WBD577 Audio Transcription
The Fundamentals of Bitcoin’s Value with Phil Geiger
Release date: Monday 7th November
Note: the following is a transcription of my interview with Phil Geiger. 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.
Phil Geiger is the Managing Director of Concierge Services at Unchained Capital. In this interview, we discuss how a robust protocol and monetary policy, a vital utility for energy producers and a committed community of hodlers, makes Bitcoin an extremely low-risk investment.
“Society is formed through humans cooperating and… the whole is greater than the sum of the parts; when people get together and collaborate and cooperate, we produce something that is way more impressive and better than any single individual can produce.”
— Phil Geiger
Interview Transcription
Peter McCormack: Why do you love the HODL Waves?
Phil Geiger: The HODL Waves is the history of Bitcoin and its decentralisation over time. So, it's a very complicated chart, there's a lot going on, but what's amazing about it is you get to see exactly how people have been behaving with their Bitcoin on the base layer. So, what we're looking at is, the black line is the US dollar price. All those coloured lines are different age bands of Bitcoin that have been living in Bitcoin addresses, so all Bitcoin live in addresses tracked by the blockchain, which is a database of all the transactions.
Peter McCormack: Do we know which ones are lost here?
Phil Geiger: We can speculate. The ones in the upper right-hand corner, the purple and blue ones, are very likely lost because those Bitcoin have been sitting at addresses for longer than ten years, that's the purple band; the blue band is seven to ten years. So, it's very likely that a majority of those are lost, and that kind of correlates with what people believe to be lost.
Peter McCormack: Around about 4 million, right?
Phil Geiger: Yeah, something like that, 2 million to 4 million. So, yeah, what I really like about it is you can see people's behaviours during the pumps and the dumps. So, during the 2017, 2018 runup to $20,000, you see some of those upper bands starting to contract, right. The light green band, which is the people who have been holding Bitcoin for two to three years; the darker green is three to five years. You start to see those getting smaller and smaller, and that's when those longer term hodlers likely started selling their Bitcoin. When Bitcoin hit $20,000, they'll like, "Wow, this is crazy! I've been holding since $80; I'm going to sell it for some other currency and to improve my life".
Peter McCormack: Buy a house.
Phil Geiger: You buy a house.
Peter McCormack: Buy a car, whatever.
Phil Geiger: Yeah, get a car, buy some chairs finally! What's really cool about right now, so all the way to the right side of the chart, is a run-up to $69,000; what we didn't see was the older age bands contracting as much. So, if you look at the light green band and you look at the dark green band, they didn't really contract; they kind of stayed stable. And then now, over the last month or so, they're actually starting to grow, which means, in my opinion, that the people who bought when Bitcoin was $700 were pretty unimpressed by this run to $69,000, they were like, "I'm not selling my Bitcoin at $69,000; this thing's going to $1 million, or whatever", and so they didn't sell.
So, all of the pump to $69,000 and the dump now down to $20,000 looks to me like it's come out the newer Bitcoins, so the lower half of the chart, the yellow, the orange, the red, and those are all the degens at Coinbase gambling on Bored Apes and selling their Bitcoin for LUNA and then losing their shirts. So, the long-term hodlers here have been, I would say, bored by this last runup.
Peter McCormack: No, I agree.
Phil Geiger: I've been bored by it; $69,000? No.
Peter McCormack: Dude, we were promised like $100,000, $200,000, $300,000.
Phil Geiger: I was promised a foundational reset of the entire global economy; that's why I'm here. The price in dollars is just kind of fun, it's something that I like to pay attention to just because I work in Bitcoin full time and it definitely impacts our business, but for me, I'm here for the long haul and my UTXOs are starting to get older and older and older, and they will continue to get older.
Peter McCormack: Do you know what else this looks like? Do you remember painting by numbers?
Danny Knowles: Yeah.
Peter McCormack: It looks like you're going paint like a rocky outback and then you're going to catch the forest in the background and the sky.
Phil Geiger: Yeah, it's the Bob Ross of Bitcoin.
Peter McCormack: It's beautiful.
Phil Geiger: Just happy little bands.
Peter McCormack: Yeah, I love it.
Phil Geiger: Happy little UXTO bands.
Peter McCormack: So, what happens if say I had some Bitcoin in cold storage and I signed up to Unchained and set up a multisig, those coins move, but they're not sold?
