WBD438 Audio Transcription
Separation of Money & State with Matt Stoller & Peter Van Valkenburgh
Interview date: Friday 17th December
Note: the following is a transcription of my interview with Matt Stoller & Peter Van Valkenburgh. 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 Matt Stoller: author of ‘Goliath: The 100-Year War Between Monopoly Power and Democracy’, about his recent newsletter post ‘Cryptocurrencies: A Necessary Scam?’. To make the case for Bitcoin I am joined by Coin Center’s Peter Van Valkenburgh. We discuss the issue of power consolidation, the current crisis with democracy, and the monopoly of money.
“People are running from a system that’s clearly organised by cynical malevolent types in the financial system and they’re running straight into the arms of a system which is organised by a different group of predators… that’s the fear I have with crypto.”
— Matt Stoller
Interview Transcription
Peter McCormack: Morning, Peter, good to see you again.
Peter Van Valkenburgh: Good to see you, Peter.
Peter McCormack: Good to see you, Matt, thank you for coming on.
Matt Stoller: Thanks for having me.
Peter McCormack: We'll give a bit of a background to this. Michael Casey and you had a discussion on Twitter and agreed to do a discussion about Bitcoin, talk to you about it, see what you think about it. Unfortunately, Michael couldn't make it; thankfully Peter van Valkenburg happy to step in and help us this morning.
Peter Van Valkenburgh: The last-minute substitute.
Peter McCormack: The last-minute substitute; great substitute.
Peter Van Valkenburgh: Put me in, coach.
Peter McCormack: Yeah, well listen if you can do it in Congress, you can do it here, man. By the way, I keep stealing one of your lines.
Peter Van Valkenburgh: Good.
Peter McCormack: For every elicit transaction you want to be concerned about, there is this transaction.
Peter Van Valkenburgh: Yeah, yeah.
Peter McCormack: I won't say it as eloquently as you.
Peter Van Valkenburgh: Everything is creative comment, so you are free.
Peter McCormack: Thank you. Okay, Matt, just for the audience because not everyone will know you because it's a Bitcoin audience. Let's just give people a bit of your background.
Matt Stoller: Do you know who I am?
Peter McCormack: I know who you are. I was already following you, I think.
Matt Stoller: Sorry, you want me to tell you who I am?
Peter McCormack: Just give the audience a bit of a background to who you are, what you do.
Matt Stoller: Yeah, sure. I'm the Director of Research at a thinktank called the American Economic Liberties Project and I write about the problem of monopoly. I don't do much around crypto or finance, I usually write about Big Tech, healthcare systems, lots of problems in our commercial arenas, monopoly and cheerleading, lots of weird stuff.
Peter Van Valkenburgh: Wait, there's cheerleading monopolies?
Matt Stoller: There's cheerleading monopolies, I'll tell you about how it works. But I did work in Congress during the Financial Crisis on Dodd-Frank, particularly aspects of that relating to the Federal Reserve, so I have some background in finance; and I wrote a book called Goliath: The 100-Year War Between Monopoly Power and Democracy. It had a lot on the history of finance, particularly in the 1950s and 1960s when it was a far more regulated system. So, that's my background.
When I looked at crypto, one of the things I noticed is that when you have bubbles in an economy, usually it takes two things to have a financial crisis and this was true in the 1920s, it was true in the 1970s, it was true in the 2000s, which is you need Florida real estate or Florida scheming and Citibank. You put those two things together and usually a couple of years later, you have a financial crisis.
So, when I look at Bitcoin or when I look at cryptocurrency and I see all of this activity and speculative fervour, which I respect the anger at the financial system having worked on the politics of that, but when I see that and I see the professionalisation of the space and the increasing amount of activity there, I worry that we're headed towards something similar; not that crypto is going to lead to that directly but that it's a symptom of a broader mania in our society.
That's where I come from and that's why I had that discussion with Michael. I'm open-minded, I don't know that much about how these systems work, but that's where I'm coming from and those are my biases.
Peter McCormack: Can you explain the Florida real estate thing?
Matt Stoller: Yes, so in 1925, when you have a speculative fervour, which is largely driven by monetary policy and a lack of constraints on banks, then people start to bet on anything. So in the 1920s, there was a lot of betting on a number of different parts of our site including the stock market. But it started earlier in the 1920s before the stock market really inflated. There was a lot of investment in Florida real estate, because railroads were coming down to Florida, it was a place where you could grow things in the winter and people started betting.
The best story is, there was this speculative fervour over real estate in a town called Nettie and people in New York were just buying and selling and swapping lots of land in Nettie, Florida. It turned out it didn't exist; it was a completely made-up town. Then a series of hurricanes hit and destroyed a lot of what was in Florida, so there was a crash in the mid-1920s that was very much a shadow or a premonition for the later crash in 1929.
Citibank then was called National City, was very involved in what was happening in Florida and then later on, in inflating the stock market bubble of the late 1920s. In the 1970s, you had REITs which are financial investments to own and operate real estate.
Peter Van Valkenburgh: Real Estate Investment Trust.
Matt Stoller: Yeah, Real Estate Investment Trust. Basically, they were somewhat similar the way that they were regulated or not regulated in the 1970s, and National City or Citibank was very involved in financing them, and you had a crash. Similarly, there was unregulated speculation going on for a variety of reasons; I can get into it if you're interested in that.
Then in the mid-2000s, a lot of us remember that you had Citibank again very involved in inflating the subprime bubble and Florida was not the only place, there was a lot of inflated speculation in land, but Orlando and Miami were centres of it, as well as Las Vegas, California, a bunch of other places. Effectively, Florida has always served as a fulcrum of speculation and then when you bring the banking system to bear on it, I'm not saying it's causal or anything.
Peter Van Valkenburgh: I rather like the idea, yeah.
Matt Stoller: It's something I noticed.
Peter Van Valkenburgh: I rather like the Florida Man theory of bubbles and cycles.
Matt Stoller: Yes. I grew up in Miami, I love Miami, but it's a place where people bet on crazy things.
Peter Van Valkenburgh: Matt are you familiar with the WJ Howey v SEC case?
Matt Stoller: No.
Peter Van Valkenburgh: It's the Supreme Court Case that defined investment contract as a sub-definition of what is a security for securities disclosure requirements here in the US. This case comes up a lot. Peter's probably done a whole podcast on it with me and with other lawyers, because it's the same framework, judge-made framework, for determining whether an investment is a security that gets applied to crypto these days.
Matt Stoller: Was this in the 1950s, this decision?
Peter Van Valkenburgh: Yes. So, the decision was in 1951 or 1952, but WJ Howey was dead I think at that point actually and I'm pretty sure, I'd have to go back and check now, that his scheme which was snowbirds coming down from Massachusetts, tour his orange grove. He's like, "The orange grove is for sale. You could buy a fifth of it and I'll have a contract with you to maintain the oranges and sell them at market for a profit and you can just reap the returns and stay in my hotel whenever you want to come down".
Of course the orange grove was not profitable, but I'm pretty sure this happened in 1920s and 1930s and only made its way up to the Supreme Court, at which point the Supreme Court said, "Look, the security laws are meant to apply broadly to any investment of money, where there's an expectation of profits, reliant on a third party. Everyone was reliant on you Howey, or your estate", whoever were suing at this point, "what you did was not a real estate deal, it was a security and should have been registered with the SEC".
I'm not going to go too deep into securities law of crypto, before Peter has a chance to ask his second question of the interview, but it is very much the same with something like an ICO, an Initial Coin Offering, which is a terrible term that should have never come up in the first place, because it's sort of like taunting the SEC. It's not an initial public offering, it's an initial coin offering, but there's a sale of a commodity and there's promises also associated with that sale. The commodity plus the promises, the real estate plus the promises is a security, should be registered with the SEC. It should go through the same investor protector regime that we do for other things.
Peter McCormack: I'm not sure how much securities is going to come up today, so just for context, Peter obviously works at Coin Center. Coin Center don't pick winners, they support and try and educate and guide policy with regards to public blockchains. Bitcoin is not considered a security.
Peter Van Valkenburgh: Never had an ICO.
Peter McCormack: Never had an ICO, yeah.
Peter Van Valkenburgh: All the bitcoins that have ever emerged in the world, emerged through someone's hard work mining the blockchain which is a public good.
Peter McCormack: Yeah. Whereas Ethereum is in this kind of grey area where the consideration was, "Maybe it was a security, but it isn't a security now". It's a bit of a grey area and then lots of these other things are just considered securities. My podcast is entirely Bitcoin focused, so I don't really have too much of an interest in crypto. I might share some of your criticisms of crypto.
Interestingly enough I was down in Miami this week, Basel was on, and it was NFT mania, which to me feels very similar to what you're talking about. But I want to focus more on Bitcoin, but I'm happy to talk about why, but I consider Bitcoin and cryptocurrencies generally quite separate. I consider Bitcoin money and I consider cryptocurrencies more like companies, distributed companies, but still companies. It is an important distinction for me.
The only area of crypto I kind of care about is stable coins because they play a role in supporting Bitcoin, so by virtue of that I kind of have to pay attention to some of these cryptocurrencies. I'm not hugely interested in NFTs, but I heard some ideas of things that could be interesting. But I myself am much more focused on Bitcoin, but we'll see where the conversation goes. Can we just talk a little bit about 2008, again? Did you say you were working in congress?
Matt Stoller: Yeah, that's right in 2009.
Peter McCormack: 2009, so post the crash.
Matt Stoller: Yeah, late 2008, early 2009, right.
Peter McCormack: How similar was that to what you were talking about in 1925, then?
Matt Stoller: More in 1929, but yes, it's the same thing.
Peter McCormack: The same thing.
Matt Stoller: Yeah.
Peter McCormack: Just for my personal interest because I've tried to research this myself, how much did the repeal of Glass-Steagall play into 2008?
Matt Stoller: It was foundational. Glass-Steagall, people think of it as just one law that was repealed in 1999 which separated commercial from investment banking. But really, Glass-Steagall was a whole regime, a way of governing the financial system that kept all parts of finance kind of hived off from one another. You had commercial banks that did commercial loans, you had investment banks for capital structures; but then you also had thrifts that did mortgages, so commercial banks didn't do mortgages. You didn't have credit cards. Finance was very localised, so you had a local thrift, they were called Savings and Loan, or you had a local commercial bank.
Glass-Steagall was designed as a series of laws that were passed. There was one law that was called the Glass-Steagall Act, but there were a series of laws in the mid-1930s that were passed, that were basically designed to keep the financial system fragmented so that you couldn't have concentrations of financial power. The most important part of it was something called Regulation Q which capped interest paid on deposits.
