Trace Mayer on Claiming Your Monetary Sovereignty with Bitcoin

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“This is the great battle of our time. We’re on a planet that’s chained by central banks that engage in monetary repression, and they have all the money and guns in the world… How are you going to win this battle? You’re going to fight against this and all you’ve got is math on your side? That’s freaking pretty cool, like, bring it on.”
— Trace Mayer

Location: Laramie, Wyoming
Date: Saturday, 21st September
Project: Premier Ark LLC
Role: Manager

The unique properties of Bitcoin make it the hardest money which has ever existed and allows those who adopt it to claim their monetary sovereignty.

As the Bitcoin market cap has grown, those accumulating have had to condition themselves to a volatile price, with dollar-cost averaging a popular way of stacking sats.

Many people, however, still don't own their private keys, leaving their Bitcoin on an exchange or in the hands of a 3rd party custodian. In doing so, they miss one of the fundamental aspects of Bitcoin, claiming their sovereignty.

Before Bitcoin, gold was the traditional way to claim financial independence. Like Bitcoin, Gold allows holders to take wealth management away from banks and financial institutions. With this, gold is also a hedge or 'safe haven' asset during currency declines and/or recessions.

With the global economy, again looking fragile, will another economic downturn see Bitcoin, like gold, become a 'safe haven' asset?

In this interview, and for the second time in a week, I'm joined by accountant, lawyer and Bitcoin OG Trace Mayer. We discuss the U.S monetary system being unconstitutional, negative interest rates, gold vs Bitcoin and Proof of Keys.

TIMESTAMPS

00:04:09: Introductions 
00:05:40: The basics of monetary sovereignty and why people don’t think about money in depth
00:09:34: Touching on where Bitcoin fits with the picture of monetary sovereignty
00:11:25: Exploring the difference between money, currency, money substitutes and illusions
00:16:25: Discussing accounting in Bitcoin and if Bitcoin could be the unit of account in the future
00:21:13: Delving into the potential future of hyperbitcoinization and what could drive adoption
00:25:18: Discussing Trace’s love of gold and why he likes gold, as well as Bitcoin
00:30:47: Exploring why gold helps change time preference and improve personal discipline
00:36:47: Discussing having a positive relationship with yourself and setting your priorities correctly
00:43:03: Trace’s background and why freedom of speech is so important for opportunities
00:47:38: Touching on whether China’s position on Bitcoin gives them advantage over the US
00:49:09: Exploring America in more depth, including gun rights and competition between states
00:54:53: Discussing the macro global economy and the recent boom in the repo market
00:58:16: Trace’s thoughts on interest accounts and other financial products within Bitcoin
01:01:59: Discussing Proof of Keys and the impact this had on exchanges last year, including QuadrigaCX
01:07:44: The thoughts surrounding Proof of Keys from within the industry
01:10:13: Final comments and how to stay in touch

 

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THANKS

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TRANSCRIPTION

Peter McCormack: Morning Trace!

Trace Mayer: Good morning, great to be here!

Peter McCormack: Second time in three days!

Trace Mayer: That's true, you're eeking every drop out of me.

Peter McCormack: What do you want to talk about?

Trace Mayer: I heard about this Bitcoin thing, like a bit of magic internet money, are we going to talk about that?

Peter McCormack: I heard it's not real and that it's going to go to zero. There's this better one, is it Bitcoin Cash?

Trace Mayer: Bcash? Yeah, I actually wrote an article back in, I think it's 2014, on whether Bitcoin is tangible, because a lot of people were like, "oh, it's not real!" This was the gold bug argument and coming out of the gold bug space, it's interesting, the etymology on the word "tangible", it actually comes out of mathematics and it's related to the word tangent, which means to kiss.

When you take the tangent off its circle or something and it means reality. So mathematics isn't corporeal, but it's still tangible, it's still real. So I made that argument that Bitcoin is real, but not corporeal, it doesn't have the physical tangibility, but it still has the reality tangibility. So my little contribution to monetary science there!

Peter McCormack: People still get sucked into it though. We've seen it again with BSV, people just get sucked in.

Trace Mayer: Yeah, they get sucked into all types of stuff, but if your brain doesn't work right, you'd better fix tha!

Peter McCormack: All right, I do want to talk about something. I want to talk about monetary sovereignty, that's your bag!

Trace Mayer: Man I love monetary sovereignty, there's something when you have your own money!

Peter McCormack: There is! But do you know what? I don't think a lot of people really truly understand money, genuinely. I think most people, like I did, just think of money as something that goes into my bank every month and then I have a credit card or a debit card and I spend it and the end of the month there's none left and we move onto the next month. But people don't really think about money enough until sometimes it's too late. I'm 40 and I've only just started to realize how much I should think about money. Why is that? What's going on?

Trace Mayer: Well one, I think that we just don't get educated on that. Financial knowledge and education in general is sorely lacking. You would think this stuff would be taught in middle school or even high school. It's a basic life skill and yet it's not taught at all and that's just basic stuff like balancing a checkbook, doing a budget, saving, learning what an interest rate is, what insurance is, just some of these basic life skills that people should have. But another part is, I went to write a paper on the history of money and currency in American law, a graduate level paper in law school and I started researching this topic and there just was not much there.

I think a lot of the reason for that is the economics profession, which is really filled with just a bunch of political dogmatists, not actual scientists, just like we had a bunch of political dogmatists that said that the sun revolved around the earth, because that's what the establishment wanted them to say, we have the same thing in the economics profession.

Basically to justify and rationalize and give ideological support to a monetary system that is fundamentally unconstitutional in the US, but also just an egregious violation of human rights. It enables confiscation through inflation, which is a form of taxation without representation, without due process of law, it erodes the political checks and balances with the power of the purse because the politicians can just print and print and print.

And even worse, we try to uphold this concept of central bank independence, as if we want this highly political entity that enables monetarial elites to manage the lives of millions of people through interest rates and monetary policy. We don't want that to be political, we want them to be independent and insulated from the political process. So we create this gigantic moat where the Federal Reserve board of governors and board members are appointed like every seven years and it just insulates it so much from the political process and yet enables this type of monetary repression that happens and is able to dictate the choices of millions and hundreds of millions of people.

