WBD469 Audio Transcription
CBDCs: the Good, the Bad & the Totalitarian with Nik Bhatia
Interview date: Wednesday 2nd March
Note: the following is a transcription of my interview with Nik Bhatia. 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 the Author and Professor of Finance Nik Bhatia. We discuss the rationale for CBDCs and their limitations, a new form of heavily surveilled ‘free’ banking, Bitcoin as a discovery and a right, and how the Lightning Network makes Bitcoin a currency.
“You’ll have Fed coin, JPMorgan coin, Bitcoin, Tether… you have the right to choose how to denominate your labour, your earnings, your savings; and I think that’s the future that we’re in for is this era of currency choice. And thank God for Bitcoin.”
— Nik Bhatia
Interview Transcription
Peter McCormack: Nik, hi, how are you, man?
Nik Bhatia: Great to see you, Pete.
Peter McCormack: Good to see you, man. Two years ago, just over two years ago, October 2019, we first met here in LA.
Nik Bhatia: That's right, in the OpenNode offices.
Peter McCormack: Yeah, my little trolley!
Nik Bhatia: A lot smaller operation back then.
Peter McCormack: Yeah, wheeled my little trolley and put it up on the desk, we made a show, and two and a half years later, Bitcoin is at a very high price compared to then. We have a nation state that's adopted Bitcoin, we have a company, MicroStrategy, who's just put fucking all the money they can into Bitcoin. It's a very different Bitcoin world. And you're also a published author.
Nik Bhatia: That's right, a lot has changed in two and a half years.
Peter McCormack: And we have a crew.
Nik Bhatia: Hello, Danny.
Peter McCormack: Say hello, Danny.
Danny Knowles: Hello!
Peter McCormack: Are you mic'd up?
Danny Knowles: I am mic'd up, yeah.
Peter McCormack: I can't hear you.
Danny Knowles: Sorry, yeah.
Peter McCormack: You always turn yourself off.
Danny Knowles: Well, no, it's recording, but I am mic'd up.
Peter McCormack: He's so shy! How's the book going, man?
Nik Bhatia: The book has done great, we're over 40,000 books now worldwide just over a year after publishing.
Peter McCormack: Wow!
Nik Bhatia: And, up to about 14 foreign languages. Three are live, several more on their way. Spanish is coming really soon, I'm really excited about that one. And, it's opened a lot of doors, which has been great, and I'm really excited about the future.
Peter McCormack: What's it like getting it translated, because you won't speak the language, so things can get lost in translation.
Nik Bhatia: Yeah, they can, and you have to do your best in the due diligence process, and Saifedean has been helpful in that a lot of the people that are approaching me have translated his book, and he's helped me, "This is a good translator, I got good feedback on this one, and this one maybe you need to be a little bit careful with", so using resources like that to help me.
But I've had really friendly publishing partners around the world that have made their translators available to me, and the translators have been asking me a lot of questions, because as you know, the Layered Money terminology is new and it doesn't have a precedent really. So, trying to translate that into different languages has been difficult.
I actually basically crowd-sourced the title for the Spanish version, it's Dinero en Capas, which Capas is a way to say steps, and not necessarily layers; because, if you use the word for layers, it tends to refer to clothing. And so, it just didn't make sense to use that "layered" word in Spanish, so little things like that. It's a big process, but it's a learning one.
Peter McCormack: Well, the title's super important.
Nik Bhatia: Absolutely. The word "layer" is the key here, and what we're trying to do with the book is reframe the way that we understand the monetary system, away from balance sheets, away from accounting, away from a lot of these really complex and difficult to understand topics, and just put it in first layer, second layer, third layer, so people understand exactly what type or what quality of money they have, how many counterparties they have involved in that money. So, yeah, the word "layer" is right at the middle of it all.
Peter McCormack: And the feedback I know has been good, but anything surprising come out of it? Somebody somewhere sent you a message said, "I've read this book, it's changed my life"?
Nik Bhatia: Yeah, a few people from around the world have definitely messaged me and said, "This book has made me change my career", "I've read this book four times, it's made me invest in Bitcoin and away from XYZ". I've had people that thanked me, because it's the perfect book to give their parents and introduce them to why Bitcoin is so important to them, which has been great. Then also, policymakers, especially here in the United States, are referring to Layered Money as a potential guide to policymaking on Bitcoin, and even central bank digital currency stablecoins.
Peter McCormack: Have a look up there. What's going on today? We've gone from $36,500 to $40,000.
Nik Bhatia: So, this morning, we had the jobs print, and it was a very good number, a big job ad here in the United States, so interest rates are moving, stocks are moving, and Bitcoin's moving. It's really what the case is here right now, is that Bitcoin is moving with the traditional markets, and in a very correlated way. Sometimes, it's going down with stocks, and sometimes it's going opposite from stocks. But when markets are moving, Bitcoin is moving right now, so that's what's happening today.
Peter McCormack: I didn't even know that. Saw the price earlier, yeah, wow! That is a big green candle. Good work, Bitcoin! And how's the book changed your life? You say it's opened up opportunities.
Nik Bhatia: It's changed my life pretty much in every way. So, before starting to write the book, I was a bond trader in the traditional finance industry, diving down the Bitcoin rabbit hole and basically, a Bitcoin blogger hobbyist in 2018, 2019. Then, writing the book was a huge risk, as you know, for me and my family, to basically go without the job for the time that I was writing the book. And, since the book has been published, not only have I launched the Bitcoin Layer, which is my new publication on Substack, people can go find that at thebitcoinlayer.substack.com. That's where they'll find me now writing every week about Bitcoin transitioning to world reserve currency status.
The Layered Money sets up this idea that Bitcoin can progress over the coming decades to world reserve currency, and the Bitcoin Layer's here to narrate that here and now. I have another Bitcoin book in the works, in terms of the research is starting.
Peter McCormack: What; tell me? Is this an exclusive, or have you announced this?
Nik Bhatia: Of course, and the announcing Layered Money was also done with you for the first time.
Peter McCormack: It was.
Nik Bhatia: And yeah, I mean really, I'm so motivated to educate about Bitcoin, I've found that as my calling. And post-traditional finance world, I'm a Bitcoin writer. That is what people, the world, has told me. I put the energy out, they put it back, they gave it back to me that, "We want you to keep writing about Bitcoin". So, of course it's going to end up with another Bitcoin book, and it's going to be a larger -- I hope it to be more of a larger cultural view of Bitcoin and how it's changed the world, not necessarily just, "What is Bitcoin as a currency, and how does it fit into the history of currency?" which was the first book, so maybe taking a bigger angled lens view of Bitcoin going forward.
But it's going to take a lot of work there, it's going to take reading dozens of books from different eras, reading a lot of history again. And I want to also travel the world and sit down with real bitcoiners in different places in the world, and see how it's changed people's lives, getting outside of this American-centric price, which we're all victim of; we're looking at the price all the time, you and me both, but we're both also trying to build a better world using Bitcoin, and that goes right into culture. So, I hope that the second book is going to be more to do with how the world is interacting with Bitcoin on a cultural level.
Peter McCormack: Have you got a title yet?
Nik Bhatia: I do, but I can't yet! It's way too early.
Peter McCormack: Is it done, or is it a working title?
Nik Bhatia: It's a working title for sure.
Peter McCormack: Are you going to DM me and discuss it with me?!
Nik Bhatia: Sure, absolutely.
Peter McCormack: Well, I'm super-proud of you, this is amazing. I mean, how good is your life that you get to spend all your time reading, learning, writing, sharing your knowledge, now travelling the world to do this?
