Speaker 1: Hello, and welcome to another episode of the Mark Mass Show,
Speaker 1: where we talk about, of course, the decentralized Revolution, talking
Speaker 1: about the way the world is changing from a centralized
Speaker 1: world to a decentralized world as we look at it
Speaker 1: through the lens of politics, finance, and technology. And you know,
Speaker 1: I like to bring to you some education to change
Speaker 1: the way you think, some of the latest breaking news
Speaker 1: so you can stay with this revolution step by step,
Speaker 1: and of course some interesting people so you don't have
Speaker 1: to just listen to me all the time. And that's
Speaker 1: what I have for you right now. I'm joined in
Speaker 1: the studio today with Eric Yates. He's the author of
Speaker 1: The Seventh Property. You can find him on Twitter at
Speaker 1: Eric Yeakes. That's y a key, k Ees and Eric,
Speaker 1: thanks for joining me today.
Speaker 2: Hey, thanks for having me. Man, Let's get into it.
Speaker 3: Yeah, let's get into it.
Speaker 1: You know, so you wrote this book, the Seventh Property,
Speaker 1: talking about Bitcoin, the Monetary Revolution, and I thought it
Speaker 1: was I thought it was really good. There's there's some
Speaker 1: really good points that I want to dig into. And
Speaker 1: you know, something that I kind of see you talking
Speaker 1: about here in this Monetary Revolution and the Seventh Property
Speaker 1: of Money and Currency so I want to talk about
Speaker 1: your thesis in the book. But let's set this up
Speaker 1: a little bit. You know, I believe that one of
Speaker 1: the problems that people have, and I'm sure you would agree,
Speaker 1: specifically with money and finance and even more specifically with bitcoin,
Speaker 1: is that they don't even understand money. And if you
Speaker 1: don't understand money, then you can't understand these other things. Now,
Speaker 1: people think they understand money because we all use money,
Speaker 1: we get paid in money, we have in my walllets, whatever,
Speaker 1: so we.
Speaker 3: All think we know it, but we don't.
Speaker 1: So I was thinking, maybe you could maybe tell us
Speaker 1: what you think some of these misconceptions are with money,
Speaker 1: and then what's what the main attributes of money are?
Speaker 2: Totally?
Speaker 4: Yeah, you know, when I wrote the book, the first
Speaker 4: chapter was focused on that exact idea. I think when
Speaker 4: I was first going down the rabbit hole of trying
Speaker 4: to understand what is money? There were bits and pieces
Speaker 4: that I collected along the way. You know, I heard it,
Speaker 4: what are the properties of money? What are the functions
Speaker 4: of money? In Safety's book, he talks about money across
Speaker 4: different dimensions, and you know, Carl Menger defines it as
Speaker 4: a good salability and there's all these different frameworks from
Speaker 4: which people piece it together. So when I was writing
Speaker 4: the book, I was like, okay, like how does all
Speaker 4: this stuff piece together? And I put together this graphic
Speaker 4: in the book where I basically show, you know, at
Speaker 4: the very top we kind of have like the original definition.
Speaker 4: You know, nineteenth century Carl Menger was defining money as
Speaker 4: the most salable good, the good that can be sold
Speaker 4: at an arm's length that ease more more so than
Speaker 4: anything else. And there are certain goods that ultimately became
Speaker 4: more saleable than other goods. And then that kind of
Speaker 4: boils down into okay, well, how do we think about saleability. Well,
Speaker 4: we can think about salability basically across the three dimensions,
Speaker 4: which is kind of how safety and defines it in
Speaker 4: the baitcoin standard. You know, we have salability across time.
Speaker 4: We can you know, things that hold value very well
Speaker 4: over time. We have saleability across space, things that we
Speaker 4: can move across space very easily. And then saleability across scales,
Speaker 4: things that we can easily group and divide. So it's like, okay, well,
Speaker 4: now that we understand across these three dimensions, then.
Speaker 1: And then just to kind of to expand on that saleability,
Speaker 1: meaning that people will take it.
Speaker 2: People will take it.
Speaker 1: It replaced the barter system, and if you don't want
Speaker 1: my chicken or my goat, then we don't have a deal,
Speaker 1: and so we use a medium of exchange instead. It's
Speaker 1: the most saleable good to the point that you made.
Speaker 1: And just for everybody listening, what that means is the
Speaker 1: good that everybody will.
Speaker 4: Accept, exactly right, exactly, yeah, it's the one that everybody's
Speaker 4: kind of agreed upon. This is the most common good
Speaker 4: in primitive societies. It was something that was typically very
Speaker 4: often utilized. In a modern economy, it's a little bit different,
Speaker 4: but nonetheless, the three functions of money when we think about,
Speaker 4: you know, money being a store value, or a medium
Speaker 4: of exchange or a unit of account, those kind of
Speaker 4: line up pretty well with salability across the three dimensions, right,
Speaker 4: Like a store value function means it's something that's highly
Speaker 4: saleable across time. It's something that holds its value really
Speaker 4: well over time. Medium of exchange function is very similar
Speaker 4: to it's something widely accepted across spaces. And unit of
Speaker 4: account function it's something that we can easily group and
Speaker 4: divide very well, and thus measure money in. So what
Speaker 4: I boiled all that down to is, well, there's these
Speaker 4: properties of money that ultimately say whether something's going to
Speaker 4: be good at those functions. And you know, there's kind
Speaker 4: of like six primary properties of money, and you know,
Speaker 4: the most important, most common being like a very scarce
Speaker 4: form of money is something.
Speaker 2: That's very good.
Speaker 4: We have things like portability, divisibility, et cetera. And money's
Speaker 4: always been defined throughout history kind of within this groupings.
