WBD334 Audio Transcription
Bitcoin v The Banks with Simon Dixon & Bill Barhydt
Interview date: Wednesday 14th April
Note: the following is a transcription of my interview with Simon Dixon & Bill Barhydt. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
In this interview, I talk to Simon Dixon, the Co-Founder of BankToTheFuture and Abra CEO Bill Barhydt. We discuss the legacy banking system, the fight for privacy, and the future of banking in a bitcoin world.sm, and the state's role.
“I’m truly blessed to be able to be involved in the disruption of the entire financial system one product at a time, until eventually Peter can just say Fuck the Banks.”
— Simon Dixon
Interview Transcription
Peter McCormack: Right firstly, Simon, 330 episodes in, we finally get you on the podcast, so I'm sorry it's taken so long. How are you, mate?
Simon Dixon: I'm really good. I'm finally here, so thanks for inviting me.
Peter McCormack: We've been threatening to do this for a long time. Bill, good to have you back, mate; always good to see you and talk to you.
Bill Barhydt: You too, bud; always good; always a pleasure.
Peter McCormack: Well, I've brought you two together because I'm very much in a fuck-the-banks mode at the moment. So, me and Bill recorded recently and we had a long session, well I say long session; a session at the end where we started talking about the future of banking. I was fed up with the banks. I can't even remember at that point if I'd had my letter. And then obviously, I know you've got an interest in this area, Simon.
So, let's just for context and anyone that's listening; I've been with Lloyds Bank in the UK now since I was 17 years old, so essentially 25 years. About eight weeks ago, I got a phone call from the call centre just saying, "Look, can we run through some things on your account?" I'm like, "Yeah, fine, what's up?" They said, "We want to just go through some of your spends. This date, you transferred this money to here; what's it for?"
I was like, "Do I have to tell you?" and they said, "No, you don't" and I said, "Well, I'm not going to tell you. It's none of your business. This is my account; my account's in credit; I don't owe you anything; I haven't made any complaints" and then two weeks later, I get a letter saying I've got 65 days and all my accounts are going to be closed down. I was just like, "Huh, okay".
So, I'm very much in the position now where the reality of the threat from the banks is real for me and it's quite an issue in the UK. Simon, you're probably quite aware of what's going on here. So, I just wanted to talk about it with you both, talk about what's going on with the banks and then really kind of speculate about what we think the future's going to be. So, Simon, do you want to introduce yourself to listeners, because most people will know you, but there may be some who won't be aware of you?
Simon Dixon: Sure, yeah. So, my name's Simon Dixon. I'm the CEO and co-founder of BankToTheFuture.com. I've been in fuck-the-bank mode for about 15 years really; it's been most of my lifetime's work. So, I wrote a book called Bank to the Future: Protect Your Future Before Governments Go Bust. And, in 2009, the same year Bitcoin launched, I was trying to create, with my wife, a bank where users could own their own money; users would have to give us permission before we could spend their money; and it would use a custody/trust structure, whereby the funds are fully backed, a non-fractional reserve.
So, that was really the foundation of me writing the book about sustainable banking, because I couldn't achieve that. And in fact, we went to the UK regulator, because I was living in the UK at the time; I later moved to Hong Kong and now, Isle of Man. But, when we were in the UK, we had a meeting with -- the regulator was called the FSA at the time, the Financial Services Authority; it's now the FCA and the PRA; and, we had a meeting with them and told them that we wanted to create a bank and we didn't want to spend users' money; we wanted people to be able to own their own money through a legal trust structure and we wanted to create a non-fractional reserve bank.
They said, "Well, you're going to have to step down as CEO, you're going to have to raise £60 million and put that in the Bank of England and you're going to have to own people's money, spend people's money and you're going to have to leverage it". So, it wasn't actually possible, which is what drove me to speaking at the first Bitcoin Conference in Prague and finding out, for me, the reason Bitcoin was attractive to me was because it was a solution to a problem we were trying to solve. It seemed like this bunch of technology geeks were creating something that we could build out bank on.
So, that was how I got into Bitcoin and just been investing in companies that have been building the infrastructure to fuck the banks for as long as I can remember.
Peter McCormack: Okay, so a couple of questions there. Firstly, that's kind of mental and crazy that they wouldn't allow you to create that bank. Also, when you first read about Bitcoin, you must have been, "Holy shit; this is exactly what I wanted to do?"
Simon Dixon: Yeah, that's exactly it. So, when I was at that first Bitcoin Conference, I was the only finance person there. Everyone else was anarchists and tech people and I gave a presentation on sustainable banking and the reason Bitcoin was so attractive to me. And the reason I was willing to look at it when I was working in investment banking, prior to this, and many of my colleagues would have dismissed it at the time, was just because we were so desperate for a solution.
So Bitcoin, when we looked into it, we were just trying to solve a problem, so it was very attractive to us. And really, out of desperation, we started using Bitcoin, investing in Bitcoin companies and it turned out that Bitcoin was creating what we originally thought sustainable banking looked like.
Peter McCormack: And, Bill, before we start debating and getting into the detail of this, obviously people have heard you on the show before; they might not have listened to our previous show, but do you just want to do a little bit of a recap about what we discussed with regards to how you see the future and what you're doing with Abra?
Bill Barhydt: Sure. I think that my favourite analogy so far is what's happened with television, the cord-cutting going on there, and COVID accelerated this in the US. It's Hulu, Netflix, Disney have basically taken eyeballs and eyeball share away from satellites and cable-based distribution, although in some cases cable is being used for the internet connection itself, but it's mostly DSL now. And, I think the same thing is going to happen with the banks and Abra's trying to facilitate that.
We think that wealth management, lending/borrowing, high yield and investing are all going to be crypto-centric in the future and that's what we're building. We have Abra Earn, we have Abra Trade, we have Abra Borrow and maybe there'll be an Abra Pay in a few months; and all of it will basically be exactly what you would want in a crypto-centric world. It's obvious to all of us; it's not obvious to the non-crypto people out there. It will be eventually, just like it's not obvious to people ten years ago that they should get rid of satellites and just use their internet streaming service to watch TV.
I am 100% convinced this is the future. The dollar, as it continues to go to shit, will be useful for ephemeral transactions, meaning it doesn't matter whether it's a dollar or a baseball card or something that you can trade quickly to buy your groceries; and, you'll come out of Bitcoin into that ephemeral currency quickly, make your purchase and that's it. Your wealth will be in something valuable and stable like crypto, Bitcoin. That's the future of banking to me and that's again, crypto-centric, Bitcoin-centric. I know you don't like that, but maybe use stablecoins for certain transactions; I think it will and that's fine.
But that also says, the banks don't add any value. Maybe trust banks add some value to store the ephemeral currency that we use in a stablecoin model which, by the way, is better than a bank, because a bank can actually take your deposits and do fractional-reserve banking, which means they lend deposits they don't have. Whereas, with stablecoins, a trust bank must maintain, in the United States at least, 100% reserves for those stablecoins.
So, even the cryptoisation of dollars, if that's a word, is better than the traditional banking system. So, I just don't see a scenario, to put it in Simon's vernacular, where the banks aren't fucked; they just don't know about it yet. And to me, it looks exactly like the people who were fucked in 1995, vis-à-vis the internet, didn't know it.
Peter McCormack: Well, it's the Blockbuster story again as well.