Nik Bhatia: It's absolutely the best, and I know that's part of what you love about your job. It doesn't feel like a job, you're just living your life and you're going around the world and talking to people and building a better Bitcoin future for us all, and I want to do that too. So, being able to write at the Bitcoin Layer and reach readers all around the world every week has been very special for me. And the readers are constantly coming back to me with ideas, thoughts, and propelling me forward. My subscriber base is also growing, daily, weekly, which the numbers speak for themselves. It means that more and more people want to read what I'm writing, and it's just incredibly motivational and special.
Peter McCormack: Yeah, and it's very exciting when those numbers keep ticking up, and you can build a life for you and your family doing this, which is very cool. Well done, man. So, today, I want to talk to you about, I did a show recently with Lyn Alden, called The Currency Wars, and we were talking about the fact that there are sovereign currencies crashing, there are changing relationships between nations, changing options for people with regards to currency. We've seen El Salvador adopt Bitcoin, Tether is used all around the world, Alex Gladstein has talked about how Tether is used in economically-challenging environments. We have China probably leading the race on CBDCs, but you'll correct me, but many other nations considering this.
Nik Bhatia: Leading the race on time.
Peter McCormack: On time, okay. So, that was a fascinating show with Lyn, we got a lot of detail, it was very popular, but I wanted to expand on it with you, and especially on the CBDCs, I want to learn a bit more about that. But I also want to get your perspective on the future of money, the future of currency, where you think it's going, what is the role of Bitcoin; is Bitcoin going to be a reserve asset alongside sovereign currencies; will it replace sovereign currencies? There's a whole lot to get into. I know many bitcoiners think it will replace things like the dollar; I'm sceptical of that, but I want to have that conversation.
But as a starting point, can we do a full fill-people-in on CBDCs, where we're at with them, as much of your knowledge as you can share? And we'll start super-basic, because you know what my audience is like, you know what my questions are like. Can we just start by explaining to people what a CBDC is and what we know about the ones that exist?
Nik Bhatia: Right. CBDC means Central Bank Digital Currency, and they only exist today because at a certain point, after about five, six, seven years of Bitcoin's existence, central banks realised that they were threatened by this thing called Bitcoin, and they had to respond with their own version of something, so as to not be buried in the ground over the coming decades. That's what CBDCs are. They're a central bank attempt at surviving as an institution, because their old rails, the system that they used, the old system has broken down, basically, since 2007, 2008. It's broken, it's in disrepair, and they realised that unless they come out with something new and copy Bitcoin really in some ways, they're going to be made irrelevant. So, it's really a fight for survival.
But then, really early on in that process, the central banks realised that we can actually use central bank digital currencies to gain power, to assure our survival over the long term, to exercise financial surveillance, to disseminate Universal Basic Income via legislative bodies, all these things that they realised along the way, basically from about 2014 to 2016; this is when they realised they could do all these things with CBDCs.
They decide to launch pilot projects, start writing papers about, "How can we roll out a central bank digital currency and how can we take advantage of this new technology?" basically, and they barely acknowledged the word "Bitcoin" in any of their literature. At the beginning, they had to, but then they started calling it blockchain, distributed ledger technology, and basically ignoring the fact that it's Bitcoin that started all this, and tried to shy away from that.
So, what is a CBDC? Think about people generally have two types of dollars, or government currency. They have paper money, which is issued by the central bank. It says "Federal Reserve Note" on your paper dollars; or, they have a chequing account balance, like a Bank of America or Wells Fargo. The chequing account balance is issued by a commercial bank, a private entity, and the paper money is issued by the central bank.
So, the commercial banking deposit is actually a third layer of money in the layered framework, whereas the paper money is a second layer of money. And a central bank digital currency, if it were to be retail facing, would essentially be the same thing as the paper money, but in digital token form. So, it's like a digital cash issued by the central bank.
But it's not the same thing as your Wells Fargo chequing account digital dollars that you have on your screen. It's issued by the central bank, not a private bank. That would be a retail-facing central bank digital currency; the other side is a wholesale CBDC, which would basically be a reserve tool that the banking system could use. So, right now, Wells Fargo, Bank of America, they have an account with the Fed where they keep reserves with the Fed, it's just a balance. That money could transition to a more, I guess, blockchain, for lack of a better term, a blockchain-based system that the banks use with each other to send dollars around the system.
So, you have the potential for a retail CBDC or a wholesale CBDC. I think you'll get both, and it depends what central banks we're talking about here, but I do think eventually you'll get both. And the more meaningful, impactful one will be the retail-facing one, which actually threatens commercial banks, because if you're a postal worker and you get your paycheque from the government, they might give you FedCoins now and you fire Wells Fargo, you never have to deal with your chequing account again, because your money comes into your FedCoin wallet and you can spend it at McDonald's, you can spend it on your rent, you never have to deal with a commercial bank ever again.
I believe China is going that direction, where they're going to rid themselves of commercial banks. In Europe and the United States, the central banks are very careful and aware of this fact, that a central bank digital currency could make people fire their bank and threaten the banking industry. So, the ECB, for example, has said, "Above a certain amount of digital euro, we will essentially tax you, or levy a negative interest rate on that balance", so you don't fire Barclays, basically. You'll always keep some money in Barclays because, "If you keep all of it in digital euro, we'll charge you negative, negative balance", so it's a motivator to not fire your commercial bank.
So, that's a line that they have to dance around, and like I said, they're very aware of this balance, and it's one of the things that they're going to have to deal with.
Peter McCormack: Okay, a lot to unpack here. Let's start with -- because, I've not heard somebody explain CBDCs as a way of saving central banks. Is it really also a defence mechanism of the state as well?
Nik Bhatia: Absolutely, it is the state. The Federal Reserve has a charter that's been issued by the United States Government. That charter can be changed at any time by the legislative bodies. The Fed is not going to be able to create a FedCoin without congressional approval and a presidential signature, they're just not going to be able to do that; it is the state. So, the Fed will write papers, they'll say, "We can do a FedCoin, and we've tested the technology and it will work. So hey, Congress, will you write us a legislation that allows us to issue FedCoin?"
Then Congress will say, "Oh wait, but yes, we'd like to put our own spin on it and we'd like to give Universal Basic Income via FedCoin, we'd like to pay our federal contractors and employees via FedCoin", all that kind of stuff where the state then comes in and says, "Okay, this is now our tool. We are the ones that legislated FedCoin, so we get to decide what to do with it". So, it's not just a central bank thing, although it's a tool that the institution uses to survive. But then the state, which has issued the charter for the central bank itself, the state then comes in and takes over and basically decides what to do with it.
Peter McCormack: Okay, so the long-term goal of a CBDC, is it to eliminate all other versions of the dollar, so there is a single blockchain for all movements of dollars, let's just say for now, within the US, so you would no longer have cash; you get paid on the CBDC; you go down to the store, you pay with the CBDC; is that the eventual goal, that it would eliminate all dollars?
Nik Bhatia: I don't think so, because in China, yes, I do think that that is the goal. China has specifically passed a law that says, "No stablecoin linked to the renminbi maybe issued by a private entity", so that's the opposite of what we see in the West, where all these private entities are issuing dollar-linked stablecoins. In China, that is illegal now. So yes, in China, they might be trying to replace every version of the renminbi with this digital version of it.
But in the United States and Europe, the evidence is that no, they don't want to do that. They don't want people to leave the commercial banking industry, because also that's where credit comes from. So, you need banks to lend money to people and when they lend money, they create money out of thin air. Basically, they leverage whatever reserves they have. So, that process of credit creation, they're not trying to replace that.
