WBD432 Audio Transcription

The Future of Bitcoin with Nic Carter

Interview date: Saturday 4th December

Note: the following is a transcription of my interview with Nic Carter. 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 Nic Carter, Partner at Castle Island Ventures and co-founder and Chairman of Coin Metrics. We discuss Bitcoin’s maturing role within the evolving US and global economy, and its role in relationship to stable coins, gold, and the US dollar.

“Satoshi had to do so much to win our trust. Everything open source. Everything with fair warning; full disclosure. Create the most auditable monetary system ever, and then leave the project. What other digital asset or cryptocurrency has done even 1/10th of the things Satoshi did to convince us that this was a legitimate and fair thing. I mean I haven’t seen anything even remotely approximating that.”

— Nic Carter

Interview Transcription

Peter McCormack: Morning, Nic.

Nic Carter: Hello, Peter.

Peter McCormack: Nice to do this in person.

Nic Carter: It's our first one.

Peter McCormack: It's our first one after eight previous remote interviews, and we get to sit down in person here in Miami.

Nic Carter: I know, that is blowing my mind.  But this might as well be remote, because you're so far away.

Peter McCormack: Yeah, that was the dilemma, otherwise if we'd put it the other side, we would have been super close.

Nic Carter: But this is like a medieval banquet or something!

Peter McCormack: This is what I had with Weinstein, we were about this far apart, Travis in the middle.  That's how we justified it; we did have a big discussion last night about this.  Anyway, man, you're all settled here in Miami?

Nic Carter: Yes, sir.

Peter McCormack: In a free state?

Nic Carter: It is quite free.  I mean, we're not actually in Miami; I was complaining about that.

Peter McCormack: I know, we're in Hollywood, without the films.

Nic Carter: Yeah, we have a Hollywood in Florida.

Peter McCormack: So, listen, there's a whole bunch of stuff I want to talk to you about, which you're aware of.  My brother works with me now, and he's going down the Bitcoin rabbit hole, and it's been really interesting to watch him soak it all up and ask questions.  And one of the things he keeps coming back to me, he's been saying, "Okay, where does this all lead?"  Because, I think over the last year, Bitcoin has become this whole much bigger thing now, especially with El Salvador and what MicroStrategy has done, and some of the predictions people have about Bitcoin are coming true.

But he's been questioning to me, we've been having a lot of conversations about, okay, what does this mean next year, five years, ten years?  I really obviously like and respect you and wanted to dive into some of these things with you.  So, I've got a lot to discuss, as you know.

Nic Carter: I'm ready to make some wild, unfounded prognostications.

Peter McCormack: Let's do it, okay.  So, just a starting point really with you is just to find out a little bit about, how do you take in everything over the last year; not just with Bitcoin, I mean a lot has happened with Bitcoin.  I don't think any of us saw what MicroStrategy did would come in, I never saw Tesla putting Bitcoin on the balance sheet, and I certainly didn't see El Salvador.  So much has happened in this last year, how do you take it all in?

Nic Carter: I mean, we wouldn't be here if we weren't wild optimists, right, so to a certain extent, I feel like we did expect these things to happen.  We didn't know precisely what would happen, we didn't know the nature of it, but we kind of figured something crazy would happen.  I certainly didn't expect that a business analytics company from Tysons, Virginia, would buy 120,000 Bitcoins, but it doesn't surprise me what they did.

The nation state angle with El Salvador, I didn't see El Salvador legalising Bitcoin or making it a currency, or mandating its usage, but it doesn't surprise me now, really.  I know this is a real Captain Hindsight moment; it doesn't surprise me that this is the progression, this was the progression, is a necessary progression for any monetary good that's going to reach global stature.  This is the path it has to take. 

If you get from zero to where gold is today, there's hundreds of millions of households that have gold, virtually every major central bank owns gold, and it's just an absolutely mainstream savings device.  If Bitcoin's going to get there, it will have to be acquired by governments and corporations, so we couldn't know how it was going to happen or how quickly it would happen.  Certainly, the acceleration has surprised me, but I tend to think this is Bitcoin's destiny; it's realising its destiny.

Peter McCormack: Yeah.  Let's talk about the regulatory side of things, because that lens has always been on Bitcoin, continues to be on Bitcoin.  Obviously, within El Salvador, they have little to no regulation with regards to Bitcoin, no taxation of Bitcoin, it's a very pro-Bitcoin country.  The US, compared to where I am in Europe, is fairly pro-Bitcoin, to a certain extent, and you have specific people within Congress who are pro, some people are against it, but it feels like we're way beyond any idea that the US Government would ban Bitcoin.

We do have some slightly different views in Europe.  Sweden wants to ban Bitcoin because of the mining threat, even though I think it's one of the largest energy companies there, I'm not sure if it's a state energy company, but one of the largest energy companies has said, "No, Bitcoin is really good for energy"; but Europe seems to be quite far behind the US in terms of Bitcoin.  Then obviously, the other side, we have countries like China and Bolivia where Bitcoin is banned.

Where do you see regulation heading?

Nic Carter: I mean, it's funny that we were nervous about regulation.  To ban Bitcoin isn't to demonetise it.  When gold was banned in the US, or private ownership was banned, gold wasn't demonetised; it continued to hold its value, it just became more difficult to get access to.  It's the same thing with Bitcoin.  I mean, Bitcoin still has a monetary value in China, where transacting in Bitcoin is illegal or discouraged.

I mean, in the US, Bitcoin has been pretty well understood for almost a decade now.  The IRS understands it, treats it as property; FinCEN understands it very well, the Treasury.  The SEC, they don't have much to do with Bitcoin, because they generally treat it as a commodity.  The CFTC regulates certain markets that trade Bitcoin, especially derivatives.

What could happen would be that the exchanges fall under more stringent measures; I kind of expect that to happen, I think.  The major spot cryptocurrency exchanges in the US will be specifically carved out by legislators, and will be subject to tougher rules, especially as it pertains to new token offerings, anything like that, things that resemble securities in a way.  But Bitcoin doesn't resemble a security at all.  We have a very hawkish SEC Commissioner, who is ambitious and he is determined to make his mark on the crypto industry.  But whenever he talks about Bitcoin, he tends to carve it out and say, "Yeah, Bitcoin to me doesn't have a single entity that administers it, it doesn't have this strong nexus of centralisation", so he carves out Bitcoin in the taxonomy, as compared to novel tokens and things like that.

So, from a regulatory perspective in the US, it's very positive, I think.  The thing that would make me a little nervous would be a regime whereby the major exchanges and custodians are treated under a new federal regulation, which would make it more difficult to compete as an exchange or brokerage or custodian, and would entrench a handful of larger firms, which would make it easier to regulate and easier to ask those exchanges to deanonymise their users, or pass really tough KYC and things like that.  I think that could happen for sure.

Peter McCormack: Yeah, one of the things that seems to give a little bit of protection to Bitcoin now, not a lot, but there seems to be a growing number of people within Congress who have an interest in Bitcoin.  Obviously, the darling for all of us is Cynthia Lummis, who's been a vocal supporter of Bitcoin for quite some time, but we've even seen people like Ted Cruz, and now there's a growing number of hopefuls who are looking to get a seat in Congress.  We've been reached out to by people who are campaigning, or are on the campaign trail, who all seem to be supporting Bitcoin. 

Do you think this is a hack, or do you think these people have genuinely got an interest in Bitcoin?  The reason I ask if it's a hack is because, if you become a vocal supporter of Bitcoin, you suddenly have this whole community that gets behind you, ironically a group who are historically anti-state, but at the same time it is happening.  What do you make of that?

Nic Carter: I've had the pleasure of meeting some of these representatives and senators that espouse Bitcoin ideals, and I don't know if they're politicians, but they seem pretty genuine.  There's varying degrees of endorsement, but there are absolutely growing numbers.  Obviously on the Senate side, we've made a lot of strides this year, it's not just Cynthia Lummis banging the drum anymore.  She's been joined by Ted Cruz, who put together a very impressive defence of Bitcoin and Bitcoin mining in Austin earlier this year.  She's been joined by, I want to say Ron Wyden is also a pro-Bitcoin Senator; there's others.  Maybe I'm getting mixed up there.