The reason this was the centre piece of the whole system and the reason it was important is because prior to the implementation of Regulation Q, banks in New York and Chicago could draw all the money in the world to themselves by just paying higher interest on deposits. Then they would go to banks all around the country and say, "Give us your money, we will pay you higher interest rates". Then once they would bid up and essentially buy all the hot money, they called it hot money, in the country, they would then lend it. They have to find very high interest rate loans to make money on that. They would lend that into the stock market through what were called car loans or margin loans. So, you had all the money in the country and then a lot globally just flowing into the stock market instead of staying in local communities and supporting underlying economic activity.
Regulation Q just cut this off and said, "There isn't going to be a bidding war for hot money". Regulation Q started getting undermined in the mid-1960s, early 1970s. I talked about the REITs; that was part of the reason people were trying to get around it and the regulators were allowing regulatory arbitrage. They used commercial -- what are they called? It's been years since I looked at this, but CDs, Certificates of Deposit and then eurodollars, so dollars traded in London, all of which the regulator said, "We're going to look the other way and let you do this, and we'll allow you to violate Regulation Q".
But of course, normal people couldn't access dollars in London and negotiable CDs were at first only available to people who had more than $1 million. So what was happening is you had a regulated financial system where you couldn't get higher interest rates on your savings accounts; chequing accounts couldn't get interest, it was savings accounts, but the wealthy people and corporations could. This created a lot of friction and resentment, where normal people had to operate in a heavily regulated system and then this kind of elite could operate outside of it.
Gradually, that created a political tension where they would chip away at the rules and restrictions. By the time you get to 1999, where Citibank buys Travelers, you've got rid of so much of that regime, things like restrictions on interstate banking or Regulation Q. That went away in I guess 1980, which led to getting rid of the thrifts like Savings and Loan banks. They were only allowed to do mortgages, they weren't allowed to do commercial loans or anything else, and they lifted those in the early 1980s and they all went in and bought a bunch of junk bonds. That's the savings and loan crisis, Michael Milken, and all that.
So, the takedown of Glass-Steagall was a gradual process, and it was a shift from a publicly regulated system, where you effectively had banks working under a very strict set of government rules, to one where you effectively had large financial institutions and networks, mediating all the capital flows in our society and government playing a very secondary role, except when they would occasionally step in and kind of bail people out.
Peter McCormack: Wow, brilliant thanks for telling me that. I'm going to have to listen to that back again. I've tried to look into this a bunch of times and usually there's like a political bias to why Glass-Steagall was repealed, but it's good to hear the full story. Okay, last thing before we start teeing this up, because I think I might have interesting question for you. With regards to monopolies, you say a lot of your work is focused on monopolies.
Matt Stoller: Right.
Peter McCormack: Are you objectively just reviewing monopolies, or are you actually identifying that monopolies are banned and you're against monopolies; what is your work here?
Matt Stoller: Yeah, I'm against monopolies.
Peter McCormack: Okay.
Matt Stoller: I believe that telling the truth is the best way to advocate for something. I don't try to lie and say, "Monopolies are bad because of this fake reason", but I think monopolies are a threat to human liberty.
Peter McCormack: Okay.
Matt Stoller: When I see the concentration -- this started because of what I saw of what started early on in telecom. I was looking at how telecom companies, in the mid-2000s, were speculating as to how they could control the internet. They never figured out how to do it, but when I saw what happened with the Foreclosure Crisis and the Financial Crisis, I had thought banks and corporations were neutral technocratic institutions run by people who are experts in what they do. I was an idiot. Then the Financial Crisis happens and all of a sudden, I learned, "Wait a second, these are political institutions and the rules are very political". Actually a political economy is a core part of how we should think about freedom.
When you work on something called, "Too big to fail banks", then you're like, "Too big to fail, that's an anti-monopoly framework, they're too big and they have market power in all sorts of different ways". Then a couple of years later I started to study -- I had read a book which talked about a law called the Robinson-Patman Act, which constrained chain stores in the 1930s. The guy who had written Robinson-Patman is a guy named Wright Patman. He was the person in the 1960s who was trying to hold together Regulation Q and trying to hold together the older regulated banking system.
Somebody who worked for him was the person who taught me about the Financial Crisis as it was going on. It was this woman named Jane D'Arista. No one knew what was going on during the Financial Crisis. Lobbyists, the Treasury, the Fed they were all just like, "We don't know what's going to happen next", and it's unusual because they usually do know what's going on. You have to know where the money is to steal it, but at that point they didn't, and it was very weird, but Jane did. Jane was like, "This market's going to blow up", and then it did. Then, "That market's going to blow up", and she had all these papers she had written in the 1970s, 1980s and 1990s about opposing bailouts, and talking about the shadow banking system and just all the stuff people in financial markets today understand but in 2008, people didn't know that this stuff was all dominating our markets, but she did.
I said, "How do you know all this?" She said, "I've worked for this guy, Wright Patman, and he had tried to hold together these guardrails. When the guardrails got taken off, I knew where things were going to fall apart, because those guardrails were there for a reason". Then it turns out that Wright Patman not only was the Chair of the Banking Committee from the early 1960s to the mid-1970s when there was this pivotal moment, but he also had written this law in the 1930s to constrain the chain stores. Today it's like Walmart and Amazon but back then it was A&P, that was the equivalent. I was like, "That's really weird, you've got this guy who can try to constrain Wall Street and also constrained these chain store monopolies".
That's when I learned, there's this whole political tradition, an anti-monopoly tradition, anti-finance, pro people who work for a living. Whether it's entrepreneurs, engineers or farmers, and that's why I learned about this. I don't know if that answers your question.
Peter McCormack: It does and it's a really interesting first point you made when you referred to why you're anti-monopoly. You're against monopolies because you believe they're bad for human liberty. So, thinking in terms of Bitcoin, I think what a lot of bitcoiners feel is that the government having a monopoly on the creation of money is also bad for human liberty. Would you say that's a fair characterisation?
Peter Van Valkenburgh: I think so. There's a lot of folks -- I am a fan of Hayek, Austrian economist emigrated to the US after World War II, wrote a lot about human liberty. His perspective was, competing currencies would be good. This gets to a deeper question about monopoly, which is probably the core of where maybe we disagree, I'm not sure we disagree.
Matt Stoller: I just don't like you. Sorry, it's purely personal.
Peter McCormack: Did you two know each other already?
Matt Stoller: I could just tell though!
Peter Van Valkenburgh: There's centuries of economic debate over the question of monopoly. I don't think you'll find many people who are pro-monopoly, except the monopolists who can profit heavily from that system. There's a more fundamental debate, I think, over the question of natural monopoly and whether it exists; whether we have in a more deregulated environment, propensities towards high barriers to entry for a commercial enterprise that actually allow someone to prey upon their employees, prey upon their customers because they have that monopoly power, either as an employer or as a provider of a good.
There's this other perspective that says, "Actually, in a deregulated environment, where you have a lot of innovation, where you have a lot of competing providers for the service, or at the very least where the environment is contestable, there may only be one player but the start-up costs of challenging that player when they do something wrong are low enough that they're going to get challenged". In those conditions you don't necessarily have a pernicious of a monopoly problem as in conditions of highly regulated industries. The most highly regulated industry I know is the financial industry.
When we talk about banks, we're not talking about normal corporations that somebody went to the Delaware Courthouse and was like, "I want to be an LLC". We're talking about a chartered financial institution. It goes back to actually state grants of monopoly charters, back to the VOC or to the British East India Company. These are organisations where the government says, "You have the exclusive purview of acting in this space. Maybe we'll add another to compete with you, but we can deny people entry into this particular productive endeavour". It's in those environments that you see the worst monopoly abuses both to the worker and to the consumer.
You say you got interested in this by looking at the internet, and large telecommunications companies, some of them arguably monopolies as far as market power; but I think the reason why net neutrality and the corruption of the internet didn't become as bad as we feared was in large part because of the deregulation of the telecommunications industry in the 1990s, a bipartisan effort of Clinton and Newt Gingrich and Bob Dole in the Senate actually; and because the internet is this vibrant space where if you start introducing things like tiered service provision, like you can get Facebook and Netflix, but you can't get somebody's blog, you can't get Peter's podcast, people rebel pretty quickly.
People get angry and I loved how angry people got over net neutrality. I didn't personally agree that the right solution was to empower the FCC to make sure that the companies behaved well, but I liked all that anger because that's exactly what's going to make me cancel my Comcast subscription. And, yeah, there's high barriers to entry naturally in the telecommunications standpoint, because if somebody owns the telephone poles, you can keep your competitor out.
My parents just bought a house in Vermont that is apparently five miles from the nearest Xfinity pole, so they're just never going to have a competing provider. At the same time, regulation more often than not, when you look at the financial regulatory context, imposes further barriers to entry and actually reduces the likelihood that you're going to get competitors and exacerbates the problem of monopoly abuse of consumers and labourers.
Peter McCormack: I actually think Turkey has a great lens for this idea of having competition with monies, because right now the Turkish lira is obviously crashing quite heavily. I'm not sure of the inflation numbers right now, but I'm pretty sure it's over 20%. The economic policies of Erdoğan have completely failed and at the same time, we've seen record numbers of people in Turkey buying Bitcoin. You can track the numbers and you can see it. At the same time, Erdoğan has gone to war with Bitcoin and cryptocurrencies, and calling them the enemy of the country, when really it's people just trying to protect their wealth, have been trying to exit into Bitcoin.
I think that's a really good lens for why I believe monetary competition is a good thing. By the way I'm not an anarcho-capitalist. I don't believe or want the fall of the state, I want the state to be better and I'm a reluctant statist who's politically homeless who can't vote, but fears a collapse of the state and what that actually means.
Peter Van Valkenburgh: If we need to send those disclaimers out too, I am also not an anarcho-capitalist and I think there's a very good role for government and regulating corporations, but it shouldn't be, "You're the exclusive corporation allowed to operate in this space", permission-based system, it should be guardrails. You were talking about guardrails; I think some of those I would certainly agree with.
Peter McCormack: The idea for me of Bitcoin is, it's another check and balance on government. It is like a decentralised form of money. It gives everyone the option to opt out of government money if they're seeing their wealth being inflated away. That gives you a background as to why I care about Bitcoin, and this has been an evolving position over the few years I've been working on this.
Peter Van Valkenburgh: Peter, you and I might disagree because I think you should be able to opt out of Bitcoin and opt into some other coin.
Peter McCormack: I believe that, I believe anyone can buy any coin.
