remember George Washington? You know how he died? Well meaning physicians bled him to death,

and this was the most important patient in the country, maybe in the history of the country,

and we bled him to death trying to help him. So when you're actually inflating the money supply

at 7% but you're calling it 2% because you want to help the economy, you're literally bleeding

the free market to death. But the sad fact is George Washington went along with it because he

thought that they were going to do him good, and the majority of the society, most companies,

most conventional thinkers, you know, the working class, they go along with this because they think

that someone has their best interest of mind, and the people that are bleeding them to death

believe, they believe that prescription because their mental models are just so defective.

The following is a conversation with Michael Saylor, one of the most prominent and brilliant

Bitcoin proponents in the world. He is the CEO of MicroStrategy, founder of Saylor Academy,

graduate of MIT, and Michael is one of the most fascinating and rigorous thinkers I've ever gotten

a chance to explore ideas with. He can effortlessly zoom out to the big perspectives of human

civilization and human history, and zoom back in to the technical details of blockchains, markets,

governments, and financial systems. This is the Lex Friedman podcast. To support it,

please check out our sponsors in the description. And now, dear friends, here's Michael Saylor.

Here's Michael Saylor. Let's start with a big question of truth and wisdom. When advanced humans

or aliens or AI systems, let's say five to ten centuries from now, look back at Earth

on this early 21st century, how much do you think they would say we understood about

money and economics, or even about engineering, science, life, death, meaning, intelligence,

consciousness, all the big interesting questions?

I think they would probably give us a

B minus on engineering, on all the engineering things, the hard sciences.

A passing grade.

Like, we're doing okay. We're working our way through rockets and jets and electric cars and

an electricity transport systems and nuclear power and space flight and the like. And if you look at

the walls that grace the great court at MIT, it's full of all the great thinkers and they're all

pretty admirable. If you could be with Newton or Gauss or Madame Curie or Einstein, you would

respect them. I would say they'd give us like a D minus on economics, like an F plus or a D minus.

You have an optimistic vision. First of all, optimistic vision of engineering,

because everybody you've listed, not everybody, but most people you've listed is just over the

past couple of centuries. And maybe it stretches a little farther back, but mostly all the cool

stuff we've done in engineering is the past couple of centuries.

I mean, Archimedes had his virtues. I studied the history of science at MIT and I also studied

aerospace engineering. And so I clearly have a bias in favor of science. And if I look at the

past 10,000 years and I consider all of the philosophy and the politics and their impact

on the human condition, I think it's a wash for every politician that came up with a good idea,

another politician came up with a bad idea. And it's not clear to me that most of the

political and philosophical contributions to the human race and the human conditions

have advanced so much. I mean, we're still taking guidance and admiring Aristotle and

Plato and Seneca and the like. And on the other hand, if you think about what has made the human

condition better, fire, water, harnessing of wind energy, try to row across an ocean, right?

Not easy.

And for people who are just listening or watching, there's a beautiful sexy ship from

16th, 17th century.

This is a 19th century handmade model of a 17th century sailing ship, which is of the type that

the Dutch East India's company used to sail the world and trade. So that was made, the original

was made sometime in the 1600s. And then this model is made in the 19th century by individuals.

So both the model and the ship itself is engineering at its best. And just imagine,

just like rockets flying out to space, how much hope this filled people with,

exploring the unknown, going into the mystery, both the entrepreneurs and the business people

and the engineers and just humans. What's out there? What's out there to be discovered?

Yeah, the metaphor of human beings leaving shore or sailing across the horizon,

risking their lives in pursuit of a better life is an incredibly powerful one.

In 1900, I suppose the average life expectancy is 50. During the Revolutionary War,

while our founding fathers were fighting to establish life, liberty, pursuit of happiness,

the Constitution, average life expectancy is like 32, somewhere between 32 and 36.

So all the sound and the fury doesn't make you live past 32, but what does, right? Antibiotics.

Conquest of infectious diseases. If we understand the science of infectious disease, sterilizing

a knife and harnessing antibiotics gets you from 50 to 70. And that happened fast, right? That

happens from 1900 to 1950 or something like that. And I think if you look at the human condition,

you ever get on one of those rowing machines where they actually keep track of your watts output when

you're on that? Yeah. It's like 200 is a lot. Okay, 200 is a lot. So a kilowatt hour is like all

the energy that a human, a trained athlete can deliver in a day. And probably not 1% of the

people in the world could deliver a kilowatt hour in a day. And the commercial value of a kilowatt

hour, the retail value is 11 cents today. And the wholesale value is 2 cents. And so you have to look

at the contribution of politicians and philosophers and economists to the human condition. And it's

like at best a wash one way or the other. And then if you look at the contribution of John D.

Rockefeller when he delivered you a barrel of oil and the energy in oil, liquid energy, or the

contribution of Tesla as we deliver electricity. And what's the impact on the human condition if I

have electric power, if I have chemical power, if I have wind energy, if I can actually set up a

reservoir, create a dam, spend a turbine, and generate energy from a hydraulic source?

That's extraordinary, right? And so our ability to cross the ocean, our ability to grow food,

our ability to live, it's technology that gets the human race from a brutal life where life

expectancy is 30 to a world where life expectancy is 80.

You gave a D minus to the economists. So are they too like the politicians a wash

in terms of there's good ideas and bad ideas and that tiny delta between good and bad?

Is how you squeak past the F plus onto the D minus territory?

I think most economic ideas are bad ideas.

Most.

You know, like take us back to MIT and you want to solve a fluid dynamics problem. Like design

the shape of the hull of that ship, or you want to design an airfoil, a wing, or if you want to

design an engine or a nozzle in a rocket ship, you wouldn't do it with simple arithmetic.

You wouldn't do it with a scaler. There's not a single number, right? It's vector math.

You know, computational fluid dynamics is n dimensional, higher level math,

you know, complicated stuff. So when an economist says the inflation rate is

2%, that's a scaler. And when an economist says it's not a problem to print more money,

because the velocity of the money is very low, monetary velocity is low, that's another scaler.

Okay, so the truth of the matter is inflation is not a scaler. Inflation is an n dimensional vector.

Money velocity is not a scaler.

The saying, what's the velocity of money? Oh, it's slow or it's fast. It ignores the question of

what medium is the money moving through. And the same way that, you know, what's the speed of sound?

Okay, well, what is sound, right? Sound, you know, sound is a compression wave. It's energy

moving through a medium, but the speed is different. So for example, the speed of sound through air is

different than the speed of sound through water. And sound moves faster through water,

it moves faster through a solid, and it moves faster to a stiffer solid. So there isn't one.

What is the fundamental problem with the way economists reduce the world down to a model?

Is it too simple? Or is it just even the first generation?

I think that the fundamental problem is, if you see the world as a scaler, you simply pick

the one number which is, which supports whatever you want to do, and you ignore the universe of

other consequences from your behavior. In general, I don't know if you've heard of the

Eric Weisen has been talking about this with gauge theory. So different kinds of approaches

from the physics world, from the mathematical world to extend past this scaler view of economics.

So gauge theory is one way that comes from physics. Do you find that a way of exploring economics

interesting? So outside of cryptocurrency, outside of the actual technology,

and so on, just analysis of how economics works. Do you find that interesting?

Yeah, I think that if we're going to want to really make any scientific progress in economics,

we have to apply much, much more computationally intensive and richer forms of mathematics.

So simulation, perhaps, or?

Yeah, you know, when I was at MIT, I studied system dynamics at MIT.

You know, when I was at MIT, I studied system dynamics. You know, they taught it at the Sloan

School. It was developed by Jay Forrester, who was an extraordinary computer scientist.

And when we created models of economic behavior, they were all multi dimensional nonlinear models.

So if you want to describe how anything works in the real world, you have to start with the concept

of feedback. If I double the price of something, demand will fall, and attempts to create supply

will increase, and there will be a delay before the capacity increases. There'll be an instant

demand change, and there'll be rippling effects throughout every other segment of the economy,

downstream and upstream of such a thing. So it's kind of common sense. But most economics,

most classical economics, it's always, you know, taught with linear models,

you know, fairly simplistic linear models. And oftentimes, even I'm really shocked today

that the entire mainstream dialogue of economics has been captured by scale or arithmetic.

For example, if you read, you know, read any article in New York Times or the Wall Street

Journal, right, they just refer to there's an inflation number or the CPI or the inflation

rate is X. And if you look at all the historic studies of the impact of inflation, generally,

they're all based upon the idea that inflation equals CPI, and then they try to extrapolate from

that and you just get nowhere with it. So at the very least, we should be considering inflation

and other economics concept as a nonlinear dynamical system. So nonlinearity, and also

just embracing the full complexity of just how the variables interact, maybe through simulation,

maybe some have some interesting models around that.

Wouldn't it be refreshing if somebody for once published a table of the change in price of every

product, every service, and every asset in every place over time?

LR You said table, some of that also is the task of visualization, how to extract from

this complex set of numbers, patterns that somehow indicate something fundamental about

what's happening. So like, summarization of data is still important, perhaps summarization,

not down to a single scale of value. But looking at that whole sea of numbers, you have to find

patterns, like what is inflation in a particular sector? What is maybe change over time, maybe

different geographical regions, you know, things of that nature. I think that's kind of,

I don't know even what that task is. You know, that's what you could look at machine learning,

you can look at AI with that perspective, which is like, how do you represent what's happening

efficiently, as efficiently as possible? That's never going to be a single number, but it might

be a compressed model that captures something, something beautiful, something fundamental

about what's happening.

It's an opportunity, for sure, right? You know, if we take, for example, during the

pandemic, the response of the political apparatus was to lower interest rates to zero, and to

start buying assets, in essence, printing money. And the defense was, there's no inflation.

But of course, you had one part of the economy where it was locked down, so it was illegal

to buy anything. It was either illegal or it was impractical. So it would be impossible

for demand to manifest, so of course, there is no inflation. On the other hand, there

was instantaneous immediate inflation in another part of the economy. For example, you lower

the interest rates to zero. At one point, we saw the swap rate on a 30 year note go

to 72 basis points. Okay, that means that the value of a long dated bond immediately

inflates. So the bond market had hyperinflation within minutes of these

financial decisions. The asset market had hyperinflation within minutes of these

financial decisions.

So here again, it's about how we insights whether the market will

react to the hyperinflation within minutes of these financial decisions.

asset market had hyperinflation. We had what you call a K shape recovery, what we affectionately

call a K shape recovery. Main Street shut down, Wall Street recovered all within six weeks.

The inflation was in the assets, like in the stocks, in the bonds. If you look today, you see

that a typical house, according to the Case Shiller Index today, is up 19.2% year over year. So if

you're a first time home buyer, the inflation rate is 19%. The formal CPI announced a 7.9%.

You can pretty much create any inflation rate you want by constructing a market basket,

a weighted basket of products or services or assets that yield you the answer. I think that

the fundamental failing of economists is, first of all, they don't really have a term for asset

inflation. What's an asset? What's asset hyperinflation? You mentioned bond market swap

rate and asset is where the majority of the hyperinflation happen. What's inflation? What's

hyperinflation? What's an asset? What's an asset market? I'm going to ask so many dumb questions.

In the conventional economic world, you would treat inflation as the rate of increase in

price of a market basket of consumer products defined by a government agency.

LW. So they have like traditional things that a regular consumer would be buying.

The government selects like toilet paper, food, toaster,

refrigerator, electronics, all that kind of stuff. And it's like a representative

basket of goods that lead to a content existence on this earth for a regular consumer.

CM. They define a synthetic metric, right? I mean, I'm going to say you should have a thousand

square foot apartment and you should have a used car and you should eat three hamburgers a week.

Now, 10 years go by and the apartment costs more, I could adjust the market basket by a,

they call them hedonic adjustments. I could decide that it used to be in 1970 you needed

a thousand square feet, but in the year 2020, you only need 700 square feet because we've

miniaturized televisions and we've got more efficient electric appliances and because

things have collapsed out of the iPhone, you just don't need as much space. So now I, you know,

it may be that the apartment costs 50% more, but after the hedonic adjustment, there is no inflation

because I just downgraded the expectation of what a normal person should have.

TG. So the synthetic nature of the metric allows for manipulation by people in power?

CM. Pretty much. I guess my criticism of economists is rather than embracing inflation

based upon its fundamental idea, which is the rate at which the price of things go up, right?

They've been captured by mainstream conventional thinking to immediately equate inflation to the

government issued CPI or government issued PCE or government issued PPI measure, which was never the

rate at which things go up. It's simply the rate at which a synthetic basket of products and

services the government wishes to track go up. Now, the problem with that is that the

problem with that is two big things. One thing is the government gets to create the market basket,

and so they keep changing what's in the basket over time. So I mean, if I said three years ago,

you should go see 10 concerts a year and the concert tickets now cost $200 each. Now it's

$2,000 a year to go see concerts. Now I'm in charge of calculating inflation. So I redefine,

you know, your entertainment quota for the year to be eight Netflix streaming concerts,

and now they don't cost $2,000. They cost nothing, and there is no inflation,

but you don't get your concerts, right? So the problem starts with continually changing

the definition of the market basket. But in my opinion, that's not the biggest problem.

The more egregious problem is the fundamental idea that assets aren't products or services.

Assets can't be inflated. What's an asset?

A house, a share of Apple stock, a bond, a Bitcoin is an asset, or a Picasso painting.

LW. Not a consumable good. Not an Apple that you can eat.

RL. Right. If I throw away an asset, then I'm not on the hook to track the inflation rate for it.

So what happens if I change the policy such that, let's take the classic example,

a million dollar bond at a 5% interest rate gives you $50,000 a year in risk free income.

You might retire on $50,000 a year in a low cost jurisdiction. So the cost of social security

or early retirement is $1 million when the interest rate is 5%. During the crisis of March

of 2020, the interest rate went on a 10 year bond went to 50 basis points. So now the cost

of that bond is $10 million. The cost of social security went from a million dollars to $10 million.