On the representative side, especially on the Republican side, you look at the Financial Services Committee in the House, there are a number of representatives that are overtly pro-Bitcoin, and there's a number of hopefuls, both in the House and in the Senate, that are extremely pro-Bitcoin.  So, some of it might be contrived, some of it might be playing to the Bitcoin demographic, but it's a genuine movement.  I don't know what the estimate is precisely, whether it's 20 million or 40 million Americans that own Bitcoin and digital assets, but it's a very material amount.

Peter McCormack: Do you think there's any risk that Bitcoin becomes a partisan issue, in that it feels like there's certainly more people on the Republican side who are into Bitcoin, support Bitcoin.  I interviewed Aarika Rhodes, who's a Democratic hopeful who supports Bitcoin, but the US has a very nice, neat ability to make any issue something to argue about across party lines.  But do you think there is an opportunity to make this non-partisan?

Nic Carter: It's going to be a challenge.  It's very lopsided right now.  There are representatives on the Democratic side that are pro-Bitcoin and that acknowledge the innovation that's happening and the importance.  Ro Khanna in California, progressive, is a good example, and I know that's a difficult fight for him, because whenever he tweets about Bitcoin, his constituents get pretty upset.  Darren Soto down here in Florida on the Democratic side has espoused a pro-Bitcoin position.  I think we've even seen Eric Swalwell sign on to some of these open letters espousing kind of a pro-Bitcoin stance.  So, they exist for sure.  I think the last hurdle for a lot of these people is going to be the environmental questions, and it's just a matter of making the facts known to them. 

I think the reality is less worse than is represented, but certainly some progressives will never, no matter how much data or information you present to them, they'll never endorse or acknowledge Bitcoin as a valid thing, because (a) there's this new Malthusian trend going around now, whereby energy consumption is believed to be morally bad, so there's not a lot you can do with that, (b) there's this indignation that libertarians, or bitcoiners generally, made a lot of money in a short period of time, and (c) there's a desire in some parts to wholly politicise financial services and create a choke point on steroids by installing a CBDC, a Central Bank Digital Currency, which the Fed and the federal government controls and surveils really tightly, and uses to exert more granular control over society and potential implement progressive ideals through the mechanism of the currency, which is a power that the government does not have today, but I think would like to have, which is certainly the stance of someone like an Elizabeth Warren.

So, regardless of how much you stress the financial inclusion of Bitcoin, or even stablecoins, she will resent that, because her objective is to obtain just new, fundamentally higher levels of control over society at large through the mechanism of your currency.  And so, there's a certain set of policymakers who will never get on the Bitcoin train for that reason.

Peter McCormack: Yeah, I find Elizabeth Warren one of the most disappointing ones, in that a few years back when Mnuchin was being questioned in preparation for his role working in government, she went hard on him.  She went hard on Wall Street when she went hard on the relationship between the government and Wall Street, and I felt like perhaps she would be an ally, a loose ally, but she's turned on it.

Nic Carter: No, the enemy of my enemy is my enemy, in that case.  It's not that she's against banking and would thus be in favour of Bitcoin, it's that she's against banking because there's a strain of thought which is that banks should be effectively nationalised, or commercial banking should be eliminated, and the public sector, the government, should take over. 

This was evident in the writings of the OCC nominee, Saule Omarova, who thankfully is not going to go through, but if you read her papers, it's the same thing, "We should kind of eliminate commercial banking or sideline it, because that's a buffer between the government and the people, and go direct and give people Fed accounts, accounts with the Fed, and then we can determine who's able to spend money on things and when and precisely determine how much money's in the economy and how deep negative interest rates go", and things like that.  So, as far as I can tell, that seems to be the final objective here, and Bitcoin stands in the way of that.

Peter McCormack: The logic of that is very anti-American.

Nic Carter: I agree, I certainly think so, but when has that ever stopped them?

Peter McCormack: Yeah.  You wrote a piece recently about the era of free banking, right?

Nic Carter: Yeah.  Free banking has come up a lot recently.  Warren has referred to it, Gensler has referred to it, members of the Fed have referred to it, always in a pejorative, negative context.  In the US, we had a period of somewhat unencumbered banking; it wasn't wholly free, but they call it the Wildcat era, and they've been using it to demonise stablecoins, because they allege that stablecoins are similar to the free banking era we had in the 1830s to the 1860s. 

You can quibble about the analogy, but their point is there's this view that the free banking era was characterised by bank failures when they were somewhat unregulated, not fully unregulated.  And, it's used to delegitimise the private issuance of currency, effectively.  The problem is that the free banking era in the US was not a truly free era.  Banks weren't really allowed to branch out geographically and diversify their sort of depositor base. 

So, if you were a bank in Indiana and your deposits came from farmers and there was a bad harvest that year, maybe the bank would fail.  So, there were reasons you had these bank failures.  Additionally, the banks had to hold securities issued by states in many instances, and they were forced to do so, so that was also a cause of bank failures.  So, there are valid reasons, aside from just what are commonly alleged to be the main reasons, around just private institutions being irresponsible, why these banks did fail in the era.

Now, if you look overseas, if you looked at Canada during that era, or if you looked to Scotland actually for instance, you had very functional free banking episodes, which suggests that the private issuance of banknotes can work and can be a stable regime.  You don't strictly need a central bank.  These episodes were stable, you had strong growth, you had minimal financial panics.  So, the focus solely on US-based free banking by our current policymakers, in my view is kind of ahistorical, and it's used to unfairly malign stablecoins, which in many ways do resemble the way that free banks operated.

Peter McCormack: It's kind of ironic really and one of the things I was talking about, when I had a call with my brother this morning, was he was saying that in an era where you have so much control by government over the economy, there's so much central planning and control of the economy and they're usually very anti-monopolistic, that they do want a monopoly on money.  Any threat to their monopoly on money is, as you've talked about here, their use in the free banking era.

Nic Carter: Yeah, it's one of the great ironies, that money is the one thing where monopoly is believed to be completely acceptable, and where it's alleged that the private sector can never create a product that's as good as the government.  Now, in what other realm would you say a state-produced product is better than what the private sector can come up with?  And if you look at what's happening right now with stablecoins, for instance, I know bitcoiners don't like it when I talk about stablecoins, but if you look at stablecoins, their digital dollar equivalents work, they settle immediately, there's 140 billion of them, 120 billion of them floating around, completely issued by the private sector.  That is a digital cash product.

Meanwhile, you have governments the world over trying to make those CBDCs and being very slow in doing so.  So, that's a great example of the private sector filling a gap, filling a need that the market demanded, where the state has not created an equivalent product; and will they ever create a product that has the same privacy and transactional freedom assurances as the private sector did?  My guess is no.  Will we ever get a CBDC that actually resembles physical cash, in terms of settling immediately, being private, upholding your free right to transact with whomever you choose?  I don't think so.  I've never seen a central banker put forth a CBDC model that doesn't have some sort of embedded KYC or anti-money laundering feature.

So, this is a great example of the private sector's already doing something that we know governments will not do.

Peter McCormack: Alex Gladstein has talked quite often about being very supportive of stablecoins and I know, as you said, it's not hugely popular with bitcoiners, because sometimes they exist on alternative protocols that we're not meant to support or be fans of; but he's talked about in specific countries, I can't remember, but I'll just pick out Palestine or Lebanon, countries where there's a poor local currency, currencies collapsing, that these stablecoins have been a lifeline for people. 

Bitcoin isn't always suitable in that scenario, because you need a stable currency in the short term.  So, these stablecoins have been very useful.

Nic Carter: There's no contradiction between being a supporter of Bitcoin and stablecoins, I don't believe so.  I think they are different products.  Bitcoin is kind of an unimpeachable thing, it's no one's liability; that's what's special about it.  It's similar to gold in that respect.  Gold is no one's liability.  No one has to do anything for your gold to have value; same thing with Bitcoin.