Bill Barhydt: Exactly.
Peter McCormack: So, one of the funny things was, when I got that letter, I phoned up the bank and said, "What's going on here?" and they said, "You need to go into the branch and speak to them about it". I hadn't been into a branch, I think, for three or four years.
Bill Barhydt: A branch!
Peter McCormack: Yeah, a branch. I hadn't been into a branch for three or four years. I wandered down to Bedford High Street, I go into the Lloyds, I wait for an appointment, I've got to wait half an hour, I had to sit on one of these little chairs; eventually they come out. It's funny actually, because they come out and I sit down and have the conversation and I said, "What's the deal?" and they said, "We can't tell you".
I said, "I've just been told to come down here to talk about this", they said, "Yeah, but we can't tell you; we don't give the reason; we've just closed your account down", and I was like, "Okay". Then, I asked some questions, so I said, "I got a phone call a couple of weeks ago; could it be that?" and she said, "Oh, it's almost certainly that. If you're refusing to tell us where you're spending the money, then we can't do business with you, because we don't know if you're a risk".
So anyway, I'm sat in this branch and there's a handful of staff there and a handful of people coming in, and there is a certain amount of discrimination that will happen by losing branches, in that there were old people there, or you could tell there was just a certain type of person coming in because they needed access to a branch. But, it's the Blockbuster story.
What was Blockbuster's strength, was Lloyds strength, in that they had a High Street location in every major town, is now a huge cost burden. When you compare them with something like Revolute or Monzo, and I don't know what similar things you have out in the US, but these neobanks, these online banks, which I've migrated to, they don't have all these branches; that means a much lower cost base. So, I see it like Blockbuster, right?
Bill Barhydt: Yeah, totally. Look, it's pretty simple. I mean, there's a good, reasonable chance that somebody in the fraud department googled your name, based upon certain patterns of maybe some wires, or whatever, and saw your name associated with Bitcoin; immediately flagged it as high risk, just because your Peter McMormack name on a Google search was next to the word Bitcoin; asked you vis-à-vis the so-called travel rule, which we can get into what that means; and because you wouldn't explain, vis-à-vis this travel rule, which by the way isn't a law, it's a risk-based thing that the bank gets to interpret the way they want; it's not about your rights, obviously, otherwise you'd still have the account; and they can interpret that any way they want and they don't have to tell you.
But usually my opinion is, the simple explanation is usually the most likely and that sounds like a pretty simple explanation that's totally plausible in this case and it's insane. I mean, we've gotten to a point now where these banks, that are traditionally the largest money launderers in the world, right; have fines going into the hundreds of billions of dollars, are basically shutting off relatively small retail accounts; not that you're not wealthy, maybe you are wealthy, but in the big picture, our accounts in the aggregate are still small relative to the size of these banks, and it makes no sense.
But again, when you see the MO for these banks and the fact that they're willing to continually launder money and run these operations like this and shut off small accounts like this, you realise that they have no future; it's just not possible. The government has basically almost mandated they have no future.
Peter McCormack: Yeah, so one of my friends got in touch with me the other day and I've just got his text message up. He asked me to come over and he said, "Look, I'm thinking of getting into the Bitcoin thing; what do I do?" etc. I was like, "Well, how much are you thinking of investing?" and it was quite a serious amount. He was like, "I'm thinking of putting about £250,000 in". I was like, "Woah, okay, that's a big investment. You need an institutional account; I'll have a chat with Gemini", and I got him onbarded, right.
Then, he went up and set his connection up with HSBC. They immediately suspended his account; immediately suspended his account.
Bill Barhydt: Unbelievable.
Peter McCormack: Immediately suspended his account. I don't know how much you've tracked this, Simon, because you're obviously from the UK, but we seem to be one of the worst places for finding banks that will do crypto business, or Bitcoin business. Are you aware of why we're so bad here?
Simon Dixon: Yeah, so I've got a lot of experience. I had to leave the UK just to do our business, so we just couldn't do it in the UK; we had lots of experience. So basically, in England, you have four clearing banks that directly clear into the Bank of England and then you have a lot of other financial institutions that sit on top. Part of the lobbying work that we did back in the day, there was, I don't know if you remember, do you remember the Bank of Dave and things like that; I don't know if you remember these programmes?
Peter McCormack: Yeah.
Simon Dixon: That led to the opening up of the Bank of England and the concept of the challenger banks. So, some of the earlier companies that we were investing in through BankToTheFuture were some of those challenger banks, Bitcoin companies. But, ever since being involved, so the very first company I invested in was BitPay, and I've made a hundred different investments, including Abra, I should disclose as well.
But, the constant problem has always been banking and that's getting better; but, what's way more interesting is the fact that now, many of the companies that I invested in don't actually really need banks too much, as much as they used to, and that's the really interesting thing. Banks now get disruption from two places.
Firstly, they get the disruption from the innovation that's happening in our industry where now, I can save digital, hard, sound money; I can get fiat value using stablecoins; I can invest some of that into financial products that are producing returns that you can't get anywhere else; I can lend some of that; and there's lots of -- the innovation in our industry now, as a result, means you don't need that.
But, they're also getting disruption from the central bank, because Bitcoin created this desire to understand blockchain technology. Back in 2013, banks tried to get rid of Bitcoin by popularising the word "blockchain" and the whole phrase of, "I love the technology behind Bitcoin" and "Blockchain changes everything".
But, the central banks actually started listening to that and now, every central bank has got innovation that circumvents the need for a bank, where these central banks are now going to launch central bank digital currencies, API-based banking, where financial technology companies can build on top of the central bank; and that is extremely disruptive for private, digital currency created by a bank which is backed by debt. So, it's getting disruption on these two areas, which are really problematic.
But, to talk about your problem, it's quite simple. Basically, the government removed privacy. If you speak to any of our parents; my father comes from a generation where, if somebody asked him what he's doing with his money, he would have given the same reaction, "Fuck you; who are you today?" But, we've now accepted in society that we now live in a day and age where it's completely okay that we do not own our money, we can't spend our money; we have to beg permission.
The way I look at my fiat currency at a bank is, I'm lucky if I can spend that. I know that every single transaction, I have to send them an invoice, I have to send them a description of how the proceeds of those funds were achieved; it took me nine months to purchase my house, because the person that was selling it to me wasn't willing to accept Bitcoin.
So, it's just the way the world is now and that's because regulators have stated that banks and financial institutions need to be law enforcers; they need to do the job of policing all transactions. So therefore, they need to know everything. And the easiest way to just not get on the wrong side of that is to say, anything that's got the slightest inclination of risk; just get rid of it as a customer. We don't need them; we can create our own money; we don't need deposits. Deposits are not a pre-requisite for banking anymore.
So, the whole model of banking is just right for so much disruption and so much change and every day, people are discovering more that they want to own their own money, they need to be able to spend their own money; and they need to combat money printing. So, it's thriving adoption for Bitcoin at the end of the day.
Peter McCormack: Are these UK-specific issues, with regards to the burden of law enforcement with transactions being put on the banks; is that something happening in the US as well, Bill?
Bill Barhydt: Yeah, sure. So, it's a global "problem" and I'm using "problem" in quotes, because they made it up, but a lot of this goes back to, actually, the problem was created in the US in my opinion. What happened is, between the Bush and Obama administrations, we had this issue called Operation Chokepoint.