People just don't understand that this is happening, because one, they don't understand the difference between money and currency. They don't understand the role of sound money as essential checks and balances in the political machinery and a lot of them, they just don't claim their monetary sovereignty now that we have the ability to do that, nor do most people even manage their financial affairs in a prudent way anyways.

They get themselves in debt, they... It's just crazy because if you think about it, the way we spend and allocate our money and our resources shows what we really value and desire. It's like, "man, why are people choosing some of the things they're choosing!"

Peter McCormack: Well that's why Bitcoin is so interesting, because you can make some mistakes, I know I have. I've wasted Bitcoin now and every time I spend Bitcoin, I really think about it, but I don't think about it with my money in my bank account, if I want to go and buy something, I just go and spend it. But with Bitcoin, every time I'm like, "hmm, do I really want to spend that?"

Trace Mayer: Yeah because Bitcoin is a massive battlefield of economic war, because we're able to now secure monetary sovereignty and these sound property rights. But also, the war is you against you. It's you against your future self and it's this concept of time preference, when you don't have a sound tool like Bitcoin, the hardest money ever invented, it's easy to spend these digits that are easily created just with control P by the central bankers.

But Bitcoins are hard to make more of, I mean look at what's happened to the hash rate of the network. It's hard to make more Bitcoins and then you're trading current consumption versus future consumption or savings or things like this and it starts to sting! It really starts to sting, especially the longer you've been in Bitcoin, because you're like, "oh man, I really spent 25 Bitcoin on that?"

Peter McCormack: Everyone's got a story! I think I've given away over the last year or two years, if I've genuinely looked at it, would be between 5 and 10 Bitcoin.

Trace Mayer: Oh my goodness!

Peter McCormack: But when you think about that now, it's a hundred grand! But at the time it's like, half a Bitcoin, half a Bitcoin there. But then I've been given some back actually.

Trace Mayer: That's nice, but you do work too and you help people.

Peter McCormack: Okay, so let's break this down for some people. What is the difference between money and currency?

Trace Mayer: So this is a very fine point of distinction and both Michael Maloney and I, seem to be on a similar page with this. I wrote about it in my book, "The Great Credit Contraction", you can get it on creditcontraction.com, it's a free PDF download, I don't charge for it anymore. So I put it into four different groups, you've got "currency", then you've got "money", "money substitutes" and what I call "illusions". So money is going to be an object or something that, I don't really like the word "intrinsic value", because we have subjective value but it's something that has value more, because of its internal characteristics, as opposed to a money substitute which is a claim on the item or the asset that has value because of its intrinsic characteristics.

Then we've got these things called illusions like dollars, yen, euros and these have value because of their external characteristics. What do I mean by that? Well we've got "the market theory of money", Nick Szabo, gold, silver, most saleable good, basically the Austrian school argument, regression theorem and then we've got chartalism, which is the state theory of money, that this little piece of paper has value because some guy in a costume says it does. Just philosophically, like economic philosophy, chartalism is a false argument, things have value because individuals subjectively value them, not because somebody puts a stamp on it and says it has value.

So when we're looking at money, money substitutes like a silver certificate and illusions, they can all function as currency. So currency would be that item or asset or whatever that we're using in our day to day transactions and it can be either money, money substitute or illusions. But that would be the difference between money and illusions. So with money, what I mean by these internal characteristics, like gold for example, is limited in amount by chemical law. It's an atom on the periodic table and that's an internal characteristic of gold. Bitcoin is limited in amount by mathematics in the consensus mechanism and the cryptography and all of this stuff.

Just like gold or precious atoms, Bitcoins are precious numbers, these private keys. So Bitcoins are limited in amount by their internal characteristics. Illusions, on the other hand, they're limited in amount by external characteristics, things like counterfeiting laws or whatever that gets related to that. So that's how I kind of distinguish between money, money, substitutes and illusions and how all of them can be currency.

So then, that opens more cans of worms as you go further down, because in accounting, you've got different parts of the balance sheet like short-term assets, long-term assets, you've got cash, marketable securities, stuff like this, but when I look at the term "cash", I want an asset which is not subject to another counterparties risk, financial ability, something that can't become worthless, something that's safe, highly liquid, these are the types of characteristics I look at when defining cash, because cash needs to be that risk free asset. What is the asset with the lowest risk profile that's also highly liquid and that's what I define as cash.

Then as you move out from that, you can move into cash like instruments. So is gold cash? Is Bitcoin cash? Is the US dollar cash? For most corporations and people they're using as the numeraire or the presentation currency under IAS1, because you have to present your financial statements in a unit of account, they're using as cash an illusion, which can become worthless.

I mean look at Zimbabwe dollars! Dollars can become worthless, Euros can become worthless. Now are they going to become worthless tomorrow? Probably not. So I look at those, as a cash like instrument, but I want to measure my financial performance using a much more solid form of cash, so I use gold and I use Bitcoin for my numeraire.

Peter McCormack: It was interesting, because I've never seen anyone do this like you did. So when we were talking with Pomp, we were talking about various things and were pricing everything in Bitcoin. I've never been with someone who's done that on every single item they were pricing. I've only ever heard you do that.

Trace Mayer: Yeah, so I actually price everything... Well, I'm not pricing like gallons of gas when I'm filling out my car, but for business, I'm definitely looking at Bitcoin as my risk free rate or my risk free asset. So am I going to have a return on investment in Bitcoin? But I actually keep my financial statements in Bitcoin, gold and US dollars.

So every month I'm like, "hey, did my net worth go up, measured in Bitcoin? Did it go up measured in gold? Did it go up measured in USD?" Then I'm trying to manage having it go up in all three of those at the same time if I can. I mean it's hard because Bitcoin is so volatile, but I at least want my net worth going up measured in gold for sure.

Peter McCormack: So I'm going to come back to gold. But one of the things I've been thinking about, if the dollar does depreciate so significantly that we go through a hyperbitcoinization, we could get to the point where the value of Bitcoin in dollars just kind of gets out of hand, right?

Trace Mayer: Yeah, I mean it definitely could.