Peter Van Valkenburgh: You just keep the podcast Bitcoin.
Peter McCormack: I keep it Bitcoin only.
Peter Van Valkenburgh: That's fair, it's the best community, I think.
Peter McCormack: What I believe is that I think they're doing different things.
Peter Van Valkenburgh: Yeah.
Peter McCormack: I believe Bitcoin is the only one which is meaningfully decentralised enough to be resistant to state attack. I think it's the only one --
Peter Van Valkenburgh: That's plausible.
Matt Stoller: Can you explain that to me, because I don't know, I'm just curious what that means, resistant to state attack and why Bitcoin is the only one?
Peter McCormack: There's a really good paper that was written recently by Allen Farrington and somebody else and I'll share it with you. I'll try and remember to send that to you, and they talked about this. One of the big wars in Bitcoin happened in 2017, it's called the fork wars. The easiest way to explain it is, nodes are essentially the soul of Bitcoin. You can operate a node, I can operate a node and we all come to consensus on the transactions in the blockchain. If I get any of this wrong, you correct me.
Essentially, we want anyone to be able to run a node. A node gives you a full copy of the blockchain, so you can have it, Jeremy can have it, Peter can have it, Neeraj can have it. We can all have this copy of the blockchain.
Peter Van Valkenburgh: It's an inherent anti-monopoly technology in that sense.
Peter McCormack: Yeah.
Peter Van Valkenburgh: The networks are designed to be permissionless and censorship resistant. Nobody in the loop has the power to fully occupy the technology and dictate who can and cannot use it.
Peter McCormack: Yeah. The total size of the blockchain, I'm not sure at the minute, it's 400 gigabytes to 500 gigabytes, say. Most people can therefore set up a node with a Raspberry Pi and an SSD drive, a terabyte drive, and they can operate a node. The big war that happened was wanting to get more transaction throughput into the blockchain. It's limited to about 1 megabyte. The block weight is now 4 megabytes, but we don't need to get into the difference. The idea was, do we want bigger blocks? So, you know that Bitcoin is a blockchain, do we want the blocks to be bigger?
Peter Van Valkenburgh: So, a 1-megabyte block means you're really hard capped at 7 transactions per second, globally, which is nothing compared to what credit card authorisations are like globally.
Peter McCormack: Yeah.
Peter Van Valkenburgh: And really, in practice, it was more like 3 transactions per second with network cogency.
Peter McCormack: Yeah. There were a group of people who wanted to increase the size of the blockchain maybe to 2 megabytes or 4 megabytes. But what that would have meant is the blockchain itself would have grown bigger. Naturally, because of that, maybe less people would have been able to run a node and therefore it would have been less decentralised.
There's lots of different measures of decentralisation in Bitcoin. How decentralised are the developers? How decentralised are the miners? The nodes are what really decentralises the blockchain to as many people as possible, so we want to keep the blockchain as small as possible, so it's decentralised as maximally possible.
Peter Van Valkenburgh: Along with this is the notion that a lot of people in the anti-expand the block size camp had, which I think is proving correct, that you can scale without increasing that data size. You can bundle more transactions into that small amount of size and still allow this to be a very low cost and affordable solution for people to send money abroad. It's hard to get there, we're working on it, but we don't need to increase the size of the block because as Peter said, that creates this existential risk where you create centralisation.
The core functionality of keeping the record of transactions, which is exactly that monopoly power which could either be co-opted by the wrong government, say the Communist Party of China, to block transactions from dissidents within their borders or by just a major corporation. This is not left or right, the problem is aggregate power, whether it's government power or corporate power.
Peter McCormack: And so with that, we have what I would say is a meaningfully decentralised blockchain here with Bitcoin. There are crypto people who will say decentralisation is a spectrum.
Peter Van Valkenburgh: Crypto means "hidden" in the Latin roots. So we're into the Greek route I think, so you just said, "Hidden people are saying…"!
Peter McCormack: They all refer to decentralisation as a spectrum and I think that is an excuse for something that isn't as decentralised as Bitcoin. Let's use Ethereum to compare to Bitcoin. Ethereum has blocks that are every, I don't know, is it two seconds or something ridiculous?
Matt Stoller: The last I checked it was 15 was the critical level.
Peter McCormack: 15 seconds and it has lots of smart contracts running on it, it had loads of stuff going on it. The total full archival node is multiple terabytes, I think; it's about 9 terabytes. There are other versions of nodes you can run, but strictly speaking a lot of the large nodes are run out of data centres. The question Allen Farrington put to them, if you have a government that wanted to switch off this blockchain, are there enough people you could go and threaten with jail, to be put into jail if they didn't switch off Ethereum? Yes, there are. I'm not saying it would be easy, but it probably could be closed down. It probably isn't resistant to that kind of state attack. Certainly a co-ordinated global state attack.
A co-ordinated global state attack on Bitcoin to get people to turn off their nodes is close to impossible. You can make it difficult for people and you could bring in regulations in countries to make it arduous to buy Bitcoin, etc, but Bitcoin is the most resistant to state attack of all these cryptocurrencies and by some margin. There will be people listening who completely disagree and have completely different arguments and usually they're selling a bank.
Peter Van Valkenburgh: That's what's cool about this space. It's an innovation story about creating systems that are resistant to centralised control.
Matt Stoller: What's the role of stablecoins; why do you need them?
Peter McCormack: Interestingly, I have never owned a stablecoin. A couple of times, I've got them as like an interest in an interest account, but I've never bought them. Originally, what happened was the early Bitcoin exchanges had difficulty getting banking services, just really difficult, but people --
Peter Van Valkenburgh: There's your monopoly problem for you. People who own the existing rails don't usually want to welcome potential new entrants and won't even give them accounts to pay their employees, let alone connection to the payment system.
Peter McCormack: I mean, there were times where people who were running exchanges would be taking money in PayPal or bags of cash and then distributing the Bitcoin, but there were the people who wanted to trade Bitcoin on an exchange; they wanted to go into Bitcoin and out of Bitcoin. I think Tether was probably the first, who was originally on the Bitcoin blockchain actually on Omni, but that was created to allow people on an exchange to trade in and out of Bitcoin.
Because they couldn't have banking services and they couldn't hold pounds or dollars, they would convert their pounds or dollars to this synthetic dollar, this Tether, and in your exchange, you could essentially have two balances, a Tether balance and a Bitcoin balance, and you could buy and sell Bitcoin in and out of the Tether. That was really what it was originally designed for.
Matt Stoller: Then you could buy dollars with the tether?
Peter McCormack: I don't know the full operations of the early accounts, but I assume you would make a deposit to some account somewhere and then you would be credited with Tether.
Matt Stoller: So, Tether then links to the banking system.
Peter Van Valkenburgh: Yeah, it's important to note that stablecoins are not cryptocurrencies. They have sprung up to fill a market niche that a lot of folks saw, as far as difficulties of being onboarded onto cryptocurrencies, because the legacy payment system is not interested in making those connections, especially in parts of the world like East Asia for example, where there is tight capital controls for countries and things like this, and so this filled a need. But cryptocurrencies are fundamentally different.
A stablecoin is backed, there's somebody who's promising that they're holding the dollar you gave them, and they gave you a token, and they'll hold that dollar in a cash-like instrument, something low risk and liquid. Now, that is a system fully based on trust and fully based on a trusted third party, who should probably be regulated, and in many cases stablecoin issuers are not regulated, and could abuse that trust very easily.
That contrast with Bitcoin, Bitcoin's monetary policy is not set by a person, it's not set by anything except rules in the protocol. If you want to create a new block on the blockchain, you want to participate in its validation, you can give yourself a reward of some of the new Bitcoins that are entering circulation. You cannot give yourself an outsized reward, the rest of the network will treat you as an attacker and ignore you.
Matt Stoller: Can you get in and out of Bitcoin now without going through Tether?
Peter McCormack: Yes, a lot easier now.
Peter Van Valkenburgh: I just want to point out, you could do that years ago as well, if you were lucky enough to live in a country like the US that has a strong rule of law and decent regulation of financial institutions. Coinbase and Kraken and some of the other US-based exchanges have been licensed money transmitters for a long time and were able to make connections to the US banking system, so you could just connect your bank account and buy Bitcoin without going through some kind of weird stablecoin relationship.
When stablecoins became more popular, we saw some of these US-based regulated exchanges, New York State Trust chartered exchanges, maybe even a federally chartered bank soon, are thinking of issuing these stablecoins. We have some of them now: we have USDC, which is issued by Circle and Coinbase, which are state money transmission licenced entities; we have Paxos, which was issued by New York Department of Financial Services Trust Chartered Institution. Here you have minimum capital controls, you have permissible investment requirements. These things need to be truly cash-like, you can't just put these into --
Matt Stoller: But Tether is not like that?
Matt Stoller: Tether is the biggest one, right?
Peter McCormack: Yeah.
Peter Van Valkenburgh: Yes, last I checked, yeah.
Peter McCormack: Another side point, an interesting conversation I had with Nic Carter the other day that you might find interesting, is that stablecoins have become the whole other thing that people are using outside of Bitcoin now. They have just become a digital dollar that you can move quicker and freer around the world. They've actually served as a lifeline for people living under certain regimes, examples would be again Turkey or Lebanon, where people want access to the dollar. A bit like when you go to Cambodia, I've talked about this a lot on the podcast, but when I was there, people wanted the dollar. I can't remember what the local currency is, but they wanted the dollar.
In places like Turkey, people may actually want the dollar now instead of the Turkish lira because it's collapsing. We talked about this idea of, when a country like El Salvador dollarised it's a centralised process, but you could essentially have a decentralised bottom-up approach to dollarising a country as a currency fails.
Peter Van Valkenburgh: I would caution making overbroad claims there, because again all of the major stablecoins do rely on a trusted institution still. Are they censorship resistant? Probably not. Can you always trust that the person issuing is keeping the customers' reserves safe and in low-risk investments? Maybe not.
Peter McCormack: Do you trust that more than the Turkish lira?
Peter Van Valkenburgh: That's always the calculus. I want to say, Matt, this is good faith innovation. A lot of these folks are here to make a buck maybe, but foundationally the goal here is to build systems that work for people who have been left behind. That may mean you have to use Bitcoin, because maybe there's literally no financial institution in your country. Now, the trade-off there is volatility, because it's just a fact that Bitcoin is a commodity money, it's got a fixed supply and so shifts in demand will cause radical shifts in the price. It actually happened this morning whilst we're recording this.
Peter McCormack: This morning, yeah.