Speaker 4: You can say, there's other ways of looking at it,
Speaker 4: but generally speaking, it's kind of like this common framework
Speaker 4: we operate off of. And when I was going into
Speaker 4: the research and I was thinking about bitcoin, and I
Speaker 4: was like, okay, well, all of these properties of money
Speaker 4: that kind of enabled moneies to emerge originally, like gold
Speaker 4: and silver, these are what made people naturally converged upon
Speaker 4: those types of money because they had these properties that
Speaker 4: are very scarce. They're poor enough, they were divisible enough.
Speaker 4: When we moved into the modern economy and we had
Speaker 4: paper money, we sacrificed a lot of the ultimate decentralized
Speaker 4: nature that these originally had. You know, when we had
Speaker 4: coinage systems originally emerging, it was the merchant class that
Speaker 4: was doing it. It wasn't governments that was creating that.
Speaker 4: And people were finding a lot of primitive forms of
Speaker 4: money themselves and creating it themselves and verifying it amongst themselves. So,
Speaker 4: you know, in antiquity, money was something that was pretty decentralized,
Speaker 4: and this trend throughout history was basically that as money
Speaker 4: became more efficient for transactions, as we moved from a
Speaker 4: you know, gold system to a paper type system that's
Speaker 4: backed by gold, that required more intermediaries to enter into
Speaker 4: the system, and that ultimately made the system more centralized
Speaker 4: to the point where the money didn't serve its fundamental
Speaker 4: properties anymore. Gold no longer was scarce on a gold standard.
Speaker 4: Eventually we moved that into fiat money, where the supply
Speaker 4: money isn't scarce at all, and it's quite the opposite.
Speaker 4: So the the seventh property that I kind of defined
Speaker 4: throughout all this is that this trend of centralization. Bitcoin's
Speaker 4: primary innovation is that we're reverting back to that original
Speaker 4: idea of what money was, where people were creating it themselves.
Speaker 4: Much like bitcoin can be mined by anybody, people were
Speaker 4: storing it themselves, much like anybody can store bitcoin on themselves,
Speaker 4: and people are verifying it amongst one another themselves, much
Speaker 4: like how you can do that with bitcoin. Bitcoin's kind
Speaker 4: of returned to the anti created form of money, which
Speaker 4: is actually just returning to the optimal form of money,
Speaker 4: which we can now do in this modern technological framework
Speaker 4: with the Internet. So the true innervation of bitcoin was
Speaker 4: that it has not only all the efficiency of our
Speaker 4: current fiat type system with paired with the Internet, it's
Speaker 4: actually much more efficient and it's still decentralized without having
Speaker 4: to sacrifice that as we have throughout history. So that
Speaker 4: was kind of like the primary idea around the thesis.
Speaker 1: So it goes back to the essentialized nature where each
Speaker 1: of us can get it. So if you kind of
Speaker 1: go back to some of these previous iterations of money,
Speaker 1: whether it's seashells or rocks or feathers or whatever, it was,
Speaker 1: again that was decentralized. So I can go collect the seashells,
Speaker 1: I can go collect the rocks, the feathers, whatever they
Speaker 1: may be.
Speaker 3: I can go collect the gold.
Speaker 1: Obviously, it starts getting more centralized when you get to
Speaker 1: the money changers, the goldsmiths who made the coins, things
Speaker 1: like that. But still I get that, and so I
Speaker 1: guess the seventh property isn't so much a different property
Speaker 1: such as portable, portability, divisibility, durability, but rather that it
Speaker 1: just goes back to kind of the original decentralized nature
Speaker 1: of it.
Speaker 2: Yep.
Speaker 4: So I define it as in the book immutability, and
Speaker 4: it's defined as a decentralized production, storage, and verification of money.
Speaker 4: So immutability is a term that means like resistant to change,
Speaker 4: and that's ultimately what bitcoin is. It has this property
Speaker 4: of immutability which is enabled by the fact that you
Speaker 4: can decentralize in a decentralized manner. You can produce, store,
Speaker 4: and verify it.
Speaker 3: Yeah.
Speaker 1: Yeah, I think if we run through some of those attributes,
Speaker 1: So some of those properties I think, you know, for
Speaker 1: people to kind of think about. So one of them
Speaker 1: is scarcity, which obviously you talked about and the FIA
Speaker 1: money is the opposite of scarceh right, it's it's endless.
Speaker 1: Jeff Boo says that abundance and money is scarcity and
Speaker 1: everything else, and so that's kind of where we're at.
Speaker 1: But most people don't really understand that basic concept. Again,
Speaker 1: that this big misconception there.
Speaker 3: But I think probably all across the board. I mean,
Speaker 3: bitcoin seems to win.
Speaker 1: I mean it's it's more portable, it's more divisible, it's
Speaker 1: more durable. The saleability piece of it might still be
Speaker 1: the one in question, but that's rapidly that's rapidly growing
Speaker 1: as well. I mean, you could pretty much use bitcoin
Speaker 1: anywhere in the world at this point. I think it's
Speaker 1: based off of transactions. It's in like a top five
Speaker 1: currency in the world already, something like that.
Speaker 2: Totally.
Speaker 4: It's uh, and that's one of the kind of like
Speaker 4: vague a lot of these ideas around money, they are
Speaker 4: vague ideas. So you know, you were to be on
Speaker 4: Twitter debating an economist on the other side of this,
Speaker 4: they would say like, oh, it's not widely accepted enough.
Speaker 4: And then the question becomes, well, how do you define
Speaker 4: what widely accepted is as a globally accepted you know,
Speaker 4: bitcoin can be accepted on any continent, it can be
Speaker 4: accepted by anybody with an Internet connection.
Speaker 2: That's that's pretty widely accepted.
Speaker 1: I got an option, I gotta I gotta cut you
Speaker 1: off right there. We're going to have to take a
Speaker 1: quick break. If you're just tune in you're listening to
Speaker 1: the Mark mass Show. I'm sitting down with Eric Yaks,
Speaker 1: the author of the Seventh Property, Bitcoin and Monetary Revolution.
