 I'd like to organize the 40 minutes that we'll have prepared remarks by talking about two problems to which the solution is Bitcoin and blockchain and I'm gonna frame them in an Austrian way, but do it in in Maybe a little bit non Austrian not precise Austrian methods because I believe that some of the Austrian methods have been a little too narrow and We've missed some things and I'll explain that as I go through But the problems I'm talking about are the moniness of credit and Inaccuracies in Wall Street ledger systems the moniness of credit is a phrase that Doug Nolan one of my favorite accountant Economists uses he's not strictly Austrian, but he wrote writes the credit bubble bulletin and and History will be very kind to his chronicling of the credit bubble that we've been in for the last 30 years and What he means by moniness of credit is that debt instruments in the fixed-income markets things like bonds Treasury bonds Fannie Mae Freddie Mac bonds actually function as money and In institutional markets and I'll go into that and explain why that has helped proliferate the debt bubble that we're in The second problem is Wall Street's ledgers are inaccurate Inherently they lose track of who really owns what and we should not trust our brokerage statements the solution to both of these problems Which of course both stem from the fact that we have unsound money is Creating sound money creating an honest ledger system the current system creates more claims to wealth than there is real wealth in the economy and Yet the solution is is fixing that it's right in front of our faces with this new technology I'm not going to give you a downer of a speech though and talking about these problems because I think I'm actually quite optimistic Bitcoin is is what makes me optimistic that the future is not bleak. It is history's first Universally honest ledger. It's the only one that truly exists in many ways And it has fomented the rise of a parallel financial system that is now quite large and I'll explain All of us have read Murray Rothbard's mystery of banking that book was written in 1983 Hold that date in your mind But I believe and he explains how fractional reserve banking works in this book We all understand how it works in the traditional banking system You take a dollar of monetary base and it gets multiplied up into ten dollars of M2 but the reality is that's not how the financial system works anymore and Most of the credit that has been created in the last 25 years has been created outside of the traditional banking system It still exists, but it's just not that meaningful What's more meaningful is the shadow banking system and I believe that if Rothbard were alive He would have written a sub a sequel to the mystery of banking which would be called the mystery of shadow banking that's a book that I very much hope that an academic picks up and writes and That's because money has taken on a much broader definition in in the securities markets than the traditional definitions of Fiat money Effectively money is anything that can be financed in the securities financing markets Especially that which the primary dealers can finance at the Fed either through the repo market or through The discount window and that means Treasury bonds Fannie Mae and Freddie back bonds mortgage back securities even corporate bonds Effectively become money because they can be financed at the discount window and in the repo market a repurchase agreement is a Agreement to pledge a security in exchange for a loan of cash and then repurchase it later at an agreed price So that's an implicit discount rate most of the repo market is overnight and in fact actually instead of The Fed injecting monetary base into the traditional banking system the Fed creates money by injecting monetary base into the repo market It is a very important market that is not well understood by Austrians And I think that that's one of the Reasons as I'll talk in a little bit why some of the Austrians missed the impact of the financial crisis Predicting that we would see hyperinflation and we didn't I'll explain a little bit more about that in a moment But the degree of money-ness of fixed-income assets Fluctuates it ebbs and flows sometimes the repo market will finance non-investment grade bonds Sometimes they won't there's no bid for those but but what got me down this path was Scratching my head. I'm wondering why sometimes in the repo market Treasury bonds are more valuable than cash You actually have a negative interest rate to borrow a Treasury bond It's what's called the general collateral financing rate GCF rate when when periodically That goes negative. What that means is that in the institutional money markets Treasuries are more valuable than cash and the reason is that they can be repo they can be rehypothecated and Leveraged multiple times whereas cash cannot be the impact of all of this I won't spend more time on the definition of it But I wanted to lay it out because the impact of all of this is ballooning debt particularly since 1983 When when Rothbard happened to write his book and again, I think if he were alive He would have he would have gotten he would have known this he would have been all on top of it But let's let's explain. Let's let's dive into now some of the numbers Explaining why the muddiness of credit has resulted in this Monstrosity that it's on the graph right here, which is non-financial sector debt We're now in the United States at 72 trillion of non-financial sector debt And as you see there's been no deleveraging has not actually declined And I I'm focusing on non-financial sector debt instead of total debt for one simple reason the financial sector Intermediates debt out into the real economy And so if you look at total debt where you can you count financial sector and non-financial sector debt You're actually double counting The real borrowers in the economy are of course outside of the financial sector And that's why I focus on this and it turns out this this analysis if you define Money and credit more broadly and to include the entire fixed-income market effectively what you're picking up is some very interesting things about the economy Of course in here in this you see that The federal government was the bulk of the increase in the borrowing as well as the state local governments and the Fed itself since the financial crisis we're going to track this area under in in this graph as a single red lines in the next couple of charts and There's our red line our total Non-financial sector debt up is now 72 trillion. That's just the the sum of all of the Different colors in the previous graph, but what I've added to this chart is Cumulative private sector savings. This is an Austrian analysis in effect by saying That we need to compare the amount of debt that's been borrowed to the amount of savings that was saved because as you know Mises would say that the amount of debt that was borrowed from real savings is legitimate debt He called that commodity credit and the amount of debt that was borrowed in excess of real savings was the illegitimate debt The circulation credit and in effect this chart puts some numbers to that Everything from zero up until the green line is commodity credit in effect. That's the legitimate