193 - Lyn Alden's Masterclass On Money

When we think of people to walk us through the history of money and where it's all headed, it's hard to think of a guest more qualified than Lyn Alden. This episode is a masterclass where we answer seemingly simple questions like "What is Money?" to the future of money and how Lyn thinks the next great transfer of wealth will play out. ------ ✨ DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-lyn-alden-and-the-history-of-money ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q4 https://%E2%81%A0https//k.xyz/bankless-pod-q4 🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum https://%E2%81%A0https//bankless.cc/Arbitrum ⁠ 🔗 CELO | CEL2 COMING SOON https://bankless.cc/Celo ------ CHAPTERS 0:00 Intro 6:34 What is Money? 10:03 Double Coincidence of Wants 14:18 How Does Money Emerge? 19:46 Progression Of Money Over Time 28:00 Society vs Society 33:14 The Transition to Fiat 39:07 Settlement Time Of Gold 47:53 What Are Banks? 59:14 The Technology Arc 1:04:26 How Nation States Impact Money 1:13:33 Ledger's and Army's 1:16:36 Bretton Woods 1:31:01 Is The Fiat Era Ending? 1:38:13 The Crypto Future 1:44:05 Future Predictions ----- RESOURCES Lyn Alden https://twitter.com/LynAldenContact Broken Money https://www.lynalden.com/broken-money/ ----- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures

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

• 0:00David Hoffman?

  The cool part of this story is that we've actually never seen such a transition from money to money, fiat money to crypto money. I was assuming we're all headed towards crypto money. It's never been such a big transition of wealth up to this point. And so we have a bunch of patterns of Bitcoin. There's scarcity, that's provable scarcity. There is the communications network that is the Bitcoin network. There's just a lot of things that rhyme. But just what about this crypto future gives you such confidence that this is where we're going?

• 0:33Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Chon Adams. I'm here with David Hoffman, and we're here to help you become more bankless. What is money? That is the question on today's episode. You can't understand crypto until you understand money. That's why this is a core episode on the Bankless journey. And this is one for the beginners and the veterans alike. I think you're both going to learn something. Understanding money is the starting point to understanding crypto. And that's why this is a canonical episode for Bankless. We brought the best person in the world to walk us through this understanding. Lynn Alden is on the episode today. Here are a few things we discuss.

• 1:18Ryan Sean Adams?

  Number one, what is money? Where did it come from? Number two, commodity versus credit money. Which model of money is correct? Number three, why money is the ultimate game of survival of the fittest. Very Darwinistic. Number four, how the banks came to be. Number five, how those same banks became central bankers and why they keep rugging us, including some of the most recent examples. Number six, the fraying of the current fiat money system and the birth of crypto monies. And number seven, how Lynn thinks this will all play out in the future. David, this is a jam packed episode. What was the significance to you?

• 1:54David Hoffman?

  The story arc of money, and I consider to be pretty synonymous with the story arc of humanity. Society doesn't talk about what money is nearly enough. Money should be taught in schools. It should be taught in universities. The concept, the question, what is money, has such rich answers that talk to so many other adjacent academic studies like human anthropology, sociology, psychology, economics, finance. If you can answer the question of what is money, you answer so many other questions about so many just laws of the way that the world works, as well as just being able to understand history and also be a good capital allocator.

• 2:35David Hoffman?

  It's weird that so many capital allocators out there can't answer the question, what is money? And I think that's one of the big advantages that crypto people have over other capital allocators, is because they go one level deeper, understanding what capital actually is. What is money? What is the form factors that allows money to emerge? In this episode, Lynn Alden does a fantastic job of guiding us through history, and I think we could just do so many more episodes like this around the subject of money, because it's a question with infinite answers.

• 3:07Ryan Sean Adams?

  Big confession, I didn't understand money before I got into crypto, and I think crypto is the best way to actually learn what money is, and all of those adjacent areas that David just mentioned. We're going to talk about this episode, of course, as we always do, David, during the debrief episode, which, if you are a bankless citizen, is available for you now, right on the Bankless Premium feed. You can upgrade to bankless citizenship and get access to that right now. Okay, guys, we're going to get right into our episode with Lynn Alden. But before we do, we want to thank the sponsors that made this possible, including our number one place to buy crypto money, that is Kraken, our recommended exchange for 2023.

• 3:44David Hoffman?

  Kraken Pro has easily become the best crypto trading platform in the industry. The place I use to check the charts and the crypto prices, even when I'm not looking to place a trade. On Kraken Pro, you'll have access to advanced charting tools, real-time market data, and lightning-fast trade execution, all inside their spiffy new modular interface. Kraken's new customizable modular layout lets you tailor your trading experience to suit your needs. Pick and choose your favorite modules and place them anywhere you want in your screen. With Kraken Pro, you have that power. Whether you are a seasoned pro or just starting out, join thousands of traders who trust Kraken Pro for their crypto trading needs. Visit pro.kraken.com to get started today.

• 4:21David Hoffman?

  Cello is the mobile-first, EVM-compatible, carbon-negative blockchain built for the real world. And now, something big is happening. Introducing the Cello Layer 2. It's a game-changing proposal that's going to bring Cello's rapidly-growing ecosystem home to Ethereum. Vitalik has shared his excitement for the Cello Layer 2 on the Cello forum, so has Ben Jones from Optimism. But why? The Cello Layer 2 will bring huge advantages, like a decentralized sequencer, off-chain data availability, and one-block finality. What does all that mean? Rock-solid security, a trustless bridge to Ethereum, and more real-world use cases for Ethereum without compromise. And real-world adoption is happening. Active addresses on Cello have grown over 500% in the last six months. With the Cello Layer 2, gas fees will stay low, and you can even pay for gas using ERC20 tokens. But Cello is a community-governed

• 5:06David Hoffman?

  protocol. This means that Cello needs you to weigh in and make your voice heard. Join the conversation in the Cello forum. Follow @celloorg on Twitter and visit cello.org to shape the future of Ethereum.

• 5:18Ryan Sean Adams?

  Bankless Nation, today we are honored to have Lynn Alden back on the podcast. Lynn is the best person alive at explaining money. At least, that is according to me. What it is, how it came to be, where it's going. And she's done so quite thoroughly in her new book titled Broken Money. Here it is. Got on my desk. It's a big one, folks, and it's absolutely fantastic. Lynn, welcome to Bankless. How are you doing?

• 5:44Speaker 02

  Thanks. I'm always happy to come on. Glad you enjoyed the book, and it's certainly been a fun journey to write it and research it.

• 5:51Ryan Sean Adams?

  Well, I think that the reason we are doing this podcast, the reason we wanted to bring you on, is because money is critically important. I think it might be the most-used but least-understood technology that we have, and it's also key for the crypto journey, for the bankless journey. So, before you can invest in crypto with any kind of conviction, I'm convinced you absolutely need to understand money. Can you answer the question, why is gold valuable, right? Why is the US dollar the world's reserve currency? If you can't answer those questions, I don't know that you're ready to actually invest in crypto with conviction. So this, in some ways, is the First step on the bankless journey is understanding money.

• 6:35Ryan Sean Adams?

  So we're super excited to walk through that story today and get all of the history and context. So Lynn, I think I want to start with the first question and maybe we could do things the way you did things in your book, which is kind of chronological. But the most basic fundamental question in our mind today at the beginning of this episode, what is money?

• 6:56Speaker 02

  So I think the old school definition of money remains very appropriate today, which is that it's a medium of exchange, liquid store of value and unit of account. It's basically a signaling mechanism. It's a ledger that we use to communicate value, to store value, to transfer value. And it's generally that useful intermediate state between, you know, things we're going to consume or more risky or illiquid assets you might want to own longer term. It is this liquid medium that we use and it's very, like you said, it's very important technology. Another way of kind of framing that is that money is that which solves the need for barter and avoids the double coincidence of wants.

• 7:39Speaker 02

  And so in a world without money, any form of money, if we wanted to trade with each other, let's say we were in a more primitive context and, you know, we want to trade something, we have to find something that I have extra of, that you are deficient in, and that you have extra of something that I'm deficient in, right? So it's actually kind of a hard combination. There's so many frictions or ways that trade can fail. And so generally, there's two main ways to lubricate trade, to basically reduce the frictions there. One would be deferring transactions across time. And so, for example, if you need something now, but I don't need something from you

• 8:22Speaker 02

  right now, I'm pretty good and I have some surpluses, I could give it to you, either because I'm banking up some social savings, you know, kind of, or in another context, we could formalize it so that you owe me something in the future. So I'm taking on some degree of counterparty risk, but I'm basically, you know, in my way, stockpiling savings and you're getting a need met.

• 8:46Speaker 02

  And the other way to do it is to have a kind of a super commodity, a liquid scarce, portable, divisible unit that we never really have too much of. Like, how many people complain about having too many gold coins or too many dollars, for example? We can always use more.

• 9:04Speaker 02

  You know, in, there's, there's only so much furniture I want. There's only so much, you know, another house would be a burden. There's, there's only so many financial things or consumable things that I want, but portable dense liquid stores of value, I can always use more of. And so, in a hunter-gather concept or context, generally shell beads were among the earliest types of money, which is basically that if you don't know what else to trade, various types of kind of hard-to-make portable ornamentation served as money. They were kind of the, they were kind of the invention of liquid savings, the invention of store of value, because you could always have more of them. They were wearable, which increased

• 9:47Speaker 02

  their portability. They were small. They were dense. They were divisible. And so that, basically, if you have one commodity that all trades can be denominated in, that makes other trades easier too. So, there's really kind of different camps about what money is. And they both mainly arise from the two primary ways to solve the double coincidence of wants, which is either that time deferment, or that universal unit of account.

• 10:10Ryan Sean Adams?

  Okay, so, we have this double coincidence of wants, where I'm a blacksmith, you're an apple farmer. You want my sword. I want some of your apples to feed my family. So, what, what do we do in those cases? Or maybe, actually, I don't want the apples. Maybe I have enough apples would, would be, you know, more accurate. Well, I could give you the sword, and I don't want any of your apples. I, maybe I have enough apples. I want to buy some wheat. And there's two ways for us to make that transaction. One is an IOU. You could say, "Hey, Ryan, I owe you one. You know, I'll get you more apples next season when your family really needs it." And that's kind of the, the idea of credit-based money.

• 10:56Ryan Sean Adams?

  IOU-based money, or the other is we formalize across our our society some sort of super commodity, beads, shells, maybe maybe later on a silver or a gold, or something that the entire society recognizes as incredibly valuable, right? Some super commodity, and that solves that problem and that completes the transaction. And that's the basis of the two forms of money, right? And the two theories of money, the commodity-based money, which is like a gold or a beads or a shells, and then also the credit-based money, which would be in the form of the IOU.

• 11:33Speaker 02

  Yeah, they've often been in opposition. You know, different economists or theorists will have different ideas about what money is, but they're both solving the same general problem, which is making trade easier between parties that don't necessarily want what the other one has, and storing value. And what they have in common is that they're both ledgers, and there's just different maintainers of that ledger. So if you're relying on a on a super commodity, you're relying on nature to set the boundaries for that ledger. You know, how hard are the units to make? And the ledger is updated with physical possession, right? So there's only so many so much gold in a region, make it into gold coins. We're bounded by the parameters of nature. Nobody can just print more gold. And so we're kind of relying on nature to set the bounds of that ledger.