Speaker 1: We're back more talking about this money and how it
Speaker 1: can change the world. In a second, we'll take a
Speaker 1: quick break. Don't go away, I'll be right back.
Speaker 3: All right, Welcome back.
Speaker 1: If you just tune in, you're listening to the Mark
Speaker 1: Moss Show. I'm sitting down with Eric Yaks, the author
Speaker 1: of the Seventh Property, Bitcoin and the Monetary Revolution.
Speaker 3: You know, Eric, I kind of.
Speaker 1: Cut you off there, we were jumping into this commercial break,
Speaker 1: but you know, you were talking about bitcoin going back
Speaker 1: to this kind of like decentralized nature, which I love.
Speaker 1: I also think about it, and you mentioned immutability. Also,
Speaker 1: it's permissionless, and it's also borderless, and so it's sort
Speaker 1: of like this neutral money, right, it's not tied to
Speaker 1: a commodity good and it's not tied to a nation state.
Speaker 1: Is that something big that you see, like the ability
Speaker 1: to store value that's not tied to any specific geography,
Speaker 1: any government, anything like that.
Speaker 4: Yeah, it's It's one of the biggest aspects of bitcoin
Speaker 4: and one of the primary drivers I think of its
Speaker 4: adoption in the future is going to be associated with
Speaker 4: that idea. I think that over the past you know,
Speaker 4: a few years, this bitcoin's gained a lot of prominence.
Speaker 4: You know, a lot of narratives brought it into the
Speaker 4: fray and people would say, you know, it's digital gold,
Speaker 4: or you know, bitcoin is this inflation hedge, and these
Speaker 4: narratives kind of grew and I, you know, I don't
Speaker 4: think that those are the right frameworks. I think truly
Speaker 4: the idea of really thinking about what bitcoin is is
Speaker 4: pointing to those ideas. If it's this neutral globally political
Speaker 4: monetary system, it's an alternative monetary system that people opting into.
Speaker 4: And we think about out what's happening today in the economy.
Speaker 2: You know, we have.
Speaker 4: The most rapid interest rate increase that the FED has made,
Speaker 4: and that's happening while we have more debt in our
Speaker 4: economy that we ever have, when we're hitting you know,
Speaker 4: historic levels inflation that we haven't seen in forty years,
Speaker 4: and these guys don't know what they're doing. And this
Speaker 4: monetary system of these people who control our money, they're.
Speaker 2: Just winging it right now.
Speaker 4: And we have an option to opt into this neutral
Speaker 4: system that anybody can be a part of that's global
Speaker 4: and it's borderless, and we're we're getting really close to
Speaker 4: that inflection point where that narrative I think, is going
Speaker 4: to become much more obvious, It's going to become much
Speaker 4: more widespread, and that's when we're really going to start
Speaker 4: to see that inflection point and adoption bigcoin to truly
Speaker 4: achieve its value proposition.
Speaker 1: I mean, certainly, as we're watching FA currencies die left
Speaker 1: and right all around us, we're seeing countries go into
Speaker 1: massive inflation Lebanon, Turkey, you know, Peru, Argentina.
Speaker 3: We could saider it rattle them all off.
Speaker 1: But as we're seeing that, then they have a choice.
Speaker 1: Those people in those countries are like, well, I can't
Speaker 1: have this currency anymore, So what do I do? I
Speaker 1: can't really get us dollars, Gold's hard to get. Well,
Speaker 1: there's bitcoin, right, And so we're starting to see that
Speaker 1: take place. I'm curious though, to the point that you're
Speaker 1: making about these different narratives from digital goal to whatever, right,
Speaker 1: and the way that I kind of look at it
Speaker 1: is sort of like the problem is with humans is
Speaker 1: that we're not in any good imagining in the future.
Speaker 1: All we can do is imagine better versions of what
Speaker 1: we already know, and then we try to understand things
Speaker 1: based off of some of being relative to something else. So,
Speaker 1: if you think about when electricity was first invented, the
Speaker 1: killer application was a light bulb. So what is this electricity.
Speaker 3: Thing, Well, it's sort of like a digital candle.
Speaker 1: I guess which it was, but it became so much more, right,
Speaker 1: And so we think about what does this internet thing? Well,
Speaker 1: I guess it's the way we have these digital message boards. Well, sure,
Speaker 1: we didn't know we'd have a cloud or with our
Speaker 1: car being navigated around traffic using social media because we
Speaker 1: didn't have that stuff. Right, So we think about bitcoin,
Speaker 1: digital culture, digital gold. It is digital gold to bank
Speaker 1: count in your pocket. Okay, it's that too. Do you
Speaker 1: think that as these narrative change, it will be even
Speaker 1: bigger than that? So if you think, if you think
Speaker 1: in broader terms, what is money? Money's communication communicates value?
Speaker 1: So is it a communication network a value exchange network?
Speaker 3: What does that even mean?
Speaker 2: Yeah?
Speaker 4: So here here's how I view this point. I think that, yeah, absolutely,
Speaker 4: like bitcoin is this synthetic digital online commodity like gold,
Speaker 4: and that there's certainly true there's so many parallels between that.
Speaker 4: But I think that the innovation of bitcoin and what
Speaker 4: its potential could be and why I guess actually I'll
Speaker 4: start with why does this matter?
Speaker 2: Right?
Speaker 4: Depending on the level of potential that bitcoin ultimately achieves
Speaker 4: will determine the ultimate market price that it finds equilibrim at,
Speaker 4: how much of the market size it'll ultimately saturate at.
Speaker 4: If bitcoin's just becomes digit gold, then it's effectively just
Speaker 4: going to be this reserve asset and we're going to
Speaker 4: be using other assets on top of it that are
Speaker 4: dependent upon it for trade in some form, which means
Speaker 4: a supply that's probably going to expand a lot, and
Speaker 4: there's going to be some sort of like fractional reserve
Speaker 4: type nature to it. If that does happen, bitcoin probably
Speaker 4: won't achieve its full market potential, Whereas if we don't
Speaker 4: have a system like that and bitcoin becomes this global
Speaker 4: payment network of money. At the other extreme, the market
Speaker 4: size of bitcoin is in the hundreds of trillions, as
Speaker 4: opposed to a few tens of trillions.
