need a desire to consume. But of course, the limit on how much we consume is. Opportunity cost. Why don't you buy a Ferrari? Well, because that's really expensive and it would mean that, you know, well, maybe you do have a Ferrari, but I mean, most people don't buy a Ferrari because

• 53:57Speaker 01

  it's too expensive, they don't, they can't afford it, they'd have to work too hard to get it. And if they do get it, it might mean that, you know, they can't afford their house anymore. So we have to economize. That's a good thing. And we have to also think of the future. And so humans consume, that we don't need more motivation to consume. We have to deal with the economic reality of the things that limit us from consuming more. So what Keynesians present is that when there is a problem in the economy, like there was after World War One, the problem is always a cause, a result caused by the inflation. And what the Keynesian hucksters do is that they look at the inflation, at the consequences

• 54:42Speaker 01

  of inflation and blame it on people not spending enough. When people are doing the rational thing, you know, the money is, so there was inflation caused the, an unsustainable boom, it caused the recession. And now a lot of people lost their jobs and they don't have enough money to go out and spend frivolously. So they save for the future. The future is uncertain. That's a good thing. You know, that's how you fix things. You begin the recovery by, well, you know, you lost some wealth, so you spend less. Like if you, you know, if your business goes bust, if you lose your job, it's natural and smart that you stop spending money on the frivolous things that you used to spend. And you save it for the future and you invest in something else, you get a new job. And then once you've recovered, you start spending more.

• 55:26Speaker 01

  This is, this is very sane and very good. And it's, it's the way to recovery. But essentially, the Keynesians have used this as a justification for more inflation. Because inflation is an addiction. Once the government gets down the path of spending money to solve its problems, then every problem looks like it can be solved by more inflation. And so. This is where Keynesian economics comes in. And of course, Keynesian economics is based on the work of Keynes, which came in the 1930s. And this is the key point, like it's portrayed in the textbook as if it's just this, the scientific breakthrough. That, you know, somebody in the 1930s, this genius came about and realized that, oh,

• 56:11Speaker 01

  we don't actually need gold, we don't need hard money, we can actually just print all the money. And in reality, of course, it was just the very thin, flimsy, idiotic justification for what governments were already doing for 20 years. They'd already gone off the gold standard. And they'd gone through 20 years in which they were lying to their population, telling their population, we're still on a gold standard, but you know, there are problems caused by various random things. But don't worry, we're going to be going back on the gold standard. 20 years later, after they went off the gold standard, they come up with this justification for why, oh, actually, the gold standard was bad. And, and this is the really pernicious thing about it is the problems that were caused by us going off the gold standard

• 56:56Speaker 01

  were caused by the gold standard. And we're going to fix them by going off the gold standard even more.

• 57:02Lex Fridman?

  Just because government is lying and it's shady and it does these kinds of things, doesn't mean Keynesian economics is wrong. So just, because I wanted to separate a few things you said. It could very well be very wrong and they could indeed be hucksters. All of these colorful, colorful language. I love you deeply for this, this is fun.

• 57:23Speaker 01

  Yeah, but I mean, you know, it's not like somebody like Krugman doesn't use this kind of language when discussing Austrians. It's just that when actors like him use it, it's presented as if it is legitimate because he's, you know, he's part of the major shows.

• 57:37Lex Fridman?

  So the case they make and the criticism Keynesians make of Austrian economics and the case they make for Keynesian economics is it's based on empirical evidence. So Austrian economists are pie in the sky theorists about like how human nature works. And it's just all theory. And just like you said, Keynesian economists kind of sell it as a science, data-driven science. And so where's the data, bro? On the, on the, so one way of saying it is.

• 58:15Lex Fridman?

  How do you know if we get rid of inflation? How do you know if we get rid of central banks? If we push towards that direction, we will have a better world, a better functioning economy, better functioning markets, better functioning society.

• 58:30Speaker 01

  This is another inaccurate way in which they present the economics. They present it as if it's just theory and that the data doesn't matter. But that's not the case. What the Austrians say is that without guiding theory, data is mute, data is dumb, data can't say anything. So.

• 58:47Lex Fridman?

  Theory first, and then you have to have models to provide context for interpretation of.

• 58:55Speaker 01

  Exactly, and it's a sign of just how little self-awareness they have that they think that they're just being led by the data when they're being led by Keynes's moronic theories. And it's, they use the data to justify those theories and to stick by them. And in fact, they are the ones whose theories cannot be refuted because it's just, it's just government mandated religion. So according to Keynes's nonsense, you know, so the way that the whole thing is, the way that they justify the inflationism is this, and I'm just using this to give an example of what you're talking about in terms of theory. The way they justify the inflationism, to tie it back to the original point, they justify, all right, we need money to spend.

• 59:40Speaker 01

  And then the level of spending in the economy is what determines the state of the economy. And I've taught macroeconomics at university level for a while. So I know this, I know Keynesian nonsense better than most Keynesians know Austrians, if not all of them, I guarantee you. And so the way they see it is the level of spending in the economy is what determines the state of the economy. There's a level of output and there's a level of spending. So there's like the factories on the one side that are churning out goods. And those goods have a certain quantity and value, market value. It's completely nonsensical, of course, because how can the value of the goods produced be different from the value of the spending? But let's put that aside for a second.

• 1:00:20Speaker 01

  So the amount of spending that happens in the economy determines the state of the economy. If the value of the production, which they call Y, is higher than the aggregate expenditure. So this is the production and then the aggregate expenditure is lower. Then we don't have enough spending to buy all the goods. And then that causes a recession. The factories start laying off workers. And then the laid off workers start spending less. And then that leads to aggregate expenditure dropping even further. And so it's a vicious cycle where the economy gets into recession. And the only way out is for Keynes's bankster buddies and government buddies to print a lot of money to give to themselves. And then that will.

• 1:00:59Lex Fridman?

  That's one interpret. But to so to print more money to increase the expenditure that to to match the.

• 1:01:06Speaker 01

  To match the level of output.

• 1:01:07Lex Fridman?

  Sounds pretty good to me. I'm sold. All right. But even though you're saying huckster, so.

• 1:01:12Speaker 01

  Yes.

• 1:01:12Lex Fridman?

  I just, you know, the way I I love you very much, but like, uh, just for people who are listening. I think it's I love the way you talk and it's great and keep doing it. But just for context, um, like, I don't know anything that involves human nature deserves this level of certainty. I at least my position is that we don't know what the hell we're doing on basically anything. And.

• 1:01:38Speaker 01

  Perhaps, but I mean.

• 1:01:39Lex Fridman?

  Like, there's a lot like certainty can get us in trouble is my worry. I don't know much about economics. I don't even know, you know, financial systems, monetary systems. But I just seen us get in trouble with human psychology, certainty, certainty of ideologies in general. You mentioned Marxism and so on. I came from the Soviet Union. There's a lot of people that are very certain throughout the history of the 20th century that communism is the utopia that humanity should strive for. So I'm I'm nervous around certainty.

• 1:02:14Speaker 01

  I could be wrong, but you know, you you ask me for my opinion.

• 1:02:17Lex Fridman?

  Yes, yes, sorry. So that little bit of a caveat.

• 1:02:20Speaker 01

  So to go back to the idea, then, on the other hand, you have the level of if the the other situation is when the level of spending is higher than the amount of aggregate output.

• 1:02:29Lex Fridman?

  Yes.

• 1:02:30Speaker 01

  In that situation, you have too much spending. So therefore, what ends up happening is inflation. So according to the Keynesian worldview, this is really important because this is a way that I'm going to get to your point about empirical data and to show you why.

• 1:02:44Speaker 01

  They're not correct. Yeah, they're not correct about what they say about empirical data. So then what this means is that there's a level of output and there's a level of aggregate expenditure. The aggregate expenditure can either be higher or lower than the output or equal to it. If it's higher, we get inflation. If it's lower, we get recessions. Okay. So is there any universe in this model? Is there any potential universe in which you can have both inflation and a recession? According to the Keynesian model, you can't, right? Because aggregate expenditure cannot be both higher and lower than output.

• 1:03:25Speaker 01

  So therefore, if you were truly being an empirical person, if you were looking at evidence and trying to be trying to analyze data, you'd look at this and say, one example, you know, one, you just need one example of high inflation and high unemployment to refute this entire model, right? And of course, the world is full of examples of high inflation and high unemployment. And that's what happened in the nineteen, and of course, you know, they ignored it and when it happens in poor countries, because, you know, poor countries don't really matter. But then in the nineteen seventies, that happened in the US and in the Western economies, in the most advanced industrial economies. So historically, before then, you had all these Keynesian central bankers

• 1:04:07Speaker 01

  talking about this model and saying, you know, well, aggregate expenditure is too low now. And that's why we have unemployment, so we need to print more money. And then they print more money, inflation goes up, but also unemployment goes up. Because this model is broken. That's not how the world works. That's not, the level of aggregate spending in the economy is not a lever with which you can control inflation and unemployment. So what would a scientist do? What would a non-Huckster do in this case?

• 1:04:37Speaker 01

  Admit the theory is wrong and find another way to reformulate it. Have the Keynesians done that? No. Still the same garbage in the textbook that is being taught until today.

• 1:04:47Lex Fridman?

  So is it possible to have a non-Keynesian motto, well, one that still supports moderate amount of inflation is good for the economy?

• 1:04:54Speaker 01

  I mean, since the 1970s, since this has happened, yeah. This is what, um, basically most fiat economists, as I like to call them, essentially anybody at a university financed by governments, which is financed by central banks, which is financed by fiat.

• 1:05:08Lex Fridman?

  We'll talk about that. The effect of fiat money on our life, as you write about in your book, fiat standard, one of them is education. I'm sure we'll disagree there, too. I'm not smart enough to disagree, but I'll disagree anyway.

• 1:05:24Speaker 01

  So, yeah, so a whole bunch of other models came up, but basically it's, I mean, it's, it's such an example of motivated reasoning, like anybody who's got a familiarity with the scientific method, or who's got an engineering background, who comes into economics, immediately has a lot of red flags. And I remember when I used to teach macroeconomics, I used to teach, you know, introductory macroeconomics, and it's a course that would be taken by econ majors as well as engineers. A lot of engineers would take it as an elective. And every time I'd explain, and I would just teach, you know, the Keynesian basic stuff, and every time I'd explain it, there's always that smart engineering kid who just looks at me and says, "Sir, this doesn't make any sense because this and this and that." I'm always like, "You get it. Exactly. You're correct." Because if you have any kind of shred of scientific thinking, you see that this is

• 1:06:08Speaker 01

  all motivated reasoning. Like, the answer is government needs to print money. And here's a whole bunch of models brought up by people for why government printing money is good. And the reason they're coming up to this conclusion is that you only get funded if you come up with this conclusion. If you come up with a conclusion that we need to shut down the central bank, you don't get funded by the central bank. You don't get published in the journals. You don't get a job at the prestigious universities. You don't get quoted by fiat publications like the New York Times and CNN. They don't invite you on as an expert.

• 1:06:41Lex Fridman?

  Well, that's a fundamental flaw with a lot of institutions we have today, and throughout human history. Let me zoom out for just a second to the big question. What is economics in general? What's the goal? You said there's a bunch of models. Is any economist basically trying to throw a bunch of models about human behavior on the table and try to generalize it to the global scale? So both dance between micro and macro somehow in order to determine public policy and explain the past, predict the future, prescribe policies that can control the future, those kinds of things. That's the big, basic, ridiculous question of what is economics?

• 1:07:22Speaker 01

  Economics is the study, the way the Austrians define it, is the study of how humans make choices under the condition of scarcity. And we begin with the starting point of economics is the fact that scarcity exists. And why does scarcity exist? Well, because it's easier to want things than it is to make them. It's much easier to want a Ferrari than it is to make one. And so because it's, you know, we have wants and we have limited means to meet those wants. We need to economize. It's a permanent, it's a permanent marker of the human condition. We are always economizing at all times. And so how people make those decisions under the conditions of scarcity is what economists study.

• 1:08:07Speaker 01

  So to go back to your point on empiricism in Austrian school. So it isn't that the Austrians don't believe in data. On the contrary, it's that theory has to inform data. And in fact, if you think about it, as the example of the stagflation of the 1970s shows, if you have stagflation, that just completely refutes the Keynesian model. The Austrian way of thinking, which is think from first principles, understand how the world actually works, think about how humans act and understand that economics is really all about human action. So it's not about aggregates of goods. This is really the key distinction in terms of methodology. For the Keynesians, it's physics envy.

• 1:08:52Speaker 01

  They look at the market economy, they look at individuals in the market economy, and they think that they can understand the market economy by looking at aggregates. This is really the key point of what I think makes the certain branch of economics pseudo scientific, is the introduction of aggregates. When you, when you introduce those aggregates, you know, how much production takes place, how many people are unemployed, the percentage of the inflation rate, and then you think that you can establish scientific relationship between those aggregates. It's purely physics envy. You know, in physics, for instance, or in chemistry, you put, let's say, a container with contains a gas and you have the ideal gas law,

• 1:09:36Speaker 01

  PV equals to NRT, calculate the pressure, calculate the volume and then and and the temperature, you can, if you have the pressure and the volume, you can calculate the temperature because you have the N R constants. So there's a clear relationship that has been demonstrated in a laboratory and that can, you know, we can do it right now. We can measure it and we can see it and it's continues to hold. And all it takes is one scientist to show that this relationship does not hold, to do an experiment that shows this does not hold, and it stops being a law of chemistry, and it's and it's broken. Where whereas in economics, what they've done is they've copied the superficial shape of this without any

• 1:10:20Speaker 01

  of the scientific rigor that was used to build it. There's no experiments. You can't experiment on economies. We don't have the ability to establish laws. And all the laws that we establish are just models that get people published and get them on the media to say, my model says we need to print more money. But it's never subject to actual scientific scrutiny. If it were, they would all be rejected in 15 minutes because the world is full of examples that contradict them.

• 1:10:48Lex Fridman?

  Was it possible to do scientific scrutiny when it's human nature, when you can't, when there's a nearly infinite number of variables and you can't control them? Is it possible? So what's the best thing you could possibly do?

• 1:11:00Speaker 01

  You do thought experiments.

• 1:11:03Lex Fridman?

  But the problem with thought experiments, you know, Freud thinks everybody wants to have sex with their mother. Is he right?

• 1:11:10Speaker 01

  That's the problem with Freud.

• 1:11:11Lex Fridman?

  I don't know. Maybe he's right. Well, obviously, I'm joking on that front, but the

• 1:11:17Speaker 01

  Freud is probably another Keynes.

• 1:11:20Lex Fridman?

  Well, no, I think there's power to the thought experiment, just like Einstein, you know, a lot of general relativity, special relativity, that that's a thought experiment. It originates in a thought experiment. Now, is it true? You know, a nice thing about physics, you can't eventually have experimental validation. The downside of economics is you really can't have experimental, like definitive experimental scientific rigor of validation of a theory. So a thought experiment is just a thought experiment using your intuition. It's the power of reasoning together about human nature.

• 1:11:53Speaker 01

  And that's why economics cannot make the claims that physics can make. So with physics, you can predict that if you get this gas at this pressure, at this volume, the temperature will be that much. And you can make that prediction and test it a million times and you'll always get the precisely correct answer. With economics, we can't make quantitative predictions.

• 1:12:13Lex Fridman?

  Still, on Twitter, and even today, you're very certain about the statements you're making.

• 1:12:17Speaker 01

  Yeah, but I don't make quantitatively certain statements. That's the thing. In economics, we don't make quantitative predictions. We cannot do that because we don't have experiments. But we can understand how the world actually works with humility. This is really the key difference, that the Keynesians think they just want to copy the methods of physics and then that's just, you know, gonna give them the certainty of the results of physics, which is like me saying, I'm just gonna put a red blanket on my back and jump from the fourth floor because I'm Superman. Well, it's not the red blanket that's gonna make me Superman. There's a lot more to it.

• 1:12:50Lex Fridman?

  So humility manifests itself in economics as the belief in a free market, meaning like I can't centralize, I can't do centralized control on this thing. We're going to minimize the friction of the free exchange of goods. So Austrian economics puts priority in the market.

• 1:13:12Speaker 01

  Yes, and you could arrive at it through two paths. The more practical path, which most scientific-minded people arrive at. You know, I came from an engineering background. So I initially had this idea that what is lacking in economics is mathematicization. We need to have better math models. We need to get all of those tools from engineering, apply them to economics and then we'll be able to plan the world economy and make it work better. And then you start actually trying to solve problems, you know, trying to actually calculate them and you realize nobody can have that ability because the difference ultimately comes down to the fact we can't have experiments. And the reason we can't have experiments is that you can experiment on particles of a gas. You can't experiment on human beings, on entire economies.

• 1:13:57Speaker 01

  And because... Particles of a gas are just dumb matter. And so, you know, you you kick matter in a certain way. You can calculate exactly how much is going to fly. Human beings are much more complex. They have a will inside them. And this is really, this is the humility to understand that you are a human being and other people are also a human being, just like you. And that the, you know, every person wakes up every morning and they have a million things in their mind, a million things they care about, a million things they want to do. And you will never be able to make the decisions for somebody else, let alone for millions of other people. So this is one path by which you arrive at the conclusion that free markets are better

• 1:14:40Speaker 01

  because you realize that all of the people that think that they can centrally plan markets can't actually do that. And that there's really nothing scientific about them, except essentially the rituals they ape of the scientific process. And the other path, I think, that makes you arrive at the Austrian perspective, or the libertarian perspective, I should say, is simply the notion of individuals as having their own inalienable right to decide what they want to do with themselves. If you, I mean, the only way that you can give yourself the idea that you get to be planner is ultimately you think you're better than other people. You think your choice, your judgment overrides mine.

• 1:15:25Speaker 01

  And I don't think that's a defensible position. I think I'm in no position to want to force anybody ever. I will never want to force anybody to do anything they don't want. The Keynesian perspective, the central planning perspective, is unlike physics, you know, which is let's force a bunch of particles to sit in a lab so that we can study them. In economics, you're forcing people to do things, you know? Let's stop these people from doing this job because it's bad for the economy and let's get them to do that job. Let's force them to pay this price. Let's tax them this much. Let's prevent them from using gold as money and force them to use our credit as money. So it has to rely on coercion. There's no central planning without coercion. And coercion is a crime, in my opinion.

• 1:16:09Speaker 01

  There's no way that it is justifiable morally or ethically.

• 1:16:11Lex Fridman?

  So from a politics, from an ethical perspective, your view is the, I mean, perhaps broadly speaking, the libertarian view is coercion is unethical. Freedom is essential.

• 1:16:27Lex Fridman?

  What is, what are the pros and cons of government intervention in the economy? So can you steal, can you provide pros? You just kind of provided arguments against. Is there any arguments to be made for government intervention? For the role of government in society? Speaking from a political or from an economics perspective? What is a positive role of government? That you could imagine you can speak to?

• 1:16:53Speaker 01

  I can repeat many other cases, but I, I don't find any of them compelling for the reason that I mentioned, which is that ultimately they all rely on putting a gun to somebody's head and using the threat of force. So that's for me is can never be justifiable. Whatever the ends are, if the means are violence and the threat of violence, then the ends aren't justified. Everything that's good, governments will use as an excuse to justify coercion. So, you know, what do you like? You like motherhood and apple pie? Well, government needs to ensure that motherhood works well. And we need government central planning of birth. We need regulations on birth, for instance. We need regulations on how people give birth. We need to ban people from giving birth in traditional ways that have been tried for thousands of years.

• 1:17:39Speaker 01

  We need to force people to do things in the modern scientific way.

• 1:17:42Lex Fridman?

  Well, so what about things like that all of us use? So infrastructure, for example, or education?

• 1:17:49Speaker 01

  Mm hmm.

• 1:17:51Lex Fridman?

  Or, well, the economy too, right? Can you make a case for the role of some large scale centralized systems? Whether it's government or not, that do this kind of management?

• 1:18:05Speaker 01

  I guess perhaps you could say there's the economies of scale argument that some things must exist at a very hard, a very large scale, and therefore you would want, you would want political accountability of the people who manage them. This is kind of the argument that's given for infrastructure monopolies, you know? For instance, roads or electricity. That, let's say we live in a country, we need one power plant. The bigger the power plant, the better off we will all be. And there's a natural monopoly in the power plant business. So we're going to have to have one power plant. And since it's only one power plant, then we can't just let anybody own it, because then they're going to make it too expensive. So we need to have the government own it, so it can make it. Too expensive. And you don't find that case compelling?

• 1:18:49Speaker 01

  Not at all. I used to believe in it. I was pretty much a Keynesian when I first started my graduate studies at Columbia.

• 1:18:58Speaker 01

  And I'm no, I don't find that compelling at all because I think all these examples that they mentioned of natural monopolies or economies of scale that can only fit at a scale of government. It's always, it's always, you know, government bans people from opening power plants. And then there's only one power plant and they need to be in charge of it. But in reality, no, in reality, the, you know, power plants can exist at all kinds of manners of scales of operation. And yes, of course, there are benefits to centralization in power plants in particular because there's efficiency in generation, you know. One big power plant is more efficient than 10 equivalent smaller power plants.

• 1:19:40Speaker 01

  But there's also inefficiencies in centralization because the more centralized and the bigger the plant is, the further away a lot of the population is going to be. So you're going to be losing a lot of the electricity in transmission. And you believe the free market is best in managing that dance, that balance of how centralization? Exactly. And if we do end up in a situation where there's one power plant for in an area, then I, you know, if the market ends up centralizing all of it into one power plant, I don't see that as a problem. There are places, you know, there's a small town with only one barber shop. Is that a catastrophe? No, because they don't need two barber shops. Now, if that barber shop started to take advantage of people, started to charge higher

• 1:20:24Speaker 01

  price, well, then that's just an opportunity for others to step in and put them in their place. And that's the same thing with power plants. It's the same thing with everything. Ultimately, I think the key thing is this, from the central planning perspective.