amount of debt everything between the green line and the red line is the circulation credit and it turns out that as you see the red line is significantly above the green line and That's cumulatively since World War two almost entirely since we went off the gold standard We've borrowed 40 and a half trillion dollars of excess debt in effect two dollars of debt for every one dollar of savings In the US economy since World War two. We're gonna cover We're gonna we're now gonna look at this exact same data set except instead of looking at the stock We're gonna look at the flow instead of looking at the period end amounts outstanding We're gonna look at the change and it turns out and we're gonna look follow that in the next three slides It turns out that there's some tremendously Interesting observations that you can pull out both about the economy and about financial markets by looking at it this way So there's our red line except now we're looking at the change in debt borrowed And the green line is just the amount of savings in in each of those quarterly periods dating back to Just after World War two, but what I wanted to share with you here Is that if you look at the left-hand side of the chart the red and green lines are basically right on top of each other? That's not a function of the scale of the chart That is a function of the fact that we actually had a tether on the amount of debt that could be created in the financial system it was called the gold standard and before 1968 it turns out That those two lines in any given year were what one might be a little bit ahead of the other But they'd always equal out. It was just a timing difference If you if you dive into the numbers we really truly were an equity financed economy Where the amount of debt that was borrowed was actually equal to the amount of savings saved in the economy prior to 1968 1968 we started cheating as we know for because of guns and butter And then afterwards every year except for one you see where the financial crisis was right there a little itty-bitty bit of Deleveraging in one year in one quarter actually But debt has that has increased savings every year since we broke the tether on debt growth which was the gold standard and Now let's look at that same graph in highlighting two different things which is monetary policy decisions The first one, of course, we just talked about we all know in 1971 We broke the tether on debt growth by abandoning Bretton Woods after having been cheating since 1968 But it turns out I think the bigger maybe not the bigger mistake But a tremendous mistake that I haven't seen anyone write about Happened in 1982 remember Rothbard wrote his book in 1983 and that was when the Fed shifted from targeting the quantity of credit to targeting the price of credit when they did that They gave the keys to the kingdom to the financial sector to create as much debt as it wanted as long as the price of credit the Fed funds rate remained in the target area and that's when we really started to see and you see it on the chart Beginning in 1983 under under Volcker you really started to see that red line Start to take off relative to the green line and ever since then the financial sector has gone to town creating debt That was a tremendously Colossal error it happened again under Volcker And it what's interesting is they never announced it So Rothbard wouldn't have been able to pick it up at the time unless he were reading the Fed minutes Which were released so several years later. I only found it through because of an academic who was writing about it Understanding that that it just happened in one in one meeting. It was never publicly announced But you can see how that was a meaningful change instead of targeting the quantity of credit and trying to control M1 They were now targeting the price of credit and ever since then have targeted the feds fed funds rate Now let's look at that same data set but highlight different things It turns out that every time that red line grows a lot faster than the green line we have a financial market bubble and I'm tracing five bubbles here only the first of which happened before that fateful 1983 decision And you see in 1974 we had a financial market bubble the S&P went from 68 to 107 between 1974 and 1976 and then it crashed And and then then then we have that fateful decision beginning in 1983 where you really start to see the debt numbers take off And we had that culminated in the 87 crash Then you see in the late 90s the third bubble is the tech stock bubble and then of course the housing bubble Which is the biggest one to date at least by these metrics and then I believe we are in a government finance bubble and We're not at the end of that bubble yet and that is probably the granddaddy of them all So how much debt capacity remains if you look at it on this basis? It's an interesting question because it helps to explain why we haven't had the collapse yet a lot of Austrians were saying when we abandoned the gold standard in 1971 the dollar was going to collapse But I think what what was missed at that point in time was an understanding that we had a tremendous balance sheet There was basically no debt on no net debt on the balance sheet of the United States at that point in time Because our grandparents and their grandparents and their grandparents has had bequeathed us a tremendous balance sheet with which Against which we could start to borrow and we really started borrowing beginning in 1968 as you saw and we haven't stopped We haven't we haven't gone to we've gone to town But that the blue line I've introduced in this chart is us net wealth and you notice it's always above the red line us net wealth is the amount of unencumbered assets owned by Americans unencumbered by debt and The red line is the total amount of non-financial sector debt some you may be thinking aren't I double counting because I'm pulling out the Debt from net wealth and then I'm comparing it again to the debt what I'm really trying to get at is at a macro level I know we hate that word But at it we aggregate all the borrowings of individuals and aggregate all the assets of individuals How many unencumbered assets are there that can support all that dollar denominated debt? And it turns out that there are more the total amount of US net wealth right now is 92 trillion and the total amount of non-financial sector debt is 72 trillion We're adding about two and a half to three trillion of non-financial sector debt a year So what this suggests potentially is that it could keep going? I think it more specifically explains why the dollar hasn't collapsed yet because there's asset value Implicitly supporting the dollar. That's the spread between the blue and red lines But here's the fly in the ointment of this analysis It's circular because the asset value is supported by the debt itself and so at some point This is not to say that we're going to continue forever Being able to support asset values with with issuing more debt and pushing interest rates down And and there's a 20 trillion dollar spread right now between the total US net wealth and non-financial sector debt But remember the circulation credit that will in theory be liquidated is 40 and a half trillion So it does suggest that