So if you wanted to work your entire life, save money, and then retire risk free and live happily

ever after on a $50,000 salary, live in on a beach in Mexico, wherever you wanted to go,

you had hyperinflation. The cost of your aspiration increased by a factor of 10

over the course of some amount of time. In fact, in that case, that was over the course of about 12

years. As the inflation rate ground down, the asset traded up. But the conventional view is,

oh, that's not a problem, because it's good that the bond is highly priced because we own the bond.

Or what's the problem with the inflation rate in housing being 19%? It's an awful problem for a

22 year old that's starting their first job, that's saving money to buy a house. But it would

be characterized as a benefit to society by a conventional economist who would say, well, housing

asset values are higher because of interest rate fluctuation, and now the economy has got more

wealth. And so that's viewed as a benefit. So what's being missed here, like the suffering

of the average person, or the struggle, the suffering, the pain of the average person,

like metrics that captured that within the economic system? Is that when you're talking

about different... One way to say it is a conventional view of inflation as CPI

understates the human misery that's inflicted upon the working class and on mainstream companies by

the political class. And so it's a massive shift of wealth from the working class to the property

class. It's a massive shift of power from the free market to the centrally governed or the

controlled market. It's a massive shift of power from the people to the government. And maybe one

more illustrative point here, Alexis, is what do you think the inflation rate's been for the past

100 years? Oh, you're talking about the scalar again? If you took a survey of everybody on the

street and you asked them, what do they think inflation was? What is it? You remember when

Jerome Powell said our target's 2%, but we're not there. If you go around the corner, I have posted

the deed to this house sold in 1930. Okay. And the number on that deed is $100,000, 1930. And if you

go on Zillow and you get the Z estimate. Is it higher than that? $30,500,000. So that's 92

years, 1930 or 2022. And in 92 years, we've had 305x increase in price of the house. Now,

if you actually back calculate, you come to a conclusion that the inflation rate was approximately

6.5% a year every year for 92 years. Okay. And there's nobody, nobody in government,

no conventional economists that would ever admit to an inflation rate of 7% a year in the US dollar

over the last century. Now, if you dig deeper, I mean, one guy that's done a great job working on

this is Seyfettin Amos who wrote the book, The Bitcoin Standard. And he notes that on average,

it looks like the inflation rate and the money supply is about 7% a year all the way up to the

year 2020. If you look at the S&P index, which is a market basket of scarce desirable stocks,

it returned about 10%. If you talk to 10% a year for 100 years, the money supply is expanding at

7% 100 years. If you actually talk to economists or you look at the economy and you ask the question,

how fast does the economy grow in its entirety year over year? Generally about 2% to 3%. Like

the sum total impact of all this technology and human ingenuity might get you a 2.5, 3% improvement

a year. As measured by GDP. Are you okay with that? I'm not sure. I'm not sure I'd go that far yet,

but I would just say that if you had the human race doing stuff and if you asked the question,

how much more efficiently will we do this stuff next year than this year? Or what's the value of

all of our innovations and inventions and investments in the past 12 months? You'd be

hard pressed to say we get 2% better. Typical investor thinks they're 10% better every year.

So if you look at what's going on, really, when you're holding a million dollars of stocks and

you're getting a 10% gain a year, you really get a 7% expansion of the money supply. You're getting

a 2% or 3% gain under best circumstances. And another way to say that is if the money supply

stopped expanding at 7% a year, the S&P yield might be 3% and not 10%. It probably should be.

Now, that gets you to start to ask a bunch of other fundamental questions. Like

if I borrow a billion dollars and pay 3% interest and the money supply expands at 7% to 10% a year,

and I ended up making a 10% return on a billion dollar investment paying 3% interest, is that fair?

And who suffered so that I could do that? Because in an environment where you're just

inflating the money supply and you're holding the assets constant, it stands the reason that

the price of all the assets is going to appreciate somewhat proportional to the money supply.

And the difference in asset appreciations is going to be a function of the scarce desirable

quality of the assets, and to what extent can I make more of them, and to what extent are they

truly limited in supply? Yeah, so we'll get to a lot of the words you said there. The scarcity,

the scarcity, and so connected to how limited they are and the value of those

assets. But you also said, so the expansion of the money supply, which is put another way,

is printing money. And so is that always bad, the expansion of the money supply?

Just to put some terms on the table so we understand them. You nonchalantly say it's

always on average expanding every year, the money supply is expanding every year by 7%.

That's a bad thing? That's universally a bad thing? It's awful. I guess to be precise,

it's the currency. I would say money is monetary energy or economic energy. And the economic

energy has to find its way into a medium. So if you want to move it rapidly as a medium of exchange,

it has to find its way into currency. But the money can also flow into property, like a house

or gold. If the money flows into property, it'll probably hold its value much better if the money

flows into currency. If you had put $100,000 in this house, you would have 305x return over 92

years. But if you had put the money, $100,000, in a safe deposit box and buried it in the basement,

you would have lost 99.7% of your wealth over the same time period. So the expansion of the currency

creates a massive inefficiency in the society, what I'll call an adiabatic lapse. What we're

doing is we're bleeding the civilization to death. What's the adiabatic, what's that word?

Adiabatic lapse. Right. In aerospace engineering, you want to solve any problem, they start with

the phrase, assume an adiabatic system. And what that means is a closed system. So I've got a

container and in that container, no air leaves and no air enters, no energy exits or enters.

So it's a closed system. So you got the closed system lapse.

There's a leak in the ship.

I'm going to use a physical metaphor for you because you're the jujitsu, right? Like you've

got 10 pints of blood in your body. And so before your next workout, I'm going to take one pint from

you. Now you're going to go exercise, but you've lost 10% of your blood. You're not going to perform

as well. It takes about one month for your body to replace the red blood platelets. So what if I

tell you every month you got to show up and I'm going to bleed you? Yeah. Okay. So if I'm draining

the energy, I'm draining the blood from your body, you can't perform. If you, adiabatic lapse is when

you go up in altitude, every thousand feet, you lose three degrees. You go at 50,000 feet, you're

150 degrees colder than sea level. That's why you look at your instruments and instead of 80 degrees,

you're minus 70 degrees. Why is the temperature falling? Temperature is falling because it's not

a closed system, it's an open system. As the air expands, the density falls, the energy per cubic

whatever falls and therefore the temperature falls. The heat's falling out of the solution.

So when you're inflating, let's say you're inflating the currency supply by 6%,

you're sucking 6% of the energy out of the fluid that the economy is using to function.

So the currency, this kind of ocean of currency, that's a nice way for the economy to function.

It's the most kind of, it's being inefficient when you expand the money supply, but it's

the liquid. I'm trying to find the right kind of adjective here. It's how you do transactions at

a scale of billions. Currency is the asset we use to move monetary energy around and you could use

the dollar or you could use the peso or you could use the bolivar. Selling houses and buying houses

is much more inefficient or like you can't transact between billions of people with houses.

Yeah. Properties don't make such good mediums of exchange. They make better stores of value

and they have utility value if it's a ship or a house or a plane or a bushel of corn, right?

Can I zoom out just for, can we zoom out? Keep zooming out until we reach

the origin of human civilization. But on the way, ask, you gave economists a D minus.

I'm not even going to ask you what you give to governments.

Do you think their failure, economists and government failure is malevolence or incompetence?

I think policymakers are well intentioned, but generally all government policy is inflationary

and all government, it's inflammatory and inflationary. So what I mean by that is

when you have a policy pursuing supply chain independence, if you have an energy policy,

if you have a labor policy, if you have a trade policy, if you have any kind of foreign policy,

a domestic policy, a manufacturing policy, every one of these, a medical policy,

every one of these policies interferes with the free market and generally prevents some rational

actor from doing it in a cheaper, more efficient way. So when you layer them on top of each other,

they all have to be paid for. If you want to shut down the entire economy for a year,

you have to pay for it, right? If you want to fight a war, you have to pay for it,

pay for it, right? If you don't want to use oil or natural gas, you have to pay for it.

If you don't want to manufacture semiconductors in China and you want to manufacture them in the

US, you got to pay for it. If I rebuild the entire supply chain in Pennsylvania and I hire a bunch of

employees and then I unionize the employees, then not only am I idle the factory in the Far East,

it goes to 50% capacity. So whatever it sells, it has to raise the price on. And then I drive up

the cost of labor for every other manufacturer in the US because I'm competing against them,

right? I'm changing that condition. So everything gets less efficient, everything gets more

expensive. And of course, the government couldn't really pay for its policies and its wars with

taxes. We didn't pay for World War I with tax. We didn't pay for World War II with tax. We didn't

pay for Vietnam with tax. In fact, when you trace this, what you realize is the government never

pays for all of its policies with tax. Because it's too painful to ask to raise the taxes to

truly transparently pay for the things you're doing with taxes, with taxpayer money because

they feel the pain. That's one interpretation or it's just too transparent. If people understood

the true cost of war, they wouldn't want to go to war. If you were told that you would lose 95%

of your assets and 90% of everything you ever will be taken from you, you might reprioritize

your thought about a given policy and you might not vote for that politician. But you're still

saying incompetence, not malevolence. So fundamentally, government creates a bureaucracy

of incompetence is kind of how you look at it. I think a lack of humility. If people had more

humility, then they would realize. Humility about how little they know, how little they understand

about the function of complex systems. There's a phrase from Quint Eastwood's movie, Unforgiven,

where he says a man's got to know his limitations. I think that a lot of people overestimate

what they can accomplish and experience. Experience in life causes you to reevaluate that.

So I mean, I've done a lot of things in my life and generally, my mistakes were always my good

ideas that I enthusiastically pursued to the detriment of my great ideas that required 150%

of my attention to prosper. So I think people pursue too many good ideas. They all sound good,

but there's just a limit to what you can accomplish. And everybody underestimates the

challenges of implementing an idea. And they always overestimate the benefits of the pursuit

of that. And so I think it's an overconfidence that causes an overexuberance in pursuit of

policies. And as the ambition of the government expands, so must the currency supply. Well,

I could say the money supply, but let's say the currency supply. You can triple the number of

pesos in the economy, but it doesn't triple the amount of manufacturing capacity in the set

economy. And it doesn't triple the amount of assets in the economy, it just triples the pesos. So

as you increase the currency supply, then the price of all those scarce desirable things

will tend to go up rapidly. And the confidence of all of the institutions, the corporations,

and the individual actors and trading partners will collapse.

TK If we take a tangent on a tangent, and we will return soon to the big human civilization

question. So if government naturally wants to buy stuff it can't afford,

what's the best form of government? Anarchism, libertarianism. So there's not even armies,

there's no borders, that's anarchism. The smallest possible, the best government would

be the least and the debate will be over that. TK When you think about this stuff,

do you think about, okay, government is the way it is, I as a person that can generate great ideas,

how do I operate in this world? Or do you also think about the big picture if we start a new

TK civilization somewhere on Mars, do you think about what's the ultimate form of government?

What's at least a promising thing to try?

TK You know, I have laser eyes on my profile on Twitter, Lex.

TK What does that mean?

TK And the significance of laser eyes is to focus on the thing that can make a difference.

TK Yes.

TK And if I look at the civilization,

I would say half the problems in the civilization are due to the fact that our understanding of

economics and money is defective, half, 50%. I don't know, it's worth $500 trillion worth of

problems. Like money represents all the economic energy in the civilization and it kind of equates

to all the products, all the services and all the assets that we have and we're ever gonna have.

So that's half. The other half of the problems in the civilization are medical and military and

political and philosophical and natural. And I think that there are a lot of different solutions

to all those problems and they are all honorable professions and they all merit a lifetime of

consideration for the specialists in all those areas. I think that what I could offer it's

constructive is inflation is completely misunderstood. It's a much bigger problem

than we understand it to be. We need to introduce engineering and science

techniques into economics if we wanna further the human condition. All government policy is

inflationary. And another pernicious myth is inflation is always and everywhere a monetary

phenomenon. A famous quote by Milton Friedman, I believe, it's like, it's a monetary phenomenon

that is inflation comes from expanding the currency supply. It's a nice phrase and it's

oftentimes quoted by people that are anti inflation. But again, it just signifies a lack

of appreciation of what the issue is. Inflation is, if I had a currency which was completely

noninflationary, if I never printed another dollar, and if I eliminated fractional reserve

banking from the face of the earth, we'd still have inflation. And we have inflation as long

as we have government that is capable of pursuing any kind of policies that are in themselves

inflationary and generally they all are. So in general, inflationary is the big

the big characteristic of human nature that governments collection of groups that have

power over others and allocate other people's resources will try to intentionally or not hide

the costs of those allocations, like in some tricky ways, whatever the options ever available.

You know, hiding the cost is like, is like the tertiary thing, like, the primary goal

is the government will attempt to do good. Right. And that's the fundamental, that's

the primary problem. They will attempt to do good and they will and they will do it.

They will do good imperfectly and they will create oftentimes as much damage,

more damage than the good they do. Most government policy will be iatrogenic. It will,

it will create more harm than good in the pursuit of it. But it is what it is.