Peter McCormack: Okay.
Nik Bhatia: I do think they're trying to get rid of paper money, I do think they're trying to increase their surveillance over the financial system, and what people are doing with it. Because now, people used to criticise Bitcoin for being criminal money, it's not a very good one, but cash is obviously the best criminal money. So, getting rid of cash would be something that a government or a taxing body would be in favour of. But no, I don't think that the Fed is trying to replace every version of the dollar, because that would imply replacing the commercial banking industry, and all the trillions of deposits that Americans have with their commercial banks, their private banks.
Peter McCormack: The transition to a CBDC sounds hugely complicated and painful.
Nik Bhatia: It is, it's going to be, because basically you're forcing people to let go of the previous way that they've used paper for their own privacy, that's one side of it. Then also, you're introducing competition, the Fed is now going to be in competition with Wells Fargo, Bank of America and JP Morgan Chase, where it hasn't been in the past. So, you're going to see the banking lobby have a lot to say when FedCoin is starting to get legislated.
Peter McCormack: And, at some point in this, if you have an account with Wells Fargo, you have a balance with them; when the CBDC rolls out, will that balance be taken from that blockchain?
Nik Bhatia: No, I don't believe so. I believe that in the future, what you're going to have is these chequing account deposits will turn into stablecoins issued by those banks. So, you'll have a WellsFargoCoin, a JPMorganCoin and a FedCoin. Basically, the FedCoin will be like your digital cash, it will have zero yield; your WellsFargoCoin might have some yield on it, so that you'll be motivated to keep your money with Wells. Instead of, just like if you put your money in a bank, in a CD, you can get 1% from the bank; but if you keep the paper in your pocket, you're guaranteed to get 0% nominal yield from that money.
I think the same type of situation will happen in the future, where banks will have to offer an interest rate above FedCoin to just attract depositors.
Peter McCormack: Does that mean though, in your wallet, you would have a FedCoin balance, you would have a --
Nik Bhatia: WellsFargoCoin balance? Yeah, and a Bitcoin balance.
Peter McCormack: But then, when you go to the store to buy something, will they accept all of the different dollars?
Nik Bhatia: They'll accept your FedCoin and your WellsFargoCoin. And again, they'll accept the WellsFargoCoin, because they are a mainline institution, they have a powerful lobby, they'll be in the first 20 banks that get to participate in this interoperable dollar blockchain universe that they're going to create for themselves. But then, a smaller bank, or a Tether, might not be accepted at the Starbucks, where a WellsFargoCoin might be. So, it's an uncertain future, and all we're doing really here is projecting what's going to happen; nobody really knows.
Peter McCormack: But it sounds a little bit like the world of free banking, with these different dollars issued by banks?
Nik Bhatia: And it might be, and that's something that we see right now with stablecoins. It is this era of free banking, and it just hasn't been institutionalised yet in the United States. So, we kind of think of Tether as this outside-the-United-States system, but it's really just an evolution of free banking in the digital era.
Peter McCormack: I wonder what it means for the likes of PayPal and Venmo. Will they just be processing and forwarding these various dollars, or will there be a PayPal dollar?
Nik Bhatia: Yeah, I think that PayPal will have to have their own stablecoin in this universe, where if they want to participate in the global economy and have people send balances to each other, outside of their own platform, they'll have to have some sort of digital token that they use.
Peter McCormack: And, do we imagine that these separate digital dollars, these WellsFargoCoins, they will all be on the same blockchain, or there will be individual blockchains?
Nik Bhatia: I believe that all private entities will issue their own version of this, and therein lies a lot of the challenge. Wells Fargo will hire some company to design their software, JP Morgan Chase has already built their JPMCoin using some third-party technology that they've licensed, and that does bring it back to Bitcoin, where Bitcoin is this ledger that anyone can access, and anybody can basically achieve the truth very quickly, and that gets lost when you talk about stablecoin central bank digital currencies, because then basically you're introducing trust. It's the difference of trust versus trustless. So, the whole stablecoin world will involve trust, and it will also require interoperability, which is its own nightmare.
Peter McCormack: Yeah, I mean we've seen, I think only this week, what was it, blockchain bridge, Danny? Was that the one that was hacked, $230 million? Is that an interoperability company?
Danny Knowles: I believe so, but I know very little about it, to be honest.
Peter McCormack: Yeah, let's look that one up. But interoperability, I think it was Alex, I can't remember his surname, who tweeted about it this week, because Erik Vorhees had talked about THORChain, and his ability to buy Bitcoin anonymously, and he raised the issue that interoperability is fraught with errors.
Danny Knowles: It looks like it's a bridge between Ethereum and Solana.
Peter McCormack: Yeah, Ethernet and Solana!
Danny Knowles: Ethernet and Solana!
Peter McCormack: Solano, yeah!
Danny Knowles: Solano!
Peter McCormack: Yeah, so it's fraught with dangers of hacking. My assumption is all of these will have back door blocks, account blocks, the ability to refund, which obviously we have immutability with Bitcoin, a massive honeypot for hackers to attack and figure out if they can steal this money and spend it.
Nik Bhatia: So, for the listeners, let's just simplify all this what we're talking about with CBDCs and Bitcoin. It's very black and white. Bitcoin is an open, trustless system; everything else requires trust and counterparty risk. In the past, we have bank failures, we have bank fraud, we have bank criminal activity, we have defaults, we have everything. You are going to see the exact same thing in the stablecoin era, it's no different. So, let's not try to make it more complicated than it actually is.
You'll have banks that offer a safe reserve ratio and good interest rates, and they'll maintain clients over decades; then you'll have others that are just total scam artists and others that outright default because they take too much risk, and people will suffer losses and you don't have insurance mechanisms put in place for the stablecoin universe, or anything close to it, where you have FDIC insurance for the first quarter million in chequing account deposits in the United States today.
So, the insurance mechanisms, all that kind of stuff, it's underdeveloped for stablecoins, it doesn't really exist, and so you'll see losses.
Peter McCormack: Well, won't the FDIC insure this in the same way?
Nik Bhatia: They will, but they haven't yet, and that will take years. I mean, it will take years to get all this stuff legislated. But yes, I do believe that the FDIC will end up having a framework for stablecoin deposit insurance, because the issuing entities will have to be registered with the FDIC and pay into the insurance fund; it's an insurance fund, so they will have to pay insurance premiums to make sure they can put the FDIC logo on their stablecoin app.
Peter McCormack: So, one of the things that I like about the current financial rails, financial systems, is that it's fragmented. So, I have a bank account and I have a debit card with them, I have a credit card, I have Bitcoin and I have cash; I have all those assets available to me. So even here, if I come out to LA and for some reason my debit card doesn't work, I have my credit card. And look, if both of those didn't work, I could transfer Danny some Bitcoin and say, "Give me some cash". And back in the UK, sometimes banks' systems go down, you know, it just happens. Maybe Barclays goes down one day and you can't access it, but I have my credit cards. It's fragmented.
I worry in this system, beyond all the surveillance and obvious things, because I think it's going to be hard to avoid using part of the CBDC system, I don't believe every shop's going to be accepting Bitcoin before they accept CBDCs, so you might be coerced into using it; but it feels like a more fragile system, because it isn't so fragmented.
Nik Bhatia: Well, when we think about forcing everybody into CBDCs, if the government says, "We will only take FedCoin", like the IRS says, "We will only take FedCoin for tax payments", then you're going to have to purchase it basically in your Wells Fargo app. You'll have to hit a button that says, "Swap my WellsFargoCoin for FedCoin before I send it to the IRS". So, it's not necessarily that you're driving everyone right away into FedCoin; it's that if you structure your system in a way that you only accept it for certain things, then you'll point people in that direction.