• 1:20:39Speaker 01

  They'll present you the problem as it is and they'll tell you, well, this is bad. So the fix, you know, and, and what we can do is better. So let's stop what's bad and do what is better. Two problems here. Usually the reason that the thing is bad in the first place is because it is a government monopoly. It's because of government intervention. But the second thing is that this notion that we could just pass a law and fix what's wrong and make it better is it ignores the fundamental underlying reality, which is that what you're doing is you're offering only one way for this problem to be solved and making all other solutions practically illegal. You're taking taxpayer money, you're putting guns to people's heads to take their money

• 1:21:22Speaker 01

  to use it to build, say, this one solution for a power plant. But you're preventing the free market process from providing us with other alternatives.

• 1:21:31Lex Fridman?

  Well, so you phrased it sort of from that perspective, but there in theory, there is a feedback accountability mechanism for the solution that you propose and enforce by, as you're saying, placing a gun to people's head. You're accountable for the, for that choice, for the quality of that solution by being voted out if you, if the solution is actually bad. So it's just a different selection mechanism. And, and I think, I personally believe it is a selection mechanism that has worked in the past. It just often does not work nearly as well as a free market. And the question is, are there domains in which the free market gets itself into trouble?

• 1:22:14Lex Fridman?

  So this theoretical view is that that's the point of a free market is it doesn't, if there's trouble, that's a signal and it will respond to that signal and it will respond appropriately to make, you try to maximize happiness. The question is, is there a local optima that free markets get stuck in and need governments to represent the broader scale of the people to get outside of that?

• 1:22:40Speaker 01

  Well, here, I think the fundamental problem here is the idea that there is a feedback mechanism when there is coercion in one party, when, when one party can employ coercion and the other one cannot. So in other words, I'm going to put a gun to your head. I'm going to take your money and I'm going to use it to buy more guns for me to put against your head. But somehow you're going to put a paper in a box and that's going to deactivate my guns.

• 1:23:06Lex Fridman?

  Well, love requires a push and pull, a little bit of tension, a little spice in a relationship, I think.

• 1:23:11Speaker 01

  Yeah, I mean.

• 1:23:12Lex Fridman?

  A little gun to the head.

• 1:23:13Speaker 01

  Good luck to anybody who's gonna be dating you if you think putting a gun to people's head is comparable to a relationship.

• 1:23:18Lex Fridman?

  All jokes, but yes, I mean, the people don't often think of it as gun to the, as government and the military as gun to the head. But that is sort of a libertarian perspective because ultimately when you, you know, turtles all the way down and at the bottom there's guns.

• 1:23:38Speaker 01

  Yeah. So at the bottom, if you don't wanna pay, if you don't wanna, you know, all right, I don't wanna be part of your power plant, I wanna get my own generator, I don't wanna do it, and I don't wanna pay for it. You go to jail, you can't not pay for it. That's really the asymmetry which the market doesn't have, which is why, in my opinion, it's not as if, you know, I'm being stubborn and stuck on the idea that I want a market and that the government can't work. It's presented as if, you know, we're choosing between two different machines, you know, should we use an Apple or a PC? And I'm just constantly choosing one of them and saying that the other one can't work. It's not equivalent, it's not two machines, we're comparing between a machine and a gun to the head. And we're comparing between a situation in which anybody, anywhere, is free to provide

• 1:24:21Speaker 01

  the service or the good, and anybody, anywhere, is free to buy it from them or reject to buy it from them. So, anyone can build a power plant, anyone can succeed at it, anybody can fail at it, anybody can build it in a way that I can choose to take part in or not take part in. I can build my own. So we have a situation in which 10 million people, let's say, they each can freely choose to provide the good or to buy the good. That cannot be considered an alternative on an equal footing to a situation where one person or one entity gets to decide for everybody and those who disagree go to jail.

• 1:24:57Lex Fridman?

  So the problem is that the alternative to governments is other large successful entities that have humans in them, and human nature is such that there's corruption, manipulation, and so on. I think free market. Depends on the honest communication of information as widely as possible. So people can make great rational decisions. But sort of my fear is, I'd like to propose is that in general, there's manipulation, whether it's government, whether it's companies, they're going to manipulate, they're going to try to do propaganda, they're going to try to manipulate you, deceive you, shut

• 1:25:37Lex Fridman?

  down competition by playing games, human games of different kinds, and sometimes even meaning well. It's not like everybody thinks they're doing good and they're actually doing evil. So how do we prevent the worst of human nature coming out in a free market as well?

• 1:25:55Speaker 01

  By not giving the worst of human nature a monopoly on violence in the institution of government.

• 1:26:00Lex Fridman?

  That that little inkling of coercion, that little bit of asymmetry creates a gigantic ripple effect of asymmetry in your view.

• 1:26:09Speaker 01

  Yes, and it ends up just being the place where, you know, corporations, individuals, free markets, they can't coerce without the resort to government. So you know, you think about all the examples of corrupt corporations doing bad things. It's always because they have certain privileges from governments because, you know, as it exists, you know, Coca-Cola, McDonald's, all of these giant corporations, they can't do anything to me without government. They can't take any of my money and they can't force me to buy their stuff. And so doesn't matter to me, you know, so if Coca-Cola is corrupted, that's a problem for Coca-Cola customers, that's a problem for Coca-Cola shareholders, that's a problem for anybody who deals with Coca-Cola.

• 1:26:50Speaker 01

  But as somebody who doesn't drink their stuff and isn't a shareholder, I have absolutely no interest in what happens. They could all go bust tomorrow and I don't care. I don't buy their product and I don't, and I'm not a shareholder. So in this situation where you choose to voluntarily. Associate with people and you only give your money to people you want to voluntarily give the money to, so you either buy their product or invest in their production. In that situation, the only way that a company can get my money is if they build the product that they uh that I value, or if they convince me that they are going to use it in a way that's profitable. And maybe they might, I may be wrong, you know, I may invest in a company that fails,

• 1:27:32Speaker 01

  or I may invest in a company that is, turns out to be fraudulent, but that's my fault, you know? And it's, it's, it's my fault that I gave them my money and then it turned out to be scoundrels. But it's a totally different problem when we make it mandatory, you know, it's, it's violence, it's, it's a crime to put a gun to my head and force me to subsidize companies and force me to come at certain conclusions.

• 1:28:00Lex Fridman?

  Do you find an interesting distinction, mentioned Michael Malice, between anarchism and libertarianism? So this particular use of violence, this like last resort, this policing force that libertarianism is okay with and anarchism is not okay with. So basically nation states that keep you safe from the worst of, of war.

• 1:28:24Speaker 01

  Yeah, I think to be more accurate, the distinctions between anarchism and minarchism, I think libertarianism is kind of a vague term that can encompass both.

• 1:28:33Lex Fridman?

  Means a lot of things, okay.

• 1:28:34Speaker 01

  Yeah, but.

• 1:28:35Lex Fridman?

  On the Karl Marx to Michael Malice spectrum, where do you?

• 1:28:40Speaker 01

  No, no, I'm full anarchist.

• 1:28:41Lex Fridman?

  You're full anarchist.

• 1:28:43Speaker 01

  Yeah, full anarchist. I mean, I don't find any justification for the use of force and I think recently perhaps I've, maybe I'm getting old, maybe I'm getting senile, maybe I'm getting wise, who knows? But I'm beginning to become more sympathetic to monarchy. So I'm an anarchist. Monarchy.

• 1:29:03Lex Fridman?

  Which, what is that?

• 1:29:04Speaker 01

  Kings.

• 1:29:05Lex Fridman?

  Oh, monarchy.

• 1:29:06Speaker 01

  Yeah.

• 1:29:07Lex Fridman?

  And I think. Wait, can you, are you joking or not?

• 1:29:11Speaker 01

  No, I'm not joking. And I think.

• 1:29:15Speaker 01

  I mean, I think morally and intellectually, I'm an anarchist. But the reality is, we find ourselves in a world in which a lot of people are not. And the question is, what is the thing that is going to provide you with more freedom? And I'm recently coming around to the idea that monarchy might be the best way to provide people with the largest amount of freedom. Because to have a free society, you need a majority, perhaps, or a plurality of people to have a very strong understanding of libertarian ideas, to have a low time preference, to have a preference for the future.

• 1:29:55Speaker 01

  So you need a majority of the population to not decide to go and do something insane in order to continue to have a free society. You know, when a respiratory illness comes along, unfortunately, you know, the last couple of years showed that the vast majority of people are gonna freak out and lose their mind and support whatever their stupid TV tells them to support. And, you know, there's always a current thing, and the media is always telling you that we need this current thing as an excuse for more and more government power and more and more government coercion. What's the role of kings and queens in that case of a monarchy? What's the role of a leader?

• 1:30:37Speaker 01

  I think there might be a case that... So as I was saying, you need a majority of the population to get together and decide, nope, whatever is the case, you know, the answer is voluntary. No matter how bad the disease is, it doesn't justify forcing people to stay home. You wanna stay home, stay home. You wanna wear a mask, take a vaccine, do whatever you want, but you can't force others to do that. So you need a majority of the people to strongly believe in this principle in order to get it in a democracy. Whereas in a monarchy, you just need the king to get it. And I think the reason kings are more likely to get it is that kings have a low time preference,

• 1:31:20Speaker 01

  where they think about things for many generations. Whereas in a democratic system, your president is likely only going to be there for four years, or eight years, or 10 years, or five years, or whatever it is. So the only way that... All humans are self-interested. And so the only way that your president in a democracy can provide for themselves... Is to maximize the amount of exploitation that they can do of the population during their brief stint. And then when he's out, you get a new one, and then that one wants to start all over again. So every four years, you get a new robber. With monarchy, you sign up for a multi-generation subscription to the same family.

• 1:32:01Speaker 01

  And when they have the security of knowing that, you know, they're, you know, his great-grandson is going to be taking money from your, your great-grandson, suddenly, his interests in yours align, because they both want your great-grandson to be prosperous and have enough money for his great-grandson to take.

• 1:32:19Lex Fridman?

  But it's a monarchy with a tiny government. So, uh, anything required to really provide for a free market, so for maximize individual freedom and the freedom of the economy.

• 1:32:32Speaker 01

  Yeah, and if I were a king, which is highly unlikely to ever happen, but I think, you know, if you look historically, the, the, the dynasties that have succeeded at lasting for a long time, the key thing that they managed to do is to basically be libertarian. The key to being a good king is to just leave people alone, let them do whatever they want, don't rob them too much, or rob them as little as possible, or maybe even don't rob them. And, um, you know, as a king, use your power only to punish people who aggress against others. Don't use your power to enrich yourself and enrich your friends. And that's really, like, if you look at smart kings, this is what they do, this is what they teach their children. And the, the cycle of kingdoms is that, you know, the first king understands this, builds

• 1:33:16Speaker 01

  the empire, and the first couple of generations, they get this, and the, the society is free, the economy is free. And because of that, you know, the, the, there's peace and prosperity, but then over time, the next generation of kids become a lot more high-time preference, they, um, they haven't worked hard, they don't understand the meaning of hard work, so they become more likely to, um, engage in destructive behavior. So raise taxes, um, pass laws that require people to do things, even when they're not hurting anybody. And that ends up basically eventually destroying the kingdom.

• 1:33:58Lex Fridman?

  Of course, power corrupts.

• 1:34:00Speaker 01

  Yeah.

• 1:34:00Lex Fridman?

  So you have to kind of create human institutions that prevent you as a king or any kind of leader from expand. So going back on the original promises and the purposes of your position.

• 1:34:14Speaker 01

  Yeah.

• 1:34:14Lex Fridman?

  And then distracting, using tools of technology and communication to distract the populace while you expand the power.

• 1:34:21Speaker 01

  Exactly.

• 1:34:22Lex Fridman?

  All right. You wrote the fiat standard. I think we danced around it quite a bit, but I don't know if we actually defined it. So what is fiat money? What is the history of how it came to be?

• 1:34:34Speaker 01

  The fascinating history of the birth of the fiat monetary system is something that really only got uncovered in 2017. This is extremely, extremely interesting. In 1914, Britain joined World War I. And if you remember your history books, it's famous that this was called the August Bank Holiday. It was just going to be a few weeks where the British troops were going to go and kick European ass and come back triumphant. And most European countries believed that. But then the war kept on dragging on. And of course, to finance the war, the government, this is what they used to do under the gold standard, governments would issue bonds. So you'd issue the bonds, people would buy the bonds, the money would be used to finance

• 1:35:17Speaker 01

  the military, and then the government would pay off the bond over the next five or 10 or 20 years. So for World War I, the British government, the British Treasury issued bonds for financing the war. And this only came to light in 2017. Only a third of the bonds were actually subscribed. So people, British people, and this is perhaps the greatest thing that they've ever done, they decided fighting a war in Europe is just not my ideal way of investing my capital. It's a stupid thing. Why should I go and fight? Because the Austrians and the Germans and the Serbians are at each other's throats. I'd rather invest in something else. So they only bought a third of the bond issue. And then what, and then the astonishing thing that happened, which really set the

• 1:36:02Speaker 01

  tone for the next century of war, murder, Keynesianism and theft and inflation, was that the Bank of England. Went and got two of the high ranking officials in the Bank of England to buy the other remaining outstanding two third of the bonds under their own name with a line of credit from the Bank of England. So it wasn't their own money. But they took money essentially from the Bank of England, bought two thirds of the bonds that financed the war. And that was how England was able to keep going into the war. So that's essentially what they did is what we today know as quantitative easing. Back then, they just got, they printed money from the Bank of England or credit,

• 1:36:45Speaker 01

  printed credit, gave it to those two employees. They bought the bonds, the government could fight the war. Sounds like it's a nice idea. And Keynes, of course, being a huckster himself, he's, and he himself said, this was, he wrote a letter to the Bank of England that was uncovered recently and he said, I congratulate you on this masterly manipulation. I quoted in the book, masterly manipulation is what he called it, that they basically managed to buy the bonds using the money of the government. And of course, he never had an idea of how economics works because he never could ask the question of, okay, and then what? All right, so we just printed money to buy two thirds of these government bonds. What's going to happen next? You know, what could go wrong?

• 1:37:30Speaker 01

  Not a question Keynesians ask themselves because, you know, their jobs depend on not thinking about what's going to go wrong.

• 1:37:37Lex Fridman?

  So a quick question about war. And as somebody who's been nonstop reading and thinking about the wars of the 20th century and thinking that most of those wars were unjust, unethical and destructive.

• 1:37:57Lex Fridman?

  How else do you find, how would you finance a war?

• 1:38:00Speaker 01

  So ideally you don't. No, but I mean, of course, there are sometimes, you know, you want to fight for self-defense. Yeah, you finance it taxation or bonds.

• 1:38:08Lex Fridman?

  So the people really need to want a war, not just with their voices, their thoughts, their tweets, or their actual financial investment.

• 1:38:16Speaker 01

  Put up the bullets and the cost of the bullets and the bodies.

• 1:38:20Lex Fridman?

  So their life and their financial well-being.

• 1:38:25Speaker 01

  That's how it was under the gold standard mostly because under the gold standard, the government couldn't print gold and so they had a budget and they had a certain amount of gold and that wasn't just, you know, they couldn't infinitely increase it. They couldn't tax their population at will and it's very difficult to take money from people. You know, you go knock on doors and search everybody's homes, see where they're hiding their gold. It's very complicated. On the other hand, when you gave them paper money, which is what the case was in 1914, you could take their wealth just by printing the money. And that's what changed everything when it comes to war. That's why the 20th century was the century of total war because under the gold standard, governments fought until they ran out of their own gold. Under the fiat standard, with paper money, with credit

• 1:39:09Speaker 01

  money, governments fought until they ran out of liquid wealth in the hands of all of their citizens.

• 1:39:15Lex Fridman?

  So let's, let's find flaws in this thinking if there's any. Okay. There's a lot of pacifist type of thinking in the, in World War II as Hitler was expanding and expanding. Hitler framed himself as a victim of the past, of history. He never attacked anybody. Everyone's always threatening to attack him. That's kind of the narrative and he keeps expanding. He keeps sweet talking with his charisma, all the countries around him into sort of embracing pacifism. Stay out of the war until the war is on your doorstep. So France, just very suboptimal military strategy from the perspective of many European nations in response

• 1:40:00Lex Fridman?

  to Hitler. They were basically hoodwinked by his, his words. So then there's Churchill, Winston Churchill, who stepped up and says, perhaps irrationally, from some kind of economics perspective, saying, we're not going to back down. We're going to fight Germany. And perhaps that step alone is one of the biggest reasons that Hitler failed in his expansion. That decision to fight back.

• 1:40:35Lex Fridman?

  How, what's the right way to do that? If you're Winston Churchill, what's the right way to do that? If you're, um, to, uh, to fight back evil when violence is required? Now, you could argue that, um, that no war is just. But there is such a thing as a just war index. And a lot of people argue if there is a just war in the 20th century, it's World War II. So how would you fund if you were Britain, the war? Would, would you require Winston Churchill to convince the populace? Like, don't fight until they're fully convinced that this is the right thing to do.

• 1:41:19Lex Fridman?

  You can't just make a decision for them. You have to convince them fully so that they give their life and they give their money to support the war. Is that the right way to do it?

• 1:41:28Speaker 01

  I think so. And I think when you have a true, um, threat and a true evil and a true force that people really do think is genuine, you don't need to convince them. I mean, when, when, when it's real, people will want to fight and people will want to pay to fight. And, um, I mean, I think though, on this particular example, I think, you know, the, the best way to fight Hitler is to have not fought World War I and not take out the Kaiser of Germany. And if, if Britain hadn't, and Britain and the US had not gotten involved in World War I, which really is the senseless war about nothing. Like, what, what, what was in it? And what was the goal from anybody fighting that war?

• 1:42:09Speaker 01

  If you look at it, after World War I, there were very minor adjustments in the borders of the countries that were participating. So, um, Germany lost some land, Austria lost some land, but really it wasn't all that uh, massive. And it wasn't like, you know, it wasn't like Britain wanted to take over Germany and move their people into Germany and kick the Germans out. So. There was no real value from that war. And that's why the British people didn't want to take part in it. And that's why if they hadn't done this enormously criminal manipulation of printing money to buy the bonds, Britain wouldn't have gotten into the war. Germany would still be a kingdom and Hitler wouldn't rise.

• 1:42:54Speaker 01

  And yeah, there'd be small changes in the borders of various European countries. I'd struggle to see how it could have been worse. I mean, I struggled to see who benefited from four years of carnage in Europe. And then this was, this came at the height of civilization, you know? Before that, the people of Europe had, um, had the golden era under the gold standard. They were trading with one another, they traveled and technology was advancing. And they did not expect this war to last this long. And, you know, my favorite story from World War One is the Christmas truce. Football game, which I mentioned in my book. British and German soldiers at the height of the conflict.

• 1:43:39Speaker 01

  They stopped on Christmas Day and they played a football game against each other. I mean, this is not a real war where it's, it's, it's a war for survival. Britain didn't want to end Germany, Germany didn't want to end Britain. It was just kings who were emboldened by the fact that they had a printing press, playing with the lives of the people. And, um, take that away, take away the printing press, take away their ability to print money. I think we'd have had a much, much, much better 20th century.

• 1:44:10Lex Fridman?

  Yeah, the counterfactual history, Neil Ferguson is a historian who gets in quite a bit of trouble. Basically, uh, well, he's a Brit suggesting that if Britain stayed out of World War One, there will be no Hitler, there will be no World War Two.

• 1:44:25Speaker 01

  Yep, I agree entirely.

• 1:44:29Speaker 01

  But fiat money. Yeah, so how fiat money was born. Yeah, let's get back to that. So they financed the war with that money. So what is, what could go wrong? That's where we left off. Well, what could go wrong when you've just printed an enormous amount of credit and use it to buy bonds? What goes wrong is that the value of the currency is going to go down. Or in other words, prices of things are going to go up. So during the war, prices keep going up. And this is of course, this is going to sound very familiar to victims of the 20th century. A government tells you it's because of the war. It's not our fault. It's because of the Germans. It's because of the foreigners. It's because of Putin. It's because of this. It's because of that. This has always been the case. There's always, um.

• 1:45:12Speaker 01

  War is a very good cover for inflation, which is caused by monetary phenomena. So then the war ends. And inflation, prices have more than doubled over the past four years, over the four years of

• 1:45:27Speaker 01

  World War One, prices have more than doubled. And then the British economy is in bad trouble, obviously, you know. Lost a lot of the labor force for four years that was out there fighting. Now those workers come back. You've got, uh, prices are up. And so people are requiring, are demanding that the government control prices. And the government is trying to fix the problem of inflation by doing price controls, which is what they always do. Which is catastrophic because it makes things worse. When you implement price controls, you, when you make, you know, when you say, all right, well, bread can't be sold for more than X price. Well, that's just preventing bread producers from producing a lot of bread. And that's just making the problem worse. If you let the price rise,

• 1:46:13Speaker 01

  the extra price, first of all, it makes people economize. So people will only buy what they need. And it provides the money for the bread producers to acquire the capital and the resources they need to produce more bread, which then brings the price of bread down. But price controls destroy that. Then they also implement wage controls. So you want to also make sure that people have high wages. So you raise people's wages artificially, you lower prices artificially, and you cause an economic problem. And this, this is basically, you know, I, I use this historical example because it's the birth of fiat, because the Bank of England was the most important monetary system in the world at that time. And because it's the prototype that basically the entire planet copied over the last hundred

• 1:46:55Speaker 01

  years, we've had this same thing happen. The government prints money because of a stupid reason, because somebody in power decided this was worth destroying everybody's livelihood and savings for. And then the consequences come in and then they start covering up with price controls, wage controls, and then that makes things worse. And then they, and of course, throughout all of that, they're promising that we're going to go, oh, and also the other thing that they did, which I mentioned in the chapter, is they stopped people from using physical gold and they confiscated the, well, they didn't confiscate it, but they took the physical gold and they gave people paper. So I call it the fiat white paper, you know, in Bitcoin, we have the white paper. The fiat white paper was that

• 1:47:36Speaker 01

  the Bank of England announced to all of its banks and post offices, that from now on, you should not make payment in gold and you should take payment in gold and you should encourage all your customers to turn in all of their gold and give them paper instead.