The secondary, the secondary issue is they will unintentionally pay for it

by expanding the currency supply without realizing that they're, they're actually

paying for it in in a suboptimal fashion. They'll collapse their own currencies while they attempt

to do good. The tertiary issue is they will mismeasure how badly they're collapsing the

currency. So for example, if you go to the Bureau of Labor Statistics, you know, and look at the

numbers printed by the Fed, they'll say, oh, it looks like the dollar's lost 95% of its purchasing

power over 100 years. Okay, they sort of fess up that there's a problem, but they make it 95%

loss over 100 years. What they don't do is realize it's a 99.7% loss over 80 years. So they will

mismeasure just the horrific extent of the monetary policy in pursuit of the foreign

policy and the domestic policy, which they overestimate their budget and their means to

accomplish their ends, and they underestimate the cost. And they're oblivious to the horrific

damage that they do to the civilization because the mental models that they use that are

conventionally taught are wrong, right? The mental model that, like, it's okay, we can print all this

money because the velocity of the money is low, right? Because money velocity is a scalar and

inflation is the scalar, and we don't see 2% inflation yet, and the money velocity is low,

and so it's okay if we print trillions of dollars. Well, the money velocity was immediate,

right? The velocity of money through the crypto economy is 10,000 times faster than the velocity

of money through the consumer economy, right? I think Nick pointed out when you spoke to him,

he said it takes two months for a credit card transaction to settle, right? So you want to

spend a million dollars in the consumer economy, you can move it six times a year.

You put a million dollars into gold, gold will sit in a vault for a decade, okay? So the velocity

of money through gold is 0.1. You put the money in the stock market and you can trade it once a

week, the settlement is T plus 2, maybe you get to 2 to 1 leverage. You might get to a money

velocity of 100 a year in the stock market. You put your money into the crypto economy,

and these people are settling every four hours. And you know, if you're offshore,

they're trading with 20x leverage. So if you settle every day and you trade the 20x leverage,

you just went to 7,000. So the velocity of the money varies. I think the politicians,

they don't really understand inflation and they don't understand economics, but you can't blame

them because the economists don't understand economics. Because if they did, they would be

creating multivariate computer simulations where they actually put in the price of every piece of

housing in every city in the world, the full array of foods, and the full array of products,

and the full array of assets. And then on a monthly basis, they would publish all those

results. And that's a high bandwidth requirement. And I think that people don't really want to

embrace it. And also, the most pernicious thing, there's that phrase, you know, you can't tell

people what to think, but you can tell them what to think about. The most pernicious thing is I get

you to misunderstand the phenomena so that even when it's happening to you, you don't appreciate

that it's a bad thing and you think it's a good thing. So if housing prices are going up 20% year

over year, and I say, this is great for the American public because most of them are homeowners,

then I have misrepresented a phenomena. Inflation is 20%, not 7%. And then I have misrepresented it

as being a positive rather than a negative. And people will stare at it and you could even show

them their house on fire and they would perceive it as being great because it's warming them up

and they're going to save on their heat costs. It does seem that the cruder the model,

whether it's economics, whether it's psychology, the easier it is to weave whatever the heck

narrative you want and not in a malicious way, but just like it's some kind of emergent phenomena,

this narrative thing that we tell ourselves. So you can tell any kind of story about inflation.

Inflation is good, inflation is bad. The cruder the model, the easier it is to tell a narrative

about it. So if you take an engineering approach, I feel like it becomes more and more difficult

to run away from sort of a true deep understanding of the dynamics of the system.

I mean, honestly, if you went to 100 people on the street and you asked them to define inflation,

how many would say it's a vector tracking the change in price of every product service

asset in the world over time? Not many. Now, if you went to them and you said,

do you think 2% inflation a year is good or bad? The majority would probably say,

well, I hear it's good. The majority of economists would say 2% inflation a year is good.

And of course, look at the ship next to us. What if I told you that the ship leaked 2% of its

volume every something, right? The ship is rotting 2% a year. That means the useful life of the ship

is 50 years. Now, ironically, that's true. Like a wooden ship had a 50 year to 100 year life,

100 would be long, 50 years, not unlikely. So when we built ships out of wood,

they had a useful life of about 50 years and then they sunk, they rotted. There's nothing good about

it, right? You build a ship out of steel and it's zero as opposed to 2% degradation. And how much

better is 0% versus 2%? Well, 2% means you have a useful life of, you know, it's half life of 35

years. 2% is a half life of 35 years. That's basically the half life of money and gold.

If I store your life force in gold, under perfect circumstances, you have a useful life of 35 years.

0% is a useful life of forever. So 0% is immortal. 2% is 35 years average life expectancy.

So the idea that you would think the life expectancy of the currency and the civilization

should be 35 years instead of forever is kind of a silly notion. But the tragic notion is it was,

you know, seven into 70 or 10 years. The money has had a half life of 10 years except for the fact

that in weak societies in Argentina or the like, the half life of the money is three to four years

in Venezuela, one year. So the United States dollar and the United States economic system

was the most successful economic system in the last hundred years in the world. We won every war.

We were the world superpower. Our currency lost 99.7% of its value. And that means, horrifically,

every other currency lost everything. In essence, the other ones were 99.9% except for most that

were 100% because they all completely failed. And, you know, you've got a mainstream economic

community, you know, that thinks that inflation is a number and 2% is desirable. It's kind of like,

you know, remember George Washington? You know how he died? Well meaning physicians bled him to

death. Okay, the last thing in the world you would want to do to a sick person is bleed them,

right? In the modern world, I think we understand that oxygen is carried by the blood cells and,

you know, there's that phrase, right? A triage phrase, what's the first thing you do in an

injury? Stop the bleeding. Single first thing, right? You show up after any accident, I look at

you, stop the bleeding because you're going to be dead in a matter of minutes if you bleed out.

So it strikes me as being ironic that orthodox conventional wisdom was bleed the patient to

death. And this was the most important patient in the country, maybe in the history of the country,

and we bled him to death trying to help him. So when you're actually inflating the money supply

at 7% but you're calling it 2% because you want to help the economy, you're literally bleeding

the free market to death. But the sad fact is George Washington went along with it because he

thought that they were going to do him good. And the majority of the people who were in the

majority of the society, most companies, most conventional thinkers, you know, the working class,

they go along with this because they think that someone has their best interest of mind and the

people that are bleeding them to death believe that prescription because their mental models

are just so defective. And then an understanding of energy and engineering and the economics that

are at play is crippled by these mental models. But that's both the bug in the future of human

civilization that ideas take hold, they unite us, we believe in them, and we make a lot of cool stuff

happen by, as an average, sort of just the fact of the matter, a lot of people believe the same

thing, they get together and they get some shit done because they believe that thing. And then

some ideas can be really bad and really destructive, but on average the ideas seem to be progressing

in a direction of good. Let me just step back. What the hell are we doing here, us humans on

this earth? How do you think of humans? How special are humans? How did human civilization

originate on this earth? And what is this human project that we're all taking on?

You mentioned fire and water and apparently bleeding you to death is not a good idea.

I always thought you can get the demons out in that way, but that was a recent

invention. So what's this thing we're doing here? I think what distinguishes human beings from

all the other creatures on the earth is our ability to engineer. We're engineers, right?

To solve problems or just build incredible cool things?

Engineering, harnessing energy and technique to make the world a better place than you found it.

Right? From the point that we actually started to play with fire, right? That was a big leap forward.

Harnessing the power of kinetic energy and missiles, another step forward. Every city

built on water. Why water? Well, water is bringing energy, right? If you actually put a turbine

on a river or you capture a change in elevation of water, you've literally harnessed gravitational

energy. But water is also bringing you food. It's also giving you a cheap form of getting

rid of your waste. It's also giving you free transportation. You want to move one ton blocks

around. You want to move them in water. So I think, I mean, the human story is really the

story of engineering a better world. And the rise in the human condition is determined by those

groups of people, those civilizations that were best at harnessing energy.

Right? If you look at the Greek civilization, they built it around ports and seaports and

water and created a trading network. The Romans were really good at harnessing all sorts of

engineering. I mean, the aqueducts are a great example. If you go to any big city,

you travel through cities in the Med, you find that the carrying capacity of the city or the

island is 5,000 people without running water. And then if you can find a way to bring water to it,

it increases by a factor of 10. And so human flourishing is really only possible through

that channeling of energy, right? That eventually takes the form of air power, right? I mean,

that ship, I mean, look at the intricacy of those sails. I mean, it's just the model is intricate.

Now think about all of the experimentation that took place to figure out how many sails to put

on that ship and how to rig them and how to repair them and how to operate them.

There's thousands of lives spent thinking through all the tiny little details,

all to increase the efficiency of this, the effectiveness, the efficiency of this ship

as it sails to water. And we should also note there's a bunch of cannons on the side.

So obviously another form of engineering, right? Energy harnessing with explosives

to achieve what end? That's another discussion. Exactly. Suppose we're trying to get off the

planet, right? I mean, well, there's a selection mechanism going on. So natural selection,

this, whatever, however evolution works, it seems that one of the interesting inventions on earth

was the predator prey dynamic that you want to be the bigger fish.

That violence seems to serve a useful purpose. If you look at earth as a whole,

we as humans now like to think of violence is really a bad thing. It seems to be one of the

amazing things about humans is we're ultimately tend towards cooperation. We want to, we like peace.

If you just look at history, we want things to be nice and calm and

calm. But just wars break out every once in a while and lead to immense suffering

and destruction and so on. And they have a kind of like resetting the palette

effect. It's one that's full of just immeasurable human suffering, but it's like a way to start over.

We're quite the apex predator on the planet. And I Googled something the other day,

you know, what's the most common form of mammal life on earth?

By number of organisms?

Count.

By count.

And the answer that came back was human beings. I was shocked. I couldn't believe it, right? It says

apparently if we're just looking at mammals, the answer was human beings are the most common,

which was very interesting to me. I almost didn't believe it, but I was trying to,

you know, eight billion or so human beings. There's no other mammal that's got more than

eight billion. If you walk through downtown Edinburgh and Scotland and you look up on this

hill and this castle up on the hill, you know, and you talk to people and the story is, oh yeah,

well that was a British castle, before it's a Scottish castle, before it was a Pict castle,

before it was a Roman castle, before it was, you know, some other Celtic castle.

Then they found 13 prehistoric castles buried one under the other under the other.

And you get to the conclusion that 100,000 years ago, somebody showed up and grabbed the high

point, the apex of the city, and they built a stronghold there, and they flourished,

and their family flourished, and their tribe flourished until someone came along and knocked

them off the hill. And it's been a nonstop, never ending fight by the the aggressive,

most powerful entity, family, organization, municipality, tribe, whatever.

All for the hill.

For that one hill, going back since time immemorial. And, you know,

you scratch your head and you think, it seems like it's like just this never ending.

But doesn't that lead, if you just, all kinds of metrics, that seems to improve the quality

of our cannons and ships as a result. Like, it seems that war, just like your laser eyes,

focuses the mind on the engineering tasks.

It is that. And it does remind you that the winner is always the most powerful.

And we throw that phrase out, but no one thinks about what that phrase means.

Like, who's the most powerful, or the, you know, or the most powerful side one,

but they don't think about it. And they think about power, energy delivered in a period of

time. And then you think a guy with a spear is more powerful than someone with their fist,

and someone with a bow and arrow is more powerful than the person with the spear.

And then you realize that somebody with bronze is more powerful than without,

and steel is more powerful than bronze. And if you look at the Romans, you know,

they persevered, you know, with artillery, and they could stand off from 800 meters and

blast you to smithereens. You know, you study the history of the Balearic slingers, right?

And, you know, you think we invented bullets, but they invented bullets to put in slings

thousands of years ago. They could have stood off 500 meters and put a hole in your head,

right? And so there was never a time when humanity wasn't vying to come up with an asymmetric form

of projecting their own power via technology.

And absolute power is when a leader is able to control a large amount of humans, they're

they're facing the same direction, working in the same direction to leverage energy.

The most organized society wins.

Yeah.

When the Romans were dominating everybody, they were the most organized civilization

in Europe. And as long as they stayed organized, they dominated, and at some point they overexpanded

and got disorganized and they collapsed. And I guess you could say that, you know,

the struggle of human condition, it catalyzes the development of new technologies one after

the other. It penalizes anybody that rejects ocean power, right, gets penalized. You reject

artillery, you get penalized. You reject atomic power, you get penalized. If you reject digital

power, cyber power, you get penalized. And the underlying control of the property keeps

shifting hands from, you know, one institution or one government to another based upon how

rationally they're able to channel that energy and how well organized or coordinated they are.

Well, that's a really interesting thing about both the human mind and governments,

that they, once they get a few good, and companies, once they get a few good ideas,

they seem to stick with them. They reject new ideas. It's almost, whether that's emergent or

or however that evolved, it seems to have a really interesting effect because when you're young,

you fight for the new ideas. You push them through. Then a few of us humans find success.

Then we get complacent. We take over the world using that new idea. And then the new young person

with the better new idea challenges you. And you, as opposed to pivoting, you stick with the old

and lose because of it. And that's how empires collapse. And it's just both at the individual

level that happens when two academics fighting about ideas or something like that, and at the

at the human civilization level, governments, they hold on to the ideas of old. It's fascinating.

Jay Famiglietti An ever persistent theme in the history of science is the paradigm shift. And

the paradigms shift when the old guard dies and a new generation arrives, or the paradigm shifts

when there's a war and everyone that disagrees with the idea of aviation finds bombs dropping

on their head, or everyone that disagrees with whatever your technology is has a rude awakening.

And if they totally disagree, their society collapses, and they're replaced by that new thing.

Trey Lockerbie A lot of the engineering you talked

about had to do with ships and cannons and leveraging water. What about this whole digital

thing that's happening, been happening over the past century? Is that still engineering in your

mind? You're starting to operate in these bits of information?

Jay Famiglietti I think there's two big ideas.