Operation Chokepoint was a concerted effort, on behalf of the Obama administration, to leverage their power over the banks to push businesses they didn't like out of business, and all legal businesses, by the way; gun sales, certain types of money service businesses, dispensaries. Basically what happened is, these businesses either couldn't get bank accounts, or had their bank accounts closed; and at the same time, they were forcing banks overseas, that needed connections to corresponded banks in the United States, to either police those accounts or shut them off.
I can tell you, because I used to work in the remittance business, absolute horror stories created as a result of this. And this is the predecessor to what we now call the Travel Rule, in money service business land. The rules that apply to crypto custody in most countries mostly stem from money service business rules and remittance rules, because it was the closest thing we had in order to overlay on top of crypto. The banks asked for source of funds as a result of these travel rules; and it's the US flexing its muscle to police the world, really starting mostly with Chokepoint, and it's never gone away.
Now, Congress basically did an investigation and said, "This was completely illegal, what you were doing; 100% illegal", and everybody knew it at the time. Everybody still knows it, but no one is going to stand up to the FDIC and the OCC and the Department of Justice and go, "Fuck you, let's go to Supreme Court and fight over the travel rule"; no one is going to do that, not with their balance sheet money anyway. It's going to take some neutral third party that is a non-profit to do that.
So even though, coming out of the Obama administration, later in that administration, they in theory stopped the practice at the regulator level, the damage had already been done. The banks are paranoid. They get regular audits by the FDIC in the United States, which is the primary overseer of most banking entities in the United States that provide insurance. They're more afraid of them than they are their state or federal regulators even, because without that FDIC insurance, they're dead.
So, all of those previous "rules" prevail and you're paying the price for that in the UK; meaning, if there was no Chokepoint in the United States, my guess is your account would not have been shut off in the UK; I believe that. And that's the unintended consequences of concentrated power in the United States vis-à-vis our banking system and basically having the world's reserve currency and Bretton Woods, and all that.
Peter McCormack: Right, okay. Well, before we start talking about future stuff, another thing, Simon, it would be good to touch on, just for other people to hear; can you talk about, at a structural level, some of the primary issues with current banking, with fractional-reserve lending, the issues that causes; can you talk a bit about that?
Simon Dixon: Yeah, sure. So, if I go back to my economics days at school, we were taught that banks were intermediaries between borrowers and lenders. So, first-grade economics, you're taught that grandma is saving and somebody else needs to borrow to buy a house and the bank puts these together.
Later you learn, in second-year economics, this concept called a Multiplier Effect, which is that actually, the deposits can be multiplied; and, you're taught this concept of Velocity of Money, which is that, if a loan is taken in and then you spend it and then that gets deposited at the bank and then that goes through the banking system, the more velocity, the more money is created. And so, this later got turned into something called Fractional-Reserve Banking, which is where the bank can hold a fraction of the money and they can collateralise it up and they can lend it up and more money gets created.
Now we actually have no fraction and no reserve, because the fraction that they have to hold can be held in other types of assets, which is actually created in the same Ponzi scheme style that traditional money is created. So, this whole concept is that essentially, people think that governments create money; governments or central banks, people conflate the two together. But, central banks create cash in points.
Private banks create digital currency, and that is a digital representation of the government's currency. So, if you log in to your online banking and you see that you have £10,000 or $10,000 or €10,000, it is actually backed by an equal amount of somebody else's debt. Every time somebody borrows money from a bank, a bank has the ability to do what's called Double Accounting. They can put both an asset and a liability on their balance sheet; and every time you borrow money from a bank, it creates new digital currency. So, banks were actually the inventors of digital currency. Bitcoin just tried to find a way of doing it where you could own it, spend it, and the supply couldn't be changed.
Now, once banks are the creators of digital currency, you end up in a Ponzi scheme style environment, where in order to have more money, because almost all digital currency is created and backed by debt, you have to have more debt. So, you find more and more financial innovation, which is student loan products, credit card products, more and more innovation to try and drive people into consumer debt, greater business debt; and then the last one is government debt and then central bank debt, because you have to continually increase this money supply to keep the economy alive.
That causes lots and lots of problems. Now, if you want less debt, you have to have less money, which causes depressions and recessions and the business cycle, essentially. You try and get people into debt to stimulate the economy; and then, the people that took on the debt, what do you do to try and -- this bogie called inflation comes along, and so they try to cool down inflation by putting up interest rates; and that means that you are sending the people that saved the economy bankrupt, because you want them to default on their debt to shrink the money supply, so the prices come down and you have this just general business cycle.
Now, when people are using banking, they've got no idea that any of this is happening. But, because banks are the creators of that money, they also have all this responsibility to ensure and that they are not laundering the proceeds of crime and all these other things that come along. And so, when you have money at the bank, the bank has to file Suspicious Activity Reports to the regulators, if they think there's something suspicious. Then that has to wait for the investigation to end.
In the end, you end up in a scenario where the bank is actually creating this digital representation of the government's money. It is backed by the world's largest regulated Ponzi scheme that has to have financial innovation in order to perpetuate debt. You can't spend that money freely, because you need to provide all the documentation and prove that this is not illicit means. And therefore, when you deposit that money with the bank, they become the legal owner of that money.
So, that's why you have things like bail-ins and bail-outs, because that money is theirs, it's not yours; they just promise to repay you that money, should you meet their requirements and provide them with all the documentation.
Bill Barhydt: And just to riff on one thing Simon's saying though, when you file a Suspicious Activity Report with the regulator, it's not investigated automatically. It goes into a big pile and western banks, in the aggregate, file hundreds of thousands, if not millions of these, they call them SARs, Suspicious Activity Reports a year. And the reason is just like you said, there are too many of them.
Basically, it's now become easier for the banks, by default, to file a Suspicious Activity Report, or file a SAR, pretty much regardless of what you're doing, either if the transaction's above a certain amount; if it's come from a certain country they don't like; if your name is associated with Bitcoin. And so what they can tell the regulators is, "Hey, we filed the SAR. If the mountain of data's there, it's your problem".
What that means is, you should assume that the government basically has real-time access to all of your transaction data, because anything that represents any kind of interesting transaction has probably found its way into a SAR now. What will happen is then later on, if they think you're a criminal, or have reason to suspect you're a criminal, then they'll go back and look at the SAR reports and filter through that and then say to the bank, "Oh, I need more information on this person".
Or, if by some bizarre chance they didn't file a SAR, which is unlikely these days, they'll say to the bank, "Why didn't you file a SAR in the first place" and then the first thing that's going to happen is your account's going to get shut off. That doesn't really happen much because, trust me, they've already filed the SARs.
It's so out of control, the banks and the governments, from an information perspective at least, are the same. You should assume that they're basically the same. And that's not significantly different in crypto land, because once you're dealing with a third-party custodian, a lot of the same rules do apply. The only difference is, we're not dealing in traditional fiat shitcoins as a course of business; that's the biggest benefit of the two worlds. And, you can move around without touching their specific bank-owned system. But at the end of the day, they tried to put the same regulatory overlay on top of us that they put on top of the traditional FIs, Financial Institutions.
Simon Dixon: Yeah, even worse though, we've got it where they screen all the addresses as well, and then you've got the immutable records of the blockchain. Our biggest complaint as a business is nothing to do with the service we're providing. It's slowing down our customers because of all of the regulations that we have to adhere to. We could offer a fantastic service, but in order to comply with all these regulations, we have to crucify our relationship with our investors, our depositors. And, I bash the banks a lot, but they have to do this; this is systemic.