Peter McCormack: But my assumption is, whilst it's very clear that FedCoin will be a mass tool for mass surveillance, tracking every purchase, they'll have those records, the banks will probably be put under pressure to provide the same surveillance tools?
Nik Bhatia: Yes, and the banks already do that, so that's why we have this $10,000 rule. But if you just ask anybody anecdotally, if you go into the bank and try and take $2,000 out, they're going to ask you all these questions.
Peter McCormack: Yeah, I always say, "Drugs and hookers"!
Nik Bhatia: Yeah, "Vegas"! This is what I find fascinating now. I'm in a physical bank branch maybe once every couple of months for something. I like to use the app for as much as I can, sometimes I actually have to go in there. Almost every time I'm in a bank now, I hear somebody trying to get their money out, and then the teller is asking them 15 personal questions out loud, and I can hear every answer.
So, if I'm malicious, I could be recording every answer, everything, the income, social security number; they're asking these things out loud to the people that are in the bank, just to get a couple of hundred dollars out or deposit this, or transfer --
Peter McCormack: Of their own money.
Nik Bhatia: Of their own money.
Peter McCormack: Of their own fucking money.
Nik Bhatia: That's right.
Peter McCormack: So, this is one of the things that's got me in trouble, because I've openly admitted that I've lied continually to the bank for years. Every single time they ask me what the money's for, I always lie, because I think it's none of their business. I ended up losing my bank account with Lloyds because of this. I mean, I've told this a million times, everyone's heard it.
Nik Bhatia: You're too famous now, Pete!
Peter McCormack: Well, I just felt, "It's just none of your business". I had some call centre person calling me up and asking me about my payments and what they were for and what I was doing, and I was like, "It's none of your business, I'm a grown adult, I don't need to tell you. If you have a reason to be suspicious, go to the police".
Nik Bhatia: That's right.
Peter McCormack: We're not in Minority Report!
Nik Bhatia: And I think that again, to bring it back to Bitcoin, this is why people want to keep their money in Bitcoin and outside of the system, because there's surveillance at every step of the way. And so, your question was about, "Will the commercial banks be doing financial surveillance when they have their stablecoin?" They're already tracking everything. The intelligence organisations already have access to all payment data on credit card rails anyway, so everything is already tracked, and that's just the world that we live in.
Bitcoin is an option outside of that system, and I do think it will drive a Bitcoin native economy; Lightning Network is something that we've talked about for a long time, a Lightning Network native economy, where the money never leaves Lightning, and commerce is just happening all around the world, instantly on Lightning, never dollars, never even the Bitcoin blockchain itself, just within this network of instant commerce, where there's no surveillance, there's no approval of transaction, there's no cross-border fees or anything like that.
Peter McCormack: Okay, let me go back a step. Do we know what technology people are using to develop these CBDCs and are they capable of handling the volume and the transactions? So we know, for example, Ethereum isn't particular decentralised, we know why. My assumption is this blockchain won't be particularly decentralised, but do we have any idea which rails they're testing on?
Nik Bhatia: Yeah, we do. So, we know that the central banks, so the Fed for example, the Boston Fed is working with MIT to --
Peter McCormack: What do you mean, "The Boston Fed"; there are regional Feds?
Nik Bhatia: Yes, there are regional Federal Reserve Banks.
Peter McCormack: I never knew this. Explain this to me.
Nik Bhatia: Okay, so the Federal Reserve Bank of New York is considered the official central bank, where they have the open market operations desk, where they do QE out of and all that kind of stuff. That happens at the Federal Reserve Bank of New York. The Federal Reserve Bank has several branches around the country. Originally what they were for was to basically be the distributors of paper money to and from commercial banks, where you'd need a Kansas City Fed, a San Francisco Fed and a Dallas Fed, to service the banks.
But in terms of outright independent policy from each other, that doesn't really exist. The Fed banks are really there to support their local community of banks within that region. And every Federal Reserve branch does their own research, for example. So right now, at the Boston Fed, they've partnered up with MIT's blockchain labs, I can't remember the exact name, to explore a FedCoin on an official basis. And the Federal Reserve board has basically acknowledged that, "We are following the Boston Fed's lead here to explore what we're going to do".
So, MIT is going to basically be able to deliver the Fed the right advice in terms of which technology to use. MIT is a Bitcoin-forward institution, so they understand what security advantages Bitcoin offers over other blockchains. So, I believe they're going to end up using a private, basically a non-blockchain, a non-proof of work, any other system like that, they're not going to use that; they're going to use basically a private software, a glorified Excel spreadsheet, that they know is tested, that works, and it's not open for anybody to really affect. Maybe you can audit it from the outside, like a read-only privilege, but in terms of being able to affect it, no, I don't think so.
Peter McCormack: So, it probably won't even be a blockchain.
Nik Bhatia: I agree with that. I don't think it's going to be a blockchain in the way that a blockchain is a chain of blocks, and a chain happens with the mining process. So, I don't think that there's going to be anything like that. It's just going to be a distributed ledger. They love the term, DLT, because it doesn't have anything to do with mining, which it doesn't. DLT, Distributed Ledger Technology, is a shared Excel spreadsheet, it's a shared Google spreadsheet, there's nothing beyond it. That's how it works, and then the user interface will be, of course, different than a Microsoft Excel.
Peter McCormack: Are there, if we're going to be honest and fair, are there any upsides to CBDCs that we should recognise?
Nik Bhatia: Well, think about the social impact of Universal Basic Income to those who need it. First of all, they're going to have an easier time collecting benefits, people that need Universal Basic Income; but they're now going to be able to vote themselves more benefits in a more direct and easier way. So, I always like to use quantitative easing of the opposite example.
When the economy is going into recession, now what the Fed does is they'll do QE, which means they create reserves, issue them to the banks, and hope that the banks lend that money to the public, and that's their form of stimulus. But if they're issuing FedCoins directly to mom and pop, you don't have any risk that the monetary policy doesn't transmit. Basically, you're guaranteed for it to transmit to the people. That's an advantage to people that hope the Fed will help them. They have been looking on the outside, looking at stocks going up and saying, "What the fuck? You're only helping asset owners, you're not actually helping people. Where's my small-business loan?" The Fed's QE accomplishes none of that.
So, from the perspective of the people that need and desire stimulus when the government is issuing it, those people will benefit from a FedCoin. So, that's one thing that I would say, step into the shoes of people that need a form of Universal Basic Income, which I'm not going to take either side of it politically. What I know is that UBI is here, it is absolutely here, it's with us. I have a 4-year-old, I receive $300 a month from the government for the fact that I have a child. I didn't ask for that money, I didn't apply for it, and I am someone of means, so it's not like I'm on some --
Peter McCormack: Is this new?
Nik Bhatia: This is over the past several months since the pandemic.
Peter McCormack: Wow! So, every child now in America --
Nik Bhatia: I don't know if it's every family that's receiving this, or how much they're receiving. All I know is that I get a direct payment into my chequing account of $300 from the government, I get an email that notifies me that I've received a payment, and it's called the Child Tax Credit.
Peter McCormack: I mean, we have something in the UK, a Child Allowance. It's a lot smaller, it's like £20. I don't know if it's a week or a month.
Nik Bhatia: But this is something brand new, and it is issued by the Treasury Department.
Peter McCormack: Okay. And so, you think there's going to be an expansion of that.
Nik Bhatia: Oh, it's not that I think.
Peter McCormack: You know?