The first wave of ideas were digital information. And that was the internet way been running since

1990 or so for 30 years. And the second wave is digital energy. So if I look at digital information,

this idea that we want to digitally transform a book, I'm going to dematerialize every book

in this room into bits. And then I'm going to deliver a copy of the entire library to a billion

people. And I'm going to do it for pretty much de minimis electricity. If I can dematerialize music,

books, education, entertainment, maps, that is an incredibly exothermic transaction. It

gives... It's a crystallization when we collapse into a lower energy state as a civilization and

we give off massive amounts of energy. If you look at what Carnegie did, the richest man in the world

created libraries everywhere at the time, and he gave away his entire fortune. And now we can give

a better library to every six year old for nothing. And so what's the value of giving a

million books to eight billion people? That's the explosion in prosperity that comes from

digital transformation. And when we do it with maps, I transform the map, I put it into a car,

you get in the car and the car drives you where you want to go with the map. And how much better

is that than a Rand McNally Atlas right here? It's like a million times better. So the first wave of

digital transformation was the dematerialization of all of these informational things which are

non conservative. I could take Beethoven's Fifth Symphony, played for by the best orchestra in

Germany, and I could give it to a billion people and they could play it a thousand times each

at less than the cost of the one performance. So I deliver culture and education and erudition and

intelligence and insight to the entire civilization over digital rails. And the consequences of the

human race are first order, generally good, right? The world is a better place, it drives growth,

and you create these trillion dollar entities like Apple and Amazon and Facebook and Google

and Microsoft, right? That is the first wave. The second wave...

I'm sorry to interrupt, but that first wave, it feels like the impact that's positive,

you said the first order impact is generally positive. It feels like it's positive in a way

that nothing else in history has been positive. And then we may not actually truly be able to

understand the orders and magnitude of increase in productivity and just progress of human

civilization until we look back centuries from now. It just feels, or maybe, just looking at

the impact of Wikipedia, giving access to basic wisdom or basic knowledge and then perhaps wisdom

to billions of people. If you can just linger on that for a second, what's your sense of the

impact of that? You know, I would say if you're a technologist philosopher,

the impact of a technology is so much greater on the civilization and the human condition

than a non technology that is almost not worth your trouble to bother trying to fix things that

conventional way. So let's take example. I have a foundation, the Saylor Academy, and the Saylor

Academy gives away free education, free college education to anybody on earth that wants it.

And we've had more than a million students. And if you go and you take the physics class,

the lectures were by the same physics lecturer that taught me physics at MIT.

Except when I was at MIT, the cost of the first four weeks of MIT would have drained my family's

life, collective life savings for the first last hundred years. Like a hundred years worth of my

father, my grandfather, my great grandfather, they saved every penny they had after a hundred

years. They could have paid for one week or two weeks of MIT. That's how fiendishly expensive and

inefficient it was. So I went on scholarship. I was lucky to have a scholarship. But on the other

hand, I sat in the back of the 801 lecture hall and I was like right up in the rafters.

It's an awful experience on these like uncomfortable wooden benches and you can

barely see the blackboard. And you got to be there synchronously. And the stuff we upload,

you can start it and stop it and watch it on your iPad or watch it on your computer

and rewind it multiple times and sit in a comfortable chair and you can do it from

anywhere on earth and it's absolutely free. So I think about this and I think you want to improve

the human condition. You need people with postgraduate level education. You need PhDs.

And I know this sounds kind of elitist, but you want to cure cancer and you want to go to the

stars, fusion drive. We need new propulsion, right? We need extraordinary breakthroughs

in every area of basic science, you know, be it biology or propulsion or material science or

computer science. You're not doing that with an undergraduate degree. You're certainly not doing

it with a high school education. But the cost of a PhD is like a million bucks. There's like 10

million PhDs in the world if you check it out. There's 8 billion people in the world. How many

people could get a PhD or would want to? Maybe not 8 billion, but a billion, 500 million. Let's just

say 500 million to a billion. How do you go from 10 million to a billion highly educated people,

all of them specializing in, and I don't have to tell you how many different fields of human

endeavor there are. I mean, your life is interviewing these experts and there's so many,

right? You know, it's amazing. So how do I give a multimillion dollar education to a billion people?

And there's two choices. You can either endow a scholarship, in which case you pay $75,000 a year.

Okay. $75,000. Let's pay a million dollars a person. I can do it that way. And you're never,

even if you had a trillion dollars, if you had $10 trillion to throw at the problem,

and we've just thrown $10 trillion at certain problems, you don't solve the problem, right?

If I put $10 trillion on the table and I said educate everybody, give them all a PhD,

you still wouldn't solve the problem. Harvard University can't educate 18,000 people

simultaneously, or 87,000, or 800,000, or 8 million. So you have to dematerialize the

professor and dematerialize the experience. So you put it all as streaming on demand,

computer generated education, and you create simulations where you need to create simulations,

and you upload it. It's like the human condition is being held back by 500,000 well meaning

average algebra teachers. I love them. I mean, please don't take offense if you're an algebra

teacher, but instead of 500,000 algebra teachers going through the same motion over and over again,

what you need is like one, or five, or 10 really good algebra teachers, and they need to do it a

billion times a day, or a billion times a year for free. And if we do that, there's no reason

why you can't give infinite education, certainly in science, technology, engineering, and math,

right? Infinite education to everybody with no constraint. And I think the same is true,

right? With just about every other thing. If you want to bring joy to the world,

you need digital music. If you want to bring enlightenment to the world, you need digital

education. If you want to bring anything of consequence in the world, you got to digitally

transform it. And then you got to manufacture it something like a hundred times more efficiently

as a start, but a million times more efficiently is probably, you know, that's hopeful. Maybe you

have a chance. And if you look at all of these space endeavors and everything we're thinking

about getting to Mars, getting off the planet, getting to other worlds, number one thing you

got to do is you got to make a fundamental breakthrough in an engine. People dreamed

about flying for thousands of years, but until the internal combustion engine,

you didn't have enough, you know, enough energy, enough power in a light enough package

in order to solve the problem. And the human race has all sorts of those fundamental

all engines and materials and techniques that we need to master. And each one of them is a lifetime

of experimentation of someone capable of making a seminal contribution to the body of human

knowledge. There are certain problems like education that could be solved through this

process of dematerialization. And by the way, to give props to the 500k algebra teachers,

when I look at YouTube, for example, one possible approach is each one of those 500,000 teachers

probably had days and moments of brilliance. And if they had the ability to contribute to

in the natural selection process, like the market of education, where the best ones rise up, that's

a really interesting way, which is like the best day of your life, the best lesson you've ever

the best lesson you've ever taught could be found and sort of broadcast to billions of people.

So all of those kinds of ideas can be made real in the digital world. Now traveling across planets,

you still can't solve that problem with dematerialization. What you could solve

potentially is dematerializing the human brain where you can transfer, like you don't need to

have astronauts on the ship, you can have a floppy disk carrying a human brain.

Touching on those points, you'd love for the 500,000 algebra teachers to become 500,000 math

specialists, and maybe they clump into 50,000 specialties as teams, and they all pursue 50,000

new problems, and they put their algebra teaching on autopilot. That's the same as when I give you

11 cents worth of electricity and you don't have to row a boat eight hours a day before you can

eat. It would be a lot better that you would pay for your food in the first eight seconds of your

day and then you could start thinking about other things, right? With regard to technology, one

thing that I learned studying technology when you look at S curves is until you start the S curve,

you don't know whether you're a hundred years from viability, a thousand years from viability,

or a few months from viability. Isn't that fun? That's so fun. The early part of the S curve is

so fun because you don't know. In 1900, you could have got any number of learned academics to give

you 10,000 reasons why humans will never fly, right? And in 1903, the Wright brothers flew,

and by 1969, we're walking on the moon. So the advance that we made in that field was extraordinary,

but for the hundred years and 200 years before, they were just back and forth and nobody was

close. And that's the happy part. The happy part is we went from flying 20 miles an hour or whatever

to flying 25,000 miles an hour in 66 years. The unhappy part is I studied aeronautical

engineering at MIT in the 80s. And in the 80s, we had Gulfstream aircraft, we had Boeing 737s,

we had the Space Shuttle. And you fast forward 40 years and we pretty much had the same exact

aircraft. The efficiency of the engines was 20, 30% more. We slammed into a brick wall around

69 to 75. In fact, the Global Express, the Gulfstream, these were all engineered in the 70s,

some in the 60s. The fuselage silhouette of a Gulfstream of a G5 was the same shape as a G4,

is the same shape as a G3, is the same shape as a G2. And that's because they were afraid to change

the shape for 40 years because they worked it out in a wind tunnel, they knew it worked.

And when they finally decided to change the shape, it was like a $10 billion exercise with modern

supercomputers and computational fluid dynamics. Why was it so hard? What is that wall made of

that you slammed into? The right question is, so why does a guy that went to MIT that got an

aeronautical engineering degree spend his career in software? Why is it that I never a day in my

life, with the exception of some Air Force Reserve work, I never got paid to be an aeronautical

engineer and I worked in software engineering my entire career. Maybe software engineering

is the new aeronautical engineering in some way. Maybe you hit fundamental walls uncertain

until you have to return to it centuries later. Or no.

STUART The National Gallery of Art was endowed by a very rich man,

Andrew Mellon. And you know how he made his money? Aluminum. Okay? And so,

and you know what kind of airplanes you can create without aluminum? Nothing. Nothing, right?

LARRY So it's a materials problem.

STUART Okay, so 1900, we made massive advances in metallurgy, right? I mean, that was US steel,

that was iron to steel, aluminum, massive fortunes were created because this was a massive technical

advance. And then we also had the internal combustion engine and, you know, the story of Ford

and General Motors and Daimler Chrysler and the like is informed by that. So you have no jet

engines, no rocket motors, no internal combustion engines, you have no aviation. But even if you had

those engines, if you were trying to build those things with steel, no chance. You had to have

aluminum. So there's like two pretty basic technologies. And once you have those two

technologies, stuff happens very fast. So tell me the last big advance in like jet engines,

there hasn't been one. Like the last big advance in rocket engines, hasn't been one. The big

advances in spaceship design from what I can see are in the control systems, the gyros and the

ability to land, right, in a stable fashion. That's pretty amazing, landing a rocket. Also in the,

at least according to Elon and so on, the manufacture of the more efficient and less

expensive manufacture of rockets. So like it's a production, whatever that you call that

discipline of at scale manufacture, at scale production, so factory work. But it's not 10X.

I mean, maybe it's 10X over a period of a few decades.

When we figure out how to operate a spaceship, you know, on the water in your water bottle for

a year, right? Now, then you've got to break through. So the bottom line is propulsion,

propellant, propulsion technology, propellants and the materials technology, they were critical

to getting on that aviation S curve. And then we slammed into a wall. And then we had to

switch to a new S curve in the 70s. And the Boeing 747, the Global Express, the Gulf Stream,

these things were, the Space Shuttle, they were all pretty much reflective of that. And then we

kind of, then we stopped. And at that point, you have to switch to a new S curve. So the next

equivalent to the internal combustion engine was the CPU. And the next aluminum equipment was

the S curve. And then we actually started developing CPUs. The transistor gave way to CPUs.

And if you look at the power, right, the bandwidth that we had on computers and Moore's law, right?

What if the efficiency of jet engines had doubled every three years, right, in the last 40 years,

where we'd be right now, right? So I think that if you're a business person, if you're looking for

a real application of your mind, then you have to find that S curve. And ideally,

you have to find it in the first five, six, 10 years. But people always miss this. Let's take

Google Glass, right? Google Glass was an idea in 2013. The year is 2022. And people were quite sure

this was going to be a big thing. And it could have been at the beginning of the S curve.

But fundamentally, we didn't really have an effective mechanism. I mean, people getting

vertigo and they're, you know. But you didn't know that at the beginning of the S curve, right? I mean,

maybe some people had a deep intuition about the fundamentals of augmented reality. But you don't

know that. You don't have those, you're looking through the fog. You don't know. So the point is,

we're year zero in 2013. And we're still year zero in 2022 on that augmented reality. And when

somebody puts out a set of glasses that you can wear comfortably without getting vertigo,

right? Without any disorientation that managed to have the stability and the bandwidth necessary to

sync with the real world, you'll be in year one. And from that point, you'll have a 70 year or

some interesting future until you slam into a limit to growth. And then it'll slow down.

And this is the story of a lot of things, right? I mean, John D. Rockefeller got in the oil business

in the 1860s. And the oil business, as we understood it, became fairly mature by the 1920s,

the 30s. And then it actually stayed that way until we got to fracking, which was like seven

years later, and then it burst forward. So... The interesting story about Moore's law, though,

is that you get this constant burst of S curves on top of S curves on top of S curve. It's like

the moment you start slowing down, or almost ahead of you slowing down, you come up with another

innovation, another innovation. So Moore's law doesn't seem to happen in every

technological advancement. It seems like you only get a couple of S curves and then you're done

for a bit. So I wonder what the pressures there are that resulted in such success over several

decades and still going. Humility dictates that nobody knows when the S curve kicks off,

and you could be 20 years early or 100 years early. Leonardo da Vinci, you know,

they were... Michelangelo, they were designing flying machines hundreds and hundreds of years ago.

So humility says you're not quite sure when you really hit that commercial viability,

and it also dictates you don't know when it ends. Like, when will the party stop? When will

Moore's law stop and we'll get to the point where they're exponentially diminishing returns on

silicon performance? And when you... Just like we got exponentially diminishing returns on jet

engines, you know, and it just takes an exponential increase in effort to make it 10% better.

But while you're in the middle of it, then you know you can do things. So the reason that the

digital revolution is so important is because the underlying platforms, the bandwidth of and the

performance of the components, and I say the components are the radio protocols, mobile

protocols, the batteries, the CPUs, and the displays, right? Those four components are

pretty critical. They're all critical in the creation of an iPhone. I wrote about it in the

book, The Mobile Wave, and they catalyzed this entire mobile revolution. Because they have

advanced and continue to advance, they created the very fertile environment for all these digital

transformations. And the digital transformations themselves, right? They call for creativity in

their own, right? Like, I think the interesting thing about... Let's take digital maps, right? When

you conceptualize something as a dematerialized map, right? It becomes a map because I can put it

on a display, like an iPad, or I can put it in a car, like a Tesla. But if you really want to

figure it out, you can't think like an engineer. You need to think like a fantasy writer. Like,

this is where it's useful if you studied... If you read... Played Dungeons and Dragons, and you read

Lord of the Rings, and you studied all the fantasy literature. Because when I dematerialize the map,

first I put 10 million pages of satellite imagery into the map, right? That's a simple physical

transform. But then I start to put telemetry into the map, and I keep track of the traffic

rates on the roads. And I tell you whether you'll be in a traffic jam if you drive that way, and I

tell you which way to drive. And then I start to get feedback on where you're going, and I tell

you the restaurants closed, and people don't like it anyway. And then I put an AI on the map, and

then I put an AI on top of it, and I have it drive your car for you. And eventually, the implication

of digital transformation of maps is, I get in a self driving car, and I say, take me someplace

cool where I can eat. And how did you get to that last step, right? It wasn't simple engineering.