• 1:47:48Lex Fridman?

  Is there an actual document?

• 1:47:50Speaker 01

  Oh, yeah, yeah, yeah. Nice. Yeah, this is all new stuff. Obviously, nobody really likes to talk about this stuff because, you know, they're fiat economists, so they don't want to talk about the original sin, but...

• 1:48:01Lex Fridman?

  Well, you should, you should like republish it as the fiat white paper or something like that.

• 1:48:06Speaker 01

  There's, there's a fascinating book by a guy called John Osborne. So in the 1920s, I think his name is Montagu, he was the chief of the Bank of England, he commissioned one of his secretaries, John Osborne, to study what the bank did during the World War I. And it was a study that was kept under wraps, confidential, in the Bank of England, only released in 2017, almost a century later. And...

• 1:48:32Lex Fridman?

  What was special about 2017, by the way? It was a year. It was a year on which some of this information was released.

• 1:48:39Speaker 01

  Yeah, a bunch of people got into parts of the basements of the Bank of England, found this and published it. And now you can download it as a PDF and find all of the amazing details. So they confiscated the gold and they forced people to use the paper. And they promised people that as soon as the war is going to be over, this is temporary. We're going to be back to using gold. And of course, you know, if you told people in Britain, this is the real scam about fiat. If you told people in Britain in 1914, hey, we're going to go off the gold standard because it's better. I mean, there might have been lynchings of the government officials because the British pound at that point, it had been the global currency of the whole world.

• 1:49:21Speaker 01

  And the fact that they'd managed, the Bank of England had kept the British pound at a fixed rate next to gold. For since Newton, you know, the exchange rate, the value of the British pound was set by Isaac Newton himself. He was the warden of the mint and he made the pound a specific amount of gold. And since then, up until World War I, it was 4.25 pounds per ounce of gold. I think I might be wrong, but I have it in the book. So he'd set that price and it was a matter of national pride for people in England, you know. The sterling is as good as gold because for two centuries it has been stuck to gold. There was the exception of the Napoleonic wars, but for two centuries mostly it was stuck to that.

• 1:50:05Speaker 01

  And so they went off that and then they couldn't go back because if they wanted to go back, they didn't have enough gold. They shipped their gold to the US to finance the war and they had printed a whole bunch of money that was out there. So this begins the problem for England and that begins the end of England as the world's superpower. And the way they tried to fight that was to get more and more countries around the world to establish central banks and have and hold British pounds. So they'd hold, you know, they're basically dumping their bags like just any other shitcoin. You just, if you get people to buy your shitcoin, you know, that raises the value of your shitcoin. So. Can you define shitcoin?

• 1:50:43Speaker 01

  Shitcoin is, it's in my, my definition of a shitcoin is that it's any form of money where somebody can produce it. So soft money? Um, not necessarily, I guess. I think the difference, so there's easy money. But the shitcoin is something that someone can produce at a rate that is different, at a, at a cost that is different from the market cost. So gold, nobody can make gold except that they dig for it. And the cost of mining gold is generally in the range of the price of gold. Seems true for Bitcoin.

• 1:51:16Lex Fridman?

  So gold is not a shitcoin?

• 1:51:17Speaker 01

  Gold is not a shitcoin.

• 1:51:19Lex Fridman?

  And copper is?

• 1:51:20Speaker 01

  Copper, I'm not so sure. I wouldn't call copper a shitcoin as much as it is easy money. But I think government currencies and other altcoins, I think are shitcoins because somebody could click a button and make 10 times the supply.

• 1:51:35Lex Fridman?

  Would it be fair to say that this began with the will for war in World War I? So the the march towards fiat began with a global desire for war in the 20th century? Did war start this or was war a result?

• 1:51:59Speaker 01

  It's difficult to say, really. I think it goes both ways. I think you can't have permanent war without fiat. And I also think there's a case to be made that you can't really have fiat without war.

• 1:52:14Lex Fridman?

  So it's some kind of weird dynamical system where a chicken and egg situation, and they build on top of each other, and there's a few individuals that figured out there's a way to manipulate this, to play this kind of game, and it escalates.

• 1:52:27Speaker 01

  And nothing gives you the ability to manipulate money quite like war. When you have a war, you can declare an emergency, you can call all the people who oppose you traitors. You can you can you can get people to support you, not because what you're doing is good, but because you play on their sense of tribalism.

• 1:52:48Lex Fridman?

  In your book, you do cost benefit analysis. So you do acknowledge or think about the pros of fiat currency. Can you can you do just that? Look at the benefit and look at the cost just broadly at the highest level?

• 1:53:03Speaker 01

  So the way that I write the fiat standard is that I try and analyze it as an engineering system in the same way that I wrote the Bitcoin standard. So with the Bitcoin standard, I looked at Bitcoin from first principles and tried to explain how it works for a reader that doesn't really have much of a background in computer science, networks, or economics. And I thought I'll do the same with the fiat. You know, let's just ignore the official stories and look at how this thing actually works. And

• 1:53:32Speaker 01

  I think it does have value in the fact that it, you know, the reason that it was, that they were able to pull it off is because it was not possible for people who don't want to be part of it to use gold independently of governments. This is really the key thing. Gold is just very expensive to move around and the fact that it is expensive to move around means that there's inevitably going to emerge institutions where it is centralized in physical location and then these institutions trade liabilities for the gold. So really, the gold standard intrinsically must involve credit as becoming part of

• 1:54:17Speaker 01

  the monetary system. It has to be the credit and because it gets centralized can easily be captured by the government. So to be fair, the benefit of the fiat system is that it saves us on the cost of moving gold around, which is pretty significant. Generally, you know, moving a bar of gold across the Atlantic is going to cost somewhere between 0.1 to 1% of the cost of the gold bar. So you move it 100 times back and forth between the Atlantic, you need to pay the whole gold bar, the cost of the whole gold bar to move it 100 times across. Well, with fiat money, with essentially government credit, and so it's just sending a message from one central bank to another and you can move it halfway around the world.

• 1:54:58Lex Fridman?

  Is there also something to be said about the cost in time? So you're saving the sort of, you're reducing the friction of the communication as well?

• 1:55:06Speaker 01

  Exactly.

• 1:55:07Lex Fridman?

  Of the transactions as well?

• 1:55:08Speaker 01

  Exactly, it's faster.

• 1:55:11Lex Fridman?

  How big is that benefit? Because wouldn't you argue that that potential is the thing that enables modern economy? Both the speed and the low cost, so increasing the scale and the frequency, the speed of the transactions?

• 1:55:23Speaker 01

  Yeah, arguably it does help in that regard. However, it isn't as if you couldn't have fast transactions built on top of gold. So you could have gold being used for final settlement and you could have, you know, banks settling with one another, essentially using credit settlement.

• 1:55:41Lex Fridman?

  Can you define settlement? Just for people who are outside of this world, because we'll mention that word quite a bit, probably.

• 1:55:47Speaker 01

  Good question. So the way that it works is, let's say, right now, I'm gonna pay you ten dollars over PayPal or a credit card. So it shows up in your PayPal or credit card within a few seconds that I've sent you the money and then that's yours. But, you know, it didn't also happen in those ten seconds that my bank, which could be in another country, sent the money to your bank into your account. It's, there's a lot of infrastructure underneath that. So what actually happened is that I have an account with my bank and you have an account with your bank. And when the message is communicated from my app to yours, my bank crosses out the money and your bank credits you with the money.

• 1:56:30Speaker 01

  And then, at the end of the day, week, or month, you know, banks in the same city will settle with one another, banks in the same country will settle with one another, and banks with different, from different countries, will settle with one another. So they won't, you know, they won't move the ten dollars from my account to yours. At the end of the day, or week, or month, they'll tally all of the money that was sent from one bank to the other and then just settle the difference. So it turns out at the end of the month, my bank had sent fifteen million dollars to your bank and your bank had sent fourteen million dollars to my bank. So they give them one million dollars and that settles it. That finalizes the transaction. So final settlement really is like the, you can think about it as the infrastructure of the system.

• 1:57:14Speaker 01

  And then you can think of these things as being the higher layer levels. And you had a wonderful discussion about that with Michael Saylor.

• 1:57:22Lex Fridman?

  So the final settlement is like the, the moment when you paper and ideas connect to physical reality.

• 1:57:30Speaker 01

  Yeah.

• 1:57:31Lex Fridman?

  Or to some representation of physical reality.

• 1:57:33Speaker 01

  Yeah, and under gold, everything was tethered to physical reality because there was a market commodity at the bottom of all of this. And nobody could print that market commodity. And so at the end of the month, if your bank made too many payments, if you made too many payments, there was a reckoning. There, you know, if you were reckless, if you were insolvent. You went out of business. So there was no, um, there was no way to fool that. But then we moved to the fiat century and everything is credit. At the end of the day, the final layer is government credit. And so as long as you're friends with the government, basically, you never go bankrupt. So, um, all kinds of hucksters managed to find their way into, um, you know, getting into a position where they don't get bankrupt.

• 1:58:18Lex Fridman?

  So in part two of the Fiat Standard called Fiat Life, you describe the effects of fiat money on a bunch of things like life, food, science, education.

• 1:58:30Lex Fridman?

  What is the most pernicious effect of fiat money on our world, on our life? So taking a step outside of the monetary system, actually like how that affects our life from this book?

• 1:58:41Speaker 01

  I mean, there's, there's a whole bunch of things and I, I won't be able to go over them. And I highly recommend reading the book, but if I were to pick one, I would say it's the impact that it has on our time preference, on our valuation of the future. So remember when we started the discussion, I said that the, um, a key function of money is that it serves as a store of value and the harder the money is, the better it is at providing us with a way for providing for our future. And so the harder the money is, the less we discount the future. We always discount the future compared to the present. So if I told you, I'm going to give you something today versus giving it to you 10 years from now, the same thing, you would prefer to take it now because then you'd get to enjoy it over the next 10 years. So we always prefer the present to the future.

• 1:59:26Speaker 01

  There's always a discount on the future and that discount is called time preference. The degree to which we prefer the present to the future is called our time preference. So the higher, uh, our time preference, the less we care about the future. And the process of civilization is the process of lowering our time preference, where we start caring more for the future, we start, um, prioritizing the present less and less. So we start being able to not consume everything that we have and store it. And so money is essential for that. And under the gold standard. Everyone in the world had the ability to provide for their future by simply using the same money that they use. You know, you would work a day and you would get paid in a gold coin and you could take

• 2:00:08Speaker 01

  that gold coin and keep it safe for 10 years and know that at the end of those 10 years, that gold coin would buy you slightly more than what it bought you the day that you earned it. So anybody could provide for their future and anybody could have very high degree of certainty that whatever they're saving is going to be there when they want it in the future. Because the money supply was only increasing at one and a half percent, whereas the production of goods and services was increasing for most cases, for most periods, at a higher rate than that. So you could buy more apples and oranges and houses and cars at the end of the 10 years than you could at the beginning of the 10 years. So everybody had a way of providing for the future and with that, people lower their

• 2:00:53Speaker 01

  time preference and that is reflected across all aspects of life. I think it's not just the economic thing. You see it in the savings rate, you know, the ability to deny your self-gratification today. I could take the money that I have and throw a giant party, buy a sports car, buy a yacht. And yet you decided, I'm not going to do that, I'm going to keep it so that tomorrow I can throw a bigger party or buy a better yacht or have a better life or give my children a better life. So all of human civilization really is the process of us lowering our time preference and finding harder monies that allow us to provide better for the future is how we really, technologically, we do that.

• 2:01:35Speaker 01

  I think of the hardness of money as being the control knob for our time preference. And you can see this reflected in the 20th century where we go from the money supply increases at around one and a half percent under gold. To this current situation where over the last sixty years, I ran the numbers on money supply and fiat. The global fiat supply has increased at around fourteen percent per year. So we've done a ten X in the increase in the supply of money annually. And fourteen percent is a weighted average. So if you take a basic numerical average for all fiat currencies, you get something like thirty percent. The average fiat currency increases by thirty percent. But if you value it by the volume of each currency, so that you're not giving equal

• 2:02:19Speaker 01

  weight to the Venezuelan bolivar increasing at five hundred percent a year and the dollar increasing at eight percent a year. If you do it by value of the currencies, so that you get the total supply of fiat, it's something like fourteen percent.

• 2:02:33Lex Fridman?

  Unweighted is thirty percent, you said?

• 2:02:35Speaker 01

  Yeah, thirty percent. It's insane.

• 2:02:37Lex Fridman?

  I'd like to see the worst ones, the people that are tracking that average up.

• 2:02:42Speaker 01

  Yeah.

• 2:02:43Lex Fridman?

  But fourteen percent is still an incredibly high, high number. And so you're saying that, that's, sorry, that's the average over the century or the past hundred years?

• 2:02:49Speaker 01

  Over the past sixty years, nineteen sixty to twenty twenty, we get World Bank data on that, pretty reliable data on World Bank and European Union OECD data. I ran the numbers on that weighted average, something like fourteen percent.

• 2:03:02Lex Fridman?

  And what effect that has on time preference?

• 2:03:05Speaker 01

  The effect is now it's much, much, much harder for everybody to provide for their future. Everywhere in the world, it's much harder. So how, how do I get the equivalent of the old gold coin that I could just put under my mattress and expect it to be there ten years from now? Well, gold itself isn't cutting it. Gold can't keep up with inflation. And the reason for that is that gold is not being used as a money anymore in that you can't send it internationally, you can't use it to settle trade internationally, which therefore means it, demand for it monetarily is limited. And so it's becoming more and more an industrial metal. And as a result, as a result of the fact that its value doesn't keep up with inflation, it becomes economical to use it in industry.

• 2:03:50Speaker 01

  So we're seeing gold become like silver in that it gets used in industry. So the stockpile declines, and so the stock to flow ratio declines as well, and it becomes more and more of an industrial metal. And it can't protect your wealth over time very well. So what do you do? Well, you could invest. And, and this is kind of the obvious answer that Keynesian will give you is, well, you just put your money in an investment. But investment is different from saving. Saving, the whole point of saving is that the thing is liquid and that the thing carries little uncertainty. You know, you just held the gold coin and it just sat there. It did nothing. It didn't take risk. You knew that it was going to be there in 10 years. Investment means you give the gold coin to somebody to go and do something with it. And it could work, it could not work.

• 2:04:34Speaker 01

  If it works, you get a positive return, you get more gold back. If it fails, you might not get any of your gold back. So taking on risk is something very different from saving. Saving is just a way of buying the future. Investing is taking on a risk and you could lose everything with it. So what ends up happening, and this is, you know, the Keynesian objection, I think, is very wrong and bad because investment is a job in itself. To figure out what to do with your money in order to beat inflation is something that, you know, there are professionals out there on Wall Street that have PhDs in finance, that have enormous computers,

• 2:05:15Speaker 01

  and they have enormous staffs of PhDs and master's degrees and math nerds that are crunching numbers and figuring out how to allocate your portfolio so that you can beat inflation. And guess what? The majority of them don't beat inflation. The majority of them can't beat inflation, not as measured by CPI, which is completely fraudulent. But if you remember.

• 2:05:34Lex Fridman?

  14%.

• 2:05:35Speaker 01

  Yeah, that 14% or even, you know, the 7%. Like if you look at just the increase in the money supply, which I think is a much better metric. And this is what's reflected on the desirable goods. Like if you look at the price of real estate in Miami Beach, as Michael Saylor mentioned in your example, it goes up at around 6, 7% per year on average over the last century. So that's, you know, if you want to live in a nice area, that's what's happening to real estate. If you want to go to the good universities, that's what's going up. It's going up at a rate that's similar to the increase in the money supply. And you can beat CPI, but you know, CPI is designed so you can beat it. But you can't really beat the appreciation in the things that you actually want to buy. The price of good food, the price of good real estate.

• 2:06:17Speaker 01

  So, and you know, most investment professionals fail at doing that. So what hope? Does a doctor or an engineer or a scientist or an athlete have in doing those things? Investment is hard and saving should be easy. Exactly. Saving is essential for us as a civilization. And what fiat did is it took that away from us. And then it forced everybody to become an investor or more accurately a gambler. Because you're not just even, because the money itself is broken, because the money itself is constantly changing in value. Investing is becoming more of a crap shoot. I mean, value investing is completely underperforming compared to market analysis.

• 2:06:58Speaker 01

  You know, you, you listen to the Fed and you, um, that, you know, what matters to the price of individual companies is monetary policy much more than it is their own performance. So basically you need to be a junkie watching the Fed and following all of the world's central banks. And you need to learn macroeconomics and you need to learn what all the central banks are doing. And you need to understand how commodity markets work. And you need to understand how equity markets work and bond markets and real estate markets. You need to do all of those things just in order to be able to save and earn the money and keep the money that you've already earned. Yeah. That's the criminal thing about it. Like I've already earned that money being a doctor, being a dentist, being an athlete, being an engineer. I've built a house for somebody and I got that money.

• 2:07:42Speaker 01

  And all I want to do is just make sure that I can have it 10 years from now. The only way to do so is to become a crappy engineer because you have to spend half your time not doing engineering and instead spend half of that time learning about Japanese central bank monetary policy and commodity markets and what's going to happen to copper and what's going to happen to oil and what's happening in the wars and what's happening with foreign policy and Russia and the US and all of those things.

• 2:08:11Speaker 01

  Under the gold standard, you didn't care about any of that stuff. Your gold coin worked regardless of all of those things. So what this means is the future. So first of all, you know, we have all of the problems I mentioned, but also.

• 2:08:23Speaker 01

  It means that the future becomes much more uncertain. So you're far less likely to provide for yourself 10 years from now. Far less likely to find an easy way to give yourself value 10 years from now. And so you become more short termist. And that is reflected economically in a lower savings rate. And we see savings rates decline. But it is also reflected in all manners of decision making. And I think if you really want to see what it is, take a look at a society that goes through hyperinflation and look at what happens there. You know, how do people change under hyperinflation? And compare that to essentially what we see in the 20th century all over under, not hyperinflation, but under low inflation, you know, 10, 15% that you see across the

• 2:09:07Speaker 01

  board most of the time is just slow motion hyperinflation. So what happens in hyperinflation? Everybody gets their paychecks. They run straight to the supermarket. They spend all of their money. Nobody thinks about savings. Nobody thinks about the future. Survival until the end of this month is highly uncertain. How likely are you to be planning for what you're going to be doing five years from now? Very unlikely. But also it's reflected, not just economically, it's also reflected in all aspects of morality and all the way in which we deal with each other as human beings. When your survival is precarious, how much are you invested in the notion of being a good citizen, on caring about your reputation, on caring about not getting caught in a crime?

• 2:09:52Speaker 01

  All of these things become harder to value. So people start committing crime. People start caring less and less about the future. And we see it reflected in everything. And I argue you see it reflected in architecture. You know, we used to build houses in the 19th century that last until today. And then in the 20th century, we build essentially disposable cardboard boxes that get scrapped in 20 years.

• 2:10:14Lex Fridman?

  So what can you say about potential positive effects of lower time preferences? So, I mean, it's a balance, like you basically, you're talking about an average kind of time preference, but you know, there's some things in life where low time preference can be a negative thing. So like, if I want to take on risk, not for investment, for a kind of investment, but say I want to start a business. I want to take something crazy, take a leap into the unknown, be an entrepreneur. What can you say about that kind of leap? Taking on debt? What's the value of that within the current system? What's the right approach to that within the current system? What's the right approach overall from an economics perspective?

• 2:10:57Lex Fridman?

  So not, it's not saving for the future. It's, uh, it's doing something wild, taking the money from your mattress, taking on debt and having a dream in your heart that you somehow just want to do. Maybe it's not the wisest investment decision, but it's something, you know, it's being human. It's, uh, taking a leap into the unknown because something in your heart says to do it.

• 2:11:20Speaker 01

  I think you're more likely to be taking the leap in the unknown when you have a little bit of gold in the mattress than when you don't. I think this is the thing, like if you look at the late 19th century, and I discussed this in the Bitcoin Standard, that was the, arguably the most innovative period in human history. You know, there's qualitative evidence, you know, look at the world around you today. Pretty much everything that we use was invented in that period. The car, the airplane, the, um, the telegraph, uh, the telephone, uh, the camera, pretty much modern life as, uh, late 19th century, you know, the period between 1870 and 1914, because the whole world was practically on a gold standard, the whole world was using

• 2:12:02Speaker 01

  the same money and the whole world could save in the same currency. That meant that a bicycle shop owner, two bicycle shop owning brothers in North Carolina could go and try and fly, even as all the scientific experts in 1903 were confirming that the possibility of flight has been debunked as unscientific. You know, Lord Kelvin said, not in a million years we're going to be flying. Thomas Edison said, it's never going to happen. No, I think it was Edison who said a million years, but Kelvin also said, it's never going to happen.

• 2:12:33Lex Fridman?

  Yeah.

• 2:12:34Speaker 01

  The New York Times said, it's never going to happen the same month in which the Wright brothers did it. And they continued to deny that it was gonna, that it happened even two years after they did it. But that's, why could they do that? Because they had savings in gold. They had the security with something that you know. Is gonna be there and then you can take a risk with the stuff that is extra. You know, I have say three years expenditures in gold under my mattress. And I know that I could take a risk with everything else because whatever bad things happen with all of my dreams. Like even, you know, flying, think about how insane that is. I still can go back to the three years of gold that I have saved. Still okay to take on debt, given the stuff, the gold under the mattress?