Peter McCormack: And is that the point where you think people will stop thinking of the dollar as a unit account and then Bitcoin will just become the unit of account and you just forget it?

Trace Mayer: I mean that's the multi trillion dollar question, like what is the risk free asset? Because you take your risk free asset and then you start using that to do your economic calculation for everything around it. So I mean, "oh, you made a 12% return by investing in some piece of real estate. Should I give you props or should you just hodl Bitcoin?" If you have your financial statements in Bitcoin and in gold and in dollars, you have to become a much better capital allocator, in order to actually be successful at having a return on investment.

So when we're doing all of our calculations, like internal rates of return, return on investment, initial weighted average cost of capital, all of these different ratios that we need to calculate, like asset test ratios for our liquidity, all of these types of things, debt to equity ratios, I'm calculating with these three different metrics. So in some cases, I take on different types of debt, whether it's US dollar denominated debt or yen denominated debt, because where it's going to get really crazy, is when we start having like a Bitcoin fiat currency carry trade, especially with negative interest.

Peter McCormack: What does that mean?

Trace Mayer: So Denmark for example, they have negative interest rate mortgages now, that's kind of crazy when you think about it. Okay, so I'm going to borrow 100,000 euros, I'm going to pay back 99,000 euros and then I'm going to take the 100,000 euros and I'm going to buy Bitcoin and then get a yield on Bitcoin somehow, whether it's selling covered calls that are far out of the money or whether it's like one of these interest generating opportunities, which I mean, who knows whether they're Ponzi scams or not.

You really have to be careful assessing risk and stuff, but the carry trade, that's where you borrow in a lower interest rate currency and invest in a higher yielding asset or currency. So people would borrow yen and buy dollars, so they have a very low interest rate on the yen and they have a higher interest rate on the dollars. Then you're betting that like the capital appreciation or change between the two is going to be in your favor.

Peter McCormack: But do you believe or have you kind of thought through an actual hyperbitcoinization?

Trace Mayer: Yeah, but I don't really think that's how it's going to happen.

Peter McCormack: What do you think is going to happen?

Trace Mayer: Bitcoin's like a mirror, that you get to see everybody's cognitive dissonance and bias appear. So it happens one by one, the monetary revolution and people claiming their monetary sovereignty. So I think it's going to be largely gradual, it's going to happen in different waves, based on the halvening and the price appreciations and stuff like that.

But Bitcoin has been around for over a decade and they're still people that have heard about it, but they haven't bought any. I had a friend, he talked all about how he was investing in Bitcoin and buying it and everything and it turns out he hadn't actually bought any Bitcoin and he just wanted to look cool, that he'd been buying it, like some private equity group.

Peter McCormack: I'm the Bitcoin guy on Facebook amongst my circle of friends obviously and clearly. I talk about it all the time and I don't just post up my podcasts, I just drop little bits in there. I might drop in an article about negative interest rates and say, "you just need to be aware of this". I think maybe 10 have bought Bitcoin at one time or another and I think one really is into it. Nobody cares!

Trace Mayer: It takes people a while to hone in on this.

Peter McCormack: I think they have to make some money off it realistically.

Trace Mayer: Yeah, the first network effect is speculation, that's a strong one man! It built San Francisco from nothing, like 800 people, you discovered gold, now it's like one of the greatest poop covered cities in the world. But maybe they'll get that fixed one of these days. San Francisco just has so much potential, like if they'd actually clean stuff up. But speculation is just such a strong network effect and once people start making money on Bitcoin and the way the money impacts people's emotions and feelings and everything, it just becomes very strong. People will make money or lose money on Bitcoin, but that kind of hooks a lot of people and them they stay for the monetary sovereignty, because you know what it's like when you're a kid and like, "oh can I take the car out?"

But when you get your own car, stuff has changed! When you have your own money, stuff changes. So people might come for the price appreciation and stuff, but then they're going to be shifting time and attention away from Game of Thrones or whatever they're otherwise thinking around with and they're going to be listening to podcasts and stuff like that and then they're going to get turned into Bitcoin monsters stacking sats.

Peter McCormack: Well for me I'm thinking, I've been divorced, so I lost 70% of my net worth with that and then my company failed afterwards. So I went from a very comfortable position, good projections, a company that was worth seven figures to nearly losing my house. Then I got into Bitcoin and did well, then screwed it up. But now I've got this kind of like time horizon where firstly, I'm, thinking in terms of halvenings, but I'm also thinking, 20 years’ time, I don't want to be working. I mean, maybe this won't be a job and I'll enjoy it for fun. But I'm like 20 years’ time, I don't want to sell any of my Bitcoin for like 20 years, because I'm thinking in 20 years that could be my retirement.

But I did come for the appreciation at first, but that flip has happened now where I'm thinking in terms of saving and protecting my financial future. The monetary sovereignty has also become part of that. Again, for me that's something quite new, because I was never a goldbug. I've owned or bought any gold. Bitcoin is the first time I've had my own kind of like, real asset that means something to me. Are you still a goldbug?

Trace Mayer: Oh yeah I love gold man!

Peter McCormack: What do you make of the whole gold versus Bitcoin arguments? It seems to me that I think people need to accept both are going to exist.

Trace Mayer: Well I think there's a lot more to gold than just the money part of it. I mean gold is a huge meme in humanity history! You go over to India, the masters of the mind and gold is very prominent over there. You get bowls and spoons, they wear it, you eat out of the gold and you buy the gold, not to make any money on it. In fact, you never ever sell the gold and you hand it down through the generations. So the gold becomes a tool that can help focus the mind.

Peter McCormack: But it's a store of wealth as jewelry as well right?

Trace Mayer: Yeah and they give the dowries and stuff with the jewelry and everything, but really they're using the gold as a tool to focus the mind. So I think we can do a similar type of thing with Bitcoin, because there's an aspect of gold, it's just raw power. I don't know if you've ever held gold in your hand.

Peter McCormack: I've held it in India.

Trace Mayer: Yeah but how much? A little one ounce?

Peter McCormack: I didn't have it cupped like a bowl like you said, I just went in and held some jewelry.

