 I think we're good to go. Well, hello everyone and welcome to the unit one live stream discussion of Sailor.org's Bitcoin for everyone course I Would like to point out that if you'd like to put any questions in the chat We'll try and get to any of those questions if you're watching this later, please feel free to leave a comment And of course this is following Sailor.org's Bitcoin for everyone course and go over to Sailor.org and take the course Then catch up and come back if you'd like but without any further ado, I'd like to hand it over to Stefan Lovari to get us going and having a good conversation here Excellent. Thanks very much Mike and so for anyone who doesn't know me I'm a Bitcoin podcaster in the space and my guest today is VJ boy party He's joining us to help teach us a little bit about Bitcoin economics now For anyone who doesn't know VJ is renowned in the Bitcoin space for his ability to provide very clear and simple Explanations around what Bitcoin is how it works what are some of the key points around its economics? And so he is the author of the bullish case for Bitcoin, which I as one of the course Curators or designers I actually included his essay into the course because I thought it's such a phenomenal Introduction to Bitcoin so VJ. Do you want to just tell us a little bit about yourself before we you know get started? Yeah, thanks Stefan. It's great to be doing this course with you I'm really excited for all the people who would like to learn about Bitcoin and and that Michael Sailor is putting these resources together to make it easy for you know potentially millions of people to learn and understand what Bitcoin is and why it's important so You know a little bit about my background. I'm a computer scientist by training I was an engineer engineer at Google back in the early days I left and did bunch of startups and spent a lot of time studying Austrian economics and first heard about Bitcoin in 2011 and Went down the Bitcoin rabbit hole from there and have just been really interested in the economics of Bitcoin and How this thing which was created out of nothing has as much value as it does Excellent and so let's start with some of the basics because this is a beginner's level webinar or live stream on Bitcoin so when you're talking to somebody who is totally new, how do you explain to them? What is Bitcoin? That's a great starting question so Bitcoin is a new form of money on the internet and Actually, some people described it as the internet's native currency Jack Dorsey who's the CEO of Twitter is called at that and There are many ways that we can try to understand what Bitcoin is but probably the simplest way that I like to explain it is that Bitcoin is digital gold and Gold used to be money. Some people may not know that but it wasn't that long ago that gold was money and Bitcoin has many of the properties of gold that made gold good as money Except that Bitcoin is digital So it has this extra property that makes it kind of like gold that can be teleported anywhere on earth near instantly Yeah, so it has these special qualities and these special characteristics that normal fiat money No gold can provide to us And so that's a really important concept to understand and because I think a lot of people have a differing Conception of what money is and how it arises. So perhaps Vijay if you could explain for us, how does money? arise Spontaneously on the market and how does that differ from other conceptions of money? right, so Money solves very specific problems in human society And one of those problems is how do we transport value through space and time? And another problem is how do we complete trades with people who may not want the things that we have for instance? you imagine a world before we had money when a fisherman has a bunch of fish and He wants some bread from the baker and he goes to the baker and he wants to trade some fish for bread But the baker says I don't want any fish So how does the fisherman complete the trade with the baker? Well, he looks for something that's more marketable that the baker might want to have And over time the fisherman might realize It's good to keep some savings in this thing that's more marketable because people tend to want it more than my fish and there's you know often cases where No one's gonna take my fish And the good that becomes more and more marketable over time is the one that becomes money And that's it begins to take on the role that we understand today money to have Right and then how would that differ from other conceptions of money and examples of this might be the Charter list view of money or some people a view that money started as debt first What how would we distinguish this kind of bottom-up conception of Bitcoin versus some of those other ideas of money? Yeah, yeah So there are these other conceptions chattelism is one of them and that's the view that the state the nation state creates money it comes in and says Well, these people don't know how to coordinate with each other. So we're going to impose money on them and then there's David Graber's book on Debt sort of being the first use of money that people didn't have something that they traded that was more marketable They just have these debt arrangements like I owe you five fish and you owe me three loads of bread and that's kind of how social coordination happened. I personally don't fight find those Explanations very compelling because money also solves the problem of trust How do people who are otherwise antagonistic to each towards each other and don't trust each other? How do they trade with each other and we know that trade occurred between such peoples And really you need something that both sides trust So the real the big difference between these views of money is that The first one that I explain the one that I believe in is that money is a spontaneous order It's something that arises naturally from the market based on the desires of humans to solve problems that they specifically have Right and so I think a really interesting way to put it and Carl Manger makes this point in his essay on the origins of money. He's saying that essentially people have In some way converged or coalesced around The most saleable or the most marketable kind of good even though there was no explicit arrangement It's not like you and I said, oh, hey Vijay and me. We're just gonna all agree to use gold There was no explicit agreement. It just naturally happens over time And I think the way he articulates that is that there are differences in saleableness between the different goods and I think this is a point you also highlight very clearly in your essay the bullish case for Bitcoin because you're basically saying Goods are competing to become money in some sense. Could