WBD443 Audio Transcription

Bitcoin & the Currency Wars with Lyn Alden

Interview date: Wednesday 29th December

Note: the following is a transcription of my interview with Lyn Alden. 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 macroeconomist and investment strategist Lyn Alden. We discuss currency wars, positive and negative consequences for the US having a global reserve currency, the consolidation of global currencies and whether Bitcoin can become an alternative reserve currency.

“A lot of people take for granted that the current system benefits the US… it basically extends our hegemonic reach, but at the cost of our own domestic vibrancy. There’s a knee jerk reaction for politicians to defend the dollar system, when if they go down the rabbit hole they realise that for maybe 90% of Americans the dollar system is not really working for them anymore.”

— Lyn Alden

Interview Transcription

Peter McCormack: Hi, Lyn.

Lyn Alden: Hey, how's it going?

Peter McCormack: It's so good; so good to see you, so good to do this in person.

Lyn Alden: You as well.  We've got this nice view here.

Peter McCormack: Yeah, we can just see the top of the Empire State back there.

Lyn Alden: Nice, oh yeah, I see it.

Peter McCormack: And we've got Schiff with us.

Lyn Alden: Two pictures.

Peter McCormack: Cullen brought that one with him.

Lyn Alden: Really?

Peter McCormack: Yeah.

Lyn Alden: Oh, that's funny.

Peter McCormack: So now, anyone coming has to bring a Peter Schiff photo and we going to have a whole collection of them.  I'm going to be carrying a big bag of them with me everywhere we go!  We've had a year of just doing this on screen, and I prefer in person, so I really appreciate you coming in to do this.  We've covered a lot of stuff this year, and I talked about the idea that if we got together at the end of the year, we'd do a bit of a review of the year.  But I was thinking about that and it's just a bit boring.  It's just regurgitating what we've talked about.

Really actually, I'm more interested in the future and the next decade, and one of the things that keeps sticking in my mind is when I talk to Balaji about currency wars.  The more I think about it, the more I realise that digital technologies, cryptocurrencies actually enable that a bit more.  I feel there's two forms of currency war that we're facing: between nation states; and then individuals choosing to opt out of nation state currencies.  So, I felt like that would be a good show to make; what do you think?

Lyn Alden: I think so.  I mean basically the whole monetary system is poorly understood by most people.  It's kind of a Rube-Goldberg machine under the surface, and there are a handful of people that have been analysing it in depth.  I mean, Alex Gladstein does a lot of articles on the nuance of it, the costs of maintaining it, and I don't think a lot of people understand how much work went in to setting it up the way it is; it's not an accident the way it got set up. 

They also don't necessarily understand the resource cost, multiple types of resources, for maintaining it the way it is.  So, when they talk about other forms of money and how they have resource cost, they don't realise that the existing system does have resource cost and causes all sorts of problems.

Peter McCormack: Thank you, taxi driver!  We get the beauty of New York with us here.  So, what is it that people don't truly understand then?

Lyn Alden: I think, how much of the system is designed, and also specifically some of the costs of the system.  So for example, they don't know that in, for example, the 1970s, there were various deals set up between the United States and Saudi Arabia and other OPEC nations, to make it so that they only priced their oil in dollars, regardless of who they sold it to.  Then, we basically used intentional tactics to try to put the dollar, and specifically the treasury securities, at the heart of the financial system to try to replace gold.

I think that they assume that comes naturally.  Like, if you just have the biggest military or the biggest economy, that it happens organically, but that's not necessarily the case.  Countries that achieve that type of status with their currency and their bonds generally do so by design.  So, the UK pushed for that system in the prior system, and the United States has been pushing to maintain this system, constructing it and maintaining it this whole time.  So, I don't think a lot of people focus on the fact that a lot of it is designed and that there's all this cost with it.

Peter McCormack: What was the primary benefit to the US of putting the world on a dollar standard following the gold standard?

Lyn Alden: So, after the gold standard failed, I mean we can go back to a couple of eras.

Peter McCormack: Sorry, just jumping in, did it fail?  Why would you say it failed?

Lyn Alden: The gold system?

Peter McCormack: Yeah, isn't it just that nations chose to come off it?

Lyn Alden: Well, there was a couple of different failures in a row.  So, if you go back far enough, there was the gold standard, where countries ran their own gold standard.  And part of it was that gold was centralised.  So, we can say in hindsight, but also for example, Henry Ford was writing about it in the 1920s, how gold was failing, because it was being centralised and was therefore enabling war.  So, part of why it failed was, it was highly centralised and then countries could debase their currency and then not make it redeemable for gold, and the sometimes repeg it to gold at a lower rate, or just not repeg it again.  So, that was the first failure of the gold system. 

Then, the second one was the last-ditch effort to maintain some semblance of it, which was the Bretton Woods system.  So, from 1944 to 1971, we had a kind of pseudo gold standard, which was that the dollar was backed by gold, and then other currencies pegged themselves to the dollar.  And again, this was designed, there was an actual agreement, called The Bretton Woods.  They met in that area of New Hampshire and they actually put this together, so this was not an accident.

That system didn't last that long, because from the beginning it was inherently unstable.  Basically again, we have banks able to create money essentially.  By making loans, they create money, and gold was highly centralised.  And gold was only redeemable to foreign creditors, official central banks.  So, Americans were barred from owning gold, they couldn't redeem dollars for gold, foreign private sector couldn't redeem dollars for gold, but foreign official central banks could.  That's what maintained some degree of repute with the system.

That eventually failed, essentially because you created too many dollars compared to how much gold the United States had.  So, foreign nations, including France and others started to realise that, "I'd rather take the gold than hold these dollars in treasuries".  When that system, they basically called the bluff on it, that failed.  So, you could say that the ultimate reason was that gold was able to be centralised; that's the biggest flaw.  And then, because it was able to be centralised, you could completely untether the amount of currency units in the system compared to how many gold units were in the system, and therefore pegs break.

It's this saying in finance that, "Eventually, all pegs break", because if you don't have a meaningful way to maintain that peg, it's just artificial.  You can't just will it into existence, you actually have to have the constraints in order to maintain the peg.  So, some pegs can last for a very long time, they can last for decades, but eventually imbalances build up in the system and it fails.

Peter McCormack: Right, so you can't have fractional reserve banking on a gold standard?

Lyn Alden: At least not in the way they did it.  So, you could have free banking on a gold standard, for example.  That's a more sustainable system.  It's still tricky to maintain, but there's no inherent reason why it has to fail, just that they eventually did fail.  You chipped away at one piece at a time, you start centralising it, and eventually it can fail.  I think the system that fails from the beginning is to have all gold centralised, so that banks don't even hold their own gold anymore, and then it's fiat all the way down until you get to the very core of the system, because it generally takes a handful of actions to sever that entirely.