Now, stablecoins are someone's liability.  There is an entity that has to offer you something in return for your stablecoin, or there's an entity that has to manage an algorithmic peg.  There's some residual risk in the system.  That doesn't mean it's a bad system, it just means that it's managed.  What we are seeing is a harmonisation between Bitcoin and stablecoins, though, and this is overlooked.

Why do stablecoins even exist?  Because Bitcoin built and financed the infrastructure that they rely on, wallets, exchanges, all of that financial infrastructure that's mature now.  What do stablecoins trade against?  Well Bitcoin, in many cases, because Bitcoin is this monetary substrate that is ubiquitous now, that makes the market for stablecoins.  Some stablecoins are issued against Bitcoin, or they're backed with Bitcoin, so Bitcoin is adopting this collateral reserve asset role, and then stablecoins are increasingly the medium of exchange.

That's where this is going, if I had to make a guess.  Bitcoin is this reserve asset, this monetary medium that can extinguish any debt and it's no one's liability.  Then stablecoins are a slightly more risky, but very much more convenient transactional medium, because from a tax perspective for instance, transacting in something that's "stable" is advantageous.  People still use the dollar as their unit of account; that's not going to change.

So, that's one way to get to this world where Bitcoin is an important, dominant and major reserve asset, but we still accept that people are willing to transact in dollars, and they in fact prefer to transact in dollars, and I see that as fundamentally more likely than a world where we redenominate everything in satoshis and transact in satoshis.

Peter McCormack: Okay, I agree, and as you know, I was with Michael Saylor yesterday.  This is something he's been talking about a lot, and he talked about this in a couple of interviews that have been out on Twitter, and I've seen the reactions of some people.  It's like, "No, we're here to end the Fed, we're here to end central banking, we're here to replace the dollar", and I don't find that logical in the short term.  We can talk about hyperbitcoinisation later on and decide whether we agree that's something that can or will happen; but right now, in the short term, people need a stable currency in the short term, and they need a store of wealth in the long term. 

I know from myself, and I expect for you, that Bitcoin is great long term, it's great to hold for years.  But for day-to-day, when you want to buy stuff, you need the dollar, I need the pound.  So, that idea of eliminating the dollar in the short term, I don't see happening.  I do agree with his point though, as there becomes wider access to stablecoins or digital dollars globally and they become more accepted, you could see other sovereign currencies fail quite quickly.

Nic Carter: We will see other sovereign currencies fail.  If you look historically, you get these clusters of sovereign currency crises, whether it's the Asian Financial Crisis, the Latin American Financial Crisis, the post-Soviet era, these aren't foreign to us.  Everybody knows someone that's lost money in the Argentine default, or the Greek default, or Cyprus, or when there's hyperinflation in Eastern Europe, and this is all within living memory.  We're not going back to Weimar here, these things happen frequently, and they tend to happen when sovereign debt levels are pretty high.  And guess what, they're very high.

We spent a lot of time bellyaching about the US and the unsustainable level of debt here, and how we're going to service that, and are we going to have an inflationary default, or anything like that?  But it's the rest of the world that ought to be worried.  It's already happening, look at the Turkish lira.  I mean, Turkey is a middle-income regional hegemon, Turkey is a powerful nation.

Peter McCormack: G20 nation.

Nic Carter: Yeah, I mean Turkey is strategically an incredibly important nation, they have a mature economy, they have a large population, a huge labour force, they matter, they're a power broker in the region, and their currency is inflating away to absolutely nothing.  So, it can happen anywhere.  I mean, Argentina has been, was, a wealthy nation.  The Argentine standard of living in 1900 was pretty high, relatively speaking.  Lebanon was a middle-income nation.  Now, they're living in absolute poverty and the currency's basically worthless and it's a total catastrophe, but these things happen, they definitely happen, especially post-1971.

So, are we going to have fewer sovereign defaults going forward or more?  I would wager more, especially given that there just has been a global creation of debt and credit, and that has to resolve some way.  And so, it's not the dollar I would be worried about, it's everything else.

Peter McCormack: Yeah, I think he said to me, he predicts 120 currencies will fail.  He thinks that the only survivors will be probably dollar, euro, pound, yen.

Nic Carter: Yeah, 120 is basically all of them!

Peter McCormack: Yeah, outside the top six or seven currencies.  But I'm questioning how it's happening, because if the Turkish lira fails, they could just knock a few zeros off and start again, exactly what they've done in Venezuela, but do you have scenarios where other countries dollarise on a stablecoin; is that a scenario that we see happening?

Nic Carter: I think it will happen, no question.  I've been expecting it.  Crypto dollarisation, because look at the failure of dollarisation historically.  So, look at Zimbabwe.  They had a bit of a dollar in fits and starts, and ultimately the government was able to successfully use the banking sector against its citizens to de-dollarise.  Now, what's the difference with the crypto dollarisation is that you hold your stablecoins in your own mobile wallet on your phone, you don't have to hold your assets with the bank.  So, you're insulated from the state weaponising the banking sector against you. 

So, because there's this bearer asset nature of a digital dollar, you can successfully dollarise, I think you can more fully and successfully exit the financial system in question.  And, if you look at stablecoins, they are proliferated globally.  I don't know what Turks are buying right now, for instance, to get away from the lira.  I would wager that it's a mixture of gold, dollars and Bitcoin and maybe property, other assets like that.  But I think a crypto dollarisation is more enduring and more successful than a physical Federal Reserve note-based dollarisation, because of course you have to somehow get those into the country.

Peter McCormack: Do you think it's also something that can come from bottom-up, because just thinking about when I went to Venezuela, it's kind of pseudo dollarised without officially being dollarised, but it's pseudo dollarised because when you're there, people want your dollar.  And Cambodia was the same.  When I was in Cambodia, people wanted your dollar, they said, "Will you pay in the dollar?"  So, do you see it as something that, rather than coming top-down, it comes bottom-up, and people just request the dollar and just enforce that?

Nic Carter: There's catalysts.  I think the Cambodian dollarisation was kicked off by the UN mission in Cambodia, but you're right, it's remained semi-dollarised.  Venezuela's interesting, it's kind of a melting pot of currencies now.

Peter McCormack: There's five really.

Nic Carter: The what?

Peter McCormack: Okay, there's four main.  We can dismiss the petro, because it just was a complete failure, but it is the bolivar, which obviously is an absolute shitshow; it is Bitcoin; it is the Columbian peso and it is, what's the fourth one?

Nic Carter: Right.  I also heard that in some more remote parts of the country, people use actual granules of gold to transact with, because there is a gold extraction industry.  So, you actually get some remonetisation of gold.

Peter McCormack: Interesting.

Nic Carter: But there have been bottom-up dollarisations.  My favourite one is Ecuador in 2001, I believe.  Most dollarisations are top-down, and it's effectively desperate central banks that say, "Okay, we're just going to peg our currency to the dollar or just adopt the dollar officially" to arrest an inflation which is delegitimising them, because they don't want a revolution, they don't want to be chased out of office.  But in the case of Ecuador, it was more spontaneous. 

There's a good paper by Larry White about this, effectively talking about how people can force the hand of the government.  And now, compare the world of today to the world of 2000.  The world of today is one where most people worldwide probably have smartphones, they have access to the internet, and they probably have a crypto brokerage locally that's either a peer-to-peer one, which is everywhere, or a more sophisticated centralised one, and through that they can get access to digital dollars, or really any digital asset that they want.  So, it's a much more frictionless world in terms of engaging in currency substitution.

That's a much more dangerous world for sovereigns with unstable currencies.  So, I think under the old model, you might have a slow currency failure, because people couldn't actually meaning divest from the currency, because they had their assets in the bank, they can't get them out of the bank.  But now, I think your ability to divest is just faster and more aggressive, and so it will take some of these central bankers by surprise.  They're trained to think under the old model; but under this new model, where maybe 200 million people have access to cryptocurrency or already own cryptocurrency, and multiples more have direct access to it, should they want it, that's a more aggressive and dangerous world, it's a more difficult world of currency competition.