you elaborate on that idea? How do goods compete to become money? Yeah goods are constantly in competition with each other to serve the purposes of money the ones that we described before to store Value and allow people to transport value through space and time and also to complete trade with each other And there are there are certain properties that make An economic good better for money than some other economic good And these properties have been known for a long time. I mean they were described by Aristotle So they've been known for at least, you know over 2,000 years And if we think, you know a little bit about the problem we can kind of figure out what they are So I'll go through a list of some of these and as soon as I say them people be like, oh, yeah, that's obvious So for instance durability So wheat isn't good money because it's not very durable it perishes over time Portability cows are not very good money because moving cows around is is you know more difficult than moving small pieces of gold for instance Divisibility the ability to take your money and to make it into smaller pieces Now that's important because you don't always want to complete trade at the size of a gold coin You might want to complete trade at a smaller piece of gold than that. So divisibility is important Fungibility fungibility is an interesting one. It's that one piece of gold is Exactly equivalent to another piece of gold. And so for instance diamonds don't make as good money as gold because Diamonds are irregular in shape and quality. And so it becomes hard when you're trading with diamonds You have to look at it and say well, how good is this diamond? Is it a good shape? it so it doesn't it doesn't work quite as well for money as gold does and Another attribute is established history Which is that something that has been used for a long time in trade and for savings is something that people have greater trust In and think that yeah I'll keep saving in this thing and and so that kind of feeds off itself the sense that this has been around a long time I trust it more And probably the most important attribute of money at least I think it's the most important attribute is scarcity Which is you don't want to store your wealth in something that can be produced Very easily because if it can be produced easily if it can be printed easily Then why would you keep your savings in it? Someone else is going to print more of it and they're going to reduce the value of the money that you have And you don't want it to be something that's the word that I use is super abundant, which is something like sand You don't want to use sand because there's sand everywhere Gold has enough scarcity that it is convenient to use as money or it was convenient to use as money for 5,000 years And that's what what humans use so interestingly Bitcoin is superior to Gold and fiat along all these attributes that you know, I just I talked about Except maybe one which is established history gold has a longer established history to Bitcoin It's been used as money for thousands and thousands of years But in my opinion Bitcoin will overcome this Disadvantage it has versus gold fairly quickly because my view is that something that's been around for About 20 years maybe a bit longer people start to view it as a permanent feature of the world And I'll give you an example the internet when it had been around for 10 years was the early 2000s and people weren't really sure like is this important? What are we going to use this for they still weren't completely sure But by 2010 Most people thought hey, this has been around forever. I just assume it exists I use it for all sorts of things I use it for messaging I use it to help me figure out how to get to where I'm going they use it for phone calls They use it for everything and and I think pretty much everyone today assumes the internet. It's not going anywhere So my view is that Bitcoin has existed for 10 years and my view is that in another 10 years People will view it as a permanent feature of the modern world and their trust in it will Reach asymptotically close to gold's trust So one last comment I wanted to make about this we talked about money being important for transporting value through space and time Fiat money can be useful for transporting value through space because Fiat money can be digital So you can send I can send money to you step on through paypal Very easily even though I'm in the United States and you're in Australia and gold is good for Storing value through time because gold can't be printed. It's very hard to produce gold Whereas Fiat money, we know governments print gigantic amounts whenever they want so gold is inconvenient It's hard for me to send you a gold coin right now But I can trust that the value that the gold has will last over a long period of time now Bitcoin combines these and it's good for it's good for storing and transporting value through space and time And that's why I think it's superior to both gold and fiat currencies like the dollar Yeah, and it's also important to point out that for many people they might be thinking oh Wow digital money. That's a whole new thing But it's also important to recognize that much of the money we use today is already digital So in most economies around the world the physical cash and coins Component of the money supply is actually quite a small fraction. Sometimes it's like 5% sometimes even less and so in practice We are just comparing one kind of digital money versus Bitcoin which is another kind of digital money And so by the way also just for listeners in the chat make sure you can you can put your questions in and we'll try to Answer some of those if you got if they're relevant to what we're talking about so feel free to ask those questions and so Coming back to Bitcoin. It's around What are the special qualities of Bitcoin and how are they? How are they? How do we know that they will stay true? I think that's an important part And so maybe it's an important part to focus on the scarcity of Bitcoin So as we've spoken about there is there will never be more than 21 million Bitcoins and that is in some way defended or in a Decentralized way it's enforced by the network. So can you explain a little bit about what why and how we know? Bitcoin will never be more. There will never be more than 21 million bitcoins, right? Absolutely. So Just as you say the supply of bitcoins is capped at 21 million by the protocol and the protocol is Sort of a set of rules that people who participate on the Bitcoin network have to abide by if they're going to actually take part on the network and Everyone on the network is verifying what everyone else does on the network and that's how we can trust the 21 million supply cap is valid because