Phil Geiger: Well, you have to have coins. So, what you do when you sign up for multisig is my team, the Concierge team at Unchained, will send you hardware wallets, we'll walk you through setting up the hardware wallets, building the most secure type of Bitcoin address, which is the multisig address. Then, once you have that, it's your choice; you can either buy Bitcoin from us into your address or, if you've purchased Bitcoin somewhere else, you can then move it to your address.
Peter McCormack: I didn't ask for a sales pitch, did I? This is a sales pitch, come on, man!
Phil Geiger: You laid this one up for me!
Peter McCormack: Dude, no! With these, I was saying, if I move my coins then are they considered moved here?
Phil Geiger: Yeah. This is what I was trying to get to is, if you have coins at Coinbase and you're like, "I need to improve my security", you would have to move your coins into a new address, which would reset the age of them.
Peter McCormack: Yeah, so this isn't entirely accurate because it could be people just moving coins.
Phil Geiger: Well, it is entirely accurate for the movement of all the coins. Now, the rationale behind the movement, we don't know for certain exactly, so there is a lot of speculation, but I just think it's cool to see how -- and you start to see the waves of adoption over time. And what's interesting about right now is there's never been a time in Bitcoin's history where a majority of the Bitcoin has been sitting for this long.
Peter McCormack: Oh, really?
Phil Geiger: Yeah. So, if you look at the yellow band, that's the one-year age band, it's very thick, and it's starting to take up a majority; everything above that has been sitting for many years.
Peter McCormack: It's not going anywhere.
Phil Geiger: Yeah, that's the one-year band, and you can just see it getting lower and lower on the overall chart, and that's because now, about 70% of all Bitcoin has just been sitting for, I think, either longer than 6 months or longer than a year; it's very fascinating. So, all of the churn and the price speculation is happening with, in my opinion, exchanged coins for the most part. It's like a smaller and smaller number of exchanged coins are what's causing all of these price fluctuations.
Peter McCormack: So, how much do you think we were affected by what happened with Terra LUNA, Three Arrows, Celsius? Do you think that destroyed a bull market that was going to continue?
Phil Geiger: I don't think so.
Peter McCormack: You think we were done?
Phil Geiger: I think those, primarily, were destroyed by the Federal Reserve raising rates.
Peter McCormack: Oh, okay.
Phil Geiger: At this point, all of crypto is low-rate, 0% rate malinvestment, and as soon as people start charging to loan you money, that's when all of these crazy malinvestments start making sense. Yes, the LUNA stuff, the 3AC, broader crypto is really reliant on people having way too much cash on hand so that they can make crazy speculative investments, and that's one of the primary differences between crypto and Bitcoin is Bitcoin is another currency that you can save in for the long term, which is what we're seeing here; a lot of people are saving in it for the long term, whereas 3AC, Terra LUNA, those are all short-term speculative, in a lot of ways, Ponzi schemes, Celsius.
The LUNA stuff is kind of interesting as well because it's like this was marketed as a stablecoin, so there are a lot of people out there who are like -- well, maybe not LUNA, whatever, the Terra, whatever. There are a lot of stablecoins out there and people are interested in them because they're like, "Oh, it's helping introduce crypto to the broader world; it's helping to give people without access to the dollar access to the dollar", and in theory that might be true, but in practice what we see is these stablecoins are anything but stable; they're centralised entities that have lots of additional risks.
Peter McCormack: You mean the algorithmic ones?
Phil Geiger: Both.
Peter McCormack: Even Tether?
Phil Geiger: Yeah, they just keep hopping around to different jurisdictions trying to find a place that they can issue their Tether. At some point, I think they're going to get clamped down on. There's a systemic risk to Tether because it's centralised so, at some point, I think they're going to be shut down and then your stablecoin is nothing, it's not stable.
Peter McCormack: Yeah, that's a shame because Alex Gladstein spends a lot of time explaining how useful these digital dollars on a blockchain are.
Phil Geiger: I get it, they are useful, but they are also very risky. So, a lot of people look at Bitcoin, they're like, "It's very volatile, it's very risky", Bitcoin, in my opinion, is extremely low risk, you know pretty much exactly what you're getting; you're getting X percentage of 21 million, you can hold the keys to your Bitcoin, and you can run a node and verify and nobody can inflate the supply. So, I don't think it's very risky. Once you understand what it is, how to use it, extremely low risk, very high volatility, but I don't think volatility is necessarily risk.