Speaker 2: Like it would be for gold.
Speaker 4: So bitcoin's potential in the span at which it can
Speaker 4: expand throughout the world is massively determined by this question
Speaker 4: of what technology is going to be built on top
Speaker 4: of bitcoin and ultimately how is that going to be
Speaker 4: propagating Bitcoin throughout the Internet for various functions beyond just
Speaker 4: being a store of value. So when I view it
Speaker 4: long term, I view bitcoin as it's going to be
Speaker 4: the base layer, substrate of a new financial system that's
Speaker 4: going to be neutral. It's going to be global, and
Speaker 4: it's not going to be run by any sort of
Speaker 4: political initiative. And as long as this system is kept
Speaker 4: very informationally transparent and there aren't any points of centralized
Speaker 4: attack over it, and it's a highly competitive type system,
Speaker 4: then I think we're going to see bitcoin not just
Speaker 4: become a store of value. We're going to also see
Speaker 4: it become a medium exchange and unit of account for
Speaker 4: the global capital markets. And at which point the value
Speaker 4: bitcoins and the hundreds of trillions, and that's going to
Speaker 4: be the full potential that is really going to allow
Speaker 4: society to achieve an independent monetary network, Because if it's
Speaker 4: just digital gold and we still stay on some central
Speaker 4: bank type system, but bitcoin expands so much that you know,
Speaker 4: say central banks are forced to start adopting it as
Speaker 4: a reserve asset. Fine, that's a great thing for bitcoin.
Speaker 4: That's not going to fundamentally change freedom throughout the world
Speaker 4: and the property rights that the individual has. So this
Speaker 4: a political neutral system and it expanding across all these
Speaker 4: chasms with a you know, strong, competitive, informationally transparent financial system.
Speaker 4: That's you know, what I'm a part of this industry for,
Speaker 4: and that's what I expected to ultimately achieve.
Speaker 3: I guess, yes.
Speaker 1: So I see all that, and I want to talk
Speaker 1: about that, what that potential monetary system looks like. And
Speaker 1: I know I've heard you on some other interviews talking
Speaker 1: about you know, and you kind of hinted on that,
Speaker 1: like if we have other assets on top of it,
Speaker 1: and does it expand in fractional reserve So I.
Speaker 3: Want to get into that.
Speaker 1: But just jumping back into this question for a second.
Speaker 1: If you think about bitcoin as a open borderless, permissionless,
Speaker 1: CENSORSIP resistant, immutable network, well what else couldn't that network
Speaker 1: be used for other than money? So sure, everything has
Speaker 1: a first killer application. The Internet was email, electricity was
Speaker 1: a light bulb. So for example, we now have ordinals, okay,
Speaker 1: and that's like NFTs okay, whatever, that's stupid people argue
Speaker 1: against it whatever, But what if we were able to
Speaker 1: put or not. What if we are able to put
Speaker 1: books or three D printed guns or other things that
Speaker 1: the government want to censor, and now anybody in the
Speaker 1: world open borderless mission listenship could access that data. Right,
Speaker 1: that's like one example. It's hard for us to imagine
Speaker 1: where these things can go because we don't have those
Speaker 1: building blocks. It'd be like when steel was invented, you know,
Speaker 1: two hundred years ago, going, oh, one day we'll have
Speaker 1: spaceships like we didn't know that. Or I know you've
Speaker 1: been talking about like fetimint right, and so Fetiman's a
Speaker 1: way to pool money, but you can also do like
Speaker 1: private messaging in that pool. So now it's like a
Speaker 1: communication protocol. We've seen Jack Dorsey with his Web five
Speaker 1: where they're taking these decentralized IDs, these d IDs and
Speaker 1: they're hashing it in the Bitcoin blockchain because it's a decentralized,
Speaker 1: you know, censorship resistant platform. So like, these are those
Speaker 1: three examples of use cases of this open borderless permission
Speaker 1: that sensor persistant network that aren't really money uses m.
Speaker 2: Yeah, I agree, it's it's actually Eric.
Speaker 1: Sorry, before you before you answer that I want to
Speaker 1: hear what you have to say. I know you're interested
Speaker 1: in the venture capital side of it, so that's why
Speaker 1: I'm trying to ask you these questions. But I got
Speaker 1: to take a quick break. So if you're just tuning in,
Speaker 1: you're listening to the Mark Maas Show. Of course we're
Speaker 1: talking about the decentralized Revolution. I'm talking with Eric Yates,
Speaker 1: the author of the Seventh Property.
Speaker 3: Bitcoin, the Monitary Revolution.
Speaker 1: I'm gonna take a quick break, but you don't want
Speaker 1: to miss what's next, so don't go away, all right,
Speaker 1: Welcome back. If you're just tune in, you are listening
Speaker 1: to the Mark Maas Show, sitting down with Eric Yikes,
Speaker 1: the author of the Seventh Property, Bitcoin and the Monetary Revolution.
Speaker 1: And before the break, I kind of had to cut
Speaker 1: you off before your answer, so hopefully we left everybody.
Speaker 3: On that cliffhanger.
Speaker 1: But I was given examples of potentially other use cases
Speaker 1: of this network other than monetary uses, and so I
Speaker 1: was just curious on your thought of that.