I think central bankers in Turkey, for instance, realise that.  They see there is a vibrant crypto industry, they see that as probably part of the reason the lira is collapsing so quickly.

Peter McCormack: Well, Erdoğan has declared war on cryptocurrencies, but the interesting part of it for me, Nic, is that I've thought long and hard about a Bitcoin standard, and one of the things about a Bitcoin standard is it's completely individual.  I live on a Bitcoin standard now and me and Danny were talking about it earlier in that the majority of my wealth is in Bitcoin, I still hold pounds, I still hold dollars for when I need them; but essentially speaking, every time I have to make a lumpy purchase, something of significance, I do that through the lens of Bitcoin.

A great example right now is I'm looking to move house at the moment.  Historically, if I bought a house, I'd want to put down the biggest deposit possible.  Now, I want to put down the smallest deposit possible with the longest mortgage possible and the lowest interest rate, and I want to hold in Bitcoin, because I know it will outperform over that 25, 30 years of that mortgage.  So, I'm on a Bitcoin standard, because I think like that.  MicroStrategy's on a Bitcoin standard.

But with the dollar, you can personally dollarise now if you've got access to stablecoins.  Even if you're in Turkey, I assume you can choose to convert your Turkish lira immediately to a digital dollar if you want, and you can live on that dollarised standard without the country being dollarised, which is why I'm interested in this kind of bottom-up approach.

Nic Carter: That's what I think is going to be more popular.  We have portfolio companies that are doing brokerage for folks in Africa, for instance, and the most popular transactional digital asset for folks in Nigeria, for instance, is probably not even Bitcoin at this point; it's probably something like a Tether stablecoin, believe it or not, on a low fee blockchain.

Peter McCormack: TRON!

Nic Carter: Yeah, I mean that's honestly what I've anecdotally heard, believe it or not!  It's a brave new world out there.  Maybe TRON is sufficient for that use case.  That doesn't mean there's no affinity for Bitcoin and there's no Bitcoin usage, there certainly is a lot.  But for your cross-border remittance, if you have an import business and your suppliers accept stablecoins, things like that, it probably makes more sense to use a dollar-based stablecoin than the naira, in many cases.

Peter McCormack: I haven't spent enough time looking at stablecoins, I've been so focused on Bitcoin.  Do you know, interestingly, I've never really owned a stablecoin.  I've never bought Tether, I've never bought USDC, I've just never used one.  I've had them given to me or put into wallets before, but my limited understanding is that the Ethereum bloat, the gas fees, makes using it as a digital dollar quite problematic; that's why you talked about TRON.  But are there other ways to get a low fee digital dollar; can it be done on Bitcoin?  I know it's been talked about, but I've not looked into that.

Nic Carter: Yeah, I mean Tether began on Bitcoin on the Omni protocol.  Only a couple of billion really, I think, were ever issued on Bitcoin, which is funny that people connect Tether to Bitcoin so much, because Tether is mostly issued on other blockchains, of course.  But you can put a payload of data on virtually any public blockchain, and that can be the stablecoin.  It just has to be a claim that the administrator can interpret, and that's a trivial thing.  So, you have stablecoins issued all over the place now, not just Ethereum.  It's increasingly moving beyond Ethereum due to the fees.

You've got TRON, you've got stablecoins on Algorand, on Solana, on Avalanche; it's just all over the place now.  And what's actually happening is the notion of a stablecoin is being abstracted away from the underlying blockchain infrastructure.  People reason about Tether or USDC without knowing or maybe even caring about what underlying blockchain it's transacted on.  That's an engineering question they maybe don't care about.  So, we're going to talk less about making an Ethereum transaction, and we're going to talk more about a USDC transaction.

Peter McCormack: Right, so controversial question, how do I word this?  If you're of the belief of a future world whereby it isn't just Bitcoin, which I am, which is a world of Bitcoin and digital fiat currencies which are -- as I said before, I see a short-term need for fiat currencies, because you need the stability in pricing and Bitcoin isn't a unit of account now; and you need long-term Bitcoin for wealth protection and growing your wealth.  Does there need to be an acceptance therefore of alternative protocols, or could this all still be done on Bitcoin?  These protocols do have fair criticism for centralisation and such, or have you become more accepting of these protocols?

Nic Carter: I mean, I just have to live in the world as it is, and that's a world where there are a number of other blockchains, and certainly many of those uses are pretty valid including, for instance, stablecoins which of course could be done on Bitcoin, but there's reasons why you might want that trade-off of convenience in exchange for more centralisation.  So that's, I think, absolutely valid. 

Am I allocating my personal portfolio to these alternative Layer 1s?  Definitely not.  It's not clear to me why or how they would accrue long-term value, but are these valid places to build things on?  Unquestionably, and there's hundreds of billions of dollars of liquidity on these other blockchains.  Have any of them come close to competing with Bitcoin in a monetary context?  Arguably not, because they're not even really aware of the game that they're playing.  They think it's all about tweaking the monetary policy to make it attractive, when in fact it's about keeping your hands off the monetary policy to make it attractive.  They don't seem to have understood that just yet.

But certainly, there's abundant block space for alternative public blockchains, and there's interesting and important things being built there, no question about that.

Peter McCormack: So, it feels like if we start thinking ahead, maybe the next few years, decade, possibly the next couple of decades, that at a time where there's massive loss in trust in government, and that is not just within the world of Bitcoin, even my nocoiner friends who still don't buy Bitcoin are now becoming tired of the bullshit coming from government; at a time where we've got exponential technologies, we've got growth in crypto -- I say crypto because we are talking about stablecoins, and an increasing lens on the government because of the wild inflation numbers we've seen, and I know there's been wild inflation numbers years ago, but we didn't have an alternative apart from gold, I expect therefore the next 5, 10, 20 years that we're going to see a massive, both currency competition, but currency wars, something Balaji talks a lot about.

Nic Carter: And it's not just state currency versus state currency, and it's not just state currencies versus Bitcoin; it's state currencies versus Bitcoin and the full cohort of other alternative crypto assets, and that's the reality we live in.  And that entails a lot of nonsensical asset creation.  Everyone is a currency entrepreneur now, and that's normally a pretty bad thing, to create a start-up currency.  But that's what we have to accept.  I think it goes with the territory.

Peter McCormack: Well, Danny earlier reminded me of our conversation when we did our whole series about that Beginner's Guide to Bitcoin, and you and I covered altcoins, and I can't remember the exact words but -- Danny, are you mic'd up?  Can you remember what he said?  Yeah, you talked about how Bitcoin had been through a hell of a journey.  I think your words were, "It shouldn't have survived everything it's been up against, but it did".  And that's the point; money should be hard to create.

Nic Carter: Yeah, it shouldn't be a trivial thing to create a new currency, because you're trying to create a new system of trust.  I mean, how can you possible contrive that out of thin air.  I mean, Satoshi had to do so much to win our trust, everything open source, everything with fair warning, full disclosure, create the most auditable monetary system ever and then leave the project.  What other digital asset or cryptocurrency has done even one-tenth of the things that Satoshi did to convince us that this was a legitimate and fair thing.  I mean, I haven't seen anything remotely approximating that. 

I see a lot of breaches of user trust and I see a lot of extraction of wealth from people that put their trust in the creators of these alternative cryptocurrencies; I see a lot of intervention; I see a lot of tweaking of the money supply and constant changes to the monetary policy; I see a lot of centralisation.  And it's not just centralisation that's bad for the sake of centralisation, it's because it allows these protocol elites to monetise their advantage, to monetise their proximity to the protocol at the expense of the users, and there's plenty of examples I could give there.

But all of the inflationary negative dynamics we hate about fiat currencies, they're present times a thousand in the altcoin space, there's no question about that.

Peter McCormack: Can you give these examples, or at least one; I want to hear it?