Bill Barhydt: Yeah, but I used to think that the biggest challenge for Bitcoin was scalability; I talked about it all the time. I no longer think that's true. I think that by far, the number one issue for Bitcoin is fungibility. If Bitcoin doesn't deal with this issue, you are effectively going to have a bifurcated Bitcoin world, where you have all of this Bitcoin that comes from China, places that FinCEN doesn't like, maybe Iran; maybe it got touched by somebody inadvertently via an un-whitelisted address six transactions back, which by the way happens with paper money all the time; it's just it's untraceable, with drugs and other things. Just do a forensic analysis on the average paper money, it's unbelievable; faecal matter, drugs, all kinds of other shit. But, you can trace Bitcoin today because it's not truly fungible yet, meaning 1 Bitcoin is not really 1 Bitcoin in terms of its history.
If we don't address, "we" meaning the technical community, doesn't address this fungibility problem, in my humble opinion, it's going to get really bad. You're going to have different UTXOs actually worth different amounts of money in dollars; UTXOs basically being the outputs that haven't been spent that can trace their history in a "clean" way from the government's perspective, versus a "dirty" way, which by the way is just some arbitrary distinction that some overseer made up, which is completely orthogonal to the idea of a decentralised currency with no off switch.
The only way that I can see to stop this problem from happening is to integrate true fungibility into Bitcoin. Once you've done that, they have nothing to say about it.
Peter McCormack: Well, this is what the Monero guys have been talking about quite a bit, if you follow their conversation.
Bill Barhydt: Of course.
Peter McCormack: Yeah. Whatever people say about altcoins, Monero is one that's kind of interesting. There are people who are maxis who don't actually mind Monero, but the Monero argument on fungibility is an important one.
Bill Barhydt: Right, but this is why I'm a component of altcoin though. It's not because I believe any of these coins are going to exist 20 years from now, I have no idea, maybe they're all going to be dead; but, they're showing us, from a technology perspective, what can work in a way that's lower risk for what matters. And what matters ultimately is Bitcoin. So, if we can learn on someone else's time that you can create a fungible token, like a Monero, over 15 years and then move pieces of that tech or Litecoin integrates mimblewimble in a way that we see that over many years works, that's fantastic.
So, we need to rethink some of this maximalism as it relates -- you can't just test this stuff on a testnet. You need to test stuff on a testnet, but you also need the ability to test stuff in the real world in a way that is lower risk. Anyway, I don't want to make this about altcoins, but you get my point.
Peter McCormack: No, but -- sorry, Simon. The fungibility thing is important, right?
Bill Barhydt: 100%.
Peter McCormack: There are going to be people listening to this who don't know what fungibility is, they don't know why it's an issue. Why do technologies such as CoinJoins not solve this problem? Is it because they're still not fungible and some places, some exchanges as such, are blocking those coins because they can tell they've been CoinJoined; is it because the technology itself is too difficult to use? Is there a way of bringing fungibility to Bitcoin natively in a way that people don't have to think about it?
Bill Barhydt: Right, well first of all, let's take a step back. CoinJoin; the biggest issue with that service is you're trusting a third party that, from many regulators' perspective, is a licensable money service business. Whether you agree with that or not, that is a problem. That's orthogonal to the idea of creating fungibility in the first place. Well, wait a minute; fungibility in money shouldn't mean I have to go to a licensed money service business to create damn fungibility in the first place; that's ridiculous, okay.
So, it needs to be integrated at the Layer 1 protocol level, otherwise some government is going to figure out how to inject themselves into that process of creating fungibility in the first place, as opposed to making it a core tenet of the protocol. But, if you want to take a step back and let me explain what fungibility means in very simple terms, think about it this way.
If Peter has $1, Simon has $1 and I have $1 and we start trading them amongst each other, they all have serial numbers on them. But by and large, when you go to a store and hand them $1 for your latte, probably $10 for a latte, they don't look at the serial numbers to basically go look at a list to say, "Is this a good dollar or a bad dollar?" We can do that easily with crypto so you can trace where that Bitcoin came from to decide if it's a good Bitcoin or a bad Bitcoin.
FinCEN, which is our overseer in the United States from the Treasury Department, which basically maintains the list of bad actors, countries you can't do business with, terrorists, basically has now created a blacklist of crypto addresses that you have to report transactions from and potentially can't even deal with, because they're associated, in their opinion, with illicit activity. There's been no trial; no publicly published evidence, to my knowledge, that they are bad; we simply have to accept from FinCEN's perspective that they're bad, otherwise we can't be in business, if you're a custodian.
So, they don't do the same with serial numbers for paper money, to my knowledge. If they did, Starbuck's would be out of business, because it would be completely untenable to sit there while there's 75 people in line, to process the serial number for every single dollar bill that was coming through the store. But they put that onus on us, in crypto land, when we move cryptocurrencies around.
The only way to deal with this is to make it impossible to track this at the Bitcoin address level and just make it so that you cannot tell the difference between your satoshi and my satoshi.
Peter McCormack: How big an engineering problem is this; have you discussed this with any Core developers? I don't hear it talked about a lot. I hear it talked a lot about by the Monero guys, but I don't hear it talked a lot about with the Bitcoin people. You've made the biggest case for it I think I've ever had in any of my interviews. Why is this not an issue at the moment?
Bill Barhydt: Look, I would strongly encourage you to have Charlie Lee back on the show and get into the mimblewimble extension block that they've implemented that enhances scaling and privacy for Litecoin; and why he's so bullish on it; and why he thinks it needs to potentially make its way into Bitcoin. I don't think -- and again, I have a degree in computer science, but I'm a little outdated on this. I have read their paper, I think I understand it, I don't think it addresses fungibility the way you could with, like, Monero, but it's a more scalable solution.
The challenge with Monero is you pay a huge price in scalability and so it's like everything else in a decentralised system; there are trade-offs upon trade-offs upon trade-offs. So, we need to maintain security, not take ten steps backwards in terms of scalability, but definitely solve this fungibility problem. Mimblewimble seems to be a reasonable trade-off to creating scalable privacy and I would strongly encourage you to have Charlie back on the show, maybe with a Core dev at the same time, to kind of go back and forth on this in a way that people can understand. Charlie's pretty good at putting things in a way that the average person can also understand.
Peter McCormack: Well Charlie's an engineer as well, so I'll definitely take a look at it, if I think it's important and useful, for sure. Simon, do you have anything to add on this fungibility thing before I move on?
Simon Dixon: Well, the first thing is that the two-tiered Bitcoin price has existed for a long time already. So, in 2013, I used to operate a mining farm in Iceland and we used to sell virgin Bitcoins to financial institutions at a huge premium, because they needed to know that they came directly from the mining rig and from a miner that had the correct paperwork and the correct regulated structure so they could meet the compliance requirements, in order to make it into their financial institution. So, they were willing to pay a huge premium for that.
Now, the challenge with the protocol level solutions; firstly, I do think they're working on it and it's been a long debate in Bitcoin and there are lots of solutions being proposed, so I think it is an area that lots of developers are really interested in looking at. But, the solutions at protocol level, the challenges are so -- as a regulated financial institution, we have to attach a risk score to every transaction that comes in. And every bank and financial institution, exchange, if they're not doing it already, has to do the same thing.