unfortunately this is not going to end well This doesn't help tell us when it's going to end but it helps I think explain why we didn't see the crash and the end of the dollar yet Let me turn now to the second problem which is issues in Wall Street's ledger systems that are prone to inaccuracies and It's related to the earlier problem I'll correct that I'll connect them in a moment But the way securities used to work was very simple Issuers issued this this stock certificates in paper form to the investor what I say by investor there is either You individually or through your agent like a pension fund or a mutual fund or an insurance company But you always owned the the stock certificate in paper form. That's how it used to work since 1994 We've got this very convoluted Procedure here where you see that the issuer issues securities to a Company called CDN Co which is owned by the depository trust corporation and then the custodians hold the securities on your behalf So there are a minimum of three sometimes five or six layers between you and the issuer When I first figured this out, it was amazing I was working in the capital markets and looking at a bond perspective and in the perspective is language that says that the Issuer of the bond has no obligation to pay interest in principle to the investor Think about that that is expressly in the bond Perspective you are buying a bond and you are not getting an obligation to pay interest in principle from the issuer What's happening is the issuer is paying CDN Co. Who has an obligation to pay the custodian who has an obligation to pay you these layers of intermediaries? create unnecessary counterparty risk operational risk and the risk that the system gets out of sync because each one of those layers is reconciling against each other and until Five not for more like ten years ago all of these companies batch processed their transactions overnight That's part of the reason why it took three days now to now It's two days to settle securities transactions because it's got to go through layers of intermediaries each one of them needing a day overnight to process the transactions and So you can see that that this system inherently foments in Accuracies because they're not all going to be in sync at the same time and it also Creates settlement delays where it takes it requires two days to settle securities transactions However, the technology no longer requires that we've long past moved the need to have this crazy system But we're stuck with the legacy What are the problems? Some of you are probably skeptical and thinking I trust my brokerage account I trust my broker that they're I've never found a mistake and they're honest Well, let me give you some examples The first one was just about a year ago in litigation in Delaware dole food There was a class action lawsuit and it the details are not important, but here's here's here's what matters There were 36.7 million shares of dole food outstanding and in a class action lawsuit There were forty nine point two million claimants to the to the consideration in the class action lawsuit again forty nine point two million people Had valid brokerage statements showing that they owned dole food shares all of whom had valid brokerage statements Forty nine point two million, but there were really only thirty six point seven million dole food shares outstanding That's what Patrick Byrne will call the bezel when he talks in a moment If that makes you not trust your brokerage statement good because I don't trust mine all of those forty nine point two million Showed up on valid valid brokerage statements and again It's because of these layers of intermediaries that can get out of whack at any given moment in time Procter and Gamble You might have read there was a big proxy fight. It was all over the the business newspapers at the end of last year Well in the first count in the proxy vote It came out that Procter and Gamble's candidate won by six point two million votes They did a second count and it turned out that the challenger Nelson Peltz won by forty two thousand seven hundred eighty votes And then they did a third count and it swung back Procter and Gamble won by four hundred ninety eight thousand three hundred twelve votes Let me go through that again. The first vote was plus six point two million The second was minus forty two thousand seven hundred eighty and the third was four hundred ninety eight plus four hundred ninety eight thousand three hundred twelve If this doesn't give you any confidence in financial systems good because it shows you how wildly Inaccurate the accounting systems are that you can't even get an accurate proxy vote count The reality is Procter and Gamble after that third count threw in the towel and said and invited Nelson Peltz on the board they had already spent a hundred twenty five million dollars between them fighting over that board seat and They knew there was no possibility of getting an accurate vote count And so they just decided to stop fighting and and invited Nelson Peltz on the board Yahoo had a similar situation. There was a recount of a proxy Contest that revealed twenty percent of the votes had been miscounted I won't go into the details about Dell. They're a little more complicated But the gist is it cost T-Roe price a hundred ninety four million dollars Because of something that wasn't even their fault Related to the fact that that they were no longer the record owner of the securities I personally ran into a situation where I observed unauthorized Securities lending happening in a pension fund that would not have been discoverable because it wasn't showing up on the brokerage statements There's a lot of shenanigans that happen behind the scenes in the accounting systems and they're inherently They inherently just don't keep that don't stay in sync with each other But here's the granddaddy of them all you notice the oh by the way on the right bottom right I actually put the title of a speech the blockchain plunger There's a judge in Delaware who's been a huge supporter of blockchain technology And his speech that he gave to the Council of Institutional Investors is called the blockchain plunger using technology to clean up proxy voting and take back The vote he's a huge believer that the current system is Fundamentally broken and we need to deploy blockchain in order to fix it but on the upper right is the granddaddy of them all the market that most Over issues securities through the ledgers Accounting systems of Wall Street, and that's the US Treasury market There's an IMF economist who's done a study to try to estimate how much Treasuries have been over issued and he doesn't call it that he calls it collateral velocity It's back to that repo market I was talking about the repo market is how most funding happens in how most money and credit is created in the financial system It's a huge market. It trades on average 4.6 trillion dollars a day in the United States And he estimates how many times a single Treasury bond has been posted as collateral The very same Treasury bond has been posted two times as collateral down from three times since the financial crisis So there's been a little bit of deleveraging, but in plain English what that means is that? One in every three