Peter McCormack: Well, that depends on your lifestyle, who you are, where you live. If you are living in a poorer country and you have very limited money, that is a significant risk to your ability to feed your family.
Phil Geiger: It's not a risk though. The volatility is maybe not palatable to you, you shouldn't go out and slam all your life savings into this really volatile asset if you can't handle the volatility.
Peter McCormack: No, of course.
Phil Geiger: When you understand that there's volatility, then it's…
Peter McCormack: No, but the volatility presents a risk to your ability to afford what you need for your family. It's not that the asset itself is a risk, but the volatility introduces risk into your life.
Phil Geiger: I think that that's assuming that they need to have it right now.
Peter McCormack: Well, I wouldn't know the numbers, but I would expect a large number of people, perhaps billions, live hand-to-mouth.
Phil Geiger: Yeah.
Peter McCormack: And they're the people we most want to get out of the situation they're in because they're either living in jurisdictions with high inflation or authoritarian regimes, restrictions on what they can do and how they can how trade, so they're probably some of the people who need it most.
Phil Geiger: Definitely.
Peter McCormack: But their ability to start using it and accepting it and having it in their life, there is a risk if you're living hand-to-mouth.
Danny Knowles: And if you're living in, like Turkey, you've got 80% inflation and your options are Bitcoin, whatever the currency in Turkey is, the lira is it, or a US dollar stablecoin, the choice is pretty obvious.
Peter McCormack: Well, is it? It depends. What's the obvious choice to you?
Danny Knowles: Well, if you're living hand-to-mouth…
Peter McCormack: It's the dollar.
Danny Knowles: Yeah.
Phil Geiger: Yeah, I think that would make the most sense for somebody who is experiencing hyperinflation right now, but again that's a cohort of people who have been completely screwed by central banking; the absolute destruction of civilisation in their society is because of central banking destroying the value of their life savings.
While Bitcoin can help these people over the long term, the damage has already been done to them, and so they need an immediate solution; they can't find a solution that's going to help them over ten years, they need to find the food today and tomorrow for their family, and so you have to look at something else. But interestingly enough, the US dollar right now is experiencing seriously high inflation, so even the dollar is becoming a risker and risker thing to hold because it's 8% inflation; that's the official term, in reality it's double digits.
Peter McCormack: Again, it depends where you are. The dollar has dropped from $1.38 to the pound, so it's $1.12, I think today, and it got as low as $1.05 to the pound.
Phil Geiger: Yeah, I saw that.
Peter McCormack: So, it's a better asset, was a better asset to hold than the pound, the King's pound.
Danny Knowles: I guess, as well, it depends how quickly you're turning around your money. If you're turning around your money really quickly, Bitcoin volatility doesn't really matter.
Peter McCormack: So, when I was with criptobastardo in Venezuela, he holds Bitcoin and all he does is every week, transfers the amount he needs in bolivar out. He would explain to me, he says, "Even when the price of Bitcoin is dropping, I'm going up in terms of the bolivar because inflation is so high", so there are scenarios to work through it.
Phil Geiger: Sure, but I think from a high-level perspective, the whole global economy, think of it as the Titanic, it's starting to break apart and there are parts that have already broken off and are sinking, and then there are a few people kind of left, and there's this life raft called the Bitcoin and you're in a stormy, choppy sea and Bitcoin is very volatile and it's bouncing all over the place.
For the people who are still on the ship, that might be a good option or you should start exploring the life raft. For the people are already sinking, I don't know, you have to figure out -- you're hand-to-mouth at that point, you're scrambling; it's a different situation. I think Bitcoin will deliver property rights and value to all 8 billion people in the world, but it's not going to solve all their problems today.
Peter McCormack: No, of course not.
Phil Geiger: What we can do is, the people who still have resources, who are still able to save in it, should start saving in it because that's when you can actually protect your purchasing power and avoid sinking.
Peter McCormack: Did you see the Bangladesh news today?
Danny Knowles: No.
Peter McCormack: Search for Bangladesh blackouts; this is fucking crazy! I think this is just another signal -- because when you said the Titanic, it's starting to break apart, you wait until you see this, "Most of Bangladesh left without power after national grid failure".
Phil Geiger: It's insane.
Peter McCormack: So, "Large swathes of Bangladesh were left without electricity on Tuesday after a partial grid failure, a government official said, adding the authorities were working to gradually restore power to the country of 168 million people". 75% to 80% of Bangladesh experienced blackouts, and I think it was because a problem there importing natural gas and the increase in price of natural gas.