There's a bit of fantasy in there, a bit of magic. Design, art, whatever the heck you call it.

It's whatever, yeah, fantasy injects magic into the engineering process. Imagination

precedes great revolutions in engineering. It's like imagining a world of what you can do with

the display. How will the interaction be? That's where Google Glass actually came in, augmented

reality, virtual reality. People were playing in the space of sci fi, imagination.

They called a moonshot. They tried. It didn't work, but to their credit, they stopped trying,

right? And then there's new people. They keep dreaming. Dreamers all around us. I love those

dreamers, and most of them fail and suffer because of it. But some of them win Nobel prizes or become

billionaires. Well, what I would say is, if half the civilization dropped what they were doing

tomorrow and eagerly started working on launching a rocket to Alpha Centauri,

it might not be the best use of our resources because it's kind of like if half of Athens

in the year 500 BC eagerly started working on flying machines. If you went back and you said,

what advice would you give them? You would say, you know, it's not going to work till you get to

aluminum. And you're not going to get to aluminum until you work out the steel and certain other

things. And you're not going to get to that until you work out the calculus of variations and some

metallurgy. And there's a dude, Newton, that won't come along for quite a while, and he's going to

give you the calculus to do it. And until then, it's hopeless. So you might be better off to work

on the aqueduct or to focus upon sails or something. So if I look at this today, I say,

there's massive, profound civilization advances to be made through digital transformation of

information. And you can see them like that. This is the story of today. This is not the story of

today, right? It's 10 years old, what we've been seeing. We're living through different manifestations

of that story today, too, though. Like social media, the effects of that is very interesting

because ideas spread even, you talk about velocity of money, the velocity of ideas keeps increasing.

So like Wikipedia is a passive store. It's a store of knowledge. Twitter is like a water hose

or something. It's like spraying you with knowledge, whether you want it or not. It's like

social media is just like this explosion of ideas. And then we pick them up, and then we

pick them up. And then we try to understand ourselves because the drama of it also plays

with our human psyche. So sometimes there's more ability for misinformation, for propaganda to take

hold. So we get to learn about ourselves. We get to learn about the technology that can decelerate

the propaganda, for example, all that kind of stuff. But like the reality is we're living,

I feel like we're living through a singularity in the digital information space. And we're not,

we don't have a great understanding of exactly how it's transforming our lives.

This is where money is useful as a metaphor for significance, because if money is the economic

energy of the civilization, then something that's extraordinarily lucrative that's going to generate

a monetary or a wealth increase is a way to increase the net energy in the civilization.

And ultimately, if we had 10 times as much of everything, we'd have a lot more

free resources to pursue all of our advanced scientific and mathematical and theoretical

endeavors. So let's take Twitter. Twitter is something that could be 10 times more

valuable than it is. Twitter could be made 10 times better.

No, by the way, I should say that people should follow you on Twitter. Your Twitter

account is awesome. Thank you. It could be made 10 times better. Yeah.

Yeah. Twitter can be made 10 times better. If we take YouTube or take education,

we could generate a billion PhDs. And the question is, do you need any profound

breakthrough in materials or technology to do that? And the answer is not really.

So if you want to, you could make Apple, Amazon, Facebook, Google, Twitter, all these things

better. The United States government, if they took 1% of the money they spend on the Department

of Education and they simply poured it into digital education and they gave degrees to

people that actually met those requirements, they could provide 100x as much education for

one one hundredth of the cost and they could do it with no new technology. That's a marketing

and political challenge. So I don't think every objective is equally practical.

And I think the benefit of being an engineer or thinking about practical achievements is

when the government pursues an impractical objective or when anybody, an entrepreneur,

not so bad with entrepreneur because they don't have that much money to waste,

when a government pursues an impractical objective, they squander trillions and trillions

of dollars and achieve nothing. Whereas if they pursue a practical objective or if they simply

get out of the way and do nothing and they allow the free market to pursue the practical objectives,

then I think you can have a profound impact on the human civilization.

And if I look at the world we're in today, I think that there are multi trillion, 10, 20,

50 trillion dollars worth of opportunities in the digital information realm yet to be obtained.

But there's hundreds of trillions of dollars of opportunities in the digital energy realm

that not only are they not obtained, the majority of people don't even know what digital energy is.

Most of them would reject the concept. They're not looking for it. They're not expecting to find it.

It's inconceivable because it is a paradigm shift. But in fact, it's completely practical.

Right under our nose, it's staring at us and it could make the entire civilization

work dramatically better in every respect.

So you mentioned in the digital world, digital information is one, digital energy is two,

and the possible impact on the world and the set of opportunities available in the digital energy

space is much greater. So how do you think about digital energy? What is it?

So I'll start with Tesla. He had a very famous quote. He said, if you want to understand the

universe, think in terms of energy, vibration, and frequency. And it gets you thinking about

what is the universe? And of course, the universe is just all energy. And then what is matter?

Matter is low frequency energy. And what are we? You know, we're vibrating, you know, ashes to ashes,

dust to dust. I can turn a tree into light. I can turn light back into a tree. If I consider

the entire universe, and it's very important because we don't really think this way. Let's

take the New York disco model. If I walk into a nightclub and there's loud music blaring in

New York City, what's really going on there, right? If you blast out 15, 14 billion years ago,

the universe is formed. Okay, that's a low frequency thing. The universe formed a billion

years ago, the sun, maybe the earth, or form. The continents are 400 million years old. The schist

that New York City is on is some hundreds of millions of years. But the Hudson River is only

20,000 years. There's a building that's probably 50 years old. There's a company operating that

disco or that club, which is five to 10 years old. There's a person, a customer walking in there

for an experience for a few hours. There's music that's oscillating at some kilohertz. And then

there's light. And you have all forms of energy, all frequencies, all layered, all moving through

different medium. And how you perceive the world is the question of at what frequency do you want

to perceive the world. And I think that once you start to think that way, you're catalyzed to think

about what would digital energy look like? And why would I want it? And what is it? So

why don't we just start right there? What is it? The most famous manifestation of digital energy

is Bitcoin. Bitcoin is a crypto asset. It's a crypto asset that has monetary value.

Can we just link on that? Bitcoin is a digital asset that has monetary value.

What is a digital asset? What is monetary? Why use those terms versus the words of

money and currency? Is there something interesting in that disambiguation of different terms?

I'd call it a crypto asset network. The goal is to create a billion dollar block of pure energy

in cyberspace. One that I could then move with no friction at the speed of light.

It's the equivalent to putting a million pounds in orbit. How do I actually launch

something into orbit? How do I launch something into cyberspace such that it moves friction free?

And the solution is a decentralized proof of work network. Satoshi's solution was,

I'm going to establish a protocol running on a distributed set of computers that will maintain

a constant supply of never more than 21 million Bitcoin subdividable by 100 million Satoshis each.

Transferable via transferring private keys. Now, the innovation is to create that in an ethical,

durable fashion. The ethical innovation is I want it to be property and not a security.

A bushel of corn, an acre of land, a stack of lumber and a bar of gold and a Bitcoin are all

property. And that means they're all commonly occurring elements in the world. You could call

them commodities, but commodity is a little bit misleading and I'll tell you why in a second.

But they're all distinguished by the fact that no one entity or person or government controls them.

If you have a barrel of oil and you're in Ukraine versus Russia versus Saudi Arabia versus the U.S.,

you have a barrel of oil. And it doesn't matter what the premier in Japan or the mayor of Miami

Beach thinks about your barrel of oil. They cannot wave their hand and make it not a barrel of oil

or a cord of wood, right? And so property is just a naturally occurring element in the universe,

right? Why use the word ethical? Sorry to, I may interrupt occasionally. Why ethical assigned

to property? Because if it's a security, a security would be an example of a share of a stock

or a crypto token controlled by a small team. And in the event that something is a security because

some small group or some identifiable group can control its nature, character, or supply,

then it really only becomes ethical to promote it or sell it pursuant to fair disclosures.

So I give you maybe practical example. I'm the mayor of Chicago. I give a speech. My speech,

I say, I think everybody in Chicago should own their own farm and have chicken, a chicken in the

backyard and their own horse and an automobile. That's ethical. I give the same speech and I say,

I think everybody in Chicago should buy Twitter stock, sell their house, or sell their house,

or sell their cash and buy Twitter stock. Is that ethical? Not really. But at that point,

you've entered into a conflict of interest because what you're doing is you're promoting

an asset which is substantially controlled by a small group of people, the board of directors or

the CEO of the company. So how would you feel if the president of the United States said,

I really think Americans should all buy Apple stock, especially if you work to Google.

But you worked anywhere. You'd be like, why isn't he saying buy mine? Right? A security is a

proprietary asset in some way, shape, or form. And the whole nature of securities law, it starts from

this ancient idea, thou shalt not lie, cheat, or steal. Okay? So if I'm going to sell you securities

or I'm going to promote securities as a public figure or as an influencer or anybody else,

if I create my own yo yo coin or Mikey coin, and then there's a million of them, and I tell you

that I think that it's a really good thing, and Mikey coin will go up forever, right? And everybody

buys Mikey coin, and then I give 10 million to you and don't tell the public, right? I've cheated

them. Maybe if I have Mikey coin, and I think there's only 2 million Mikey coin, and I swear

to you, there's only 2 million, and then I get married, and I have three kids, and my third kid

is in the hospital, and my kid's going to die, and I have this ethical reason to print 500,000

more Mikey coin or else people are going to die, and everybody tells me it's fine. You know,

I've still abused, you know, the investor, right? It's an ethical challenge. If you look at ethics

laws everywhere in the world, they all boil down to having a clause which says that if you're a

public figure, you can't endorse a security. You can't endorse something that would cause you to

have a conflict of interest. So if you're a mayor, a governor, a country, a public figure, an

influencer, and you want to promote or promulgate or support something using any public influence

or funds or resources you may have, it needs to be property. It can't be security. So it goes

beyond that, right? I mean, like would the Chinese want to support an American company, right? As

soon as you look at what's in the best interest of the human race, the civilization, you realize

that if you want an ethical path forward, it needs to be based on common property, which is fair.

And the way you get to a common property is through an open permissionless protocol. If it's

not open, right, if it's proprietary, and I know what the code says, and you don't know what the

code says, that makes it a security. If it's permissioned, if you're not allowed on my network,

or if you can be censored or booted off my network, that also makes it a security.

So when I talk about property, I mean, the challenge here is how do I create something

that's equivalent to a barrel of oil in cyberspace? And that means it has to be a nonsovereign bearer

instrument, open, permissionless, not censorable, right? If I could do that, then I could deliver

you 10,000 dematerialized barrels of oil, and you would take settlement of them, and you would know

that you have possession of that property, irregardless of the opinion of any politician

or any company or anybody else in the world. That's a really critical characteristic. And

it actually is, it's probably one of the fundamental things that makes Bitcoin special.

Bitcoin isn't just a crypto asset network. It's easy to create a crypto asset network.

It's very hard to create an ethical crypto asset network, because you have to create one

without any government or corporation or investor exercising in due influence to make it successful.

So open, permissionless, noncensorable. So basically no way for you without explicitly

saying so, outsourcing control to somebody else. So it's a kind of, you have full control.

Even with a barrel of oil, what's the difference between a barrel of oil and a Bitcoin to you?

Because you kind of mentioned that both are property. You mentioned Russia and China and

so on. Is it the ability of the government to confiscate? In the end, governments can

probably confiscate no matter what the asset is, but you want to lessen the effort involved.

A barrel of oil is a bucket of physical property, liquid property, and Bitcoin is a digital property.

But it's easier to confiscate a barrel of oil.

It's easier to confiscate things in the real world than things in cyberspace. Much easier.

So that's not universally true. Some things in the digital space are actually easier to

confiscate because just the nature of how things move easily with information, right?

So I think in the Bitcoin world, what we would say is that Bitcoin is the most difficult

property that the human race possesses or has yet invented to confiscate. And that's

by virtue of the fact that you could take possession of it via your private keys.

So if you got your 12 seed phrases in your head, then that would be the highest form of property,

right? Because I literally have to crack your head open and read your mind to take it.

It doesn't mean I couldn't extract it from you under duress, but it means that it's harder than

every other thing you might own. In fact, it's exponentially harder. If you consider every other

thing you might own, a car, a house, a share of stock, gold, diamonds, property rights,

intellectual property rights, movie rights, music rights, anything imaginable, they would all be

easier by orders and orders of magnitude to seize. So digital property in the form of a

set of private keys is by far the apex property of the human race.

In terms of ethics, I want to make one more point. I might say to you, Lex, I think Bitcoin is the

best, most secure, most durable crypto asset network in the world. It's going to go up forever,

and there's nothing better in the world. I might be right. I might be wrong.

But the point is, because it's property, it's ethical for me to say that if I were to turn

around and say, you know, Lex, I think the same about microstrategy stock, MSTR. That's a security.

Okay? If I'm wrong about that, I have civil liability or other liability because I could go

to a board meeting tomorrow and I could actually propose we issue a million more shares of

microstrategy stock, whereas the thing that makes Bitcoin ethical for me to even promote is the

knowledge that I can't change it. If I knew that I could make it 42 million instead of 21 million

and I had the button back here, right, then I have a different degree of ethical responsibility.