So, going back to your initial question, when you transfer from a gold system to a fiat system, you can imagine the chaos overnight.  I mean, we'd never had an environment where virtually every other currency, other than the Swiss franc, was rendered fiat pretty much overnight.  I mean, there was still a transition period, where it was not just that 1971 proclamation; there was a couple of years of transition period, where they tried to salvage it to some extent. 

But essentially, it had a very abrupt transition, where the entire world had no underlying basis for its currency anymore.  Obviously, you ran into inflationary issues, then you had geopolitical issues, because the United States, our oil production peaked in 1970.  So, we became increasingly reliant on foreign imports, and of course you had wars in that area, and they could use their oil exportability as a tool to basically have us not choose one side, or choose another side.

So, in 1974, they basically salvaged that system, so under the Nixon Administration, they made an agreement with the Saudis, and eventually all of OPEC, so they would only sell the oil in dollars.  So, regardless of who buys it; if France buys it, if Japan buys it, whoever buys oil that basically has to import it from the Middle East and other countries, they have to do so in dollars; which means that every country in the world that is not energy self-sufficient needs dollars.  So, they either can exchange their currency to get dollars, or they can start selling their goods and services in dollars as well.

So, that's an intentional design choice.  And why we were able to do that is because the United States has, by far, the largest Navy in the world, especially during that time and ever since.  We also, at the time, were the biggest commodity importer and the biggest economy.  We still are, in some ways, but for example China's catching up in some metrics and they've surpassed us in many commodity imports.  But back then, it made sense in some ways.  And the United States' perspective is (1) they wanted to salvage the system that had chaos overnight, and (2) there was still the Cold War going on.

So, for example, there was this policy where the United States did not want the Soviet Union to move into the Middle East and have access to all those diplomatic ties and the resources in that area, so that was a way to try to have the United States secure that region.  So, some analysts, for example Luke Gromen, have argued that in the first couple of decades of that system, you could see why it made sense.  There were trade-offs for it, but some of the benefits, the Exorbitant Privilege, it's been called, makes a lot of sense.  It basically gave the United States a very large advantage over the Soviet Union, because we were the one country that could essentially print money to buy oil.  Pretty much every other country had to dig it out the ground themselves, or they had to get dollars to buy it; sell goods and services, get dollars, and then they could buy the oil.

But after the Soviet Union fell in the 1990s, that system became kind of a system without a purpose.  It was not really supplying any geopolitical interest anymore, other than maintaining the momentum that was already there, and maintaining the structure for the people that were benefitting from it, at the cost of those who were not benefitting from it anymore.

Peter McCormack: And, with the dollar becoming the global reserve currency, that would make the dollar a stronger currency.  Is that what led to the kind of collapse of manufacturing in the US?

Lyn Alden: It certainly played a big role.  I mean, to some extent, we've seen it worldwide, where obviously automation's been a big role.  Anything that's low cost and low margin, a lot of countries exported that kind of stuff, for example textile manufacturing.  So, the dollar's not to blame for every aspect of it.  But if you look at the United States, it happened a lot more rapidly and thoroughly than many of our developed peers.  So, for example, in addition to exporting our cheap manufacturing, we also export a lot of our advanced manufacturing; whereas, you see countries like Germany and Japan maintained a lot of their advanced manufacturing. 

This comes down to, when every country needs dollars, as you point out, it basically strengthens the dollar.  It doesn't necessarily mean it stays strong all the time.  We've actually had the dollar deteriorate against many other currencies, because we have these underlying imbalances continuing to grow.  But it means that at any one given time, if you have the whole world demands dollars, it's all this extra demand, and so we end up exporting dollars to essentially meet that demand.  There's an artificial amount of extra demand for the dollar.

So, most countries, when their currency gets too overvalued, they start to get a trade imbalance, they get a trade deficit, and that eventually normalises.  Eventually, their exports become uncompetitive and they have a recession and then the markets eventually sort that out.  The same thing if their currency gets too weak; unless there's excessive persistent manipulation, it eventually goes back to that medium point. 

But the United States, because of the system we constructed, has been able to maintain a multi-decade very large trade deficit, longer than pretty much any other country out there.  So, we've basically had the imbalances build up more and more, without allowing that natural error correction, or mean aversion to occur.  And again, that's by design. 

So, the major beneficiaries of the system are those close to the money printer.  So, if you work in DC, not just the politicians, but the lobbyists and all the ways to influence DC, the infrastructure around DC essentially, as well as Wall Street, as well as very, very high-margin businesses, for example, information technology, healthcare; a lot of that, if you work in that type of field, you did very, very well.

If you work in fields that make things, so you manufacture, or you work in jobs that are associated with that, so for example, if you were working at a restaurant that served upstate New York, or somewhere in the Midwest, for example, a lot of that was deindustrialised, so it wasn't just manufacturing jobs, it was all sorts of areas in the region.  So, you can almost characterise it by industry as well as by region.  Essentially, the coast benefitted more or less at the cost of the centre of the country.

So, those imbalances have grown over time and it can be very hard to pinpoint for a lot of people where those causes are.  They know that there's wealth concentration, but they don't know why.  So again, some of this is global.  But for example, if you look at wealth concentration in the United States compared to many other developed countries, the United States is at the top of the list, in terms of wealth concentration, in part because we've had these more deliberate policies that guarded our working-class and middle-class jobs, at the expense of amplifying some of those really high-end jobs, or the ones that controlled the capital.

Peter McCormack: Right, so looking forward, it feels like the petrodollar is starting to fracture.  I was reading this morning about Russia and India agreeing to trade oil in roubles and rupees; they've agreed that.  There has been previous talks of, I mean, I think Iraq previously tried to move to a petroeuro; there's been talk of China and Russia not trading within the dollar.  What would the impact of this be if the petrodollar was to collapse; what would the impact be for the US?

Lyn Alden: Well, I think there would be multiple issues.  So, one, there's two layers of it: there's medium of exchange; and store of value.  So, if they start to do medium of exchange outside of the dollar in the SWIFT system, then that reduces the United States' sanction ability and essentially hegemon status.

Peter McCormack: So, the Russia/India deal is in response to sanctions served on the Russians as well.

Lyn Alden: Yes, but a lot of this has been building for a while.  So for example, there was a Bloomberg article back in 2019 that I highlighted in my 2020 petrodollar article, that showed that Russia and India have been already going along that path.  They basically agreed to increase their trade and to start pricing outside of dollars.  So, we already saw that building up ahead of time.  And now, of course, there are certain catalysts that we're seeing today that can accelerate that.  So, it's not like it just went from zero to 100 this month; this has been building and growing for a while, and is already happening along the spectrum.

So, Russia's kind of at the heart of the de-dollarisation, in the sense that they're a large oil provider, so that impacts the petrodollar system, and they have massive trade with Europe, China, India and other countries.  So, because they've been aggressively de-dollarising, the fact that these other peers go along with it, many of them either neutrally, or they also have an interest in doing it as well, like China for example, they de-dollarise.