Peter Van Valkenburgh: That is something that I think people in wealthy countries can maybe tolerate, and that's okay to some extent. It's hard to argue that this is a great solution for people in parts of the world where they can't afford to lose money. There was this goal, "Can we have censorship resistant, permissionless cryptocurrency-like instruments that maintain stable value?" The answer is that is, "Kind of", because we can have institutions that back these but then we reintroduce trust.
Then there's this whole other area of endeavour, which we won't get into too much because it's not so much in the Bitcoin space, it's more in the Ethereum space, can we use algorithmic means to actually have a smart contract, a vending machine on a blockchain basically, automatically stabilise the asset so you no longer have to trust a company to do it for you, which of course is always possible that it's going to fall victim to some mistake in the way it was coded or some other things?
The point here is not that these are ready-made solutions that are going to do really well for everyone right now and I would not advise anyone to buy more cryptocurrency or stablecoins than they're willing to lose; the point here is this is a really vibrant space from an innovation standpoint, whose main objective is to challenge entrenched monopolists who will not open an account for you if you live in a certain country, because they don't feel it's necessary or profitable to service that country.
Peter McCormack: Yes.
Matt Stoller: Let me ask a kind of basic question. When I look at innovation, if you take the transition from mail to email, there's a lot of things you can do with email you can't do with mail. There're some similarities.
Peter Van Valkenburgh: Spam. Actually, all my mail is spam now and my email is also spam.
Matt Stoller: The point is that they're fundamentally different. It's not like email is a less corrupt form of mail. They're different methods and technologies. What is Bitcoin or some of these cryptocurrencies, what can it be used for that you can't do with say an idealised well-formed financial system where you can transmit money?
Peter Van Valkenburgh: I think I disagree. So, is email is a less corrupt form?
Matt Stoller: The point is, it's not, it's different. It's a different technology. You can do things with email you can't do with mail.
Peter Van Valkenburgh: That's the point you're making.
Peter McCormack: We don't write letters anymore for a reason.
Matt Stoller: You can cc a whole bunch of people and it's instant and I guess --
Peter Van Valkenburgh: Matt, you made a claim there, that it's not different. I'm going to challenge that claim first with respect to email.
Matt Stoller: What's not different?
Peter Van Valkenburgh: That email is less corruptible.
Matt Stoller: No, I didn't say it's less corruptible.
Peter Van Valkenburgh: I'm saying it's less corruptible, Matt. I'm disagreeing with you.
Matt Stoller: Okay.
Peter Van Valkenburgh: Because it's an open protocol. The simple mail transfer protocol, SMTP --
Matt Stoller: That's not my point. Whether it's corruptible is an ad hoc point. I'm saying it's a different technology than mail. What I'm getting at is --
Peter Van Valkenburgh: No, I just want you to follow me down a road. I'm sorry, I don't mean to be combative here. I'm just saying, SMTP is fundamentally different than traditional mail systems. It's fundamentally different because it's this mathematical protocol that has an open specification. Anyone can learn to read it, look at it, use it and that means anyone can start their own email server on their own computer, without asking permission from anyone; not even getting an actual address from a government in order to receive mail; not even trusting a government run institution like the United States Postal Service or a corporation like UPS.
I can simply have a computer and an internet connection and receive mail using email because I can see the SMTP protocol. More to the point, from an innovation standpoint, any big corporation like Google can also build a version of an email client for people who don't want to build it themselves or run it themselves, that might work better. They can challenge Yahoo who was the dominant provider before or AOL who was the dominant provider before.
All of this can happen without seeking permission from anybody who is the Godhead of the simple mail transfer protocol because it's an open web standard. Bitcoin is an open web standard for financial instruments for moving scarce valuable things, either things that represent value like a stablecoin built on top of a cryptocurrency network, or things that are themselves valued because they're something like commodity money like a Bitcoin.
Peter McCormack: A great answer, but you want to know what is the innovation?
Matt Stoller: What can you do with Bitcoin you can't do with other --
Peter Van Valkenburgh: I can build my own company that helps people use Bitcoin without getting permission from the Fed or from CHAPS or being able to access ACH. I can do that with no permission.
Matt Stoller: Right, but I mean if I want to cc a bunch of people on an email. You would both acknowledge that email's different than mail.
Peter McCormack: Yeah, I think it is supremely better.
Peter Van Valkenburgh: Different in a very important way, it's antimonopoly.
Matt Stoller: It's also instant, there's just a lot of characteristics about it that are just different than mail, right.
Peter McCormack: I understand what you're asking with this. Okay, it's multiple answers for this. I will talk about one example for myself and extrapolate that out for a whole nation.
Matt Stoller: Okay, yeah.
Peter McCormack: I banked with Lloyds Bank in the UK for 25 years. With six weeks' notice they closed my bank accounts down. My suspicion is because it's to do with Bitcoin, but they phoned me up and they wanted to ask me about my transaction history and I said, "It's none of your business". They said, "Why?" I said, "Because I'm an adult with two children and I run a company. I don't need to tell someone in a call centre what I'm spending my money on. It's my money, if I've done something wrong, you can ask me something. If you're suspicious, you can ask me something but I'm not telling you. I don't need this". So they wrote to me and closed my bank accounts down.
I did manage to get another bank account but even if I hadn't, I operate with a Bitcoin Wallet, I'm self-sovereign. So, I can take all my income in Bitcoin, and I can pay people in Bitcoin. I can also use services whereby if they want to pay me in dollars, I can receive Bitcoin and if they want to receive dollars I can pay in Bitcoin, and they receive dollars.
Peter Van Valkenburgh: Peter, when you say that you mean you actually have the keys.
Peter McCormack: Yeah.
Peter Van Valkenburgh: This is not him using Coinbase or one of these companies that issues stablecoins, this is him using software. This is my point about SMTP. If you want to be your own email server, you can just use open-source software to be your email server, send and receive mail, no one can stop you. Now, we have that for money.
Peter McCormack: Let me extrapolate this out to El Salvador, a country whereby 70% of the population are not served by the banks. They don't have bank accounts, they don't have access to bank accounts, but they all have a mobile phone, pretty much. Every one of them can create a Bitcoin wallet they can accept Bitcoin and they can send Bitcoin. Now listen, it's not ideal, it really isn't ideal for running a business because it's volatile and that's not ideal, but it's the early steps for what it could be. This is where we're going.
Even better, the best thing I like about Bitcoin more than anything in the world, this is my favourite thing, I can send money instantly with complete and utter finality on that transaction to anyone in the world at any point. Where is this relevant? I went out to Japan to do an interview once, I hired a cameraman like Jeremy here, and he came out and filmed it all. We could not find a way to get my bank to send money to his bank. In the UK, I just put in a sort code and account number and an amount and it gets sent, but when it's international they have different requirements. I need an address or a different wiring number. We couldn't get it to work so in the end I paid him by Bitcoin.
Now, I used the basechain so that's settled in 10 minutes, but on the Lightening Network it's instant final settlement at near zero cost, which to me is brilliant. That is one problem with sovereign money is that if you're trying to send money internationally, it just hasn't evolved to the needs of people. Sometimes you can't get money into a country, sometimes it takes five days, sometimes it gets flagged up. I've had money held in PayPal for weeks on end. This is instant final settlement, which to me is that innovation that we have everywhere else. I can watch Netflix anywhere in the world, I can listen to any song I want anywhere in the world, but with our current banking rails, I can't send money anywhere in the world instantly.
Matt Stoller: Do you know M-Pesa?
Peter McCormack: Yeah.
Matt Stoller: That's like instant money. You also can send it to Uganda.
Peter Van Valkenburgh: Yeah, but it's not censorship resistant. It's not free and open, you have to use the particular cellular provider.
Matt Stoller: I know, but I am just saying.
Peter McCormack: Similar innovation.
Peter Van Valkenburgh: I don't think so.
Matt Stoller: Largely, it sounds to me the examples you're bringing up are artificial restrictions that are imposed on you by regulated banking systems and inefficient global financial transactions.
Peter McCormack: Yeah.
Matt Stoller: The other one is Turkey or countries where the state is weak.
Peter Van Valkenburgh: Or corrupt.
Peter McCormack: Turkey is an extreme example. It quoted 6.2% inflation in the US, which is really probably 10 to 15% most people think.
Matt Stoller: It's transitory.
Peter McCormack: At 4.2% in the UK, I think every hardworking individual who goes out and does a day's work gets paid and also pays their taxes deserves to be able to store their wealth across time and space, and that's what Bitcoin does. It allows me to store my wealth across time and space. That's another reason I like it. I am not a victim to the economic mistakes that any central bank or government makes. My purchasing power is only influenced by the size of the Bitcoin community.
Matt Stoller: What it sounds like to me is there is a lack of faith in sovereigns, that's essentially what's happening. You can't trust the US Government to maintain the value of the dollar, you can't trust the British Government to maintain the value of the pound, you can't trust regulated banking systems to treat you fairly, transparently and then all over the world where you have weak or corrupt states, it's even worse, right?
Peter McCormack: And a mass invasion of privacy.
Matt Stoller: And a mass invasion of privacy, right. Is that fair?
Peter McCormack: Yeah.
Peter Van Valkenburgh: I wouldn't put a gloss on that. I don't think "can't", I think don't want to be in a position where we must.
Peter McCormack: That's fair.
Peter Van Valkenburgh: I don't want to be in a position where I must trust my state to be able to have economic liberty. I want to be in a position where I have alternatives. Peter and I still keep most of our money in banks, I'm quite sure.
Peter McCormack: Not anymore for me.
Peter Van Valkenburgh: Well, maybe not for Peter.
Peter McCormack: I did used to, now I don't.
Peter Van Valkenburgh: Either way, I have a Charles Schwab account, I like it very much. I don't see the rapid de-dollarisation of the United States. I don't think people are going to be paying for their telephone bill using cryptocurrency. That said, I like that there's an alternative and I'm very interested in there always being these alternatives; and these open permissionless systems, which is why I was going back somewhat incessantly to SMTP as an open protocol, are important because we could end up, I don't think we're going to, but we could end up in a situation like China where we have a single party state and where the payment rails themselves are used as a blunt instrument to control the populace and to prevent dissent.
The fact of the matter is, if you're a Uyghur in the western part of China and you stop purchasing alcohol and you stop purchasing cigarettes, you're going to end up on a list because all of your purchases previously, when you were making them for alcohol and tobacco, were done though WeChat and Alipay. The CCP gets that information straight into their veins, they give you a social credit score and they say, "This person is probably not a devout Muslim, because they're buying these things". Then you stop buying those things and you end up in a re-education camp. We know this as a fact.