Nic Carter: There's so much.  But just the very notion of an initial sale to venture capitalists, which I am one, of course, so no one's perfect!  But the notion of selling a share of an asset that you believe will be a global monetary good that everyone will one day use, if you really believe this and that's the inherent claim in any new cryptocurrencies that will become globally important, that's the return profile you have to expect to believe these things, selling 10% or 20% to a venture capital firm or hedge fund, or wealthy individual, and believing that doesn't delegitimise the project as it grows into something worth hundreds of billions of dollars is insane.

Peter McCormack: Are you talking about Worldcoin?

Nic Carter: Literally any single one that is venture backed.  The only authentic way to issue a new currency out of thin air is to make it costly to obtain.

Peter McCormack: And, are you considering every protocol and every token here as essentially a form of money?

Nic Carter: Well, some of them are just pseudo equity, right, some of them are like you get network equity and some smart contract that spits off cash flows, and maybe I get a token that entitles me to a claim on that; so, you do have to assert that taxonomy.  But your generalised Layer 1s, they all aspire to be money, and that's not a secret, that's what they tell their investors.  That's what everyone's buying into, that theory, "Hey, this thing could flip Bitcoin, or match Ethereum", that's the claim.

The idea that some Silicon Valley firm can own 10% of the world's future wealth, were that to occur, of course it won't occur, is preposterous.  So, that's the original sin, frankly.

Peter McCormack: Yeah, I've taken quite a bit of an issue recently with this co-opting of Web 3.0 to now mean blockchains.  Web 3.0 has been long discussed, back when I had my agency over a decade ago; Web 3.0 was discussed even before Bitcoin existed, but now it's been co-opted as a world of tokens, and I've seen very prominent investors talk about this.  Chris Dixon from a16z is very prominent talking about this at the moment, and I just feel like there's a co-opting of this for their own personal interest, and it doesn't feel like this is the decentralised version of the web that was predicted.

Nic Carter: Yeah, I don't think anyone knows what Web 3.0 means, frankly.  I don't know if we're going to be talking about Web 3.0 in a decade's time.  To the extent that it means having more ownership over your online self, and having genuine digital property, and maybe using a public key infrastructure to engage with digital online systems as opposed to surrendering your identity and your credentials to a third party, there's something to be said for that.  None of that implies or requires token of any sort.  That's a non sequitur, right.  So, I don't know exactly what it is that Web 3.0 is, frankly.

Peter McCormack: Well, Web 2.0 was more retrospective.  It was during a period of time where devs were working on ideas, developing them more, interactive web.  You went from static HTML pages to interactive pages using CSS, so when people did searches, it would come up with the result.  It was more retrospective.  It was like, "This is what Web 2.0 is, we've created this stuff, great".  I feel there is an attempt by people with an interest in their investments perhaps because, I don't know.

I mean, Chris Dixon threw Facebook under the bus the other day in a16z Investments as part of his explanation of why he believes in Web 3.0.  I just feel like it's an attempt to shoehorn a narrative to where they want to put money where they can see returns.  The big issue I've had with these, and I steal this line essentially from Jill Gunter -- she's changed her name now, she's got married, hasn't she?

Nic Carter: Yeah, formerly Jill Carlson.

Peter McCormack: Yeah, Jill Carlson, I can't remember.  But, Jill Carlson, when I met her years ago, she said one of the great things is they get to do their seed round on OPI at the same time, but actually they're going to do an IPO before they have product market fit, which to me is fucking ridiculous.

Nic Carter: Yeah, that's sort of why we have securities regulations in this country.  That is the interesting thing about Web 3.0.  To me, it's aspiring actually, looking back to the earlier days of the internet, when people ran their own email servers and things like that, so it was more genuinely decentralised, and trying to recreate that in the same way that Bitcoin is trying to recreate the gold standard.  I think Web 3.0 is also kind of backwards looking, in some respect, if aspiring to these days before Silicon Valley tech firms controlled absolutely everything and trying to reassert some personal autonomy.

But none of that implies a token, but it's just that we live in this world where you can't just have an idea and support an idea, the idea has to be monetised.  You can't just be enthusiastic about a concept now, it has to be connected to an investment thesis too.

Peter McCormack: Okay, so trying to think a little bit longer term, Nic, and I'm sure you do think about these things, but like I say, maybe you thought this stuff would happen.  I always felt like Bitcoin would be an asset and would be something to invest in, I just didn't see the El Salvador situation happening, certainly not now, maybe years ahead.  But trying to think the next five, ten years, the role of Bitcoin and how it's going to be changing, we do have a situation where Bitcoin is starting to appear to challenge gold.  There are a lot of gold bugs who are becoming maybe gold bugs and bitcoiners, or some are completely flipping.  Michael Saylor, he considers gold the enemy of Bitcoin.

We are at a time of weird inflation numbers whereby we're being told a certain inflation number, but actually inflation's very subjective to yourself and most people are talking about there being a situation of double-figure inflation.  Where do you see the evolving role of Bitcoin over the next five, ten years; I know that's a big question?

Nic Carter: I want to address the gold thing first.

Peter McCormack: Yeah, do it.

Nic Carter: I find it preposterous that bitcoiners are hostile to gold.  I know you've got a Peter Schiff photo right there, but Peter Schiff is our greatest ally.

Peter McCormack: You think?

Nic Carter: 100%.

Peter McCormack: Okay.

Nic Carter: 100%, and I am honestly aggrieved when Grayscale, they run their "Drop Gold" campaign; that's insane.  The same set of ideas that causes a man to embrace gold causes them to entertain the idea of Bitcoin.

Peter McCormack: I agree with that.  Again, I keep bringing up my brother because we talk so much, but he constantly refers to Peter Schiff and sends me his tweets and keeps saying to me, "We agree on the problem", to the point where I keep retweeting Peter Schiff and saying we agree on the problem.

Nic Carter: Yeah, I mean we have slightly different opinions regarding the solution, but the vastly more important thing is to diagnose the illness, right, and then the precise course of treatment is, "Do you want to take this antibiotic or that antibiotic?"  They do the exact same thing.  Gold is proto-Bitcoin, gold is analogue Bitcoin, Bitcoin is digital gold; they're two sides to the exact same coin.  If you like gold, you're sceptical of the state's ability to manage its currency; it's the same with Bitcoin.  Gold's not going to cease to exist.  Gold has this enormous cultural salience.  Bitcoin will not demonetise gold.

Maybe some of the gold that was in ETFs, maybe that will go into a Bitcoin ETF eventually, but gold will never cease to exist.  It is an element that has remarkable properties, truly remarkable, and you can't just scrub that from our collective memory.  I don't really own any gold, to be clear.  But the important thing is that people are sceptical of the monetary discretion of governments and they look to store their assets in a pure monetary medium that is outside the control of the state.  How precisely you choose to express that is kind of an afterthought.  But just getting people on that same page is the difficult thing.

Here's another instance where gold has these parallels with Bitcoin.  When we were debating the gold standard and whether we should return to it, there was a huge debate among Austrians, and frankly their ideological components, about the costs of the gold standard.  It was alleged that a gold standard would be too costly from a societal resource perspective.  I think Milton Friedman wrote something like, "A gold standard would cost 2% of GDP a year just to maintain and extract the gold". 

That estimate, I think, was erroneous, but the point was it was considered to be exorbitant to have this inert metal effectively being monetised, and being a medium to store wealth, when we could just simply create paper currency.  Once you realise that the paper currency is incredibly costly in its own way in a different and more oblique way, once you have that realisation, you understand why it's important to store human wealth and time and ingenuity in this non-state monetary device.

And so, of course, there's the same debate that happens with Bitcoin, "Bitcoin is too costly from a resource perspective to maintain, why do we need it?  We can just have paper currency.  Who cares about Bitcoin?  We don't need that, we don't need to spend 30 basis points of global energy on this thing".

Peter McCormack: Well, Nic, specifically in the UK, referring to our Chancellor, who has coined the term, Britcoin, for the potential CBDC of the UK it's, "Why do we need Bitcoin?  We have Britcoin".

Nic Carter: Yeah, "Why do you need it?  We have CBDCs.  We have this wonderful government money which costs nothing".