Trace Mayer: Yeah, put a couple hundred thousand dollars’ worth of gold in your hand and see how that feels, it's like pure power! So there's an aspect of gold that helps focus and discipline the mind and sound money does that. That is one thing because Bitcoin is not corporeal, so you're not going to get the same type of sensory experience with Bitcoin that you can get with gold, in terms of like focusing the mind, using the senses and I think there's an aspect of gold that it acts like a multiplier, like a force multiplier or a power amplifier on energy that you're putting into it.

So yeah, I like gold, gold is freaking cool because you can take gold and you can amplify power or energy through it, to then accomplish more things in what you're trying to do.

Peter McCormack: But it's also losing value against Bitcoin.

Trace Mayer: Yeah, everything is and that's the trillion dollar question. What's the new risk free asset, from earlier in the discussion. But you're not acquiring the gold, solely for the monetary benefit that you would get from it. You're acquiring the gold for the mental or the emotional power that you're able to exercise with it.

Peter McCormack: But that doesn't happen for everyone. That's clearly something that because you've been around gold a long time, you've traded it, you understand it and you've got a website about it.

Trace Mayer: Yeah, but I think there might be something in human DNA! Gold's freaking big! We're moving more into the realm of the mind and our emotions and how we're crafting our experience of this physical reality in this discussion about gold and like the way we can use it.

Peter McCormack: But you prefer Bitcoin?

Trace Mayer: For what?

Peter McCormack: I guess you prefer Bitcoin for returns? I guess because your brain's gold is your heart!

Trace Mayer: Well I've found that my net worth, like the more gold that I'm able to acquire, the bigger my net worth seems to be able to become. Because I think everybody should have a meditation practice. You want to become a hodler of last resort, you think that's easy? Getting whipped around on all your emotions? Can you discipline, can you interact with the energy that comes from money and the Bitcoin bull and bear? Are you going to get shaken out of your position? Because there are a lot of people like, "oh I would have bought Bitcoin at whatever price." Yeah, but you would have sold it too!

But I've found that you can use gold to discipline your mind and your emotions. You're not really going to be successful financially. I mean, sure, there are some unusual abnormal cases, but by and large, if you want to become financially successful, you need to be in order, like your mind and your heart and your emotions and stuff, that all needs to be in order and gold can be a very good tool to help in disciplining those things.

Peter McCormack: How though? Explain to me, how though?

Trace Mayer: One, it helps change time preference and humanity has used it for millennia to change time preference and use it as an instrument to trade between the current self and the future self, disciplining the current self and not just eating everything in sight, but saving for the future. All of these types of things are made possible because of an instrument like gold, that we've used for monetary exchange and economic calculation. So it's just been built into the human psyche for millennia. It's such a huge meme in that sense!

Peter McCormack: So I need to buy some gold. My first gold purchase!

Trace Mayer: Well I mean you can do whatever you want to do, but you look at your own mind and your own thoughts and your own emotions and stuff like that. Are you as disciplined and ordered as you want to be, or do you want to become more ordered and more disciplined? Okay, you want to become more ordered and disciplined, I find gold to be a very useful tool to be able to accomplish that type of stuff.

Peter McCormack: Gold is also hard money, right?

Trace Mayer: Oh yeah! It's scarce, there's a limited amount, it's a physical object like an atom...

Peter McCormack: It's not as hard as Bitcoin.

Trace Mayer: Well that's true. Currently stock to flow is better on gold, but the halvening is going to happen very soon and then Bitcoin is going to overtake it in that regard. But there's other aspects to gold, like you can't ever really destroy gold and even if you dissolve it, it can always be put back together. So there's just so much that we can learn from gold and so much it has to be able to teach us in the realm of the mind, because the money and trading and like all this stuff, it's really more of an internal battle of the mind, than it is an external battle. But if you can't even discipline yourself, guess what?

You're going to get disciplined by someone else and the way they're going to do it, is they're going to get you in debt and then they're going to make you do whatever they want you to do, because the borrower is the servant to the lender. By the sweat of the sun, gold, the ancient metal of Kings, I mean that's been a tool for people to claim their monetary sovereignty for millennia. So I like it for some of these more intangible reasons and it's subject to value theory, everybody's going to be valuing different things in different ways.

But yeah, I like gold for those reasons, but in terms of strict ROI and stuff like that, it's really hard to compete with Bitcoin. You can see the Mayer multiple for example, you can use the Mayer multiple on the Bitcoin/gold ratio and when that ratio gets out of out of sync, trade some Bitcoins for some more gold and then you can pet your gold and use it. 

You will find that your financial situation and just your overall mental and emotional landscape, will do a lot better if you are petting your physical gold instead of watching some stupid thing on the internet, you know cat videos or Game of Thrones or whatever. Cultivating your mind and your mental discipline and stuff like that and that's going to feed out into all the aspects of your life.

Peter McCormack: Where's your ill-discipline in life? Where's your weakness?

Trace Mayer: Weakness? Oh man, well I think that you have to have a good relationship with yourself man and one of the ways I have a good relationship with myself is ice cream! We got a lot of this, "we're only going to eat meat" or whatever and don't get me wrong, we have some awesome steaks in Wyoming, but I still eat ice cream man, because I get a lot of pleasure out of eating ice cream.

Peter McCormack: So that's your thing. Ben & Jerry's?

Trace Mayer: No! Häagen-Dazs, the good stuff, like the really, really good stuff! When you don't have a good relationship with yourself, it's just going to feed out into everything. I look at the human experience, we got health, wealth experiences and relationships and people just get things kind of out of order and out of whack. I had a friend, who spent 90 minutes a day, six days a week in the gym for 10 years, like a human protein shake, only ate white rice and chicken.

Yeah, in great physical condition, but his mind was not in very good physical condition and he had all types of anxiety and that's screwing up the nerves. Next thing you know, he's got TMJ in the jaw and then the doctors had to break his jaw in two places and wire his mouth shut in order to fix the TMJ and it is all because he didn't have a good relationship with himself.

Why aren't you eating some ice cream and treating yourself good? But he goes and beats himself up in the gym, 90 minutes a day, six days a week and then rewards himself by eating a super bland diet of rice and chicken, not a good relationship with himself.