This power over the payment system is a terrifying power in our digital future, where we make all of our transactions online and through records.
Matt Stoller: So, why don't you want de-dollarisation?
Peter Van Valkenburgh: Why don't I? Because I like America.
Matt Stoller: You just said that this is a terrifying power.
Peter Van Valkenburgh: Because I believe in competition. I don't want one thing to replace the other thing, I want options.
Peter McCormack: I have a slightly different view on that as well, in that I understand and sympathise with libertarians and with anarcho-capitalists, but I don't believe in the big red button. I don't believe a lot of libertarians actually believe in the big red button, if you could get rid of government instantly and now, would that be a good thing.
Peter McCormack: The vacuum would be horrific. What I do like, as somebody who previously worked in software and tech, is test and learn, AB testing and improving things. What we have now with Bitcoin is an AB test. But also, there is another problem with Bitcoin is that due to its inelastic supply and still being new, it is hyper-volatile. It doesn't work as a short-term currency. It can operate as a short-term currency.
Peter Van Valkenburgh: But it is a tax in the form of volatility.
Peter McCormack: Yeah, and it's not a unit of account, so if you were pricing in Bitcoin in your store, you'd be running around changing the prices like they do in Venezuela, but it would be up and down. For me, I like to have my long-term wealth stored in Bitcoin and my short-term needs stored in the pound or dollar, which I can use for day-to-day for my coffee, whatever. Does that kind of make sense?
Matt Stoller: It does, but I guess the reason that you have a regulated banking system is to actually maintain a sovereign, to have a nation state. When you called yourself a reluctant statist, right, which I feel the same way, what I think you guys are speaking to and I think what the Bitcoin community and some good faith parts of the Bitcoin community, is a really legitimate recognition that we have a democracy crisis.
Peter McCormack: Yeah.
Matt Stoller: You don't trust the sovereign, because I think that I have not seen a lot of good decisions coming from our government through our democratic systems. Democracy is weak right now and is not functioning particularly well. In the 1920s, very similar, periodically they have this problem, but a good example working on Financial Crisis, and I worked on the Fed and people at the Fed are snobs and they're not responsive to what's happening in the real world. They're not really responsive to our democratic systems, and yet they control our money. I think that's a huge problem but is the right way to address that problem -- and I think you could see that across the board, right.
Let's say the CCP were to take over the United States, to take your example of Uyghurs, and you had a Bitcoin and let's say you weren't able to use the payment system. They'd be able to identify anyone they want using all of the mass data leakage.
Peter Van Valkenburgh: Facial recognition.
Matt Stoller: This is a heavily surveilled and regulated society and every society is. There's no such thing as deregulation, it's just who makes the rules. Mark Zuckerberg makes our privacy rules, at least for a large number of the population that use social media. It's why everybody's freaking about who he chooses to allow to speak on his platform.
Peter Van Valkenburgh: It is why we should decentralise social media like we're doing with money.
Matt Stoller: The point is that we have a serious democracy problem. The Opioid Crisis, nobody went to jail for that, and then we know that the Sackler family is probably responsible for large numbers of people dying of heroin overdoses. Nobody on Wall Street went to jail for what was obviously systemic fraud. You can see this over and over. Mark Zuckerberg, when you look at what he's done in terms of lying to advertisers, and I know that's what advertising is, it's deceiving people; I mean all the metrics are kind of silly, but they were explicitly lying about it. There's a tremendous amount of fraud there, and there's no accountability, and you see this.
The problem we have is there no rule of law applied to the powerful and that is systemic, and it's been going on probably -- it got really bad, I think, in the mid-2000s.
Peter Van Valkenburgh: I think it got really bad throughout the 20th century, because the technologies that changed the world were amenable to people who were in a centralised position of power and we are fixing that mistake.
Peter McCormack: I'm with you.
Matt Stoller: You might be right, but during the Financial Crisis it became explicit. It was like the people who caused the problem get bailed out; and not only did they get bailed out, but the Dodd-Frank was about concentrating banking power into five banks.
Peter Van Valkenburgh: Do you know what's in the first block of the Bitcoin blockchain?
Peter McCormack: This is really interesting.
Peter Van Valkenburgh: A message from -- we still don't know who he, she or they were, from Satoshi which says, "Chancellor on the brink of second bailout for big banks".
Peter McCormack: From The Times.
Peter Van Valkenburgh: Yeah, from The Times of London. You know how it went in a lot of crime dramas, you want to prove that your photo was taken at a certain time, so you include a headline. It's like that, we're just saying this first block of the blockchain came this date that The Times published this story. It's obvious that the story that was chosen was chosen for a very political purpose.
Peter McCormack: Right, anyway, you were on a path, so where are you taking us?
Matt Stoller: You see this everywhere, it's not just in the monetary space. There is a powerful disillusionment with our political institutions and a loss of faith in democracy, because democracy isn't delivering, and I think you can take one of two paths. You can either say, "Let's figure out a way to make our democratic institutions work. Let's actually do that. Let's figure out how to rewrite the laws, how to elect different people to our positions of authority, use the systems that have been in place for hundreds of years to self-govern", or --
Peter Van Valkenburgh: Yes, that's the other path.
Matt Stoller: Or you can say, "Weaken the state. Undermine these democratic institutions". The culture of crypto, you've got both sentiments in there, you've got a broad disillusionment from our democratic society, which I think everybody feels, that's why Donald Trump was elected. But you also have a lot of really cynical types, who recognise an opportunity to scam large numbers of people that are angry. You saw this with GameStop. People are like, "You know what? We need equal access to cheating", that's what the GameStop thing was about.
Peter McCormack: Yeah.
Matt Stoller: I feel sympathy with that, because it's crazy that hedge funds get to have six times leverage, when ordinary people in investments only get two times, but they were in fact investing with Robinhood which is paying all the order flow stuff. All of that is a scam. What is happening is people are running from a system that is clearly organised by cynical malevolent types in the financial system, and they're running straight into the arms of a system which is organised by a different group of predators, and that's the fear I have with crypto.
Peter McCormack: You talk like a bitcoiner.
Matt Stoller: I do, because I recognise that people are really angry with existing institutions. You see this with schools, you see this all over the place. People are really angry and frustrated with our schools and so they say, "We need charter schools, we need to have school choice". Then what you're doing is you're dumping a bunch of people into schools that don't work for them. Some things are common collective problems that we actually have to solve calm and collective from politics.
Peter Van Valkenburgh: Matt, my question for you, is there an iron law that you're uncovering here that you either work within the system or you work against the system, because I think it's a false dichotomy? I think Bitcoin shows that very well with respect to America and American policy towards cryptocurrencies. Our country is built with the notion that government can solve collective action problems and the private sector can solve collective action problems. We are at our best as Americans when we have both approaches simultaneously.
You look at Bitcoin, it's not an unregulated space in this country. My job has been educating people in government about Bitcoin since 2015. I can tell you, we've got commodities regulations on the books; we've got securities regulation on the books for the sake of ICOs. We've got state money transmission licensing for the big companies where people go to buy Bitcoin from someone who's trusted, we've got anti-money laundering regulations, there's Bitcoin addresses on the OFAC Sanctions List. There's all kinds of regulations that apply, and I'm not saying that as I'm complaining. In fact, I think it's a great story of American ingenuity and American consumer protection and investor protection and anti-money laundering policy.
We can have these systems that create new open alternatives to things like the fairly corrupt banking system and we can apply sensible guardrails to them. There are lots of people in the Bitcoin community, I don't want to quote Nixon because I don't like Nixon so much, but there's a vast silent majority of bitcoiners who are not anarchists, who may be cynical about democracy but do not want to see it go away and want to see open market competition, anti-monopoly competition, which as Peter said, "You talk like a bitcoiner", that is still happening in a regulated sphere, that still puts guardrails in place. We have some gaps, I'm not saying our regulatory system is perfect right now, but I do think it's disingenuous to claim that there's only two paths here and Bitcoin represents the dark side.
Matt Stoller: So, I'm a Hobbesian Leviathan type.
Peter McCormack: You're going to need to explain that.
Peter Van Valkenburgh: War of all against all.
Matt Stoller: That's right. So, Hobbes was a --
Peter Van Valkenburgh: Cynic.
Matt Stoller: I think he's kind of the founder.
Peter Van Valkenburgh: I actually am a Hobbesian as well, so we share that.
Matt Stoller: There we go. He's sort of the founder of the idea of the nation state maybe, you would kind of argue that. He was a writer who wrote in the 1600s, during the English Civil War, and the 30-years war, I guess. They were awful periods in European history, and he wrote a book called Leviathan, which is his most famous work. What he said is that without a sovereign that is in control and sets the rules, that what will happen is you will have the war of all against all. This kind of like Jacobean style French revolution.
Peter McCormack: Mad Max.
Matt Stoller: Mad Max right.
Peter Van Valkenburgh: Think of the prisoners' dilemma.
Peter McCormack: I don't want this.
Peter Van Valkenburgh: The prisoners' dilemma: everyone cheats, so you need to create incentives for people to cooperate so we can have a productive society.
Matt Stoller: What he said is, it doesn't matter what kind of society you have, or it doesn't matter what kind of government you have, you could have a monarchy and an absolute monarchy or democracy or whatever. You just need someone setting the rules and then you could live basically in peace.
Peter Van Valkenburgh: Find the sovereign and obey, otherwise we're going to have this endless war.
Matt Stoller: Right, and out of that came basically all of our political traditions, or most of our political traditions.
Peter Van Valkenburgh: To be fair, some of his biggest critics were also directly cited in the Constitution.
Matt Stoller: That's right.
Peter Van Valkenburgh: So there was debate about this.
Matt Stoller: There are a lot of people who criticised him from within the framework that he set up.
Peter Van Valkenburgh: His starting pistol, I would absolutely agree, is one of the most clarion calls for understanding why we have these things called sovereigns and states.
Peter McCormack: Yeah, okay.
Matt Stoller: I think we have a lot of problems in our society that have to do with many things beyond the payment system.
Peter McCormack: Of course.
Matt Stoller: Consolidation is a problem across the board, 75% of industries have got more consolidated in the last 20 years. One of the things you said, Peter, is that you don't think anybody is favour of monopoly, but the Supreme Court in Trinko said, "Monopoly is a key part of the free enterprise system, the acquisition of monopoly power". You do have substantial amounts of social problems that emerge, and you need a powerful sovereign to deal with that. We are honoured to live in a society, or set of societies, where we actually have some democratic levers, and I think it's incumbent upon us to make those democratic levers work.