everyone has an economic interest to make sure that no one else cheats on the network because by cheating that would be debasing your own Savings the savings that you have in Bitcoin and so the network is it uses It uses software To check the transactions that are submitted to the network of valid and anyone who submits an in-dollar Transaction to the network has booted off the network. So when you have tens of thousands of computers all doing this at once you can't cheat because everyone's watching you and The moment you cheat you're kicked out Excellent and we've got a question from Michael in the chat He's saying how can we be sure that Bitcoin will endure and not get hacked or supplanted by something better? So perhaps this is also an explanation around network effects. So do you have an answer on that question BJ? Yeah, I think that's a great question and in the early days This was a very important question because when Satoshi Nakamoto published his paper to the cryptography mailing list A lot of cryptographers were very skeptical this is a problem that the group known as cypher punks had been working on for at least a decade and No one thought that there was a solution is to create decentralized money. And so when Satoshi Created the design for the protocol. They said well I don't think this is gonna work and it's really only through its usage and from people Trying to break it and from the world's smartest computer scientists and cryptographers Really banging on the system and trying to find weaknesses trying to find Bugs where they could like steal bitcoins that would really come to trust that Satoshi figured this out and Amazingly created this system for decentralized money that has never been hacked has never had a problem has had Has better uptime than almost any other system on earth It's been continually running with ninety nine point nine nine nine percent uptime for over a decade So our trust is really I think a function of the fact that we've got to test it in the real world and see that it actually works Yep, yeah, excellent and so I think we have to think about some of the qualities of The money that we use and I think an important one to also highlight is that There's a certain like we can think of money as an institution and so if we think of Gold as an institution versus fiat money US dollar Australian dollar, etc as an institution versus Bitcoin and I think a really good point you make in your in your essay the bullish case for Bitcoin is that we Like it's also about that truck the ongoing durability and the ongoing trust in that institution And I think that's that's also the point that you were coming back to there around How over time and let's say 20 years or so passes and then enough people feel like okay This technology is here to stay it's not going anywhere And that is an important part because it's about ultimately building trust that they can store value into the longer term And that is all kind of feeding into this overall Message and I think that also the way I think about it is money the main like the ultimate primary reason We use it it is a medium of exchange But it ends up having these other functions alongside it So it's a store of value and it functions as a unit of account So perhaps VJ you could explain some of your thoughts around how it evolves in that in that process Why why do you think it evolves in a certain? order Yeah, so the the the first person to describe this was the The who I call the father of marginalist economics William Stanley Jevons and he he described that Gold evolves in stages in the first stage. It's kind of valued as like a trinket or something that's just It's cool because it's cool And you don't know it doesn't have any other use you just see it and it's shiny and you're like Oh, that's cool. I just want some of that. And so that's the the first stage is Money as a collectible something that's valued just because it's kind of cool I Didn't know if caveman would have used that kind of Wording though, it's cool But they wanted it just because it was interesting to them the second stage is it transitions from being a Collectible to a store of value and that's when you have enough people who've recognized the value and you know Value it in and of itself that they say hey other people are storing value in this it might be useful for me to get some of it just because it's valuable and Eventually if you have enough people who feel that the thing The the economic good is valuable then it can start being used in exchange Because you realize hey these other people value it so if I'm the fisherman trying to make a trade with the Baker I could get this thing that people are storing value in and say to the Say to the Baker well will you take this instead of my fish so I can get some bread and that's the point after it's become widely Established as a store of value that it will start getting used as a medium of exchange And then finally when it's widely used as a medium of exchange people will start pricing things in it They will start saying oh this costs this many ounces of gold or this costs You know five dollars and the unit of account is the thing that when you go into the grocery store Everything else is priced in terms of that thing and it's what most people kind of think of when they're thinking Is this expensive or is it cheap? They think in terms of the money price of that good and and the unit of account is also important in Modern developed economies because it's used for the calculation problem, which is Businesses and entrepreneurs Calculate their profits and loss not in the number of fish that they've got they do it in terms of the amount of money And they look at their costs in money terms and they look at their profits in money terms And they're able to calculate how much their business is generating And that's a very very important economic problem Outside of the scope of what we're talking about now But that's one of the big uses of money is its ability to help people calculate profits and losses Excellent, and I think we are starting to get a couple questions around things like other crypto currencies And so I think this might be an interesting point just to highlight some of the differences and why maybe the way you and I are thinking about it is different and For example if somebody were to create different crypto currencies for different kinds of things for it just for hypothetical example There's steak coin and bread coin or milk coin. Why would that not make sense? Why would it actually make sense to have one unit of money? Yeah, well, it doesn't really solve the coincidence of once problem because if you have your money for buying bread and your money for buying fish Then you just can't use it for those other