• 2:13:18Speaker 01

  Well, this is the thing, under the gold standard, the way that people finance things was predominantly with capital, with equity. So you would, because you had gold savings, I had gold savings, everybody had gold savings. When you wanted to start a business, you could use your own savings or somebody else's savings. So you didn't need to get into debt. Well, you could get equity from others and you could also get debt from others. So there was- But it's directly mapped to physical reality. Yeah, it's directly back to economic reality and that there's a hard money out there that, you know, what you're spending money. You know, you, you wanna build your airplane factory. You need to get actual resources, so you get actual gold, either yours or somebody else's. You borrow it or you give them equity, but there's real resources.

• 2:14:02Speaker 01

  Now, what happened with the fiat system, and this is, this is, you know, the first part of the book, where I look at it from an engineering kind of perspective. Is essentially, and I think this is like the breakthrough insight of the book. What fiat does is that it replaces gold mining with credit creation. The way that we make fiat money, the way that fiat is mined into existence is through credit creation. Most people think of fiat money as being something that happens when government prints money. And we still use the term governments printing money. But the vast majority of fiat is not physical. And in fact, fiat is not created when it is printed physically. It's created when it is lent. So when you go to a bank to get a one million dollar loan to buy a house.

• 2:14:44Speaker 01

  That bank is not gonna give you a million dollars from their own money or from their depositors' money. They're gonna make a fresh new million dollars. When you walk out of that bank, the money supply has increased by one million dollars to finance your home. So what fiat does is, I mean, it was basically born out of government credit and the credit of banks that are backed by the central bank and the government. So if you're part of the institutions that are allowed fiat privilege, where you can just issue loans backed by the central bank, backed by the currency, you are effectively creating new currency, new money every time you issue the loan.

• 2:15:22Lex Fridman?

  That's fiat mining is credit creation. I love it. So can you say something, I mean, you can't really have credit without a demand for credit. You can't really have an increase in supply without a demand for it. Is there any value you place in like the humans wanting it? Basically, people wanting to do something with that credit, wanting to take big leaps, big risks, big entrepreneurial decisions. So is it all bad, is all credit bad?

• 2:15:51Speaker 01

  No, I think what's bad is, you know, anything, in my opinion, anything that is consensual, you know, I want to borrow money from you and we agree the terms. I can't object to that. As long as you and I both agree, I can't object to that. But in the case of the fiat system, it's not just you and the bank who come to an agreement. Everybody who uses the currency is forced to be part of that agreement. Because if you default, you know, effectively what's protecting the bank from you is the fact that the government can just print a bunch of money and make the bank whole. So effectively.

• 2:16:26Lex Fridman?

  Interesting. So that little agreement between the bank and you is actually an agreement between the bank, you and the entire populace that's using the currency.

• 2:16:36Speaker 01

  Exactly. They're forced to provide the safety net for you and me to go and make that loan. And that safety net is the devaluation of the currency. That's how it, that's how the whole thing actually works. So this is why, you know, I wrote the Bitcoin standard, explaining Bitcoin. And then basically the takeaway message of the Bitcoin standard is you need to stack as much Bitcoin as you can because this is the best money that has ever been invented.

• 2:16:58Lex Fridman?

  And we'll, we'll talk about that, why Bitcoin is a hard or the hardest money.

• 2:17:02Speaker 01

  Yeah, but with fiat, the conclusion of the fiat standard, and again, this is not financial advice. A lowly academic, he shouldn't listen to me on issues of money, but I think theoretically and intellectually, the conclusion of the fiat system is you need to be short fiat as much as you can. That's the smart winning move. So, human wisdom over thousands of years is to save, try and not borrow as much as you can, try and accumulate as much savings as you can. That's reversed under fiat. If you're saving money, you're just subsidizing everybody else taking on loans. If you're taking on loans, you're benefiting from all the people that are borrowing. So, the winning move under the fiat system, and this is what rich people do, is you borrow.

• 2:17:43Speaker 01

  Rich people under the fiat monetary system, they don't hold assets, you know, there isn't the... If you're worth a billion dollars today, you don't have a billion dollars in a checking account. You've got maybe a hundred thousand, a million, five million or something like that. A tiny fraction of your money is held in cash. The majority is going to be held in all kinds of other hard assets. And you're gonna be borrowing, you know, the richest people in the world are the biggest borrowers in the world. The most powerful entities in the world, the governments, are the biggest borrowers in the world. And that's, that's how they are the richest and the most powerful, because every time you're borrowing, you're giving the bank an excuse to print new money. So you're devaluing everybody else's money and you're getting a bit of the cut.

• 2:18:26Speaker 01

  If you were going to buy a house with your savings, you know, you're accumulating the savings and they're losing value. And if I were to go to buy the same house with credit, I'm getting the bank to print money for me. So obviously, they can cut me in on that deal. And that's why it's much cheaper for everybody to buy with credit. That's why everybody buys everything on credit.

• 2:18:49Lex Fridman?

  So when we look at the global monetary system, the thing you want to do as a government is be the sexiest currency out there. So, the, the, the main currency, like the dollar currently is, is the one that has the most power in that, in that kind of context. So you have, if you, if you were to try to summarize what is the global monetary system? It is, it is, as it is today, is a bunch of fiat currencies battling for position, for, for use outside their nation. And in so doing, trying to gain power in the geopolitical sense. Is that, if we just zoom out? What is the global monetary system?

• 2:19:31Lex Fridman?

  Like, what is it currently, so outside of the United States, the whole thing?

• 2:19:36Speaker 01

  Yeah, you could say that, but I think it's more realistic looking at how it has actually evolved over the past few decades. It's really a dollar system. It's not a system of currencies vying with one another. It's a dollar system and all other currencies are just basically, I like to call them dollar plus country risk. So.

• 2:19:53Lex Fridman?

  It always returns home to the dollar.

• 2:19:56Speaker 01

  Yeah, there is no competition. There is no second best, as Michael Saylor would say. And money is like that, you know? Gold was a winner take all by the end of the 19th century. The global monetary market is effectively a winner take all for the dollar. And if we get it to Bitcoin, you'll know, I also think digital currencies are also going to be a winner take all situation. So money wants to be won. In fact, there is no such thing as multiple currencies. Multiple currencies is just a step back to barter. Money is won. If you go back to a system of several currencies, you're just reinventing barter. So in the case of the dollar system, the global dollar system is built around the dollar

• 2:20:40Speaker 01

  because all central banks have dollar reserves and because all central banks use the dollar's clearing mechanisms. So that's why you're basically playing in the dollar system. This seems to have changed over the last couple of months with the sanctions on Russia and the confiscation of Russian reserves. It remains to be seen what that's going to do and how that's going to change. But it is looking like, you know, this dollar system is clearly unsustainable. It's not sustainable for the US, it's not sustainable for anybody.

• 2:21:11Lex Fridman?

  Speaking of which, so you do an amazing podcast called the Bitcoin Standard Podcast. So, episode 108 of that podcast is about the very thing you just mentioned. And allow me, please, to read the description of that and then ask you a couple of questions about your thoughts in general. The description reads, "After the Russian invasion of Ukraine, the US confiscated the Russian central bank's significant monetary reserves and banned some Russian banks from the SWIFT network. Serious questions are being asked about the survival of the post-war dollar-based world monetary order."

• 2:21:48Lex Fridman?

  Will Russia, China, and other countries actually build an alternative international settlement system after years of threatening to do so? Question mark. Will global central banks stop accumulating US Treasury bonds and replace them with gold and commodities? Will we witness the birth of a new commodity, gold-based monetary order? In this seminar, we use the insights from the Bitcoin standard and the fiat standard on temporal and spatial scalability to explain why reports of the death of the dollar and the emergence of a new gold standard may be exaggerated. So I would love to get your analysis on this situation. What are the fundamentals of it? What is SWIFT? What are the possible future evolutions of the global monetary system?

• 2:22:31Speaker 01

  Yeah, so SWIFT is the network that the US Federal Reserve uses for moving money around the world. So basically, the US government can sanction you off of SWIFT, as they've done with Russian banks, as they've done with Iran, and as they've done with Afghanistan. So effectively, I mean, this is really the catastrophe of the current monetary system is that in order to be able to trade as a member, as a citizen of your country, you need your monopoly local central bank to be on good terms with the US government so that they would let them operate it. And this is really like on top of the aspect of the hardness of money. This is the other really powerful thing about Bitcoin, which is that it's just purely a technological thing.

• 2:23:15Speaker 01

  It doesn't matter if you're Russian, if you're Iranian, if you're American, if you're Chinese, it's a technology. And so it's like a spoon, or a knife, or a car, you know, you operate it properly and it works. And so with Bitcoin, it's the same thing. It doesn't care about your passport. If you have the private key, you click send and the money goes, well, it doesn't really go, but effectively it does go anywhere at once and the money can move without having to abide by political situations. And the point here is not to bash US foreign policy, much as that might be deserved. I'm just going to discuss it from a kind of technical perspective. It has to be a political system with fiat, because ultimately it relies on credit. And then the government is the one that has the guns and the government is going to decide who gets to pay their loans anyway.

• 2:24:00Speaker 01

  And the government's going to have to make its own rules about who gets to pay and who doesn't. And so it has to be political as this kind of fiat system. And, you know, when I wrote the Bitcoin standard, initially, I used to be much more of a gold bug. And in my mind, you know, gold bugs have spent the last 50 years saying the global monetary system is going to collapse next week and we're going to go back to a gold standard. And writing the fiat system fiat standard gave me a very good appreciation for why this hasn't happened and why it's not very likely to happen. I think the reason is, as I said earlier, just gold is very expensive to move around. And perhaps more importantly, it's very expensive to verify. That's really the problem with it.

• 2:24:45Speaker 01

  It's very expensive to verify that the gold that you're receiving is original gold. So the only way to do this properly is to melt the gold bars down and recast them, which is pretty expensive. So we have this situation now where Russia, which is major, one of the biggest economies in the world, has been kicked off to varying degrees off of the global monetary system. And the US has confiscated their reserves. And I don't have political opinions about the war. It's not something I'm very familiar with. It's outside of my area of expertise. I'm just analyzing the monetary aspects of it. It is, on the one hand, whether you think it's the war is justified or the sanctions are justified is not something I can opine on.

• 2:25:28Speaker 01

  But the implication of this is that effectively the US might be shooting itself in the foot because it's telling everybody in the world, your money in our system is not really your money. It's just a token to play in our arcade. And at any point in time, if you misbehave, we kick you out of the arcade and we take your tokens. And so, I mean, this is something that China, Russia, Iran, and many countries have made a lot of noise about over the past decades. It got real this year, but it's been decades of China, Iran, and Russia, to some extent, saying that, you know, we want to build an alternative to the US dollar-based system. And yet they haven't. And I think there's very good reasons they haven't.

• 2:26:11Speaker 01

  And the reason is, what do you do with, based on? How do you build it? So you can do a credit-based system based on, but then who's going to be the big boss? Is it going to be China? Is it going to be Russia? Is it going to be Iran? Is it going to be India? None of these countries wants to be, you know, they don't want to jump out of the US-based system to get into somebody else's base system. So China doesn't want to use a Russian system. Russia doesn't want to use a Chinese system. And so therefore, you can't use their own central bank's currencies. Don't you think they have enough?

• 2:26:41Lex Fridman?

  Leverage India, China, Russia combined with several other nations have enough leverage and incentive to create their own system. So any one player, yes, but if they collaborate.

• 2:26:55Speaker 01

  Yeah, but then, okay, so what are you based on? Like, who's going to be the boss? Who's going to be the one who can?

• 2:27:00Lex Fridman?

  In this case, China, right?

• 2:27:04Lex Fridman?

  Because China is becoming increasingly an economic power in the world.

• 2:27:07Speaker 01

  Yeah.

• 2:27:08Lex Fridman?

  That's hard to deny.

• 2:27:09Speaker 01

  Yes, it's true. And it's the most likely scenario, perhaps, if we were to witness something like this is going to be a Chinese-based system.

• 2:27:17Lex Fridman?

  So is it possible to have like a split in what is the driving currency of the world?

• 2:27:24Speaker 01

  It's possible, but I don't think it's sustainable. Again, money wants to be one. And that's the kind of thing that I argue in that seminar. So we could see this emerge based around the yuan. And, you know, likely, I mean, Russia is obviously going to hurt economically from what happened, from the confiscation of the reserves and from the sanctions. So it's not going to be in a position, and of course, because it's outside of the US-based system, it's not in the strongest negotiating position with the Chinese. So the Chinese might be able to get them to join their yuan-based system. But I don't think that's sustainable in the long run, because these governments can issue their laws and make their designs and then make their monetary systems. But ultimately, there's, there are

• 2:28:09Speaker 01

  billions of Chinese people and billions of dollar-based people, and they're going to want to trade with one another. And the power to want to trade with one another is too strong. Like, we can't just split the world economy into two monetary systems that don't trade with one another. So then they're going to want to trade with one another.

• 2:28:22Lex Fridman?

  Or the dark possibility is it, the inability to trade as opposed to being a forcing function for trade, it become a forcing function for conflict in cyberspace and potentially hot war?

• 2:28:40Speaker 01

  Yes, this is the scary part of it. And this is basically how World War II happened, you know, because there's an old historian who used to say when, I think his name is Otto Malleri, and I quote him in The Bitcoin Standard, "If goods don't cross borders, then bombs will." If people trade with one another, they have an incentive for each other's well-being and then they have less of an incentive to fight. And it was the death of global trade in the 1930s because of the failure of the fiat system that brought about the rise of the populism, the rise of all those leaders that hated each other and helped finance the war and bring it about. So that is the scary possibility. And of course, you can't discount that with all of the escalation that you see, that is a possibility that it could turn into a real war.

• 2:29:25Speaker 01

  But then even so, I think ultimately, you can't fight wars forever. It's going to end at some point. And we're going to be back at square one, or well, not square one, we're going to be back at the same dilemma of who's going to have the global monetary system. And so one alternative is that what the Chinese and the Russians could do is they could base it on a commodity. So a lot of people are now saying, well, they're going to base it on copper and corn and agricultural commodities. And that's the analysis of salability that we discuss in the Bitcoin standard and the fiat standard. I don't think that's workable. If you end up basing the monetary system on copper, as we said earlier, doesn't matter

• 2:30:06Speaker 01

  how many governments say that we're going to make a new monetary system based on copper grains and nickel and iron and so on, doesn't matter. You're just going to stockpile, you're going to have to stockpile those things in order to make a market in them. And then if you stockpile those things, you're just raising their value, inviting the producers to make more, flood the market. I hope they don't try this because it's going to be a devastating, devastating impact on the world economy. You're going to have central banks bidding up the price of essential commodities that people need for real uses in order to back their currencies with them, and then just incentivizing the producers to make more and more and more of it, and then bringing the price back down.

• 2:30:48Speaker 01

  So it's going to be a very expensive mistake where we raise the price of copper, destroy a lot of industries dependent on copper, and it's not just copper, but also food, and then increase the supply beyond what we need. And the end result is copper miners make out well, governments go broke, and we end up with a lot of rust in copper in government warehouses. That's why I don't think it works for the... To use commodities that are not monetary commodities. Then the question is maybe gold. Can we go back on another gold standard? And I mean, Russia seems to have done that. I'm not so sure. It's very difficult to get reliable information. I'm trying to look into this more.

• 2:31:30Speaker 01

  But they seem to have said that they're fixing the price of gold in rubles. So they will buy and sell gold at a fixed ruble rate, which effectively means you're on a gold standard. Now, I'm not sure how much, how serious this is, how they've managed to stick to it. But it seems to have stabilized the ruble and in fact brought it back to its pre-war level, which I found absolutely astonishing, you know, considering all the sanctions going on. But in the short run, it's obviously much better than having your currency pegged to nothing. But in the long run, I also don't think gold is gonna cut it in the 21st century.

• 2:32:06Lex Fridman?

  Do you think there's any chance they go full gangster move and go into the digital space on the blockchain and go with Bitcoin?

• 2:32:16Speaker 01

  I think, you know, the point of this discussion is that, you know, we run through all these other options. You know, a Chinese-based system, why it probably won't work? A commodity-based system, why it won't work? And a gold-based system, why it won't work? I think they might have to learn this the wrong way. I mean, the hard way. But eventually, I don't see them doing it now. But eventually, I think the winning move is going to be to go on a Bitcoin-based monetary system.

• 2:32:41Lex Fridman?

  Well, I don't know if everything always has to be the hard way.

• 2:32:45Speaker 01

  I'd love it not to be. But I mean, it's, it doesn't look like there is any kind of desire in China or in Russia to switch to a Bitcoin basis.

• 2:32:54Lex Fridman?

  To take the leap to Bitcoin.

• 2:32:56Speaker 01

  So unfortunately, I think we're gonna go through a few years, maybe many years of learning the lesson the hard way of trying to accumulate these commodities and seeing the limitations that make them unsuitable as money today.

• 2:33:10Lex Fridman?

  One of the things I'm really concerned about is the tension, the amount.

• 2:33:16Lex Fridman?

  The increasing amount of hate in the world.

• 2:33:18Speaker 01

  Yes.

• 2:33:18Lex Fridman?

  And the increasing amount of power centers in the world, between which hate is making a regular appearance. And because the weapons of war are becoming more and more powerful, as they have been in the past many decades, I'm really concerned about nuclear war. So let us see if Bitcoin can fix this.

• 2:33:45Speaker 01

  Yes, Bitcoin fixes all of this.

• 2:33:49Speaker 01

  First rule of Bitcoin is if it's a problem, Bitcoin fixes it.

• 2:33:53Lex Fridman?

  All right, well, I have some personal questions for Bitcoin then, because I have some, my life is pretty fucked up. So I'll have to try to see. A quick pause for bathroom break, can you?

• 2:34:01Speaker 01

  Sure.

• 2:34:03Lex Fridman?

  Let's return to the basics. What is Bitcoin? We started with what is money? What is Bitcoin? We talked about hard money, inflation, fiat, the history of money, the history of war in the 20th century. And that takes us into the 21st century. What is Bitcoin?

• 2:34:22Speaker 01

  Bitcoin is a software, and it's a distributed software to operate peer-to-peer network between members who are all equal on the network. They're all peers. And what this software does is that it allows you to operate a payment network between those peers. And that payment network has its own currency. And that seems like, you know, just a simple software game. But the reason this is such a big deal is, I believe Bitcoin is the most advanced form of money ever invented. And the reason for that comes from two properties that this network has. The first one is that the currency is the hardest money ever invented. It's the money whose supply is the most resistant to inflation.

• 2:35:06Speaker 01

  It's the first monetary asset that we've ever invented that is guaranteed to be fixed in its supply that cannot be increased beyond a certain number. So there's only ever going to be 21 million Bitcoins. And that's, that's, that's a qualitative leap forward in our technologies of money. All of our monies leak. Essentially, because people can always make more and more and more of them. You know, the best money is the one that leaks the least, which is gold, because it only leaks one and a half percent. In other words, your share of the gold stock is diluted by one and a half percent every year. Ideally, you'd like it to be zero. Bitcoin is currently at around 1.8%, headed towards zero.

• 2:35:47Speaker 01

  So it's the first money that we've ever had that goes to zero in terms of terminal supply. So there'll never be more than 21 million Bitcoin. And I think that's a huge deal because, you know, as I said earlier, money is always whatever is the hardest to make, and now Bitcoin is the hardest thing to make. And then the second property, which is extremely important as well, is the fact that it operates without the need to trust in anybody. It doesn't have a party that is in charge of it. It doesn't have a central authority that can, um, you know, it's, as I said, it's peer to peer. So there's, it only has users. It doesn't have any admins. There's no authority in charge of Bitcoin that can take your Bitcoin, that can stop you from using Bitcoin, uh, that can change the rules of Bitcoin. They can't make more of it.

• 2:36:31Speaker 01

  So it's fixed, it's available for anybody in the world. It's the hardest money ever invented. And it is absolutely, uh, I think, an enormously, enormously significant invention. Because, um, if you read the Fiat standard and the Bitcoin standard as well, you'll see my perspective for why I think a very large number of problems on the world are caught, in the world are caused by easy money, are caused by inflation. And, um, caused by government having access to essentially an infinite, uh, recourse to people's wealth. And I think Bitcoin fixes this because it allows us to have money that has the salability of gold across time, meaning it holds its value across time,

• 2:37:16Speaker 01

  like gold, but much better than gold. But also, it has similar to, it is similar to Fiat in that Fiat can travel quickly, but Bitcoin can travel even faster than Fiat. So it combines.

• 2:37:29Speaker 01

  Gold's salability across time with fiat's salability across space in one immutable package that nobody can change and nobody can control.

• 2:37:38Lex Fridman?

  Can you define the word salability?

• 2:37:40Speaker 01

  Salability is the essential property of money. It's the ability of a good to be sold easily on the market, specifically to be sold without much loss in its value. So houses are great for living in, but they're not very salable. If you want to sell a house, you can't just click a button and sell a house and have a giant market of people buying houses from you. You need to find, you need to find somebody who wants the exact house that you have with the exact specifications that you have. And because, you know, houses are not identical, there's no liquid giant market for people to just buy and sell identical houses from. So gold, for instance, has good salability as money because it's a liquid good, it's uniform and people are always buying it.

• 2:38:26Speaker 01

  Fiat dollars have great salability because everybody's always buying and exchanging dollars for other goods. So if you have a hundred dollar bill, you can easily get rid of it and you'll get a hundred dollars worth of stuff for it. If you have a hundred dollars worth of stuff, it's harder to get rid of it. If you have a hundred dollar worth of phone, it's not as easy to spend it as a hundred dollar bill. That's salability.

• 2:38:48Lex Fridman?

  What do you mean that Bitcoin? I understand that Bitcoin has the salability of gold across time.

• 2:38:55Speaker 01

  Better even, yeah.

• 2:38:56Lex Fridman?

  Better, yes, like an order or whatever. And then, and then has the salability of fiat across space. What does that mean?