Now, I could tell you your life will be better if you buy Bitcoin, and it might not. You might go

buy Bitcoin, you might lose the keys and be bankrupt and your life ends and your life is not

better because you bought Bitcoin, right? But it wouldn't be my ethical liability any more than if

I were to say, Lex, I think you ought to get a farm. I think you should be a farmer. I think a

chicken in every pot, you should get a horse. I think you'd be better. I mean, these are all

opinions expressed about property, which may or may not be right, that you may or may not agree with,

but in a legal sense, if we read the law, if we understand securities law, and I would say,

you know, most people in the crypto industry, you know, they didn't take companies public,

and so they're not really focused on the securities law. They don't even know the securities law.

If you focus on the securities law, that would say you just can't legally sell this stuff to

the general public or promote it without a full set of continuing disclosures signed off on by

a regulator. So there's a fairly bright line there with regard to securities. But when you get to the

secondary issue, it's how do you actually build a world based on digital property if public figures

can't embrace it or endorse it? You see, so you're not going to build a better world based upon

Twitter stock, if that's your idea of property, because Twitter stock is a security and Twitter

stock is never going to be a non sovereign bearer instrument in Russia, right, or in China, right?

It's not even legal in China, right? So it's not a global permissionless open thing. It will never

be trusted by the rest of the world. And legally, it's impractical. But, you know, would you really

want to put $100 trillion worth of economic value on Twitter stock if there's a board of directors

and a CEO that could just get up and like take half of it tomorrow? The answer is no. So if you

want to build a better world based on digital energy, you need to start with constructing a

digital property. And I'm using property here and open permissionless in a legal sense. Okay,

but I would also go to the next step and say property is low frequency money. So if you if I

give you a million dollars, and you want to hold it for a decade, you might go buy a house with it.

Right. And the house is low frequency money, you converted the the million dollars of economic

energy into a structure called a house. Maybe an after a decade, you might convert it back into

energy, you might sell the house for currency. And it'll be more worth more or less depending

upon the monetary climate. The frequency means what here? How quickly it changes state? How

quickly does something vibrate? So if I transfer $10 from me to you for a drink, and then you turn

around, you buy another right, we're vibrating on a frequency of every few hours, right? The energy

is changing hands. But it's not likely that you sell and buy houses every few hours. Right? The

frequency of a transaction in real estate is every 10 years, every five years, it's a much lower

frequency transaction. And so when you think about what's going on here, you have extremely low

frequency things, which we'll call property, then you have mid frequency things, I'm going to call

them money or currency. And then you have high frequency, that's energy. And that's why I use

the illustration of you got the building, you got the light, and you got the sound, and they're all

just energy moving at different frequencies. Now, Bitcoin is magical. And it is truly the innovation.

It's like a singularity, because it represents the first time in the history of human race

that we managed to create a digital property, properly understood. It's easy to create something

digital, right? Every coupon and every scan on Fortnite and Roblox and Apple TV credits and all

these things, they're all digital something, but they're securities. And that's why I use the

word something, but they're securities, right? Shares of stock are securities. Whenever anybody

transfers, when you transfer money on PayPal or Apple Pay, you're transferring in essence a

security or an IOU. And so transferring a bearer instrument with final settlement in the internet

domain or in cyberspace, that's a critical thing. And anybody in the crypto world can do that.

All the crypto is going to do that. But what they can't do, what 99% of them fail to do,

is be property. They're securities, correct? Well, there's a line there I'd like to explore

a little further. For example, what about when you, like Coinbase or something like that,

when there's an exchange that you buy Bitcoin in, you start to move away from this kind of,

some of the aspects that you said makes up a property, which is this

noncensorable and permissionless and open. So in order to achieve the convenience,

the effectiveness of the transfer of energy, you have to leverage some of these places that remove

the aspects of property. So maybe you can comment on that. Let me give you a good model for that.

If you think about the layer one of Bitcoin, the layer one is the property settlement layer,

and we're going to do 350,000 transactions or less a day, 100 million transactions a year is

the bandwidth on the layer one. And it would be an ideal layer one to move a billion dollars from

point A to point B with the massive security. The role of the layer one is two things.

One thing is I want to move a large sum of money through space with security. I can move

any amount of Bitcoin in a matter of minutes for dollars on layer one. The second important

feature of the layer one is I need the money to last forever. I need the money indestructible,

immortal. So the bigger trick is not to move a billion dollars from here to Tokyo. The big trick

is to move a billion dollars from here to the year 2140. And that's what we want to solve with

layer one. And the best real metaphor in New York City would be the granite or the schist.

What you want is a city block of bedrock. And how long has it been there? Like millions of years

it's been there. And how fast do you want it to move? You don't. In fact, the single thing that's

most important is that it not deflect. If it deflects a foot in 100 years, it's too much.

If it deflects an inch in 100 years, you might not want that. So the layer one of Bitcoin is

a foundation upon which you put weight. How much weight can you put on it? You put a trillion,

10 trillion, 100 trillion, a quadrillion? How much weight's on the bedrock in Manhattan, right?

Think about 100 story buildings. So the real key there is the foundational asset needs to be there

at all. So the fact that you can create a hundred trillion dollar layer one that would stand for

100 years, that is the revolutionary breakthrough first time. And the fact that it's ethical,

right? It's ethical and it's common property, global, permissionless. Extremely unlikely that

would happen. People tried 50 times before and they all failed. They tried 15,000 times after,

and they've all generally failed. 98% have failed and a couple have been less successful. But

for the most part, that's an extraordinary thing. Now,

just really quickly pause just to define some terms. If people don't know, layer one is that

Michael's referring to is in general what people know of as the Bitcoin technology originally

defined, which is the blockchain. There's a consensus mechanism of proof of work,

low number of transactions, but you can move a very large amount of money. The reason he's

using the term layer one is now that there's a lot of ideas of layer two technologies built on top

of this bedrock that allow you to move a much larger number of transactions,

sort of higher frequency. I don't know what terminology you want to use, but basically be

able to use now something that is based on Bitcoin to then buy stuff, be a consumer,

to transfer money, to use it as currency, just to define some terms.

Yeah, so the layer one is the foundation for the entire cyber economy, and we don't want it to move

fast. What we want is immortality, immortal, incorruptible, indestructible, right? That's

what you want, integrity from the layer one. Now there's layer two and layer three, and layer

two I would define as an open, permissionless, noncustodial protocol that uses the underlying

layer one token as its gas fee. So what's custodial mean and how does the different markets,

like is lightning network? So lightning network would be an example of a layer two, noncustodial.

So the lightning network will sit on top of layer one, it'll sit on top of Bitcoin,

and it solves the, what you want to do is solve the problem of it's well and fine, I don't want

to move a billion dollars every day, what I want to move is five dollars a billion times a day.

So if I want to move five dollars a billion times a day, I don't really need to put the entire

trillion dollars of assets at risk every time I move five dollars. All I really need to do is put

a hundred thousand dollars in a channel or a million dollars in a channel, and then I do

ten million transactions where I have a million dollars at risk. And of course it's kind of

simple, if I put, if I lower my security requirement by a factor of a million,

I could probably move the stuff a million times faster, right? And that's how lightning works.

It's noncustodial because there's no corporation or custodian or counterparty you're trusting,

right? There's the risk of moving through the channel. But lightning is an example of how I go

from 350,000 transactions a day to 350 million transactions a day. So on that layer too, you

could move the Bitcoin in seconds for fractions of pennies. Now that's not the end all be all,

because the truth is there are a lot of open protocols. Lightning probably won't be the only

one. You know, there's an open market competition of other permissionless open source protocols to

do this work. And in theory, any other crypto network that was deemed to be property, deemed to

be non a security, you could also think of as potentially a layer two to Bitcoin, right? There's

a debate about are there any and what are they, and we can leave that for a little bit of a

debate about are there any and what are they, and we can leave that for a later time.

But why do you think of them as layer two, as opposed to contending for layer one?

Yeah, actually, if they're using their own token, then they are a layer one. If you create an open

protocol that uses the Bitcoin token as the fee, then it becomes a layer two, right? Bitcoin itself,

right, incentivizes his own transactions with its own token, and that's what makes it layer one.

Okay, what's layer three, then?

Layer three is a custodial layer. So if you want to move Bitcoin in milliseconds for free,

you move it through Binance or Coinbase or Cash App. So this is a very straightforward thing. I

mean, it seems pretty obvious when you think about it that there are going to be hundreds of thousands

of layer threes. There may be dozens of layer twos. I mean, Lightning is a one, but it's not the only

one. Anybody can invent something, right? And we can have this debate about custodial, noncustodial.

Don't you think there's a monopolization possibilities at layer three?

So, you know, Coin, you mentioned Binance, Coinbase. What if they start to dominate,

and basically everybody's using them, practically speaking, and then it becomes too costly to

memorize the private key in your brain? I mean, or like the cold storage of layer one technology.

The idealists fear the layer threes because they think, and especially they detest,

they would detest it. There's almost like a layer four, by the way, if you want to.

A layer four would be, I've got Bitcoin on an application, but I can't withdraw it.

So I've got an application that's backed by Bitcoin, but the Bitcoin is sealed.

It's a proprietary example. And I'll give you an example of that. That would be like

Grayscale. If I own a share of GBTC, and so I own a security, actually, you know, you could own MSTR.

If you own a security or you own a product that has Bitcoin embedded in it, you get the benefits

of Bitcoin, but you don't have the ability to withdraw the asset.

To get out of the security market at layer four? Am I understanding this correctly?

I don't know if I would say, I don't, not all securities are layer four, but anything that's

a proprietary product based upon what with Bitcoin embedded in it, where you can't withdraw the

Bitcoin is another application of Bitcoin. So if you think about different ways you can use this,

you can either stay completely on the layer one and use the base chain for your transactions,

or you can limit yourself to layer one and layer two lightning. And the purist would say we stay

there, get your Bitcoin off the exchange. But you could also go to the layer three.

When Cash App supported Bitcoin, they made it very easy to buy it, and then they gave you the

ability to withdraw. When PayPal or I think Robinhood let you buy it, they wouldn't let

you withdraw it, and there was a big community uproar, and people wanted to withdraw.

They want these layer threes to make it possible to withdraw the Bitcoin so you can take it to

your own private wallet and get it off the exchange. I think the answer to the question

of, well, is corruption possible? Corruption is possible in all human institutions and all

governments everywhere. The difference between digital property and physical property is when

you own a building in Los Angeles and the city politics turn against you, you can't move the

building. And when you own a share of a security that's like a U.S. traded security and you wish

to move to some other country, you can't take the security with you either. And when you own

a bunch of gold and you try to get through the airport, they might not let you take it.

So Bitcoin is advantageous versus all those because you actually do have the option to

withdraw your asset from the exchange. And if you had Bitcoin with Fidelity and you had shares of

stock with Fidelity, and if you had bonds and sovereign debt with Fidelity, and if you own some

mutual funds and some other random limited partnerships with Fidelity, none of those things

can be removed from the custodian. But the Bitcoin, you can take off the exchange, you can remove

from the custodian. So there's a deterrent that's an anti corrupting element. And the phrase is an

armed society is a polite society, right? Because you have the optionality to withdraw all your

assets from the crypto exchange, you can enforce fairness. And at the point where you disagree

with their policies, you can within an hour, move your assets to another counterparty or take

personal custody of those assets. And you don't have that option to withdraw all your assets.

And you don't have that option with most other forms of property. Maybe you don't have as much

optionality with any other form of property on Earth. And so what makes digital property distinct

is the fact that it has the most optionality for custody. Now coming back to this digital energy

issue, the real key point is the energy moves in milliseconds for free on layer threes. It moves in

seconds or less than seconds on layer twos, it moves in minutes on the layer one. And I don't

think it makes any sense to even think about trying to solve all three problems on the layer one

because it's impossible to achieve the security and the incorruptibility and immortality if you

try to build that much speed and that functionality and performance. In fact, if you come back to the

New York model, you really wanted a block of granite, a building and a company. That's what

makes the economy, right? If I said to you, you're going to build a building, but you can only have

one company in it for the life of the building, it would be very fragile, like very brittle. What

company a hundred years ago is still relevant today? You want all three layers because they

all oscillate at different frequencies. And there's a tendency to think, well, it's got to be

this L1 or that L1, not really. And sometimes people think, well, I don't really want any L3.

But companies, it's not an even or, companies are better than crypto asset networks at certain

things. If you want complexity, you want to implement complexity, or you want to implement

compliance or customer service, right? Companies do these things well, right? You couldn't

decentralize Apple or Netflix or even YouTube. The performance wouldn't be there and the subtlety

wouldn't be there. And you can't really legally decentralize certain forms of banking and insurance

because they will become illegal in the political jurisdiction they're in. So, unless you're a

crypto anarchist and you believe in no companies and no nation states, right? Which is just not

very practical, not anytime soon. Once you allow that nation states will continue and companies

have a role, then the layered architecture follows and the free market determines who wins.

For example, there are layer threes that let you acquire Bitcoin and withdraw Bitcoin.

There are other applications that let you acquire but not withdraw it. And they don't get the same

market share, but they might give you some other advantage. There are certain layer threes like

Jack Dorsey's Cash App, where they just incorporated lightning, an implementation of it.

So, that makes it more, that makes it advantageous versus an application that doesn't incorporate

lightning. If you think about the big picture, the big picture is 8 billion people with mobile phones

served by 100 million companies doing billions of transactions an hour. And the companies are

settling with each other on the base layer in blocks of 80 million at a time. And then the

companies are trading with the consumers, right, in proprietary layers, like layer three. And then

on occasion, people are shuffling assets across custodians with lightning layer two,

because you don't want to pay $5 to move $50. You want to pay a 20th of a penny.