So, when an address comes from a certain source, ie it went through some kind of mixing service, then it has to have a higher risk score. Therefore, this whole fungibility thing is truly the crux of the future. Now, it's a double-edge sword as well, because my biggest challenge with Monero has always been, it's a brilliant utility token, but I've always thought that every exchange is just not going to be able to make a listing in it in the future. So, I've always thought it won't have a price in the future, other than the black market.
This really brings into the second solution which, as much as the Bitcoin maximalists may hate the topic, but it is the real way to take the policing of the middle man out of the equation is to take the middle man out of the equation, and that's why it's just been amazing to watch these decentralised exchanges, where you don't have to have the police in the middle. It brings back law enforcement, where they have to do the duty or responsibility to track crime and you simply trade peer-to-peer.
So for me, getting Bitcoin to the point where it can catch up with a lot of the innovation that's happening in the Ethereum ecosystem, and I'm more than happy to be patient; I'm happy for Ethereum to do all the experimentation and I know that Bitcoin was never optimised for it; but, we do need these solutions in the future, because it is the fact that a middle person has to be there. But, it creates this burden of responsibility to the middle person and they go to prison if they get it wrong.
Being a CEO, Bill will say; being a CEO of a regulated institution is a bit of a dangerous game. You have to take this responsibility very seriously and find all sorts of stuff. So, it is the crux of the conversation, but why the decentralised stuff is so important to have financial products where you can just operate peer-to-peer and take the need for that financial institution out the middle.
Bill Barhydt: That's right. I'll also say, my team doesn't like it when I come on shows like this and I rail against Chokepoint and the travel rule and certain aspects of money service business regulation. And at the end of the day, I care about their opinion on this, but I love America from the perspective of land of the free, home of the brave, send us your poor, tell us you're hungry; that's the America I love.
I don't like Orwellian America, 1984 America, and I'll fight for that, even if it means I become a pariah within the regulatory community, which maybe I am; I don't know; I don't really care. Our customers don't care, for sure. We're still going to obey the laws, come hell or high water. But, someone has to make people aware of the fact that the original version of Bitcoin, as it was intended, created holes that have now created big, long-term problems for its viability, as long as the Eurodollar system exists. If that system doesn't exist --
Peter McCormack: How do you mean?
Bill Barhydt: Because, fungibility is a two-pronged problem from a certain perspective. If the dollar goes away and everything's Bitcoin, part of the problem goes away, because the regulators may have less of a role to play because, in theory, everybody can just hold their own Bitcoin. But, as long as you have an on-and-off-rail based system, because you have to do -- even ephemeral transactions, at some point. When the dollar's on its deathbed and we use it for ephemeral transactions, you're still going to have to come in and out of the dollar; and those regulators will have a role to play in that.
So, as long as they do, we're going to have this fungibility problem. The banks are going to be around for a long time still, so it behoves us to deal with this fungibility problem on many, many levels.
Peter McCormack: I will definitely have to go into that a bit further. I'll talk to Charlie and I'll talk to someone on the Core dev team and see where we're at with that.
I guess the thing is though, we are moving to this more, I would say, Bitcoin/crypto-based financial world. I know some people get triggered by me saying "crypto", but I can see scenarios where, I've said it, there are certain scenarios where I would definitely use Monero over Bitcoin; I could tell you the type of transaction I would. And, I also see a bit of a use case for stablecoins. Forget all the other stuff; I'm not really interested in it.
But, we are moving to this kind of new financial system where we actually don't need the banks. We've talked about this before, Bill. One of the few things missing from the crypto-based banks is the ability to direct debit. But, what we have got is this financial infrastructure that's now been built out. So, four years ago, when I first started Bitcoin, we had the ability to onboard and get Bitcoin. We've suddenly got all these borrowing and lending markets, which is super interesting.
We've got crypto cards coming, we've got essentially -- I think you could make a small argument that Coinbase, Abra, Kraken, Gemini, BlockFi are pulling together the pieces of the bank of the future really; that's what they are. They're pulling these things together, but it's going to come with these trade-offs. The trade-offs are, "Okay, I custody my own money, but if I make a mistake, it's my fault". But, by being that almost self-sovereign, I accept I don't have the bank in my business.
So it's, I guess, a lot of the innovation we've talked about, like the historical innovation where companies have lost out, we mentioned Blockbuster and we're talking now about the banks, it is essentially this evolution of money. Money's broken.
Bill Barhydt: Yeah. The stack is going to evolve in an analogous way, but that's crypto-centric. Let me explain what I mean by that. In the bank world, we have the Federal Reserve, we have regional banks, we have the retail banks. Then we have Layer 2, which is Visa, PayPal, other service providers. In the crypto world, we have miners, we have nodes, we have people like exchanges, wallets/hardware wallets and we are going to have Layer 2.
Now, what's really interesting as it comes to Layer 2, everybody talks about the crypto-centric Layer 2, but Visa, I think, is going to have a critical role to play in crypto Layer 2; Visa and Mastercard, but Visa's much further along. I wish American Express, as an Abra investor, we get there, but they're not quite there yet, but Visa has been most public about their role as it relates to Layer 2.
So, what's going to happen is that you're going to have all of these kinds of crypto-centric banking services, you know, Abra, BlockFi; in Asia, Crypto.com, that basically offer the ability to have a brokerage to manage your crypto wealth; the ability to borrow against your crypto; the ability to pay using that borrowing maybe, so you're actually not spending your Bitcoin. Maybe you actually borrow dollar shitcoins, pay, and your Bitcoin hasn't moved, using Visa rails, which is super interesting.
One of the key aspects of why I think Visa is so interesting here is that they're no longer owned by the banks. Years ago, they were owned by their member banks. As a public entity, they don't report to anybody but their shareholders now. So, outside the US, a crypto company can actually become a principal member of Visa now and in theory, settle crypto transactions with retailers without ever touching the banks. That's what I mean by, it's now a viable Layer 2 solution.
So, when you add all of this up, you end up with an analogous stack that actually doesn't require the traditional banks anymore, even to pay your bills, in a way that doesn't force you to touch your Bitcoin; and that's what I want personally. I want to be able to pay my bills without a bank without having to spend my Bitcoin. And, if I can have a 25-day loan, which is what a credit card gives me when I pay my bill with a credit card, maybe get some miles or whatever that side benefit might be, or some extra Bitcoin if that's possible; that doesn't scale infinitely, but maybe in the short-term, I can get some extra Bitcoin, even better; and that's what's coming.
Peter McCormack: What is missing in the stack?
Bill Barhydt: Well, we need a Layer 2 that's scalable and that integrates with crypto in order to pay. It's probably going to be stablecoin-based at first; it's probably going to be Ethereum-based at first; and it may actually be Ethereum-based forever, I don't know. As long as we have a dollar that you're going to want to pay in -- I keep using this phrase "ephemeral transaction". To explain what I mean, an ephemeral transaction is a transaction that happens quickly, one and done; I pay for my groceries; I pay for something.
As long as a dollar is the basis for that ephemeral transaction, it probably makes sense for that to happen in a stablecoin, because then I can stay in "the crypto world" and we need that Layer 2 scalability in order for those payments to work for everyone. That's why I'm so excited about Visa getting into this world, because they've already laid those rails over 50 years.