Danny Knowles: Wow!
Peter McCormack: Bangladesh is a poor country who couldn't afford it. That's like a whole country going offline. What's the population of the UK, 72 million?
Danny Knowles: Yeah, it's like high 60s, I think.
Peter McCormack: That's more than double the population of the UK; it's gone fucking offline!
Danny Knowles: Yeah, it says here 96 million people lost power; that's more than the UK.
Peter McCormack: That's insane.
Phil Geiger: I think Bitcoin has really taught two me very important lessons, (1) don't fuck with the money, (2) don't fuck with the energy.
Peter McCormack: Yes.
Phil Geiger: It's crazy to me that, in 2022, we have entire countries of 100 million-plus people in the darkness when electricity was invented or discovered over 100 years ago, I think, what the 1800s, 1700s maybe, 1800s?
Peter McCormack: Maybe.
Phil Geiger: And we've been innovating since then, but over the last maybe few decades, I feel like we've gotten significantly worse at energy production and power delivery and so on.
Peter McCormack: Well, why would Ben say that is -- where would he go and point on a chart?
Danny Knowles: I can guess.
Peter McCormack: Which year?
Danny Knowles: 1971.
Peter McCormack: Yeah, he would go and point to 1971. But quite interestingly, it was Elon Musk who came out and said, "Well, we went to the moon in 1968, we've not been back", and I don't know the year, what did you go to the moon? We didn't go; you didn't invite us!
Phil Geiger: Yeah, you guys weren't invited; that makes sense!
Peter McCormack: Yeah, we didn't go.
Phil Geiger: I've seen what you guys do at stag dos!
Peter McCormack: We've probably sent a probe up to the moon at some point with our German friends or something.
Danny Knowles: The last mission was 1972.
Peter McCormack: Yeah, 1972. But also, people rightly point out -- when was Concorde; when did Concorde launch?
Danny Knowles: 1980s?
Peter McCormack: I don't know.
Danny Knowles: Oh no, introduced 1976.
Peter McCormack: 1976? So, Concorde was introduced two years before I was born, and I'm an old fucker. They decommissioned them after the Air France one crashed, was it in the UK or was it in Paris?
Danny Knowles: It was in Paris, wasn't it?
Peter McCormack: It was going to the UK, that was it; it would take about three minutes! But yeah, so they decommissioned them and we haven't had a supersonic jet since.
Phil Geiger: It's crazy.
Peter McCormack: Yeah.
Phil Geiger: We're going backwards in a lot of ways.
Peter McCormack: We are.
Phil Geiger: At the same time, we're seeing inequality around the world increase and we're seeing power centralise, and I think that's the fiat system.
Peter McCormack: So, don't fuck with the money, don't fuck with the energy, don't fuck with the food as well.
Phil Geiger: Yeah, that's energy.
Peter McCormack: Human energy.
Phil Geiger: Yeah.
Peter McCormack: Yeah, I guess so. No, I completely agree with you, I've never known a time like this in the UK, and it's weird and a little bit scary just seeing what people are facing in terms of their energy costs. How we can suddenly go from a point where people's energy bills are £1,000 a year to £5,000 a year, which would be, for some people, 50% of their income. To just be able to do that in a matter of months, it's super scary; nothing like that has ever happened in my life, I can't remember anything like that.
Phil Geiger: It's a travesty, it's basic things to power your society, right, literally to power it. It's like you need to have the lights on to have functional hospitals, you need to have the lights on to stay warm in the winter; just basic necessities and issues that we've solved 100-plus years ago are rearing their ugly head again as the currencies start breaking down.
Peter McCormack: Well, there's a second layer to that as well because there's the lack of innovation, say, with nuclear. I think most people generally agree that the decommissioning of nuclear plants, the lack of investment in nuclear plants was naïve. The green lobby was allowed to essentially petition for this kind of anti-nuclear agenda following Fukushima and various other things, so I think that's one thing, but another thing in the UK is that we sold off all our energy to the free market to be developed. And whether or not you believe in the nation state, it is useful for a nation state to have energy security; the US kind of has it because you produce a lot of oil, we don't produce a lot of oil, we produce some. We don't really have energy security; we're buying all our energy from across Europe at the moment.
Phil Geiger: Yeah, what do you mean when you say that UK sold off their energy to the free market?
Peter McCormack: Yeah, we import a lot of our energy; that's just the way it is. We have, what, three nuclear plants, is there one in Hinkley?