Now, again there's two layers of it.  So, one is the medium of exchange, how they actually make the payments, because that can mean that the US is unable to block them from trading.  If they trade within a dollar-based system, the United States can block two countries from trading that have nothing to do with the United States, which is crazy if you think about it.

Peter McCormack: How do they block?  Is it the specific transactions they can block?  I don't actually understand how these dollar transfers happen.

Lyn Alden: So, they cut them off from the SWIFT system, and there are people that can go down that rabbit hole way better than I can.  But essentially, if you're in the dollar-based system and you're using these inter-bank transfers, the United States has veto power over that essentially, so basically they can sever them from the system.  And that happens in extreme cases, like with Iran, for example, they got completely cut off.  Other times, it's more sanction without the nuclear option of just completely cutting them out of it.  So, that's the medium of exchange aspect.

Then, the other question is where they hold their foreign exchange reserves.  Do they hold treasuries, for example, or do they hold other things?  So Russia, for example, has decided not to really hold treasuries anymore, and to hold mostly euro-denominated assets, as well as gold and some other types of assets.  And so, they can go -- generally if you start transacting in other currencies, the natural result is that you're going to have your reserve change as well.  But in theory, there are two separate decisions that can be made; store of value and medium of exchange.

Peter McCormack: So, do you think that's why Russia has been increasing its holdings of gold?

Lyn Alden: I do.  Basically, I think they've been trying for a long time to make themselves more sanction resistant.  You can never really make yourself completely sanction immune in this world, given how dollarised everything is, but there are some countries that if they're cut off from the SWIFT system, overnight they're in trouble. 

Whereas, if you have enough of your trade denominated outside of dollars and you have a lot of reserves, and Russia has quite a bit of reserves relative to the size of their GDP, then they're very strong against that.  So, the most self-sufficient they are, and then the more outside of the dollar system they already are, the better they are.  So, Russia's actually arguably one of the strongest countries when it comes to being able to withstand heavy sanctions.

Peter McCormack: So, how's everyone able to trade, and just to add to that, a friend of mine went to Iran once and told me they had no idea they wouldn't have access to any of the banking systems there; their Visa or Mastercard wouldn't work, and it was a bit of a problem getting into the country, because the dollars they had with them wasn't a lot, but they had nothing else!

Lyn Alden: You don't think about it until you're without it.  Things that we take for granted, they can be shut off like a switch, if they see that country's outside of the global order.  It could be that that country's crazy, or that country's doing something that powers don't like; so, there's a range of reasons.

When you look at Iran specifically, there have been a couple of different payment options.  Europe tried, I believe it was called INSTEX, where they wanted to do euro-denominated payment rails, and that didn't seem like it really went anywhere; I was kind of surprised by that.  They've also been one of the early dabblers in Bitcoin, right, because you have that permissionless payment aspect, and that comes with any technology. 

Anytime there's a new technology, generally some of the more unsavoury characters are the ones that gravitate towards it first.  I like to use the example of beepers, pagers.  When they came out --

Peter McCormack: Drug dealers!

Lyn Alden: Yeah, drug dealers loved it.  And of course, you could make the argument, "Oh, look at these pagers and beepers, it's just enabling drug dealers", but of course there are all sorts of professions and reasons for people that want to use them.  But naturally, criminals -- and there's different types of criminals.  There's objectively bad criminals, like murderers and human traffickers and things like; and then there's criminals that, you know, there are some countries where protesting the government is a crime and you're a criminal now.

Peter McCormack: Well, a few years ago here, buying weed would have been a crime, and people are still in jail for selling weed, yet it's legal in large parts of the country.

Lyn Alden: Exactly, there's a whole spectrum.  There's ones that are obviously wrong, there's ones where morals change over time, and then there's other ones where literally they'd be considered heroes in other countries, or patriots, whatever, but in their countries they're considered criminals.  So naturally, people that have those specific problems, for better or worse; on the good side, you could be cypherpunks or human rights activists, and on the other side, maybe you are criminals or a violent rogue state, whatever the case may be, those types of entities are more likely to gravitate to this, because that's generally what they need.  Payment is not something that comes easy to some of those groups.

Peter McCormack: All right.  So, we tend to have two/three superpowers, certainly the US and China now, and Russia maybe a half superpower; maybe people consider them a superpower because of their nuclear arsenal.  But essentially, three superpowers pulling against each other, there seems to be a lot of alignment between Russia and China, because they're both anti-American.  What's the understanding of China within this kind of triangle of countries and how they use the dollar, and are they incentivised to move off the dollar as well?  Do you think there's going to be a push for them to encourage people to be using their CBDC, for example?

Lyn Alden: I think so.  So, depending on how far back you want to go with China --

Peter McCormack: Let's go way back.

Lyn Alden: So, if you go super far back, pre-modern history, they were a global power, they were one of the biggest, if not at times the biggest power.  You can go into the Opium Wars, for example.  They were ravaged by the West.  So, we tend to think of the evils that China does today, and they do a lot of evils, and I'm always happy to criticise them.  But if you look far back enough, the tables were turned where the West was more so on the villainous side.  So, you could almost paint a movie, where a villain has this sympathetic reason of why they became the way they are.

So, if you look at it from their perspective, they've been bullied by the West for centuries.  So, they had this very strong desire to rise up and be self-sufficient, and I mean that's a noble goal.  But then, of course, some of the ways they do it are gross human rights violations.  And so, when it comes to China, they've had this period where over the past several decades, where they've opened their economy to the rest of the world more, they've very much benefitted from the dollar-based system.

So, generally the advantage of a poor country, which they were decades ago, is that they can be very, very cheap labour, and they can become an export powerhouse.  So, when they opened up to the world and they were led into the World Trade Organisation, they benefitted very much from the system.  And there's something called "the middle-income trap", where when a country's trying to develop, it's really hard to make the transition from basically the cheap labour to advanced nation. 

There are actually very few countries that make that full leap.  They often get stuck in the middle, because they get to the point where they're no longer the lowest cost producer, so they start losing some of their export advantages, but they can't quite keep up with, say, the most advanced nations in information technology or advanced engineering, things like that, so they end up stagnating somewhere in the middle around that range.

So, China's trying to navigate that gap, where they had these multiple-decade periods of being in the low end of that.  Now they're in the middle part of that, they have a big enough population that they have an obvious military power, they are pretty advanced in AI and other areas of technology, they're trying to shore up their semiconductor technology, which is not one of their stronger suits; and so, they have a lot of incentive, over time, to become more self-sufficient.