• 12:17Speaker 02

  Or if we're relying on credit, then we're relying on our depending on what size we're doing it. It could be a could be our tribe, could be, you know, in Babylon, the temples had this more extensive kind of, you know, clay tablet ledger system. Today, we have central banks. You know, whatever scale you're working at, you're relying on humans' ability to control that ledger, to come to an agreement on the ledger. Sometimes there could be competing ledgers. And so money is, in many ways, an emergent phenomenon in the sense that, you know, it's not an accident that we pick gold rather than apples as money. Anyone who tries to pick apples as money is gonna have a really bad time, and it's gonna it's gonna select itself out. But there's also occasionally, or now more frequently, top-down impositions of money,

• 13:02Speaker 02

  where they get to kind of define local monopolies if they have the power to do so. But then, of course, on an international scale, even those monopolies are competing with other monopolies for money. So money is still a market when you zoom out in the global sense.

• 13:18David Hoffman?

  I really want to drill down into that emergence phenomenon because I think that's one of the reasons why the story of money is so cool. Emergent phenomenons are complex and they're nuanced and they have different parameters based on the variables in which they arise. Talking about just like this idea of credit-based money where like Ryan's got something that I want, but I don't have something that he wants. But since him and I have a social relationship, I can just owe him one. And that is something of based on trust. And that works because of the relationship that Ryan and I have. And that starts to create some sort of credit-based money. When we talk about the other end of the spectrum, the super commodity money, that credit, that relationship that I have

• 14:02David Hoffman?

  with Ryan, the technology of money can embody that relationship with someone that I don't have that relationship with. And so there's this, you know, the barter myth that I think has been, is the meme is that like, okay, we all have these like goods, but there's no, there's no money substrate. And so like, we all come together and be like, hey, let's just pick up money because it's easier to barter. Like that's from understanding like the history of human progression, it's kind of like that. But it's also just a little bit not like that because money has come about in so many different ways based on just like the size of the tribe and the actual money, like what is the thing that is being transacted? Can you talk about just like the different ways that money emerges as a facilitated need?

• 14:48Speaker 02

  Sure. So at this, and it's, there's been different schools of thought on that. And we get more evidence over time. And generally, the way I would summarize it is that barter is so inefficient that it rarely arises naturally. And when it does arise, it's usually things are not going great. And it's usually like a temporary phenomenon. And so money emerged so early because barter was a problem so early. So it's not like we had this long era of barter and then we invented money. Yeah, it's that, that's kind of the, so that's kind of the original thought is when you looked at, say, some of the early commodity theorists, they were like imagining like, you know, a blacksmith and a breadmaker and then being like, yeah, these, these guys must have had a lot of frictions as they tried to figure out what to do.

• 15:27Speaker 02

  But of course, when you go back in history, it was never like that. You never had a society with like blacksmiths and breadmakers and no money. And so money is, is, you know, literally the earliest known example might be the Blombos Cave in Africa. It's over 70,000 years old. There's evidence of like colored shell beads. You know, that the people discovering it were saying that might be the earliest case of like information stored outside of the brain.

• 15:54Speaker 02

  You know, and so basically going back a very long time, either either proto-collectibles, like proto-money, or just like groups of credit, groups of deferring a gift culture, deferring transactions, banking up social savings, keeping tracks of, you know, deeds and debts in a society. These have been the two main ways to do it. And like you said, basically, if you have relationships with the person that you're trading with, that's when credit can be more useful. Whereas commodity money is more useful if you're dealing with strangers. So in this case, it's almost like credit's the closed source version. You need to be like permissioned in this group for it to make sense. Whereas commodity money is like the open source one, like you can go up to a stranger.

• 16:37Speaker 02

  And if you have a gold coin or dollar bill or a useful kind of portable object of some sort, you can, you can trade with them even if you have no relationship with each other. And it's also a way to store value long-term that's not a liability. So if you're holding credit for long-term, you're relying on the social structure to be there. The people that owe those liabilities or remember your deeds to remember them, right? Your, your, your base, your asset is someone else's ongoing liability. Whereas if you have final settlement with something more physical, like a gold coin or a shell bead or something, you're now, you have an asset that's, it's, it's an unencumbered asset.

• 17:19Speaker 02

  It's no, it's not someone else's liability. You own it full and clear. It's not relying on the ongoing memory or liability of someone else. And so What we generally see in complex societies is that you have both types of money working together. So usually a commodity defined the unit of account, right? So in ancient Babylon, you had small bits of silver. You had a meal worth of grain. For example, these would be kind of the unit of account that people would think in and be defined as. And then you'd either have the physical transfer of the commodities themselves as money, or often to make that easier, you'd have credit built on top of that as well. So it's not like every single time a transaction has to take place,

• 18:02Speaker 02

  a physical commodity has to change hands. You can simply record it orally or in writing and then settle up at a later time or reciprocate later. And so if you have credit without a commodity money or out of unit of account, you're kind of just recreating barter, right? If the apple farmer is trading around apple credits and the breadmaker is trading around bread credits, you're still kind of stuck in this barter situation. There's no super unit of account to which to make sense of stuff in, because you need a specific credit. You need to find someone that wants this apple credit, someone else that wants this like bread credit. That's a mess. And so instead, you tend to see a standardized unit of account or a couple of units of account, and then credit facilities built on top of that.

• 18:47Speaker 02

  And that's historically how complex societies seem to have arose. And even going into the modern era, that's still generally how things work on the international scale.

• 18:57David Hoffman?

  And as money has developed, it's kind of developed alongside just the progression of humans. I think one of the important ways that I think we really want to express in this episode, that money is a technology and that technology improves over time. And it improves both on the commodity unit of account that we use, as well as the technology of the ledger that we used on the credit system. So both can kind of be different technological innovations in parallel, along with the rise of other technologies of human civilization. And different needs in different eras in human history produce different contexts for different types of money technology to emerge. Ultimately, that technology is about, in my mind... Connecting more people in a trustless manner.

• 19:41David Hoffman?

  Because like you said, that unencumbered asset of a commodity money means that, you know, whereas in credit, it takes two to tango, in a commodity money, well, actually, it's a bare asset. It's just like dependent on one single person. Can you talk about the progression of the technology of money throughout human history? When we were small, in tribe, in network, where maybe credit kind of dominated, because social relationships were known. But then there's a story arc here of as money progresses, as the technology of money progresses, that is alongside the overall scaling of human civilization, correct?

• 20:15Speaker 02

  Yeah, sure. And I think there's kind of two parallel avenues there of technological development. One is the underlying commodity unit of account itself. And then one is the records on how to maintain, you know, lists of who owns what. And so when you look at the commodities themselves, things like shell beads, or teeth, or, you know, grains, things like that, they would be early types of money. But then as societies go through more levels of industrialization, they get better at making more of these kind of lower tech types of money. And if you have industrialization, if you have metal tools, if you have hydrocarbons, you can harvest and make a lot more shell beads, or things like that.

• 20:58Speaker 02

  And so you can dilute and devalue those that are in a less technology setting, still relying on those. And so when we think of money as an emergent phenomenon, it's kind of like, it's like evolution in the sense that things are being tried, either on purpose or accident. Things that stick are ones that, you know, someone holds this thing as money, and no one else knows how to dilute that. If they pick the wrong thing as money, they get diluted. Because someone else says, well, I'm gonna, I'm gonna go make more of that. Other people seem to like it. And so if we all have a shared delusion, and we all pick paperclips as money, it only takes a couple of people to realize that we're all idiots, and they can just make a ton more paperclips and devalue us. Whereas if we pick gold as money, it's really, really hard for other people to figure out how to just, you know, print more gold.

• 21:43Speaker 02

  Just to make more gold. And so as human technology improved, we kind of moved up the scale of hardness from things like shells, all the way up to gold. And it's a weird combination, because the money has to be... Liquid, liquid, saleable, divisible, identifiable. So it's gotta be common enough that everybody's seen it, people can access it. It's around, but you can't increase the supply significantly. So super rare things like meteorites or rhodium don't have the liquidity or divisibility to serve as money, even though they, they might be good store of value or interesting, collectible. Whereas something like gold and silver, they've met the characteristics where there's a lot

• 22:27Speaker 02

  of it in existence, but it's hard to increase the supply more at a fast rate. And so that's, that's been one technological avenue of money. The other one is the ledgers that we use to record that. And so obviously in the early days, it would have been oral ledgers, you know, within your, in your own tribe. And then you had the development of writing, so clay tablets, parchment, things like that, that you could, you could write down lists of transactions, list of debts, list of assets, and some sort of central authority, like, like in Babylon, the temple state, they could maintain this. And then over time, when we developed paper, then we, when we developed the printing press,

• 23:09Speaker 02

  we got increasingly sophisticated technologies for writing down and then transferring information. Obviously now we have the digital age and with all these things came better and better ways to keep track of who owns assets. And one thing I argue in the book is that the invention of the telegraph, which ushered in the telecommunications era, really kind of broke that old commodity trend because up until then, the harder and harder commodities kept winning until you got to gold, meaning that basically the, the commodity with the highest stock to flow ratio, which is different than the stock to flow price model, it's just, it's a ratio of how much of that commodity

• 23:51Speaker 02

  exists compared to how much can be made more in a year. But with the invention of the telegraph, we could, we could now exchange information globally very quickly. And by exchanging information, you can exchange transactions, which is a fairly low bandwidth thing to do, but, but we couldn't settle physical gold that quickly. We couldn't, you had to transport it, verify it, which can be hard to do.

• 24:19Speaker 02

  And so that actually introduced speed as a new variable, which was not a key variable before. And that's a key reason why the centralized fiat currency ledgers have been able to overtake gold in the modern era. Because even though they're a step down from gold in terms of scarcity, they solve a lot of problems that gold was not solving in that telegraph era. So gold has not been strong enough to kind of assert itself. And nation states have been more powerful at defining their ledger. And kind of even in international sense. The United States, for example, there's 160 different fiat currencies in the world. They all have little or no acceptance outside of their own country.

• 25:03Speaker 02

  Kind of a monopoly status in their own country. And then the global reserve currency, either the British pound or now the US dollar, serves as like the global ledger that ties them together. Because otherwise, you'd ironically have barter on an international scale. You know, imagine if you had Thai currency and Canadian currency and Indonesian currency and Japanese currency and they were all trying to trade with each other. People would end up with this assortment of different monies and try to figure out who wants it and who doesn't want it. And you know, you're worried about this one devaluing too quickly, whereas this one seems kind of strong. Instead, money tends to have a network effect of liquidity and acceptance.

• 25:44Speaker 02

  And so that gravitates towards whatever currency is big and relatively stable, has economic scale, military scale, you know, kind of global recognition, which is the world reserve currency that kind of serves as the super commodity among currencies that serves as like the one side of either all transactions or most transactions to help, you know, make global trade more efficient.

• 26:10Ryan Sean Adams?

  This is so fascinating, Lynn. By the way, I just think that I can nerd out on money all day, like for the rest of my life, and I probably will. It's part of what the crypto journey really is. But we've uncovered a few, I think, principles for money, and this will be helpful in understanding how it will be shaped and moving forward into the future as well. And the one is, it's an emergent phenomenon. So, right? So there have been ideas of, you know, why don't we just abolish money? Why can't we construct a society without money? And I think the answer to that question, you'd probably agree with this, Lynn, is as soon as we try to do that, boom, somebody comes up with a new form of money, right? So there's no money in prison, except what do they use? Cigarettes to trade back and forth. And so, boom, emergent phenomenon. You can't have an absence of money. Something will always take its place.