Speaker 4: Yeah, and the way that I think about this question
Speaker 4: is exactly what you said. This is a global data
Speaker 4: store and the most secure network in the world. It's
Speaker 4: the true source of information that we can depend on
Speaker 4: because we know that we can't attack this network, could
Speaker 4: know that this ledger of information cannot be changed. Now
Speaker 4: we know that whatever information we decide to record on
Speaker 4: that is information that can't be changed. And that's a
Speaker 4: very valuable proposition that you know, I'm not smart enough
Speaker 4: to understand every implication that could possibly emerge from that,
Speaker 4: but you know, and I think, like going back to
Speaker 4: like what I expect a lot of this to be,
Speaker 4: it's you know, I think the I think the ordinal's
Speaker 4: point is a really good point. So it's something where
Speaker 4: right now people are just trading JPEGs and they're inscribing
Speaker 4: a little bit of information on the blockchain, and then
Speaker 4: they're using that to say, we have these pictures that
Speaker 4: we like and it's a collectible's market, and that's how
Speaker 4: it's emerging. What could it be in the future. I
Speaker 4: think that long term, I guess, like, well, there's two
Speaker 4: points if we think about today how our system works.
Speaker 4: You know, the title to your home is something that's
Speaker 4: very valuable and you can't live in the title to
Speaker 4: your home, but it provides you a claim to your home.
Speaker 4: And what does that mean when we say provides a claim, Well,
Speaker 4: it means that we have a legal system backing. It's
Speaker 4: where if somebody else breaks into your house while you're gone,
Speaker 4: locks you out and says you can't come back in here,
Speaker 4: you can go to the government and they can get
Speaker 4: guns and they can pull that person out of your house.
Speaker 4: So that's kind of an interesting point, right. These claims
Speaker 4: in these contracts and the protection of property rights within
Speaker 4: our society are valuable because they enable us to do
Speaker 4: something like that, and they're predicted under judicial system. So
Speaker 4: when I think about what would make these types of
Speaker 4: this type of information valuable. A claim to something on
Speaker 4: an immutable blockchain, Well, it does need to be respected
Speaker 4: by some sort of authority if we want to have
Speaker 4: that same type of use case for it. So if
Speaker 4: there is a form of legal system backing that eventually
Speaker 4: emerges within a society around it, I could see that
Speaker 4: being pretty valuable. And in which case, you know, any
Speaker 4: sort of asset like a stock or a bond or
Speaker 4: anything could be inscribed on this ledger and.
Speaker 1: Except if you have to rely on this offline authority
Speaker 1: to back up the claim to the house. So I
Speaker 1: went to the crypto conference the Consensus Conference last year
Speaker 1: in Austin, and my head spinning, like what are all
Speaker 1: these people here doing, and what's the best thing you've seen?
Speaker 1: And everyone's talking about these deeds on the blockchain. I'm like,
Speaker 1: what's the point, right? So I let you live on
Speaker 1: my house, I have in the blockchain, I have the deed,
Speaker 1: but now you don't pay.
Speaker 3: I have to get you out.
Speaker 1: Well, I got to go to the court and then
Speaker 1: they're gonna want me to prove I own it, so
Speaker 1: they have to go to the recorder, and then I
Speaker 1: have to get the police and all those things. Then
Speaker 1: what's the point of the blockchain? So it seems like
Speaker 1: it works really good for digitally native stuff totally. Not
Speaker 1: for like physical stuff.
Speaker 3: I don't know.
Speaker 1: That's kind of my opinion and feel free to very
Speaker 1: differ off that. But for digitally native stuff like a
Speaker 1: three D printed gun schematic. You know, we know I'm
Speaker 1: going to talk about in another segment, this massive move
Speaker 1: for censorship. Of course you saw like the restrict Act,
Speaker 1: but it's coming from every direction, from every country, massively
Speaker 1: control the Internet and just sensor everything. And so we're
Speaker 1: going to have the need for that more and more,
Speaker 1: and so digitally native stuff for sure, we're gonna need
Speaker 1: a place for that.
Speaker 2: Yeah.
Speaker 4: Yeah, And it's the part I'm trying to make is
Speaker 4: that exactly these things require some sort of legal backing.
Speaker 4: So it's like, what's the efficiency that it ultimately like
Speaker 4: provides this society. Whereas you know, as long as the
Speaker 4: title system works, it works. It's just maybe perhaps a
Speaker 4: more efficient form of transfer, which I think is probably
Speaker 4: true for a lot of these things.
Speaker 2: But you know, I.
Speaker 4: Think that in terms of long term a lot of
Speaker 4: the value proposition that can emerge from being able to
Speaker 4: inscribe data simply being able to like prove knowledge of
Speaker 4: very valuable things in a way that we couldn't prove
Speaker 4: knowledge about something before, which will have you know, a
Speaker 4: lot of implications I think.
Speaker 3: Down the line, Yeah, and transfer data.
Speaker 1: Right, So, like I said, like the movie what is
Speaker 1: it Fahrenheit four fifty one right where they go around
Speaker 1: and burn all the books. I don't know if you've
Speaker 1: seen that, read the book or the book, and then
Speaker 1: they made a movie about it, but basically they said,
Speaker 1: you know, the world erupted into a civil war because
Speaker 1: everyone saw a different information, not too unlike where we're at, right,
Speaker 1: now to opposite sides. And so the way to solve
Speaker 1: everything was to get rid of all the information and
Speaker 1: have one arbitrary of truth.
Speaker 3: So they went around burning all the books.
Speaker 1: And so if we want to they were trying to
Speaker 1: protect those books, and they were trying to memorize the books.
Speaker 1: But we could just inscribe them into the bitcoin blockchain
Speaker 1: and then no one could ever get rid of those books, right, Like,
Speaker 1: that'd be right, That'd that'd be pretty beneficial. Anyway, interesting,
Speaker 1: let's talk about back back to kind of what we
Speaker 1: see happening right now, which I think is arguably the
Speaker 1: biggest use case, uh, the most important use case in
Speaker 1: the world. We say, fix the money, fix the world,
Speaker 1: and so we can probably point back to almost any
Speaker 1: problem in society pointing it back to a problem with
Speaker 1: the money. And so let's talk about what you think
Speaker 1: happens with that, you know, this future world you had
Speaker 1: hinted before, and I kind of want to come back
Speaker 1: to that. If we wanted to get off of just
Speaker 1: the store of value and kind of use it more
Speaker 1: of a medium exchange, do we have other assets on
Speaker 1: top of it?