You want to pay a 20th of a penny to move $50. And so, all of these things create efficiency

in the economy. And, Lex, if you want to consider how much efficiency, if you gave me a billion

dollars in 20 years, I couldn't find a way to trade with another company or a counterparty in Nigeria.

Like, no amount of money. Give me $10 billion. I couldn't do it because you get shut down at

the banking level. You can't link up a bank in Nigeria with a bank in the US. You get shut down

at this credit card level because they don't have the credit card, so they won't clear.

You would get shut down at the compliance FCPA level because, you know, you wouldn't be able to

implement a system that interfaced with somebody else's system if it's not in the right political

jurisdiction. On the other hand, three entrepreneurs in Nigeria on the weekend could

create a website that would trade in this lightning economy using open protocols without asking

anybody's permission. So, you're talking about something that's, like, a million times cheaper,

less friction, and faster to do it if you want to get money to move.

What do you think that looks like so that now there's a war going on in Ukraine,

there's other wars, Yemen, going out throughout the world in this most difficult of states that

a nation can be in, which is a war, a civil war, or war with other nations? What's the role of

Bitcoin in this context? I mean, Bitcoin's a universal trust protocol, right? A universal

energy protocol, if you will. English is one, okay? What I see is a bunch of fragmentation

of applications. For example, you know, the Russian payment app is not going to work in

Ukraine. The Ukraine payment app is not going to work in Russia. You know, US payment apps won't

work either of those places, as far as I know. So, you know, and in Argentina, their payment

app may not work in certain parts of Africa. So, what you have is different local economies

where people spin up their own applications compliant with their own local laws, or,

you know, in war zones, not compliant, but just spinning up, you know?

So, how do you build something that's not compliant? What is the revolutionary act here

when you don't agree with the government or what you want to free yourself from the constitution?

So, here's the thing. When a nation is really at war, especially if it's an authoritarian regime,

it's going to try to control the pop, like lock everything down, the spread of information.

How do you break through that? Do you do the thing that you mentioned, which is you have to build

another app, essentially, that allows the flow of money outside the legal constraints placed on you

by the government? So, basically, break the law? Is that possible?

Metaphorically speaking, if you want to break out of the constraints of your culture,

you learn to speak English. For example, it's not illegal to speak English, or even if it is,

right? It doesn't matter, but English works everywhere in the world if you can speak it,

and then you can tap into a global commerce and intelligence network. So, Bitcoin is a language,

so you learn to speak Bitcoin, or you learn to speak Lightning, and then you tap into that network

in, you know, whatever manner you can. But the problem is it's still very difficult

to move Bitcoin around in Russia and Ukraine now, during the war. And there was a sense to me that

the cryptocurrency in general could be the savior for helping people. There's millions of refugees

that are moving all around. It's very difficult to move money around in that space to help people.

I think we're very early. Like, we're very embryonic here. If you look at the...

Who's we, sorry? We as a human civilization, or we operating in the cryptocurrency space?

I think the entire crypto economy is very embryonic, and the human race's adoption of it

is embryonic. We're like one, two percent down that adoption curve. If you take Lightning,

for example, you know, the first real commercial applications of Lightning are just in the last

12 months. So we're like year one. We might be approaching year two of commercial Lightning

adoption. And if you look at Lightning adoption, Lightning's not built into Coinbase, it's not

built into Binance, it's not built into FTX. Cash App just implemented the first implementation,

but not all the features are built into it. There's a few dozen, a dozen Lightning wallets

circulating out there. So I think that, you know, we're probably going to be 36 months of

software development. At the point that every Android phone and every iPhone has a Bitcoin

wallet or a crypto wallet in it of sorts, that's a big deal. If Apple embraced Lightning,

that's a big deal. So the adoption is the thing, like in a war zone adoption, the people who

struggle the most in war are people who weren't doing that great before the war started. They

don't have the technological sophistication. The hackers and all those kinds of people will find

a way. It's just regular people who are just struggling to make day by day living. And so

if the adoption permeates the entire culture, then you can start to move money around in the

digital space. If you can psychoanalyze Jack Dorsey for a second. So he's one of the early

adopters, or he's one of the people pushing the early adoption, this layer three, so inside Cash

App. What do you make of the man of this decision as a business owner, as somebody playing in the

space? Like what, why did he do it? And what does that mean for others at this scale that might be

doing the same? So incorporating Lightning networking, incorporating Bitcoin into their

products. I think he's been pretty clear about this. He feels that Bitcoin is an instrument of

economic empowerment for billions of people that are unbanked and have no property rights

in the world. If you want to give an incorruptible bank

to eight billion people on the planet, that's the same as asking the question,

how do you give a full education through PhD to eight billion people on the planet? And the answer

is a digital version of the 20th century thing running on a mobile phone. And Bitcoin is a bank

in cyberspace. It's run by incorruptible software and it's for everybody on earth.

So I think when Jack looks at it, he's very sensitive to the plight of everybody in Africa.

If you look at Africans, you're going to give them banks, you're not going to put a bank branch on

every corner. That's an obscene waste of energy. You're not going to run copper wires across the

continent. That's an obscene waste of energy. You're not going to give them gold. So how are

you going to provide people with a decent life? The metaphor I think is relevant here,

the biological metaphor, Lex, is a type one diabetic. If you're a type one diabetic,

you can't form fat. And if you can't form fat, then you can't store excess energy. So

that means that, I mean, fat is the ultimate organic battery. And if you've got 30 pounds of it,

you can go 60 days without eating. But if you can't generate insulin, you can't form fat cells.

And if you can't form fat cells and store energy, then you can eat yourself to death.

I mean, you will eat and you will die. You'll starve to death. So the lack of property rights

is like being a type one diabetic. And so if you look at most people everywhere in the world,

they don't have property rights, they don't have effective bank, and their currency is broken.

Like what are the two things that in theory would serve as the equivalent of a

organic battery or an economic battery to civilization? It would be, I have a currency

which holds its value and I can store it in a bank. So a risk free currency derivative.

I pay you your money, you take your life savings, you put it in a bank, you save up for your

retirement, you'll have happily ever after. That's the American dream.

Right? That's the idyllic situation. The real situation is there are no banks,

you can't get a bank account. So I give you your pay in currency, and then I double the supply and

I give it to my cousin, or I give it to whatever cause I want, or I use it to buy weapons. And then

you find a loaf of bread cost triple next month is what it costs. And your life savings is worthless.

And so in that environment, everybody's ripped back to Stone Age barter. And the problem with

that even Stone Age barter is you're going to carry your life savings on your back. And what

happens when the guy with a machine gun points it at your head and just takes your life savings.

So I think from Jack's point of view, he thinks that life is, this is maybe too strong, but these

are my words, life is hopeless. It's hopeless. It's hopeless. It's hopeless. It's hopeless.

It's hopeless for a lot of people. And Bitcoin is hope. Right? Because it gives everyone

an engineered monetary asset that's a bearer instrument. And it gives them a bank on their

mobile phone. And they don't have to trust their government or another counterparty

with their life force. So there's a secondary thing I think he's interested in, which is the

first thing is the human rights issue. And the second thing would be the friction to trade cross

borders is so great. Right? Like, you know, you like AI. So I'll give you a beautiful notion.

Maybe one day there'll be an artificially intelligent creature in cyberspace that is

self sufficient and rich. Like that, we would have sovereignty. Can a robot own money or property?

How about kind of Tesla car? Can I actually put enough money in a car for it to drive itself and

maintain itself forever? Or can I create an artificially intelligent creature in cyberspace

that is endowed such that it would live a thousand years and continue to do its job?

Right? You know, we have a word for that in the real world is institution, Harvard, Cambridge,

Stanford, right? There are institutions with endowments that go on in perpetuity.

But what if I wanted to perpetuate a software program? And with something like digital property

with Bitcoin and lightning, you could do it. And on the other hand, with banks and credit cards,

you couldn't, right? You couldn't ever. So, so you can create things that are beautiful and lasting.

And what's the difference in speed? Well, so I can either trade with everybody in the world

at the speed of light, friction free in 24 hours writing a Python script, or I can spend $100 billion

to trade with a few million people in the world after it takes them six months of application.

The impedance is like a 10 million to one difference, right? And the metaphors are

literally like launching something in orbit versus almost orbit or vacuum sealing something.

Does it last forever and does it orbit forever or does it go away?

Does it last forever and does it orbit forever or does it go up and come down and burn up?

Right. And I think Jack is interested in, you know, putting freedom in orbit. All right.

Putting freedom.

Putting freedom in orbit. And he said it many times. He said,

this is the internet needs a native currency. Right. And no political construct or security

can be a native currency. You need a property and you need a property that can be moved a million

times a second. Can you oscillate it at 10 kilohertz or a hundred kilohertz? And the answer

is only if it's a pure digital construct, permissionless and open. And so I think

that he's enthusiastic as the technologist and he's enthusiastic as the humanitarian.

And what he's doing is support both those areas. He's supporting the Bitcoin and the lightning

protocol by building them into his products, but he's also building the applications,

which you need at the cash app level in order to commercialize and deliver the functionality

and the compliance necessary and they're related.

And I should also say he's just a fascinating person. I, for a random reason that

I couldn't even explain. If I tried, I met him a few days ago and gave him a great big hug in the

middle of nowhere. There was no explanation. He just appeared. That's a fascinating human,

his relationship with art, with the world, with human suffering, with technology is fascinating.

I don't know what his path looks like, but it's interesting that people like that exist.

And in part, I'm saddened that he no longer is involved with Twitter directly as a CEO,

because I was hoping something inside Twitter would also integrate some of these ideas of what

you're calling digital energy to see how social networks, something I'm really interested in and

passionate about could be transformed. Let me ask you just for educational purposes,

what's the, can you please explain to me what web three and the beef between Jack and Mark

Andreessen is exactly? Did you see what happened? Sorry to have you analyze Twitter like it's

Shakespeare, but can you please explain to me why, why there was any, any drama over this topic?

First of all, web three is a term that's used to refer to, you know,

the part of the economy that's token financed. So if I'm launching an application and my idea

is to create a token along with the application and issue the token to the community so as to

finance the application and build support for it, I think that that's the most common

interpretation of web three. There are other interpretations too. So I'm just going to refer

to that one. And I think the beef in a nutshell, not articulated, but I'll articulate it is whether

or not you should focus all your energy creating applications on top of an ethical digital property

like Bitcoin, or whether you should attempt to create a competitor to it, which generally would

be deemed as a security by the Bitcoin community. So I'm going to put on my Bitcoin hat here. Yeah.

Right. All the tokens that are, if it's driven by a venture capitalist, well, it's a security.

If there's a CEO and a CTO, it's a security. All these projects, they're companies. Foundations

are companies, right? If you call them a project or a foundation, it doesn't make it not a security.

They're all, in essence, collections of individuals that are issuing equity in the form of a token.

And if there's a pre mine, an IPO, an ICO, a foundation, or any kind of protocol where there's

a group of engineers that have influence over it, then that's a security.

If there's a group of engineers that have influence over it, then to a securities lawyer, or to most

Bitcoiners and definitely to anybody that's steeped in securities law, you're looking to say,

well, that passes the Howey test. It looks like a security. It should be sold to the public pursuant

to disclosures and regulations. And you're just ducking the IPO process, right? And so now we get

back to the ethical issue. The ethical issue is if you're trading it as a commodity and representing

it as a commodity, while truthfully it's a security, then it's a violation of ethics rules,

and it's probably illegal. Well, you keep leaning on this. Let me push back on that part. Maybe you

hit me, but you keep leaning on this line of securities law as if it would all do respect to

lawyers, as if that line somehow defines what is and isn't ethical. I think there's a lot of

correlation as you've discussed, but I'd like to leave the line aside. If the law calls something

as a security, it doesn't mean in my eyes that it is unethical. I mean, there could be some

technicalities and lawyers and people play games with this kind of stuff all the time. But I take

your bigger point that if there's a CEO, if there's a project lead, that's fundamentally,

well, that to you is fundamentally different than the structure of Bitcoin.

It's not that creating securities is unethical. I created security. I took a company public,

right? That's not the unethical part. It's completely ethical to create securities.

A block is a security. All companies are securities. The unethical part is to

represent it as property when it's a security and to promote it or trade it as such.

This whole promotion, that's also a technical thing because what counts and not as promotion

is a legal thing and you get in trouble for all these things, but that's the game that lawyers

play. There's an ethical thing here, which is what's right to promote and not. To me, propaganda is

unethical, but it's usually not illegal. If you roll the clock back 20 years,

all the boiler room pump and dump schemes were all about someone pitching a penny stock,

selling Swampland in Florida. And if you roll the clock back forward 20 years and I create my own

company and I represent it as the same thing and I don't make the disclosures, you're just one step

removed from the boiler room scheme and that's what's distasteful about it. There are ways to

sell securities to the public, but there are expectations. Maybe we could forget about whether

the security laws are ethical or not. I will leave that alone. We'll just start with the biblical

definition of ethics. Don't lie, cheat, or steal. So if I'm going to sell something to you, I need

to fully disclose what I'm selling to you, right? And that's a matter of great debate right now.

And so I think that that's part of the debate. But the other part of the debate is

whether or not we need more than one token. We need at least one, right? We need at least one

digital property because zero means there is no digital economy. And by the way, the conventional

view of maximalists is they think there's only one and everything else isn't. That's not the point

I'm going to make. I would say we know that there is at least one digital property.

And that is Bitcoin. If you can create a truly decentralized, noncustodial, bearer instrument

that is not under the control of any organization that is fairly distributed, then you might create

another or multiple. And there may be others out there. But I think that

the frustration of a lot of people in the Bitcoin community, and I share this with Jack, is we could

create $100 trillion of value in the real world simply by building applications on top of Bitcoin

as a foundation. And so continually trying to reinvent the wheel and create competitive things

is a massive waste of time and it's diversion of human creativity. It's like we have an ethical good

thing. And now we're going to try to create a third or a fourth one. Why?