parties who thinks they own a US Treasury security actually does Because there's really only one Treasury security And even though all those financial institutions are reporting that they own the Treasury security because that's how repo accounting works The way it works is you put a dollar of debt against that asset and then you turn around and repledge that asset And the other party puts a dollar of debt against that same asset and that keeps happening That's that's how fractional reserve banking happens in the shadow banking system And it's happens on a much larger base because remember money in the shadow banking system includes every every Treasury bond and Fannie Mae and Freddie Freddie Mac bonds to Whereas the feds balance sheet in the traditional banking system is a much smaller number So what effectively he's saying even when you think about in the traditional banking system M0 Typically gets multiplied by 10 to become M2 Well the M0 of the shadow banking system is a much larger base and that gets multiplied by 2 To get a much bigger much much bigger number in effect. This is This is a money creation Regime that we don't really understand and it's very opaque But this economist has done a tremendous amount of work identifying just how over issued Government bonds. It's not just in the US but but all over the world is so that ties back that Moneyness of credit point to the fact that the accounting systems of Wall Street don't keep track keep accurate track of who owns what It's a game of musical chairs And it's not going to end well if I'd given this speech to you in 2014 or 2013 I would have ended here and it would have been a downer because it would have made everybody feel really uncomfortable but the good news is we have a solution and that is history's first honest ledger and That is a blockchain a universally honest ledger. It is a ledger system that is governed by the laws of math Not the laws of man and therefore it can't be tampered with because the laws of math are immutable and there is no subjectivity in it a Blockchain allows multiple parties to see the same data at the same time and trust that it's valid Again a blockchain in simple terms allows multiple parties to see the same data at the same time and trust that it's valid It is a new form of database technology that creates a single golden copy that all of the parties can share shared Infrastructure that's why the banks are all interested in this They all keep their own copies of ledgers and then reconcile against each other Well, if there's a way that they can keep only one ledger and not have to reconcile They can cut a lot of costs out. Maybe they can cut all the time to settlement of securities transactions and payments out, too Bitcoin was the first blockchain. It was created in October 2008 by Satoshi Nakamoto We don't know who he she or they is or were But what Satoshi did was create the first truly denationalized money that wasn't Species it has a finite number It will never have more than 21 million bitcoins issued by algorithm that they really can't be changed I'll talk about that in a minute but what Satoshi's breakthrough was was he solved what's called the Byzantine generals problem, which is the the A computer science problem that that computer scientists had been grappling with for Almost 40 years, which is when information moves across time and space How do you know that it hasn't been tampered with in between where it was sent and where it was received? This was they called it the Byzantine generals problem because in Byzantine times the generals were sending messages back and forth to each Other on the battlefield information moving across time and space. How do you know that the information that was received? Is exactly the information that was sent and Satoshi solved that by creating a brilliant System that is not just about technology in fact the brilliance of the system is that it's a combination of technology and game theory And this is a very important thing to understand. It's built on both cryptography and Incentives economic incentives. I'll talk about that more in a bit, but it's not just about technology it's very much about understanding incentives and Because of that beautiful balance of technology and incentives. It's never been hacked You may think gosh wait a minute. I read about hacks all the time The hacks that have happened have happened on applications that were built on top of the underlying built Bitcoin blockchain But the underlying Bitcoin blockchain has never been hacked and it's been out out there for almost ten years now and No one's figured out how to hack it and it's got a heck of a hackers bounty It's now worth about hundred forty billion dollars and keep in mind It's sitting out there with no firewall and the wilds of the internet with everybody attacking it every day Because of its balance beautiful balance between technology and economic incentives It's it's it's it has withstood all of those attacks It's also a marvel of technology though Let me give you the network uptime statistics since the first Bitcoin was mined on January 3rd 2009 And that is ninety nine point nine nine two two nine zero four percent That is in excess of six Sigma quality control and the crazy thing about it is there's no system administrator They do network upgrades on the fly. They don't take the network down It is an incredible piece of software, but it's an even more incredible piece of money Because of again the incentives that are built into the system in general the Bitcoin network has had everything go up into the Right in terms of the number of users the number of wallets the hash rate Which is the a computer processing power supporting the network and in general the price obviously it fluctuates wildly But it is still in a in a bull market uptrend technically And and it's and the things that have happened in this market are just crazy Coinbase Which is the largest player in the market was opening 100,000 accounts a day in November and December of last year And that company's not even five years old and it now has more customers than Schwab So it's crazy what's happened in this sector. It does indicate of course a speculative frenzy But it also indicates a desire for something other than a financial system I think most people understand isn't fair and doesn't quite work the way we want it to Let me talk about the two Austrian objections to Bitcoin I put them the regression theorem on this slide, but there's another one that's more general That I hear and it's related which is bitcoins not backed by anything. That's what Peter Schiff Peter Schiff's big big critique of Bitcoin is but a lot of Austrian scholars critique it and stayed away from it because of Thinking that it violated the regression theorem and in fact the answer to both of these critiques is the same Which is that Bitcoin is really a payment system inter inextricably intertwined with the token It's not right to compare Bitcoin against the dollar or yen or euro It's apples to apples to compare Bitcoin Against the dollar yen euro, etc. Plus visa and MasterCard and Fiserv and Fidelity National and all of the companies in the payments Ecosystem that process and confirm transactions and so what's backing Bitcoin? What's backing