If you look specifically at the dollar system, one of their biggest weaknesses is that they're very reliant on commodity imports.  They don't have much oil, they have a lot of coal and other commodities, but there are many commodities that they have to import, including many types of food and energy.  So, for them to be sanctioned, for example, would be devastating.  If they were just cut off from the dollar-based system, they'd be, in my view, probably less resilient against that than something like Russia, because Russia's more commodity-secure.  So, China would be in trouble.

So, they've spent many years slowly turning this gap and so, back in 2013, they announced that it no longer makes sense for them to keep taking all of their dollar surpluses and reinvesting them in treasuries, because the United States, the system over time has been essentially that, "We're happy to run trade deficits with you, but take those dollars and go ahead and help us fund our deficits", right, "So, hold dollars and treasuries as your reserve".

Saudi Arabia did that, Japan did that, Europe did that, they all went through these periods where they grew very rapidly, they were the big exporters, and they would hold it in dollars.  China went through that period as well; they amassed over $1 trillion in treasuries.  Eventually they said, "We have enough, it's not really in our interest to keep buying these things.  Especially, we saw the Global Financial Crisis, these yields are poor compared to inflation, and so we're going to start doing other things".  Then they announced the Belt and Road initiative.  So essentially what we've seen is, China uses a lot of their dollars --

Peter McCormack: Sorry, just to jump in there very quickly, is that why the Fed has had to start buying treasuries themselves?

Lyn Alden: I think that's part of it.  We've seen a drop-off in foreign demand led by China.  Now, you see headlines like, "Foreigners dump treasuries".  They haven't dumped treasuries, they still hold more treasuries than they used to, but the percentage of total US treasuries owned by the foreign sector has been shrinking, because they've not been buying treasuries as rapidly as we've been issuing them. 

So generally, any country, when they get over a certain debt amount as percentage of GDP, the central bank becomes the major buyer of their government debt, and the United States is no different in this case, because foreigners have dried up their purchases, to some extent.  So, with China, they've been more specific about it, where they said, "Okay, instead of buying treasuries, we're going to start using our dollars to make loans to different countries around the world, help put up infrastructure to help cement China's hub", basically there's a big trade partner along Eurasia and into Africa and pretty much around the whole world essentially, and also to secure commodities.  So, they'll invest in commodity projects around the world that they have rights to.

So, they're essentially taking dollars and putting them into various types of hard assets, and basically doing almost that type of financial colonialism that the United States and the United Kingdom have done in the past; they're doing a similar approach now.  So, they're rising to that superpower status, despite the fact that their GDP per capita is still in that middle-income trap.

Peter McCormack: I was talking to my brother this morning, and he was explaining to me that the Belt and Road Initiative is itself starting to fracture now, because some of the nations they've been loaning money to can't afford to pay back, and there has been this idea that that would give China a claim on perhaps those ports or infrastructure projects they've built.  But some of these countries are turning around and just saying no.

Also, there was the unveiling of Europe's competitor to the Belt and Road Initiative, a $340 billion, or €340 billion, investment in similar projects worldwide.  What do you make of that?  Do you think the West were slow to catch on with the Belt and Road Initiative, and that threat of that soft imperialism?

Lyn Alden: I think we were.  I think we basically didn't expect it to occur so rapidly out of China.  There are geopolitical experts that could probably go into the background discussions way better than I could.  I mostly can look at numbers and say, "This is what is happening.  Here's what's been said by the different countries".  China's been, in some ways, pretty clear about their intentions with this, at least externally.  It's not really been a secret, they've not been hiding this; it's an open fact that it's happening.

They've also been experimenting with, I don't know what blockchain it was, but they were using blockchains to basically do purchases of iron from foreign producers of it, so they've been experimenting with ways where they want to be as -- so, it's a couple of steps.  One is, they stop using treasuries as a store of value, or at least they stopped adding to their treasuries.  They still have them, but they're not adding to them anymore.  Then, two, they want to find ways to have a medium of exchange that is outside of the SWIFT system.  They don't want another country to be able to cut them off from buying commodities and trading with their partners.

Early phases of that included all sorts of testing.  They'd have like a Singapore technology firm help them out, and they'd do these technology experiments.  Now, of course, the headlines are their CBDCs, where they basically can have programmable money, and they can trade with some of their trading partners outside of the SWIFT system.  To the extent that that continues working with them, they have a lot of clout because they're such a large trading partner with most of the world

So, over the past 20 years, the United States used to be the biggest trading partner with most countries, and that's shifted more and more towards China, where the majority of countries, their individual biggest trading partner is China.  So, the fact that they have all those pieces together gives them a pretty significant shot at being able to de-dollarise their payment systems, and we're seeing early signs of it.

A lot of it is centred on Russia, in the sense that Russia trades with Europe, China and India and some other countries now, either completely or partially outside a dollar-based system.  That can include euros, so you can have an interesting thing where Russia and China trade using euros.  You can also have their local currencies, like Russia and India can use their local currencies to do payments.

Peter McCormack: Do we know how much progress China's made with their CBDC?

Lyn Alden: It seems like a lot.  They've been actively testing it, because lately we've seen, in the past year or so, western central banks talking about exploring it.  Whereas China, from what I've seen, they've been researching it as far back as 2014.  Once Bitcoin was around for a while and then once you had the emergence of initial stablecoins, I think they woke up to that pretty quickly.  So, they've been testing that for a long time.

They've already actively tested their CBDC in many cities; it works in that sense.  They're still trying to roll out all the details, and make sure that the rollout process goes smoothly.  But yeah, they're pretty far along on that.

Peter McCormack: Do we know what blockchain they're using?

Lyn Alden: I believe they're using their own custom one, but don't quote me on that, because I'm not the -- I've read about how some of the details work, so for example, between two phones, you can make a transfer offline, you don't have to have internet for it, which is important when you're in rural China.  So essentially, this kind of competes with cash, for example.

There's different types of CBDCs.  People assume that if you have a CBDC, it means banks don't exist anymore, just directly from the central bank; whereas, it's not always like that.  So for example, their approach, at least initially, is banks are still a thing.  But for example, instead of trading cash in a concept where you might use physical cash, you would use this CBDC instead. 

Then also, it can be useful for those international trading partners, where they say, "Okay, if you want to buy our technology", they make a lot of equipment, they say, "Okay, you buy it with these CBDCs.  So, we'll buy commodities from you using the CBDC and then you can use those to buy our technology".  So basically, they have that trade happening in that currency, if they meet their goals.

Peter McCormack: Is the idea to completely replace the financial infrastructure with a CBDC in China, and do you imagine a scenario where, if tourists are coming in, they would have to exchange their currency; or, do you think they will run the CBDC alongside Visa and Mastercard payment networks?

Lyn Alden: Well, they already exclude a lot of western payment systems, so there are a lot of people that travel to China and report that…  I mean, a lot of the countries that developed later, like China and India, for example, they leapfrogged a lot of the credit card type of payment systems and they went right to mobile payments.  So in China, you have those two big mobile payment providers, and then you'll add CBDCs to that.  Again, it doesn't fully replace, at least not in the current vision of it, it doesn't replace those, but it's another way to pay.