Speaker 3: Could those inflate it? Would that turn into fractional reserve.
Speaker 1: Uh, do you have some ideas on how you think
Speaker 1: that could play out?
Speaker 2: Oh, quite a.
Speaker 4: Bit, Mark, Yeah, you're going to have to shut me up,
Speaker 4: but yeah, I think that I think the best way
Speaker 4: to start is the idea is that if we if
Speaker 4: bitcoin is going to remain a form, is going to
Speaker 4: you know, move into the medium exchange aspect without turning
Speaker 4: into some type of fractional reserve system, then we need
Speaker 4: the system to emerge in a way where either this
Speaker 4: would be like the Lightning network for example, you can
Speaker 4: always voluntarily exit from participating in the Lightning network back
Speaker 4: to just owning your bitcoin on the base chain. So
Speaker 4: that's an incredibly valuable characteristic and I think that that
Speaker 4: kind of like qualifies Lightning is like a layer on
Speaker 4: top of bitcoin. I feel like the idea of layers
Speaker 4: is misused a bit. There's a lot of things that
Speaker 4: are you know, more like on the side of bitcoin
Speaker 4: that it probably aren't. I would define a layers something
Speaker 4: where you have to be able to voluntarily exit back
Speaker 4: to the layer below it in order for it to
Speaker 4: be considered that anything else is just kind of using
Speaker 4: bitcoin in some sort of way. And I think that
Speaker 4: when you think about what could emerge in fractional reserve
Speaker 4: When we think about what's happening with like fetiment that
Speaker 4: you were mentioning earlier, they're sharing e cash, and it's
Speaker 4: technically possible that if you are participating in fetiment and
Speaker 4: you're using e cash for a form of trade, people
Speaker 4: that are issuing it could issue more without you knowing it.
Speaker 4: And the complexity of all that we could talk about
Speaker 4: for a while. But I think the high level takeaway
Speaker 4: of all of it is that if we move into
Speaker 4: systems where there is a receipt to Bitcoin that we're
Speaker 4: using in some form, then that opens up vectors for
Speaker 4: whether or not we could have a fractional reserve system.
Speaker 4: But and I think that this is going to be
Speaker 4: a key area criticism, but I think that the solution
Speaker 4: is more so I don't think it actually will be
Speaker 4: as big of a deal. If these notes do emerge,
Speaker 4: the question is going to ultimately become how efficient are
Speaker 4: these systems, how transparent is the information, and ultimately how
Speaker 4: competitive does it become, Because when we talk about digitally
Speaker 4: native assets that are underlying some sort of note within
Speaker 4: the system, if the information is transparent enough and there's
Speaker 4: enough competition then it's going to be very very hard
Speaker 4: in the system to actually run a fractional reserve type institution.
Speaker 4: I think that for the first time in history, we'll
Speaker 4: probably see a naturally emerging full reserve system, which we
Speaker 4: actually have never seen really in history. We've had examples
Speaker 4: of like one off full reserve institutions that have kind
Speaker 4: of been relegated to being a full reserve for a
Speaker 4: period of time, typically in markets throughout history. Because information
Speaker 4: wasn't as transparent, the government was always meddling in how
Speaker 4: the system functioned and creating these perverse incentives which reduced
Speaker 4: the amount of competition and increase the centralization that always
Speaker 4: caused fractional reserve to emerge somehow. Now that we're in
Speaker 4: such a transparent system, it's just going to be very
Speaker 4: very hard. So I think that if we do get
Speaker 4: to maturity within this, even if we do have note
Speaker 4: type systems, it's going to be very easy for individuals
Speaker 4: to bankrupt any sort of institution that goes fractional reserve.
Speaker 4: I mean, we can even see that within the Fiat
Speaker 4: system today with how quickly bank runs are happening with
Speaker 4: just simply mobile money applications. Imagine that being a digitally
Speaker 4: native bitcoin system where the user has full control over everything,
Speaker 4: it's going to be very hard for these institutions to
Speaker 4: maintain fractional reserves.
Speaker 1: Yeah, it's certainly going to change thing. We're seeing how
Speaker 1: social media has just changing the speed has had a
Speaker 1: big effect on the banks, and so you can just
Speaker 1: figure out where that's going to go, leading to more
Speaker 1: bank rungs and make it much harder for the banks
Speaker 1: to keep that. If you're just tuning in, you're listening
Speaker 1: to the Mark Mass Show, I'm sitting down with Eric Yanks,
Speaker 1: the author of the Seventh Property, Bitcoin and Monetary Revolution.
Speaker 1: We're going to come back a little bit and talk
Speaker 1: more about the future of this system. Don't go away,
Speaker 1: We'll be right back, all right, Welcome back. If you're
Speaker 1: just tune in, you're listening to the Mark Mass Show,
Speaker 1: I'm sitting down with Eric Yeks, the author of the
Speaker 1: Seventh Property.
Speaker 3: Bitcoin and the Monetary Revolution.
Speaker 1: Now, Eric, before the break, I had to cut you
Speaker 1: off there. We were talking about this fractional reserve system
Speaker 1: that could happen and how potentially with technology, moving money
Speaker 1: faster could be harder to maintain.
Speaker 3: You know a couple of things I think about that one.
Speaker 1: Bitcoin is kind of this first asset that gives us
Speaker 1: the store value and the velocity all in one asset.
Speaker 3: Right, So typically with gold, we would.
Speaker 1: Need to add debt on top of it in order
Speaker 1: to get that velocity, and we don't. We don't have
Speaker 1: to do that, So that that's one thought. Like, So,
Speaker 1: I know you're talking about like lightning and potential other layers, fetiment,
Speaker 1: et cetera.