purposes and it because you And in fact it increases the mental burden that you have to have like how much do I need to keep in each type of money to? Complete different kinds of trade. It's much more economically efficient if an economy Standardizes on a single store of value in a single medium of exchange because that facilitates trade between everyone in society Yeah, and so I think there's another Point that's worthwhile considering is that The depending on how people are thinking about money there might be thinking oh, it's about whichever narrative is stronger The way I'm thinking about it is it's more like which money It's money is being determined by which has the better objective characteristics that there are better Characteristics of Bitcoin and that's why more people are adopting it It's not like it's not a matter of having more people who are Although it obviously helps having more people who are educating people about this coin about Bitcoin or whatever But ultimately it's about certain objective characteristics of Bitcoin like it's strict supply and so on wouldn't you say? Yeah, absolutely I think both of those things are definitely at play when a money is when an economic good is being monetized And one of the fascinating things I think is that we've never seen a monetary good being monetized in real time And we get to watch this happen with Bitcoin and we're learning stuff that I mean all the economic theory we had We need to revise a lot of it because we are learning and one of the things that I think I've learned is that Sure, it's true that people won't pick up a new Economic good as money and use it as money unless it has characteristics of the superior to the former thing that they were using his money, but When someone picks something up as money there is this sort of almost religious fervor or desire to evangelize because You care about the people around you You don't want them to lose their savings and you want to explain to them Why it would be better for them to keep their savings in this new monetary good that's being created And it's beneficial to you too to to have a money and to be one of the earliest people who get that money is Beneficial because your savings increase as it becomes more widely adopted Exactly and so I Think now it might be a good point to Transition over to some of the other material around deflation because I think that's a common thing as well So just for any listeners or viewers we are just talking through some of the key points from unit one of Bitcoin for everybody So just a reminder if you haven't already enrolled it's a free course You can go and get it go to sailor.org and if you search for Bitcoin for everybody You can find the course and we've got the links in the notes as well But we're just talking through some of the different points in unit one in relation to Bitcoin economics So make sure your questions are about Bitcoin economics as well So you can you can ask your questions there But now we're going to talk a little bit about the typical arguments around deflation because I think Depending on who you listen to or where you learned your economics You might be taught this idea that the money supply should expand along with the economy and In depending on how it's explained to you or when you read the news or see in media They might say oh look we're gonna have a big deflationary crash So perhaps BJ do you want to just tell us a little bit about your thoughts there? Why is it that you know, there are perhaps other schools of economics that believe in an expanding money supply? Why is that and how would you Counter that Yeah, so the typical argument that's given Against deflation is that the fear of prices falling will cause people to spend less And businesses will reduce their operations and this this reason came from a very famous economist John Maynard Keynes in 1923 and The idea is if the prices are falling the economy will go into a recession because everyone will just stop spending And they'll wait to get things cheaper in the future now We already know and I'm sure most of the listeners already know this is nonsense Because we see this very clearly in the price of technology which is dropping all the time and even though You know that if you wait a year to get a phone that phone will be cheaper There's value to you now in the moment to having that phone There's a direct benefit. So you spend the money to get it even though you know that that thing will be cheaper in the future And this is just as an aside. I think this is a good lesson to anyone who's not Familiar with the economics profession There's a lot of quackery that comes out of the economics profession and if you find that what you hear doesn't Jell with your common sense then yeah, it's probably nonsense And this is this is an example where you can very clearly see that falling prices do not affect the sectors where there are massively falling prices like the tech industry now the concept of So-called hoarding which is used by some of these economists is really used as a pejorative Who think that the health of an economy is built on consumption? They want people to consume and to spend money But really when people decide to increase their cash balances that what they're doing is They're expressing a view of the future People hold more money when the future seems more uncertain to them That's the fundamental reason why the demand for cash goes up and So for example, if you found out you're living in a town and you found out that a hurricane was going to go through your town You may save more money or may hold more money than you would normally hold because You don't know what's going to happen in the future and after the hurricane has gone by you'll have enough money and Resources to be able to do repairs to your house So the idea that holding money or hoarding money is bad is just really that's nonsense as well It's people expressing a view of the future they feel more uncertain and that's Normal and natural in certain situations to feel more uncertain about the future and to want to have more cash in those situations Yeah, that was an excellent explanation So let me just reiterate a few key points for listeners because sometimes this can be a bit confusing One way to think of it is to think why does anyone hold money in the first place? Well, one of the reasons why we hold money in the first place is because we face future uncertainty If the future was certain if I knew exactly which bills were coming up and you know For example, I might have an accident in six months time and I need to pay for health care Well, that's that's the reason why I might save some cash Because I'm it's the future is uncertain if I knew exactly when things were happening and when I would be