• 26:55Ryan Sean Adams?

  So we've got this emergent phenomenon. We've got this power law winning type mechanism because salability, another word for salability is liquidity. You know, that's a huge power law winning network effect type game. But then there's the notion that you and David were just talking about where, well, societies can improve their money technology over time, and they improve it in two ways, both on the medium, the kind of the unit technology, like can we make it, can we find a harder money, a more sound money, more scarce money, for instance? And then on the ledger technology itself, and one key component there is transaction speed. And so we have this Darwinistic natural selection game happening at the community level,

• 27:40Ryan Sean Adams?

  the society level. So I can imagine, now I'll take us back again to ancient history. So I can imagine within one society, you know, apples aren't as good as shells. And so within that society, shells become the dominant form of money inside of that society. But then we had this world where multiple societies are meeting other societies, right? And so we have kind of these independent cloisters that don't really interact, but the world is getting smaller. And what happens, I guess, what's the history of society meets society monetary fights? So if I'm a society that's using shells, and then I come up against a society

• 28:23Ryan Sean Adams?

  that is using some more advanced technology, at least on the medium side, what happens to my money in that type of arrangement? And do you have any historical examples here?

• 28:33Speaker 02

  Yeah, so generally what happens is that the society with less technology finds their money diluted. You know, it's obviously not surprising that in the history of cultures meeting each other, ones with lesser technology tend to have a bad time. Not just in money, but in multiple warfare, all sorts of things, various types of exploitation, colonization, that sort of stuff. But money is one of the avenues. Because if the one side doesn't realize how easy their money is to create by the other side, then they can get tricked into trading very valuable resources for something that the other side can make easy.

• 29:11Speaker 02

  And so, for example, when, you know, people came to North America and found that they were using shells as, you know, they perceived shells as valuable. They could use, they could use metal tools and other things to make a lot more shells and be able to purchase things. When people went to the Isle of Yap and saw that they were using these special limestone rings, these stone circles as money, which for them were very hard to make because they had to go to another island to get the limestone and bring it back. And it was, it was a very challenging thing to do. And with modern technology, we could just, we could just make like way more and devalue them.

• 29:53Speaker 02

  When Europeans went to West Africa and saw that they liked beads as money, in particular, they'd have a lot of glass beads which had trickled down through various trade routes.

• 30:07Speaker 02

  And glass was not hard for Europeans to make, but it was hard for West Africans to make. And so, when that was realized, that was used as a way to exploit them. And so, in general, that's, you know, we can imagine a world without money and it's a world filled with frictions, right? Where simple things become a lot harder. And that's why humans are problem solvers. Whenever they encounter frictions, they want to figure out how to reduce those frictions. And so, like you said, even in prison or war camps, things like cigarettes will develop as money because it's an emergent phenomenon. And when different emergent phenomenon kind of come together,

• 30:48Speaker 02

  it comes down to which one's better, which side can dilute the other one, whereas the reverse is not true. So generally, the reason that gold and silver became money everywhere. Is because whenever gold and silver collided with another money, the people who have gold and silver's money can make more of that other money. But those other people can't make more gold and silver at scale.

• 31:06Ryan Sean Adams?

  They're like apex predators. They just dominate all the other money.

• 31:09Speaker 02

  Yeah, they're the lions of the of the community. And so even the people who use gold and silver's money can't quickly make more gold and silver. And so at least up until the telecommunications age, you you increase this kind of hardness scale. As you ran into, as the as the whole world kind of found each other, we kind of found that gold was the, you know, the super commodity. That had, you know, the lowest rate of ongoing supply increases while being liquid, saleable, you know, easy to verify, at least relatively speaking. And so that's, that's why that kind of won out on the global scale.

• 31:45Ryan Sean Adams?

  It's still kind of amazing with all of our incredible 21st century technology. I mean, gold is still like we can't replicate it. You know, for for lower than the cost of mining it, which is it's it's held up very well.

• 31:59Speaker 02

  Yeah, and that's, I mean, you know, compared to diamonds, like diamonds are just carbon. And so we can kind of figure that out and make way cheaper diamonds. Whereas gold being an element, you know, one that's like born from stars, that's a, you know, very challenging thing to do. Maybe one day we go mine the asteroids. I can imagine how expensive and challenging that's going to be. Maybe we go find deep sea deposits or something. But it's a very challenging thing to do. And even in the 1970s, when gold went up an order of magnitude in price. If you look at the percent annual supply growth, it you'd barely recognize that there was any change. You know, it's not like we started radically increasing our gold mining, at least on a percentage basis.

• 32:43Speaker 02

  Because it's actually just, it's fundamentally hard to do almost any price. It takes time for for new techniques to kind of keep up with that. And there's like an ongoing difficulty adjustment because, you know. People have been mining gold for thousands of years. And so they've already gotten a lot of the easy surface deposits. And so now with all of our modern technology, we're kind of stuck with the deeper deposits. And so even as our technology gets better, some, you know, the low hanging fruit's already picked. And so it's like this ongoing difficulty adjustment. That's why, that's why gold's been such a reliable store of value for so long.

• 33:17Ryan Sean Adams?

  Nature's difficulty adjustment is hilarious. That's wild. That's exactly what's going on.

• 33:22Speaker 02

  Yep.

• 33:23David Hoffman?

  One of the stories that I think exemplifies just the power of money. And I think also what happens next in this story arc post, post the, the evolutionary warfare that is monies throughout history, like starting with shells and animals and ending at gold. Then we enter kind of the fiat regime. In World War II, there was this thing called Operation Bernhard, where Nazi Germany attempted to fabricate a bunch of $5 British pounds and drop it over Britain to disrupt their local economy, to hyperinflate their economy. And the fact that this was a wartime operation from one country fighting the other, using

• 34:06David Hoffman?

  money as a disruptive force, I think kind of just illustrates how powerful money is as a substrate and also what happens when competing tribes, competing, competing nation states can use that technology against each other. And really the punchline I'm trying to get at here, Lynn, is well, at some point in this evolution of money, nation state powers came to be a variable here. Can you talk about that transition between just pure commodity money and the transition into fiat money and ledger money?

• 34:35Speaker 02

  Yeah, so when we go back to that, those two technological paths, you know, the underlying commodity and then the ledgers we use to record them. When we, when we invented the telegraph, so it was invented in the 1830s, but it wasn't kind of widely deployed until the 1860s.

• 34:51Speaker 02

  That era going from that point on made it so that kind of that ledger technology outpaced the commodity technology in the sense that we now have this increasingly globally connected world and gold couldn't keep up. And so the only way to bridge that gap was to abstract gold. We had to trade, you know, we were already trading claims for gold because even paper banknotes were in some ways more convenient than gold. But the, that had to accelerate dramatically in the telecommunications age. And so we began trading claims for gold a lot more. And the inconvenience of gold, you know, kind of increased relative to just having a bank account that connects you to this global world of commerce.

• 35:35Speaker 02

  But unfortunately with that is that the, the main way to solve that abstraction is through centralization. So, you know, a bank or a central bank would say, okay, so just put your gold with us. And then our, our claims are widely recognized. We can settle with other banks. And so you had the system and, you know, I cite the book, 1875 book by Jevons, Money and the Mechanism of Exchange. And he was pointing out in 1875 that the, kind of the English gold system was levered 20 to one. So he was like going on the details of, you know, kind of cross Atlantic trade and all this with, with complex paper instruments and the telegraph. And he's like, this is so convenient. We can trade claims back and

• 36:17Speaker 02

  forth and gold hardly ever has to move. We're, it's almost irrelevant now. But then he's also like, we can't forget that all these claims are technically redeemable for gold and we're currently levered 20 to one. And so if 5% of people come in and want their claims for gold, the system can't handle that. And so that, that was kind of the both why the system, it was kind of like this, like early sign of why the system is going to fail. It basically, once you give it any degree of friction, that's a very fragile system. And so when, when the world kind of ran into World War I, that's when the whole system fell apart. And in general, whenever you had banking,

• 36:59Speaker 02

  You had that kind of fractional reserve tendency where everybody puts their gold in the bank, the banker realizes that hardly, you know, hardly any percentage of their gold ever gets redeemed at once. And so they can go ahead and make loans with it. And what they're doing is they're, they're making, they're double counting the gold essentially. So they're saying that from the, for the depositors, they're saying, look, you can, you can come get your gold anytime during business hours. On the other hand, they're like lending 90% of it out. It's more illiquid assets. And then the problem is that because you have that velocity, when they lend it out, it gets deposited in another bank, they lend it out, it gets deposited in another bank, because you end up double counting, triple counting, quadruple counting gold. And so you end up having a proliferation

• 37:43Speaker 02

  of claims for gold compared to the underlying gold. And then that all breaks. And then they either break the gold peg, or eventually they got to the point where, you know, they had so much kind of, you know, governments, they would have a lot of trouble going around getting everyone's gold. That'd be a very expensive and dangerous prospect. Whereas if there's only a, you know, couple dozen, couple hundred, a couple thousand banks, you know, with a stroke of a pen, they can say, okay, give us all your gold. Now for national security reasons, it's going to be held by the central bank or by the treasury. And you can just take those big dense honeypots of gold. And so the problem is that centralization,

• 38:23Speaker 02

  abstraction, credit were used to fix gold's slow speed limitation, but that's also allowed it to be captured. And then now we're in this modern era where, you know, there's, there's, central banks hold gold, we don't peg anything to gold, and the dollar itself, which is a rapidly debasing unit, is the underlying unit of account for the world. And so I think that's, that's kind of this, this kind of era that we've been in.

• 38:48Ryan Sean Adams?

  Lynn, I really want to make sure I understand what you mean when you say gold is slow. Okay. And here's what I think you mean. So, so we've gone through like the clash of civilizations. We've come out with the best possible commodity money, which seems to be a silver or gold, but, but it's really network effect around gold is kind of winning. So we've developed that bit of the technology, the, the medium technology. And now the next piece of technology to develop is kind of the transaction layer, the ledger layer. But the problem you're saying is that gold is slow. What do you mean by slow? Like, it's slow to settle? Like, in order to get gold to you from me, if I'm to pay you, I have to like bring it across the country and give you physical possession. And so that's

• 39:29Ryan Sean Adams?

  what makes it slow because, you know, it could take days for me to travel by, you know, horse to get to you and deliver you the gold. Is that what you mean by slow? Like, it's the settlement time is slow?

• 39:42Speaker 02

  Yeah, it's slow to settle. It's slow to verify, and it has divisibility limitations. And so, I mean, a good example is that Germany repatriated part of its gold. And it took them like four years. Like, it's a comical story. They were, they were bringing back billions of dollars worth of gold. And it took them years to do it, to get all the logistics in place, to make the arrangements to securely transport the gold to verify it. It's actually really hard to verify a bar of gold down to the core, because, you know, you can wrap tungsten in a gold layer. And if we've, and, and if, you know, if you're, if you're managing billions of dollars, 99% sure is not enough. And so one thing they often do is they remelt

• 40:26Speaker 02

  the bar and recreate it. So, for example, in recent decades, a lot of gold has been flowing generally from west to east, because that's where the, that's where the trade surpluses are flowing. And when China gets their gold, they generally run these 400-ounce bars through Switzerland. They get them remade into one-kilo bars. And so the whole kind of gold bar down to its core is verified and then sent to China. You know, having to remelt and recreate a bar is not an easy verification process.