Peter McCormack: Those things that you split up, I reckon I put the majority in experiences. I constantly fill my time with experiences and my health to some extent and certainly my wealth, suffer. I was talking to Pomp about it last night. He was saying like, "if Bitcoin goes up and then you can invest into somebody else". I was like, "if it goes up, I'm just going to go on holidays, I'm going to buy a car", I put everything into experiences, I've got such low time preference!

Trace Mayer: Well I mean we only live once, right?

Peter McCormack: We don't know how many days we have left!

Trace Mayer: We don't know how many days are left! There are a lot of people man, who die with a lot of money in the bank and they wish they'd spent a little bit more time with the kids when they were growing up, instead of in the office, because life comes at you fast. You have to find joy in the journey now, because if you're only living for tomorrow, you're going to pile up a lot of yesterdays. So it definitely is a balance.

How much can you enjoy life if you're in constant chronic pain, like if your health is out of whack. So that's why I put health as like the bottom foundation, wealth is next on there, because when you have monetary sovereignty and you're not in debt to the lender, when you have excess reserves and excess savings and all this type of stuff, now you can do a bunch of experiences, have some fun. But it's not where you go, it's who you go with. So that's why you've got experiences, but then above that you've got relationships and of course, the pinnacle of relationships are going to be husband and wife, parents and children and then you kind of branch out from there in terms of happiness and being able to kind of find all that stuff.

So a lot of people just get it out of order, they get it out of whack or they think like, "oh, if I'm only a human protein shake, this girl like me." And it's like, "no!" You've got to get yourself in order, you've got to get your mind in order, you've got to get your heart in order and then when that's in order, you're going to naturally kind of gravitate towards someone else who's in order, then you guys are going to go down the road and have a super happy relationship together doing great experiences.

So why do we want to have a healthy body? Well we want to have healthy bodies so we can have a healthy functioning mind and we want to have a healthy functioning mind. Why, like what's the purpose? I would argue that if your purpose is so that you can be of helpfulness and service and help other people, as opposed to focused on your own selfishness... I mean, you got to put yourself first, you got to take care of yourself first, so don't exclude that, but you're taking care of yourself, so that you can be a better help to other people. That's going to help you find the happiness in life.

Otherwise, you're just going to be constantly chasing little Mario coins, thinking that's going to make you happy. Go look at a bunch of people in New York, working like 110 hours a week being a spreadsheet monkey! For real? That's the experience you want?

Peter McCormack: Yeah, but a lot of people do careers that they don't really like chasing money.

Trace Mayer: Well yeah, but that's because their priorities are out of whack. It's not that loving money is the problem, it's when you love money more than you love helping or being of service to other people. You just got to get stuff in the right order. If loving yourself is up in your head, as opposed to in your feet or loving money is in your head, as opposed to in your torso, you're getting stuff out of whack.

Peter McCormack: Yeah, but you've also got to try and find something that you really genuinely enjoy doing or get away from having a job. I think a job is something you don't want to do. So this isn't a job!

Trace Mayer: Well because you're finding more of a passion and you've got more of a purpose. I think jobs are different tasks, it's great for some people. Last night at dinner I was talking with our General Counsel at Kraken, because she was a US attorney in Pennsylvania, the first female US attorney in Pennsylvania in 200 years. I was just like, "man in another life, I think I just would've loved being involved in the criminal law in some way."

Like either a defense attorney or a prosecutor, I loved those classes in law school. I think I would've found a ton of passion in that area, it just wasn't what I felt my calling inside was, because all of us, we speak to ourselves in this very subtle, very quiet voice, but we tell ourselves what we need to do.

The problem is, is that we lie to ourselves a bunch. We lie to ourselves thinking like, oh if you become a human protein shake, then you'll find happiness" or whatever the lie is, "oh, if I get a bunch of money then I'll be happy." Nah man, you can enjoy a sunset just as much as Bill Gates! Some of the happiest people in the world don't have any money.

Peter McCormack: But your career was seeded I think quite early on. I'm sure I've heard a story about something that your dad did?

Trace Mayer: Well, I wanted a bicycle and my dad was like, "how are you going to buy it?" So I've always kind of had the entrepreneurial spirit in there, but even my work in Bitcoin related stuff, for me it's never been about making money. It's been about taking the beach head of monetary sovereignty, I mean this is the great battle of our time. We're on a planet that's chained by central banks that get engaged in monetary repression and they have all the money and guns in the world and it's like, "how are you going to win this battle? You're going to go to fight against this and all you got is a math on your side?"

That's freaking pretty cool, bring it on! Everybody loves the fastest runner and they love the highest jumper. People might not like it, but Americans love the sting of battle, it's just kind of built into our DNA from running the British off with the revolutionary war and the Constitution...

Peter McCormack: I love being reminded of that.

Trace Mayer: Oh yeah, now you're going to have to try and run us off!

Peter McCormack: Yeah, but I come here and you've still got terrible tea! The tea here is fucking terrible! It's almost like you're trying to prove a point, the tea is fucking terrible, but it's hard to get.

Trace Mayer: Well fiat money, fiat food, fiat tea, it's a real problem. But America has definitely got this aspect of self-determination to it and where... I feel that each of us, we have that little voice inside that tells us what we should do and we just lie to ourself and don't do it, then we get wrecked and our lives become just a disaster.

But America has provided this environment where people can become their very best self because they have so much opportunity and so much choice compared to other places. Look at Hong Kong, look at China. Like really? You don't want to go outside the mould there, it's going to be a little painful!

Peter McCormack: Yeah especially up in the North of China now because...

Trace Mayer: Yeah, isn't it? They're putting Muslims in concentration camps in China and America was founded on religious freedom. It was founded on this concept of like self-determination and freedom of speech and stuff like that. Britain has a long history of freedom of speech and Isaac Newton and Cambridge and Oxford and a lot of that stuff...

Peter McCormack: But that's even being repressed in the UK. I'm being sued for saying words right now as you are perfectly aware.

Trace Mayer: With Craig Wright? Well he's got himself wrecked, he owes 500,000 Bitcoins that I bet money he's never had!