spending I could You know put money away into securities that Basically come that mature at exactly the time that I need them and thus I would not I could have a very low or zero cash balance But the point that you are spelling out and the point that we are trying to teach here is that we hold money Because of our future uncertainty. It's there to reduce our kind of mental Discomfort around future uncertainty and that's why we hold cash to begin with and so that is also another way to think of it And that's why quote-unquote hoarding is really like a pejorative term It's like a negative way of expressing it when in reality we all face uncertainty The world is uncertain the world is just this that's how the world is and that's why we have to hold some money which in turn then in Some way we then chase after what is going to be the best money because given that we have to have because the world is uncertain We have to hold some money which money is going to be the best one Well, the most saleable one the most Marketable one and that is in turn determined by these characteristics, right scarcity durability fungibility Divisibility, etc. The things that we were mentioning earlier. So I think another important point that people Might get they might get this wrong if they've just if they're just looking at what are the typical news media Companies saying they might say something like oh, no, we're going through a deflationary crash So they might be thinking oh see These companies are going out of business people are going to lose their jobs How do you think about that issue VJ and how do you sort of explain really what's going on there? Yeah, so often what will happen is that a central bank like the Federal Reserve will Create a loose monetary policy, which will expand the money supply And if you expand a money supply, you'll eventually start getting misallocations in an economy Where people start to do things which are not productive Just because a bubble has formed in that part of the economy and a classic example of this is the the 2008 financial crisis where the Federal Reserve had it had very loose a very loose monetary policy which inflated the money to supply From 2001 to about 2006 and that created this huge bubble in the housing market And so you have all these productive resources in the economy going to building houses putting Granite countertop in houses that really shouldn't have been created and people buying houses that they couldn't afford And then ultimately what happens is once that Once there isn't enough capital to continue flowing into these Projects which really shouldn't have been started in the first place. You have a crash and the money supply starts to contract So so really when they when some economists say that you know, we having this deflationary crash It's really a result of the inflationary period before it and it's the correction that has to happen And economists that say the Federal Reserve has to prop up the market and continue to inflate I sort of view it as like the Federal Reserve is the cause of the problem They're like someone who broke your leg and then people are saying well, they need to give you a crutch Well, okay, maybe they shouldn't break your leg in the first place Exactly right and so the way to think about this and so for listeners who when you enroll in the course You will see The material here is my interview with dr. Philip Vargas And so he's one of the world's experts on deflation and in fact he has written an entire book about It's called in defense of deflation And so he's spelling out what we have to do is first disaggregate and understand what were the root causes behind This deflation and why it's not necessarily an issue and so Essentially there are we can think of it like there are some types of quote-unquote good deflation and then the quote-unquote bad types of deflation but upon further analysis we can understand that Some of those quote-unquote bad types of deflation were first brought about by a government intervention of inflation into the market so There are different types of deflation as we were saying so some of the good types Probably the best example is growth deflation So this is just the price of things coming down over time because the economy the world is becoming more productive So that's why your mobile phones are becoming cheaper and cheaper or having more features over time your computers are getting better and better So we're getting a growth deflationary factor there, which is a beneficial thing. We should be happy about that We shouldn't be unhappy Now the type of deflation that VJ was just explaining in this example was called bank credit deflation that is the one where Essentially because of this inflationary expansion of credit we are now seeing It's like the chickens are coming home to roost. We are now seeing some of these businesses who are Struggling because there's not enough new credit creation and so we're seeing this kind of credit collapse effect happening So that's a few important points to understand there around deflation and so I think it's really the Austrian school in Particular that actually teaches that you don't necessarily need to be growing the supply of money along with the economy One way to think of it is like you can just have Imagine this is the level of the money supply that we've got and then this is the productivity of the economy I know it's a bit naive, but it's not like because the productivity goes up that the money also has to go up Really, it's more just like the the value of that money can just rise So that's probably another way to think of that. So Does anyone else well before we move on to the next topic? I might just ask in the chat Are there any questions around deflation deflationary economics? Happy we're happy to take some of those before we move on to some of the discussion around environmental impact proof of work Chance to catch up with you guys because you know, it takes a couple seconds and so, you know, I'm just Very very interesting guys getting a lot of good comments people say you guys are doing a great job. I think you're doing a good job I'm I'm workshopping a joke for the end about bit dollars. So just wait for that. That'll be exciting Everyone stay tuned to the end Okay, so we've got one question here from Lewis. He's saying how the halving is deflationary Okay, so I guess we might need to explain that a little bit. So BJ, could you explain first of all what the halving is and whether you believe it has a deflationary impact or something else? Yeah, so bitcoins protocol has designed the creation of bitcoins to happen in a very predictable Way, there's a very predictable inflation schedule. So what one way to say it and the way Satoshi designed it is that