• 40:56Ryan Sean Adams?

  Extremely laborious.

• 40:58Speaker 02

  Exactly.

• 40:58Ryan Sean Adams?

  Lots of energy.

• 40:59David Hoffman?

  Lots of time.

• 41:00Speaker 02

  Exactly. And we make it into coins. They're easier to verify, but there's a reason that gold coins even today trade at a premium to gold bars on a per ounce basis. And that's because, you know, there's, there's the, there's the time and effort and resources of, of making the coin, giving it all these, you know, it's the logistic frictions of sending that around. You know, also for any traders on these like paper gold, you know, commodity exchanges, you can take custody, but it's like this multi-month process, you know, transported armed guard. You go and pick it up, right? If you're, if you're, you know, kind of securing half a million or a million or $5 million worth of gold in these large amounts. Basically, gold has these limitations. And so what happens is it tends to just get put somewhere.

• 41:43Speaker 02

  And then we trade paper or electronic claims for that gold. That's, that's what happens in practice. And, you know, also, I mean, if just from a practical standpoint, you know, I have, I have home in Egypt. I have a home here. I, my husband and I live back and forth between the two countries. When I'm here, any gold I might have in Egypt, I don't have it with me here. I can't bring that in size through airports. When I go to Egypt, I can't, I don't can't access any gold I might have in the United States. If I, you know, if I'm in Lebanon and we hyperinflate and I find a way to, you know, leave the country. I want to go somewhere else where I think there's, there's more opportunity. Good luck bringing a large amount of gold, you know?

• 42:26Speaker 02

  You know, when people left Venezuela, when people leave China, when people, you know, name the country. If people leave a certain jurisdiction, good luck bringing gold in size. And so there's just limitations with its portability and verification and speed. And so it ends up getting just centralized and abstracted and claimed. And that, that's been its Achilles heel in this kind of post, post telecommunication world.

• 42:54David Hoffman?

  And I really think the punchline that you're bringing here is that gold did great for the arc of the evolution of money. It won. It won the money Darwinism fight. But it ran up against this constraint which technology, bits, do not have. Atoms are a larger liability than bits. Bits are easier to move. Atoms are harder to move. And so as soon as human, the human arc of technology progresses past the constraints of nature, all of a sudden, there's a disconnect there. And I think what you're saying is the moment in which gold needed to be enabled to catch up as a technology to the other technologies of the world,

• 43:36David Hoffman?

  all of a sudden, it created the paper money, the alternatives, the alternatives to expressing gold. And that was like a reintroduction of trust. Like, what did the commodity money do way back when? Like, Ryan and I have this relationship. We don't necessarily need a commodity money because him and I are friends. But a stranger, strangers totally need commodity monies. But then as soon as we put all the gold in a vault and then a bank makes paper, synthetic versions of gold via paper, all of a sudden, like, we're reintroducing trust into this scenario. And that's kind of like a little bit defined the status quo for the last, like, few hundred years, correct?

• 44:13Speaker 02

  Yeah, and it's, you know, it's funny. There's, I mean, there's 200 countries in the world, roughly. There's 160 currencies in the world. Currencies fail all the time, you know, in a history of like a human lifetime. And there's no, you know, there's no gold standards out there, right? So it's not like, you know, some countries, they'll hold in line. Like, every single country has moved away from it. And even when currencies fail, those communities don't fall back to gold. They either dollarize, or they rebuild the next fiat currency. You know, gold's still useful as savings. It still serves as kind of original purposes as long-term store of value and ornamentation.

• 44:56Speaker 02

  But it's, you know, not really, it's largely demonetized. And instead, it's just kind of held as like collateral. If you need to recapitalize your system, or if you want to get through a major crisis. And, and so, yeah, in this era, we've relied more on trust. And then ironically, areas with more decentralized trusts hold up better. And so, for example, part of the reason why developed currencies grow more slowly is that they've generally like, like separated their powers a little bit. So there's a central bank that's somewhat independent. There's, you know, a congress or a parliament. You know, whenever politics goes too far to one side, generally a wave of politics kind of pushes back to the other side.

• 45:40Speaker 02

  And so, for example, in the United States today, if they just want to print a quadrillion dollars, they can't. I mean, it's, you know, there's Jerome Powell doing his actions, there's congress doing their actions, it's highly, it's highly polarized, so they have trouble getting anything through. There's a president that can veto stuff. We have this some degree of decentralization. Whereas the, the countries that have the most rapid currency dilution, it's generally because they don't have division of powers. There's like some, there's an authoritarian that can just basically print whatever they want. If, if the central bank's not doing exactly what they want, they can have them out that week. If, if parliament or congress is not doing what they want, they can just, you know, they're, they're kind of just there for show anyway.

• 46:21Speaker 02

  And so, most of these ledgers that, you know, quote unquote banana republic ledgers, is there's no safeguards, is there's limited decentralization. And so, money printing happens a lot quicker. And it's, it's just, it's kind of crazy to think about that there's 160 different currencies in the world. We've basically recreated barter. And we've built these silos so that whatever, whatever currency area you're born into, that's, that's the, that's what you're working with. Right? So if you're in Egypt, you're dealing with 20% annual money supply growth. And so, your, your mission in life is to kind of try to get your wages to increase 20% per year, which you're, you're probably going to fail at. And your mission is to say, okay, instead of holding this currency, which is rapidly diluting.

• 47:05Speaker 02

  It's like holding melting ice cubes. You want to buy something else with it. So you go out and buy a second apartment and just keep it empty. You basically are, even if it's malinvestment, you're like, well, get me into something more scarce than this. And so in this kind of current era, the slowness of gold, the need for abstraction and speed has given banks and central banks and governments a lot more power over their people, over the monetary systems. And that's, I mean, that's why I call the book Broken Money. That's, that's the, I would describe it as that we're in a local maximum in the sense that all of our technology has given us a lot of advantages in money, but it's also given us a lot of disadvantages and we're kind of temporarily stuck in this kind of

• 47:50Speaker 02

  pretty bad state of monetary affairs when you look around the world.

• 47:53Ryan Sean Adams?

  Okay, that's, it's so fascinating going through the chronology here and sort of the history here. And since we've mentioned it a few times, I think it warrants some further discussion here. You talked about central banks, but in order to understand central banks, we, I think, have to introduce what banks actually are, right? So when we're going through chronology here, we got to a very hard dominant form of commodity money technology, and that was gold, right? And so gold kind of reigns supreme. We talked about all of the limitations of gold. One of the key limitations is its speed, but it's also hard to assay, to verify. It's very difficult to store. So then we start to get this centralizing type of fact.

• 48:38Ryan Sean Adams?

  Is that when the banks enter the picture? When do the banks enter the picture in this whole story of money in the, in the arc of human history? And what is their main function? Before we get to central banks, I think we need to understand what, what, what free banks are, like private banks and why they came about.

• 48:55Speaker 02

  Sure. By, by some measures, banks have been around since the dawn of writing. You know, the, the temple administrators of Babylon were banks in a way.

• 49:04Ryan Sean Adams?

  Because they like maintained a ledger, right?

• 49:07Speaker 02

  Yeah, they maintained a, a human ledger, maintained, you know, debts and credits. And

• 49:16Speaker 02

  You know, you can look in, for example, in the Book of Deuteronomy, there's rules around lending, interest, right? So these types of financial arrangements go back very far. You know, banks generally serve two main purposes. One is they increase the portability of money. They basically make it easier to transfer legal ownership of money, move it around, kind of solve commodity monies, you know, portability or divisibility problems. And two, they provide credit. So they basically either transform money across space or transform money across time in ways that commodity monies can't do themselves. And the kind of magnitude of those differed over time.

• 50:01Speaker 02

  And so in a lot of kind of the modern, like the modern era of banking can be thought of as rising out of like the Renaissance, you know, out of Italian city-states. But I would go back further than that to the Silk Road and kind of the, really kind of the Muslim world is where a lot of kind of modern banking emerged. And that was more about the portability of money than credit. And so when you had the Silk Road, so you had trading across multiple regions, you know, across Asia into Middle East, into North Africa, into parts of Europe. You had problems of, you know, you want to transfer money, but you don't really want to have all your gold with you in a caravan.

• 50:45Speaker 02

  Right? It's heavy, it's prone to theft. And so you would have these monetary networks develop. And this is back when, you know, Europe was like the Dark Age, the Middle Ages. China invented paper and then kind of the Middle East, you know, made advances in bookbinding and things like that. So they were developing these pretty complex financial arrangements. When Europe was was not really at that stage yet, or at least had fallen back from that stage compared to antiquity. And so during this environment, you would have like money changes or Hualadars, where it's like a channel based network. So for example, one Hualadar would be in one city, their business partner be in another city. And if you were

• 51:30Speaker 02

  as a merchant, wanted to transfer value from your city to that city, you could go to your money changer, you know, give them gold and a small fee, and you would get a slip of paper that is, you know, hard to hard to replicate. It's recognized by their business partner. And then you or a messenger or someone can transfer that paper to the other city and then withdraw gold from that other money changer, because they have a prior connection. And then you can have you can have a network of those connected together. So it's gold back paper, though, basically, gold back paper money. Yeah, gold back paper, kind of secret codes, gold back paper pass codes, there's

• 52:11Speaker 02

  like different ways to do it. And but basically, yeah, it's like these, instead of a bank note, instead of a bearer asset, it's like this more specific arrangement, like this person is entitled to withdraw this amount of gold from this specific money changer, signed this other money changer that has a relationship. And then what happens?

• 52:29David Hoffman?

  Signed. You said the word signed. It's a little bit like gold plus some primitive form of encryption and a communications network.

• 52:35Speaker 02

  Yeah. And and what they're doing is it's economy of scale, because if you're a normal merchant, you might not have relationships and ways to transfer money. Whereas if you're specific in the business of money transfer, you know, let's say, you know, you know, one of you is in one city, one of you is in the other city, you have a lot of trust and relationship with each other. And so when you do this, like, you know, when when Ryan, you know, collects gold and makes it a paper, and then that person goes to David and wants to get the paper, David knows Ryan's good for it. And so money flows, yeah, money, like money flows back and forth. Nine times out of 10, I'm good for it, David. Nine times out of 10. Nine times out of 10. And that's actually was the problem with the Hualadar system. It wasn't 100%.

• 53:19Speaker 02

  But so net like money flows back and forth. Most of it nets. You know, it's not like all that has to be settled gross. And then maybe once a year, the Hualadars settle, right? Or if one of them leaves the business, they kind of settle up their books. And so it's a way of netting, a way of using credit, not necessarily for loans, but for the easier transport of gold. And so that was a one key thing. But then as you got better paper technologies, when you got the printing press, better communication overall, you could now have bigger institutions. So instead of channel based kind of proto banking, you could have an institution that's recognized in a large area. So they could issue paper bearer asset banknotes that are not made out to a specific person.

• 54:03Speaker 02

  And they say whoever holds this is entitled to an ounce of gold, for example.

• 54:07Ryan Sean Adams?

  Like a bank of the Silk Road type of idea.