Essentially, when tourists go to China, in many areas they need to use their local payment systems, and that further strengthens it.  But I think the international version is the one to really focus on, because it means that their ability to transact internationally, they can have that "trusted" way to do a transaction without going through the dollar-based system.

Peter McCormack: Okay, so just trying to imagine in our crypto world that China has its CBDC and Russia wants to trade with China, they want them to use that CBDC, do we imagine a scenario where Russia has its version of the wallet, and they are holding their value in a local wallet within Russia; or, is it more of an IOU?  I can't even imagine the infrastructure for this.

Lyn Alden: There are certain people that can go into way more detail.  But essentially, right now, even in the current infrastructure, you're reliant on the other country acknowledging it.  So for example, there have been politicians that have talked about slightly defaulting on the treasuries that China holds, which is interesting because that pretty much tells China, "Don't keep increasing your treasuries, because you have a vulnerability".  China's treasuries are only money good if the United States decides they are.

So essentially, at the end of the day, most of these systems rely on some degree of trust; they're not completely trustless.  So, however they set that up in technology terms, essentially Russia, yes, they could have a wallet and go along with that system.  And essentially, the way it would work is China says, "Okay, we want to be able to use this currency to buy your oil.  Then, you can go ahead, you have that currency in your reserves now, and you can go ahead and use that currency to buy some of our tech equipment", so China exports surveillance equipment, for example, to other countries like, whatever the case; but all sorts of phones and there are broad types of electronics and all sorts of equipment.

So, they both have traded them in yuans and China can say, "Let's use this currency".  Depending on the country that they have clout with, if it's a very small nation and they're very reliant on trade with China, China has a better probability of getting them to use that.  Whereas, maybe Russia says, "We'll use a little bit of that, but we also want to use euros, we also want to use roubles", for example, because they have some clout as well.  So, it really depends on the individual countries in question.

Peter McCormack: But it also then puts pressure on China to maintain a stable currency as best possible?

Lyn Alden: Yes.  And in recent years, relative to many other currencies, they have.  So, there was a long period where they were holding stable, and they were actually strengthening for a while.  Then they went on this devaluation back in 2015.  But it wasn't as large as some people would guess.  I mean, it wasn't like one of those emerging market currency spirals; they did this targeted devaluation.

Then there was this period where it's been strengthening since then.  This year, for example, the dollar had a relatively strong year, compared to many currencies, especially compared to the euro and the yen, but China's currency is actually up a little bit compared to the dollar.  And if you look at some of the responses to the pandemic, for example, China did not do massive fiscal stimulus, they did not increase their money supply very rapidly.  They have some of the better yield-to-inflation ratio out there for their government debt.  When you look at it quantitatively, it's pretty attractive sovereign bonds compared to some of the other types of sovereign bonds that are out there.

So they actually do seem -- this again goes back to the middle-income trap, where they previously had an incentive to weaken their currency, because they wanted to have that export advantage.  But now there are a couple of factors coming together.  One is, they want to make sure they can secure commodities, so that means that they want to have their currency strong enough; two, they're having a demographics issue that's pretty well-known, that they have an aging cliff that is faster than many other countries and that's not good for an export nation.  You want to start shifting to a consumption nation when you get to that, or at least a more balanced type of approach.

I think the fact that they kind of got everything they're going to get out of being a cheap exporter, and now they want to have advanced technology, they want to be a little bit more consumption-driven, and they want to be able to buy outside the dollar; so actually, you are starting to see a more stable currency out of them, and it does seem to be one of their priorities, where they're willing to let companies fail, and they're willing to not do a lot of fiscal stimulus in the face of problems, if it means maintaining a pretty strong currency.

Peter McCormack: Lyn, is there any currency at any risk from the property sector in China, because we know that's pretty fragile right now?

Lyn Alden: Absolutely.  Any currency is vulnerable to the overall economic prospects of that country, and so one of the biggest -- so before, we mentioned one of China's biggest weaknesses is that they're very reliant on commodity imports.  The other big weakness is they have a very large real estate bubble.  Chinese citizens, for multiple reasons, including cultural reasons, invest heavily in real estate.  Many of them, they already have a home, and they go ahead and then they get a second and a third property, and that's also spilled into foreign markets, where they buy Canadian property and Australian property especially, but multiple countries, there's a lot of Chinese buyers propping up those markets.

Those markets become very expensive for that local economy when we compare it to Chinese property, and actually see why the Chinese want to diversify; partially because the properties are not necessarily less expensive when they go abroad, and also because from their perspective, they want some properties outside of China.  So, I would say that a slow-down in their real estate sector is a really big deal.  Now, it's something that's inevitable. 

So, China's actually been one of the better countries at deflating bubbles gradually.  They've had these rolling bubbles, because they're relatively top down, and because most of the debts are denominated in their own currency.  So, they do have dollar-based bonds, but it's not super large relative to their reserves, or relative to their GDP.  A lot of it is internal, so they're able to shuffle the books around and diffuse things slowly.

The risk is that one time they won't be able to do that, and you'll have the big "China collapse" that a bunch of China bears are looking for.  But so far, for a very long time, they've been able to go through these cycles, and we're seeing how they navigate that now.  It's certainly a risk because, if the country's facing inflation from food and energy, and basically there's been reports of power outages and things like that, because they're not able to always get the amounts of commodities they need, and then if you have real estate not doing very well, that can sow public discontent.

They are threading that needle, so we're going to see how that plays out.  So far, it seems like 2021 was the year of crackdown, and I think what they're aiming for is to have 2022 be the year of the rebound, because it's a politically important year for them.  So, I think they've gotten a lot of the pain out ahead of time, and then we're going to see how well they do that U-turn.

Peter McCormack: Politically important, because Chairman Xi has to reconsider whether he's going to stay in power?  I don't know the details, but does he just choose whether to stay in power?!

Lyn Alden: Well, I mean they have the whole politburo, and it really comes down to individuals, how much power they can consolidate, and he's been able to consolidate quite a bit of power, where he's not officially some sort of supreme leader, but for a lot of intents and purposes, he has quite a lot of power.  I think the consensus is looking like he's going to have this extended time in leadership, which goes against a lot of Chinese recent history.  So, that's kind of a big decision point for China and the leaders in charge there.

So, a lot of things have to be going well in China from his perspective to make sure that he gets that.  So, he has to make sure that the elites are content enough with his rule, that there's no widespread public issues, and that there's been no recent crises.  If they got a lot of the pain out ahead of time, and then they have that really strong year going into that, I think from his perspective, that increases his odds of that ongoing leadership going smooth.

Peter McCormack: I wonder if we'll ever see a scenario where, similar to dollarised nations, we'll have, what would you say, yuanised nations?