Speaker 3: It doesn't really need it.
Speaker 1: I mean, I suppose we need that second layer lightning
Speaker 1: to move it faster, although it's still just one asset,
Speaker 1: it's still just bitcoin. But I think the point that
Speaker 1: you're making is when you put the bitcoin into a
Speaker 1: lightning channel or a fetti mint, then there's potential to
Speaker 1: increase that. They could they could add more units to that, right,
Speaker 1: that's kind of what you're talking about. They could inflate
Speaker 1: that or create that fractional reserve, right right, And and
Speaker 1: aren't and aren't we so answer to that? But also
Speaker 1: aren't we already seeing fractional reserve? Didn't we see FTX
Speaker 1: with you know, one point five billion dollars worth a
Speaker 1: bitcoin on their books? People thought they had bitcoin at FTX,
Speaker 1: but really they had, was it like one bitcoin or
Speaker 1: half a bitcoin or something like that to work maybe
Speaker 1: already seeing that.
Speaker 4: Oh yeah completely, and the system that we're in is
Speaker 4: not you know, I'm thinking much more long term once
Speaker 4: we kind of converge upon like a bitcoin standard. But yeah,
Speaker 4: certainly the system has all the prefers incentives that are
Speaker 4: needed to create a fractional reserve system, especially when we
Speaker 4: have c FI operators that are you know, creating paper
Speaker 4: bitcoin on top of it. I think that in order
Speaker 4: for the incentives to all align eventually. This is very
Speaker 4: long term proposition of what it would look like in
Speaker 4: the world on a bitcoin standard for the foreseeable future.
Speaker 4: As long as we have centralized providers within this type
Speaker 4: of system, and as long as it remains free as
Speaker 4: it's an adolescence, I expect us to continue to see,
Speaker 4: you know, fraudulent actors do this, which is why we're
Speaker 4: towing a very interesting line when we're innovating finance and money,
Speaker 4: because the it's not just bringing new products to market
Speaker 4: that can if you don't like the product, then you
Speaker 4: don't have to use it again. It's if you don't
Speaker 4: like the product, you lose a lot of your wealth.
Speaker 4: Oftentimes for people that aren't totally informed, which is one
Speaker 4: of the hard parts about this industry and one of
Speaker 4: the things that people have to be really careful about.
Speaker 4: But I think that so yes, the fractional reserve aspects
Speaker 4: I expect to exist for a while when it comes
Speaker 4: to exchanges and the way that they're operating. Hopefully after
Speaker 4: this last cycle, more people learn their lesson and the
Speaker 4: system starts to mature and become a bit more efficient.
Speaker 4: But I think once we're in a digitally native system
Speaker 4: of operators where they're still going to be centralized providers,
Speaker 4: I'll be clear, But once we're on like a Bitcoin
Speaker 4: standard of some form, that's when things change quite a bit.
Speaker 4: So a way that I think about a lot of
Speaker 4: this right now, if we operate on the lightning network
Speaker 4: in the future, then lightning institutions Lightning has certain issues
Speaker 4: right like lightning is naturally could seyentralize over time, We
Speaker 4: don't totally know, but there's a lot of incentives that
Speaker 4: are probably driving into a system of banking type institutions,
Speaker 4: which may not be a bad thing as long as
Speaker 4: it remains competitive. So if you're depositing like and to
Speaker 4: explain this for listeners to. If you are if you
Speaker 4: want to participate in the Lightning network and you want
Speaker 4: to send bitcoin to somebody, then you can easily just
Speaker 4: put bitcoin into the Lightning network and whatever amount that
Speaker 4: you've put in is the amount that you can send.
Speaker 4: That's pretty simple. But if you're a merchant and you
Speaker 4: know you have a store and you want to go
Speaker 4: sell some amount of bitcoin, you're limited by the amount
Speaker 4: of capacity that you can accept from the other person
Speaker 4: you've opened a channel with when you put that lightning in.
Speaker 4: So because of that, that limitation means that there's probably
Speaker 4: going to be centralized providers who are saying, Okay, we
Speaker 4: have a lot of bitcoin that we're sitting on, we
Speaker 4: can open up a channel with you, and if you can,
Speaker 4: you can pay us a fee and we'll allow you
Speaker 4: to accept. You know, if you're a store and you're
Speaker 4: bringing in, you know, one hundred thousand dollars in sales
Speaker 4: every day online or something, then they can provide you
Speaker 4: a capacity for a fee so that you can accept
Speaker 4: that on the Lightning network. That's fine, but it'll create
Speaker 4: centralization over time. So it's arguably we'll probably create some
Speaker 4: type of lightning banking system that will emerge that's providing
Speaker 4: that capacity for people who are accepting a lot of
Speaker 4: lightning payments, and that system. As that emerges, that type
Speaker 4: of system could become fractional.
Speaker 2: In some form. There is a risk of it.
Speaker 4: So we do know on the digitally native side that
Speaker 4: the amount of bitcoin that somebody has, because we can
Speaker 4: verify that on chain, But what we don't know is
Speaker 4: if that person is taking on any sort of loan
Speaker 4: that's outside of what this institution is doing. So, you know,
Speaker 4: I could go set up a lightning big tomorrow. I
Speaker 4: can have one hundred biitcoin in my address, and I
Speaker 4: can make a bunch of you know, I could be
Speaker 4: taking out loans outside of this system that are ultimately
Speaker 4: creating a fractional liability on top of it. So like
Speaker 4: that's something that will probably exist today. I think that
Speaker 4: the scenario that's going to make it really hard for
Speaker 4: a lot of these systems to be fractionals. Like if
Speaker 4: you envision this new digitally native world, you could go
Speaker 4: and there's gonna be a lot of people that are
Speaker 4: speculating against that because moving money is going to be
Speaker 4: so cheap and efficient, it's going to be really easy
Speaker 4: to put these guys out of business, so we can
Speaker 4: look at their own chain address, we can say, okay,
Speaker 4: you have this much, and if there's like a certain
Speaker 4: amount of claims that are being put out on top
Speaker 4: of that, it'd be easy enough to go buy those claims,
Speaker 4: redeem them and take out you know, some form of
Speaker 4: for people that aren't as familiar with there's flash loans,
Speaker 4: which is a way of like scaling a really instant
Speaker 4: loan for like an arbitrage trade that allows people to
Speaker 4: scale transactions very rapidly for arbitrage. And because you could
Speaker 4: do that and this would probably be more this would
Speaker 4: be a better example would probably be instead of doing
Speaker 4: this for a lightning bank, if you were to look
Speaker 4: at like a feediment that's issuing not it's not bitcoin
Speaker 4: lightning cash that you're issuing on top of a bitcoin reserve.