• 2:39:03Speaker 01

  So if you remember when you asked me, what is the advantage of fiat? What is the advantage it offers us? It's, it's cheaper to move fiat across space than it is to move gold, you know, with, with the current fiat monetary system for all of its flaws. You know, you can send money, you know, I could send money from my bank account in the US to a bank account in China in a couple of days or in Britain, in France, in a day or two, which is, you know, much faster than you could do with gold and much cheaper than you could do with gold. But in reality with fiat, you know, the reason Bitcoin improves on that is that with Bitcoin, you're actually selling, you're sending final settlement in a couple of hours. So you send the Bitcoin transaction, you get six confirmations in an hour.

• 2:39:46Speaker 01

  You get about 12 confirmations in two hours on average. With 12 confirmations, you know, you're pretty definitely clearly safe on this. So within a couple of hours, you could send a billion dollars across the ocean and have final settlement on them. It's not just that you've sent a credit obligation that's going to need weeks and months to settle, which is the case with fiat. So it is faster than fiat effectively. So it's harder than gold and faster than fiat. That's a good way of putting it.

• 2:40:20Lex Fridman?

  One other aspect of Bitcoin, I have to ask, to me on a human level, it's fascinating, is it was founded by Satoshi Nakamoto, an anonymous founder, there's no leader. So that's another aspect of the decentralization, it's leaderless.

• 2:40:36Speaker 01

  Yeah.

• 2:40:37Lex Fridman?

  So unfortunately, it's not a monarchy.

• 2:40:39Speaker 01

  Fortunately.

• 2:40:40Lex Fridman?

  Or fortunately, yes. Who is Satoshi Nakamoto, do you think? And first of all, is it you?

• 2:40:46Speaker 01

  It definitely is not me. I don't know who it is.

• 2:40:50Lex Fridman?

  If it was, would you tell me?

• 2:40:53Lex Fridman?

  Trick question.

• 2:40:54Speaker 01

  I know, trick question, but I mean, everybody who knows me knows I can't read the code, so.

• 2:40:59Lex Fridman?

  You would say that even if you could.

• 2:41:02Speaker 01

  But. That's true.

• 2:41:03Lex Fridman?

  Do you think it's one person? Do you think it's multiple people? Is it interesting to you? Do you think it's fundamental to the coin itself to not the coin, the entirety of the concept, that its founders anonymous? And how much guts do you think it takes if it's one person to just walk away from so much money?

• 2:41:22Speaker 01

  I've considered all these questions many times. It's very hard to formulate a definitive answer to all of them. I don't know who it is and I don't know why he or them or she are not spending the coins that they most likely have. I think what really matters in Bitcoin about Satoshi is the fact that he's not there. And this is what's truly astonishing about it. The fact, the most important fact in Bitcoin is the fact that the creator has disappeared and the thing has continued to operate now for almost 12 years without him being there. Or 11 years, I think it's been since he's left. And this, this is really the most important thing. And, you know, maybe, maybe he died or she died or they, you know, they got into an accident

• 2:42:07Speaker 01

  on a road trip or whatever. And that's why they haven't accessed their coins. Maybe they're incapacitated for some reason. But whatever reason it is, I really think it's fate or serendipity that is giving us this very vital, very, very, very vital building ingredient in Bitcoin, which no other digital currency would ever recreate, which is that, you know, because it was the first, it was the one that was able to establish the first mover advantage and get all of the people who are interested in the technology to get into it. And so that's an enormous advantage, but you know, the cherry on top or what made

• 2:42:48Speaker 01

  the whole thing really function well is the fact that the guy who made it disappeared and that it continued to operate, which is just a clear illustration that this is a network with no admins. And I'm tempted to think that they're incapacitated in some way, probably dead or gone, because I can't believe the, I don't believe any human being would have this level of self-control to not get into, not want to meddle with their invention so much. Even, even if they, you know, they might have had the self-control to like mine the first million coins to get the network going and then throw away the coins or send them to an address that they don't have the key to.

• 2:43:30Speaker 01

  Because they really just wanted the network to take off. They may have no access to the coins and that's why they can't move them. I could see that happening, but I find it harder to believe that they would resist the temptation to mess with the network.

• 2:43:41Lex Fridman?

  You know, it's funny, I find that the founders of ideas are often principled and have the integrity that the eventual users of those ideas don't fully have. I tend to, you know, we have the kind of cynical view, power corrupts, absolute power corrupts absolutely, and we tend to, in our mind, generalize that all humans are corruptible. And perhaps that's true to some degree, but I think that some people are more corruptible than others. And I find that there is, I mean, I like to think that Satoshi Nakamoto is out there and, you know, just like George Washington chose to walk away.

• 2:44:22Lex Fridman?

  It's a principle and the principle is more powerful than the financial reward or any of those kinds of things.

• 2:44:30Lex Fridman?

  It's a principle that stands for freedom and there's a lot of people throughout history, even recent history, that are willing to die for these principles or live a life

• 2:44:41Lex Fridman?

  full of suffering and sacrifice because they're still living a life of principle and choosing that day after day after day. So, I mean, there's power to that. Money, what's the worth of money in the end?

• 2:44:55Lex Fridman?

  In terms of just personal financial gain versus knowing how much positive impact there is. So, the person that chooses to walk away like that, I think is the same kind of person that chooses to live, live by that principle. You have people like that, you know, in Grigory Grishapuralman in mathematics who turned down the Fields Medal because he was...

• 2:45:21Speaker 01

  Yeah, that's a medal, not $50 billion of Bitcoin.

• 2:45:25Lex Fridman?

  Well, that's...

• 2:45:26Speaker 01

  No, I know, I know, I'm joking.

• 2:45:28Lex Fridman?

  Well, that's actually, interesting, just a brief comment, you know, when people talk about Bitcoin in the cryptocurrency space, that is often mixed up.

• 2:45:37Lex Fridman?

  Financial interest and ideas. And I think those are often correlated. But that good feeling you get when you win or your number go up or you just, just somebody, you know, I found 20 bucks on the street the other day. And just that feeling of just like, ooh, like more money, that positive feeling, that's correlated, but it's, it is distinct from the power of the idea to change a world, to change the world for the better, for the, to alleviate, it's like Alex Gladstein, in the case of Bitcoin, that decreased the amount of suffering in the world because of authoritarian regimes. And just because your, your number goes up, like that gambling feeling of like, yes,

• 2:46:22Lex Fridman?

  yes, this is good. And I'm, I mean, short term number go up. There's a long term now go up, that's more like investment and so on. And there's a short term now go up, this is a good feeling that you can't, you have to, in your mind, keep those distinct from, from the power of the idea to transform the world. And if you focus on the power of the idea, maybe a billion or billions of dollars don't matter as much. At least that's what I would like to believe.

• 2:46:50Speaker 01

  Perhaps, but what matters ultimately is that the thing works without him. The thing's worked for 11 years without him. And I think this is, this is the really important thing. If they had stuck around for whatever reason, and they had continued to meddle with it, it's not clear to me how decentralized it could have been. This is the problem with the other currencies. It's like, how, how do you lose control of the Frankenstein that you've created? The only way that this Frankenstein continues to survive is if the person in charge of it continues to feed it. And so it continues to be yours. And that's, that's the problem with all the other digital currencies. If you've heard about any of the other 16,000 digital currencies out there, you've only heard about it because there's a small group of people behind it that are working on it, that are promoting it.

• 2:47:34Speaker 01

  And that's why, and I think, you know, Michael Saylor's discussion with you was magnificent illustration of the difference between Bitcoin and altcoins in that they are securities. And I think he makes a very compelling, brilliant case for why this is, makes them categorically different from Bitcoin. Bitcoin, you're buying property.

• 2:47:54Lex Fridman?

  I think he mentioned he's a huge fan of Dogecoin, but I might be misremembering.

• 2:47:58Speaker 01

  You are misremembering.

• 2:47:59Lex Fridman?

  Okay.

• 2:47:59Speaker 01

  Me too.

• 2:48:00Lex Fridman?

  Maybe I'm quoting him out of context.

• 2:48:02Speaker 01

  Yes.

• 2:48:02Lex Fridman?

  Okay. Let me just ask you about some possible criticisms of Bitcoin. So on centralization, so there's a criticism on the mining and on the node side, or the node is not really the criticism, but Bitcoin mining is not fully decentralized because a small number of miners control a majority of the hashing power. I looked it up, there's 10,000, 15,000, whatever the number is, of computers that have the full, that are full nodes, that have the full, that are actively connected to the network. So you could argue that's decentralized because it's global, it's all across the world. But the miners, they're still, it's more centralized.

• 2:48:45Lex Fridman?

  So if you're thinking of making a case for Bitcoin being decentralized, do you worry about the miners being somewhat centralized? Is the nodes the important thing to think about?

• 2:48:57Speaker 01

  Yeah.

• 2:48:57Lex Fridman?

  And what number of nodes counts as centralized and not?

• 2:49:02Speaker 01

  The nodes are what matters because the nodes are what determines Bitcoin's consensus parameters. I think the best way to think about it is that miners simply sell a commodity to the nodes, and that commodity is Bitcoin blocks. So what a miner does is they solve the proof of work problem. So they keep operating their computers until they can get a solution to the problem. And then they attach that to a bunch of transactions and present it to the nodes for the nodes to ratify and approve it. So therefore, this is, and this is, I strongly recommend people learn about the 2017 block size war to understand why miners don't control Bitcoin. I discussed this briefly in my Bitcoin Standard,

• 2:49:45Speaker 01

  but there's a recent book that discusses this in detail called The Block Size War by Jonathan Beer. It's a great description of In 2017, essentially, the miners thought that they could control Bitcoin. You know, they had, there was one mining company that produced the majority of the machines that were on the network. And they, and their allies had a control of the machines that were out there. And they controlled the majority of the hash rate. And they thought that they could change Bitcoin's supply, not supply, sorry, they could change Bitcoin's block size. Which is a tiny little detail, technical parameters, it's not even all that big of a deal for the economics of it. But they thought that they could pass this change, they could force this change on the network.

• 2:50:30Speaker 01

  And the members of the network rejected it, and they weren't able to do it. So the nodes are what is sovereign, the nodes are what determine the rules of the game. The miners are a service provider. The miners invest capital upfront, you know, they buy the machines, they buy the electricity, they buy the storage, they buy the locations, they pay the rent. And they invest all of that money based on the idea that if they behave according to what the nodes want, the nodes will reward them with Bitcoin. So the miners are in no position to dictate terms for anyone, you know, they've, they've put up their capital upfront, and they will only recoup it if they do what the nodes want. So therefore, what really matters is the decentralization of the nodes.

• 2:51:14Speaker 01

  So we wanna, you wanna have as many nodes as possible, you should, you wanna have a system where there's a large number of nodes. And this is, of course, the biggest problem with, with other digital currencies is that, you know, because basically Bitcoin has cornered the market on a digital currency, the only way that you can really get traction is to generate a whole bunch of buzzwords about, you know, we're doing this and we're doing that. And so other digital currencies are optimized for bells and whistles and buzzwords. And that means adding computational load, which makes the nodes bigger, harder to operate, and therefore you have a very small number of nodes.

• 2:51:55Speaker 01

  In fact, very few digital currencies are keen to publicize how many nodes there are. And they don't have full nodes in the true sense, and it doesn't even matter how many nodes they have because...

• 2:52:08Speaker 01

  De facto, you can spin up a million nodes tomorrow on AWS. Doesn't really matter. What matters is, de facto, do the nodes dictate the rules of consensus? And the fact that with most digital currencies, you can have hard forks very frequently and they can change the supply all the time. Means that there's a small group of people who agree amongst themselves how to move forward.

• 2:52:31Lex Fridman?

  Yeah, so you threw in a few criticisms of Volquins there, but so one is the small group. That one we could talk about, it's a tricky one and we talked about that with Satoshi Nakamoto. But the other one is a small number of nodes to push back in that. As computational power increases, you can argue that that enables more and more cheap computers to serve as nodes. So at least it paints a future where nodes are always increasing because computational power is always increasing and getting cheaper and cheaper and cheaper. So at least there's a hope for the future for greater and greater decentralization on the node front.

• 2:53:10Speaker 01

  Yeah, but I mean, ultimately, again, it doesn't really matter how many nodes you have if you have a, you know. If the way that the currency is run is that you're going to have a hard fork every few months, which is the case with most other currencies. Bitcoin is the only one that's not have a hard fork.

• 2:53:27Speaker 01

  Basically, the unique thing about Bitcoin in a tactical sense is that you could get the original software that Satoshi himself ran in 2009 to start the network. And you could run it today and it would sync with the blockchain. There's one bug you need to fix.

• 2:53:46Speaker 01

  One mistake that was, that would have only appeared, I think, in around 2013 or 14 or something like that. As that he wasn't aware of back then, so you just need to fix this one time little bug. And then the consensus parameters are still the same, so you're able to sync to it. This is not true for most other digital currencies, I'd say probably all of them, because they've all had many hard forks, which they think of as upgrades. And you know, they, they market this thing as, you know, well, Bitcoin can't upgrade, but we upgrade all the time. Well, yeah, you know what else upgrades all the time? Facebook, Apple, Amazon, anything that's centralized is very easy to upgrade. And that's precisely why, as Michael Saylor says, these things are somebody's liability. They are security. You're carrying on somebody's technical and economic liability.

• 2:54:28Speaker 01

  They can hard fork, they can 10x the supply tomorrow.

• 2:54:32Lex Fridman?

  Yeah. They can fall victim to the same corrupting forces that governments fall victim to. Sure. And for people who don't know, yeah, hard fork is a the reverse incompatible change to to the underlying function of a cryptocurrency. Of course, there is hard forks of Bitcoin as well. I'm sure all of which you love dearly anyway, but that doesn't that doesn't matter. The original Bitcoin, for the most part, has not undergone any changes. And that's one of the

• 2:55:10Speaker 01

  I mean, it has undergone changes, but none none in the important parameters of the network.

• 2:55:17Lex Fridman?

  So another criticism is about energy. So the proof of work consensus mechanism uses a lot of energy. What's the response to that criticism of Bitcoin?

• 2:55:28Speaker 01

  Yes, because it's worth it. Okay. The airplane uses a lot more energy than a kayak. You know, when you're going to cross the Atlantic next time, what are you going to take? A kayak that is environmentally friendly, according to this insane definition? Or are you going to take an airplane that consumes a lot of energy?

• 2:55:44Lex Fridman?

  So the cost benefit analysis here is such where you have to consider both the cost and the benefit.

• 2:55:51Speaker 01

  Exactly. And I think it's an astonishing testament to just how far backward people's scientific and technological thinking has devolved to the point where we think of energy consumption as a bad thing. I think it's just and in the Fiat standard, I discussed the whole hysteria around energy. And I think it's it's a product of Fiat inflation, because it's a way of trying to covering up the fact that energy fuels that are reliable and necessary for the current world are becoming more and more expensive because of inflation. And so governments are always looking for excuses for why you should not be using those things. And so they promote all kinds of stupid pseudosciences that tell you about why these things are bad.

• 2:56:33Speaker 01

  But really, you know, all technology is, well, not all, but The vast majority of technological innovations involve economizing on human time and judgment and replacing it with machines, with reliable machines that spend a lot of energy. So that's what a telephone does. Instead of having to send somebody across the world to tell somebody something else, or send a letter, a telephone allows you to do it. The car is like that. You could walk, but a car consumes a lot more energy, but it allows you to travel much faster and safer and more reliably. An airplane is like that. Modern telecommunications. Human prosperity is an increase in the consumption

• 2:57:14Speaker 01

  of energy. And I think it is, it is an absolutely criminal thing, and I genuinely mean the word criminal, to portray energy consumption as a bad thing, because it is truly depriving people of the chance to live a life that makes life better. You know, and this is, it's truly criminal to tell poor countries that they should not consume the same energy sources that are being used in rich countries that, on which our modern infrastructure and modern life relies. That's what life is. You know, if you reduce the consumption of energy in the US to the levels that you have in poor countries today, the US would become desperately poor. A lot of people would die. Cities would collapse.

• 2:57:52Lex Fridman?

  The quality of life would decrease significantly. A high quality of life often requires, given the current technology, a high expenditure of energy.

• 2:57:59Speaker 01

  Yeah, and I should be clear, you know, it's not the quality of life in the sense of, many people think of this as, oh yeah, well, you know, taking needless flights for vacations. No, no, these are, these are the cherries on top of the cake, but the substance of the cake and the real benefits of energy is the fact that children, premature babies, survive in countries that have reliable 24-hour cheap electricity. If your child is born premature, that you put it in an incubator, put him in an incubator or her, they're highly likely to survive. If you don't have 24-hour electricity, that child is not going to make it. And you see it, you know, the level of energy consumption per capita is highly correlated,

• 2:58:42Speaker 01

  not just to income, but also to health outcomes, to infant mortality, to all of the things that you care about. And Bitcoin is just another technology. It does consume a lot more energy than central banks. A lot of Bitcoiners like to take a cop out of this by saying, well, you know, central banks consume money and ATMs consume a lot of energy. And I think if you calculate how much central banks and banks consume, I think it's a rounding error next to what Bitcoin consumes. I think Bitcoin is just, maybe not a rounding error, but it's still, Bitcoin is, I think, is going to consume a lot more. And that's a good thing.

• 2:59:16Lex Fridman?

  You know, what's humbling is to look, because even just looking into this forces me to look at the energy expenditures for many of the things we take for granted. Obviously, computers and the digital, our digital lives are just, Bitcoin becomes a rounding error relative to how much energy is spent on all the computers in our world. But also, like, things like home appliances, microwaves and hair dryers and stuff.

• 2:59:42Speaker 01

  Yeah.

• 2:59:44Lex Fridman?

  Yeah, I mean, this is. It starts being hilarious. It's like, oh, these things that are just part of our modern life, they're either the same order, at least the same order of magnitude as Bitcoin. And they seem like trivial parts of life.

• 2:59:59Speaker 01

  Yeah. And this is the thing, all of the people that complain about Bitcoin's energy consumption, I presume they use washing machines. Now, why should their desire for clean and dry clothes to get to consume energy? And I mean, I used to live in Lebanon. Lebanon had hyperinflation. I escaped from hyperinflation. I escaped, it prevented, my life could have been ruined by hyperinflation. And the reason that it wasn't ruined is because I have Bitcoin. So I don't know, am I allowed to swear on your podcast?

• 3:00:30Lex Fridman?

  Yes, please.

• 3:00:30Speaker 01

  So fuck your washing machine.

• 3:00:34Speaker 01

  Given a choice between my washing machine and my Bitcoin, I'll choose Bitcoin. It's a technology that has been, that has already saved my life and I think it's gonna save the lives of many, many, many, many more people. So, but of course, I don't have to choose between my Bitcoin and my washing machine because this is, you know, we're just constantly consuming more energy and we're gonna continue to consume more energy in this world. And that's just what progress is. And a small remark, so in principle, I don't think this is a problem, but the other thing about Bitcoin, where it is different from washing machines, Bitcoin is truly unique in this, it's the only thing whose energy consumption can be produced absolutely anywhere. Your washing machine needs to be in your house where you live and you live in a city surrounded

• 3:01:19Speaker 01

  by 10 million people and they all have their washing machines and they're all connected to the grid and they generally tend to do their laundry around the same time. And so you have to put the load of the washing machine on the grid at the same time. There's needs to be one power plant and all of the infrastructure needs to work at the same time and the electricity is pretty expensive because it's being done in a place with high demand. Bitcoin is, does not need to buy electricity from places where it has high demand because it can buy electricity from anywhere. This is what's truly mind blowing about it. You can buy, you know, what you need to, the electricity that you need for mining can be done anywhere. So you can mine, you know, you can have a waterfall in the north of Canada, 300 miles

• 3:02:04Speaker 01

  away from any population center. There's water falling, there's energy, you can put a hydroelectric dam there and then you can use that energy to operate the miners and then the miners just need a satellite internet connection and effectively you're selling that energy that is isolated to the grid. And because of the way the Bitcoin functions, because of the difficulty adjustment, the only profitable miners are the ones who can get cheap electricity. Basically, if you're mining at grid cost, if you're mining at around, the average electricity price in the world is around 14 cents. If you're mining at 14 cents in Bitcoin, you're most likely not gonna make it. If you're running your miners at 14 cents, because everybody could mine at 14 cents. And so what happens is if everybody's mining at 14 cents...

• 3:02:50Speaker 01

  14 cents stops being profitable and then only the people mining at a lower price are profitable. So that's why Bitcoin mining is not competing with your washing machine. This is, this is the absurd thing about this kind of energy scarcity viewpoint where, oh no, it's a catastrophe. Bitcoin is taking all the electricity as if the electricity is just one fixed pie that we all have to share and fight over. And this is, that's how I keep making fun of these stupid headlines they put out where Bitcoin is consuming more electricity than Portugal. All right, well, maybe we should shut down Portugal then.

• 3:03:23Speaker 01

  What the hell has Portugal given us? Like, obviously, it's not, it's not.

• 3:03:26Lex Fridman?

  No, he doesn't mean that I've gotten so much criticism for saying Cristiano, Cristiano Ronaldo is not in the top five. I apologize. I love Portugal.

• 3:03:36Speaker 01

  That's another discussion we should get into at some point.

• 3:03:38Lex Fridman?

  Well, we should, because you posted a few soccer things. I'm not, I realize how passionate people are about this. Listen, it was a joke, all right? He deserves to be potential in the top five.

• 3:03:47Speaker 01

  Yeah, I love Portugal. And even though I'm a Liverpool fan, I still respect Cristiano Ronaldo a lot. In fact, I hold a very unpopular opinion where I think Cristiano Ronaldo is the greatest football player ever.

• 3:03:59Lex Fridman?

  Number one, Overpelli, Maradona, Messi, better than Messi?

• 3:04:02Speaker 01

  Yes, he's been doing it for 20 years at the top. Nobody's ever done that. He's won everything, everywhere, everywhere he goes, at the top, at the Champions League. Really strong argument to be made for him. And Messi's never done anything outside of Barcelona. That's the thing.

• 3:04:15Lex Fridman?

  So you appreciate performance, long term versus the genius of the actual play on the field?

• 3:04:24Speaker 01

  I mean, the genius is Ronaldo is the top scorer of all time.