Lyn Alden: I think it's possible.  I think it's somewhat premature to assume that's necessarily going to happen, but I think the further this develops, it's not an outlandish thing that it could happen.  People often think that a reserve currency has to be binary; you either have a reserve currency or you don't.  Whereas in reality, it's somewhat of a spectrum.  So, the United States has "the reserve currency", it's very dominant.  But the euro and the yuan are also these contenders.  They're not really in a position to replace the dollar and become the new, by far, dominant global currency; but really, what they're aiming for is to be regional reserve currencies.  They want to be able to trade with enough of their partners for key things they need in their currency.

So, I think you certainly could see, for example, maybe some small African countries, become yuanised, if that's a word --

Peter McCormack: I think we just invented it.

Lyn Alden: I think we invented it.  I mean, petroyuan is a word.

Peter McCormack: And bitcoinised is a word.  Yeah, we can do it.  I can't really say it: yuanised, yeah.  I think what's really interesting, looking over the next decade, is whether we see the consolidation of currencies.  We have dollarised nations, but that really is a decision on the country itself whether it wants to go onto a dollar standard.  Again, I'm way out of my field of knowledge how a country does that. 

But in this world where we now have Bitcoin and digital currencies, one of the conversations, or one of the things I put on the table with Nic Carter is, in a country like Turkey, the currency is collapsing and people have talked about Bitcoin is a great lifeboat for people there.  But really, yes to an extent, but also it's volatile, so it's not really useful day-to-day.  Actually, for a lot of people there, maybe the Tether, or any form of stablecoin is a better currency to have, and you could possibly see this black market, or bottom-up dollarisation of a nation, just through the local people saying, "We're not having this anymore".  If I was in Turkey, I would be converting my lira to both Bitcoin and digital dollar right now, rather than holding a collapsing currency.

Lyn Alden: No, I think so, basically yeah.  Also, there are cultural elements, so there are multiple local options too.  They can buy gold, as long as they're not blocked from doing so.  It's easier to do that with gold than something like Bitcoin, or even stablecoins; and also real estate, but again that can be illiquid and it's not accessible for everyone.  So, I do think that things like Bitcoin and dollar stablecoins are another avenue for them.  Depending on someone's needs, there are all these different options.

In the long run, of course, stablecoins are not an ideal option, because you're still losing purchasing power over time, so you're not really getting paid interest, and yet the dollar's becoming worth less in terms of real assets, most year after year after year, sometimes at a higher rate, like we've seen in 2021.  So, it's not necessarily something you want to store the bulk of your wealth in.  But sure, absolutely, when your own currency's falling rapidly, the fact that the dollar's inflating at 6%, it's way better.

Peter McCormack: Come on!

Lyn Alden: Well, official CPI.  So, when they can jump onto the dollar and hold that until they figure out what they want to do, and they want to put it into other assets and they just want to hold that for 6 to 12 months, it makes perfect sense.  So, as a percentage of what they're doing, it absolutely makes sense for them to get into stablecoins in many cases.

Peter McCormack: But do you see that scenario of currencies consolidating around the world?

Lyn Alden: Well, I think we've been seeing it for a while, and I do think that's probably a trend that's going to continue.

Peter McCormack: Okay.  So, the role of Bitcoin in all of this, it's obviously banned in China, and it feels like it's an opportunity for the US.  I was talking to Austin Hill about this beforehand; but by the US being open to Bitcoin, they're actually open to the people of the US being able to hold some of their appreciating value, which could raise up the wealth and the strength of the US itself.  And I know their regulators have to walk a careful tightrope of protecting the dollar, also wanting to have mass surveillance, but it feels like it would be a smart geopolitical move for the US to be quite friendly towards Bitcoin?

Lyn Alden: I think a lot of people take for granted that the current system benefits the US, and as we discussed, in many cases it does.  It basically extends our hegemonic reach, but at the cost of our own domestic vibrancy.  So, there's a kneejerk reaction for politicians to, I think, defend the dollar system, when if they go down the rabbit hole, they realise that for maybe 90% of Americans, the dollar systems aren't really working for them anymore.  So, there's that.

And then, even alongside that system, as you pointed out, there are a lot of benefits from being the centre of Bitcoin, basically having a lot of hashrate in a lot of the holdings of Bitcoin among your private companies or private individuals.  So, I do think that it makes sense that you want to keep that culture of inviting innovation, being the hub that companies can come and develop on, so you get all the tax revenue and all the employment from the jobs around the space, as well as the wealth that can come, if that ends up being the correct move.

If Bitcoin goes up five or tenfold in market capitalisation, and the Americans hold a very large chunk of it, that obviously benefits the United States.  And so, from a regulatory perspective, they don't like the fact that you can do permissionless payments.  They want to be able to surveil and block transactions that they don't want, maybe not quite to the extent of China, but most countries around the world want some degree of that that is usually more so than what most private citizens would think is acceptable, to say what they can or cannot do with their own money.  So, I think they are walking that tightrope.  But if I was a political leader, I would absolutely embrace Britcoin --

Peter McCormack: Britcoin?

Lyn Alden: Bitcoin, I misspoke!

Peter McCormack: Britcoin is the UK's CBDC!

Lyn Alden: Yeah, we'll see how far they get with that.

Peter McCormack: Yeah, I've got a comment on that, I'll come back to that.  Well, maybe I'll say it now.  One of the things I worry about the CBDCs is that we benefit from a fractured financial system in that if one part breaks, you can use the other part.  If my Visa goes down, you can use your Mastercard, or you can use Amex, or you can use cash, or you can use Bitcoin.  But a system that trends towards one centralised CBDC, I don't feel like it is.  It puts the whole economy at risk.

Lyn Alden: Absolutely, because the whole economy can shut down if that stops working.  And we've seen, for example, Fedwire can go down, it's not unheard of.  So, these central systems can go down and it can impact everything.  We've seen, for example, just in recent days, Amazon Web Services had an issue and countless businesses that you'd have no idea that they'd go down, you don't realise that they're running on Amazon Web Services.  Imagine if they had 100% market share?

It's the same thing with currencies.  Most people that travel a lot, it's nice to have physical currency with you, just in case you never know when your card's not going to work for some reason.  You never want to be without payment, and if you're 100% reliant on centralised internet-based technology, that's an inherent vulnerability.

Peter McCormack: Do you think we'll get to the point with Bitcoin where the long-term vision that some people have had, that banks will settle in Bitcoin or your trade will be settled in Bitcoin, do you see that as something that could happen?

Lyn Alden: Well, I think the longer it goes, the less outlandish that sort of scenario gets.  I mean, if you were to call that when Bitcoin was $500, it would look sillier than when you call it when Bitcoin's at $50,000, for example.  As roughly a trillion-dollar asset, it's becoming meaningful on the macro scale.  I think, if Bitcoin continues to get adoption and continues to go in market capitalisation and liquidity, it becomes increasingly useful as a reserve asset. 