Peter McCormack: It's energy efficient.

Nic Carter: It costs nothing until it costs you everything.  So, Bitcoin and gold are so close on the ideological family tree, they're likes apes and gibbons, they're right next to each other.  Whereas, sovereign currency is in a completely different genus.  So, I find it so disappointing when bitcoiners go to war with gold enthusiasts, because they're there for the exact same right reasons.  And honestly, they have valid reasons to prefer gold to Bitcoin, no question about it.

Peter McCormack: Yeah.

Nic Carter: I mean, it's a physically instantiated thing.  Of course, I think Bitcoin vastly outperforms it in the important domains: transmissibility, auditability, obviously it's more fractionalisable, it's easier to store in many respects; there's a lot of good stuff to say about Bitcoin, and I don't have to sing its praises.

Peter McCormack: I haven't got rid of my record collection, but I don't travel with it, I travel with Spotify.

Nic Carter: Yeah.  Gold just has a lot of momentum.  Governments own it, a lot of gold, and you're not going to be able to undo that overnight.

Peter McCormack: No, but my expectation is this is like a transitionary phase which might be multi-decade.  I mean, you're of the belief that governments will eventually adopt Bitcoin beyond El Salvador, and alongside gold.

Nic Carter: Of course, yeah.  And here's my proposal to a government official that's listening.

Peter McCormack: Let's go!

Nic Carter: You should just simply buy the equivalent amount of Bitcoin that you hold in your official gold reserves; it's so simple, because all you need to do is hedge against a world where there's a Bitcoin standard.  And you will be no worse off in that world than you are in today's world, where gold is the de facto monetary good that governments hold that's not US Treasuries or foreign currency.  And actually, central banks have been buying a lot of gold, if you look, because they're fearful of -- well, they buy all kinds of stuff, but they're fearful of the dollar depreciation.

So, how do you get from today's world, which is where governments hold a lot of gold, to tomorrow's world, where there's maybe Bitcoin and gold side by side as the official non-state reserve assets of choice?  Well, you just simply work out what percentage of gold you own, and then you just buy the equivalent amount of Bitcoin.  So, there's around 200,000 tons of gold that have been mined, give or take, above-ground gold.  The United States has about 8,000 tons of gold.

Peter McCormack: Allegedly.

Nic Carter: Yeah.  There's no way to do proof of reserve on gold, let me tell you!  So, they claim to have 8,000 tons of gold, which is the most of any government.  So, how do they become no worse off under the Bitcoin regime as compared with the current regime, where gold is demonetised but it's still important?  Well, you simply just work out the ratio.  That's 4% of all the gold they have.  It's a lot greater percentage of all the official gold, but all of the gold matters.  So, what's 4% of all the Bitcoins?

Peter McCormack: What is it, about 700,000?

Nic Carter: 840,000, I believe, of 21 million.

Peter McCormack: Yeah, 210 times 4.

Nic Carter: Yeah, so it's fewer than 1 million Bitcoins for the US to tread water, to stay just where they are.  And, what would that cost them to acquire?  Less than $50 billion.  Now, that's a pretty cheap option to get into the future if you want to be no worse off than you were under the current model, where you still have this enormous gold reserve.

Peter McCormack: What's the circulating supply; I thought it was around 2 million Bitcoin right now?

Nic Carter: There's maybe 4 million Bitcoin that are lost or inaccessible now anyway.

Peter McCormack: Yeah sure, but actual liquid circulating supplies?

Nic Carter: Yeah, but the thing is that even the illiquid supply matters, because if the price goes up enough, that will induce people to bring their cold storage back online and make it market relevant once again.  So, you'd really need to determine what's truly, truly lost, and that's probably 3 million to 4 million Bitcoins.

Peter McCormack: Why do you think governments are reticent to start, well it's probably a double question, reticent to start accumulating Bitcoin; or do you think some already are?

Nic Carter: Yeah, they're reticent to tell us about it, because for the duration of the time that you're accumulating Bitcoin, you're not going to be public about it; that will just make your cost basis much higher.  So, what Saylor should have done would have been to secretly acquire all his Bitcoins; he would have been able to do it much more cheaply.

So, if I'm the Singaporean sovereign wealth fund or something and I'm broadcasting that I'm acquiring Bitcoin, I don't know if they are to be clear; they're probably not.  But any government that is acting on a decades-long timeframe and is secretly hedging their exposure by getting access to Bitcoin, in whatever method, they have no incentive to talk about it.  So, we'll only really learn after the fact, so it will be a secret.

Peter McCormack: But do you think it's happening?

Nic Carter: I wouldn't be surprised.  There's other nations that have official relationships with Bitcoin aside from El Salvador.  El Salvador was not the first, it's just that the other nations are pariah nations.  North Korea, it's not a secret at all that the North Korean state-sanctioned hackers are behind the hacks of a lot of crypto exchanges.  That's a cost-effective way to get Bitcoin.  It's not a secret that the Venezuelan regime confiscated people's ASICs and the state Secret Police are mining Bitcoin.  Or that the Iranian central bank, they even put out a specific missive about Bitcoin reserves, Bitcoin-denominated trade and things like that.  All those states are excluded from the financial system, so they have a strong incentive to get this alternative transactional medium and to get these reserves, which can't be seized or confiscated.

If you look at Afghanistan, when the Taliban took over, their dollar reserves were inaccessible to them, so it's no secret that autocrats and despots the world over, it's not a surprise that they should want this monetary system, these monetary units, that can't just be turned off at the click of a button by the US Government.  So, El Salvador wasn't the first; they were just the first sort of vaguely western nation to embrace Bitcoin.

Peter McCormack: What do you make of El Salvador, because they are very much becoming the MicroStrategy of countries, the first to do this?  Bukele is tweeting out all the Bitcoin memes, they're buying the dips, they are about to issue this bond.

Nic Carter: I think Bukele got an enormous personal dividend out of it, which is now he's known to all of these bitcoiners worldwide, and really just his fame skyrocketed as a consequence of doing this.  So, there's a big payoff for him.  The question is, will there be a payoff for the Salvadoran people?  I think that remains to be seen.  I think there's a lot of cynical takes out there in the press about, "Chivo was buggy at launch", and stuff like that, which is silly.

Peter McCormack: It's software.

Nic Carter: It's like the US Government couldn't create a healthcare website!

Peter McCormack: And let's be honest about CBDCs.  Do we believe that however they launch, or whatever blockchain they choose to use, they will have 100% permanent uptime?

Nic Carter: They don't even exist yet, right, so we're comparing a deployed system to something that's theoretical.  Of course, a theoretical thing might seem better, but at least he gave it the good old college try.

Peter McCormack: I think the Obamacare website analogy is pretty fair!

Nic Carter: And that's the most powerful nation on Earth!  So, I think they did well, all things considered, probably.  But yeah, we'll see if it's actually creative to the Salvadoran people; I'm withholding judgement on that front.  I think they're certainly smart to diversify their official holdings into Bitcoin, they just have to follow the formula that I laid out for them, and I don't even know if they have any gold, they might be better off.

Peter McCormack: They do.  I think it's 1.7 tons, or 1.3 tons of gold.

Nic Carter: Then they're almost undoubtedly better off for the Bitcoin standard than they were under the old regime.

Peter McCormack: It's like $78 million in gold.  I'm pretty sure Danny would be able to check that.  7.2 tons, is it?

Nic Carter: Then they're killing it in Bitcoin world.

Peter McCormack: No, 1.3 tons, I was correct, I knew that.

Nic Carter: They have an incentive.  So, yeah, less than $100 million of gold, I think.

Peter McCormack: $78 million, I think it worked out as.  What do you make of the bond, the volcano bond, because the game theory of it is kind of interesting in that, if they launch ten consecutive bonds, they could potentially take $5 billion of Bitcoin off the table, if half of each of the $1 billion funds goes into buying Bitcoin?