• 3:04:27Lex Fridman?

  So the genius is in the scoring, not the actual dance of the, of the play, the creativity?

• 3:04:33Speaker 01

  Well, I mean, I don't know. Messi's been absolutely mediocre since he's left Barcelona.

• 3:04:38Lex Fridman?

  These are strong words.

• 3:04:40Speaker 01

  He scored, what, two goals in PSG's season this year? They're out of the Champions League.

• 3:04:44Lex Fridman?

  What about Mohamed Salah? You've, you posted about him.

• 3:04:48Speaker 01

  Oh, yeah. He's my boy.

• 3:04:49Lex Fridman?

  Is he climbing up to be?

• 3:04:51Speaker 01

  I think, I think he should win the Ballon d'Or this year. He probably should have won it last year as well. He's been absolutely outstanding. But, um, I mean, just people are so crazy about Messi. They keep giving him accolades. He hasn't deserved, I think, Messi, the last couple of Ballon d'Ors that he got. I mean, he's a great player and everything, but, uh, no, he didn't, he did not deserve it last year.

• 3:05:11Lex Fridman?

  We can agree to disagree.

• 3:05:13Speaker 01

  Are you a Barca fan or a Messi fan?

• 3:05:16Lex Fridman?

  I would say, no, I'm not, I wouldn't say I'm a Barca fan, but Barca fan because of Messi. And I just, I, I think it's like, there are certain things.

• 3:05:26Lex Fridman?

  So when I was growing up in the, in the Soviet Union, Russia, I remember Maradona, he was the first person I saw that I was like, oh, wow, this could be,

• 3:05:39Lex Fridman?

  this is greatness in sport, not just football and sport, right? And for some reason, I mean, it's something about like Diego Armando Maradona, like the way they were commentating, the, the genius of his play, the, the mix of ego. And again, the performance, but being able to carry a team on his shoulders. That I just fell in love with whatever he represented and then by that, Argentina. And then Messi, I saw when he was like 16, 17, when he was just like right in the early days. And when you, when you first see a person and you see the genius and you notice that, and then it turns out to be actually a great player, for some reason you're invested. You're emotionally invested, you're, I don't know. So you kind of just fall in love and then you get, you pick sides. I mean, that, that's the thing about football.

• 3:06:24Lex Fridman?

  Part of the fun things about football, soccer is like, you pick a guy, you pick a team and fuck everyone else and you just have fun talking shit. I mean, there's, there's part of it, you know?

• 3:06:35Speaker 01

  It's great, it's great because I, I think, you know, obviously it's a very stupid thing to do, but I think if you don't do it in football, you're gonna do it in real life.

• 3:06:42Lex Fridman?

  Elsewhere, that's right.

• 3:06:43Speaker 01

  That's why it's very good, like, that's it. I, you know, instead of hating people for their religion and for their skin color, hate them because they support Manchester United.

• 3:06:52Lex Fridman?

  Exactly.

• 3:06:54Lex Fridman?

  So you're a Liverpool fan, that's.

• 3:06:55Speaker 01

  Yes, yes, hardcore, long-term. But yeah, so to go back to the original point on Portugal.

• 3:07:01Lex Fridman?

  Energy.

• 3:07:02Speaker 01

  Yeah, energy. Bitcoin is not competing with Portugal because Bitcoin is buying energy from places where we can't buy it. Because all the places where we can buy energy for our washing machines, we're bidding up the price enough to make it non-viable for Bitcoin. That's why, you know, they'll, you'll see those headlines about Bitcoin consuming more energy than Portugal. Well, if you look at Portugal, I mean. They've got giant power plants in Portugal, they've got millions of people, and they've got enormous amounts of infrastructure. Where are all of this infrastructure for Bitcoin mining? You don't see it in the cities. It's all isolated, it's all out away from the cities, or it's connected to grids that have serious overcapacity. So Bitcoin is not out there buying the expensive energy,

• 3:07:45Speaker 01

  taking energy away from people who can't afford it. It's out there buying its own energy because it doesn't need to buy the expensive energy that people really need.

• 3:07:54Lex Fridman?

  So one other criticism from an investment perspective, from a gambling perspective that people see is the volatility of Bitcoin. Of course, that's been somewhat decreasing over time. But what's your answer to the sort of criticism that Bitcoin is too volatile? I want to stay away. It doesn't seem like a safe place for me to invest either short term or long term.

• 3:08:17Speaker 01

  There's no denying there's a volatility and there's a high oscillation in the value in the short term. So I think the safe way to approach that is in terms of position sizing. If the volatility bothers you, then you're overinvested perhaps. So maybe you should reduce the size of your position so that the volatility doesn't bother you.

• 3:08:41Speaker 01

  This is the short answer, you know, like stack as much as your conviction will allow you to tolerate the volatility. But and of course, the reason you should try and consider tolerating volatility more is the options are you hold fiat assets, which only go down stable, you know, relatively stable, not a lot of volatility day to day. The value of your dollar doesn't change 40% overnight, 20% overnight or something like that. But it does go down reliably. It's going to go down 40%. You can count on it. It might take a year, two years, five years, 10 years. Compared to the things that you want to buy, it's going to go down by 40% and it's not going to come back.

• 3:09:26Speaker 01

  And it's going to go down another 40%, and then another 40%, and then another 40%. So the option really is relatively short term stability with long term decline or short term volatility with long term rise. And so that's another way in which Bitcoin teaches people to have a low time preference and think about the long term. So stack, accumulate, and think of it in the long term. It's a function of the fact that Bitcoin is new. Bitcoin is currently less than 1% of the global money market. So there's about $100 trillion of money out there in the world. $100 trillion roughly of fiat and about $10 trillion of gold. And Bitcoin is less than $1 trillion. So, you know, one rich guy decides to get into Bitcoin. That's going to show up on the Bitcoin chart.

• 3:10:10Speaker 01

  You look at it, you know, Elon Musk decides to buy Bitcoin. You see the buy, you know, you see the news and it happens and you see the pump. Elon Musk decides that he doesn't like Bitcoin. You see the drop. But, you know, a few years ago, it used to be that one random millionaire would cause that pump. Now you have to be the richest guy in the world to do that. In a few years, you're going to have to be the richest country in the world to be able to do that to the Bitcoin price. Maybe many years, maybe not a few years. But as Bitcoin grows, you know, think about it as a liquid pool of money. Currently, it's a small pool next to a much larger ocean, which is the entire money market. And so one person jumps from that to this small pool. They can make a big splash. As the pool grows, essentially the salability increases.

• 3:10:56Speaker 01

  And the likelihood of one individual purchase affecting the price so violently increases, decreases. And so over time, you know, as the size of the market increases, I think we're going to see the volatility decline more and more. Ultimately, what, you know, if you look at gold, historically, gold's been very, very stable. It did not achieve its stability because the central bank was in charge of gold supply or because there was a gold committee that decided how much gold gets produced.

• 3:11:24Speaker 01

  It achieved that stability because it became the most salable good. And so therefore became the good that contains the most cash balances in the world. And the end of the 19th century, everybody held cash balances in gold. And new production was a tiny little addition to global product, to the supply. So that's what made gold the most relatively, I shouldn't say stable, because nothing is stable in economics. But relatively, it holds on to its value and it's much less volatile than digital currency, than national currencies. That's because. It has the highest stock to flow ratio and that's because its supply is a tiny fraction of the liquid market.

• 3:12:07Speaker 01

  And as the liquid market grows, as the size of cash balances grows and trades in Bitcoin cancel each other out, you get only slight changes in value. So I think as Bitcoin matures, that's going to decline. So effectively, I think the end game is Bitcoin is huge. Bitcoin is worth something like, I think the total addressable market for Bitcoin is not just national currencies and gold's addressable market, but also government bonds. That's the really big one.

• 3:12:37Lex Fridman?

  So how do bonds compare to gold? So you're saying it'll surpass gold with the 10 trillion?

• 3:12:43Speaker 01

  Yeah.

• 3:12:44Lex Fridman?

  What's bonds? Where's bonds stand?

• 3:12:46Speaker 01

  So then there's also national currencies, which are about 100 trillion, and then there's government bonds, which are around 120 billion dollars. And, sorry, trillion dollars, trillion.

• 3:12:56Lex Fridman?

  Trillion, sorry. What we were saying, before we were saying billion, we meant trillion.

• 3:13:00Speaker 01

  Yeah.

• 3:13:01Lex Fridman?

  So you think bonds can move to Bitcoin?

• 3:13:05Speaker 01

  I've always held, this is the prize. This is the main dish. Gold is the appetizer. Bonds are the main dish because bonds have replaced gold.

• 3:13:15Lex Fridman?

  Yeah.

• 3:13:16Speaker 01

  I mean, bonds have replaced gold in people's portfolio. People, you remember when we were saying gold was, you'd held it, hold it as a saving, as the secure part of your portfolio, and then you take risk with the equity. Currently, people do that by holding a part of their portfolio in bonds. That's the part that they treat as their saving account. And then the rest they use for, not speculation, for investment in which they take risk. Yeah, speculation. And that's stocks and equity and other high-risk assets. I think Bitcoin is not going to replace equity. There will always be equity. There will always be companies and people who want to have equity. But it'll probably replace a big chunk of current equity markets because right now, if you want to save, it used to be that you hold bonds.

• 3:14:00Speaker 01

  Now, if you want to save, you go into stock indexes. So I think Bitcoin likely eats a big chunk of equity markets because currently it's, people are using it as saving. And I think it eats all. Bonds, that's my most ambitious.

• 3:14:16Lex Fridman?

  Well, the question is the scale of time that happens across. But the most important statement you make is about trend.

• 3:14:23Speaker 01

  Yeah, and also, I mean, let's also remember currently, bonds nominally don't beat inflation. And in real terms, they don't come close to beating inflation. So currently, you know, with bonds, you're taking on credit default risk to buy a bond and also getting less money back in real terms. Well, Bitcoin doesn't offer you returns, but in real terms, it appreciates much more. And it has, I believe, a lot less risk associated with it than any company or government.

• 3:14:54Lex Fridman?

  So let's make things spicy and ask if Bitcoin fails in the long term future. As all you just said, economics, volatility, things happen in this world. The human civilization might end in this century. I hope it doesn't, but it might. There could be catastrophic events. If Bitcoin fails, it goes to zero, loses its number one spot. What would be the reason? If you're an alien visiting Earth 100 years from now and just were to analyze the situation? Bitcoin is a pretty new thing. So the possible trajectories of how the world evolves together with this new monetary technology is nearly infinite. So if it fails, one of those trajectories surely involves Bitcoin failing.

• 3:15:39Lex Fridman?

  What would be the reason?

• 3:15:41Speaker 01

  I think the most likely reason that it could fail, I don't think this is likely in general, but I think it is the most likely of all the unlikely things that could destroy Bitcoin, is governments go back on a gold standard.

• 3:15:55Lex Fridman?

  So they make, in your view, a better decision than the current system, just not the best decision?

• 3:16:01Speaker 01

  Yeah.

• 3:16:02Lex Fridman?

  I thought you would go much darker. But so that's, yeah, okay, interesting. So maybe because of Russia, because of China and so on, because of the current war, they might reconsider the power that America holds because of the monetary, because it being the primary currency, and they'll start thinking about going.

• 3:16:24Lex Fridman?

  And a gold standard.

• 3:16:25Speaker 01

  Yeah, but it would also require the US and the Europeans and everybody to want to join in this system and sing kumbaya and play nice with each other around the gold standard. I think, you know, given that gold already is about 10 times larger than Bitcoin, so it has a first mover advantage.

• 3:16:41Lex Fridman?

  Yes.

• 3:16:42Speaker 01

  If governments were to go and peg their currencies to gold again, the price of gold would shoot up 5, 10x and it would rise in value a lot more.

• 3:16:53Lex Fridman?

  Of course, that doesn't necessarily kill Bitcoin.

• 3:16:55Speaker 01

  No, again, I'm not saying it's likely to happen. I'm saying it's, I imagine, less likely, less unlikely than all the other unlikely scenarios because, you know, even with a nuclear war, like, or a half, 90% of the planet is destroyed, the 10% continue to run Bitcoin.

• 3:17:12Lex Fridman?

  There's a quote. Okay, there's a movement, a community of people referred to as Bitcoin maximalists. I've seen you referred, at least in the past, as the leader of the Bitcoin maximalists, probably because of your book, you know, Bitcoin Standard, considered the bible. In general, you're one of the leaders in this space. Do you regret any of the toxicity and derision that often, or perhaps sometimes, originates from this community?

• 3:17:46Speaker 01

  Definitely not. I'm not in the position to regret other people's actions, so let's just be clear. I think the rhetoric of community is, I reject this rhetoric because I think it's a way for kind of political manipulation and subversion to try and portray people as part of a community and hold people responsible for other people's actions, which I think is ridiculous. So, you know, some guy on the internet said something mean to somebody, and then, this is very common, and it's, I always try and not get involved in these things. So some guy who identifies as a Bitcoiner says something to somebody that's very wrong,

• 3:18:28Speaker 01

  of course it happens, tens of millions of people use Bitcoin around the world. A lot of these, I'd say parasites, you know, people who don't have anything productive to do with their life, you know, outrage merchants, they'll come out and say something along the lines of, you know, the Bitcoin maximalists are toxic, they're holding Bitcoin back and they need, and of course it's manipulative, the point behind it is they want to get to you, to, they want to get people who are, you know, not that nobody with 300 followers who said something silly, they want to get the notable people to basically change their message. So the idea is, you know, I'm supposed to apologize because somebody with 300 followers I've never met in my life, who calls themselves a Bitcoiner, said a mean word, and then I

• 3:19:13Speaker 01

  need, I need to apologize, and I also need to cut down on my rhetoric about other digital currencies, and I need to do that. So I am only responsible for my own actions, and I don't recall regretting anything, no.

• 3:19:27Lex Fridman?

  Okay, well, let me push back or push further into that direction. Fine, let's leave community aside, labels suck, for sure. But you have a spicy way about you on Twitter. Now, even in this conversation, you know, you had some, some good, strong words to say about.

• 3:19:45Speaker 01

  Yeah, I mean, I've always believed, life is too short to mince words. One day I'm gonna be dead, and I'm on my deathbed, I'm not gonna look back and say, I wish I was a little bit more circumspect in expressing my opinions. I'm far more likely to think, you know what, I wish I said what I really think.

• 3:20:04Lex Fridman?

  Yes, life is too short to hold back your opinion. The question is, what is really your opinion? Because you're, you're many people in one. So there's a person that loves, there's kindness for the human beings, there's a person that gets annoyed, there's a person that enjoys disagreement, there's a person that enjoys collaboration. And you can emphasize all of those different things, each of those different things weigh it differently in your online interaction. There are some aspects of online interaction that encourages, in different communities, online interaction is one community that encourages kind of derision and mockery and so on. So you get, you can choose if you want to engage that

• 3:20:47Lex Fridman?

  part of yourself or some other part of yourself. Economics is another community that enjoys

• 3:20:54Lex Fridman?

  Being like very straightforward about their disagreements, pretty harsh. It's fun to watch because it feels like you arrive at the truth much faster because you tear each other apart. But you know, that's a choice, that's a deliberate choice. And you mean, I don't want to label entire community of people by its extremes. I don't think you should do that. But there's cultural characteristics you start to notice. When you go to France, it's a certain way. When you go to Britain, London is different than rural Britain. And you know, New York is different than Iowa. You start to notice things. I mean, you don't want to generalize. There's all kinds of people everywhere. But you know, there's a certain way of communication on crypto, Twitter in general,

• 3:21:36Lex Fridman?

  but also Bitcoin Maximalism that I even early on received a bunch of heat. I was like, what the hell? So it, listen, there's definitely a difference when I go to the computer science community, machine learning community. It's way friendlier than the cryptocurrency community. I have much more freedom to actually be what I enjoy being, which is asking simple dumb questions, even when I've already spent years, sometimes decades with an idea. I like asking dumb questions anyway. The crypto folks punish you for this, for curiosity, for like exploration. I understand the mechanism because so many other people come into that community and

• 3:22:21Lex Fridman?

  they might masquerade as curious, but really they're trying to inject, they're trying to sell some kind of altcoin, there's some scheme, there's some scheme to make money. And so I understand, maybe that's just the dynamics of the community by nature. It's not like you respond appropriately to the amount of charlatans in the community. So if the fraction of charlatans is low, maybe you can afford to be more loving and kind and so on. And when the fraction of charlatans is high, you have to be harsher. Perhaps, perhaps, but...

• 3:22:55Speaker 01

  I think also, you know, the stakes are extremely high in this situation. And I think, you know, if you don't like Bitcoiners, if you think Bitcoiners are toxic, wait till you meet Fiaters, you know? The Fiat community has financed world wars and genocides and tyrants and the mass death and destruction. Fiat community, if you want to use that term, I don't believe you should, but I mean, you know Fiat has destroyed the savings of pretty much anybody who's lived through the last 20th century. Pretty much anybody who's lived through the 20th century, no matter where you lived, Switzerland, US, Ethiopia, Russia, you've gone through Fiat problems. You've had hyperinflation, you've had bank confiscation. There isn't a family in the world today that hasn't had its wealth destroyed over the

• 3:23:40Speaker 01

  last century. You know, they all have a story about the inflation and the hyperinflation. And Bitcoin offers us a way out of this. And shitcoins, altcoins are essentially Fiat world's last gasp attempt to try and salvage Fiat, to try and salvage the idea that some people will continue to be able to print money and other people will have to use that money. You know, this is Twitter, it's a free market, it's the internet. You don't have to follow anybody, that's the thing. Like, so I, what I found, what I find really objectionable about the people who are so butthurt always about Bitcoin maximalists is you don't have to click follow on people you don't like.

• 3:24:24Speaker 01

  There are 300 million Twitter accounts, and if you choose to follow the accounts that say things that annoy you and then complain about the fact that they say things that annoy you, I'm sorry, but you're an idiot and you don't know how to use Twitter. Just follow the accounts that you like. It's, it's, you know, you don't have to be part of this, you don't have to listen to those people, you can choose, there are a lot of Bitcoiners that don't act like this. You can just unfollow the ones that you don't like.

• 3:24:49Lex Fridman?

  And I've since, in the past year, man, time flies, I've met a lot of them and I enjoy them a lot and you build that community of people that you enjoy, there are lots that communicate in the way you enjoy. And it's become a meme at this point that I block would love, I think.

• 3:25:04Speaker 01

  Yes.

• 3:25:05Lex Fridman?

  Because I did not.

• 3:25:07Speaker 01

  I block very prolifically and I strongly recommend people continue to block. I think Twitter is, you know, you're not going to get to interact with 300 million accounts anyway. So you want to be constantly curating the experience by getting rid of people you don't like and following people that you like. And that's just how, you know, after 10 years of using Twitter, you know, you get, you accumulate a block list, which is very big, which I'm very happy for. I'm going to pass on to my children.

• 3:25:34Lex Fridman?

  On your deathbed, your grandchildren will gather around and your grandfather can finally share.

• 3:25:40Speaker 01

  Yeah.

• 3:25:41Lex Fridman?

  The full list.

• 3:25:42Speaker 01

  Yeah. So like, again, it's just a Twitter account. If it bothers you so much, ask yourself why it bothers you that some people are so. I'm not referring to you, obviously, but I mean, the people that are constantly aggravated about this, I don't get bothered by anything on Twitter. I just block immediately and I get to curate the experience that I enjoy and I recommend people do that. It's really a lot less pathetic than complaining about strangers saying things you don't like, which a lot of, and of course, the reason for it is, you know, I mean, when I say it's stupid, it's not really stupid. There's an ulterior motive there. And the ulterior motive is, hey, I have this shitcoin that I made with five other friends of mine and I'd like you to, I'd like to ride your coattails Bitcoiners and I'd like you to please help me promote this shitcoin.

• 3:26:27Speaker 01

  Like this is, I get this practically every week, whether through email or through Twitter, where, hey, you know, this is our shitcoin.

• 3:26:36Speaker 01

  You know, it's just like Bitcoin, but it's better because it does this and this and that. And, you know, basically, how can we get you to promote this shitcoin for us? And being straightforward and forthright is a great productivity hack because, you know, you just tell those people, no, I'm not interested. It's a stupid shitcoin and I wish you quick and swift failure before you take a lot of people's money. And that's what I genuinely think.

• 3:27:01Lex Fridman?

  Well, but I'll just be upfront with the fact, at least for my taste, just labeling everything as a shitcoin. Worries me. So that's just my own preference. It's not a judgment on you. It's just my own preference that I'm afraid I'll miss good ideas. I think when you're, me personally, when I'm too certain about things, when I'm too tribal about things, I'll miss actually really strong ideas, outlier ideas, totally new ideas. So that worries me. One of the downsides of the way Bitcoin is, how much is at stake financially, is that it's less open to good, actually by design, that it's not changing, like with the hard forks and

• 3:27:44Lex Fridman?

  so on, that there's not a kind of curiosity about exploration of ideas. Of course, in some way, that curiosity can start getting injected when you start talking about other layers built on top of Bitcoin, you start talking about applications or different things like Lightning Network, that's where the curiosity can emerge. But still, that's why with cryptocurrency in general, I just try to keep an open mind. And just the shitcoin as a term is just a good statement that I'm going to close my mind to. That's the way I hear it. And, but coming out of your mouth, because you say a lot of other edgy stuff, it's just more you having fun. That's the way I hear. But if I said something like that, that's, I feel like, I would feel like I'm closing my mind.

• 3:28:28Speaker 01

  I mean, let me give you the counterargument to that. How much time do you spend emailing back all of these Nigerian prince email scams that you know, email you, tell you, send me $5,000 and I'll send you $15 million?

• 3:28:39Lex Fridman?

  None.

• 3:28:40Speaker 01

  None. Why are you being closed minded to all of these great ideas?

• 3:28:43Lex Fridman?

  Well, no, but I'm also...