Danny Knowles: There's one in Sellafield as well.
Peter McCormack: Yeah, we have like three nuclear plants. We used to produce most of our energy, I think it was coal-based, but as we closed down, rightly so because coal is disgusting, and it could have been replaced with nuclear.
Phil Geiger: Is coal more disgusting than freezing?
Peter McCormack: Yeah, but what I'm saying is there was no need to have to make that trade-off. If you're going to close down your coal plants and replace them with nuclear, that makes sense, it's cleaner.
Phil Geiger: But who was closing down the coal plants and who was selling off -- was it these private companies or was it enforced by the government?
Peter McCormack: It was the government.
Phil Geiger: Oh, it was the government, yeah.
Peter McCormack: The government closed down all the mines, didn't they?
Danny Knowles: I don't know much about this.
Phil Geiger: It's the same thing as like the Dutch farmers right now, it's like the Dutch Government is saying, "We've got to cut nitrogen to meet these X, Y and Z climate goals", and it's not the farmers that are saying, "Hey, we need to really cut nitrogen", they're saying, "Hey, we can't produce enough food now and so we're going to go on strike". So, it's the same thing, it sounds similar to me; in the UK, you guys had energy security and then some bureaucrat decided, in order to meet or achieve some goals which, in hindsight, probably were not achieved, "We're going shut down the production of energy in X, Y or Z fashion because it's not fashionable today".
Peter McCormack: And Marty Bent would say, "Those fucking central planners", and he's right.
Danny Knowles: And now someone's being paid to pause the closure.
Peter McCormack: What this, "Closure of coal power stations set to be delayed", so we've still got coal power, "To prevent UK blackouts".
Phil Geiger: They're probably spinning up coal at this point.
Peter McCormack: They probably are, yeah, they probably are.
Phil Geiger: What I've also kind of realised, or the way I think about energy is, while we might not personally like one form of energy production over the other, the pricing mechanism typically does a really good job of demonstrating or elevating the type of energy that is the most efficient.
So what Bitcoin has taught me, and Bitcoin mining in particular, is that Bitcoin mining is actually a component of the energy production industry to help make energy production as efficient as possible, and that is the most environmentally friendly. If we're producing energy efficiently, then we are not wasting anything, it's not inefficient, and the pricing system typically does a good job of demonstrating which is the most efficient, which is the cheapest.
Peter McCormack: But not the most environmentally friendly.
Phil Geiger: I do think it is the most environmentally friendly because if it's really expensive to produce this energy, then you have a lot of external inputs going into it. You have teams of scientists, you have all of kinds of manufacturing and different production facilities, you have many orders of effects beyond just the actual burning of the coal or whatever.
Peter McCormack: You mean the whole supply chain to allow production?
Phil Geiger: Absolutely.
Peter McCormack: But there are different types of ways you can measure environmental friendliness. So for example, if you are one of those people that believes, which I can't believe I'm even saying it like this, but increasing carbon in the atmosphere will warm the planet and lead to a change in climate, which I do believe, it may be preferable to have something that has at least more e-waste rather than increasing carbon in the atmosphere. Both are environmental issues, e-waste is an environmental issue, carbon is an environmental issue, but you might have a preference over one; e-waste, okay, it might be preferable to bury e-waste or to look into recycling over increasing carbon in the atmosphere, which is has, potentially, catastrophic effects.
Phil Geiger: But you're assuming that the production of the e-waste doesn't increase the carbon in the atmosphere.
Peter McCormack: Yeah, but you have to map out the entire supply chain, and that's a lot of work.
Phil Geiger: Yeah, that's why we have to think from first principles and we have to think about what's a signal that we can use to actually tell us what is the most efficient form of energy production, and it's typically what is the cheapest; what is the most affordable.
Peter McCormack: I would want to know if someone's actually done the work that correlates the price of energy production with the total, or the percentage of increase of carbon in the atmosphere.
Phil Geiger: Well, I think that there are a lot of people who have done a lot of work on that, and they have come to decide that, and I'm not trying to pick on any one form of energy, but say coal and gas and oil are bad, and solar, wind, nuclear, etc are good; but the problem is, since central planners have pushed us towards one direction, now we have people who are spending a majority of their income trying to heat their home.
So, there's unintended outcomes to any sort of centralised planning that pushes you in one direction or another when the market is trying to tell you, "Aactually right now, natural gas is the most efficient way to power our homes", or oil, or hydropower. I'm not trying to pick one or the other but saying that the pricing mechanism, when there are no subsidies involved, does a really good job of telling people, "This is the most efficient type of energy that we can be using today".