Peter McCormack: But just back to that, that stuff in China actually is really, really scary and it brings me onto another question. One thing I was thinking about, so say Bitcoin does continue to grow, say at least with separation of money and state, it weakens the US government...

Trace Mayer: Well it's going to weaken governments in general, as they're going to have a hard time funding themselves.

Peter McCormack: I would've thought, could the way China's policy is towards Bitcoin, is that a defense of their government and would that give China a huge amount of strength over the US, is that a global risk?

Trace Mayer: No I don't think so, because whichever society adopts the soundest, hardest money and has the freedom and ability to do that and is able to perform economic calculation, could then allocate resources and generate wealth at a much faster rate and everything.

China, they have too much bureaucracy, they're not able to really perform economic calculation and so much of the wealth over there has been as a result of being able to just leech off of the productive capacity of the areas of the world that do have freedom. I think Trump mentioned that since he took office, the change in net worth between China and the US has been a $17 trillion delta and it's just getting started with the US calling back all the capital that has moved over to China.

Peter McCormack: So you actually support what Trump's been doing, right?

Trace Mayer: Well he's doing stuff in favor of the US. While the US is not perfect, this is where I was born, my 10th great-grandfather came over on the Mayflower, I had lots of family involved in the constitutional convention and signing the declaration of independence.

So it's just kind of my worldview from where I was born and I think that we have a lot more freedom and liberty here than other countries in the world. I've been in other countries where I've not been able to have the type of freedom of speech and other things that I like to do, that I have in the US. So I like that we at least have the option in the US to do things or not do things. In other countries, you don't have the option, you go to the Gulag and I'm like, "that's not cool!"

Peter McCormack: Yeah, I've come to appreciate it more over here. We were talking about guns last night and I've done a 180 on that, I'm not afraid to say it. I can't remember, was it a few months ago the latest mass shooting and I was just like, "this is ridiculous, your gun laws are crazy!" But I've come over here to Wyoming and I've spent time... I was out with Tyler last night and we were chatting to a bunch of girls who were all country girls, they live on the farm and explaining the culture of raising cattle, of weapons and I've kind of come to understand it.

But I've also come to understand that when you're out somewhere like here, it's very different from New York and LA. If you come to America and you visit New York and LA and then then try to have an opinion on the gun laws, you really don't understand America, because actually I don't think of New York and LA as real America anymore. I think that is maybe the bits of the British that was left over.

Trace Mayer: Well there's some definitely some aspect to that. I mean just the being able to have a lot more land versus being all cramped together like a bunch of rats on top of each other that we have in the cities. Actually if you take out a lot of the big metropolitan areas and look at much more rural America, the crime rates and especially gun crime rates are lower than even Switzerland. So America is actually a very, very safe place.

I think we get a lot of stuff like these mass shootings and who knows what the real cause of those are or what the real purpose of it is that excites the public conscious or whatever and makes people go into a frenzy about guns or whatever. But America by and large is an extremely safe place in the world and I think a lot of that's attributed to the freedom of speech, the freedom of religion, the right to bear arms, the rule of law, Republic form of government, all of these types of things.

Peter McCormack: Yeah I definitely also come to appreciate the Federal versus state level law and the Federal versus state level operation of the politicians. What it was being explained to me that the day is whereby, actually you want to keep as much law at a state level and away from the central government, because you almost want competition between states!

Trace Mayer: Oh yeah! Well we're descended from the British, I mean my ancestors were from England and in other parts of Scandinavian stuff. But yeah, we descend from the British common law, we have that in our tradition, we have a written Constitution versus an unwritten one like the British have. But I mean there are a lot of similarities, we have the House and the Senate, you guys have the House of Lords and the House of Commons, so we have a lot of similarities. But yeah, the states being sovereign and the Federal government, we actually picked that up from the Native Americans, because that's how the tribes governed and joined into federations.

So we actually picked that up from them when we were deciding how to form the Federal government back in the articles of Confederation. Yeah it's been a very interesting experiment in political democracy, but America is a gigantic powerhouse on the world stage as a result of this and an economic powerhouse, the likes of which the world has never seen.

What made America great? It was sound money, coupled with this principle of limited government and what's going to make America great again, is going to be Bitcoin and sound money and freedom of speech and returning to this more limited form of government. So I found it very ironic that Trump kind of attacks Bitcoin, because it's like "nah man, hike!" Bitcoin is what's going to make America great again and keep America great.

Peter McCormack: But it could also... I mean it can make any nation great now really, everyone has a chance.

Trace Mayer: Well yeah, I mean who's going to pick up this weapon and wield it to perform more accurate economic calculation and have tremendous amounts of wealth accrue to it, from people who are in the other nations that are buying and storing into Bitcoin. Having these property rights in nations where you don't have it, Africa, South America and stuff like that, Bitcoin has managed such a cheaper form of acquiring property rights than anything else that we've ever found.

Peter McCormack: How do you think it's going to play out with the state of the macro global economy right now? Because obviously there's a lot of things to be concerned about. I mean, you were talking about the repo market the other day, was it $200 billion that's been pumped in?

Trace Mayer: Well it's an overnight repo market and it started at like $53 billion and then $75 billion, but it was oversubscribed and it's not cumulative.

Peter McCormack: What is the repo market though?

Trace Mayer: It's overnight cash, so banks give themselves leverage and they have to borrow money overnight to not be insolvent and some of these banks are paying 10% for overnight cash, which is crazy! So the Feds opened up and helped, but then that gets oversubscribed. So there was $75 billion, but $80 billion subscribed for, so that means some bank needed $5 billion of overnight cash and didn't get it. Why are the banks are running out of cash? That's another really big question.

Peter McCormack: Why do you think they are?

Trace Mayer: I think there's a lot of... Well one is that some of the banks aren't out of cash, but they aren't lending to the banks that need it. So that's a big question, why don't they trust these other banks to just lend them money for one day? I think that terrorists might be playing a role into this because that's changing how the cash flows. Maybe a bunch of cash went in for tax payments, that's what some of the article said like, "oh a lot of the corporations made a bunch of tax payments."