You start with the fringe countries, the ones that are either kicked out of the dollarised system, or they're already dollarised, like El Salvador for instance, they want to do this move to attract all the tourists, attract the capital, lower remittance costs, a bunch of reasons.  Even just put their name on the global stage in a way that it wasn't a year ago.  So, there's those incentives.

But basically the bigger it gets, the more useful Bitcoin becomes as a reserve asset.  It becomes another way for Russia, for example, to make themselves for sanction resistant.  And again, you might not always agree with the countries that might use it, but if you understand their own incentives, you can see why they might become interested in that technology.

So, I do think the bigger it grows, essentially this uncensorable public ledger that's quite secure is attractive, for individuals, companies, and nation states, in many cases.  And of course, it has to get big enough to attract those larger pools before they start taking it seriously.

Peter McCormack: It feels like there's an incentive for everyone to use it, but for different reasons.

Lyn Alden: Absolutely.  I mean, it's simply going literally from cypherpunks to unsavoury types of either countries or individuals, or just people in Turkey that want to protect their purchasing power, or people in the United States that want to protect their purchasing power.  Basically, one of the common problems worldwide is how to store your value, how to store your wealth, especially in this era where we're essentially in financial depression, so interest rates are below the inflation rate; usually in terms of the official inflation rate, let alone whatever the "real" inflation rate is.  You're not really keeping up with the creation of currency.

So, people are monetising all sorts of things.  They're monetising art more than they used to, they're monetising their homes, so you have home value-to-income ratios going up dramatically.  You're monetising stocks where you say, "I don't even know what the stocks do.  I just want to shove money into an index fund, because it's better than cash".  So, we monetise all these other assets, so the world pretty much has a store of value problem, and it becomes worse for emerging markets that don't have access to a lot of -- you can't buy fine art, real estate is trickier, you can't buy the S&P 500. 

Bitcoin is one that they can all hold on their mobile phone.  And then you have countries like Iran that say, "Okay, we want to be able to buy things if want to, and there's this permissionless payment rail that we can use".  So, pretty much any actor out there can use Bitcoin for a purpose.

Peter McCormack: What a time to be alive, Lyn.  It's not all good, there's a lot of scary things happening, but we're living in this world of potential currency wars, or actual currency wars, between major superpowers.  But at the same time, any individual can exit the system because 13 years ago, somebody launched a protocol that's become this decentralised currency of the world.

If you'd explained this to somebody 15 years ago, if you'd explained Bitcoin and said, "Yeah, but we're going to have a new currency that's going to come along.  We don't know who the creator's going to be, it's going to be completely decentralised, it will be the fastest-growing currency in the world and the governments can't switch it off", people would have thought you were fucking mad!

Lyn Alden: It's funny, because if you look at old quotes, there are people that were bitcoiners before Bitcoin existed.  If you look at Hayek, for example, he's like, "The only way that you're going to have good money again is if someone can introduce a sly, roundabout way to separate money from state".  He's basically describing Bitcoin before it existed.  Again, Henry Ford talked about a currency of energy and that gold was too centralised.

Peter McCormack: Yeah.  Sovereign Individual.

Lyn Alden: A lot of people discussed this thing, and so it's kind of remarkable that it happened.  And I think we can envision now two very different futures.  So, we know that money's going to be increasingly digital, more so than it already is.  Right now, when you think of it as digital, people joke and they're like, "Well, the dollar's already digital".  Well, it also runs on these old pipes, for lack of a better word.  There's this old legacy infrastructure and then we interact with it in a digital world, but it still goes through these centralised pipes, and stablecoins are quite different ways to transmit value.

Obviously, money's going more digital, and is it going to become more state- and surveillance-controlled?  So, almost using Satoshi's invention against him, where this technology can enable CBDCs, it can enable essentially highly regulated private stablecoins, that might as well be CDBCs, for example.  They can blacklist any addresses they want, they can block transactions; that approach.  Or you have Bitcoin, where it's a defence against nations that are maybe being improper.

It's one of those things where, if you're in a developed market, it can sound almost like you're an anarchist, for example, if you want to separate money from state.  But it's not hard to envision it if you live in Russia, or you live in China, or you live in Nigeria, for example.  There's been cases that have been, at this point, well documented by the media where, for example, Putin's opposition that is heavily repressed begins using Bitcoin, because they can get donations, they can send payments.  You see that happening in Nigeria, where these protest groups pop up; they're protesting police violence and then their bank accounts get frozen, and they can resort to Bitcoin.

There's been analysis, I think, from Freedom House, showing that over the past 10, 15 years, the world's becoming slightly more authoritarian around the margins.  We had this period from, say, the 1980s, 1990s, we started entering this period of liberalisation, we had declining authoritarianism, but now it's on the rise again.  And I think also that the pandemic showed that even in developed markets, we brought up all these new debates about human rights and restrictions on mobility and things like that.  And so in that type of world, where technology can increasingly be used to surveil and control populations, there's this technology that can actually also enable them.  And I think we can envision two different futures, depending on which path ends up winning.

Peter McCormack: Well, it's centralised versus decentralised.  We actually released a show today that I recorded with Mark Moss.  The title will seem hyperbolic, but it was, "Bitcoin & the Battle for the Fate of Humanity", where it's essentially a world that's becoming more centralised.  The only way to fight back against that is decentralisation.  Therefore, what is the best tool we have?  Well, it is Bitcoin.  It sounds hyperbolic and I think for some people that aren't even in the world of Bitcoin, they'll think this is absurd.  But it might be right.

Lyn Alden: I think that what people miss is that history goes through these big cycles, these big pendulum swings, and people naturally have recency bias where they look over the past 34 years and they can't envision the world being any different.  Whereas, that 30- and 40-year period looks crazy compared to people in the prior 30- or 40-year period.

It happened, for example, with labourers and capital.  You see this political shift back and forth between who has more of the power.  Sometimes you hit an extreme and you hit a revolution, or you just kind of have a partial revolution and have a populace swing-back, so there's that that keeps changing.  As we talked about, these monetary systems keep changing, so you go from gold standard to failed gold standard to Bretton Woods to petrodollar system.  You go through these changes over time.

Right now, we've been in this period of increasing centralisation, increasing digitalisation, and if you go back to, for example, sci-fi writers, they've been forecasting this, talking about that the more technology exists, the more it enables the governments to have almost a perfect authoritarianism.  Imagine Soviet Russia if they had the surveillance that you have today, including financial surveillance and surveillance blocking.  That's essentially what China's moving towards, in some ways.