So, the P2P rails that are being built into Bitcoin are interesting, but people want to hoard Bitcoin right now. I don't want to pay with my Bitcoin; I'd rather pay in dollars, as long as the dollar still exists. When the dollar doesn't exist anymore because Bitcoin is so valuable, and this is what the Austrian Economics predicted; once it's been hoarded to the point where everything else doesn't exist, that deflationary asset will then be used for payments.
Right now, like Michael Saylor says, I'd rather borrow against it if I can; it makes way more sense because the price is going to keep going up. So, that's what's missing.
Peter McCormack: What about you, Simon; from your perspective, where do you think we are in the stack to getting to that point where you can trustlessly, as best possible, but you can bank without having to go into a bank? And I say that to the point whereby I can run my business without a bank if I wanted to. I can pretty much get paid and pay people in Bitcoin. I can pay my staff. If I really wanted to do it, it's a bit of a pain, but I could really do it. But, there are certain things I can't do on a personal level.
I can't pay my mortgage in Bitcoin; I can't pay my bills really. I could probably pay my bills on a crypto credit card that takes from it, but how far do you think we are from that point where you don't actually need a bank and you can access all the services that you want?
Simon Dixon: Well, I often wind up the person that refused to accept Bitcoin when it was $3,000 for the purchase of my property, because it's now worth into the hundreds of millions that they could have had, and that's what drives Bitcoin adoption, is when they calculate what they would have had if they accepted the payment in Bitcoin.
But really, there's a lot you can do without a bank, but I still would need a bank account at the moment. So, I think the missing layer here is the crypto-friendly bank; and the crypto-friendly bank will come. It's just a question of putting together models whereby you can interact. And again, I do it at a private banking level and at a private banking level, there are a lot of crypto-friendly banks. They don't like to say who they are, because it will cause problems with their clearing banks and so, half of the challenge is that there are many banks that want to work with you, but they also want to keep it a secret, so they can't market their ability to work with you.
But at the same time, we're having the crypto-friendly banks being built, you know, Kraken becoming a bank and all sorts of stuff; so, we do need the crypto-friendly bank. The reason for that is because unless everyone starts accepting stablecoins, which I think is certainly something that could happen, especially when central bank digital currencies get launched. But, I think the bankless world is when you have financial technology companies built on top of a central bank digital currency with Bitcoin as an exit to the traditional financial system.
Then you can do everything, but you will just accept that the fiat currency, my central bank digital currency is awesome for me paying my mortgage, because my mortgage is priced in dollars and I don't want to take a currency risk when paying my mortgage, because I could end up broke, or I'm just gambling in terms of how much my mortgage is going to cost me; no one wants to do that. Plus, there are some other challenges, which is the tax side.
Many people in crypto forget the tax side, but I spent a lot of time making sure that I was setting up the correct tax-efficient structures; because now tax authorities all around the world, as Bitcoin and the crypto market has gone past $2 trillion and every government in the world is broke, they're looking for the next money grab, and the next money grab comes from subpoenaing the exchanges to get all of the data so that they can find all the people that didn't pay their tax.
So, because most countries are treating Bitcoin as property, every time you spend it on your Bitcoin debit card, you're creating a taxable event. Every time you're doing something with your Bitcoin, they're not treating it as currency. So, the tax side could become the biggest challenge as more and more tax authorities recognise there's a mountain of tax collection that I can get here.
Bill Barhydt: Yeah. That's why I think to borrow against crypto is going to be a booming business as long as government fiat exists. It just makes so much more sense to borrow against dollars, get that 25-day loan, continually pay it back and there are no tax implications. You continue to hold your crypto. Why would you want to sell an asset that, like Michael Saylor says, is gaining 200% a year, when you can borrow against it and invest in other assets that are going to be appreciative; or basically deal with the commodities of your life, groceries and whatnot, and use that Bitcoin as a continual source of radiation into your life in the form of ephemeral dollars that you can just spend on the fly and not pay taxes against it? It just makes perfect sense.
Simon Dixon: And this is the interesting thing. This brings us full circle, because Bitcoin is driving a savings-based economy, an equity-based economy --
Bill Barhydt: Absolutely.
Simon Dixon: -- low velocity of money, but high levels of savings, generating a wealth effect where people can reinvest. So, it is the libertarian stream; it is the Austrian Economics philosophy of, create wealth through savings and then spend based upon that. But, here's the interesting thing. This takes us full circle, because now everyone' collateralising their crypto in order to drive the debt-based economy, because it's driving people into borrowing. But, there is a critical difference.
All of these loans are collateralised; they're equity-based. It's wealthy people that have savings that are looking to pull money out. And then because that's scaling down more and more and more, people are taking out a tiny bit of their fractions of Bitcoin and getting loans on that. So, it's really interesting, because this was the peer-to-peer economy that I got excited about over a decade ago where I thought, "Well, what if you could have a bank and you could have peer-to-peer loans and people could own their own money and they could decide to put it into savings products, rather than the banks deciding?"
The Bank to the Future vision is being created by all these companies, like Abra, like Kraken, like all these other companies, plugging their both decentralised and centralised services together and just driving this wealth effect, based upon equity and collateral, which is the exact opposite of the traditional financial system where it rewards you. The deeper in debt you go, the more irresponsible you are financially; the better you can play that system.
Peter McCormack: Do you think we're going to end up therefore with a two-tier system, which is those people who got onto Bitcoin and those people who didn't, and it just creates those two separate systems?
Bill Barhydt: No, I don't.
Peter McCormack: You don't?
Bill Barhydt: I don't. I think we're going to have massive wealth redistribution, because what's going to happen is, when you can't print money anymore, you're going to have no choice but to spend this deflationary asset. As a result, it's going to permeate its way into every aspect of everyone's life and it's going to basically create a massive flattening of wealth over decades; which is the opposite of what happens when you're in a late-stage debt cycle.
I actually presented after Ray Dalio after a private conference this weekend and he talked about the fact that we're in a late-stage debt cycle, which he always does; and by the way, he said people should be buying Bitcoin now, for the first time that I've ever heard him say.
Peter McCormack: He did?
Bill Barhydt: He did. He said, "Traditionally, this does not end well", meaning in the 1930s it didn't end well; and in the 1800s it didn't end well; meaning, the implication, of course, is it's led to wars by markets' collapse, which is what's happening now. And when the 60/40 asset allocation model is dead because bond markets are dead, it traditionally has not ended well. But, we have a solution this time that Austrian Economics predicted would work and it's working. But it creates, over time, when you remove the inflationary asset, by default, wealth redistribution, as opposed to inflationary assets that in that late-stage debt cycle actually create massive wealth concentration for the rich, at the expense of the middle class, which is what's happening right now.
I'm super excited about the prospect for that and I think we're now seeing -- and the premise of my talk, by the way, was a follow-up from the TED talk I did ten years ago where I said, "Maybe Bitcoin is the answer to having a replacement for the dollar as the global reserve currency". I think we now can finally have that conversation, not only with ourselves, we accept that; but with other people without being laughed at. And, all of it leads to wealth distribution, in my opinion.