What I fear again is that building out an alternative -- I see what Gary Gensler trying to do. What he's trying to do is bring crypto into a regulated space, stop the money laundering, which is a big part of what's going on here.
Peter Van Valkenburgh: No, I need to correct that. Gary Gensler is at the SEC, they focus on investor protection. Money laundering is FinCEN, a division of Treasury, which has had rules in place since 2013 for exchanges that file suspicious activity reports, currency transaction reports, and as I said there are Bitcoin addresses on the OFAC list.
Matt Stoller: I understand that, but when you talk about what is useful in Turkey, right, that is effectively money laundering. It's just money laundering, people think it is good because --
Peter Van Valkenburgh: No, I am disagreeing with your narrow point that Gary Gensler is the regulator who is bringing this into the regulated sphere. In the case of anti-money laundering it was brought into the regulatory sphere in 2013.
Peter McCormack: How is it money laundering in Turkey to just own a different currency?
Peter Van Valkenburgh: Let's have a different example: the Uyghur in Western China, who wants to access the payment system after they've been systematically de-banked because they're a threat to the stability of the regime, when they use currencies or cash and they're not supposed to. Say they're banned from travelling high-speed rail, which over a million people in China are, when they buy a ticket by using some secret payment means or some under-the-table means, they're basically committing a financial crime in China. That's true, yes.
Matt Stoller: That's right.
Peter McCormack: What is your fear?
Matt Stoller: The fear is that what these systems are for is they are for undermining the state.
Peter McCormack: It is not.
Peter Van Valkenburgh: No, they are a check on the state.
Peter McCormack: Yes.
Peter Van Valkenburgh: Ambition counter ambition, to go back to old political theory that founded America, we want checks and balances and those are not just internal checks and balances. If all people were angels, governments would not be necessary.
Peter McCormack: Think of it like the separation of government from the judiciary, that's an important foundation.
Matt Stoller: Who controls these -- I don't have a problem --
Peter Van Valkenburgh: Who controlled the founding fathers?
Matt Stoller: Who controls the judiciary? Presumably you are appointed and confirmed and there are mechanisms for impeachment. It's part of a democratic system. Whereas when you're creating monetary systems that sit outside of a sovereign, there is no one setting --
Peter Van Valkenburgh: Sovereigns don't only provide public goods by direct provision of public goods. They set up a rule of law which allows private entities to provide public goods. You talk about Hobbes, my interpretation of Hobbes follows Michael Oakeshott's theory of Hobbes which is, yes you should find the sovereign, but the sovereign is this diffuse organism that's created by people interacting with other people. That is an organism that is made possible by common expectations and common grounding about what the rules that will apply to commercial contracts will be, property laws, tort laws, all of these things.
There's a lot of emergent beauty there that is from the government, because the government mediates those private interactions, but it's a lot from the private sector too. Even though there's nobody in government saying, "You are allowed to build this innovation, you are not allowed to build this innovation", we can still co-operate and build good systems that fill gaps or challenge entrenched ideas.
Matt Stoller: The idea of a smart contract, a smart contract is effectively replacing a legal system.
Peter McCormack: No, no.
Peter Van Valkenburgh: It is an alternative. In fact smart contracts are neither smart nor contracts.
Peter McCormack: Smart contracts aren't really a huge part of Bitcoin just yet.
Matt Stoller: No, I know but there are smart contracts in Ethereum.
Peter Van Valkenburgh: A multisig contract is.
Peter McCormack: I know, but I just want to go back to that other point. Even though we have the separation with the judiciary, it still has a political sway. The great thing about Bitcoin, fundamental to it, is the monetary policy is two rules, it's just two rules: fixed limit at 21 million coins and an issuance rate which halves every four years and that's it.
There's no political bias in Bitcoin, it's apolitical, but it does have that check and balance on the state. Would I hold all my money in Bitcoin? No, I need pounds to work. My ideal scenario is that Bitcoin goes to a more stable growth in price, I don't like the volatility, and I choose to keep a certain amount in pounds, and I keep a certain amount in Bitcoin. That's my ideal scenario. The great thing about Bitcoin, you're going to have to help me on this because you're Americans, I'm not, but your Supreme Court always has either a Republican or a Democrat sway, right. Is it seven judges?
Peter Van Valkenburgh: I'm a lawyer that has a deep reverence for things like constitutional law and I actually think the politicisation of the court is an over-discussed topic.
Peter McCormack: Okay, fine.
Peter Van Valkenburgh: Even these justices who do have political opinions do a decent job both on the left and right, divorcing themselves from their politics when they're interpreting the law.
Peter McCormack: Okay, great and that's brilliant.
Matt Stoller: I will just say there's nine and they're political hacks who wear robes.
Peter McCormack: But with Bitcoin, it is a separation of money and state, but there's no political bias. It transitions from government to government completely apolitical.
Peter Van Valkenburgh: Peter, I disagree there, I think there's a political bias inherent in Bitcoin.
Peter McCormack: Okay.
Peter Van Valkenburgh: I don't think it's a bad one. I think there's political biases in everything. The question is whether you have clear rules and systems of determined expectations to make it evident when people are abusing power and trying to enforce their biases. There's an idea behind Bitcoin, but no one forces you to use Bitcoin, you can use something else.
Peter McCormack: Of course, yes.
Peter Van Valkenburgh: There's a deeply political idea within Bitcoin. I don't think it's an anarchist destroy-the-state idea, I think it's just a sound-money idea, which plenty of people in government actually believe in as well. What we want are clear transparent systems for mediating social interactions that emerge both from the private sector and the public sector, so that we can judge people when they use those systems and say, "You were doing X, Y and Z, we see you doing X, Y and Z", it's not this opaque system, say, like the corresponding banking system where we don't know the inherent biases of the third bank in the chain when I try to send money to Afghanistan, or I try to send money to China.
I want a transparent system so we can have an open conversation about our political biases, and I want Bitcoin and I want Ethereum, and I want a bunch of competitors and I want the dollar. This is the American ideal.
Peter McCormack: Where is your hard limit, by the way; how hard is your hard limit?
Peter Van Valkenburgh: I've got another ten minutes.
Peter McCormack: Okay, let me put it a different way to you, Matt. What is wrong with having Bitcoin; what is your fear of having Bitcoin exist? I mean, Bitcoin is often compared to gold, we haven't banned gold. People can buy gold, there's that optionality from the dollar and Peter Schiff encourages people to do that and anyone can go and buy gold and they can keep it under their mattress or hold it in a centralised place. What is the problem with having Bitcoin as well, if it's not there to replace the dollar?
Matt Stoller: One of the first things FDR did was he actually took us off the gold standard and actually brought gold into -- basically, you weren't really allowed to own gold because he wanted to make sure that the government could control demand in the economy.
Peter McCormack: I assume you disagree with that?
Matt Stoller: What FDR did?
Peter McCormack: Yeah.
Matt Stoller: No, it was absolutely the right thing to do. It would basically save the world. That we had deflation because we were on a gold standard and there were bit political fights over it, it was absolutely essential. That's one of the reasons we had the Great Depression, what Keynes called the Barbarous Relic of the Gold Standard. Nixon took us off the Bretton Wood systems, which was tethered to gold, in 1970 and that I'm a little bit more mixed on, but I understand what the point of it was.
Peter Van Valkenburgh: Matt's sensor is we don't necessarily need Bitcoin, the government should just seize it like they did gold in the 1930s.
Matt Stoller: I think my weakest point is that Bitcoin can be used for money laundering or it's outside of the state and money is fundamentally a public good that should be organised and controlled by the state. The reason it's a weak point is because Citibank is used for money laundering.
Peter Van Valkenburgh: Deutsche Bank.
Matt Stoller: All of the large banks are.
Peter Van Valkenburgh: Billions of dollars.
Matt Stoller: The drug where all of that went through, the regulated banking system, all of that money. There's massive amounts of dirty money and huge amounts of tax evasion that goes through legal channels. So what I am saying, we need to total control for legal channels because democracy, etc, you sound like a chump. You can come in and say, "No, we need this alternative, and this alternative lets you do it without state oversight, state permission, no one can tell you what to do".
I get why you'd be like, "Lloyds starts snooping around and fuck them", you didn't do anything wrong while the big guys get, "Please, sir, may I take your coat", that's what the Fed does with the big banks, so I get that. So, I get why it's a pretty weak argument. At the same time I just don't see an alternative to restoring our democratic systems. If we don't do that we're just going to go authoritarian; that is just what's going to happen.
Peter McCormack: Can't we do both?
Matt Stoller: That is my fear.
Peter Van Valkenburgh: If we're not authoritarian with respect to clamping down on people's freedom to use alternative modes of money, we will go authoritarian.
Matt Stoller: Just take our regulated system, if we continue to allow flows of dirty money or moving outside of the payment system, if we continue to allow Google and Facebook and CBS or all of the dominant monopolies that control how we move and distribute resources --
Peter Van Valkenburgh: And the banks.
Matt Stoller: - if we continue to allow that, we will go authoritarian. That is what's happening.
Peter Van Valkenburgh: How do you stop it? You said yourself that most of it happens through banks.
Matt Stoller: I didn't say most of it goes through banks.
Peter Van Valkenburgh: How do you stop it? Most of it does. 1% of transactions by total value are illicit on the Bitcoin network; 5% according to the World Bank are elicit in the Global economy.
Matt Stoller: When I look at cheerleading, the way that that's worked, or pharmacy benefits managers who organise what kind of medicine that you can buy, and they control independent pharmacists; you can look at meat packers that are constrained, they are screwing consumers because beef prices are really high but they're also undermining cattle ranchers because they have consolidated the number of meat packing plants, so there's only one meat packing plant usually to sell to, so they become a price taker, that's just pervasive throughout the economy.
The way that you have to deal with that is through politics. You have to restore democratic systems of governance over our markets?
Peter McCormack: How?
Matt Stoller: Through politics.
Peter McCormack: But how through politics? It seems like it's getting worse and worse.
Matt Stoller: Through educating the public through elections.
Peter Van Valkenburgh: Matt said it himself by banning alternatives like Bitcoin. This is what you're saying is that the only way to stave off authoritarianism is to have authoritarianism.
Matt Stoller: The paradox of a liberal state and of the state itself, and this is where I think Hobbes is doubleness, is that in order to enable freedom you have to have a sovereign that is setting the rules.
Peter Van Valkenburgh: Those rules can be purpose neutral. They can allow people to form agreements and emerge --
Matt Stoller: Somebody has to set them and enforce them and any time there is rule-setting and enforcement, you can just say that's tyranny, and in a sense it is, but that's where the doubleness is. You have to set and enforce those rules.