Bitcoin is that payment system? It's the service that people are willing to pay for in the form of in the case of Bitcoin Being diluted by the inflation that happens as the miners are paid new bitcoins as they mine as they confirm transactions That is what backs Bitcoin. There is a utility to it. There is a use value to it It is the payment processing system. In fact the US payment system I looked it up has a market value of six hundred billion dollars and that's just the S&P payment sector There are a lot of other technology companies that make the you know The hardware in the payment system like the ATMs and the point of system swipe machines for our credit cards and the like That are not included in that six hundred billion dollar number so there's there's clearly value to payment systems and what I think these critics are missing is That the value of Bitcoin is that the payment system is intertwined. You cannot separate it from the token and Indeed, that's how I would answer the the critique of the regression theory theorem the regression theorem says that the origin of money is That it was a commodity that became valuable in exchange and we can trace money back to the actual Commodity that was used in exchange in barter transactions and that money's initial value must have use value well in fact actually I would argue that Bitcoin's use value is that payment system and In the beginning Bitcoin didn't have value Because it was just simply a unit of account in a ledger But then people started using that ledger to confirm transactions and keep track of value Once people started using that ledger Then Bitcoin started to have value that is the utility that is how we can trace that it spontaneously arose as a commodity It had utility and that's how I would answer that it doesn't violate the regression theorem and hopefully Walking through that made you think a little bit if you if there are skeptics among us, which I'm sure there are I'm actually in the process of doing some research digging into valuing Bitcoin as if you were valuing it the same way You'd value visa or MasterCard looking at all the cash flows in terms of transaction fees and that block reward That's thrown off of the Bitcoin network and valuing it Valuing those cash flows using a discounted cash flow model Just the way an equity research analyst would or or looking at the return on invested capital relative to the invested capital Bitcoin has a much much much lower invested capital in Confirming payments than the existing payment system does think about all the bricks and mortar in the existing payment system All of those all that hardware at every merchants that has a credit card machine, right? You don't need any of that in Bitcoin not at none of it It's so it's a very capital light Technology a payment system and therefore the return on invested capital is going to be a lot higher And so per transaction the Bitcoin system in theory if you looked out at the way an equity analyst would is worth a lot more And so you pay a much higher multiple than you would for a visa and MasterCard Which has to have all that all that bricks and mortar all that hardware. I haven't done that analysis yet So that's a theory. I'll report back at some point when I get that done But I'm I'm almost positive that that's going to justify Bitcoin's value In some zip code again if the total payment system in the US is worth 600 billion and Bitcoin Which is much more efficient is worth 140 billion that tells you It's actually not that far off and that 600 billion payment system value. I think is under is understated And by the way, that's just the US as well. So more more to come on that I just have two more slides But this one I need to spend some time on because there is a tour de force book Some of you have probably read it, but as I've chit-chatted with folks a lot of you didn't know this existed It's been out for three weeks. It's called the Bitcoin standard and it's written by an Austrian. I've never met him Amos, I assume is how you pronounce his name It's called the Bitcoin standard the decentralized alternative to central banking and he's a professor of economics at Lebanese American University This should be in everyone's library every every every Austrians library It is a tour de force that the first seven chapters get into the history of money leading up to why Bitcoin is so special and so unique And to me, there's so many things you can take away from this book But to me the big thing is that money historically has been supplanted by new versions of money when technological innovations come in and and And necessitate the move to a different form of money He goes through the the ray stones in Yap Island Some of you are probably very familiar with that and how it's so they they suddenly ceased being money When somebody figured out a way to produce them But the reason why they retained their value for so many years in that economy was because they had a high stock to flow ratio high Yeah stock to flow ratio and we're so expensive to produce which is analogous to what Bitcoin is I want to read a few quotes from his from his book because I think they'll help you understand just how special the book is But more importantly how special Bitcoin is One is whereas in a modern central bank, the new money created goes to finance lending and government spending In Bitcoin the new money goes only to those who spend resources on updating the ledger. That's pretty interesting There's never been money created where those who create the who create the new money who mine the gold or silver or Collect the seashells. There's never been money where the seniorage went back into the The money itself and that's how Bitcoin was designed the people who get the benefit of the inflation are the ones who are Securing the network and confirming the transactions. Here's another one. Bitcoin is the hardest money ever invented Growth in the value cannot possibly increase its supply It can only make the network more secure and immune to attack as more people come into Bitcoin the incentive for more cpu More computer power to process the transactions Increases because the miners can make more money. So you get more and more secure as as more and more people come into Bitcoin But that does not change the supply of Bitcoin So again the incentives are very nicely aligned The difficulty adjustment which is essentially that the math problem becomes harder as Bitcoin goes up and more people come into the network The math problem that the miners have to solve the difficulty adjustment is the most reliable technology for making hard money and limiting the stock to flow ratio from rising And it makes Bitcoin fundamentally different from any other money again If we get a big discovery of gold That's going to cause the value of gold to drop because it's becoming cheaper to produce But in Bitcoin if you get a big discovery as in a whole bunch of people come into the network Bitcoin becomes more expensive to produce. That's in part what keeps it So valuable and there is no other money like it Bitcoin and cryptography in general are defensive technologies that make the cost of defending property and information Far lower than the cost of attacking them That's an incredible statement