Peter McCormack: Sure. I'm still not buying there's correlation with carbon on the price on the entire -- I need a receipt.
Phil Geiger: This is maybe the Austrian Economics style of thinking, and I consider myself a student of Austrian Economics, but if you think about this scenario of a Bitcoin miner, you have an ASIC chip, you want to be profitable, you want to earn Bitcoin, you need to go find the cheapest form of energy. So, the cheapest form of energy is where you plug in your miner and you're profitable, even if you have a chip that's an S9, which is like 5 years old at this point. So, I do think that Bitcoin is a really good teacher, it tells us, "Okay, this right now is the most efficient way that we can be capturing energy".
Before China banned Bitcoin mining, the miners were migrating with the rainy seasons because China had these massive hydroelectric dams, that during the rainy seasons were way overproducing electricity; they were just wasting energy that they had captured. Bitcoin helps us to actually capture that energy, monetise it, so that these companies can invest in more efficient energy production. So, yeah, I just think that the pricing mechanism does the best job of demonstrating what's the most efficient.
Peter McCormack: No, I agree with that, I fundamentally agree with that, I just don't think it correlates to carbon in the atmosphere; I just think it's the cheapest to produce.
Phil Geiger: I think it correlates to carbon in the atmosphere because again, the people who are working on the other types of energy, nuclear, it might take 50,000 people working 10 years to build one nuclear plant, how much carbon have all those people been off-putting for 10 years before we can now turn on our nuclear plant and start seeing zero carbon emissions? Nothing exists in a bubble.
Peter McCormack: No, of course, but somebody has to do the work there, there have to be receipts for this otherwise it's speculation. If there are no receipts for this and somebody's done the work --
Phil Geiger: The pricing mechanism is the receipt, dude.
Peter McCormack: Do you understand what I'm saying here, Danny?
Danny Knowles: I do understand, but I think you're talking at cross purposes on some of this. I think Phil's point is, if you charge a Tesla from electricity that's generated by a coal-powered plant, what are you really doing?
Peter McCormack: No, I agree with that but --
Phil Geiger: Right, you've harvested a bunch of heavy metals. Tesla employs 100,000 people and they've been engineering these cars for a decade and then you plug it in…
Peter McCormack: No, I understand what you're saying is that when people are looking at the energy mix and looking at green energy, they aren't considering the entire supply chain, okay, but --
Phil Geiger: Or the outcome even I would say, like the outcome is what we're stuck with right now where we have a global energy crisis. Bangladesh was left without power for 168 million people and I imagine, I'm not familiar with Bangladeshi energy policies, but I imagine that they're playing the same game as many of the other countries are which is trying to go one direction or another.
Peter McCormack: Yeah, but the thing I'm not buying is the lowest price, most efficient energy production, is the one that produces the least carbon; where is the correlation?
Danny Knowles: I think it gets even more confused when you add in government grants and subsidies.
Phil Geiger: Absolutely.
Peter McCormack: Of course, but again, we're confusing -- the question I'm asking is how does the efficiency of production dictate the level of carbon that's produced? I don't see the correlation.
Phil Geiger: Yeah, so I don't think any carbon measures are accurate today, first of all, because how do you actually --
Peter McCormack: Which carbon measures?
Phil Geiger: Any of them. When a company says, "I'm carbon neutral", what does your company do; how many people does your company employ? If you're manufacturing plastic toys like, "Our company was built to manufacture plastic toys", can anything you ever do be carbon neutral? You can buy carbon offsets but your whole company was established to manufacture plastic widgets which produce carbon which you try to sell to people. I think this whole scheme of trying to measure carbon outputs, it's a racket, it's in a lot of ways like a shitcoin, like carbon energy credits; you can't accurately measure that and it's totally dependent on what your industry is, and then that's also subjective.
Maybe I don't think that this plastic toy company should exist but they're selling a ton of plastic toys to kids who are very happy and it's improving their lives and so who am I to say, "This plastic toy company is producing a bunch of excess carbon that we don't need", it's all subjective.
Peter McCormack: I think you're right; the measurement is very difficult and setting what should and shouldn't be done is totally subjective, I agree with you there. We have the same experiences of Bitcoin now where people talk about the energy use of Bitcoin and then, rightly so, a bitcoiner comes and says, "Christmas trees".