So, I think if people think internationally, some of those things seem less crazy.  Even if they're a local country, might be benign in a relative sense, I think it's one of those things where you can like government but still view that at the end of the day, the government should be more afraid of the people than the people are afraid of the government.  So, it's always good to have that tool that keeps powers in check, to avoid that absolute power, the ability to stop transactions, block anything, surveil anything, and then there are no checks anymore.

Peter McCormack: So, what about Ethereum, Lyn; could that be world money?  I saw you wrote another article, I read it.  It was an epic article.  I'll direct people to it, but you did a review of proof of work versus proof of stake.  I don't think I can let you leave today without touching on that very quickly.  Firstly, were they mean to you again?

Lyn Alden: Not really.

Peter McCormack: They were last time.

Lyn Alden: Well, it depends.  Every community has individuals.  So, some people engaged constructively, other ones engage aggressively.  And my overall approach, I try to characterise it as there's Bitcoin, and then everything else is essentially a security.  It's either literally a security, or it's essentially very equity-like.  So, I generally don't go so far as to say that every other application of blockchain is worth absolutely nothing, it's not worth exploring, I'm not on that end of the extreme. 

But I don't view them as money, for sure, I view them more like equity platforms, and many of them use scammy tactics.  Again there's a spectrum.  So, you have outright scams, then you have well-meaning projects that are advancing things in ways that maybe Bitcoin has been slow to.  So, in a sense, they're these little trial areas.  But there's a difference between that and money.

So, you have the start-up, equity-like thing versus sound money.  Essentially, the downside of any blockchain other than Bitcoin is that they're not sufficiently decentralised.  So, Bitcoin starts with high decentralisation, then makes really rough trade-offs to have that decentralisation.  Essentially, blockchains are really inefficient databases.  In order to have it be decentralised, at least with the technology that we currently know of, you have to have a very small and tight database so that it can be held very, very peer-to-peer, and that it's resistant to any sort of centralised attack surfaces.

You don't want to be like the White Walker army, where if you take out the Night King, they all die.  That's how most blockchains are constructed.  They have a Night King and if you take out the Night King, the war's over.  Whereas, you want to have it so that you're a zombie apocalypse, where every unit is completely autonomous, there are no centralised attack surfaces.  So Bitcoin is maybe not perfect, but it's by far the closest thing we have to a truly decentralised system.  All those other ones, they make fewer of the trade-offs that Bitcoin did, and therefore they have these bigger attack surfaces.

Essentially some of them, in the long arc of time, when we get through periods of speculation and we see what technology sticks around, maybe blockchains are useful for certain applications.  But the more they're useful for, at least on the base layer, the more prone they are to centralisation, being changeable, and therefore not really being that kind of money for enemies, or global money, or global collateral, or whatever you want to call it.

Peter McCormack: Or ultra-sound money.

Lyn Alden: Well, that whole think popped up because essentially, if you define how sound your money is by what the inflation rate is currently…  You can imagine two systems.  Imagine, for example, a country like Singapore says, "We're going to maintain this money supply", and then they do it for a few years and they say, "We're ultra-sound money now".  But it's still the case that at any given time, if you have a change in leadership, for example, you could change your monetary policy.

Whereas, something like gold, for example, if you look over the past century, they never really made more than 2% of new gold per year.  Pretty much no matter what gold price does, you have that hard constraint, in terms of how much gold you can produce.  Compared to that fiat currency system, that's a much more sound system.

So, it's not just whether or not you have inflation or deflation; it's whether you can even change it, or whether a centralised entity can even change it.  So, it's not just about being "deflationary" or less inflationary, it's about how much trust we can place in the idea that ten years later, that exact monetary policy's still going to be in place.

Peter McCormack: But back to proof of stake, the TLDR?

Lyn Alden: That I essentially view it as equity-like, where it's inherently centralisation.  I've seen it described as a proof of work in disguise, in some ways.  It's one of those things where maybe it's useful for certain applications, but it's not one you would choose if you want to maximise decentralisation and have it be this global money that's rather resistant to state attacks.

Peter McCormack: Yeah.  Well, we did it, we've had a good year, Lyn.  We've made 11 shows, I think.  We missed one.

Lyn Alden: Yeah, I was travelling.

Peter McCormack: You were travelling; so selfish!  What are you looking forward to next year?

Lyn Alden: So, right now, we're obviously in an inflation period.  I'm looking to see what happens with some of these transition periods.  So, we've had this period where the United States did a lot of fiscal stimulus, and we're facing a fiscal cliff; we're going to see how they navigate that.  They're also now trying to tie the monetary policy into this inflation.  On the other hand, China went through this big crackdown year, and based on political realities, we're probably going to see them trying to have the dust settle and move up a little bit.  So, we're going to see how maybe these cycle turns play out.

And, Bitcoin's big enough for it to macro asset now.  It's like, if you use Google as an example, when Google was a young company, regardless of what the economy was doing, it could grow at 100% a year, because it was just eating market share from other advertising methods and other search engines and things like that.  But once it becomes by far the dominant player in its industry, it now is the economy.  So, if the economy slows or accelerates, Google's affected.

Bitcoin's kind of like that where, when it was super small, it was its own thing.  It always had some linkage to liquidity in some ways.  But when it becomes more institutionally held and more widely held, it becomes a little bit more tied to economic cycles, and you can see obviously, liquidity affects it very much, but also things like inflation and other variables.  So, I'm curious to see if we start to get some decoupling, say with Bitcoin compared to growth stocks, or compared to the stock market in general; I'd be curious to see some of those.

We could see inflationary pressures damage company margins, for example, and you could see stocks run into some turbulence, while maybe the advantage of commodities in inflationary environments is that they don't have margins.  They are the things that are, in many cases, eating into other company's margins.  So, you could see decoupling.  So, there's a bunch of things like that that I'm looking for, and just looking for ongoing maturation of the industry.

I'm looking to see some of the developments that might happen because of Taproot.  So, it's one of those things where maybe it was overemphasised initially, but then underemphasised when you look out several years, the things that could develop from it.  I'm watching Lightning, I'm watching all sorts of things.  There's all sorts of developments happening that I'm excited about.

Peter McCormack: Well, it's going to be a big year.  Thank you again for everything you've done this year.  I think you're brilliant, I really do; I think everyone does!  Whenever I post a show, there's constant amazing comments.  I still can't understand how you know so much stuff, but it's an absolute pleasure to talk to you every month and I really appreciate you coming on the show.  I wish you a happy Christmas and New Year and let's see what we do next year.

Lyn Alden: Thanks for having me.  I'm glad we were able to meet in person and do this for the first time in person, so hopefully people enjoy it.

Peter McCormack: We had a nice meal the other night.

Lyn Alden: We did, yes!

Peter McCormack: A little bit of Champagne for Christmas!  But no, it's great to meet up, and let's see what we can do in 2022.

Lyn Alden: Absolutely, excited.

Peter McCormack: Take care.

Lyn Alden: You too.