Because it means that the cost of defending your property rights Is a lot cheaper than the cost of somebody trying to take it away from you. And again, that's the design of Bitcoin I really hope you dig into this book But the last chart the last comment that I'll share is I think the most pointed which is the bitcoin ledger of transactions might just be the only objective set of facts in the world And that is because of the verification methodology in bitcoin There's you've heard the phrase lies damn lies and statistics, right? There is no such thing in bitcoin because everything on the bitcoin network has been verified using math and it cannot it's immutable It cannot be changed. It is folks the first honest ledger in history. And that is why it's so powerful Let me end by talking about How this tech how this sector has has flourished and Patrick Byrne I'm sure is going to pick this up and talking about something called utility tokens or securities tokens Blockchain has now been used to effectively issue What it what are securities like instruments, but they're not securities They are something called utility tokens. They are issued and traded and settled on a blockchain But they're redeemable for consumptive goods So you can now download music on a company called on a blockchain called ujo or you can trade photographs on Kodak coins blockchain Or airline miles. I suspect will probably eventually be on block chains issued and traded on block chains and and My native state of wyoming as jeff said did something really interesting. We passed five blockchain bills I spent the entire month of february in wyoming with um with this gentleman tyler lindholm He's he's my hero By the way, it's funny. I was when I was at the satoshi round table right before I went to wyoming I predicted I said there's this guy who's very wrong paul like in wyoming And he's going to help us get these bills passed and the skeptics in the room said well And there of course they're going to fail But in fact actually we got them all through and and two of them were were passed unanimously in the house and the senate and and the most important one In in some respects is the utility token bill which exempts utility tokens from securities and Money transmission laws in the state of wyoming. We also exempted crypto assets from the money transmission laws generally And we exempted crypto assets from property tax. There's already no income tax So we've made wyoming. There's really really interesting state from the perspective of the crypto industry And by the way tyler got through a bill independent of this that recognizes specie as legal tender We're going to be working on on getting crypto assets recognized as legal tender in wyoming next So so so we can always come back to those who say that That the dollar has to exist because we have to pay our taxes in it Well legal tender in these states that recognize specie as legal tender can be something other than the us dollar And the same thing can is true if we can get crypto assets recognized as legal tender But I wanted to share with you There's a parallel financial system that is arising as a result of these utility tokens And some of you've probably never heard of them. Some of you probably have there's a frenzy in the market right now But this this market is huge. It's huge It's a whole new form of venture capital where startups are now funding their their businesses through issuing utility tokens on a blockchain And the again these tokens are redeemable for consumptive goods in their network But they're also a way to finance the company in a way that traditional venture capital is it's a planting traditional venture capital And folks, here's the number in the first quarter 6.3 billion dollars was raised in the initial coin offering market That is 40 percent of the initial public offering market in traditional stock markets That only raised 15.6 billion in the first quarter and the amount of and it's 30 percent of the venture capital raised in The first quarter. So you've got a market that didn't even exist three years ago That's now 40 percent of the size of the IPO market and 30 percent of the size of the venture capital market There's this bitcoin thing is a thing And it's and I think it's fantastic because it's all happening in parallel and completely outside of the traditional financial system and all of the tokens that are issued and traded on block chains are are Are traceable back to the owner and in conclusion, let me say I think capital markets won't be fair unless And until they use honest ledgers and the great thing about the utility tokens Is that they are using honest ledgers where the real owner is the record owner that's recorded in the ledger The assets are issued traded and settled on a blockchain I really do believe that the future of money to make reference to the theme of this event the future of money is bitcoin And also believe that the future of capital markets is blockchain Thank you with that. I think we'll take some questions Throw box microphones clay. Are they back there? They're right here. Uh, you you can throw it It's soft sided if you care too So we're asking for uh to give a short succinct question to katlyn rather than a monologue or a soliloquy So just to get started katlyn should I buy dole pineapple? well, um That was dole was acquired in a management buyout. It's actually now a private company So technically I don't think you can buy securities in dole right now I'll find something else. Yeah somehow Yeah, and it's unfortunate what recognize that what happened to dole was not its fault It was the accounting system of wall street and it happened completely independent of dole So dole's general counsel got stuck with this mess Of them not knowing who owned their securities. It's kind of crazy It's kind of if you think about it the most basic thing in capitalism is Who owns the companies? And we've royally screwed up that accounting system on wall street for sure Yes, hi katlyn. Um, so my name is brenda and i'm a trader and um have a question for you. Yeah, um, what do you think about the feds? Um, creating their own tokens and their own block. Uh, yes fed coin. Yes. Yes Uh, I think it's coming. But ironically, um, the fed is way behind Maybe you can say that's good But the people's bank of china the bank of canada and the bank of england are way ahead and I think they'll be the first ones that issue Fiat money on a blockchain. It's not really going to be on a blockchain because of course there's a central counterparty So it's not a true blockchain because they're going to be controlling the the value of it But at least you'll have what that would do is pull the banking system out of the process of money creation And essentially just have it all done at the central bank. So it will be a lot more transparent We all know the drawbacks of fiat money But having more transparency in actually looking at all of those transactions happening in a transparent blockchain coming in and out of a Central bank would be an improvement over what it is today And it would take a lot of that intermediary counterparty risk and settlement delay I wouldn't be shocked if central banks go there first But by the same token the speed with which things are moving in