Peter Van Valkenburgh: No. I think it's tyranny when government sees it as its job to usurp private individuals building new things, trying new things. That's when government usurps the authority of an individual.
Matt Stoller: Putting people in jail is authoritarian.
Peter Van Valkenburgh: What government is set up to do is to help people interact. Schopenhauer has this great metaphor about hedgehogs. Hedgehogs are cold at night, they need to huddle together for warmth, but when their spines touch each other, they prick each other, and they get hurt. So, hedgehogs need to find an organic social contract with each other wherein they're just far enough apart that they don't prick each other, but just close enough that they stay warm at night.
That is the beauty of the rule of law. That is what the state is set to do is to help us in an emergent bottom-up way come up with the way we can live together in a cold night with sharp spines. It is not the job of the government to say that hedgehogs should be exactly 5.5 inches apart, it's this bottom-up experimentation as the hedgehogs bump into each other that's important.
Matt Stoller: I like that, that's a great metaphor. I'm going to steal that metaphor, I think that's really good.
Peter McCormack: I'm going to steal that one.
Peter Van Valkenburgh: Part of that bumping into each other is something like Bitcoin. To simply say, "It needs to be outlawed", I think shows a lack of faith in human endeavour.
Peter McCormack: Do you think that though; do you believe it should be outlawed?
Matt Stoller: Do I think it should be outlawed? Probably, yeah.
Peter McCormack: Okay that's interesting.
Matt Stoller: I do.
Peter McCormack: Isn't that authoritarian?
Matt Stoller: I don't think so.
Peter Van Valkenburgh: Not if it's through democracy.
Matt Stoller: Basically, yeah, I mean I think that what you need is a system which is legitimate. The problem we're pointing at, the problem I think that everybody feels, is that our existing systems of governments lack legitimacy. They are not delivering what we need, they are just bossing us around and being obnoxious and difficult and I think if you're on the bad end of the state, you're living in an authoritarian state. But at the same time, there is an inherent coercion to having a state. Both of you are like, "We need a state", but we all acknowledge that there's an inherent coercion in every part of having a state.
Peter Van Valkenburgh: To enforce purpose agnostic rules that allow interactions for private purpose.
Matt Stoller: The point is we all agree that if you violate those laws, you go to jail.
Peter Van Valkenburgh: Yes, fraud, torts, property crimes.
Matt Stoller: There is coercion in that.
Peter Van Valkenburgh: Yes.
Peter McCormack: Yeah.
Matt Stoller: We all agree that you have to live in this authoritarian place called jail and do what men with guns say. We all agree that there is an inherent --
Peter Van Valkenburgh: The rule of law is fundamentally different than authoritarianism. Authoritarianism is not the rule of law, because it's the arbitrated decree of the people in power.
Matt Stoller: I understand.
Peter Van Valkenburgh: Rather than a system that creates expectations of future abilities.
Matt Stoller: I am just saying that there is a coerciveness to the state that is inherent to the state.
Peter Van Valkenburgh: Yes, the law is violence, Robert Cover.
Peter McCormack: I would hate to debate you.
Peter Van Valkenburgh: I have so many quotes in there.
Peter McCormack: I think you have a photographic memory.
Peter Van Valkenburgh: For once, I wasn't the one that brought Leviathan. I have before, actually.
Peter McCormack: Was Hobbes brought up in Good Will Hunting, in the argument in the bar?
Peter Van Valkenburgh: I don't remember that.
Peter McCormack: I think it was. I think that's where I heard it before.
Matt Stoller: Maybe, there we go.
Peter McCormack: Do you also believe that private ownership of gold should be outlawed?
Matt Stoller: No, I don't actually think that, because we're off the gold standard and we don't have gold clauses in our contracts.
Peter Van Valkenburgh: But we're not in the Bitcoin standard.
Matt Stoller: In the 1930s, we had gold clauses in all contracts so you could get payment in dollar or in gold. What was happening was, FDR wanted to take the US off the gold standard because when you have deflation, people were starting to demand payment in gold. If you have deflation in commodities, anybody that makes anything they're going to have to pay their debts in gold not in dollars, and that would drive everyone into bankruptcy. So he had to take us off the gold standard and eliminate those gold clause contracts. It would be the equivalent as if all our contracts were obviously in dollars, but then you could have it in Bitcoin either.
Peter Van Valkenburgh: If you ban Bitcoin because we were in a hypothetical world where Bitcoin clauses are now appearing in contracts, wouldn't gold clauses just reappear and then you have to ban gold, right?
Matt Stoller: I don't think that you should be able to have Bitcoin clauses in contracts.
Peter Van Valkenburgh: I'm pointing to a whack-a-mole problem though. You say we don't need to ban gold now?
Matt Stoller: This isn't something that I think about a lot. I'm just telling you my fear is that these systems are used to undermine the state instead of revitalise our democracy. I understand where you're coming from, I get why there's so much frustration.
Peter Van Valkenburgh: My counterclaim's quite simple. You outlaw Bitcoin --
Matt Stoller: You don't agree with me? This is weird, you don't agree with me?
Peter Van Valkenburgh: You outlaw Bitcoin, the next thing will be gold. You outlaw gold, the next thing would be Ethereum, you outlaw Ethereum, this becomes an endless series of crises that government through democracy is supposed to address, because it's trying to address things that are not purpose neutral. It's not creating standard laws that create an even playing field --
Matt Stoller: I actually don't know about Bitcoin, but certainly Ethereum and --
Peter Van Valkenburgh: -- it's choosing instead to point to certain technologies and certain things and saying, "Now, you're out, now you're out", the end result is chaos, it is the war of all against all, because expectations are destroyed by constant changes. Discretion to simply ban the thing that's a threat to the thing that you like right now, if it's the dollar, if it's Bitcoin, if it's gold, is discretion to destroy the rule of law. It's not the way America is supposed to work, it's not the way our democracy or our constitutional republic is supposed to function. We can't just go through an endless series of crises.
Matt Stoller: I feel like I should end there. I feel like I want to do the Pledge of Allegiance, start singing patriotic songs.
Peter McCormack: Do you have to go?
Peter Van Valkenburgh: I do.
Peter McCormack: You do have to go. I'm going to do a final five minutes.
Peter Van Valkenburgh: I have to go do the Pledge of Allegiance and sing patriotic songs!
Peter McCormack: I'm going to do a final five minutes with Matt, but you'll hear it. I'm not going to throw you under the bus or anything because we largely agree, but I just have a couple more questions.
Peter Van Valkenburgh: Yes.
Peter McCormack: I'm conscious you've got to go and thank you for coming. This could have gone on a lot longer.
Peter Van Valkenburgh: Perhaps we will have it at another opportunity.
Matt Stoller: Thanks a lot, by the way that was really interesting.
Peter Van Valkenburgh: I want to talk to you more about Hobbes.
Peter McCormack: I want to look up Hobbes if it's Hobbes in Good Will Hunting. Why don't we just try? What is the risk of leaving Bitcoin out there? People who listen to this are instantly going to dislike your point that you think it should be banned.
Matt Stoller: Yeah, I know that.
Peter McCormack: It's not going to be popular but it's also good. I want to hear these points, I want to hear why and I'm not immediately going to dismiss them, it helps me sharpen my own tools with defending Bitcoin. But what is at risk by letting Bitcoin exist? Whereas, I don't think it's a large majority of bitcoiners that want to get rid of the dollar or replace the Fed, well maybe the Fed, but they don't want to get rid of the dollar. Some do, some don't.
Matt Stoller: At the risk of making myself even less popular, what I'll say is I think that Congress should directly run the Fed.
Peter McCormack: Okay, because?
Matt Stoller: Because I think it should be run democratically. I think that having a group of oracles, fancy oracles who say, "We decreed that we're going to print more money this way or that way", is ridiculous. It should be done through our democratic institutions.
Peter McCormack: Okay, but what is our risk of allowing Bitcoin to exist; what is it that you fear happens?
Matt Stoller: A couple of things. You have your standard problems that you have in any unregulated system, which is various forms of fraud and money laundering. We need fraud and money laundering to go through our regulated systems. Then you have the national security apparatus, like we have sanctions on, say, North Korea to prevent them from developing nuclear weapons, and Bitcoin enables them to get around that. When the use of sanctions, the use of the dollar as a geopolitical tool is something that the US exploits, you might say that that's a bad thing, or a good thing but Bitcoin undermines that.
When you start to develop systems outside of the regulated financial structure, then you enable essentially piracy type of arrangements. You are basically setting up a shadow pirate state outside, and then all of the things that happen in a shadow pirate state happen and pirates are kind of cool, but they also do things that are dangerous and problematic. You just create more disorder. The argument for it is, in the regulated things that we're operating under, are creating plenty of awfulness and disorder themselves and so maybe we should try something different. I am sympathetic to that point of view.
Peter McCormack: I doubt the trajectory of the North Korean nuclear programme has changed because of Bitcoin. My assumption is whatever sanctions exist, whatever the US government puts in place, there will still be an active North Korean nuclear programme unless there's some kind of deal struck like was struck with Iran previously. What I would say is I wouldn't want to punish 330 million Americans or 70 million British people through the rest of the world.
Matt Stoller: I want to punish them all, I just want to punish them all for no reason!
Peter McCormack: I don't want to punish them due to the North Korean nuclear programme. I don't want them to not have access to Bitcoin and its benefits because of the North Korean nuclear programme. I don't want 3 million El Salvadorans, who now have access to banking services, not to have that because of a North Korean programme. I think the North Korean programme should be -- I think it's an unfair argument against everyone else having financial liberty.
Matt Stoller: When I said, "What can you use this for?", this goes back to the mail/email example. It's like when you look at this and you say, "Well, people can already transfer money, you can use Western Union or other mechanisms". It's really expensive, I'm an anti-monopolist, and so what I see are a bunch of middlemen. Our payment system is super corrupt, and they just take huge chunks of money that they shouldn't. It should be basically free to send money to anyone with all of the checks. The technology is there, you can do it through a centralised database, it doesn't have to be a distributed ledger. What makes Bitcoin interesting and compelling is that it's much harder for a state to stop it.
It's hard for me say, "Yeah, people shouldn't have access to a cheap way to send money when they want to". There are significant downsides to that, because what you're essentially doing is your crippling the state.
Peter McCormack: Is it crippling the state?