Approximately every 10 minutes a certain number of bitcoins is produced in the beginning in that when when Bitcoin was for the Bitcoin Network was first launched the number of bitcoins that were produced every 10 minutes Was 50 bitcoins now every four years There's an event called the halving where the number of bitcoins that's produced in each of these 10 minute intervals gets halved So it went from 50 bitcoins then four years later after Bitcoin had been launched it went to 25 and then another four years later it went to 12.5 and now it has dropped to 6.25 and Satoshi designed this in such a way that after Approximately 120 years the supply of bitcoins that will be produced will drop to zero and there'll be no no more inflation and the total Supply of mind bitcoins will have been almost 21 million bitcoins Excellent. So yeah, so one way to think of it is you know Bitcoin is the supplies approaching this asymptote So if we were if we're going to be technically precise, it's actually Disinflationary right it's inflating at a lower rate such and until the point it never goes above the 21 million Asymptote, so that's one way to answer that Also, we got another question here from Opti health products asking How does the Fed fight a deflationary effects caused by a pandemic? Well, I think maybe maybe a better way to we can sort of rephrase that a little bit more around How in the general case people might think oh the central bank needs to step in provide liquidity How would you answer that kind of question VJ? Well, you know We talked about the idea that the future can be uncertain and there are points at which people demand more cash And that can be deflationary in the sense that prices will drop because the demand for cash goes up now That might mean in a free market that certain businesses are going to fail because they haven't correctly anticipated the future and and because they haven't anticipated their future that they will go out of business, but that's actually a natural feature of the free market and the Nobel Prize winning economist Milton Friedman said Famously that The free market is not just a profit system. It's a profit and a loss system And the losses are just as important as the profits It's a way to cull businesses that are inefficient that aren't good at predicting the future that aren't good at predicting consumer demand And so I I sort of reject the premise that when people's demand for cash goes up the central bank needs to come in and print more money to sort of force people into spending and force them into investing because there might be very good natural reasons for people to want more cash and and Forcing them out of that and making it so that they don't hold cash in that Having cash in the bank is scary because the central bank is inflating so quickly That causes misallocation in the economy and causes much bigger problems Which then need to be corrected down the line and cause even more unemployment Exactly right and we've got another question here from Javier Grobel He's saying what happens for miners once the 21 million are attained now just a quick note for listeners bitcoins final Satoshi's the final fractions of a Bitcoin will be mined something around 2140. So just a quick note there, but VJ How would you answer that point? That's a great question And it's one that comes up very quickly when people sort of start to understand mining miners are compensated in two ways one of them is called the block subsidy, which means they given these bitcoins for Verifying transactions on the bit Bitcoin network. That's their job is to verify Transactions and and create an ordering of transactions on the Bitcoin network. So they are They are rewarded through this thing when they verify a batch of transactions They're given as I described in the first four years 50 bitcoins when they and these batches happen every 10 minutes as I was saying So they verify batch of transactions and they get 50 bitcoins, but they're also compensated in another way, which is When a batch of transactions is verified you have to pay money to get into that batch and That's a transaction fee that you have to pay to be added to the Bitcoin blockchain We haven't talked about that in much detail But if you want to submit a transaction on the Bitcoin network, you're gonna have to pay a fee So miners are compensating these two ways one is the inflation Which is getting smaller over time and then transaction fees and what we're seeing on the Bitcoin network is as the Block subsidy starts decreasing the transaction fees are increasing And so more of the compensation of miners is coming from transaction fees Ultimately when the block subsidy goes away completely miners are going to be compensated entirely by The transaction fees that people are willing to pay to transact on the Bitcoin network Excellent, thank you Vijay for that and so I think it's probably a good point now to move on to the next part Which is around proof of work So I think this is a question where when people are reading on the news or they may have just very seen a seen a very high level Superficial analysis. They'll say oh Bitcoin mining. It's wasting all this energy. What's what's the deal with that? So how do you maybe maybe if you could just start with just a basic Way to think about proof of work energy and that would be a good place to start Yeah, sure So proof of work is a system that allows parties in a decentralized system Who don't trust each other to be able to coordinate to their mutual benefit and it it expends energy? to Do verification in a way that's like a yardstick that everyone in the network can see and say I know that you spent this much energy To verify the transactions and it helps all these people who don't trust each other to coordinate And it's used I'm not going to go into the really technical details of how it does that because that's probably going to go over the heads of Most people but just sort of think of proof of work as a tool for coordination amongst people who don't trust each other and may not be able to communicate Perfectly with each other as well And it's used in Bitcoin was a major breakthrough in computer science that Satoshi Nakamoto figured out and The thing about the energy that's used in Bitcoin is it's Proportional to the demand for people to own Bitcoin and use Bitcoin for transactions. So The market is saying that we want to consume energy because we value Bitcoin and the value it provides us and And I have a quote that I wrote down before this That I wanted to read that it comes from Satoshi Nakamoto and I think perfectly sums up Why this energy usage is good and valuable and he said The utility of the exchanges made possible by Bitcoin will far exceed the cost of the electricity used