this blockchain industry is staggering And the governments can't shut it down They'd have to shut down the entire internet and the core developers of the bitcoin blockchain Have made sure that even if they shut down the internet the bitcoin blockchain will keep going You know how they did it? They sent up satellites So they're outside of the traditional isp infrastructure These guys the cypher punks are hardcore Mises institute supporter types. Um, they've thought of everything right and and godspeed because the bitcoin blockchain cannot be shut down Yes, katelyn in your time in uh, wyoming. Do you get the sense that the people surrounding this gentleman who appears to be a force of nature Do you get the sense that the people in the legislature actually get it? I mean and how did that? How did they achieve that? Yeah, good question wyoming is special for a whole lot of reasons. It's a pretty libertarian place anyway It's the place that created the limited liability company in 1977 So it's actually the place where It's third behind delaware and nevada for new business registrations. Anyway, so it already had that franchise And it's also kind of uh, you know likes to take on the feds every now and then So we had some interesting ethos of um in the legislature. It's a citizen legislature and it was constitutionally restricted to meeting for no more than 20 days And it takes a minimum of 13 days to get a bill through so it's designed not to get legislation passed It's it's just awesome. Everybody after the legislature had to go back to their to the real job And so how many people understood it a lot of folks didn't understand the depth of it But what they did understand was that there is something special here And they're looking to diversify wyoming's economy. It cost them nothing to pass these bills We didn't we didn't ask for anything from the state We just asked for enabling legislation that would allow software companies to come in once you made the pitch on that basis It was very easy to get this to get this through And it's also interesting a lot of the ranchers have now picked up blockchain technology wyoming. It's the least popular state And and it has something like five times the number of cattle as people in the state So the ranching industry is a big industry and one of the big senators who is who was a big supporter Just tagged his all his calves with rfid chips so that he can verify the provenance of the wyoming beef That's important because why there are there are not fda approved slaughterhouses in wyoming Um and so the the cattle go outside of the state and they get mixed in with cattle in other states So any sort of branding of wyoming beef is impossible But there are places in the world like we think of Kobe beef as a premium beef Taiwan loves wyoming beef and it's really hard to get the beef to taiwan because it gets mixed up with other cattle So there's a real problem to which having a blockchain which would allow people to track the provenance of those calves Is a solution. It doesn't require a utility token but what it did was This these ranchers would never have understood that as a solution to their problem until we came in and got these blockchain bills past and now That there are so many ranchers trying to trying to get in to this To this pilot project. It's just it's just awesome. What's happened. So the state's really behind it And uh, yeah, it's a special place. Interestingly. It's also a place where that respects privacy When you register a wyoming LLC You just have to give the name and address of the of the primary member You don't have to disclose everybody else who's invested in it And of course because there's no income tax The state doesn't doesn't collect any information about the revenues of the llc as well So you can kind of see how the ethos matches with the ethos of privacy Uh and self sovereignty in in the um in the crypto market. It's really interesting Oh, yes, um, yeah, here we are. Um, I have a one question which uh, this relates to australia And the electrical demands of the bitcoin. Yeah, uh, the fact that they actually had to turn on a the um a non An extra power plan In order to meet the electrical demands And so if we're at a Very nascent point in the development of this technology and given how tapped out our electrical resources are now already Uh, this is I think a question. I would like Uh, perhaps to be addressed the other uh issue is I was one of the victims of mf global Where I discovered this issue of rehia Hypothekation which was a term I had never heard before and yet I understand that this is widespread And I wish um, you would go into greater detail on how this actually comes about and how it's been legitimately Sanctified within our legal system on the first question on bitcoin mining costs This book handles that brilliantly and he takes it head on and says you should want it to be difficult to produce Your monetary unit you should want it to be expensive And the fact that it is expensive Is what gives bitcoin its value in part because you cannot easily create more it is expensive to create more Now the reality is it's very easy to to to criticize bitcoin for the utility for the energy cost Nobody asks the question. What do visa and mastercard and all these other payment processors use Computing it requires electricity and all the data centers around the world think about what's what's the majority of computing Power being applied to It's financial transactions. If you really look at The computer power used in Existing networks, which is opaque and not out there for the world to see and compare it to bitcoin. My guess is bitcoin doesn't look so bad But this guy's defense is fantastic We have five minutes left and I would encourage you to read it on the rehia apothecation Look, I think that I don't it's it's fractional reserve banking. Okay. I um, I I do think that it's fraud I think it should be disclosed to people that this is happening I personally moved my brokerage account to a broker where I didn't think an mf global would happen because he didn't have an incentive to Grab my securities if they needed them But I'm nervous about my securities for all of these reasons and um, that's why I put some of my wealth into the uh into crypto And of course other things like gold too, but in any event This is not widely known and understood. It's part of the reason why Um, it's certainly mf global ref co leman brothers. They all had They all were a lot more leveraged than anybody thought because of rehapothecation It is fractional reserve banking. We all understand that that's not that that's fraud common common law fraud And the fed sanctions it. This is how monetary policy is Is affected. It's through the repo market So this is openly sanctioned policy I think we have time for one more question In the 1980s personal computers came into our lives The ibm pc emerged as the leader largely because it was one of the first to market Yep, bitcoin was the first cryptocurrency to market now. There are many others. Yep. Do you see that? Bitcoin will be the Winner in this contest or do you think any of the other cryptos are worthy? Nobody knows but i'm i'm i'm mengerian in the way. I think about money I think money is whatever people use as a medium