Phil Geiger: Well, I think the biggest irony to me there is, I truly believe that there is nothing better for the environment than humans adopting a form of money that encourages them to save instead of overconsume.
Peter McCormack: Agree, brilliant, I love it.
Phil Geiger: Overconsumption is the cause of lots of additional waste and malinvestment, and again that's subjective, that's my opinion. But what I've noticed with myself is, when I started saving in a form of money that can't be debased and actually increases in value over time, I'm a lot less likely to go out and buy a second jet ski, you know; I'm happy with my one jet ski, I don't need another jet ski.
Peter McCormack: You do; what are we going to ride?!
Phil Geiger: Oh, shit!
Peter McCormack: You should have had three jet skis.
Phil Geiger: I'll get you guys one of those tricycle-powered boats.
Peter McCormack: Have you got a jet ski?
Phil Geiger: Not yet. I'll go probably go pick one up after this though because that sounds fun; do you guys want to go later?
Peter McCormack: Shall we go together?
Phil Geiger: Jet skiing after this?
Danny Knowles: I'm in!
Peter McCormack: We'll go jet skiing! Yeah, I didn't bring you in to talk about this today but it's quite interesting. We had Nate Harmon on the other day, a great guy; one of his jobs is to go up to one of the mountains in Hawaii and take the measurements, and unambiguously, carbon is increasing in the atmosphere at a massive rate.
Phil Geiger: He's measuring this at the top of a volcano?
Peter McCormack: No, a mountain.
Danny Knowles: There's a really good reason to; he was saying it's the highest mountain in the world if you measure from the sea floor or whatever. And he goes to the top of the mountain so he's out of any kind of contaminated wind from LA or whatever it might be; so, there was a point to it.
Peter McCormack: And his peers around the world are doing the same, and it's unambiguous that the amount of carbon in the atmosphere is increasing, I almost find to the point that anyone who wants to argue against that must be being paid by somebody because the scientific readings are there. He's also unambiguous in his point that, if you increase carbon in the atmosphere, you increase warming. And he talked us through the entire science of why the planet warms, why it retains heat, and if you retain heat, then there are consequences of that for people on the planet.
For me, this is unambiguous, but what we do about it, or whether we do anything about it, I think is a fair area for discussion and debate. I agree with Alex Epstein, the rapid reduction in fossil fuels has severe consequences, but I do think also not having some kind of transition to less carbon-intensive energy sources will also have other consequences that are very hard to predict but could be quite severe, depending on your social economic situation.
I think we've got ourselves in a position where people argue one end and not the other end, and we need to meet in the middle and find the answers to these issues, but certainly there will be consequences if we continue increasing the burning of fossil fuels for decades ahead.
Phil Geiger: I subscribe to the Bitcoin astronomy perspective of energy production, which is that I want to humans to be able to harness the power of our star, the sun, so that we can go interplanetary and settle the solar system. In order for us to get there, we're going to have to harness and generate and capture orders and orders and orders of magnitude more energy than we're already producing and capturing today.
I think, getting there, we will have so much innovation, like once we start harnessing additional energy at levels beyond what we can even comprehend today, the amount of innovation that we're going to be able to produce will be unknowable but also massive. I do think that this effort of harnessing more energy will actually help us to solve these problems that we're having with carbon in the atmosphere, if you believe that that's something that we can solve.
Peter McCormack: You're talking about Type II Civilisations.
Phil Geiger: Oh yeah, Kardeshev Type II.
Peter McCormack: The Kardashian Scale!
Phil Geiger: The Kardashian Scale?
Peter McCormack: Yeah, we call it the Kardashian Scale; we were doing it the other day. Do you know how high that scale goes up to?
Phil Geiger: I think it's three, right?
Peter McCormack: No!
Phil Geiger: Oh, really?
Peter McCormack: Oh, we're going to blow your mind in a minute!
Phil Geiger: Oh God!
Danny Knowles: Well, I think it does go up to 3 but some fucking kook on internet has made it go up to like 20 or something.
Peter McCormack: No, it got up to 35 and then it went to eye and then brain. We've got to show you this; it's just wild. No, I think the Kardashian Scale goes up to a 6 now.
Danny Knowles: Does it?
Peter McCormack: Yeah, goes up to Chloe!