therefore not having Bitcoin would be the net waste and he's saying it is providing some value to society and It's price is a reflection of that value and the price is also proportional to the energy that we expend on it Now in terms of the energy use there's another thing that I think is important and I wanted to say Bitcoin is competing against other monetary systems and other monetary goods. It's competing against fiat It's competing against gold for instance And it's so I think it's very important to understand If Bitcoin out-competes these things and disrupts them What was the energy being used for those systems if we switch the energy over to Bitcoin and it provides us this benefit maybe we're actually saving energy in a way like Gold the amount of energy used for gold mining is massive It's bigger It's greater than the amount of energy used for Bitcoin and gold mining is actually Environmentally far more destructive than Bitcoin mining Bitcoin mining happens typically in data centers that happen to be using renewable energies places like Iceland or Near near dams in China in Sichuan province Whereas gold mining uses, you know a lot of fossil fuels and it also leaves a lot of harsh chemicals in the environment So gold mining is actually quite a bit worse So Bitcoin disrupting gold would be if you care about the environment I think it would be a net benefit and Relative to fiat currencies the point I want to make is that The energy of the fiat currency system is not just the banking system and the ATMs and like all the computers that the Federal Reserve uses The value of fiat currencies ultimately is tied to the military of the country because fiat currencies are backed by Militaries without the military force to defend the value of the currency and and the integrity of the country the borders and Policing society Fiat currencies would be worth worthless And so I think you really need to can compare the energy usage of Bitcoin versus the energy consumption of the US military and When you think of it that way Bitcoin is a net win because it's creating money in a much more peaceful way A way that doesn't involve the use of militaries and police and all that kind of thing So I think it's a it's a very a peaceful revolution to the monetary system Precisely and I think just to reiterate the point there around how we use proof of work And in some ways it has to use energy because there's this concept and I believe it was Nick Zabe who popularized this idea It's unforgeable costliness. It's this idea that because the way Bitcoin mining works is it requires a certain level of energy and That is how we as participants in the system and the other miners and the other people using the system can look at it and say Yeah in order to Do this I know they had to expand this kind of energy and that is in turn what secures Bitcoin And it is also what helps in some sense We know the Bitcoin network is secure and we know it's scarce and we kind of know the system is operating Effectively because of that energy being used. So it's a really crazy thing to think about but in some ways it's all it's sort of tying real-world energy use into the blockchain in in a very loose sense But we can think of it like that because Otherwise the blockchain it's a self it's a closed system. It's a self-contained system It doesn't have any references to the outside world But really what it does have is this energy usage, which is what Bitcoin miners are doing And so Bitcoin miners are securing the network for us as users And you I mean you can be a user and a miner as well But as it just as an example and so That's an important concept to understand if you're a new and you're trying to learn about this Bitcoin thing And you're seeing it use a lot of energy But I mean the reality is the energy the short answer is it uses energy, but that energy is worth it That's kind of the short way to put it and so all right Could I make a little point about that Stefan about? Unfortunate will cost us now that you mentioned and I think that's an important thing to to reemphasize and it was a brilliant Breakthrough by Nick Sabo Which was how do we get scarcity in the digital world in a world where we know things are easy to copy and music files can be transmitted and copied and Pictures and so on so forth get copied and sent around the world He he was able to reframe the concept of scarcity In a way that would work in the digital world in the physical world a lot of people think of Scarcity as the dearth of something there isn't much of it So gold is scarce because there's a limited amount of it whereas Nick reframed it as The property of being hard to produce and that's really the fundamental use of proof of work in Bitcoin We can trust that There is a limited number of bitcoins because it's very costly and increasingly costly to produce more of them And so the concept of Unforgivable costliness was a fundamental breakthrough in allowing digital scarcity scarcity to become possible Excellent all of that explanation there and so I think So for listeners when you've enrolled in the course, you'll see there's an essay by Dan Held It's called proof of work is efficient So that's a good one for you to read and that kind of summarizes some of the points that we've been speaking about Just here now. I think for the final kind of section. I think it's important to talk about Government intervention into the market for money and comparison of the different monetary Standards, so I guess the high-level way to think about this is we're not necessarily saying like oh, yeah We hate the government is more just like we're trying to say Whoever can print money will right and it's just like a human Tendency because if you know if if if the world just said Stefan you are in charge of the money Well, I would have this natural tendency to like and I would have to resist that or the other way is even if even if you know Vijay it was Vijay coin and Vijay was a total angel and would never do anything to like abuse his monetary privilege Don't forget somebody could threaten him and say well Hey, I'll do something to your family if you don't print this money for me and let me have some so That's what that's what we're trying to get at is this idea of Bitcoin as this money that it's like a new monetary standard that nobody controls and in that in in some sense It's hard to you can't corrupt it because it's there's a it's a set limit So Vijay if you wanted to just comment a little bit on monetary intervention over the years and how we sort of Start with maybe gold under a full reserve system as in all the gold is fully backed And then actually we kind of degenerate over time because of monetary interventions, you know government monetary interventions right, so gold was