Simon Dixon: Yeah, I'm not too convinced that Bitcoin distributes wealth much better. I mean, the one thing I did like about, you know, take the 2017 ICO bubble; all the young people were thinking… Say what you want; there was a bunch of scams, it was a really bubble-crazy moment in crypto history and we've been through a few of them. But, the one thing I did like about that was that people that were never, that were just destined to go to university, be deep in student debt, or not even get that far, just take credit cards, and they were in debt; they never thought about savings and investing.
Call it a speculative bubble, whatever you want to call it; call it gambling, it was a lot of those. But, for the first time, because this industry attracted that younger generation's attention, they started actually thinking about wealth generation, savings, investing. They got into the wrong things, they got into pump and dump scams, they probably ended up with no Bitcoin at the end of it; but, at the end of the day, they were never going to be saving, they were never going to be investing; they weren't going to buy stocks.
Obviously, we've had the Robinhood generation, where it's easier to get in, but it's still not successful to these people. But, I do really fear for the people. My dad, he's never going to buy Bitcoin, would never buy Bitcoin; he's going to be all right because his son bought Bitcoin and I'll look after him. But, there are a lot of people that are going to wait until Bitcoin is a medium of exchange, unit of account and store of value until they buy it. At that stage, Bitcoin will just act like gold, preserve your wealth and I think there are not enough people that are speculating on the wealth effect, because they're waiting for everything to be perfect and rubberstamped until they actually do it.
Eventually, I think, Bitcoin does act like gold and gold never made you money; it preserves your money.
Bill Barhydt: That's why the wealthy buy expensive art; not because they think the value's going up; because they think the value of the dollar's going down, and it actually preserves that wealth in the meantime. Bitcoin is simply infinitely better at it than art or gold, so I do agree with that.
I also think that death is the ultimate whitewash here, right? I don't want any of my relatives to die either; we all die, right? It's probably the one thing that guarantees progress, is that the people who are ultimately going to hold us back with, "Oh, it used to be better the old way"; they're not going to be around in 75 years. That is probably the best guarantor we have of this type of progress. In other words, it's going to be my kids' kids who see it as intuitively obvious that the government shouldn't be in the money business.
Peter McCormack: Well we're all kind of relaying that message right now to our children; I'm certainly relaying it to mine, with great difficulty! But, trying to get it across to them why Bitcoin's important and trying to teach them those lessons. You've had it, Bill, you've travelled with work; you've had it as well, Simon; you've travelled. There are certain places you go to where the Bitcoin argument's much easier to make. Bill, were you at LABITCONF, I can't remember?
Bill Barhydt: No, I was not.
Peter McCormack: But, you're in South America, you're surrounded by Argentinians, Venezuelans.
Bill Barhydt: Oh, yeah, all the time.
Peter McCormack: It's very easy to make -- I've seen it today. Lebanon; I'll get it up, because Lebanon is back up in the news again today, already been through one currency collapse, "As rampant inflation takes hold, Lebanon is at risk of collapse", two days ago. The story's very easy to make to people from Lebanon; it's very easy to make to people from Venezuela, well, the middle classes; it's very easy to people in Argentina. I'm still struggling to make it to my friends. They know I'm involved in Bitcoin.
Bill, we're friends on Facebook; you see me post every episode and no one really cares! But, I try and have the conversation though. I'm like, "You do realise what's happening, right?" and they just don't care. So, I almost feel like we've got to almost go through another event like 2008 where people are going to get wiped out for them to understand why we've been involved in Bitcoin for so long.
Bill Barhydt: And it's coming. I have this spreadsheet, I'll have to dig it out; it was a Google Sheet somebody created of hundreds, literally hundreds of fiat currencies that have died over centuries. And the reality is, and this is my kind of standard pitch, is that every fiat currency eventually dies; every one. Some die in spectacular fashion, whether it's the Papiermark in the late 1920s, or the Argentinian peso in the 1980s, or the Peruvian sol in the 1990s, the Zimbabwe dollar in the 2000s, the Venezuelan bolivar in the 2010s, there's inevitably going to be an infinite number of these until the internet enables a perpetual replacement; and that's what we're on the cusp of.
Until that happens, and everyone else is dead, there are going to be the hangers-on who will continue to say, "It's just easier to trust the governments and there's nothing wrong with our money", because when you have death by 1,000 cuts and you die before the cuts kick in, which is what happens, right; when you look at inflation versus the average life span, you die before those cuts that you're getting via inflation basically make you terminally ill, from a financial perspective.
But what happened, and I had this discussion with Peter Diamandis, you know, X Prize, talks about longevity and lifespan; we had this discussion on Sunday. What happens when people live to 150? An inflationary model doesn't work, because every 100 years, the money loses another 99% of its value! So, how is that possible if you can't store the money in anything?
Peter McCormack: You could get away with it, Bill, when interest rates were higher than inflation, when you could put money in the bank. Who was it? I did an interview with Dominic Frisby, I don't know if you know him, Bill; you probably know him, don't you, Simon?
Bill Barhydt: I know who he is. But the point is, you can't have that now. We're in the late stage of a debt cycle where rates are basically negative, never mind bigger than inflation. We have this model where the government has no choice but to make inflation as high as it can, lie about it to maintain certain benefits; the more they lie about inflation, the cheaper it is to pay social benefits, because the social benefit costs are tied to inflation; and, there's nothing else they can do, except print more money to make it happen.
Peter McCormack: But we know it's happening.
Bill Barhydt: We do.
Peter McCormack: We know it's happening, yeah. There's another guy I go to the gym with. He's a plumber, he's got a plumbing business; he's been threatening to get into Bitcoin for a while. He's one of these ones where I've had the conversation with him about three times in the last three months and he keeps saying, "I missed it, didn't I? I missed it". He phoned me up yesterday and said, "I missed it, didn't I?", because I think it was about $30,000 when we started talking about it.
Every time I say to him the same fucking thing. I'm like, "Mate, I'm not selling. If you've missed it, why am I not selling? Let's have the conversation". But, he doesn't understand Bitcoin; he just runs his business. And, I'm just trying to say to him, "Look, all you need to think about is inflation" and he was like, "What do you mean?" I said, "You run a business. Are your materials going up in cost?" and he's like, "Yeah, up 5% to 10%". I'm like, "There you go. This is why you need Bitcoin!"
So, I think people are seeing it, Bill.
Bill Barhydt: But, the death by 1,000 cuts, which is what you're giving an example of, that's acute for your friend, it's not tangible enough for the average person. I'm sorry, but too many people are fat and happy. And being fat and happy is not necessarily a bad thing, until nobody can afford to be fat and happy anymore, which assuming we stay on the fiat standard, is where we're headed, because it's untenable.
Peter McCormack: But, we might be headed for a few big cuts now, rather than a death by 1,000 cuts.
Simon Dixon: It is the big cuts. There are three things that drives that adoption and it's you getting your bank account shut down and you realise, "Oh, right, okay, I don't own my money"; it's you not being able to actually spend your money as you choose that day, yeah, we saw that in the Cyprus bail-ins, we saw that in the WikiLeaks censorship, we see that in financial blockades like the Republican party with Trump and everything; and also, when people realise that this money printing is not, in fact, free money and that it comes at a cost.
So, you'll need a 2008-style event and unfortunately, Bitcoin is the -- to me, I have so much respect and gratitude for Bitcoin, for the opportunities it gives people, but most people are only going to discover it in the most extreme and worst cases; and that's why it's so much easier; that brings it back to pitching it at LABITCONF to people that have already experienced disruption, experienced what it's like to not be able to access your money, spend your money and have the value of your currency destroyed.