• 54:09Speaker 02

  Exactly. Yeah. And that's, that's we started to see, you know, eventually Europe caught up. You know, a lot, you know, there was trading and warfare between Europe and the Middle East. A lot of these techniques went to Europe and then Europe had the printing press. They had the Renaissance. And they kind of took the lead of banking development for a while. And so we had a lot of banking proliferation out of, out of Europe, specifically kind of the Italian region, but also other regions. And you have this arrangement where you're either you're providing credit or you're managing a shared ledger of some sort that makes it easier for merchants and people to transfer value around without having to physically, you know, settle metal

• 54:51Speaker 02

  and verify metal with each other on a regular basis and all the, you know, security problems that comes with. But of course, the, the challenge of banking is that when you're relying on, on these entities, you're taking on counterparty risk. And so like I said before, the bankers would realize that most people don't withdraw their gold and therefore they can start double counting the gold. They can say, okay, we have your gold. You can come get it back whenever you want. But statistically, never more than 10% of people do this. So we could lend out 80 or 90% of the gold. And the problem is that in a system as a whole, you end up with way more gold claims than there is gold. And part of what makes that happen is that because gold is liquid and fungible.

• 55:33Speaker 02

  Like, so for example, if you have a bank safe deposit box and you put like, you know, your a rare watch or a birth certificate or something in there. These are non-fungible items. The bank can't just lend those out because it doesn't know when you specifically are going to come back and want your stuff. Whereas something that's liquid and fungible, like if you deposit gold in the bank, you don't necessarily want that same gold coin back. You wouldn't even recognize it if you did. So they just say, okay, we need to have some gold on hand to redeem some statistical amount of depositors. It doesn't matter which ones which, we don't need 100% of it. And so they started building these kind of inherently unstable systems where they're double counting liquidity.

• 56:15Speaker 02

  So one depositors thinks that all these claims are fully good. And really, there's not nearly that much gold in the system. And instead, it's kind of recursive. It's backed by other less liquid assets, which are themselves denominated in gold. And so you're prone to kind of system-wide banking crises on a regular basis because there's far more claims for gold than there is gold.

• 56:37David Hoffman?

  MetaMask portfolio is your one-stop shop to navigate the world of DeFi. And now bridging seamlessly across networks doesn't have to be so daunting anymore. With competitive rates and convenient routes, MetaMask portfolio's bridge feature lets you easily move your tokens from chain to chain using popular Layer 1 and Layer 2 networks. And all you have to do is select the network you want to bridge from and where you want your tokens to go. From there, MetaMask vets and curates the different bridging platforms to find the most decentralized, accessible, and reliable bridges for you. To tap into the hottest opportunities in crypto, you need to be able to plug into a variety of networks. And nobody makes that easier than MetaMask portfolio. Instead of searching endlessly through the world of bridge options, click the bridge button on your MetaMask extension or head over to metamask.io-portfolios to get started.

• 57:21David Hoffman?

  Arbitrum is accelerating the Web3 landscape with a suite of secure Ethereum scaling solutions. Hundreds of projects have already deployed on Arbitrum One with flourishing DeFi and NFT ecosystems. Arbitrum Nova is quickly becoming a Web3 gaming hub and social apps like Reddit are also calling Arbitrum home. And now Arbitrum Orbit allows you to use Arbitrum's secure scaling technology to build your own Layer 3, giving you access to interoperable, customizable permissions with dedicated throughput. Whether you are a developer, enterprise, or a user, Arbitrum Orbit lets you take your project to new heights. All of these technologies leverage the security and decentralization of Ethereum and provide a builder experience that's intuitive, familiar, and fully EVM compatible. Faster transaction speeds and significantly lower gas fees.

• 58:05David Hoffman?

  So visit arbitrum.io where you can join the community, dive into the developer docs, bridge your assets, and start building your first app with Arbitrum. Experience Web3 development the way it was always meant to be. Secure, fast, cheap, and friction-free. As we dive into the conversation around banks, I want to parse out two different things that emerge with the existence of banks. One is a continuation of the arc of the technology of money, and one is the economics of a banking layer. And these are two different conversations that I want to clearly delineate, and I want to focus on the technology aspect first, and we'll touch on the economics aspect second. Again, like the Darwinian fight of money concludes at gold, and all of a sudden, gold

• 58:48David Hoffman?

  ends up, like you said, centralized in certain places and certain vaults, and these start to become bank-like things. And then there's like a technology layer that's a wrapper around all of these golds. And you alluded to it, and I called it out, where it's like the people would sign something, like some sort of primitive form of encryption, or we would make these paper claims on gold that were easy to verify. All of a sudden, like new technologies enter the arena here to help express gold in a payments means and in a store of value means. And I want to kind of talk about that part of the technology, because this is involving communications networks, this is involving writing and secrets and trust.

• 59:29David Hoffman?

  Can you talk about like just that arc of the growth of the story of money? As all the gold becomes in vaults, we like new, think of new technologies that do money things that help money become expressed. Can you talk about that arc of time?

• 59:44Speaker 02

  Yeah, so part of it is the technology of writing mediums themselves. So when you go from papyrus to paper to, you know, kind of paper scrolls and then to like book, book form paper, and then to the printing press where you can, you can have more complex and cheaper and easier things to do on paper. This is improving the physical medium that, that bank merchants have to work with, which gives them more complex tools to build systems out of. And then two would be the development of, you know, just kind of encryption or interesting ways to securely transfer information that's hard to replicate or forge.

• 1:00:24Speaker 02

  And, and so, for example, if, if we go back to that Hualadar money changer situation, what you wouldn't want is for somebody to be able to figure out how to make like fake versions of these claims so they can go and extract gold from a Hualadar. And then that, you know, that Hualadar is owed money by the other Hualadar that they thought made that claim. And it turns out that, that Hualadar never made that claim. That was a forged claim from someone who just kind of like watched the system and then figured out how to replicate it. So there's that kind of cat and mouse game between making these, you know, assets that are hard to, hard to forge. And like you mentioned, even in financial warfare, you can drop fake paper bills over country.

• 1:01:07Speaker 02

  And if you're, you know, if you're good enough at counterfeiting, that might be successful. If you're not good enough at counterfeiting, if there's enough counterfeiting safeguards, that might be a, a weak attack. And so both methods and technology allowed for increasingly sophisticated types of, of arrangements. And then again, with the telegraph and other fast tools, you'd have like a lot of the records to be centralized. You say, well, the paper instrument's increasingly less important and we can just maintain a database, a centralized database, one node that, you know, kind of keeps track of the whole system or at least this, this regional system.

• 1:01:48Speaker 02

  And so one kind of fascinating thing in that 1875 book by Jevons is that he, he would Show these diagrams of banking arrangements. So basically, if, if, you know, if we're all members of one bank, that bank is our node and we, you know, we can change money to each other by going through that bank. The problem is, what if there's another person with another bank? How do we do that? And so then you have, okay, now these, these two banks are communicating with each other as well. So anyone from any one of these banks can send money to another bank. And then it's like, well, what about this bank in another country? And so that's how you start to get more and more centralized banking. You'd have like banks of banks,

• 1:02:28Speaker 02

  centralized banks. And the, the central bank kind of developed for two main reasons. There were different central banks and they developed for somewhat different, different but overlapping reasons. One was to provide credit to the government. You know, the, the Bank of England was formed because England wanted to go to war and they needed credit to do it. So one is basically further abstraction of the money. And two is that when you have an unstable system, like fractional reserve banking, where you, you don't have nearly enough gold as you have claimed for gold, you're prone to occasional crises.

• 1:03:09Speaker 02

  And one of the tools to deal with that is to have a source of liquidity that is able to kind of create more base money. And so instead of every bank holding their own gold, the central bank holds the gold, the, the central bank kind of keeps track of how much reserves each bank has. Those reserves are partially backed by gold. So now, now you have a fractional reserve system built on a fractional reserve system. But the flexibility there is if, if, you know, too many claims are coming to it once, they can say, okay, now we're only 30% backed by gold. There's, we're going to increase the reserves a little bit so that banks can have more liquidity. And so basically it was, these were Band-Aids to either provide more credit to the government

• 1:03:53Speaker 02

  when they just didn't have enough gold themselves, or when you were trying to make these highly levered systems for gold that kept breaking and they would try to find centralized ways to defer and to abstract and to dilute the money instead of having the banking system fail.

• 1:04:10David Hoffman?

  Lynn, this kind of reminds me a little bit of, as you talked about the centralizing of banks into a central bank, it kind of feels like, well, the gold also got centralized, and now the bank got centralized. So like, it itself is a honeypot. And of course, the technology of money and the technology of banking doesn't exist in a vacuum. There's other things going around in the world that are relevant to this. One of these things, I'll call them the technology of empires. The nation-state or organized power progress of humanity also is alongside the evolution of money and technology. So when humans discover this thing called a monopoly on violence, how does that impact money?

• 1:04:53David Hoffman?

  Like, how do these two particles collide?

• 1:04:57Speaker 02

  Yeah, so in general, the kind of the history of the development of banking for centuries was the history of centralization. And almost any efficiency gain that came from making money more efficient, the trade-off was centralization. So people, you know, as communication improved, as methods of information transfer improved, people kept figuring out more and more centralized ways to solve frictions associated with money. It's like, basically, eventually, they were just like, "Look, let's let this one authority handle the ledger for the entire country, and it'll be super efficient." Right? That's the end state of how things gravitated towards. And of course, you have to trust the people running that. And so that was the general possession.

• 1:05:41Speaker 02

  And then there's certain advantages that a nation-state gets if they're able to achieve that state in terms of their ability to do warfare. And so, for example, you know, back when people would hold actual coins as money, you know, whenever a country or an empire wanted to go to war, if that war was not very popular, it'd be challenging to fully raise enough taxes to cover that war. And instead, they would try to find various sneaky ways to pay for the war over time in more opaque ways. And so one of the things that they kept turning to is debasement. So they'd say, "Well, we can't tax more gold, because people are gonna get mad, but maybe we can make every coin a little bit less gold in it."

• 1:06:24Speaker 02

  And they they'll barely know and then we can pay, we can pay for the gold in that method. But that's and it's effective that they they were able to do that. A lot of cultures did that. And it it works slowly because you still have to tax, you have to, your existing taxes have to get the gold coins back. You had to remelt them and then reissue them at these, at these debased levels. And so it's inherently a slow process. The basement is generally not a very quick process. So you're still confined by how much you can realistically debase. What made the telecommunications era different is that you can debase overnight. And so an example I use in the book is that, you know, when World War One broke out,

• 1:07:10Speaker 02

  you know, people expected it to be like this regional conflict, you know, this is, I mean, this can't possibly be a big, be a big war. And the UK and Germany were kind of these rising, you know, Germany was a rising power against the existing power of the UK. And it was kind of like United States and China today, whereas back then there's, there's so many trade relationships between these countries, even though they were kind of rivals. And people were like, I mean, they can't possibly go to war. What would it mean for, for the economy?

• 1:07:39Speaker 02

  But because there's all these pre-existing military relationships, multiple countries got involved. And then the UK, which did not have any sort of pre-existing military alliance, like you didn't have to get involved, but they did not want Germany to win and get too big across Europe. So they decided that they're going to go fight this war in continental Europe, even though it doesn't directly involve them. And so what they tried to do was, you know, they're not going to raise taxes for you. They, they can only raise taxes so much. People are going to hate that. And so instead they said, okay, we're going to issue these war bonds. And we're going to go and we're going to go win the war in, in Europe. And the problem was, even though their, their reserve currency status at the time, you know, this is like, this is the most powerful country.