Okay maybe to some degree, but the banks are always kind of a mismatch between demand deposits and longer-term debt instruments, so they're always fraudulent! They always are insolvent if people demanded what they're legally entitled to, with demand deposits, but everybody doesn't make a run on the bank. So I'm not sure exactly what the cause might be other than, people are getting scared out there, legitimately! Because why do you trust the valuation of any of these derivatives on other banks?

They're overstating the value of the assets or understating the value of the liabilities, everybody's playing the same game. All the balance sheets are just waiting to get massive holes blown in them from these financial weapons of mass destruction with the derivatives. When the derivatives begin to fail, they rely on the counterparty, the financial ability to pay, and when they're not able to do that, then the nominal becomes the notional and that just disintegrates balance sheets across the board. So I think 2007, 2008, 2009, the fundamental structural problems didn't get fixed and maybe it's just kind of rearing its head again.

Peter McCormack: Feels like it could be a lot more ugly this time?

Trace Mayer: Yeah, I mean I've estimated it's going to be anywhere like 8 to 13 times larger than it was in 2008, which gold and Bitcoin equity base, nobody's liability, proof of keys etc. I started Proof of Keys, proofofkeys.com, on January 3rd we withdraw all of our Bitcoin from any third party.

Peter McCormack: Did I tell you because of that, I found a half a Bitcoin!

Trace Mayer: Oh, that's great!

Peter McCormack: Yeah, I went through all my exchanges when I used to trade the shit coins and there was one exchange called Cryptopia and there was half a Bitcoin on there that I didn't know about. Anyway, so I took it off and it was only like a week, two weeks later they got hacked. So you saved me half a Bitcoin.

Trace Mayer: Several people have mentioned that. Part of it is just good hygiene, every year let's just go and get all of our Bitcoins off any third party services. But the implications of that are, let's have a global co-ordinated bank run on the asset that's strictly limited in amount and can be instantly verified via a distributed consensus Blockchain!

So if banks are having trouble with having overnight cash, when that asset can be printed out of nothing, imagine what type of trouble these institutions could run into if they actually had to deliver Bitcoin and you can't print that out of nothing, there is no lender of last resort. There are hodlers of last resort.

Peter McCormack: Do you think the exchanges should be doing proof of reserves?

Trace Mayer: Oh, of course and we have stuff like that built into the Wyoming legislation for the special purpose depository banks. It's just a lot of fly by night, scrappy little start-ups.

Peter McCormack: So what do you make of these interest accounts then? Because I go both ways with them, like obviously one of them is a client, I've used them, I've made interest, it's really quite cool. But at the same time, there's this split view. Some people are saying that it's natural to have financial products within Bitcoin, it's going to happen and then other people are saying, "you're not managing your private keys."

Trace Mayer: Well when you hold your own keys and you're performing your own network consensus by running a full node, that I would say is cash and you're in cash and that's risk-free. If you want to move out from that and take on more risk and get compensated for it, that's an economic calculation to perform. If you make that economic calculation judgment call and decide like, "oh it's good to pick up." I don't know what one do you use, BlockFi or whatever and "I want that 6%" or whatever it is, everybody gets to make those decisions.

The six network effect is financialization, I mean we're going to get... Like I trade and put some calls on LedgerX, fully collateralized Bitcoin options. It's great, I sell covered calls at like 20k, strikes, they expire worthless, I keep the premium. I feel very comfortable with LedgerX, they're CFTC regulated, I get audited financial statements as a member.

Peter McCormack: I had Juthica on.

Trace Mayer: Yeah that was a great interview by the way. I listened to it, great product! But I'm taking risk. I'm not taking counterparty risk because the Bitcoins are not on LedgerX's balance sheet, they're actually segregated and in a footnote. But I am taking performance risk, whether LedgerX is going to properly keep the contract and are they going to secure my Bitcoins well, and are they going to send them to me when I make the withdrawal, which they did. I did Proof of Keys on January 3rd and they sent a lot of Bitcoin to me, it was great.

Peter McCormack: Are you going to run the campaign again?

Trace Mayer: Every year, because one, we just need to have good hygiene, otherwise we're going to leave half a Bitcoin on whatever exchange gets hacked and you might forget about it!

Peter McCormack: I just forgot and I didn't know it was there, it's ridiculous.

Trace Mayer: So I think it's just a good practice to do, in terms of like your hygiene of knowing where your money's at. Half a Bitcoin is like $5,000! You leave half a Bitcoin on there and you come back a year later and Bitcoin ran from $10,000 to a $100,000, now it's $50,000 in that Cryptopia account.

Then also people get to learn a lot of lessons, because when you submit that withdrawal request, supposedly those Bitcoins are yours. Are they going to send them or not? And you're going to learn a very important lesson, because they're either going to immediately send you your Bitcoin or you're just going to wait.

Peter McCormack: Yeah, but do you know what, there is a race now. You say 3rd January, but if there's a problem, you might think, "well, I'm going to do my 2nd January just in case."

Trace Mayer: Well yeah and I'm sure there's some of that and everything. January 3rd is just kind of rallying flag. Why not, it's fun and we all get to do something together. But there could be further firms that get decapitated like QuadrigaCX.

Peter McCormack: Well that's still very weird.

Trace Mayer: Well I did Proof of Keys on December 9th, a week later he meets with his attorney, sets up the estate plan, a week after that he dies in India in a hospital and then his wife takes his body back to the hotel. Like what?! It's just really weird.

Peter McCormack: Yeah I think that guy is somewhere!

Trace Mayer: Then QuadrigaCX fails and people lose $250 million, which they actually had lost the $250 million earlier, it just didn't get to market until after proof of keys.

Peter McCormack: How did they lose it? Do we know?

Trace Mayer: Oh, they probably stole it all and I think they lost some sending Ether to the wrong contract and then the price of Ether went up and so they're playing that catch up game. These things don't really get discovered until you have a significant amount of people saying, "Hey, you know that Bitcoin that I own, just send it all to this address right now." You learn something very valuable because they either send it or they don't and you're also going to learn a lot of stuff about your account, with withdrawal limits.