Speaker 4: If you're expecting that fetiment to be issuing too much
Speaker 4: e cash, you can buy a bunch of e cash
Speaker 4: out of the market and then go redeem them all
Speaker 4: at the FTAMAN and see if you can put them
Speaker 4: into insolvency. And there's it's just going to be so
Speaker 4: efficient for people to do that, and we can have
Speaker 4: all these mechanisms like flash loans to instantly create arbitrage
Speaker 4: when it's on chain type trades that it's gonna be
Speaker 4: hard to run a fractional reserve institution.
Speaker 1: Yeah, and the and the transparency. I mean, it's the
Speaker 1: bitcoin network is not private. I'm sorry, it's private. It's
Speaker 1: a it's anonymous. It's not private's anonymous, right, So it's
Speaker 1: like it's yeah, pseudonymous.
Speaker 3: So you have the visibility.
Speaker 1: You can see how much bitcoin there is, and then
Speaker 1: well it looks like they're you know, they're creating more
Speaker 1: and then you could easily pull that out, et cetera,
Speaker 1: and so you can create runs on the bank. We
Speaker 1: don't have a lot of time left, but I was
Speaker 1: just curious as I was thinking about that, you know,
Speaker 1: something I wanted to dig into. We're gonna have time
Speaker 1: at this point, but you know, thinking about people trying
Speaker 1: to earn yield on bitcoin, and so if you think
Speaker 1: about like people would put their money in the banks historically.
Speaker 1: One obviously gold was very slow and clunky, so I'd
Speaker 1: give to the bank. They'd speed it up by giving
Speaker 1: me paper closertificates, and so then we put our money
Speaker 1: into the bank. One because I need someone to store
Speaker 1: my money, and I need someone to control the payments.
Speaker 1: Let me send money in and out of that bank.
Speaker 1: And then also historically we would earn yield as the
Speaker 1: bank would loan that money out, they would pay me
Speaker 1: percentage back. But if I don't need them to store
Speaker 1: my money anymore, and I don't need them to handle
Speaker 1: payments for me anymore, then the only function left would
Speaker 1: be the yield. Of course, bank's pay no yields. That's
Speaker 1: kind of out of the equation. But I kind of think,
Speaker 1: you know, Jeff Boose says that it's hard to see
Speaker 1: the new system when you're living in the existing system.
Speaker 1: And so like, in this existing system with massive inflation,
Speaker 1: we need some sort of yield. But maybe in that
Speaker 1: new bitcoin world we don't need the yield. We're not
Speaker 1: chasing yield all the time. If we were really living
Speaker 1: in a deflationary world, a world of abundance, maybe we
Speaker 1: would need to go chase yield and it would take
Speaker 1: away that third need for the banking system totally. You
Speaker 1: got about thirty five seconds, Go ahead, tell me what
Speaker 1: you think.
Speaker 2: All right, Yeah, so here we go.
Speaker 4: The number one. Yeah, if we're dealing with a disinflationary
Speaker 4: type supply currency, then we probably are not going to
Speaker 4: be as interested in finding interest on it in order
Speaker 4: to keep up within our current system. Inflation is why
Speaker 4: we want the interest. And then two, the other big
Speaker 4: thing is in this new system, there's actually gonna be
Speaker 4: ways of earning a rate of interest by supplying liquidity
Speaker 4: to the Lightning network without assuming any sort of counterparty
Speaker 4: risk like you do at a bank like banks today,
Speaker 4: or just credit funds. And we're assuming these like leveraged
Speaker 4: long credit fund risk for your savings, which is like
Speaker 4: this absurd scenario that should never exist. In the first place.
Speaker 4: Lightning banks would just be deposit the baitcoin. You can
Speaker 4: earn a minimal rate of risk risk free, not risk free,
Speaker 4: but you can put into effectively a hot wallet that's
Speaker 4: your risk, earn a rate of return on top of that.
Speaker 4: And you can also lease liquidity and earn a great
Speaker 4: rate of return, So you can earn yield through that
Speaker 4: without assuming risk from a counterparty. You actually don't even
Speaker 4: have to go through a bank. You can do that yourself.
Speaker 4: So those are the two things that I think are
Speaker 4: going to be really big in terms of people want yield.
Speaker 4: And while fractional reserve can incentivize that. I think that
Speaker 4: there's going to be much more efficient ways of doing
Speaker 4: that that are can be done by the individual as
Speaker 4: well as you know, I don't think that that will
Speaker 4: be as attractive in a disinflationary type system.
Speaker 3: Yeah.
Speaker 1: Man, there's so much to dig into there. I'd love
Speaker 1: to talk more about that, but we're out of time.
Speaker 1: Maybe another time we'll have to get into that. If
Speaker 1: you just tune in your listen to the Mark Mass Show,
Speaker 1: I've been sitting down with Eric Yeks. He is the
Speaker 1: author of the seventh property, Bitcoin and a Monetary Revolution.
Speaker 1: Will put links to that book in the show notes.
Speaker 1: You should go buy a copy and read up on it.
Speaker 3: And that's what we got. Thanks so much for listening.