• 3:28:44Speaker 01

  You know, maybe one of them will actually send you $15 million.

• 3:28:48Lex Fridman?

  But I don't know if I know the difference between the Nigerian prince and many other people I do talk to who are colleagues and so on, that are also emailing me and they're also offering me things, but they don't sound as ridiculously spammy.

• 3:29:02Speaker 01

  Yeah, but I mean, the moment that somebody tells you, hey, I'm going to give you $15 million for nothing, just if you send me $5,000, you know, you're getting something for nothing. And essentially with all of the digital currencies, it's the same pitch. Hey, you know, come use this thing that'll allow you to do things that, all of the things that they pretend that they can do, that can be done with computers without having digital currencies. You know, we already have AWS that does cloud computing, that does everything that shitcoins pretend to do. The only difference is AWS doesn't have its own monetary system tacked on top of it to allow Jeff Bezos to basically... Print his own money.

• 3:29:37Lex Fridman?

  But don't you think there's some gray area? So let me, let me go for the historical record. And let's see if you've changed as, as a philosopher economist, human being. You tweeted three years ago.

• 3:29:49Speaker 01

  Oh.

• 3:29:50Lex Fridman?

  Anyone who believes proof of stake can work is either one, completely clueless at how and why Bitcoin works at all, or two, a con artist using it as a buzzword to promote a worthless scam like Ethereum. Do you still believe that Ethereum is a scam? And in general, proof of stake? You're either clueless if you think it's interesting.

• 3:30:15Speaker 01

  Yeah, no, I still stand by that. I think the.

• 3:30:18Lex Fridman?

  Would you classify Ethereum as a shitcoin?

• 3:30:20Speaker 01

  For sure. It's the, it's the mother asshole from which the shitcoins spring.

• 3:30:25Lex Fridman?

  The royal, the king shitcoin?

• 3:30:27Speaker 01

  Yeah. I think the key thing is, you know, the way to think about it is another tweet from a couple of years ago, which is essentially proof of work was like the invention of flight. Like we've gotten this machine and we've managed to get it to fly off the ground. And proof of stake is, hey, we found a great way to make airplanes cheaper and faster by not making them fly.

• 3:30:50Speaker 01

  By keeping them on the ground. Like the, the invention of proof of work, the reason the entire digital currency space exists is because Bitcoin operates based on proof of work. If Bitcoin was based on proof of stake, it would have died or been shut down from day one.

• 3:31:05Lex Fridman?

  But that's a hypothesis and a lot of people believe that. And I think they have a lot of strong support. But basically, proof of work is, is grounded in physics in the real world. And proof of stake is more about.

• 3:31:19Speaker 01

  It's politics. It's, it's the Federal Reserve. It's exactly what we have. It's exactly what we have. It's, it's just a group of people who get to decide the rules. And it's essentially a, a system that is, you know, it's a security. It's a company. So it, it's not an innovation in any sense. It's a step backward to what we already had, which is you get a bunch of people in charge of the money. Now, the only reason it survives in this, and the reason I call these things scam, and I have no problem with calling them a scam, is because they. Fraudulently present themselves as being decentralized. They present themselves as just being a different way of doing decentralization than Bitcoin, when it's not. It's just they're riding Bitcoin's coattails, and they're riding the fact that most people don't quite understand what Bitcoin is and how it works,

• 3:32:03Speaker 01

  to portray themselves as a cheaper, better, more efficient way of doing what Bitcoin does. It's not. It's a less legally accountable way of doing what central banks do.

• 3:32:14Lex Fridman?

  Right, so, and the basic criticism is that there's a group of people, sometimes a very small group of people, they can control the parameters of the operation of the system.

• 3:32:23Speaker 01

  Exactly.

• 3:32:23Lex Fridman?

  Over time, you can't trust... It's not gold under the mattress. It doesn't have that kind of heart.

• 3:32:30Speaker 01

  It's not property, and I really very strongly recommend your discussion with Sailor for people who want to elaborate more on this. There's a bunch of people in charge, which means that, you know, legally, they should be doing this under securities law. But even as an anarchist, if I don't want to care about that, the technical implication of it is, this is never going to be adopted as a neutral way of transferring value on the internet, because you need something that enemies can trade with one another. You can't have something that has a small group of people in charge, because A, this small group of people themselves can be corrupted, and B, they can be coerced. You know, you can put a bunch of people in a room, put a gun to their head, and you can change everything in any of these digital currencies. And that's why, that's why I think, you know,

• 3:33:15Speaker 01

  you'll find a lot more sympathy among theatres to shitcoins. The Keynesian economist to Ethereum fanboy pipeline is a very strong one, because it's the same thing. It's like, you like the idea of people being in charge in money, and you think you're going to be the one who's going to be in charge of money. So you see a lot of this phenomenon, and you see the same people that want gold and don't like central banking, they get into Bitcoin.

• 3:33:43Lex Fridman?

  Yeah, so just to actually... Push back a couple of things. So one is theater. It sounds like I'm trying to be a sophisticated Brit talking about theater. But for many reasons, it's not making me feel good about that. So, you know, day by day, things change. You used to be one of those. So people evolve, people learn, people that are supporters of Bitcoin might eventually become supporters of Ethereum or go back to supporting fiat. We don't know. People evolve for different reasons. You grow up, you mature, or you become enlightened. So I think every single person sort of, as this technology is evolving, as this world

• 3:34:26Lex Fridman?

  is evolving, as wars break on, as geopolitics changes, the monetary system is constantly put under stress, people will evolve. And so we're trying to all figure it out together. That's why I like open mindedness here, I think, for people like me at least, is seems essential.

• 3:34:43Speaker 01

  I know. So I expect you to be answering all of the spam emails you get.

• 3:34:47Lex Fridman?

  I will. Prince by prince by prince. But no, I don't have a clear understanding. What is a good investment in my time? What is a good investment in my money? That doesn't seem clear because things, things are good at promoting themselves. I'm not talking about the different kinds of things like Ethereum, altcoins and so on. I just mean life, like dating, jobs, friendships. Like everybody's advertising themselves as a great investment, right? But you don't, you don't know. And you have to keep an open mind. And also, you know, I don't, and be sort of self introspective about what, how like biases I operate under

• 3:35:32Lex Fridman?

  and ways I delude myself, like hallucinations that I'm living under. It's like breaking, you know, breaking out of all these hallucinations. It's very hard to introspect. Thinking like, what are the assumptions under which I lived my entire life that might be actually false assumptions? That's a really difficult thought process to take. It's a dangerous one. It's you, the Nietzsche, if you gaze long into the abyss, the abyss gazes into you. It's like Alex Jones talks about this. I mean, he's living, he's got demons in his head. So he has like the, all these conspiracy theories that it holds in his head, but it begins to really destroy him. So it's a psychological burden to carry. So if you question, if you question authority, if you question government, if you question

• 3:36:14Lex Fridman?

  culture, the way things have been done, it's really difficult. And the biases you operate under, it's really difficult to question them. So I think like being constantly open minded and self critical, not constantly, but a little bit every day is important, I think.

• 3:36:32Speaker 01

  Yeah, but I mean, you know, you're talking to somebody, I grew up in Ramallah in Palestine in the West Bank. I've changed my mind on all kinds of different things. The fact that I was even open to the idea of Bitcoin is required, has required an enormous, enormous amount of, it's a heck of a journey. So I'd much rather appreciate, you know, direct arguments rather than these kind of general fluffy, you know, you should be, oh, of course, yes, you should be open minded. But you know, also you come up with conclusions and you delete spam emails sometimes when you know that it is spam because you have to move on with your life. You can't, there's an opportunity cost to considering every spam email, so.

• 3:37:10Lex Fridman?

  Well, to me, okay, so I'll just say from my relatively sort of shallow perspective, almost like a technical person mostly, my, my understanding of economics is weak. Proof of stake is not obviously a weak consensus mechanism relative to proof of work. So it's, that's not obvious to me that that goes wrong and get, becomes corrupted in the way that governments get corrupted because it still seems decentralized. Now, your criticism of governance is an interesting one, but if you put that aside, it still is a decentralized mechanism.

• 3:37:49Speaker 01

  And it's more transparent than the mechanism that governments operate on.

• 3:37:53Lex Fridman?

  It isn't.

• 3:37:54Speaker 01

  This is exactly what the Federal Reserve is. The Federal Reserve is a proof of state system. The Federal Reserve is owned by its constituent banks. And so the rules of the Federal Reserve and the regulations are determined by the ownership, which is the banks. So it's exactly what the Federal Reserve is.

• 3:38:07Lex Fridman?

  But it's too backdoor. The agreements between the banks and the Federal Reserve, it feels like a lot of those agreements are made between individuals that are sort of behind the scenes. It's not hard to, it's opaque.

• 3:38:20Speaker 01

  Yes, but the only way that a proof of state system will take off is if you have a military to force people to use it. That's the thing. Ultimately, there's no way that it's going to take off on a free market. And that's why, you know, for all of the bluster about wanting to move to a proof of state system, Ethereum have been saying this since 2014. It's now been eight years, you know, that they've been talking about it. We still haven't seen the proof of state system operational in the wild. There's vaporware for all practical reasons.

• 3:38:48Lex Fridman?

  Or Dano is proof of state.

• 3:38:50Speaker 01

  It's potential. I mean, you can do it in a centralized way, but like, can it survive? Can it last for a long time? I don't think so. And I think, you know, it can last perhaps initially with marketing, with centralized marketing, you can promote it. But ultimately, user demand, the people that are not interested in speculating because they want to get rich on this, the people that are going to use it, they're going to want to use it because they can trust that it is not going to be messed with.

• 3:39:20Lex Fridman?

  Yes. But there's also applications on top, so Lightning Network, but there's applications on top, like, well, the reason I'm interested in things like Ethereum is, you might think it's ridiculous, I thought it was ridiculous, but NFTs. So you can have NFTs probably on top of Bitcoin.

• 3:39:37Speaker 01

  But you don't because there's no marketing on Bitcoin because. All of these ideas get promoted on proprietary shitcoins because.

• 3:39:44Lex Fridman?

  Yes, but there's the network effects of ideas of applications. So they just take off for some reason. And human civilization is such that you get excited about stuff and large amounts of people believe a thing and they start to get excited and it actually has impact. Like the fact that NFTs can have an impact on the art world or the world in general is is wild to me, but it worked.

• 3:40:06Speaker 01

  So, well, you know, David Roth call has an impact on the art world. It's same much.

• 3:40:12Lex Fridman?

  Well, I'm saying these ideas have, you know, we're collective intelligent beings and we can believe a thing and that has that has power. That has led to major wars and all those kinds of things. So the it's interesting to me that NFTs took hold. And the question is, is there distributed, you know, dApps, is there distributed apps built on top of different blockchains that might somehow transform the world? You have to kind of keep an open mind to that. Because right now it's like, ah, it's like, I'm the same place with that as I am with like virtual reality. It's like, all right. This seems like a really intellectually promising set of ideas here, but there's something either technically or socially not quite taking hold. Why? And I don't know what the right answer is.

• 3:40:57Lex Fridman?

  So with virtual reality, what's the right answer? Is it just technically the latency is too high? Or the games are not good enough? Or is it a fundamentally flawed idea that you can live in a virtual world and enjoy it? That the physical world is just orders of magnitude better? Or a two dimensional display is just as good as a three dimensional world? I don't know. Why is virtual reality not taking off? It's been since the eighties, right?

• 3:41:23Speaker 01

  I don't have strong opinions on it, on the prospects of the technology. I personally, I don't want to ever imagine myself having something on my eyes. I'd rather just go out into the real world. But I don't have strong opinions on virtual reality. I do have on DApps and NFTs.

• 3:41:40Lex Fridman?

  Yeah. What's your criticism of DApps and NFTs? Is it a distraction? It's a way to sell a flawed technology?

• 3:41:47Speaker 01

  The problem with DApps is, I mean, it's just the economics of it makes no sense in the sense that, you know, currently, if you wanted to run an application, whatever the application is, you want to run it on AWS, you pay a specific amount of money. You want to run it on your own laptop, you pay a specific amount of money per kilobyte of data. If you wanted to run the same thing on a distributed ledger, where you're distributing the data over thousands of computers worldwide, it's infinitely more expensive. And that's why we haven't seen any of these DApps take off. And that's why I've said this many years ago. The only working application of blockchain technology is Bitcoin, because with Bitcoin,

• 3:42:28Speaker 01

  you know, you're with a few hundred bytes of data, with a few bytes of data, you could move a billion dollars worth of economic value from here to China and move it safely and reliably. So that power, I can't see it being justified for anything that is not as mission critical as moving large amounts of value, which require very little amount of information. So when you look at all of the buzzwords that Ethereum and other altcoin marketing people like to use, and you know, if you want to wonder really why we come to this kind of aggression is because we've heard all of this, you know,

• 3:43:08Speaker 01

  I've had all of these hucksters come to me for years, you know, it's been, I've had, you know, people in 2016 talk to me about how Ethereum blockchain technology is going to revolutionize real estate deeds in India. And I remember this guy.

• 3:43:25Speaker 01

  I'm not gonna mention his name. But this guy was, you know, 2016 and he sold a lot of shitcoins and he got, made a lot of money off of shitcoins. Based on the, based on all these silly ideas, we can have Blackjack on a distributed ledger. We're gonna have Indian real estate on a distributed ledger. And it's just, it's concern trolling, marketing, you know? Oh, there's a problem with real estate in India, real estate deeds. Blockchain fixes this, buy my shitcoin. And then people buy the shitcoin, Indian real estate isn't fixed and the guy gets rich and they move on. But I mean, I'm still waiting for an app to actually emerge. Like, you know, it's, the promise that we keep hearing is something completely world-changing, world-transforming.

• 3:44:11Speaker 01

  And the reality is not one app. Like, there's, one of my good friends, Jimmy Song, eventually they refused to go ahead with the bet. He wanted to bet with one of the Ethereum people about, about these dApps. You know, the Ethereum people are constantly saying those dApps are gonna grow and they're gonna have so many applications and they're gonna have so many ideas. And the reality is all the apps that work are centralized apps, you know? So there is no Uber on the blockchain, there is no Twitter on the blockchain, there is no social media on the blockchain. Because these are businesses and businesses require a centralized authority to make decisions. You can't have it be decentralized.

• 3:44:48Lex Fridman?

  Yeah, listen, you're frustrated and I could, I could see it over the, a few years of just having dealt with the humongous influx of charlatans.

• 3:44:57Speaker 01

  I wouldn't say frustrated, I'm amused. And it's no, it's water off my back.

• 3:45:03Lex Fridman?

  No, but a man that uses, and a community that uses the word shitcoin is a little bit, you have, you call it amusement. And I think amusement is a way to deal with the frustration, it's a channeling of frustration. Like, sometimes when you have to deal with bullshit, the best way is just to laugh at the absurdity of it all. And that's what you mean by amusement. But the, the fact is like,

• 3:45:30Lex Fridman?

  There's things like artificial intelligence for, what is it? How many decades, six, seven decades has been off and on promising to change everything? And it has failed time and time again to deliver to the promise. But that doesn't mean there's something fundamental and really powerful about both the small and the big things going on within the actual research and development within those communities. There's a lot of exciting developments and the scale at which those developments might actually have a transformative impact, the time scale is unclear. It seems like we're certainly overpromising. We dream too big and too aggressively in the AI community, but in a lot of

• 3:46:15Speaker 01

  Yeah, and I'm happy to give people the benefit of the doubt when they're overpromising, but not when they're making their own money. When you start making your own currency, then you don't get the benefit of the doubt. Because if your idea needs you to have a new currency that you print when Bitcoin is out there, then I'm gonna go ahead and assume that you're doing this for the money.

• 3:46:33Lex Fridman?

  Good time to mention that I am actually launching my coin called Lexcoin.

• 3:46:39Speaker 01

  You mean shitcoin, yes.

• 3:46:41Lex Fridman?

  Oh, God, I'm gonna have to block you with love.

• 3:46:46Lex Fridman?

  Okay, one thing I wanted to ask you about is the Fed's, this paper they released in January 20th, on the potential central bank digital currency, CBDC. What are your thoughts about that? Is it just another, like, is there pros and cons to this? Is it all interesting to you that they're even considering this kind of thing?

• 3:47:07Speaker 01

  I used to think that it's, it's just basically waffle. It's meaningless. Because as it exists, the dollar is a central bank digital currency. The vast majority of dollars are digital and But I think the way that over the last couple of years I've changed my mind on this. I think this is that there's some serious substance behind these ideas. And what they mean effectively is the disintermediation of the banking system and giving everybody an account at the Federal Reserve. This is this is kind of the really dangerous idea. And I think this is enormously significant. Effectively, as somebody who's lived in the Soviet Union, what this is, is the return of the Goss Bank on a global scale with modern technology.

• 3:47:50Speaker 01

  So under the Soviet Union, there was something called the Goss Bank or the People's Bank. And that was the only bank in the country. And you had an account with the National Bank. And, you know, if you said something wrong, your money got terminated from the Goss Bank. Now imagine that combined with the power of digital technology. And you can see that this could be an enormously powerful technology, really. Because if banks are out of the picture, then we changed the fundamental reality of fiat as being the creation of money through lending. And then it becomes the creation of money truly by fiat, by government fiat. So we move to a system in which money is just basically.

• 3:48:34Speaker 01

  It's like we have money that is pieces of paper. And every time we've had money, we've had fiat money that was just pieces of paper. It collapsed very quickly. With the current system, money is credit. And the creation of credit is restricted to some point. And the creation of credit is self-correcting. I discussed this in the fiat standard. If you if the central bank allows banks to create too much credit, that creates a bubble and then there's a collapse in the money supply, which prevents hyperinflation from happening. Because the, you know, the money creation is self-destructive. It's self-correcting. So you end up with an average of like 7% per year increase. Because you have 10% for five years and then you get negative 20% for one year. And it's correcting.

• 3:49:17Speaker 01

  But now if you get rid of the credit creation mechanism and it's just assigning money directly, we're likely going to get much faster inflation. And I think the that's obviously a huge problem. And perhaps the even bigger problem is the enormous amount of power that it gives to governments. It's it's it allows them to create an awful dystopia where, you know, you've got your money on your phone and.

• 3:49:44Speaker 01

  Anything you do is completely supervised and controlled through your spending. So they want to introduce a new lockdown, then they'll just make your money not work. You know, your money is broken today. You can't spend money or you can only spend money in your local supermarket for the next three months because you can't leave your neighborhood. Your money stops working outside of your neighborhood. You know, this Chinese social credit score system is an example of this. And I think, I don't know, I don't have a crystal ball. So I don't know what the likelihood is of implementing something like this in the US. I've discussed it with Michael Saylor. He thinks it's highly unlikely. He thinks, you know, the people who've been pushing this are very far from the position

• 3:50:26Speaker 01

  of power and the traditional monetary and financial system is going to survive intact. I certainly hope so. I think this would be a terrible thing if it comes to pass. But I don't think, many people think that it is something that would undermine Bitcoin. Like a lot of common objection to Bitcoin is, well, governments are just going to launch their own digital currencies and then Bitcoin is going to die. And I think this is completely missing the point. People think Bitcoin is important because it's digital. It's not. National currencies can be digital. Bitcoin is important because it's not inflationary and because nobody controls it. Central bank digital currencies are likely to be very inflationary and they're likely to have very strong control at the top.

• 3:51:07Speaker 01

  So if anything, they are an advertisement for Bitcoin rather than a replacement for it.

• 3:51:12Lex Fridman?

  If it's Bitcoin, if it's gold, it's a way for multiple nations to partake. So if you were to imagine a future where we move from the fiat standard back to the gold standard and then to the Bitcoin standard or skipping that, going directly to the Bitcoin standard, what would it take? Is it gradual, is it immediate? What are possible trajectories that take us, well, basically where the final sort of empirical observation is that you overtake, Bitcoin overtakes first gold and then bonds in terms of its monetary power in the world, but like just specifically from a government perspective,

• 3:51:54Lex Fridman?

  how do we move the United States, China, Russia, India, European Union to Bitcoin standard?

• 3:52:03Speaker 01

  I'm not entirely concerned about whether governments move or not. In fact, I'd be very happy for them not to move as long as possible so that individuals can accumulate more and more Bitcoin while it's still cheap.

• 3:52:15Lex Fridman?

  So the people will move and the governments will catch up?

• 3:52:20Speaker 01

  Yeah, and I think this is kind of what I allude to. I mean, the point of the fiat standard, the fiat standard is really a Bitcoin book. It talks about fiat most of the time, but it does so to analyze Bitcoin and the rise of Bitcoin. In the final chapter, I discuss how I think this relationship plays out. The way that I tend to think of it is that most likely what's going to happen is we're going to have kind of a financial apartheid where there's going to be two monetary systems. One is government controlled and it comes with increasing amounts of surveillance and inflation. And then if you want, you can just opt out of that and get into Bitcoin and it's likely

• 3:53:03Speaker 01

  going to be difficult for governments to stop people from getting into Bitcoin for all of the technical reasons that make it very hard to stop Bitcoin. So then we have this alternative that is Bitcoin, which is not inflationary and does not have a central authority that can censor it. I think gradually is my hope and I also think my most likely scenario, but maybe I am biased because everybody thinks what they want is what's going to happen. I think we're just going to witness, you know, the same relationship because governments make their currencies so that they can devalue them. And Bitcoin thrives on that. And more and more people are gonna learn, more and more people are gonna find out.

• 3:53:46Speaker 01

  And whether it's through curiosity or self-interest, or through the destruction of their national currency, all roads lead to Bitcoin. So more and more people are gonna buy Bitcoin. The price of Bitcoin is going to go up. And as it goes up, Bitcoin becomes a more significant part of the world economy. And this is, this is something that skeptics don't get. Like, a lot of the academic skeptics to Bitcoin, you know, they, they offer up all of these theories about why they think Bitcoin can't work. And then they present it and they think, you know, they've delivered the knockout blow as if Bitcoin needs their permission or the world is going to need their permission. Well, the reality is people are gonna join Bitcoin out of greed, out of self-interest. Number go up technology is, is really what's going to get everybody in. Yeah.