• 1:08:23Speaker 02

  They were only able to raise like a third of their intended war bond target. And so that was not enough to go fight the war and it would kill perceptions like the momentum would be dead if they said, uh, our war bond auction failed. Um, I guess the public doesn't like this after all. And so instead they just lied. They just printed the money. They just went to the central bank and did this like trick where, you know, the central bank like loaned a crazy amount of money to like senior officials at the central bank to go buy the rest of the war bonds. So they just, they just printed the money. And what they did then was debase all of British household savings and ongoing wages. And they channeled that towards war in Europe. So even though taxes were not

• 1:09:06Speaker 02

  been popular, the war bonds were not popular, they just did it anyway by rapidly debasing. And compared to debasing coinage, you can debase abstracted banknotes or bank deposits overnight. And so they, they can just cut the currency in half very quickly and take that savings from people and put it into war. And then in that case, because the UK was the global reserve currency, they also debased tons of other countries' reserve holdings and just, just channeled it into, into war. Um, you know, and so this, it was, taxes are enforced, but they're transparent, whereas debasement is both enforced and opaque.

• 1:09:47Speaker 02

  Um, and so value can be done in things that the public doesn't necessarily agree with.

• 1:09:52Ryan Sean Adams?

  It strikes me, Lynn, too, that another nice property of that form of debasement is with taxes, you can only tax your own citizens. But if with debasement, you can tax other people's citizens if they are

• 1:10:05Speaker 02

  If you have the global unit account.

• 1:10:07Ryan Sean Adams?

  If they're, yeah, if you have the reserve currency and they're holding your bonds. So, so this is the, uh, the Brits being able to tax everybody.

• 1:10:15Speaker 02

  Yeah, it's the ultimate rug pull. And, and, and the UK, and part of why the UK was effective in the war is because they had the biggest opportunity to rug pull. Um, Germany, you know, it was, there's generally, you know, like Germany had foreigners holding its currency as well. So they had rug pull potential. Uh, it just, it came down like who had the biggest rug pull potential. Um, and, and UK had more rug pull potential, uh, because they were the biggest global empire at the time. Uh, and so yeah, basically that, that what debasement introduces and especially fast centralized debasement.

• 1:10:52Speaker 02

  Is that ability to channel value, basically, instead of just running out of your own gold, a nation can run out of its entire citizen's liquid savings before it gets exhausted in its war effort. And so countries that don't do that are likely to lose, ones that can do that are likely to win. And so if one country does it, it kind of forces every country to do it.

• 1:11:13Ryan Sean Adams?

  It's like an all in total war type scenario. And I guess the problem with that level of rug pull, though, is you only get to do it once.

• 1:11:23Speaker 02

  Yeah, and that's why, I mean, Ron Paul has that, I think, a famous quote where he said that it's not a his, it's not an accident that the history of central banking, like the century of central banking coincided with the century of total war. I mean, part of it is just the technology itself got us to the point where total war was possible, but also this kind of opaque rug pulling did contribute to making wars probably bigger than they otherwise would have been. You can only do that rug pull once, but then it comes down to what's the alternative, right? And so it's not like the UK hyperinflated after they did the rug pull. They just lost a lot of value. And to this day, there's still foreigners that hold British currency. They sharply diminished their status in

• 1:12:03Speaker 02

  the global stage. They kind of, you know, they shot their main weapon and they don't really, they didn't really have a lot left to go. The United States, I mean, when they rug pulled people at the end of Bretton Woods, they were able to to kind of recoup that because even after they rug pulled everyone, they were still the world's largest economic and military power. And so when the world's, you know, kind of scrambling to figure out what we're going to use as our ledger, they still fell back to the dollar again. And so sometimes you get a second or a third rug pull if if you're if there's no second best, basically, if you are, if if if the next best thing is still you after you've

• 1:12:48Speaker 02

  rug pulled, people fall back again. That's kind of the tragedy of global finance.

• 1:12:53David Hoffman?

  Yeah, maybe less of a rug pull, but just like how much oil is left in the tank? Like, how much energy did you just consume? And do you still have some, some energy left? Lynn, we started this conversation talking about like the emergent phenomenon of money, talking about like trust and relationships. Then this like commodity money comes in where we don't have to trust. We just trust the supply of the commodity money. So we deposit trust into the commodity money. These commodity monies kind of have a Darwinian fight with each other and then we end up as gold. And then the banks come and reintroduce a new form of, of centralization and trust. And these things kind of just like coagulate to where we are now, which is everything, like you said, like gold centralized, banks centralized, and then armies centralized by empires.

• 1:13:37David Hoffman?

  And this is to me, a story of the capturing of this emergent phenomenon of money into empires, into who has a monopoly on violence. So where we started, which is this just bottom up need for humans to more fluidly trade with each other. That need then got inverted and created this like inherent centralization force of whoever controls the ledgers likely also has the largest army. And so to me, this is a story arc of this natural phenomenon ending up like captured. This super powerful force ending up being captured by a monopoly on violence. Is this how you see the same arc?

• 1:14:18Speaker 02

  Generally, yeah, I mean, I think we have to be a little bit careful about overstating it because I mean, there were empires, you know, Roman Empire, for example, before modern money. Generally, those empires would be built on, you know, better technology, finding a way, the combination of like organization and technology allows them to have a very wide degree of conquering. And so empires were already around, but I would say, you know, in the modern era, nation states to, you know, affect and define our lives on average worldwide more than, than they did back then. So we've consolidated from this kind of feudal environment to this more nation state environment in large part because money.

• 1:15:03Speaker 02

  Evolved in such a way that it pretty much couldn't help but be captured by the local government because there's been a need for abstracting and centralizing it. And so, at least until the invention of Bitcoin and the invention of fast settlements, we've been in this kind of local maximum where everybody's kind of reliant on these centralized ledgers. And then even those centralized ledgers are relying on a global ledger. And so during the classical gold era, they would try to use gold itself as the base layer and they would have their own central bank ledgers and they would use gold for international settlement or really just often just gold claims.

• 1:15:48Speaker 02

  When that broke, they turned to the Bretton Woods system, which is even more centralized because they said, okay, the US dollar is going to peg itself to gold. All these other currencies are going to peg themselves to the dollar. And so now, if you're in the UK, you're relying not just on the UK ledger, but now you're also relying on both UK ledger, which is then relying on the American ledger. And so kind of the Bretton Woods, like the ultimate rug pull. The only one that competes with is probably the UK rug pull. And so you get these kind of consolidations towards one country, the world reserve currency being this literally a centralized ledger for the majority of the world.

• 1:16:29Ryan Sean Adams?

  Could you speedrun us through that really quick? That portion of thing? So we went through the gold phase, we went through kind of like the UK global reserve currency status, and then it's kind of rug pull essentially and erosion as the world reserve currency. Give us the highlights of Bretton Woods in the last 70 or so years. So Bretton Woods, and then we created this new type of instrument, fiat somewhere in this transition, and the petrodollar. And now here we are today with the US still as the least bad money, I guess. At least that seems to be what global consensus seems to think.

• 1:17:11Ryan Sean Adams?

  So give us the spark notes for the last 70 years or so.

• 1:17:15Speaker 02

  Sure. So with World War I and World War II, you had almost every country rug pull its money. And basically, they all broke their gold pegs. They either just ended gold redeemability altogether, or they did it at a sharply devalued rate. They limited the ability of their own citizens to have gold. America literally outlawed gold ownership for 40 years, from the mid 1930s to the mid 1940s. Basically, their ledger was so bad that they said, "You can't fall back on this benign yellow metal as your ledger instead." It was actually, but it was harder to enforce. And so they'd have these big penalties, like years in prison, but they didn't go door to door getting the gold because that would've

• 1:17:55Speaker 02

  been like suicide. And so, so, you know, the interwar era, basically, it's just like rug pulls everywhere. Basically, you know, it was like, and if you'd lost the war, you hyperinflated. If you won the war, you merely, you know, maybe cut your currency in half, for example. And so Switzerland was trying to stay neutral. You know, they might've lost maybe a third of their currency value. Even Switzerland did a rug pull. They just did like the least bad one. And so after this period, you had, you know, you had adventure of the radio, you had further, further increased global communication. You had, the United States emerged as a hyperpower because Europe was devastated, Japan was devastated,

• 1:18:40Speaker 02

  you know, China was devastated, Russia was badly hurt, Soviet Union. And so the United States was this like hyperpower. The only real other pull out there was the Soviet Union. And so when the countries got together in 1944 to decide, "What are we going to do with our like broken money system after this war ends?" The United States' vision won out, which was they said, "Okay, we're going to back our, we're going to keep our dollar backed by gold." It's a devalued rate compared to, you know, pre-war, but it's, you know, it's, we're going to keep this current rate. It's illegal for Americans to own it, but a foreign central bank can redeem a dollar for gold because that's the only thing that gives it international credibility.

• 1:19:26Speaker 02

  And so we're gonna hold the system. And they got people to go along with it because they said, well, do you want like financing to rebuild after the war? Then go with our system. And that was Bretton Woods. That's Bretton Woods. Yeah, Bretton Woods and the Marshall Plan and all that. There are all these arrangements to have this new system, rebuild allies, even rebuild former enemies, and coalesce the system around the United States. There's also the creation of the World Bank and the IMF. These were kind of like enforcers and guardrails and enticers of the system. They can offer loans. You know, if you need dollar financing, they could provide it. But you had to agree to their terms.

• 1:20:09Speaker 02

  And so all this kind of financial infrastructure was set up. And the United States was in a position to do it because they had achieved this centralized hyperpower status. And that, you know, a lot of people blame Nixon for defaulting on the system in 1971. But one thing I point out in the book is that it was broken before then. The implementation itself was flawed because, so the Treasury held all the gold. Banks made lending decisions not based on how much gold was in the Treasury's vault. They made lending decisions for any number of reasons. It's fractional reserve banking. And you had the US and other governments running deficits.

• 1:20:49Speaker 02

  And so, say, from 1950 to 1970, you had US-based money supply double. You had US broad money supply triple. You had offshore lending further multiplying dollars with fractional reserve banking. And all of these dollars were redeemable for gold. And so, once they ended these controls on foreign exchange transactions in like 1958, American gold reserves just went straight down because the number of dollars was exponentially upward. And the US only had 20,000 tons of gold. And so, anybody with any sense would just take dollars and go redeem it for gold.

• 1:21:32Speaker 02

  And so, gold reserves just went straight down from 20,000 to 9,000 in like 12 years, just straight down. Given another decade, they would have been completely depleted. And so when 1971 came along, Nixon's watching this like, like just train wreck happening. And so they they default on it. It's like the world's biggest rug pull. They say,

• 1:21:52David Hoffman?

  Didn't he default on it when the middle of a French battleship going to Fort Knox to pick up gold? Like the ship was on the way and Nixon was like, no, we're closing it.

• 1:22:05Speaker 02

  That's basically how it was going. So what the US had a lot. So basically, any country that would try to redeem it too quickly. The United States would be like, bro, like, do you like, if you keep withdrawing our gold, we're gonna do things like, we're gonna not have our military base in your country and then you gotta worry about the Soviets, right? So it's like, countries didn't wanna kind of piss off the US too much. But there was still, but around the margins, it was bad enough that that they were still doing it. And the French in particular were more adamant about getting their gold back quickly.