Matt Stoller: It is. Sanctions do work, anti-money laundering when you do actually use it, it works because the state is powerful, and it can stop things that we want stopped, we can deal with collective action problems. When you create an alternative mechanism to move money then you enable people who want to stay outside the state's grasp -- a lot of people who are great who want to stay outside the state's grasp, but there's just a ton of criminal activity authoritarian strongmen. They want to use this for their own purposes.
You could make the argument, and this is the anarcho-capitalist argument, "Crime is just a political definition, and so there's moral relativism here. Who is the US to say that what we should be doing is democratic and what some strongman is doing is authoritarian?" I respect that point of view but at the end of the day, if you believe that there is a difference between a democratic system and other forms of systems, you need to empower democratic systems and strengthen them, and disempower other forms of political organisation. So, I don't see Bitcoin as a technology that's innovative, I see Bitcoin as a political project.
Peter McCormack: Interestingly, I think Bitcoin --
Matt Stoller: By the way I apply this to all cryptocurrencies. I don't think that when Peter was saying, "Oh then you'd ban Ethereum", I think it should all be gone.
Peter McCormack: I don't have an interest in those other ones, but I understand how you've come to your conclusions, and I can appreciate them. I think sanctions is trickier and I'm not well versed enough to debate it with you, but I think there's plenty of arguments for how sanctions have punished the wrong people.
Matt Stoller: Totally.
Peter McCormack: Venezuela is a great example; Maduro I don't think he's struggling to live the life he wants to live. He lives an opulent life while the people of Venezuela are struggling.
Matt Stoller: I recognise I'm defending, in many cases, indefensible institutions. I am defending the idea and so that's why I'm very sympathetic to the arguments here.
Peter McCormack: I think Bitcoin can make democracy stronger.
Matt Stoller: I hope you're right and I'm open-minded. It's been really fun to learn about it and talk to you guys.
Peter McCormack: He's a tough guy to debate.
Matt Stoller: He does it for a living.
Peter McCormack: I have the belief that it makes democracy stronger and especially now that we have people within Congress, active senators and also people who are running for Congress who are interested in Bitcoin and they're learning about Bitcoin; they understand what it is, they have really gone down the rabbit hole. But I think that most of the problems you have talked about earlier, they all feed back to the money, the incentives and money, and the great thing about Bitcoin is it changed the incentives for money. So, I think it makes democracy stronger.
Matt Stoller: If there were a political movement that were to say, "We want to put pressure on the regulated financial system, because we think they're doing a bunch of things that are terrible, so we're supporting Bitcoin. But at the same time, we're also supporting reform of the Federal Reserve to make it more democratic, we're supporting making the regulated financial system work better by preventing fraud and money laundering for real, and constraining banks so there aren't bail outs, and promoting financial inclusion in saying, 'Western Union, you are a monopoly and we're going to create rules'". If that were the case, where you had effectively like a group of…
If the political movement were saying, "We need public utility rules on our existing payment system to make it fair, transparent, not allow criminal activity. Until we get that, we're going to channel energy and effort into Bitcoin and", and I realise you're not into the other stuff but, "into these alternative channels", I would be a lot more sympathetic to the argument. What I think is dangerous is the idea that the only thing to do is to put pressure on that system and weaken that system by focusing on building out these alternative channels.
Peter McCormack: Again, I think it strengthens it.
Matt Stoller: By the way, Pat Toomey, who's probably the most ardent pro-crypto guy in the Senate, is also the one who is the most aggressive about defending the independence of the Federal Reserve, defending Wall Street, defending the concentrated corrupting banking system. The politics here, like the people that were fighting against a corruption in 2008, 2009 and 2010 and saying, "You're going to get these bail outs, you shouldn't be able to -- we need jail time we need break ups of these banks", those are the people who are the most aggressive about being suspicious of Bitcoin.
Peter McCormack: Of course.
Matt Stoller: The people who were super aggressive about, "We need these bail outs, we need to protect big banks, we need to protect the Fed", are the ones who are most excited about Bitcoin. The politics coming out of the crypto world, I don't think that's where the people in the crypto world are. I think there's a lot of good-faith people going on there, but I think that the people who are exploiting this are Marc Andreessen, he is behind a lot of this, and this dude is a Facebook monopolist.
There's a lot of cynics out there that are into reproducing and amplifying the problems that we have in our regulated system, but just with an unregulated system that they control. That's the real worry here. I don't see that pro-democracy, pro-reform argument coming out of this community that I think actually has a real deep sympathy for liberty and democracy.
Peter McCormack: Marc Andreessen, interesting one. Chris Dixon from a16z has been very, very much pushing the Web 3 narrative and trying to drive that narrative around tokens and what we call shitcoins, really. That is something that they want to be able to control. They can't control Bitcoin, they have no control.
Matt Stoller: That's interesting.
Peter McCormack: They push these cryptocurrencies where they can issue a premine and they get to have more control over it, and they get to control how they profit from it. The only way they can profit from Bitcoin is to build a company that builds on Bitcoin or buy Bitcoin. They can't get access to the Bitcoin itself by creating the currency.
Matt Stoller: That's interesting the wildcat banking type of thing.
Peter McCormack: It's bullshit. None of us in Bitcoin are falling for it, so that's why I don't care about these cryptocurrencies, but I come all the way back to your first point.
Matt Stoller: The MiamiCoin is the thing that I have --
Peter McCormack: I'm not interested in Miami -- I interviewed Francis.
Matt Stoller: That's when I noticed Florida and Citibank. It's like, "Okay, MiamiCoin's coming out. That means there's a real issue there".
Peter McCormack: This is the sad thing for Bitcoin is it gets wrapped up in all of this stuff and all the bitcoiners are, "Bitcoin, not blockchain; Bitcoin, not crypto". We make a big effort to separate it because they are different things, but I just come back to your other point about it being anti-monopoly and pro-liberty. This is why I believe in Bitcoin: it is anti-monopoly; it is pro-liberty. I believe it will make democracy stronger. I believe it will make politicians more responsible and go to serve their constituents, rather than their constituents serving them.
Matt Stoller: I don't know that much about this community, so it's been really fun to talk to you and learn. You've given me a lot to think about, that Bitcoin, not crypto. That makes a lot of sense, because I understand what Bitcoin is and I understand what it's for. A lot of the smart contracts and crypto and there's all these things you can do, I haven't really seen what you can do with it that's practical. It's not innovation like building the semiconductor.
They're innovating different ways to use this thing that they're innovating on, which is circular, so I have a hard time understanding what that's for, but it does make sense that you would make the distinction between Bitcoin and the rest of the crypto world, and it does make sense the politics of the rest of the crypto world, because you can control those new things that you're creating whereas you can't control Bitcoin. So that's helpful to think about.
Peter McCormack: A lot of these cryptocurrencies are really just --
Matt Stoller: Shitcoins right.
Peter McCormack: They're just an extension of what we already have. Ethereum's moving to proof of stake, which is essentially a Keynesian model and I'm not going to get into the debate about different economic models now; one, because of time and two, because I don't have the skillset to do it, there's people far better than me. But me just as a simple guy, keeping it very simple, I like monetary competition and I believe that can make democracy stronger and I believe in liberty, like you, but I believe within a democratic framework.
I get a lot of shit for it, there are a lot of hardcore anarcho-capitalists who want to see the end of the state, they want to see the end of the Fed, they want to see the end of the dollar. I believe they're a loud minority. I respect them and I wish more libertarians would go into politics, because I think the libertarian idea is a brilliant. There is a lot of stuff that's sound theory there, and that would be a good pull against Conservatives and a good poll against Democrats into another idea of thinking about economics. But for me, this just comes back to, like you, I'm anti-monopoly and I'm pro-liberty.
Matt Stoller: I make a prediction about what I think is going to happen in the crypto space, just based on what I've -- I think that it's floating on the same bubble as a lot of our society is right now, with Tesla and the stock market and all. People sort of see it as an asset that's kind of distinct from the rest of our monetary order, but I actually think all of this stuff is tied into this speculative fervour that is pushed by the Fed; and that when this error of speculative fervour comes to an end, that a lot of the error that's in this crypto world is just going to dissipate.
I know this is not an unusual opinion, I think Charlie Munger said it the other day, but I think this stuff is really tied into the existing regulated financial system even if people think it's not.
Peter McCormack: Listen, we can do this again any time. We can do it six months to a year, if you go further down the rabbit hole, if your views change, if you want to talk again, you can let me know. I'll leave you one other thing to have a think about at a geopolitical level, with China banning Bitcoin, you have to think about why would China ban Bitcoin? It's an authoritarian state, it makes sense. The US is essentially the opposite of China, is meant to be the most free country in the world, pro-liberty, it should actually embrace Bitcoin. If America embraces Bitcoin, it gives this strength against China.
Matt Stoller: We could definitely talk about that for a while if you want. I would have a different point of view, but we'll leave that for another day.
Peter McCormack: It was great to have you on, I really appreciate it. It's a tough gig coming in against the bitcoiners. They disagree with everyone, and they want to fight back and argue back, but I think it's one of the healthiest things we do, is get people in like yourself who bring other ideas and challenge us. It's always good for us to check ourselves, so I really do appreciate you coming on.
Matt Stoller: You've been incredibly generous with your time, and I had a really good time, so thanks for having me in. I hope I don't make people too mad.
Peter McCormack: No, you won't. What'll happen is, the people on Twitter will be mad, the people who write to me on my email will be, "Thanks for doing that, I really appreciated having a different point of view", and that's the way it works because those people don't want to say it on Twitter because they don't want to get yelled at. Tell people where to follow your newsletter.
Matt Stoller: My newsletter is called BIG and it's mattstoller.substack.com. It's a Matt Stoller substack newsletter. My book is Goliath: The 100-Year War Between Monopoly Power and Democracy, came out a couple of years ago but it's still good.
Peter McCormack: I'll subscribe. I would love another time to talk to you, maybe with some beer, or even on the show about my hate for Amazon. I still use it, but the way we go into this dystopian future where every business is just being forced into a warehouse where robots are moving shit around, I just think is fucking horrible. I still use Amazon, but I think it's fucking horrible.
Matt Stoller: I use Amazon. That's the point of a monopoly, you have to use it. Even if you buy on eBay, often the boxes will say, "Amazon", because third-party sellers store their stuff now in an Amazon warehouse. I'd love to talk to you about Amazon, it's a fascinating creature of policy.
Peter McCormack: Maybe next time I'm in DC, we'll do a show on monopolies. I talk about that, I'd love to learn about it. We do fringe economic ideas on the show anyway, it's not just Bitcoin so maybe we'll do that.
Matt Stoller: Yeah, that sounds great.
Peter McCormack: Thanks for coming on, man, really appreciate it, cheers.