Nik Bhatia: UBI is here to stay, it's going to grow, we have examples around the world that central banks and governments will borrow from. And I think that, listen, I actually think that a future with UBI instead of the million other ways that the government steals money from point A and gives it to point B, I actually think UBI would be an improvement over some of that, and that would be assuming that other programmes get funnelled back into UBI, and the money actually just goes straight to people, no subsidies, no direct benefits for XYZ, but just actually money to people. I think it could marginally be an improvement.
Peter McCormack: Well, one of the arguments for Universal Basic Income is that social security programmes, welfare programmes, there's so many different programmes out there, that you eliminate a lot of the cost and the bureaucracy of running them. I spoke to Aarika Rhodes about this, I might be wrong including social security in that, I'm not sure.
Nik Bhatia: Yeah, I would generally speaking agree with that, that it would improve the logistics for the government, for them to be able to give this money.
Peter McCormack: And so, if we're changing the distribution of money from the banks out via loans to people, directly into the wallets of people who need it, with a great example of what happened during the pandemic, that should, I don't know, it's not going to reduce the wealth divide, but it's going to reduce the speed at which the wealth divide is grown, because of the Cantillon Effect?
Nik Bhatia: It's hard to say what it's going to do to the wealth divide. It definitely gets people money in their pockets quicker that need it. But the long-term impacts are unknown, meaning that it could drive inflation for the people that it's most dangerous for, to the point where it ends up making the wealth divide even worse. So, it's not a good thing that we will have more UBI, or that it will replace other programmes; it just does change who benefits first and that first-order effect of the stimulus.
Peter McCormack: And, are you putting the $300 a month into Bitcoin for your daughter?
Nik Bhatia: Stack sats and stay humble, all the way!
Peter McCormack: So, CBDCs are here and coming and they're inevitable?
Nik Bhatia: Yeah, and really, the conclusion of Layered Money is called Freedom of Currency Denomination, and that is really what I believe, that we're going to have, we do have now, an option in terms of how to store our money. We can have it in paper, we can have it at the chequing account level, we could have Bitcoin only, we could have some Tether, we could have a portfolio of securities, we could have a Robinhood app, and we have choice now, in terms of how we're going to store our money. I believe that choice, at least at the very minimum here in the US, is going to stay with us, and we will continue to have that choice.
So, you'll have FedCoin, JPMorganCoin, Bitcoin, Tether, and you'll have to choose, and you'll have the right, you have the right to choose, how to denominate your labour, your earnings, your savings, and I think that's the future that we're in for, this era of currency choice, and thank God for Bitcoin.
Peter McCormack: Yeah. And in some ways, there's parts of this that sound better, this era of free banking within a CBDC environment. There are certain things about that that you think about, well there are upsides to that.
Nik Bhatia: Yeah. When you think about also, like Alex Gladstein's talking a lot about Tether, and the benefits for people outside of United States and using a stablecoin that is superior to other things that they have access to, or other savings vehicles, and they might prefer Tether over Bitcoin, because it doesn't have the same volatility for their daily transactions. That is a benefit; that is a benefit to people that that tool is available to them.
I can't directly say that a FedCoin will benefit people outside of the United States, or anything like that, but we know that all of these instruments are just giving people choice. It does present risk and introduce additional risk, but it also presents choice. And over time, the strong survive.
Peter McCormack: Okay, what do you think it means for dollarised nations, like Ecuador and El Salvador? Will they then have to issue their own, I don't know, El Salvador dollar on a blockchain?
Nik Bhatia: Potentially, they'll have to have their own stablecoin, and maybe the government itself can acquire dollar reserves, put them in a bank and issue them on top of the Chivo app as a dollar coin, side-by-side with the Bitcoin balance. It's something that's very possible.
Peter McCormack: And, what kind of timeframe do you think we're looking at for these FedCoins being a realistic part of society?
Nik Bhatia: So, I think the ECB will launch some sort of digital euro beta, actually have banks test it, within the next year; I think we're pretty close to the ECB launching some sort of beta project. The Fed is a couple of years away. I think the Boston Fed and MIT will publish their report this year, in terms of steps forward, and then over the next couple of years, we might see a pilot.
Peter McCormack: But within then, say five years, they might be a mainstay?
Nik Bhatia: Within five years, I think we'll have a FedCoin, live, being used in your wallet.
Peter McCormack: Wow! What should we be scared about with this?
Nik Bhatia: What should you be scared about with FedCoin? The surveillance, I think, is the only thing that we need to be scared about, because if we have choice, we can just choose not to use it. So, I do envision that if you -- and, going back to the IRS example, when the IRS is collecting taxes, they'll say, "We accept Bitcoin, but by the way, we'll also accept Wells Fargo and JPMorganCoin, because we know that they'll give us all your information too".
So, we won't be able to avoid the surveillance just by not owning FedCoin, but I think that's probably the thing that we need to be scared of for the most. But I do think it does give the dollar more runway, over the next couple of decades.
Peter McCormack: And what about synthetic dollars, programmatic dollars issued on Lightning? I've heard rumours of people working on such projects. Do you think that's a reality?
Nik Bhatia: I mean, stablecoins issued on Lightning is a reality, and it's something that I saw an interview a couple of months ago about this, and I really agreed with the person who was saying that Lightning is a transactional network. So, it doesn't matter what you link to it behind, it's still going to have counterparty risk of the issuer. But using the Lightning rails to send stablecoins, for sure.
Peter McCormack: Okay, wow, I didn't realise it was coming this soon!
Nik Bhatia: CBDCs are definitely coming. Remember, China has launched theirs already, it's live, and it's being used in certain parts of the country. And China's going to use it as a geopolitical tool to spread their influence across the world, Africa, different parts of Asia, Latin America, companies that want to do business with China; and international trade will have to use digital renminbi to transact at some point over the next few years.
The United States will feel threatened by that, and they will have to respond accordingly, to try to get countries not to basically have to purchase digital renminbi, or accept it and hold it on account with The People's Bank of China, so there's a lot of geopolitical stuff that is going to unfold with China being first, that the Fed and ECB won't be able to ignore. If you read what's coming out of the Boston Fed, and even Jerome Powell, they know that a FedCoin is coming, it's just going to take them a little bit of time.
Peter McCormack: Well, one weapon that the US Government has, if they choose to use it, is promote the adoption of Bitcoin.
Nik Bhatia: That's right, and I do think the USA is extremely Bitcoin-friendly as a nation. Even when you hear all the fear, uncertainty and doubt surrounding the energy complex and Bitcoin mining and volatility and all that, that's just coming from pockets of the media, or certain politicians, or certain bankers.
But when you look at Americans, Americans own Bitcoin, they want Bitcoin, they work for Bitcoin companies, they own shares in Coinbase, which is issued in the United States, they own shares of an ETF, which is regulated by the Securities and Exchange Commission, which has an 80-year history of legal precedent. So, Bitcoin is fully legal, embraced and supported by the United States of America, even though we'll still have people that are screaming anti-Bitcoin rhetoric.
Peter McCormack: Senator Warren.
Nik Bhatia: She is --
Peter McCormack: A fucking idiot!
Nik Bhatia: She's phenomenal in the way that she spins just the narrative out there, "Supermarkets are really to blame here for inflation", it's pretty ridiculous.
Peter McCormack: Yes. It was a real shame, there was a time a few years back where I kind of appreciated her, because she was challenging Wall Street, she went to town on Mnuchin when his appointment happened, and she was rightly saying that the White House, or Wall Street had an arm within the White House. I thought, "It sounds like she gets it".