• 3:54:30Speaker 01

  And that's really the Trojan horse for fixing the world. You know, come for the greed and stay for the revolution. It's gonna keep going up because people don't like to be poor. Except for most economists and academics. People don't like to be poor. People don't enjoy getting their wealth destroyed. And they care more about their self-interest than they care about economic theories about whether this works as money or not. They see their cousin escaped hyperinflation and managed to get a bigger house because they bought Bitcoin five years ago. They realize, maybe I should stop mocking my cousin and start buying more Bitcoin. And this is, I think, an indomitable force that's going to continue.

• 3:55:09Speaker 01

  And one thing, um, the, most Bitcoiners tend to lean toward an apocalyptic transition. You know, fiat's gonna collapse, we're gonna get hyperinflation, everything's gonna be terrible, and then we're gonna move to Bitcoin. And I present the case for why I think maybe that might not be the case. Maybe we won't get this kind of apocalyptic scenario. And it's because, and this was like the conclusion of the fiat standard, which is, once you realize that mining fiat is creating debt. And Bitcoin is allowing, so in order to have fiat money, we need to have people borrow. We need to have people make loans. And the problem that fiat money runs into today is that if you want to save money,

• 3:55:51Speaker 01

  if you want to hold savings, you have a problem. Where do you put your savings? So you put your savings in debt, in the creation of more bonds. Wherever you take your savings, you create a bubble in those things. And this is why we see a bubble in the stock market, a bubble in the bond market, a bubble in housing. It's because people are looking for savings, looking for a place where they can save. All of those things are crappy saving instruments because they're like, they're like copper in that there's nothing to stop the people behind them to make more of them. House builders can build more houses, governments can issue more bonds. The crappy fraudulent companies can list on the stock market and make more stocks. Well, Bitcoin finally offers us an outlet. We don't need to keep creating more debt.

• 3:56:36Speaker 01

  We can invest in this asset that is hard and that is internationally liquid and that nobody can make more of. So there is no bubble in it. There is no mechanism for somebody to increase the supply and bring the price crashing down, like with copper and real estate and bonds. So Bitcoin is the way out. And this is why I think there's a good case to be made for why the fiat authorities might embrace Bitcoin because they'll see it is their way out of this enormous debt bubble that everybody is stuck in. Particularly, the richest and most powerful people in the world and the richest and most powerful governments in the world are the world's biggest borrowers. They're the ones in a lot of debt.

• 3:57:17Speaker 01

  So a continuous slow devaluation of the value of that debt as people upgrade and move on to a hard asset that continues to appreciate is the way that we, is the peaceful way that we wind down the fiat Ponzi, I think.

• 3:57:32Lex Fridman?

  You could see it being like a political, part of a political platform for future people that run for president, those kinds of things to address. Obviously. It's not just for the powerful and the rich. The people are bothered by the debt. The people are bothered by everything that you describe with Fiat. And if you wanna sell yourself in a democracy as a good leader, you might want to make that part of the platform. You mentioned you know Michael Malice. He just texted me asking me to ask you, what do you like best about Michael Malice? If you can spend five to 10 to 20 to an hour talking about the genius of Michael Malice, what do you like?

• 3:58:17Speaker 01

  Where does one even start? Well, obviously the haircut first.

• 3:58:21Lex Fridman?

  Yeah, he just gets sexier with age, that's for sure. That's one. Do you, you know, his ideas, his trolling and humor? Have you gotten a chance to interact with him?

• 3:58:33Speaker 01

  Yes, yes, I've met Michael maybe 10, 12 years ago in New York. I used to live in New York when he used to live in New York. I met him a couple of times. There was a bunch of anarchists in New York used to throw a happy hour once a month. It was called the High Time Preference Hoppe Hour in honor of Hans Hermann Hoppe. So I met him there a couple of times and we followed each other on Twitter for a while.

• 3:58:59Lex Fridman?

  Is it interesting that you're aware of philosophical differences in your worldviews?

• 3:59:05Speaker 01

  No, I think we pretty much see eye to eye. I think the difference is mainly that he's, he spends a lot of time focusing on American politics and American pop culture, which I don't pay much attention to, I guess.

• 3:59:17Lex Fridman?

  So you look more at the monetary system, the economics of it all, and just the history and just looking at it, zooming out at the big picture of it all. Although recently he's working on a book called The White Pill. And he's been, every time I see him, I mean, he's in some dark aspect of the 20th century. He's just like, I just finished writing about Hall and Moore. As you might imagine, he's not taking much, I believe, of a monetary perspective on things. His book, his writing at least for, for time, has a kind of philosophical ideology perspective that is on the side of the monetary system. But you argue that those are actually inextricably linked, but...

• 4:00:01Speaker 01

  Yeah, and I don't think he would disagree, but...

• 4:00:04Lex Fridman?

  But a book has to be, you know, it can only be so long, I suppose.

• 4:00:09Speaker 01

  It can only focus on so many things.

• 4:00:12Lex Fridman?

  If you can put on your wise sage hat and give some advice to young people. I mean, you know, the past four hours have been a kind of advice. But if you can focus and if somebody in high school or college is thinking about what to do with their career, can have a successful career or to have a life they can be proud of, what would you tell them?

• 4:00:33Speaker 01

  I'd say probably the most important advice that I would give is to find a way to give value to other people. And this is really the key thing. You need to wake up every morning and figure out how to serve others. This is, this is the key to everything you want in life. Everything that you want is on the other side of you serving others. So figure out how you can serve others in a good way. How you can do it in a way that they value. And you've got an incredible mechanism for figuring that out, which is the market. Go out there and do things for other people and you know.

• 4:01:08Lex Fridman?

  The market will tell you.

• 4:01:09Speaker 01

  The market will tell you exactly. If you're young, you have the enormous advantage of being able to make things, make mistakes essentially and learn from them. So go out there, do things of value for others. Figuring out how you can do something that contribute, what is it that you can do that contributes the most value to other people's lives? And increasingly, I think with the modern technology, this is increasingly becoming online. And it's, I think, you know, you should consider how you can create value online because that scales beyond anything that you can do in the physical world in a very, very, well, maybe not beyond, obviously. There are profitable businesses in, in, in the physical world.

• 4:01:53Speaker 01

  But I think online is enormous potential. And coding, I think, is enormously powerful. I'm not a coder myself, but I strongly recommend people get into learning how to code. And I think it's it's it's probably the thing that carries the most power. So initially, we were working with our hands. We started working with machines. Machines are much more productive. Well, code is an even higher level of productivity where you basically program the machines to produce things. So, um, you know, few clicks of a keyboard and you can move millions of machines around the world in certain ways. So it carries an enormous amount of value. I think, um, I always tell all young people to learn to code. It's the best thing.

• 4:02:36Speaker 01

  I used to tell it to my students when I was at university. Tell them to drop out and go learn to code. It's probably a better use of their time and money.

• 4:02:43Lex Fridman?

  We could probably do both.

• 4:02:45Speaker 01

  Yeah.

• 4:02:45Lex Fridman?

  University has an interesting function. I mean, probably you and I have different perspective on this. Probably has to do with a little bit of a different journey in terms of, um, fields. Cause I'm so, I've stayed engineering focused for a long time. And there's less, some of the troubles you might highlight in the education system. There's less troubles of that kind in engineering. Cause math hasn't changed for a long time. So it's, a lot of it is just doing hard things, being forced to do hard things and becoming a bit of a journalist. While on the side, you're also becoming a specialist based on your own passion, driven by your own passion.

• 4:03:24Lex Fridman?

  So school, at least high school, I don't know about the university, but high school has a really nice. One of the only times in your life, at least in my life, I was forced. But now I see, uh, given the opportunity to spend my entire day learning broadly. And that's something, I don't know, the way time works, it just runs away from you. You never really get a chance to do, learn quite that broadly again. That's the curse of specialization is you kind of never get a chance to study biology, chemistry. If you're a physicist, uh, you know, time runs away from you. So it's enjoy the, uh, the broad, uh, the broad education.

• 4:04:06Lex Fridman?

  But yeah, like you said, find the things that valued by the market.

• 4:04:13Lex Fridman?

  And on the other side of it, you said all the good stuff. So that's also a way to get happiness.

• 4:04:18Speaker 01

  Yeah, and I'll also add that the horse that I like to whip all the time is the low time preference aspect of things. Saving with Bitcoin. So I think my advice to young people is, you know, when you're young, you think of the world in a very short term generally. You're focused on the present and you think that everything that's happening in the present is the most important thing that's ever going to happen in the history of humanity. Lower your time preference. Think about the future. Think about, think further down the line. Think about the consequences of the things you do. And then what, you know, and so you do this now. It feels good today, but then what happens tomorrow, you know, you go out, you drink, you enjoy yourself. Think about the hangover, but more in long term, think about the implication of living this kind of life.

• 4:05:02Speaker 01

  Think about every decision that you make, the long term implication of it. And part of that is Bitcoin. Part of that is save in Bitcoin. I urge everybody to put savings in Bitcoin for the long term. Don't buy Bitcoin for the short term, you know, don't buy Bitcoin today so that you can sell it. You don't put your savings in Bitcoin today so that you can sell it all next month and buy a house. Put money in Bitcoin that you expect to keep in Bitcoin for another five, 10 years or so, at least four years is what I recommend for people. So keep a low time preference, focus on the future and save in Bitcoin.

• 4:05:38Lex Fridman?

  And learn about how to buy Bitcoin, how to learn about all this technology. Part of this is this conversation, but there's so much awesome material out there. And thank you, by the way, for this gift of a hardware wallet.

• 4:05:50Speaker 01

  Nice.

• 4:05:51Lex Fridman?

  Uh, so you should definitely invest in it yourself and what would you call this? These are

• 4:05:57Speaker 01

  Open dimes.

• 4:05:58Lex Fridman?

  Open dimes. Yeah. So this is like USB that you can, like a hardware device that stores Bitcoin.

• 4:06:04Speaker 01

  Yeah. So you don't have to worry about us knowing the password. It contains the password within it and it's tamper proof. So you can save the Bitcoin on it and

• 4:06:12Lex Fridman?

  So when the apocalypse comes, you need, you need the, the value to be stored on actual thing that you can have in your physical possession.

• 4:06:19Speaker 01

  Yeah.

• 4:06:20Lex Fridman?

  That's exactly what this is. Um, you've had a heck of a life. You've been in a bunch of places in this world.

• 4:06:27Speaker 01

  Lot of places.

• 4:06:28Lex Fridman?

  Life is not easy in some of those places. What has been, if you can take a step to, to maybe a bit of a dark step for a short time, what has been a, uh, maybe darkest time, period, place you have gone in your mind, a dark period of your, of your life, a struggle you had to overcome, you had to survive?

• 4:06:51Speaker 01

  Well, I'm Palestinian, so that is the tragedy of my life. I'm Palestinian, Jordanian. My family's, uh, suffered a lot because of this historically. I grew up in Ramallah in the West Bank. It wasn't, um, ideal to see that. Um, people like to think of it as this intractable conflict between two bitter enemies, but, um, the reality of the matter is that it's not. A foreign ideology came in with the idea that this country needs to be occupied by people from only one religion and the existing population, which, you know, I mean, Jews had always lived in Palestine historically and, um,

• 4:07:34Speaker 01

  at the turn of the 20th century, they were only 10% of the population. But then with the birth of fiat money, incidentally, you know, the, the link with all of this is that, um, when the Bank of England went off gold, a big reason why they were able to pull that off was that the Rothschild banking family supported them. And in exchange, the Rothschilds got Palestine. And, uh, the, the Balfour Declaration was written by the, um, government of Britain to the Rothschild family, telling them that, um, they'd like to make, um, Palestine a homeland for Jews. So obviously that's not very convenient for people who are not Jewish, for whom that is a homeland. And the past 80 years has been a very painful

• 4:08:18Speaker 01

  struggle, um, if you happen to not be Jewish. And, um, obviously, you know, obviously Palestinians have done all kinds of things trying to fight back and they've done all kinds of wrong things. But I don't think you can escape the fundamental reality underlying this, which is that, um, if you're not Jewish, you are being moved out of the land. And so it's happened in 1947, 48, it happened in 1976, my 67.

• 4:08:44Speaker 01

  More land was taken over by Israel. Now you see it with the settlements. You know, if you ignore the day to day headlines and you ignore the media propaganda and you ignore all of this, there's a very clear thing that is happening, which is more land owned by an exclusive ideology that believes this land needs to be owned by people from one religion and everybody else is being kicked out. And so that is the tragedy of my life. And my wife is also Palestinian refugee from Lebanon and her family was evicted from Yafa, which is today on the outskirts of Tel Aviv. They still have their homes in Yafa. Their homes are being lived, you know, they got kicked out of their homes and their lands and their property.

• 4:09:29Speaker 01

  They became refugees in Lebanon. So my children, I know it's an ongoing tragedy. It's not something that is, a lot of the people that think of it as, you know, they think Palestinians are just out there to get Israelis because they hate them. But it's an inescapable tragedy. I don't have a home anywhere.

• 4:09:49Lex Fridman?

  Is there an escape from this tragedy in the future that you see? If you zoom out across the scale of decades, will we see? I hesitate to say peace, but a significant decrease in human suffering in this part of the region?

• 4:10:12Speaker 01

  I certainly hope so. And I think, you know, my interest in Bitcoin comes from, came from a place of desperation with the situation there. Traditional politics is a dead end. I don't see what I can be doing to make things better there using traditional politics. And I think a good friend of mine, Pierre Rochard, you may know him on Twitter, one of the brightest minds in Bitcoin, in my opinion. He told me his theory is that Bitcoin is going to bring peace to the Middle East because land is a shitcoin.

• 4:10:46Lex Fridman?

  Land is a shitcoin, I love it.

• 4:10:48Speaker 01

  And I think he's got a very good point there, that this fixation with land and the bitterness with which people have to live land is likely to decline when people are gonna have a form of property that they can keep. And so, hopefully, that will help in one way. And of course, the more obvious way is that this is a conflict of governments, and it's a conflict that is financed by fiat. And from day one, you know, the entirely insane notion that you could build a national, an ethnic homeland. And of course, you know, this is the early 20th century, so the idea behind Zionism is coming from the same place where all these other

• 4:11:30Speaker 01

  ethnic nationalisms of Europe were emerging. And we saw how well, how horribly these worked out. But the idea that you could, you know, it's one thing to say, we wanna build a homeland for Germans in Germany. It's one thing to say, we wanna build a homeland for Germans somewhere else. And that was, that was Palestine, that was Zionism. And that was only possible thanks to fiat, thanks to the ability of the British government and all these other governments to continue to finance this colonialist effort over time. And, you know, it continues to finance war, and it continued, you know, we see war all over the world continue to escalate because the people who'd make the decision to escalate the war are not the

• 4:12:14Speaker 01

  ones who are paying for it, and they're not the ones who are fighting. They're the ones who sit in offices. And in the case of, you know, most of Middle Eastern conflict, it's, it's people who live abroad, you know, it's people who are abroad who are not part of it, who just are emotionally charged to it because they watch it on TV. So, you know, you have billions of Muslims around the world and Jews around the world who feel extremely emotionally attached to it. They're not the ones fighting, they're not the ones paying their own money. They're just getting governments to send money and to send weapons and to take part. And it's, it's fun as a spectator sport for most of these people because they don't get to live in it. But I got to live in it, I saw it, I grew up there, I saw.

• 4:12:59Speaker 01

  I saw the settlement expansion and you know, recent a few weeks ago, I went back to Ramallah. And it's just, it's amazing. Every time you go, the settlements are just growing in an astonishing way. Like it's, it's, it's not just housing units that are going up. It's an entire attempt to build, to basically suffocate Palestinian areas and force Palestinians to leave or keep them living in horrific conditions.

• 4:13:27Lex Fridman?

  And if I may, just because I have family in Ukraine, I have family in Russia. Since this war, echoes of similar things are happening in that part of the world too. And I shudder to think about the decades to come of the hate that is brewing, the suffering that is brewing based on decisions and pressures and from not always people directly impacted by this. So again, it feels like that military conflict is not just a creation of like people on the ground. It's a creation of leaders, power centers.

• 4:14:08Lex Fridman?

  And, and perhaps, again, I'm not smart enough, but even the monetary system probably has a role to play.

• 4:14:15Speaker 01

  I absolutely think it does. Monetary system is what allows, is what allows people to just continue to treat war as a spectator sport.

• 4:14:23Lex Fridman?

  Yeah.

• 4:14:24Speaker 01

  That's, that's really what it comes down to. And it starts with World War One and it's continued. And this is why really, I think, I've said this before, I've tweeted this before. And it was a pretty popular tweet, but it also got a lot of people to dismiss the idea with mockery, of course. But I really think Bitcoin is the only technology that's going to end World War One. Once World War One started, we got into this endless conflict. It's been going, ongoing since then. If you look at all the world's conflicts today, pretty much they all trace back to World War One. And it's because when that Pandora's box of government control of money was opened, there was no longer a real restraint on war, except complete defeat and complete destruction and complete death.

• 4:15:08Speaker 01

  The war had to be total. Before that, you know, and then this, under the gold standard. Kings would send professional armies to fight each other in battlefields. And as soon as it became clear that one side was establishing an advantage, the fighting would stop and the kings would settle, you know, would agree to new terms. Because it was extremely expensive to build a professional army and you ran out of money. So it was always the smartest thing to do is to just stop fighting whenever you could. And wars would take place, you know, countries would fight each other in the battlefield. But in the cities, life went on as normal. And people within the same cities, within the cities of the two countries would be trading with one another.

• 4:15:53Speaker 01

  Life would go on, but the war would be there. And it was just an independent part of politics that, "All right, we have a problem over this piece of land, let's take it outside. We don't fight in the civilian areas, we go to the battlefield, we fight with professional armies." And in fact, sometimes the conflicts would be, you know, the armies would line up. And they would just have a small contingent of the two armies fight with one another. And as soon as one of them establishes an advantage, then, "All right, well, you won, let's move on with it."

• 4:16:28Speaker 01

  Governments were far, far, far more careful about their monetary policy and their, sorry, their war policy when they couldn't print their money. And that has changed with fiat. And that has allowed this new emergence of this class of what I like to call chicken hawks, of people who sit in offices, like the entire foreign policy establishment in Washington DC, people who have never fought in war, whose children will never fight a war, who will never pay to fight a war, who will never suffer a broken window in their house because of war, sitting there and based on these fucking moronic garbage that they teach at moronic fiat universities about politics and geopolitics,

• 4:17:10Speaker 01

  making decisions about, you know, "We need to invade that country and we need to send war there." And they can do that because they have this endless money printer. And that's why, you know, back under gold, if you were a warrior, you know, you went That actually joined the war. And that, you know, the, the, the people who pontificated about war were the people who had experience with war. The people who were sending their own children to war, the people who were fighting with their own money. Now you have all these fat parasitics come sitting in Washington DC deciding, and Washington is just an example, but all over the world this exists. People who have never fought, who'll never carry the consequences, who are going to devalue the world's money in order to go and have other people's children fight each other because of

• 4:17:55Speaker 01

  stupid garbage they learned about politics in university.

• 4:18:00Lex Fridman?

  You said you value low time preference. But I have news for you that one day you will die, as far as we know, you're a mortal being. Do you think about your death? Do you think about your mortality? Are you afraid of it?

• 4:18:17Speaker 01

  I've spent a lot of time introspecting and thinking about these things and I, I value life a lot. I value my time on earth a lot and you'll see this in my dealings with people, you know. Go back to Twitter, why am I so brash and straightforward? It really is because life is short. Because I don't want to waste, I think, you know, on my,

• 4:18:42Speaker 01

  I've, I've, I've, I've said this before. On my tombstone, let it be written, he never let anyone waste his time twice in his life.

• 4:18:52Lex Fridman?

  His life is short.

• 4:18:53Speaker 01

  Yeah, you can waste my time once, you can get me to do something and then I realized that was a waste of time. You will never get me to waste my time twice. And so you show up in my Twitter with something stupid, you're never showing up in my Twitter.

• 4:19:04Lex Fridman?

  So you're a fast learner. You give people a chance, but you're a fast learner.

• 4:19:07Speaker 01

  Yeah, so I try and, and I try and use my time very wisely and I, I'm unapologetic about it. It's my time is the most precious thing and like, the way to get on my shit side, on my shit list forever is to try and take away my time and to abuse my time. If you do that, I'm, uh, it's the one, it's the one unforgivable sin for me. And I think that's, that's really, I think that's my way of coming to terms with mortality. We're all gonna die and so let's make the most out of it while we're still here. And of course, the other way you come to terms with mortality is you have children.

• 4:19:41Lex Fridman?

  Given what you just said, doubly so, it's a huge honor that you would spend your valuable time with me. This is the first time you did it, so you probably regret all of it. So we'll probably never see each other again.

• 4:19:55Speaker 01

  No, this has been great.

• 4:19:56Lex Fridman?

  Took the chance to do it. It's a huge honor, man. I've been a huge fan of yours.

• 4:20:00Speaker 01

  Thank you, sir. Thank you.

• 4:20:02Lex Fridman?

  I think you have impact on the world that you probably are not even aware of. It's tremendous. And a lot of people love you, and your work is important. Even, you know, I disagree with some things you say, and there's people that disagree with you, but everybody respects you. And thank you so much for spending your really valuable time with me today, brother.

• 4:20:20Speaker 01

  Thank you, sir. Really appreciate it. This was not a waste of time, and I'd be happy to do it again.

• 4:20:24Lex Fridman?

  Thanks for listening to this conversation with Sev Dinamoos. To support this podcast, please check out our sponsors in the description. And now, let me leave you with some words from the Austrian economist Friedrich Hayek. Economic control is not merely control of a sector of human life, which can be separated from the rest. It is the control of the means for all our ends. Thank you for listening, and hope to see you next time.