You might have $50,000 worth of Bitcoin on Coinbase and then you find out you can only withdraw $2,000 a day, because that's the amount of verification you've had on your account. So you can engage in this good hygiene practice of finding where all your Bitcoins are at and other crypto, pre-emptively getting your account verified to higher tiers or degrees so that you get higher withdrawal limits and all this stuff and then you get to actually go through the process of making the withdrawal and handling the Bitcoin and then you can make a deposit.

I think people underestimate how valuable it is to develop this human capital of just being able to move the Bitcoins around and like performing the validation with your own full node. I mean these are just kind of basic skills, but you got to keep them sharp. If you don't keep your skills sharp, you might lose some of it and so every year, we can just do this and it also helps generate a bunch of discussion in the public space. Think about the poor new people that come into the space.

So every year, we get to have this event and the new people coming into the space, they get their initiation, they get to become a real Bitcoiner by participating in Proof of Keys and demanding the Bitcoin into their wallet, they get an increased degree of confidence by actually going through the process and gaining these skills and proving that they can do it to themselves.

I mean there's really no downside to it and there's only upside for you as an individual developing all those skills and abilities. It also helps us test the systems for all of these companies, it tests their ability to manage hot wallets and warm wallets and cold wallets and moving the Bitcoins around and it's better to have those fire drills...

Peter McCormack: It's like a detox.

Trace Mayer: Yeah it's like a detox or it's like a fire drill. It's good to practice your emergency procedures, rather than actually get into the emergency and then you're doing it for the first time and it's a bad idea. So I think it's a great initiative that I started and I hope we get a lot more uptake from other media outlets like yourself and other podcasts and stuff. We'll just start beating the drum.

Peter McCormack: Hey man, just let me know! But we did it last year and a lot of people changed their Twitter handles.

Trace Mayer: Yeah they added the keys and the dates and everything!

Peter McCormack: You proved it personally to me, I found half a Bitcoin, because I would never had a reason to go back into that account because I don't trade shitcoins anymore.

Trace Mayer: I know multiple people who found significant amounts of money, anywhere from like 0.1 of a Bitcoin to several Bitcoin.

Peter McCormack: How much is just out there that people forgot about?

Trace Mayer: I think there's a lot, actually. I think there's a lot and think what happens to that, it becomes unclaimed property and then that service provider just keeps it, that's what happens.

Peter McCormack: At what point do they think...

Trace Mayer: After about two or three years, they just sweep it into their own account! It's been dormant, they start charging account fees... There's one place, what was it? They were charging 10% per month in account fees, because they didn't want to deal with all these like dormant accounts. So yeah, I mean we do this once a year, like might be finding some Bitcoin! It can't hurt and you develop these skills and we help all the new people that come into the space.

I think it's going to be much more fun this year because last year, I put the tweet out on December 9th, the initial one, it had 100,000 views in like 48 hours the tweet did and I was a little worried and I was like, "well I hope I don't blow up the whole ecosystem", but if we do, it's everybody's fault that has paper Bitcoin instead of Bitcoin in their own wallet! Andreas was actually pretty scared that that would happen.

But you know what happened? QuadrigaCX failed, HitBTC, Bitfinex, Tether kind of had small issues and Coinbase about 10 days after I put the tweet out, they decided to "test their cold storage system" and so they moved 850,000 Bitcoin on the Bitcoin Blockchain! So I think they're trying to calm the nerves. So who's actually probably fractionally reserved, wouldn't surprise me if it's Coinbase. Maybe they've sold 2 or 3 million Bitcoin and they only have 850,000 of them, that they actually have.

Peter McCormack: And you're going to put the pressure on them in January then!

Trace Mayer: Well if people actually do Proof of Keys. Why are we trusting? Don't trust, verify! It's very simple. Don't trust, verify. Tell them to send all my Bitcoin to this address, you're going to learn whether they're going to do it or not and you're going to develop your own abilities and that's extremely valuable for you. Who knows, you might find Bitcoins that you otherwise forgot about.

Peter McCormack: Exactly, that's the important bit! Anyway, we've done really well here.

Trace Mayer: Yeah, we've had a lot of fun! Proof of Keys is going to be great this year.

Peter McCormack: It's going to be brilliant, I can't wait for it! I think is really healthy exercise and I would like to see more proof of reserves, I think it's only right. I worry for people that, I don't know, an exchange has a run of it and not everyone can get their Bitcoin out, another Mt. Gox. Well, I don't even leave anything on an exchange anymore.

Trace Mayer: Well just be first, get in the lifeboat first! What are you going to do? You do it and we don't have an issue... Let's say no exchange fails this year, that's great! But you've developed your skill, you know how to get in the lifeboat now, you've actually done the drill.

Peter McCormack: Plus each exchange know this is going to be coming every year. But I do Proof of Keys every day.

Trace Mayer: Yeah I mean a lot of people do that, but it's just kind of fun. Let's have a celebration! January 3rd 2009, Satoshi gave us a tool of monetary sovereignty, let's flex our muscles once a year.

Peter McCormack: Are we going to have a halvening celebration as well?

Trace Mayer: We usually do that. I've gone to a havening party every year, so I'm sure we're going to have one this year.

Peter McCormack: I've never experienced one.

Trace Mayer: Newbie, kind of green!

Peter McCormack: When I screwed up in 2013, I just kind of ignored it for a few years, missed one and came back.

Trace Mayer: But it's fun. It's fun to have these community things, because okay yeah, we got our magic internet money but it's experiences, relationships, it's fun.

Peter McCormack: Dinner last night was fun! All right, well listen look, anything you want to leave at the end? Anything you want to tell anyone?

Trace Mayer: Yeah at proofofkeys.com, we have resources that help walk people through a lot of that stuff. My Twitter @tracemayer and Bitcoin Knowledge podcast at www.bitcoin.kn, I mean those are kind of my three things.

Otherwise just claim your monetary sovereignty. Why are you going to be some spineless, gelatinous blob that just gets like worked over by whoever like controls the keys to what you think are your assets. No claim the keys! Put on your big boy and big girl pants and hold your own private keys, flex those muscles!

Peter McCormack: Alright man well listen, we'll do another show in probably December for Proof of Keys, we'll bang the drum again and it's always great to have you on.

Trace Mayer: It's going to be a hoot, thanks!

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