Nik Bhatia: So, I was told a story that Senator Warren has been briefed by altcoin projects to basically be anti-Bitcoin, in an anti-proof-of-work sort of way, and not in a way that some staffer has just come and said, but that she's read. She's read documentation that shows, "This is why you have to say this and that to be against Bitcoin, because it has proof of work, because our project will benefit if that happens".
So, she's just another politician, and I wouldn't make too much out of what any one politician says, because you don't know what lobbyist has gotten to them first. You should be sceptical of every politician on both sides of the aisle when it comes to Bitcoin rhetoric, and really look at what people and companies are doing.
Peter McCormack: Yeah, I mean look, I think we're way, way beyond the point where the US Government ever bans Bitcoin.
Nik Bhatia: Impossible.
Peter McCormack: It's too integrated in society, there's too many jobs affected, there's so much net wealth affected. I don't actually think there are that many people who want to; I think it's more they want to surveil it. They just want to track, "What are you spending? Are you paying your taxes?"
Nik Bhatia: And, you know, Bitcoin is also scary to the establishment, because it's a non-government entity, and the internet is too, so that's why they're scared of the internet and freedom of speech on the internet, because the internet doesn't have a ruler, it doesn't have a jurisdiction. So, Bitcoin is the same, so we can expect fear, uncertainty and doubt to be thrown at Bitcoin, just as it's been thrown at all these people on the internet that are expressing their opinion. They're not trying to disseminate misinformation, they're trying to express an opinion, and that's what speech is.
Bitcoin is a form of speech, cryptography is a form of speech that the US justice system has allowed for. A 1999 ruling basically said that cryptography is just like if an economist was using maths. It's a tool and they should be able to express their view through cryptography.
Peter McCormack: Coded speech.
Nik Bhatia: Yeah, exactly. Coded speech is taken from this idea of this 1999 court ruling.
Peter McCormack: And, we also have other things in favour of Bitcoin at the moment. We have a number of politicians who are also pro-Bitcoin, we have Senator Lummis on our team, but we also have a number of politicians across the US. Josh Mandel recently came out very supportive of Bitcoin.
Nik Bhatia: Think of it like this. If we found a new element on the Periodic Table, and we called it Bitcoinium, let's say.
Peter McCormack: Avatar 4!
Nik Bhatia: Yeah, exactly. We found Bitcoinium, and it was found off the coast of California in the Pacific Ocean. And then, a Mexican team found it off of the coast of Mexico, and people started finding Bitcoinium, and then they started using it in technology and it worked, it was a good technology and it helped. How do you come in and try to be anti-Bitcoinium? It's just an element that came from the earth.
So Bitcoin, I think of it like the same thing. How can you be anti-Bitcoin? It's just a piece of code, it's just a software that we've found, it's a tool that works. It's like, "Let's not use the wheel, because it's new". It doesn't make any sense. Of course you have pro-Bitcoin politicians, because they're just pro-people and pro-innovation.
Peter McCormack: Well also, the game theory's changed, with so many people owning Bitcoin and a number of the politicians have figured out the hack, "Oh, if I'm a pro-Bitcoin politician, I suddenly get 10,000, 20,000, 30,000 more followers, all behind me and supporting me".
Nik Bhatia: That's the politics side, and you'll definitely see that here in the US, especially where it doesn't cost you anything to be pro-Bitcoin, you'll just get a healthy following, just like your Bedford club!
Peter McCormack: And invited on a bunch of Bitcoin podcasts, yeah. It is actually the same game theory, you become part of this growing thing. But I stand by this point that, if there's any fears over China and China's influence and what they're doing, the more Bitcoin which is owned by the United States, or people within the United States, that strengthens the United States; because we know, on a long enough timeframe, Bitcoin continues to go up in value as more people adopt it. So, the net wealth of the country will accelerate quicker than the net wealth of China.
Nik Bhatia: And why do you think that bitcoiners are here in the United States, they are starting companies here, they are not shy about it, they are supporting political candidates to argue their position, and so America's the home of Bitcoin, it really is. It is because we identify that if we have it here, it's going to benefit the country in the long term, because the people and the companies inside the country have and use Bitcoin.
Peter McCormack: Which is why educating politicians is actually super-useful, because some people are like, "Ignore them". I think actually educating them -- I mean, I want it in the UK. We have a chance now, post-Brexit, to be a leader in support of Bitcoin and having a Bitcoin economy, I just don't think our politicians have recognised that yet.
Nik Bhatia: Yeah, it's going to be tough, because politicians are focused on a lot of things, but there are good efforts and we're in the beginning stages of Bitcoin still, it really is the beginning. But you will see the 2022 cycle be influenced by Bitcoin, I think, materially for the first time, and it will only increase going forward.
Peter McCormack: Okay, so what do you think happens to smaller countries, countries where currencies are less stable, collapsed? Do you think, as we move forward the next five years, do you think some of them will start to maybe dollarise with something like FedCoin, or do you think they're all going to start introducing their own CBDCs? I can't remember, who was it, Danny, do you remember who said that they think they'll only eventually be seven currencies?
Danny Knowles: It might have been Balaji, but I could be wrong with that.
Peter McCormack: Yeah, somebody said there will only be seven currencies. There'll be the dollar, the pound, the euro, the yen, maybe the Canadian dollar, another, Bitcoin.
Nik Bhatia: So, I roughly agree with that approach, where I think currencies will die and countries will go basically El Salvador, where El Salvador ditched their own currency for the dollar years ago, and then you might see countries do both at the same time. So, Turkey's currency is collapsing. If it continues to completely collapse, they just go, "We're going to do a dollar/Bitcoin, and replace the lira tomorrow".
Peter McCormack: That would be interesting.
Nik Bhatia: So, I think that what you'll see is, countries with outright currency collapse will end up dollarising and then have maybe Bitcoin as an option B. But countries that have really, really weak currencies will do the El Salvador, where they do the parallel Bitcoin thing at the same time, to try to maybe strengthen their currency; because, if Bitcoin is legal in that country, then it will attract people, and then they'll have to use Bitcoin and the local currency, and that will maybe support it.
But I do think that weaker currencies will absolutely die in this stablecoin/Bitcoin world that we have, where the foreign exchange traders are also totally ruthless in attacking currencies. Just look at the lira right now, look at what happened to the Argentine peso. These countries, they can't do anything to fight with the onslaught of the foreign exchange traders, that basically recognise a weakness.
Peter McCormack: But Argentina's been through this cycle again and again, currency collapse after currency collapse, high-inflationary period after high-inflationary period, but they always come back.
Nik Bhatia: Well, it's a powerful and a rich country, so they have the ability to replenish their system, because they have natural resources, etc. It might not be the case in really small countries that, I'm not calling Turkey a small country, but I'm thinking certain African nations and other Latin American nations that might have to introduce a Bitcoin parallel standard, just to stay afloat in the global economy, because it's so competitive out there for business.
Peter McCormack: Okay, so what happens to gold in this environment?
Nik Bhatia: I think gold is dead. I mean, I think gold maintains this idea that it will maintain store of value, but it's dead in terms of, you'll never have a gold-anchored monetary system again, and you'll never have a country say, "We're going to do a gold-backed currency". I just think that that's never, ever going to happen. And a lot of gold bulls bet on gold, because they think that one day, a country, maybe the US or somebody else, will do a new gold standard. I absolutely disagree, I think that's never going to happen.
Peter McCormack: Because of the problems previously? It's centralised…
Nik Bhatia: Yeah, I mean we tried gold. Layered Money is about this attempt to have a gold-anchored monetary system. It worked pretty well for 700 years, and then basically broke down, and it will never be tried again.