But, thank God we have this now, and that's what I will always be eternally grateful for, the fact that we have this opportunity, we have this exit and, I mean, missing the boat; I've heard that for 11 years. You know, $10 was missing the boat; $100 was missing the boat; $1,000 was missing the boat; $10,000 is missing the boat; $100,000 will be missing the boat. That one never changes, because it is the fear-driven psychological thing that I don't like. I still dollar cost average today, but I don't feel like I'm getting value at these prices, but I know what it means in the long term for me.
Peter McCormack: Well this is an interesting point. So, one of the things I really salute Michael Saylor for and I've said this a few times, so if you've heard me say this on the show before, I'm really sorry. But, firstly, he's teaching people lots of different lessons. But more important than the $1 billion that he borrowed at 0% to invest back in Bitcoin, I think the most important he does is, every single month, they turn their profits into Bitcoin; every single month.
It's not the 90,000 coins; it's the 150 he does, or the 75 he does every month based on their profits, because it's not just that speculative investment, "I've bought a load", etc; he's kind of million-dollar cost averaging with his company's money, because he knows in the future it will be worth more. And it's trying to get that message across to people.
And I'm the same as Simon. Once you've been through a whole cycle, a four-year cycle, and you've had that massive jump, that big massive jump in your net wealth, your income's still the same, right, or slightly higher. So, when I was putting $1,000 a month maybe in in three years ago, it made a big difference. Now, it's making a tiny difference, but you still do it; you've still got to do it. But, it's getting that across to people.
Simon Dixon: The plumber is still thinking about, "How do I use Bitcoin to get more pounds [or] how do I use Bitcoin to get more dollars?" when the lightbulb moment is, you know, "When I earn fiat currency, what do I buy with that?" And Bitcoin seems like the logical thing to buy and when it comes to selling Bitcoin, it's like, "Well, what do I buy with my Bitcoin?"
I don't want to buy dollars, I don't want to buy pounds. I would buy them if I've got a bunch of expenses; so, it is that wealth gap there that when you are living month to month or you've got a business that's cash flow month to month, unfortunately this is the bit where I don't think it becomes a wealth distributor, because most people are just trying to figure out how to pay off that credit card and how to meet their next bill; and if they've got a business, how to meet their staff costs.
But, Bank to the Future was, our venture capitalist was Bitcoin. We have never had to take on venture capital, because we were fortunate enough to make enough dollars to cover our operational overhead and not have to sell that Bitcoin and we rode it the whole way through, and it was the best venture capitalist ever.
Peter McCormack: Yeah, I understand that. I had the whole big shift over the last year of moving my profits into Bitcoin, and I've essentially got a seed round on the balance sheet now, which I haven't used, but it's there, it's available to me if I need it. Seed round; Angel round; it depends what you call it, but I've essentially 4X to 5X what I would have on the balance sheet just by holding it in Bitcoin.
Bill Barhydt: Yeah, same. I mean, our treasury at Abra is significantly Bitcoin.
Peter McCormack: Yeah. And percentage-wise, I'm doing better than Coinbase!
Simon Dixon: The funny thing is when our regulators, they're challenging the risk-based model of holding Bitcoin on your balance sheet, so we have to fight for the ability to do that, because they see it as such a risk. But for me, it's the opposite; that's the Michael Saylor argument, that it's the opposite risk.
Peter McCormack: Well listen, guys, this has been really useful. I am really looking forward to that bank I can use, that someone like Bill's going to build, which separates me from having that High Street bank, where I don't need to send any forms off, call anyone up, that I can just travel the world with, I can access my Bitcoin; and perhaps it's something a bit like Strike, where I have local fiat currency that exists in it. But, I am looking forward to that, because it has been a pain losing my accounts; it's been a pain transferring all my direct debits; it's all been a pain.
I think we're getting there step by step and I really appreciate the work that both of you are doing. Is there anything you want to say before we close out, Simon?
Simon Dixon: No, just thanks for having me today.
Peter McCormack: Finally!
Simon Dixon: I always end in the same way which is, everybody, you are alive at one of the most interesting and exciting times in financial history and although some people, this is the worst time in financial history; for others, it's the best time in financial history, and it's because you're probably playing in the wrong financial system.
So, if you are deep in debt, then please, one principle that I had, because before founding BankToTheFuture, my last credit card bill was actually flying over to the Bitcoin Conference. But, in trying to build BankToTheFuture, I was about £100,000, which is about $150,000, in debt. The one thing that I did do was I decided, rather than pay off my debt, I would pay myself first a percentage of whatever comes in and use that just for investing. Then, eventually the assets paid off all the debts. But I think most people try and save their way and they never end up investing.
This alternative financial system, it rewards the saver over the long term, it punishes the traders; the traders are the ones that lose money in our industry. They pay all the tax; they get themselves in situations where they have to sell all their Bitcoin, because they got on the wrong side of the trend; and so, this side of the industry, it does reward the saver. And the innovation, and companies like Abra and all the other companies we're investing in, I'm just truly blessed to be able to be involved in the disruption of the entire financial system, one product at a time until eventually, Peter can just say, "Fuck the banks".
Peter McCormack: Yeah, "Fuck the banks"! Well, getting closer. I'm probably going to have to say, "Fuck the UK" as well, and you know why; but, that's a whole other conversation. Tell people how to find BankToTheFuture. If they want to put the url in, they have to have a slight little difference from what you think, or have you got the proper domain now?
Simon Dixon: No, we own BankToTheFuture.com with the "a", but my final book I'm going to write will be, The Bank Sold My A, because we're working on trying to get it back. So, if you put the "a" in there, it will still get you to BnkToTheFuture.com!
Peter McCormack: It still works!
Bill Barhydt: It's not the Fonzie "aaayyy"; it's the bank "a"!
Peter McCormack: Bill, anything you want to add before we finish?
Bill Barhydt: I don't know what your theme song is. I think you need to change it to that Beastie Boys' song, You've Got To Fight For Your Right; are you allowed to do that these days? I think that would be a lawsuit.
Peter McCormack: We do the occasional one, so we do this new show called Bitcoin Rehab, where I get American HODL on and we all just yell at each other, and we used Amy Winehouse on that. Then, when I got Dan Morehead on from Pantera Capital, I had this romantic vision that he was a Pantera fan, heavy metal fan, like me.
Bill Barhydt: He probably doesn't even know what they are!
Peter McCormack: He did, sadly; he had heard of it.
Bill Barhydt: But, you're kind of a metalhead, right?
Peter McCormack: I'm a metalhead.
Bill Barhydt: I mean, I think Beastie Boys is right up your -- well, at least as it relates to crypto, is right up your alley?
Peter McCormack: We do it occasionally; we're probably going to get in trouble. I think we did Rick Astley the other week with Willy Woo, so maybe --
Bill Barhydt: What, bitcoiners getting in trouble? I mean, have a nice day, right? Anyway, yeah, thanks for having me on. I loved this conversation; I hope people enjoy it. Abra.com, @billbarhydt on Twitter, everybody knows where to find me now, so it's all good.
Peter McCormack: All right, guys, well listen, appreciate both of you. Thanks for coming on; I think people will love this.
Bill Barhydt: Yeah, I hope so. Thank you.
Simon Dixon: Thank you.