Nic Carter: Well, they need to find buyers for the bonds.  I don't know if the offering was subscribed, I haven't been following it, but I think Matt Levine's take is basically correct which is, you can get exposure of the Salvadoran bond just by buying generic Salvadoran debt with the same maturity, and by buying Bitcoin, and that exposure will be more efficient than if you do it through the product of the bond, the Bitcoin bond. 

So, there are alternative ways to get that exact same financial risk if you want it, as opposed to buying the structured product that Bukele's offering.  The only difference is that you can buy the Bitcoin bond on Bitfinex and it can be a crypto venture, and you can get your residency in El Salvador by doing that.  But from a financial product perspective, frankly it's inferior, I hate to say it, but at least it's creative.

Peter McCormack: Do you think bitcoiners are being objective enough about Bukele and using enough of a critical lens?  Look, I've obviously met him and interviewed him and feel like personally, I perhaps haven't been objective enough about him or critical enough or cautious enough with regards to him.  And the reason I ask this is, we kind of had a rug pull from Elon Musk at one point, where he went from hero to zero.  He was our Bitcoin guy, bought $1.5 billion in Bitcoin, and then he did his energy FUD rug pull on us and then promoted shitcoin after shitcoin. 

I wonder if there is a short-term risk to Bitcoin in the Bukele situation perhaps going south, and that is a reputational issue for Bitcoin, but is used by international institutions to attack Bitcoin.

Nic Carter: Bitcoin is money for enemies, Peter.

Peter McCormack: I know, I know.

Nic Carter: We have to acknowledge that evil people use Bitcoin.  I'm not saying Bukele's evil, but we know that the worst people on Earth use Bitcoin, disproportionately probably.  I mean, they use the dollar too, right, that didn't delegitimise the dollar.  The best monetary network is the network that doesn't exclude anyone, regardless of how odious they are.

Peter McCormack: That's not what I'm asking though.

Nic Carter: There is something to what you're saying.  I mean, I think you've been fair in your interactions with Bukele.  I very briefly interviewed him, I tried to be fair, not overly sycophantic.  That's been the accusation, but people use anything they can against us.  They'll accuse us of anything.  I mean, I don't even know if he's strictly considered a dictator yet.  He jokes about it.  I don't know what the definition is.

Peter McCormack: It's funny you should say that, because I asked him that in the interview.

Nic Carter: If he was a dictator?

Peter McCormack: Yeah, and he said, "Well, what is a dictator?"  I was like, "Funnily enough, I actually have the definition here, and I read it out to him!

Nic Carter: What, Miriam Webster dictionary!

Peter McCormack: I think it was the Cambridge dictionary.  But I think that's to be proven longer term.  That comes down to what happens in the next election, etc.

Nic Carter: All kinds of awful people use Bitcoin and, as I said before, pariah nation states that conduct atrocities use Bitcoin, have Bitcoin, are mining Bitcoin, are obtaining Bitcoin.  Bukele is certainly not as far on the authoritarian spectrum as Kim Jong-Un or Maduro.  But yeah, reality is messy.  We don't get to choose who adopts Bitcoin.  Certainly, the countries and individuals that benefit the most from the dollar institutional system are not going to be the first ones to adopt Bitcoin.

Peter McCormack: It was Peter Van Valkenburgh's testimony where he eloquently put, and I won't do the same, but we talk about criminals using Bitcoin and he said, "For every criminal who does, let's also talk about a person in Belarus who's fighting against Lukashenko and is using it to usurp the state so they can actually be paid and protest; and let's talk about people in Nigeria; let's talk about people who don't have access to bank accounts".  So, he tried to give that balance when he gave his testimony.

Nic Carter: Yeah, Bitcoin works to the benefit of the excluded and just literally look at the data, look at the Chainalysis adoption data.  What are the countries with a high per capita penetration?  Nigeria, Vietnam, India, Columbia, Venezuela, Ukraine, other parts of Southern Africa, Eastern Europe, Southeast Asia, Latin America.  These are not your centres of global commerce necessarily, but Chainalysis publishes this data, it's pretty evident.  It's the global south that is disproportionately adopting Bitcoin.

So, it's no wonder that the Bank of England and the Fed don't understand this thing, it's not even strictly for them.  You benefit from the established system, you've no incentive or desire to seek an alternative.  But look where this thing's actually being used on a per capita basis.

Peter McCormack: Okay, let's talk about hyperbitcoinisation, because it is a theory a lot of bitcoiners talk about.  I think it was Pierre Rochard who wrote about it on the Nakamoto Institute.  It's something that comes up a lot as a given.  People don't talk about "if" we hyperbitcoinise, it's "when" we hyperbitcoinise.  I know you're not entirely convinced.  I want to talk about it with you, because I like the fact that you're not entirely convinced.

Can we try and come up with a definition of what we might agree on, what hyperbitcoinisation is?  We tried to do it earlier.  My loose attempt was to say, "Perhaps it's a scenario where, within a country, it is the only currency you have", might be a scenario.  Others might say, "It's a scenario where it's a stable global currency and perhaps a number of nations…"  I don't know how to define exactly what it is.

Nic Carter: I obviously remember reading all the Nakamoto Institute stuff and it was pretty entertaining.  I'm not even sure that it was Pierre Rochard that wrote that one.

Peter McCormack: Was it Daniel?

Nic Carter: It might have been Daniel Krawisz, yeah.  It was a fun article, I'm just not sure it was intended seriously.  I don't know if it was written with a straight face.  The Nakamoto Institute stuff was, you know, parodying reality.  It was fun, thought-provoking stuff, but it's not necessarily, "This is a prediction of specifically what I think will happen.

Peter McCormack: But some of it did.  The speculative attack has become true.

Nic Carter: Right.  I think we're maybe asking too much of the authors of that piece if we are treating it as doctrine, because maybe it wasn't intended to be a serious assertion.

Peter McCormack: Thought-provoking instead?

Nic Carter: Yeah, it might have just been a fun thought experiment.  I don't know of any economists that advance a theory of hyperbitcoinisation, whatever it means.  I think it's probably a play on hyperinflation.

Peter McCormack: "Hyperbitcoinisation is the inflexion point at which Bitcoin becomes the default value system of the world".

Nic Carter: Okay, so that's more of a unit of account story.

Peter McCormack: Yeah, that's Bitcoin Magazine's.

Nic Carter: That's when you redenominate everything in satoshis.  Do I think that's ever going to happen?  Absolutely not.

Peter McCormack: Because, it's always volatile against another currency, there are always exchange rates?

Nic Carter: It's kind of volatile by design.  Bitcoin is perfectly inelastic from a supply perspective, which means that its volatility will not attenuate, most likely.  It is very rigid, from a supply standpoint; that's what we like about it.  So, it's a blessing and a curse, it's a poisoned chalice.  So, Bitcoin can be incredibly useful and important and influential and so on without being the unit of account. 

What we're seeing right now, as I talked about earlier, is Bitcoin being a collateral type which powers an established unit of account, like the USD.  But you can, of course, with any of these algorithmic systems, determine any unit of account you like.  It doesn't have to be indexed to the dollar.  There's absolutely stablecoins that have arbitrary unit of accounts.

There's one I can't think of right now, it might be RYE, which started at, I want to say $3.14, and it just kind of floats along.  So, it's not indexed to the dollar, but it is intended to be stable.  So, that's the beauty of these programmable, configurable systems, is you can determine any unit of account and then create a system which tracks that.  And maybe dollars aren't the best one.  Maybe people will want to trade goods in an index that tracks property prices or commodity prices, but for now, dollar's the dominant one.  And if you look within the crypto space, dollars are absolutely the dominant unit of account.

A few years ago, Bitcoin was the currency that you denominated your altcoins in.  You would say, "This thing's 300 sats [or] 400 sats", or whatever.  That's not really the case today, and that's okay.  It's not even strictly the dominant medium of exchange in its own industry, and it's not even strictly the dominant unit of account, it definitely isn't, in its own industry.  So, how can we expect that to externalise if it can't even conquer the crypto space.  That's not me being a pessimist, that's just me being realistic.  How do we expect global trade flows to be redenominated in satoshis if people won't even trade on exchanges in satoshis?