Peter McCormack: And, what kind of certainty, or percentage, do you put on that we get into a Bitcoin standard, or do you think it is inevitable?
Nik Bhatia: I don't think any Bitcoin standard is coming in an official capacity in United States, Europe, etc. I think it's a natural Bitcoin standard --
Peter McCormack: Agreed, yeah.
Nik Bhatia: -- and it happens slowly, but surely, and sometime over the next, let's call it ten years, you'll have half the world's population that owns, or has some exposure, or uses Bitcoin, so 3 billion or 4 billion in the next ten years.
Peter McCormack: Well, the interesting thing about a Bitcoin standard, I think I was talking about this on a show the other day, it was a real lightbulb moment for me, was that you don't have to have an official Bitcoin standard, you can option yourself on it. I'm on a Bitcoin standard, my podcast is on a Bitcoin standard, my football team is on a Bitcoin standard, I assume you're on a Bitcoin standard. So, the more of us that do this, it's a standard that grows organically, it becomes its own thing.
That was a real lightbulb moment for me, it was like, "Oh, okay, yeah". And because it's organic, you can't get rid of it.
Nik Bhatia: You can't get rid of it, and you can't stop people from like, game recognise game. When you recognise somebody else that will do business with you forever on Lightning, you'll never use the dollar with that person ever again, and you'll never have transaction fees ever again, and you can transact around the world with each other, and that's how the Bitcoin standard grows.
So, I have a few readers of my publication on Substack, the Bitcoin Layer, that email me. I'm not suggesting everyone do this, but people have done this; they email me and they say, "Hey, this article, this one article's behind the paywall. Can I send you $3 on Lightning so I can read this article?" He sends it to me and I email him the article behind the paywall, and that's it. And I have people that pay my subscription via Lightning Network, thanks to OpenNode integration with Substack that they did. So, I'm accepting Bitcoin, and I obviously don't swap that Bitcoin for dollars, I keep it.
But you have people that are like, "Hey, I know you will accept my Lightning, I don't want to pay a monthly subscription, I'd rather just pay you $3 Lightning", so I just invoice him 5,000 sats, 6,000 sats, and he sends it to him and I email him the article.
Peter McCormack: You need Substack to integrate that as well.
Nik Bhatia: I'm working on them, yes.
Peter McCormack: So, I did my first OpenNode purchase of something via the webstore for my football club this morning.
Nik Bhatia: Excellent.
Peter McCormack: So, we integrated OpenNode into our Shopify, and yeah, I did the test this morning, it was so smooth.
Nik Bhatia: Yeah, it works quick, it's a great interface, and with all credit due to the OpenNode guys, this is really Lightning Network that we're seeing in real time. The user experience of being able to send and receive Bitcoin instantly via Lightning is incredible, whether you're using OpenNode or another Lightning Network platform.
Peter McCormack: Yeah, you're totally right. Obviously, I had the option of there of basechain and Lightning, and I tested both. Plugging in your hardware wallet and sending the payment, it's just not as smooth as getting your phone up, scanning the QR code and doing it. I also think it was OpenNode I used to buy a McDonald's in El Salvador; is that correct?
Nik Bhatia: Yeah, I know they're the processor for McDonald's.
Peter McCormack: I was amazed that it was built into those terminals at McDonald's.
Nik Bhatia: Yeah, I can't wait to go.
Peter McCormack: Well, it was insane, because on the morning it happened, we were filming, so it was like, "Okay, we're going to go to Starbucks, we'll go to McDonald's and we're going to test this out", and both did it in different ways. Part of the Starbucks experience was slightly smoother, because they just stand there with a thing and hand it to you, and obviously in McDonald's, they wanted to build it into the terminals, so yeah, they had a slightly different process. But the fact that it got built into the terminal, I was like, "How does this happen?" because these terminals and the software must be issued centrally by McDonald's. So therefore, did they have to go to McDonald's HQ to get this added in?
Nik Bhatia: I no longer have the inside scoop on how they did that!
Peter McCormack: No, I mean I'll ask them myself. It was more of a process I was going through in my head. I was like, "Well, if they did, therefore McDonald's HQ are now aware that Bitcoin payments can be done via their terminals". How difficult would that be something for them to roll out to McDonald's globally?
Nik Bhatia: This is what I struggle with sometimes with the short-term thinking out there in Bitcoin's price volatility. Look at the future ahead of us. McDonald's is using Bitcoin in El Salvador, in one tiny country, and it's just one small example of how the world is going to evolve to a Bitcoin standard. It's not going to be legislated, it's just going to evolve that way, where people will go up to the terminal and they'll have to make a decision every time, "Am I going to spend my Bitcoin, or am I going to spend my dollars?"
Peter McCormack: And, do you know what, the interesting thing about that is, when you're travelling, actually sometimes it's easier to spend your Bitcoin. When I used to go to El Salvador, it's like, "I need to get some money out, where do I go to the cash machine", etc, "Do I have dollars on me, don't I?" I don't actually need dollars in El Salvador anymore. And actually, it would be more useful here, when you get off the plane, you get in the car, you go to the Starbucks drive thru because you need a coffee. It's like, "Actually, if I could just scan my Lightning wallet, this would be super-easy".
The other thing is, they did it in three months: announcement; live day three months later; McDonald's was ready.
Nik Bhatia: It's incredible, and Bitcoin really is easy to implement, because you don't actually have to trust anything but the network. So, as long as you have the correct infrastructure, the network behind it doesn't take any testing; it's been tested.
Peter McCormack: Are people spending enough time thinking about Lightning?
Nik Bhatia: Lightning is still really small, Pete. I'm obsessed with Lightning, because of what it can do and the potential. But on a relative size, Lightning's only like $100 million -- it's on Clark Moody's dashboard, if you could pull it up. But yeah, I think it's only 3,000 Bitcoins. So, it's super-tiny and people will underestimate Lightning Network because of how tiny it is in size. But still, the technological innovation behind it is going to drive a lot of Bitcoin adoption over the next several years.
Peter McCormack: Got it, Danny?
Danny Knowles: Yeah, it's 3,400 total capacity at the moment.
Nik Bhatia: So, what's that worth, like $120 million, right?
Peter McCormack: Also though, when you see the charts of the capacity, it's just going up in one way.
Nik Bhatia: Yeah, it's going up, but it's still less than $1 billion. Bitcoin is $700 billion in market cap. So, it's less than a fraction of a fraction of a percent in terms of its size. So, that's why people just aren't getting, I guess, globally as excited about it. But we identified this technology as a game-changer for Bitcoin, so I think adoption at the margin is going to happen with Lightning, like McDonald's. That's a Lightning integration at the same time as the Bitcoin integration. So that, I think, will be repeated over and over again, and the Lighting Network will grow because of it.
Peter McCormack: And, why are you obsessed with Lighting? What is it that you see that maybe I don't see with it?
Nik Bhatia: When you have a currency that uses this ten-minute blockchain for settlement process, it's phenomenal for the store-of-value role, but it doesn't make it work in an online, instantaneous way. So, we live in an internet world, I want to be able to stream you sats every second I listen to your pod. I can only do that with Lightning, I cannot do it with Bitcoin. So, you have a million use cases that open up with the instant settlement and non-mining process of Lightning Network transactions, and you need the security of Bitcoin's blockchain to secure the asset, and you need this app, called Lightning Network, to transact it instantly.
Once you've agreed with each other that we both have Bitcoin, we should be able to use it instantaneously with each other. It's the same thing of going from paper money to a Venmo balance, where the paper money is not useful in commerce, but the Venmo balance is, because I can spend it instantaneously. And one uses the other as its layer. In theory, Venmo has a pile of dollars in some bank, PayPal, that they're using to back all this activity. Lightning is the same thing, but it uses Bitcoin and it doesn't use any counterparty.