• 1:22:38Speaker 02

  And eventually it just, it got, you know, the then the UK was jumping on board, like, you know, if, if, if there's blood in the water, everybody's gonna go in, right? So once, once you realize someone else is doing it, you realize like, wait, I gotta get in there before I, I, you know, you don't wanna be the last one that didn't redeem any gold. And so once it started to spiral, Nixon comes out and, and, you know, they always, he framed it as temporary. He's like, we're temporarily ending, you know, gold redeemability. And they always, you use like, um, false blames. It's like you blaming speculators. Right? It's like, well, the real problem is that dollars are going, you know, exponentially upward. And American gold reserves are going down because your fractional reserve banking built on a gold peg

• 1:23:20Speaker 02

  with no method to slow down the growth of dollars relative to gold. So it was just inherently flawed design. It broke. And then the world found itself in a situation it never seen itself in before, which is, you know, other than Switzerland, there's like nobody on the gold standard anymore.

• 1:23:39Speaker 02

  Any country can kind of force, especially in this modern era, they have technology and power to kind of enforce a ledger in their local jurisdiction. But how do you trade with another country? Like, how does Thailand trade with Canada if either of them can just print as much money as they want? Why would Canadians trust Thai currency? Why would Thai trust Canadian currency? You wouldn't want to hold that. And so the United States had to try to find a way to kind of fix this situation. So they already rug pulled everyone, but it's like, can we regain confidence? Can we stabilize this? And so the way they did it was, one, is they still had the leading network effect militarily and economically.

• 1:24:20Speaker 02

  So they're still by far the biggest, most liquid, deepest capital markets, most power projection capabilities by far. And so they would go to Middle Eastern countries like Saudi Arabia, and they would start trying to kind of maintain this network effect. So they would say to Saudi Arabia, "Look, you've got your adversary Iran, you've got problems out there. We will sell you arms, and we have aircraft carriers, we can help you defend your territories should we need to. In exchange, you sell us oil. And in fact, whenever you sell oil globally, only sell it in dollars, and then take those dollar surpluses you'll earn and invest most of them in US treasuries.

• 1:25:03Speaker 02

  And for our side, we will have positive real interest rates, we will slow down the growth of the dollar, we're going to stabilize this. And so it's like, we'll scratch your back if you scratch ours." And so the US was able to diplomatically, militarily, reestablish its network effect before it really lost it. And part of that also is that there were a lot of offshore dollars already from the Bretton Woods era, from the Marshall Plan, from all these different things. And one thing to keep in mind is that whenever you owe debt in something, you have demand for that currency. So if I owe like a thousand dollars in debt,

• 1:25:48Speaker 02

  whether or not I like dollars, I had to find a way to get dollars specifically because my debts are contractually denominated in dollars.

• 1:25:55Ryan Sean Adams?

  Taxes are another great example of that, right?

• 1:25:57Speaker 02

  Yeah, taxes and debts, these are ways to enforce demand for a currency, even if that currency is not particularly desirable. And so part of why the US was able to maintain that network effect is there was existing dollar-denominated debt in the world. And the unintuitive thing is that most of it's not even owed to the US, right? So, you know, the UK can lend dollars to Argentina, for example, and it's owed in dollars even though America is not involved, just because it's the global reserve currency. And so the combination of the existing network effect, the depth of American capital markets, military economy, the existing dollar-denominated debts, and then the fact that they were able to basically in some ways back the dollar by oil.

• 1:26:41Speaker 02

  So any country, if you hold dollars as reserves, you can go buy oil with it from any of these OPEC producers, or most of these OPEC producers. And so they reestablished the network effect as the most liquid, most saleable, most widely recognized currency, and they've been able to maintain that for decades. The main drawback of that design, so the Bretton Woods drawback was that gold kept depleting as dollars grew exponentially. The main drawback of the current like petrodollar, euro-dollar system is that the whole world needs dollars. They have to service their debts and they hold it as reserves and they buy commodities and do international trade in dollars primarily.

• 1:27:26Speaker 02

  So the whole world has this kind of extra demand for dollars. And so the US has to supply the world with dollars. And the way we do that is through structural trade deficits. And it actually kind of happens organically because there's all this extra demand for dollars, which, you know, most currencies, if you run a trade deficit for a long time, eventually you're going to run into all sorts of credit issues and your currency is going to weaken and that's going to make your exports more competitiveness and it's going to damage your import power. So trade balances have a way of kind of balancing themselves out after a while. But the United States, because of this network effect, you know, there's all this extra demand for dollars. It increases our import power.

• 1:28:11Speaker 02

  It reduces our export competitiveness. It's cheaper to make things in, let alone China, but even things like Japan. It's easy to make things in these other regions. And so, part of our exports are dollars, which means we export less of something else. We import more of something else. And so, what we do is we draw down our net international investment position over time. We run these structural trade deficits. The foreign sector takes those dollars and buys American assets with them. They buy US Treasuries, they buy S and P 500, they buy US real estate, they buy US private equity. And so foreigners own a lot more American assets than Americans own of foreign assets. But we're still in this situation today. That's the existing network effect.

• 1:28:56Speaker 02

  That has been the world's kind of best money until recently. There's all these desires to get away from it, all these desires to build something different. But it's kind of like how, if you don't like Twitter and you want to build a Twitter clone, even if you're pretty well capitalized and even if you get a lot of agreements, that's a really hard network effect to go after. If you don't like, you know, basically, anytime you're going after a network effect, if you decide, "I don't like Visa and MasterCard or American Express or Discover, I'm going to start a fifth payment card network." Like, good luck. I mean, you have to get merchants to accept it, and they're only going to accept it if consumers have it. Consumers are only going to have it if merchants accept it.

• 1:29:40Speaker 02

  So you have a chicken and the egg problem, and you're going up against a massive network effect. That's basically what these countries face when they try to dislodge the dollar. But even though the dollar system is weakening, the United States is not the share of global GDP it used to be. These trade deficits and deepening net international investment position are becoming major problems for the US. The fiscal situation's becoming worse. Countries are holding fewer Treasuries. The system's kind of fraying around the margins. But there hasn't been an alternative. That nations could build. And so that's where we find ourselves in today, that despite a series of rug pulls, the United States is still currently able to hold on as the global reserve currency.

• 1:30:22Ryan Sean Adams?

  And yet, and yet, the fascinating thing, I guess a few things is, one, it's utterly fascinating to me that this whole system that was reconstructed once again in the 1970s works, because it feels very much like duct tape. And, but yet it's persisted for what, like five decades? And yet, through our entire course of history, we've, we've seen that these regimes are, these monetary regimes are inherently unstable. Something always happens, whether it's some form of technology disruption, or some sort of economic disruption, they're unstable. And I'm wondering, maybe, maybe do we get into kind of the, the next phase of money that we might enter into, which is the internet native money phase,

• 1:31:07Ryan Sean Adams?

  this new technology that's kind of opened up for us? I'm wondering if you see, we've gone from commodity money, to you bank backed IOU money, to now like fiat money, which is the regime that we're in. Do you think that this is the end of the era? I mean, is five decades a fairly long time? And if we are at the end of the era, what kind of replaces it? Maybe you could start to introduce the concept of internet native money as well, Lynn?

• 1:31:31Speaker 02

  So as we encountered the global financial crisis, and then as we encountered the 2020s, you know, COVID crisis, fiscal crisis, I do think we're entering the end, the later phases of this current era. I don't think it's going to end next year. I think it's, network effects generally take a long time to be competed with. But I think we're entering that now. I think there's, there's more geopolitical alignment against that. They still have their headwinds, but there's, there's more adamant pressure to do something about it. And then two, these newer technologies have enabled new ways to go around it, or ironically, new ways to extend it. And so I would say that, that digitally native money

• 1:32:15Speaker 02

  is both good for the dollar and bad for the dollar, depending on what timeframe you look at. So. The invention of Bitcoin is basically the invention of fast digital settlement. So it's saying, okay, for centuries, we keep making money faster by by centralizing it and making it more efficient that way. Well, here's a way to have a shared ledger that's decentralized, right? That's that's basically the the invention of Bitcoin and related technologies. And so one of the capabilities that has is that as these digitally native monies grow in awareness and adoption and size and liquidity and better technology, they can pierce these 160 different currency bubbles in a way that prior types of money cannot.

• 1:33:00Speaker 02

  So for example, if you were in Argentina and you want dollars, it's hard for you to get your hands on dollars because Argentinian can can kind of block, you know, they can control dollars flowing in and out of the airport. They can tell banks what they can can or cannot do with dollars. And so, you know, getting a dollar on the street, you're going to pay a lot more for it because it's very hard to get, they're very scarce. Same thing for many other countries. Whereas say stable coins can pierce in there more readily digitally than physical dollars can. And so on one hand, you have like, for example, BRICS countries and other things trying to like de-dollarize in a way from the top down.

• 1:33:42Speaker 02

  But from the bottom up, you know, when you ask people in the street, what currency do you want? They generally want dollars. They don't want Chinese yuan. They don't want Indian rupees. They they generally want dollars. That's the even even in those like street markets, black markets, gray markets, the most liquid saleable outside currency tends to be the dollar, at least in most countries. And so tokenizing assets like the dollar or like the the T bill, for example, is a way to push that into these countries and where there is a strong, natural, organic bottom up demand for it. For lack of anything better, you know, they might hold gold, but they also want dollars,

• 1:34:23Speaker 02

  for example. And so these technologies that kind of perforate, they break the borders, the financial borders that countries have been able to build around themselves. You know, my expectation is that those are going to keep being frayed, those are going to keep weakening over time, as long as this technology keeps getting better and people get more and more awareness of it. And so I think this current era of like 160 different local currency monopoly bubbles is increasingly untenable. And what you generally see is when a currency is no longer able to, like a government is no longer have enough power to manage its own ledger, it gets kind of forcibly dollarized. So whether it's Argentina

• 1:35:04Speaker 02

  or Lebanon, to varying degrees, people start protecting themselves by gravitating towards other monies. Now, the question is, what happens when the US and Europe and Japan, what happens when these major currency blocks themselves have fiscal spirals? So even though systems are not stable, as the United States digs itself deeper and deeper into a negative net international investment position, as our public debt as a percentage of GDP keeps increasing. And, you know, one thing to consider is that for like 40 years, the United States was increasing its debt to GDP. So we went from 30% debt to GDP up to 120% debt to GDP from, say, the end of the 1970s until the beginning

• 1:35:46Speaker 02

  of the 2020s. But that was actually somewhat sustainable because interest rates kept falling. And so if interest rates fall from 20% to zero, you can increase your debt without increasing your interest expense, at least relative to your income, relative to your GDP, relative to your tax revenue, however you want to define it. But that's, the instability that system starts to reveal itself, once you get down to zero interest rates, bounce along that for a while, and then start to increase from there again, right? Because there's no longer an interest rate offset to the rising debt. And so now, interest expense in a lot of these countries is starting to become a major problem. And central banks

• 1:36:27Speaker 02

  can lose control of the rate of new money supply growth, because all of their tools are designed to slow down bank lending. They're not designed to slow down large government deficits and interest expense. And so as the bigger currencies become unstable,

• 1:36:44Speaker 02

  I mean, that's where we go through the looking glass. You know, that's, that's the future. Like, what's, what's going to win? What's going to outcompete the dollar? Is, is there a Bitcoin future in our, you know, is there like an orange future in our, in our path? I know you guys will probably say another currency, Ethereum, but whatever the case may be. Right now, I think what this technology does is it, it's, it gives people more choice around the world. It, it kind of breaks these monopolies, allows the more global competition of money again. In the near term, that can ironically be good for the dollar because it allows dollars to enter these, these jurisdictions more readily. But in the long run, as the dollar itself becomes unstable, you have, you have scarce

• 1:37:26Speaker 02

  bare assets that are basically digital gold, digital money, scarce money in a, in a digital age.