of exchange and um, it shouldn't be, you know, um Dictated by fiat and I don't think it should necessarily be gold. It's whatever emerges as as money My thought on bitcoin is that it probably will be the one that stays because it's so far ahead on its network effects There are superior technologies out there that have been built on That have built on this solution to the Byzantine generals problem But bitcoin has a huge head start on all of them and the other thing that bitcoin can do is they can adopt The the architectural changes the improvements in technology if they work So the way I think about, you know, light coin and manero and some of these other Cryptocurrencies that are out there that have that have gotten some traction, but they're a lot Earlier in the adoption phase than bitcoin They may supplant bitcoin But I think they probably won't because if those technologies work the bitcoin core developers will adopt them into bitcoin So in 20 years bitcoin won't be what it what it looks like today Most of the lines of code that satoshi wrote have been rewritten It's going to be written rewritten again and again and again in 20 years It won't look like it, but it will still be called bitcoin and it'll just evolve with with with new technologies One of the questions earlier. I didn't answer very well with Implicit was the scaling question and in using all of the power. What's happening now is There's something called lightning network, which is hat Which is which was adopted by light coin first So again the laboratory where the bitcoin developers could look at it and say yeah This actually is something that will help us scale where essentially they're creating digital escrow So you're not actually trading the bitcoins on the blockchain But you're actually validating that they're that they haven't been spent yet Using the blockchain and so that can allow us to have a lot of small value transactions using your bitcoin on your phone To buy a cup of coffee If you don't want to use the main chain for that you can use what's called the lightning network and have second layer Transactions in small value and then those are all netted when you close the escrow and reported to the to the main Blockchain, so that's one of the ways. I think it will scale Maybe do we have time for one more question? Yeah, yes ma'am. Thank you. Can you hear me? Yes, okay good Fascinating thank you very much the one question I have is Do you see and I guess if you just read the wall street journal generally you you can Gauge financial acceptance at large financial institutions to a certain degree evidently by because It is a phenomenon that is they can't stop. Yeah at the same time Because of largely you've just shown us the massive interest that the financial institutions have in Maintaining the system the way it is. Do you see major pushback? from The effort and the grand concern that I typically have and I think we all have in this room as as Being austrians is some knucklehead At an institutional level will try to usurp and command and control the system itself. Yeah Technologically, they can't okay They can't it because you have to amass all of the computing power to do that And that would cost billions and because of the specialized chips that are used in the industry It would be evident to everybody if somebody new was coming in and trying to amass those chips because They're being manufactured as fast as they can now if and if that happens and the price goes up new manufacturers will start Manufacturing them so everyone will know if there's a big new player trying to come in and take over the the processing Power it's very distributed that processing power there. I looked this morning 10,260 Nodes running the bitcoin network all around the world very distributed. So goldman sacks can't co-opt it But they can and will get in and try to financialize it by creating Moneyness of it And goldman just hired a bitcoin trader part of me First of all, I take my hat off to them because they were they had the guts to be early and and they always were From my perspective they had people hanging around this in the early years when I was afraid at Morgan Stanley I'd get fired for putting my head up goldman folks were not afraid of getting fired. They were encouraged Was my experience to to you know to be curious about this So i'm not surprised that they were the first to hire a cryptocurrency trader But I think what they're going to do is try to create Financialized versions of this they're going to create fractional reserved Yeah, I know you I see your face cringe fractional reserved bitcoin But the the great thing about bitcoin is we have ways to fight back on that The vast majority of us bitcoiners are what we affectionately call ourselves call hobblers Which is a misspelling of the word hold. We are not going to make our bitcoin available as collateral And there'll be some who can fractionally reserve it But this is this is the the genius of satoshi The decentralized alternative to central banking the holders of it Um control it and we are not going to be making our bitcoins available to wall street to fractionalize it. Let me Let me follow up with that when you say we're not going to collateralize it Um meaning that it wouldn't be an asset to be hypothecated to be pledged should be hypothecated. Yep It do you is there any school that would characterize that as a restriction? Of course The kansians Well, okay. Okay accepting that but but put the knuckleheads aside. Let's let's say Is there some school of thought that would characterize that as a restriction on the On the marketability so to speak of that type of money. Yeah. Yeah And and and there will be some percentage of these coins that folks will make available for rehypothecation It's not everybody who holds it that Um has the cypherpunk mentality, but the vast majority of bitcoins are held by people who have that mentality and so Um, they're they're literally in cold storage. I'm never giving mine up to um to use as as securities lending And unlike in the refco situation Or mf global Nobody's going to be able to grab those because if you if you custody your own private keys you own your bitcoin And you're you're you're in control of your destiny if you keep your private keys at a company like coinbase You're in no different position than you are putting a bank deposit at wels fargo You have an iou from them But that company becomes the central administrator And and there yeah, and then what about concerns of regulatory application to that? Yeah, no question the regulators If this really takes off are going to um Restrict it a lot more But they'll never be able to shut it down and the fact that golden sacks and now jp morgan hired a cryptocurrency trader Part of the reason why I think that that's actually good is because the establishment now is is creating some vested interest in keeping this thing going That doesn't mean that they'll succeed against the regulators But I think if bitcoin if if the regulators wanted to shut bitcoin down they would have done so already I have to stop there because I got to hop to the airport I afraid I'm afraid i'm not going to be able to chit chat afterwards. Thank you very much. You've been a great audience great questions Thank you