Well, let's talk about it. So first of all, I'm with you. But let me ask you this interesting

question because we talked about properties and securities, and we talked about how you

have a popular Twitter account. It's hilarious and insightful. You do promote Bitcoin, in a sense.

I don't know if you would say that. But do you think there's a conflict of interest in anyone

who owns Bitcoin promoting Bitcoin? Is it the same as you promoting the first Bitcoin?

I would say no, there's an interest. I think that you can promote a property or an idea to the extent

that you don't control it. I think that the point at which you start to have a conflict of interest

is that you don't control it. I think that the point at which you start to have a conflict of

interest is when you're promoting a proprietary product or a proprietary security. A security,

in general, is a proprietary asset. So for example, if you look at my Twitter, you will find

that I make lots of statements about Bitcoin. You won't ever see me making a statement that,

say, MicroStrategy stock will go up forever. I'm not promoting a security MSTR because at the end

of the day, MSTR is a security. It is proprietary. I have proprietary interest in it. I have

a disproportionate amount of control and influence on the direction.

The control is the problem. The control is the problem. Because you have interest in both.

If Bitcoin is as successful as we're talking about, you very possibly can become the richest

human on earth, given how much you own in Bitcoin, right? The wealthiest, not the richest. I don't

know what those words mean.

I would benefit economically.

You would benefit economically.

That's true.

So the reason that's not conflict of interest is because the word property, that Bitcoin is an idea

and Bitcoin is open.

It's because I don't own it. I don't control it. In essence, the ethical line here is,

could I print myself 10 million more Bitcoin or not, right?

Or can anyone, right? It's not just you. Can anyone? Because can you promote somebody else's?

Yes, I guess you can. Like, can you promote Apple when you have no stake?

You could have a Twitter account where you promote oil or you promote camping or you promote

family values or promote, you know, a carnivore diet or promote the Iron Man, right?

You're not going to get wealthier if you promote camping because you can't own a stake. I mean,

you own a lot of Bitcoin. What is that? Don't you own the stake in the idea?

Yeah, I would grant you that.

But the lack of control is the fundamental ethical line that you just, you don't have,

all you are is you're a fan of the idea. You believe in the idea and the power of the idea.

You can't take that idea away from others.

Let's come back to, let me give you some maybe easier examples. If you were the head of the

Marine Corps, right? And someone came to you and said, I created MarineCoin. And the twist on

MarineCoin is I want you to tell every Marine that they'll get an extra MarineCoin when they

get their next stripe. And then I'm going to let you buy MarineCoin now. And then after you buy

MarineCoin, I want you to promote it to them, right? At some point, if you start to have a

disproportional influence on it, or if you're in a conversation with people with disproportionate

influence becomes conflict of interest, and it would make you profoundly uncomfortable, I think,

if the head of the Marine Corps started promoting anything that looked like a security.

Now, if the head of the Marine Corps started promoting canoeing, you might think he's kind

of wacky, like maybe, like that's kind of a waste of time and distraction. So, but to the extent

that canoeing is not a security, not a problem, unless you, you know, ultimately, the issue of

decentralization is really a critical one. So not having a head. So is it something,

can Bitcoin be replicated? So the, all the things that you're saying that make it a property,

can that be replicated? Have any other...

I think it's possible to create other crypto properties.

Does it, does the having a head, like of a project, a thing that limits its ability to be a

property, if you try to replicate a project? Is that the fundamental flaw?

No, I, look, I think the real fundamental issue is you just never want it to change.

Like, like, if you really want something decentralized, you want a genetic template

that substantially is not going to change for a thousand years. So I think Satoshi said it at one

point, he said the nature of the software is such that by version 0.1, its genetic code was set.

If, if there was any development team that's continually changing it, you know, on a routine

basis, it becomes harder and harder to maintain its decentralization because now, now there's the

issue of who's influencing the changes. So what you really want is, is a very, very simple idea,

right? The simplest idea, I'm just going to keep track of who owns 21 million parts of energy.

And when someone proposes big functional upgrades, you almost don't, you don't really want that

development to go on the base layer. You want that development to go on the layer threes, because

now, cache app has a proprietary set of functionality and it's a security.

And if you're going to promote the use of this thing, you're not going to, you're not going to

promote the layer three security because that's a, an edge to a given entity and you're trusting

the counterparty, you're going to promote the layer one or at most the layer two.

Okay. So one of the fascinating things about Bitcoin, and sorry to romanticize certain notions,

but Satoshi Nakamoto, that the founder is anonymous. Maybe you can speak a little bit

about that. Maybe you can speak to whether that's useful, but also I just like the psychology of

that to imagine that there's a human being that was able to create something special and walk away.

So first are you Satoshi Nakamoto?

I'm certain I'm not. No, actually I, you know, I think the providence is really important. And

if I were to look at the highlighted points, I think having a founder that was anonymous

or should anonymous is important. I think the founder disappearing is also important. I think

that the fact that the Satoshi coins never moved is also important. I think the lack of an initial

coin offering is also important. I think the lack of a corporate sponsor is important. I think the

fact that it traded for 15 months with no commercial value was also important. I think that

the simplicity of the protocol is very important. I think that the outcome of the block size wars

is very important. And all of those things add up to common property. They're all indicia,

indicators of a digital property as opposed to security. If there was a Satoshi sitting around,

sitting on top of $50 billion worth of Bitcoin, I don't think it would

cripple Bitcoin as property, but I think it would undermine its digital property.

And if I wanted to undermine a crypto asset network, I would do the opposite of all those

things. I would launch one myself, I would sell 25% or 50% of the general public, I would keep some

of the initial, I would pre mine some stuff or early mine it, you know, and I would keep an

influence on it. Those are all the opposite of what you would do in order to create common property.

And so I see the entire story as Satoshi giving a gift of digital property to the human race

and disappearing.

Do you think it was one person? Do you have ideas of who it could be?

I don't care to speculate.

But do you think it was one person?

It was one person, maybe in conjunction with a bunch of others. I mean, it might have been a

group of people that were working together, but certainly there's a Satoshi.

I mean, it's just so fascinating to me that one person could be so brave and thoughtful. Or do you

think a lot of his accent, like the block size wars, the decision to make a block a certain size,

all the things you mentioned led up to the characteristics that make Bitcoin property.

Do you think that's an accident? Or it was deeply thought through? Like how does this is almost like

a history of science question.

They tried 40 of them, right? I mean, I think there's a there's a history of attempting to

create something like this. And it was tried many, many times and, and they failed for different

reasons. And I think that it's like Prometheus tried to start a fire 47 times and maybe the 48th

time it sparked. And that's how I see this. This is the first one that sparked. And it sets a

roadmap for us. And I think if you're looking for any one word that characterizes it, it's fair.

The whole point of the network is it's a fair launch, a fair distribution. Like, yeah, I have

Bitcoin, but I bought it. In fact, I, you know, at this point, we've paid $4 billion of you real

cash to buy it. If I was sitting on the same position, and I had it for free, then there's

always this question of, did I, you know, or I bought it for a nickel, a coin or a penny, a coin.

The question is, was it fair? And that's a very hard question to answer, right? Did you acquire

the Bitcoin that you own fairly? And if you roll the clock back, you know, you could have bought it

for a nickel or a dime, but that was when it was a million times more likely to fail, right? When

the risk was greater, the cost was lower. And then over time, the risk became lower and the cost

became greater. And the real critical thing was to allow the marketplace, absent any powerful

interested actor, right? It's almost like if Satoshi had held a million coins and then stayed

engaged for 10 more years, tweaking things in the background, there'd still be that question.

But what we've got is really a beautiful thing. We've got a chain reaction in cyberspace or an

ideology spreading virally in the world that has seasoned in a fair ethical fashion. Sometimes it's

a very violent, brutal fashion with all the volatility, right? And there's been a lot of,

you know, a lot of sound and fury along the way.

How do you psychoanalyze? How do you deal from a financial, from a human perspective with the

volatility? You mentioned you could have gotten it for a nickel and the risk was great. Where's the

risk today? What's your sense?

You know, we're 13 years into this entire activity. I think the risk has never been lower.

If you look at all the risks, right, the risks in the early years are, is the engineering protocol

proper? Like one megabyte block size, 10 minute clock frequency cryptography is first, will it be

hacked or will it crash? 730,000 blocks and it hasn't crashed. Will it be hacked? Hasn't been

hacked. But you know, it's a Lindy thing, right? You wait 13 years to see if it'll be hacked.

But on the other hand, with a billion dollars, it's not as interesting a target as it is with

a hundred billion. And when it gets to be worth a trillion, then it's a bigger target. So the

risk has been bleeding off over time as the network monetized. I think the second question is,

will it be banned? You couldn't know. It literally could have been banned at any time, many times

early on. In fact, in 2013, I tweeted on that subject. I thought it would be banned. I made a

very infamous tweet. I thought it was going to be banned. In 2014, the IRS designated it as

property and gave it property tax treatment, okay? So they could have given it a tax treatment where

you had to pay tax on the unrealized capital gains every year and it probably would have

crushed it to death, right? So it could have been in any number of places banned by a government.

But in fact, it was legitimized as property. And then the question is, would it be hacked

or would it be copied? Well, it'd be something better than that. And it was copied 15,000 times.

And you know the story of all those. And they either diverged to be something totally different

and not comparable or someone trying to copy a non sovereign bearer instrument store of value

found that their networks crashed to be 1% of what Bitcoin is. So now we're sitting at a point where

all those risks are out of the way. I would say that year one of institutional adoption

is it started August 2020. That's when MicroStrategy bought $250 million worth of

Bitcoin and we put that on the wire. We were the first publicly traded company to actually buy

Bitcoin. I don't think you could have found a $5 million purchase from a public company

before we did that. So that was kind of like a gun going off. And then in the next 12 months,

Tesla bought Bitcoin, Square bought Bitcoin. And I'd say now we're in year two of institutional

adoption. And there are about 24, should be 24 publicly traded Bitcoin miners by the end of this

quarter. So you're looking at 36 publicly traded companies. And you've got 50, at least in the

range of $50 billion of Bitcoin on the balance sheet of publicly traded companies and hundreds

of billions of dollars of market cap of Bitcoin exposed companies. So I would say the asset,

decade one was entrepreneurial, experimental. Decade two is a rotation from entrepreneurs

institutions and is becoming institutionalized. So maybe decade one, you go from zero to a trillion

and a decade two, you go from one trillion to a hundred trillion.

Trey Lockerbie What about governments, government adoption,

institutional adoption? Are governments important in this? Maybe making it some governments

incorporating it into as a currency into their banks, all that kind of stuff. Is that important?

And if it is, when will it happen?

John Ligato It's not essential for the success of the asset

class, but I think it's inevitable in various degrees over time. But the most likely thing

to happen next is large acquisitions by institutional investors of Bitcoin as a digital

gold, where they're just swapping out gold for digital gold and thinking of it like that.

And the government entities most likely to be involved with that would be sovereign wealth

funds. If you look at all the sovereign wealth funds that are holding big tech stock, equities,

the Swiss, the Norwegians, the Middle Easterners, if you can hold big tech, then holding digital

gold would be not far removed from that. That's a noncontroversial adoption.

I think there are opportunities for governments that are much more profound. If a government

started to adopt Bitcoin as a treasury reserve asset, that's much bigger than just an asset

investment. That's 100x bigger. And you could imagine that's like a trillion dollar opportunity.

Like any government that wanted to adopt it as a treasury reserve asset would probably

generate trillions of dollars, a trillion or more of value. And then the thing that people

think about is, well, will oil ever be priced in Bitcoin or any other export commodity?

I think there's like $1.8 trillion or more of export commodities in the world. And right now,

they're all priced in dollars. I think that this is a colorful thing, but not really that relevant.

Like you could sell all that stuff in dollars. The relevant decision that any institution makes,

whether they're a nonprofit, a university, a corporation, or a government, is what's your

treasury reserve asset? And if your treasury reserve asset is the peso, and if the peso is

losing 20% or 30% of its value a year, then your balance sheet is collapsing within five years.

And if the treasury reserve asset is dollars and currency derivatives and US treasuries,

then you're getting your seven. Right now, it's probably 15% or more monetary inflation. We're

running double the historic average. You could argue triple, somewhere between double and triple,

depending upon what your metric is. So do I think it'll happen? I think that they're conservative,

but they have to be shocked. And I think there is a shock. The late Russian sanctions are a big

shock. When the West sees $300 billion worth of Russian gold and currency derivatives, I think

you got the famous quote by Putin that we have to rethink our treasury strategies. And that pushes

everybody toward a commodity strategy. What commodities do I want to hold? I think that's

got a lot of people thinking. I think it's got the Chinese thinking. Everybody wants to be the

reserve currency, right? So if I buy $50 billion worth of dollars every year, then I buy $500

billion over a decade, and I probably pay $250 billion of inflation cost on the backs of my

on the backs of my citizens in a decade. So inflation could be one of the sources of shock.

And you wonder if there is a switch to Bitcoin, whether it will be a bang or a whimper. Like,

what is the nature of the shock or the transition? I think that the year 2022 is pretty catalytic

for digital assets in general and for Bitcoin in particular. The Canadian trucker crisis,

I think, educated hundreds of millions of people and made them start questioning their property

rights and their banks. I think the Ukraine war was a second shock. But I think that the Russian

sanctions was a third shock. Yeah, I think all three of them. And I think hyperinflation in the

rest of the world is a fourth shock. And then persistent inflation in the US is a fifth shock.

So I think it's a perfect storm. And if you put all these events together, what do they signify?

They signify the rational conclusion for any person thinking about this is, I'm not sure if I

can trust my property. I don't know if I have property rights. I don't know if I can trust the

bank. And if I'm politically at odds with the leader of my own country, I'm going to lose my