• 1:37:33David Hoffman?

  I think this has just been a fantastic account of the history of money up to this point. And we've kind of just set the table, provided the context of where the snapshot of time is with humans as it relates to, to money. And I think this, I think we're all kind of alluding to like, oh, there's, there is a growing desire for something new by a large number of parties throughout the world. And really, the continuation of the evolution of money, both as a medium, like what is the medium of money? First, it was shells, then it progressed to gold, then it progressed to banks and fiat money. It's not like it ends. Just because we're used to dollars, just because we're used to banks, it doesn't mean that that fight is over.

• 1:38:16David Hoffman?

  And I think everyone here is understanding like, hey, that, that fight continues. And maybe perhaps the cool part of this story is that we've actually never seen such a transition from money to money, fiat money to crypto money. I was assuming we're all headed towards crypto money. We haven't seen such a large transition where money is already so big, like human civilization's massive. It's never been such a big transition of wealth up to this point. And so, Lynn, just what about the, the crypto future piques your interest? Like what, we have a bunch of patterns of Bitcoin. There's scarcity, that's provable scarce scarcity, like unlike with gold, there might be just a massive pocket of gold that we haven't found anywhere. With Bitcoin, we know that that's not true.

• 1:39:01David Hoffman?

  There is the communications network that is the Bitcoin network. There's just a lot of things that rhyme. But just what, what about this crypto future gives you such confidence that this is where we're going?

• 1:39:12Speaker 02

  That is the first money that solves both speed and scarcity. And so in the commodity era, we kept gravitating towards whatever commodity money was hardest to make more of, settling on gold. But that was eventually defeated by the fact that it was slow and needed to be centralized and, you know, couldn't authenticate very quickly. And so we started to rely on, you know, these fiat currencies and on international scale, we'd gravitate towards whatever is the biggest, most liquid and reasonably scarce money. So, you know, maybe the dollar is not scarce, but it's more scarce than Indian rupees are or Turkish lira, for example. So we gravitate towards money supplies that are liquid and then grow more slowly than other money supplies,

• 1:39:56Speaker 02

  while still having the speed advantages that we that we need and want in the telecommunications era. And Bitcoin is basically a way to say, okay, here, there's been centuries of centralization. And we've had to take a step back in scarcity to have the speed we want because centralized authorities always wanted to base. So they they like that supply growth. And now we have a way to decentralize a fast ledger. So you can have both scarcity and speed. You can have something that grows in supply less than gold while being as fast or faster than dollars. And so that's the that's the promise out there. Now, of course, the challenge is that you're up against a very powerful network effect. Nation states don't necessarily like it.

• 1:40:38Speaker 02

  It's 15 year old technology, so we're still kind of exploring ways to break it. You know, it's like, you know, it's it has to, if you're going to put trillions of dollars into it, it first has to be around for years and years and not get hacked or centralized or defeated some way when it's worth billions of dollars. Right? So over time, it's kind of establishing its Lindy credentials. It's it's going through these things. It's being competed by other cryptos. And this is kind of this global marketplace of seeing what technology, if any technology, is secure, liquid and and useful enough to retain its characteristics, even when different players try to centralize it, different players try to attack it.

• 1:41:22Speaker 02

  You know, it has, it has to go through periods of volatility. And but what gives me hope about it is that it's it's the first technology that solves kind of the two main issues of of money. So it's both fast and scarce. So it's both a good medium of exchange in the internet age while also being being good for savings. So you don't have to pick one or the other. And then two, you know, we live in this world of 160 different currency blocks and those that's like borders between us. You know, that's it's countries desiring to and so far able largely to keep borders around their people and to keep them in this kind of treadmill of constant dilution, draining their savings,

• 1:42:07Speaker 02

  draining their wages, and being able to opaquely funnel that towards things that the public doesn't necessarily want, and to have enough frictions on them so that it's hard for them to get outside money. And in the digital age, we have more tools to pierce those frictions and tie them together and bring back competition to money. So that, you know, people in Argentina, people in Turkey, people in name the country, unless they have such a complete lock like North Korea or something, unless they get fully draconian, the people in that country have increasingly more tools where they can pick the money that they want. They they have the portability of money so they can bring money with them if they should want

• 1:42:52Speaker 02

  to move and go to someplace with better opportunity. And and these, I think, are all good for humanity. I think that's what's powerful about this this current era of technology.

• 1:43:01Ryan Sean Adams?

  Yeah, I agreed. And as we close this out, maybe we bring this to to kind of a round trip. We've gone through the the full history of money here. And here we are at this what feels very much like an inflection point. I mean, we're five decades into the Fiat era. And here we have the birth of this new internet based money system. And it does, Lynn, I agree with you. It feels like a two prong attack, right? We've talked about money in the context of it's really just a technology. And your book highlights this very intriguing idea that whoever has the most advanced money technology kind of controls the ledger. Here we are with this two-pronged attack and we're innovating on the scarcity and the money side of things.

• 1:43:40Ryan Sean Adams?

  And we're also innovating on the ledger, the transmission side of things. We have things like stable coins and DeFi as well as scarcity. So we've gone from almost like this commodity money layer with nature's ledger to now we have like the nation's ledger, which is fiat. And now we're moving to this world of the internet's ledger, which is very exciting. I'm wondering what you're a very rational as well. I find you and your work to be not necessarily kind of like, yeah, you know, all in crypto is going, it's going to be a hundred percent of the money. You know, the next, you know, five years, you've got a very rational seasoned kind of outlook on this. That's not overly hyperbolic or but is like accurate, I feel like.

• 1:44:25Ryan Sean Adams?

  That's one thing I appreciate about you. If you were to forecast how this all plays out over the next 10 to 15 to 20 years, let's say, what's like your best guess? Where do we end up in our monetary banking regime by the year, let's say, 2040 or, you know, 2045?

• 1:44:47Speaker 02

  So I think the weaker currencies are going to increasingly face dollarization pressure. Because now they not only face it from physical dollars, they face it from stable coins. At the same time, the major ledgers, including the dollar, I think are going to take on some emerging market characteristics. And but what I mean by that is that as debt as a percentage of GDP keeps increasing, as these countries run structural trade deficits and enough political polarization to prevent any sort of realistic way to reduce those deficits or fix those deficits. And as you no longer have the offset from declining interest rates and globalization.

• 1:45:29Speaker 02

  So part of why interest rates are able to go down for 40 years is that that was also the era of globalization. So China opened up to the world, starting in the eighties and especially the nineties. The Soviet Union fell in the early nineties. And so basically what we did was we brought Western capital and Eastern labor together. And that was a kind of a renaissance of production, of keeping costs down, of synergies. It was a very disinflationary force. Some people benefited from it, some people were hurt by it, but it was enabled prices to go down, disinflation to go down, industries to go down. That era seems to be behind us now. We've already kind of tapped into that connection. Now we face more frictions in the world.

• 1:46:12Speaker 02

  And even China has demographics issues, right? So now we've kind of ended that era. And now we're in an era where debts are still rising. Industry rates are sideways to up. So there's no longer that offset. So government interest expenses, I think, are going to keep increasing at an alarming rate. And that's a source of new money creation. That's money that kind of pours into the economy. And so I think we're gonna have to be ready for like higher average background levels of inflation. Maybe in a recession, it cools down a little bit, but then when we come out of the recession, it heats back up. And it's kind of like an emerging market where you often just live with higher levels of background inflation. You have more obvious issues with the currency. I mean, I just got back from Egypt. They have 37% official inflation.

• 1:46:58Speaker 02

  Life's hard, but it's in many ways, you look around and it's the same as it was last year. It's the same it was the year before that. People are still going to work. They're still going to school. Restaurants are full. People are driving around.

• 1:47:12Speaker 02

  People are going on vacation. It's troubling, but it just becomes a part of like background life. And so I think that as the major ledgers go through this over five, 10, 15 plus years, that's the opening for assets like Bitcoin to compete with that. And then the question becomes, how do they respond to nation-state attacks, financial oppression? So we saw, for example, Nigeria cut off banks from sending money to crypto exchanges. And they introduced the e-Naira. And yet cryptocurrencies have higher adoption there than the e-Naira. You see Argentina, they say, okay, banks can't deal with crypto. Then they say even fintech companies can't deal with crypto.

• 1:47:56Speaker 02

  So they always say, you know, money laundering and financial stability and whatever. But really what they're trying to do is defend their currency. But there's just too many holes through the borders now. There's too many ways for for people to once they realize they need it to go out and get it. Peer to peer or other methods. Whenever they travel or remittances, there's multiple ways now for those currencies to leak into those countries. And increasingly, when we see the dollar itself as unstable. That's the opening. Now the question is, you know, can it survive all the centralization attacks? Could it avoid any major bugs? You know, the the dilution from multiple cryptos trying to compete, you know, we'll see how that all settles.

• 1:48:42Speaker 02

  You know where I stand on that. But basically, we're going to, we have this global marketplace of these these monies competing. And not only are nation state monies able to compete more directly now because the transmission mechanism is is quicker. So the dollar can can compete more readily. You also have these these scarce digitally native assets now competing with the dollar, which I think becomes more effective as the dollar itself destabilizes, let's say into the 2030s. And so that's, I see that as kind of like this long grind of an old system falling apart, a new system coming. I think if Bitcoin was never invented, if this technology was never here,

• 1:49:23Speaker 02

  probably the path this would take is that countries would recapitalize themselves with gold temporarily. And so you'd have basically a big gold revaluation higher. You'd have some degree of kind of backing to restore competence for a period of time. And then they would eventually start the next rug pull over the, we kind of repeat the whole era yet again. Whereas but because you have Bitcoin and because we, you know, tokenized assets, other things like that. Now there is kind of more ways to more adorably solve the problem. So that you can have scarcity without centralization. You could have fast money without centralization. You don't have to rely on credit and abstraction if you don't want to.

• 1:50:08Speaker 02

  And so I think that's the, that's the power and historically. Technologies have a good rate of success competing against entities that don't want those technologies to exist. It's very hard to keep good technologies suppressed for the long term. You can delay them. You can make, you can add frictions to them. But I think Pandora's Box is pretty much open now. And so it's going to be, I think, a long grind.

• 1:50:32Ryan Sean Adams?

  I couldn't agree more. In order to stop this internet money thing, they'd have to unplug the internet, which I don't think is happening anytime soon. What a time to be alive. The birth of a new era of money. Certainly exciting times. Lynn, thank you so much for guiding us throughout. This has been absolutely fantastic today.

• 1:50:51Speaker 02

  Thank you for having me. Always happy to be here.

• 1:50:52Ryan Sean Adams?

  Action items for you, Bankless Nation. The book is called Broken Money. It is an absolute tour de force. If you're trying to understand money, there's so many topics we didn't get into today, including central bank, digital currencies, and how will they compete against our internet monies, and lots of other things as well. We'll also include a link to the show notes to that book and to Lynn's blog. It's at lynalden.com. So go check it out. Got to end with this. Of course, none of this has been financial advice. We are in unprecedented times, but as you know, crypto is risky. So is fiat. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.