Peter McCormack: So, you think the idea of people pricing oil in Bitcoin is unlikely, a long way off?

Nic Carter: I think Bitcoin could and will be traded for oil, but that doesn't mean it will be priced in Bitcoin terms.

Peter McCormack: So, do you think a more useful term, or topic to talk about rather than hyperbitcoinisation, is more of a Bitcoin standard?

Nic Carter: Yeah, I think so.  And a Bitcoin standard to me is, I'd probably defer to Saifedean on the definition of that, but the way you define it was good, I think, where Bitcoin is your dominant savings device, it's the main medium through which you store your wealth and your time.  Then, you might transact at the edges in other currencies, and you might convert it to other things, but it's sort of your dominant savings device.  A Bitcoin standard is a world I can totally imagine and perceive, and I think is more likely to happen than not at this point.

Peter McCormack: Well, like I say, I think it is happening, because as an individual, like I said, I believe MicroStrategy are a Bitcoin standard business; I believe El Salvador is heading towards being a Bitcoin standard country; and you and I, the four people in this room, you and I could be on a Bitcoin standard, they don't have to be, but we can still maintain that.

Nic Carter: Yeah.  100% of the population of this house right now is on a Bitcoin standard, so we're really dominating.

Peter McCormack: I'm not sure.  Are you, Jeremy? 

Jeremy: I keep sending invoices in Bitcoin.

Peter McCormack: Do you?  You're not having my Bitcoin!

Nic Carter: 100%.  So, this tiny corner of South Florida is fully bitcoinised, this ten-yard area.  But it's not just the countries, it's not just the El Salvadors and the MicroStrategys, it's the tens of millions of people worldwide that have spontaneously adopted this thing, and they're on a Bitcoin standard too.

Peter McCormack: I'm not sure everyone is.  So again, we were talking about this this morning.  I think there's a difference between having Bitcoin and being on a Bitcoin standard.  So, for example, I believe MicroStrategy, especially having spent time with Saylor yesterday and he explained to me that the business is on a Bitcoin standard.  Whereas, I believe Tesla owns Bitcoin.

Nic Carter: Well, Bitcoin doesn't care how much of your wealth is in Bitcoin.  From the perspective of Bitcoin's monetisation, Bitcoin itself is indifferent.

Peter McCormack: Of course.  But the point being, I think there is Bitcoin and there's being on a Bitcoin standard.  Being on a Bitcoin standard is a choice to you, so it's personal to you how you treat Bitcoin.  What I mean is, I think Tesla is on a dollar standard and holds some Bitcoin in its treasury.  I believe MicroStrategy is on a Bitcoin standard.

Nic Carter: Okay, I see the point you're making.

Peter McCormack: Yeah, I think they're two different things.

Nic Carter: But if you think about Bitcoin's apotheosis, where it might end up, I think if it had a trajectory such that it ended up somewhere similar to where gold is today, that would constitute success.  That might be seen as hopelessly conservative by the bitcoiners; that would only imply one more 10X, which I know would be devastating, but that would be success.

Peter McCormack: Why so bearish, Nic?

Nic Carter: I know!  And, how do people treat gold?  Well, they have some gold jewellery, and maybe they own an ETF, and they own dollars, which are really indirectly backed by gold -- well, not backed by, but the US gold reserves.  And how do households outside of the US treat gold?  Well, they have their gold heirlooms, their family wealth might be stored in gold, and you maybe give it as a gift, once in your lifetime, when your daughter gets married or something.

Gold is important, but it's not the only asset that they own; they own property and stocks and things like that.  That would be a good outcome for Bitcoin if it achieves that level of cultural and economic penetration, that would be a great outcome.  I don't know if that would mean that everyone would be on a Bitcoin standard, but that's a world that I can completely imagine.

Peter McCormack: Yeah.  I feel like it can't have a top though, because if we give a top, then people are like, "This is the end", and they'll start selling out; because in the end, I think Number Go Up sometimes is more important to people than the moral implications of a Bitcoin standard.

Nic Carter: Well, the composition of Bitcoin holders will necessarily change, because the early bitcoiners will have liquidity needs, and they will need to consume, so they will eventually divest.  They will be spending at a rate that exceeds their new savings ability, especially because the bulk of their savings activity would have been done historically when Bitcoin was appreciating. 

The natural progression here is simply that the earliest bitcoiners progressively divest, and later adopters come in, and so then the Bitcoin holder base becomes renewed and changes; and of course, that's what's happening.  There's a lot of early bitcoiners that currently hold very little or no Bitcoin.  When they all buy houses with their Bitcoin after a big rally, that's early holders divesting and the distribution of ownership changing.

So, the expectations of the earliest investors, they matter less and less with time, is what I'm saying.  So, the newer folks may not see it as a failure if Bitcoin only goes up 30% a year.  That might be precisely accomplishing their goals, which is wealth preservation.

Peter McCormack: Well, a more consistent, less volatile growth in Bitcoin I think is better for Bitcoin.  I try and imagine it happening and try and think through the scenarios, but if that does happen, then I think it ends up breaking itself; because, if you had that consistent 30% year on year, it's like, hold on, if we can get 30% year on year, well then a lot of people will pile in and then we'll see a blow-off top and come back down.  So, maybe we can never get that stability.

Nic Carter: Oh, yeah.  I mean the psychological component will always be there with a price action, but yeah, I don't think a decreased but steadier level of returns delegitimises Bitcoin.  That doesn't delegitimise gold.  Gold did have these wild swings in the 1970s.  If you look at that inflationary period, gold increased something like a factor of eight in real terms throughout the 1970s, as it became a device that people used to escape the dollar.

The same thing on a grander scheme today.  Bitcoin went from zero to something, so the return multiple was enormous, but eventually it will probably become less volatile and just a more quotidian, just normal thing to own.

Peter McCormack: Awesome.  I had this whole other section that I wanted to go into, but I think that might end up being a whole show itself, so I think that might be a good place to finish it.

Nic Carter: Okay.

Peter McCormack: I think that was a good chat, Nic.

Nic Carter: Thanks, Peter.

Peter McCormack: It's good to do it in person, man.

Nic Carter: I can't believe this is the first one.

Peter McCormack: I know.  Well, listen, we're back to touring and trying to do them in person.  We'll be in Miami a couple of times a year, so we can get into some deeper subjects another time.  But I appreciate you coming on so many times, man.  I really appreciate you.  It's good to have you as a friend and as a fellow bitcoiner, and as a guest on the show.

Nic Carter: Yeah, and I have a bone to pick with you saying Lyn is the most frequent appearing guest, because she had an arranged thing.

Peter McCormack: This is a fair criticism!

Nic Carter: She was semi-affiliated with this show.

Peter McCormack: Nic is the most regular guest on the show who isn't a scheduled monthly guest.  He's the most regular guest on the show.

Nic Carter: Thank you, I'll happily accept that.  If you ever make plaques or trophies…!

Peter McCormack: We should do a T-shirt.  We'll do the, "Nic Carter is the most regular guest on What Bitcoin Did", T-shirt.

Nic Carter: And you know, there are some podcasts that have their own DAOs now, podcasts which will go unnamed, as they're competitors to this show.

Peter McCormack: Is that Bankless; I bet that's Bankless?

Nic Carter: Bankless is a DAO.

Peter McCormack: What Shitcoin Did, is what we call that show!

Nic Carter: If you ever make one, the premine, you should reserve!

Peter McCormack: No, there's no premine.  I want some money off you for my football club though, we'll talk about that another day.  But listen, Nic, thank you.  Tell people how to find your podcast.

Nic Carter: Oh, yeah.  I have a much smaller, but --

Peter McCormack: Far more intelligent.

Nic Carter: -- competitive podcast, called On the Brink.  I think at this point, we're actually over the brink, so we might have to rename it.  But yes, you can find that on podcast websites.

Peter McCormack: All right, man, we'll share it in the show notes.  Nic, good to see you, man.  Love you, dude, take care.

Nic Carter: Thank you.