That's the game-changer, that's why I wrote The Time Value of Bitcoin in 2018, that's why I'm here, because I wanted to share with the world that Bitcoin is transformed from a commodity to a currency thanks to Lightning Network.
Peter McCormack: So, it is a currency?
Nik Bhatia: It is now with Lightning.
Peter McCormack: And, do we need to, well we definitely need some updates to the tax laws, because that makes it problematic.
Nik Bhatia: I saw a $200 exemption today, so that's a good start. We need stuff like that, and I think that de minimis exemption, I talked about it in my Austin keynote address at the Texas Blockchain Council; and I know that some of the more prominent people, that are trying to lobby Washington for the bitcoiners, are pitching this de minimis as one of the first big things that we need to get Bitcoin commerce going in the US.
Peter McCormack: What else do we need though?
Nik Bhatia: We need more clarity across money transmission laws. So, we have 50 different states, and I know from experience that that's a huge challenge. Every single Bitcoin company has to do 50 different regulatory procedures, and that needs to be smoothed out. I think that's a big one, getting the states and the Feds on the same page, in terms of a regulatory framework. Then, part of my mission is going to be helping define Bitcoin from a government's perspective, this whole idea of Bitcoinium, or thinking about Bitcoin like water, which I saw on Twitter.
Peter McCormack: Talk me through that, Bitcoin like water?
Nik Bhatia: You have your shitcoin will be Coke, and your shitcoinb will be Pepsi, but you have water, it comes from the earth, it's just an element. And that's why I used this Periodic Table example, or I like the metric system example as well, where I don't know if you want to google this, but the kilometre, or I think it's from the North Pole to the Equator is exactly 10,000, or 1,000 kilometres, I can't remember exactly what it is, but it's basically a mathematical truth.
Danny Knowles: It's 10,000 kilometres.
Nik Bhatia: It's 10,000 kilometres from the North Pole to the Equator. So, the Earth has these natural laws and things about it that we have identified as truth. And Bitcoin is one of these. It's outside of anybody's control or anybody's creation really, it's just maths and it's something that's an element here. And so, if we can promote this idea of Bitcoin being naturally occurring, as opposed to a man-made creation, then it starts to separate the politics of Bitcoin. How can you be anti-water, or anti-the kilometre; it doesn't make sense? Or, anti-hydrogen. I know we're anti-carbon now, but that's a separate issue!
But you know what I'm trying to say here, is that Bitcoin needs to be understood as something that's more naturally occurring, and something that's apolitical, and I hope that's part of what I'm able to write about at the Bitcoin Layer and elsewhere.
Peter McCormack: It sounds like therefore, when you've been able to focus on Bitcoin full time, research and writing, that you're having more revelations yourself?
Nik Bhatia: Yes, and engaging with readers and doing interviews like this is huge. Because, if I'm just sitting at home and reading, I'm not engaging with ideas, I'm just brainstorming. I like to go for drives and brainstorm articles and things like that; but until I'm sitting down with you and actually talking -- the Bitcoinium thing came out of my mouth in an interview as I'm trying to just give an example. So, the engagement with the readers and the interviews, that's what takes the ideas and makes them more of a reality.
Peter McCormack: Well, there a lot of people who are starting to realise that Bitcoin is one of the most important inventions of our times, aligning it with the internet, with microprocessors, with the lightbulb. But we still have this mass production of shitcoins. Every season, more shitcoins. The further I go down the rabbit hole, the further I understand that shitcoins are meaningless, but we still have this issue of trying to translate that to the wider people.
So, not only the shitcoiners, but my experience of running the football club is that there's a lot of media interest in Bitcoin now, they want to ask me questions about it. And I've realised how far away we are as people down this rabbit hole from them. And even trying to get the basics across is really super-difficult. How do you think we get to that point where we cross that, where Bitcoin is ubiquitous?
Nik Bhatia: Is there a book that you could recommend to people?
Peter McCormack: I'll tell you what, have you read The Bullish Case for Bitcoin by Vijay…! Maybe it's Layered Money, but that's a big step to get somebody a book.
Nik Bhatia: You know, it does take a lot of time, and it is really tough to explain that, "Oh, we have this new thing called Bitcoin", but also, "All the shitcoins are pretenders, they're not going to replace Bitcoin". It's a long haul to get people to understand, but it just happens slowly and one-by-one. So, do your best when you're out in the media, answer everyone's questions with a smile on your face, and just try to explain to people, and hopefully price is truth over the long term, people understand that Bitcoin still has survived.
Ask anybody if they've heard of some of the coins that were popular four years ago, eight years ago, as a test, "Have you ever heard of this? No? Well, it was the number two cryptocurrency five years ago and it disappeared, because this pattern happens all the time, Bitcoin is 13 years old". Pretty soon, you'll be able to say, "Bitcoin is two decades old; how old are these other things?" So, it just will take time, and it is tough to get people to read a book and say, "Learn about this Bitcoin", it's tough to get people to watch a 30-second YouTube video as well, if they're just not ready for it.
So, myself, I've stopped going outbound and trying to convince people that Bitcoin is something, it's something I used to do at the beginning of my Bitcoin rabbit hole in 2016. I'd tell everybody I know, every cocktail party, every family dinner. It's just me ranting about Bitcoin.
Peter McCormack: "Shut up, Nik"!
Nik Bhatia: Yeah, I mean honestly. But I stopped, because people that are open to it are either long Bitcoin already, or are already reading about it, and the information is out there for people, it's whether they want to learn it now.
Peter McCormack: Well, I always love talking to you.
Nik Bhatia: It's really great to be back. It's great to have you on the West Coast here, you've got a gorgeous setup.
Peter McCormack: I know, I do love LA, despite its criticisms, what people say. Every time I come back, I'm like, "I do love it here".
Nik Bhatia: Listen, when I was in Texas, everyone said, "So, when are you moving to Texas?" I'm like, "Have you seen where I live?"
Peter McCormack: "Have you been to California? Have you seen it?" No, it is beautiful here. I love this ocean that we get to look at, and I love almost every part of California. I don't love everything about California, but all the parts, all the cities, we're going up to San Francisco, despite all its shit and problems; I'm going to enjoy the drive.
Nik Bhatia: Absolutely.
Peter McCormack: And I'm really glad you're doing another book. I want to brainstorm on that with you, if you ever want to pick my brain; you know I like subject lines and titles.
Nik Bhatia: Absolutely, yeah. I will definitely lean on your feedback for it.
Peter McCormack: Okay. Well listen, tell people where to get the book, tell people where to follow you, Nik.
Nik Bhatia: Yeah, so everyone can find me and all my links at layeredmoney.com, that's the title of the book, Layered Money. You can subscribe to my Substack publication at thebitcoinlayer.substack.com. The link's also at layeredmoney.com. And, I'm on Twitter @timevalueofbtc.
Peter McCormack: We'll put it all in the show notes. Definitely go and buy Nik's book, and definitely sign up to his Substack, and I'm really so happy for you that you've got to do this fulltime. I've been doing it fulltime now for, I'm in my fifth year, and it's an amazing life you get to live, you get to go out and speak to people and travel and learn more and educate people and support the Bitcoin mission. So, I'm glad you get to do this fulltime, and yeah, congratulations. You know, anything I can do for you, you just reach out to me.
Nik Bhatia: I appreciate that, Pete. Peace and love.
Peter McCormack: Peace and love, man.