used as money for a very long time and By the 19th century gold had become the global reserve currency everyone essentially used gold as money and then what happened was banks made this kind of Breakthrough for them that They figured out when people put gold in the bank They didn't really take it out and so what would happen is people would put gold in a bank and a bank would give them a promissory note Which is that you put five ounces of gold I give you a note which says come back with this note and you get your five ounces back banks realized that People were just keeping their gold in the bank So what they did was they started lending out the gold or lending out promissory notes to other people for various things So they would say oh, there's a business that Wants to want some money want some gold what they would do is they give them the promissory note thinking that the person who deposited the gold Wouldn't actually be withdrawing it And what happens is that's called the fractionalization of bank reserves Where the bank gives out more notes than the gold that they actually have and this is sort of the origins of these Periodic booms and busts that happen in the economy is that banks fractionalize the amount of deposits and reserves that they keep Now what happened was in the early 20th century World War one happened and a lot of countries Spent a lot more money than they actually had and and so they face this crisis where gold started leaving their countries and a A lot of these nations decided well It's better for us to detach from the gold standard because we can't pay back our loans We don't have enough gold to do this. Let's just detach detach completely and so The fiat money that we have today is really a consequence of governments not being able to Handle their finances and to spend more than they actually had And it's not a natural consequence of the market And so in the United States Franklin Roosevelt detached the dollar from From gold in 1933 with executive order 6102 And he said that all of these notes that you have all these dollars Which used to say this can be redeemed for gold at the Federal Reserve They're not they're not valid anymore. You can't go to the Federal Reserve and get your gold anymore We are not going to honor these promises on our note And you just have fiat money money that we sort of control the value of by moving the supply Up whenever we think we need to and that's kind of the origin of how we have the money that we have today And it's really it's an experiment. They have not been You know very long periods of time where fiat money has been successful Most experiments in fiat money have failed very quickly Historically, so we're living in this very experimental period of history I think between what I think was the gold standard which actually the 19th century happened to be the period of The greatest increase in the standard of living of humanity under a gold standard And what I think in the future is going to be a Bitcoin standard And I call it the fiat money into Regnam. It's the period that exists between these two Monetary standards which are not fiat not inflationary and not controlled by any government Fantastic there so Listeners make sure you go and check out some of the material there so for this item in the course I've actually put listed a section from Murray Rothbard's book It's called what has government done to our money and you can obviously find that on the sailor Academy You can find the material is there and in that little section that we've quoted there It talks you through What were some of the monetary interventions, right? We had the classical gold standard as VJ was saying and then we went through some different Types of we were living under different monetary standards and there were different conditions but I think perhaps one summarizing point I would make there is that We are talking about this idea of sound money and sound money has two components one is that we Have voluntarily chosen it. We've selected this Bitcoin is an opt-in system and secondly Freedom from government intervention sound money has those two components And so if we look at the way Mises talks about money, so for those of you who don't know let big bun Mises He's regarded as you know one of the great economists of our well of in recent times and he Is a well-known figure in the Austrian school of economics and so he thinks of sound money It's like a check against government expansion It's a it's a it's a it's something that it should belong in a similar kind of category as like as like a bill of rights or some kind of way of You know giving people their ability to save money and conduct trade and commerce in their chosen Monetary unit if you will or monetary commodity or monetary good So I think those are probably the key points So we are kind coming up to the end of the hour So might be a good point to wrap up here But of course before we finish up VJ for any listeners out there Where can they find you and listen as I highly recommend you follow VJ. He's got some really great explanations on these things and Definitely have to go and read his article as well. So VJ where can listeners find you? Yeah, absolutely. So you can follow me on Twitter where I write about Bitcoin almost every day. I'm real R e a l underscore VJ V I J a y on Twitter you can find my article the bullish case for Bitcoin on medium and I'm working on turning that article into a book which should be out hopefully in the next month or so Fantastic, so listeners make sure you follow VJ. He's a really good guy in terms of explanations about Bitcoin So I think we'll probably start to wrap it up there I guess I'll just remind you go if you haven't already go and enroll on the course it's on sailor.org you can find it there Bitcoin for everybody and Hopefully you are enjoying the live streams and you are learning along with us as we go Mike, I'll give it to you now just for the final section excellent Stefan VJ great job great discussion everyone in the comments seems like they very much and enjoyed your conversation VJ, thanks for joining us again. Just we really appreciate it Me and Stefan will be back two weeks from now on March 10th same time five o'clock Eastern Standard Time 9 a.m. Australia what was what is it was a EDT Yeah, 9 a.m. For Australian city time Okay, and so you can figure that out for yourselves wherever you are But yeah, definitely check out the course at sailor.org. It's a prdv 151 introduction big time That was the other course in it Bitcoin for everyone So again, thank you everyone for joining. Thank you for everyone in the comments Again, if you're catching this later leave a comment down below. Maybe we can get to it another time Thank you everyone who's watching and