Danny Knowles: But I think Nate would 100% would agree with that, and his point is that the ocean, it can harness 40% of the world's total energy from the ocean. And the other thing that is to your point is, I don't know if he said it on the show or when we were hanging out after, in some ways he doesn't give a fuck about arguing with these people, he just wants to beat them at market because he can offer cheaper energy.
Peter McCormack: Yes.
Phil Geiger: By harnessing and producing significantly more energy, we're driving down energy costs, we're becoming more efficient at energy. If he can produce, in order of magnitude more energy by harnessing the ocean and it doesn't directly offset carbon, although the research and development in order to get to the point where you can harness the ocean's energy is going to produce carbon, then that's great; humanity wins, we have more energy, it's cheaper, we don't have to spend half of our life savings on warming our home in the winter and we don't have 168 million in Bangladesh without the lights on. This is a positive outcome. So, harnessing more energy should be, or in my opinion, is a very noble goal for people to be doing.
Peter McCormack: Yeah, I know, and was one of the things that you're not clear on until you see it, I never really thought about the impact of energy prices on the economy because we've already had stable energy prices. I've never had to think about the impact of having a volatile currency until I went to a country and saw it.
Our British pound shitcoin has decimated over like 300 years since it existed, but it's relatively stable year to year; 2% inflation, you barely notice it right, even 8% inflation is annoying but survivable. It's only when you go to somewhere like Venezuela and you literally see what the impact is for hyperinflation, you realise it's a different world.
Slightly increasing energy prices, you don't really think about it; when you suddenly see a massive increase in the energy prices, there's people who can't get to work, or the example I gave the other day was this bakery, a centralised bakery that bakes goods for a number of cafés but they also had three of their own cafés, the energy prices went so high that they couldn't afford to keep the cafés open, so they only have the centralised place now, so they just instantly had to close down three businesses.
Now, other companies have a choice, they swallow the cost, which they can only do for a certain period, or they increase their prices; prices go up, more inflation. So, the impact of energy on the economy, on the productivity of the economy, on GDP, was never something I thought about until now. Now I realise, yes, absolutely, we need to produce as much cheap energy in the world as possible to make people as productive as possible to lift themselves out of poverty.
Phil Geiger: That's right.
Peter McCormack: Alex Epstein actually says that.
Danny Knowles: Yeah.
Peter McCormack: And he's fucking right.
Phil Geiger: Well, when you lift yourself out of poverty, then you have the ability to spend more time on solving bigger issues.
Peter McCormack: Yeah.
Phil Geiger: If 8 billion people around the world are struggling to feed their families tomorrow, we can't actually solve the larger issues of the world. If you think that we can actually solve this carbon issue without either making it worse or destroying the planet, then we have to be able to heat our homes and have our basic needs taken care of; it's like a higher order problem to solve.
Peter McCormack: I think the blip in this time is the nuclear problem. I think if we'd have continued to develop nuclear and continue to expand nuclear, I don't think all of this would ever have been an issue, but I think it is. I mean, we found out the other day, what, 54 nuclear plants in France?
Danny Knowles: Yeah.
Peter McCormack: And 32 are in a state of disrepair; I had no idea.
Danny Knowles: I don't know if they're in a state of disrepair, they've just down for maintenance. But that's a lot, and all at once, it seems --
Peter McCormack: That's a lot to be down. If a nuclear plant is down for maintenance, that's in a state of disrepair, and if there's 32 of the 54, that suggests that something's been neglected if you ask me. But to me, that is the blip in all of this. We should be largely beyond fossil fuels for, I think, providing energy to the grid. Yes, we've needed it for cars and planes, and we probably will never replace it for planes, but the US just launched an aircraft carrier that's a nuclear aircraft carrier, so we've harnessed the power of nuclear in vehicles as well for energy generation.
Phil Geiger: So, that's like the perfect example of where we've invested decades and decades and decades into producing a warship powered by nuclear energy, the carbon output of that war machine is astronomical, and now that we have this gigantic ship that's running on nuclear, is that good for the environment? No.
Peter McCormack: Why not?
Phil Geiger: Because it's a machine of war.
Peter McCormack: No, I'm talking about just the carbon output of an aircraft carrier that is powered by --
Phil Geiger: I want fewer aircraft carriers.
Peter McCormack: No, of course, but all I'm talking about is the fact that they've harnessed the energy of nuclear power to power that, which by the way always weirds me out as well because you're made to fear nuclear, but you can actually power an aircraft carrier or a submarine with nuclear power. But the point is we've harnessed these technologies and now we've just kind of let them go, and we're in this situation now which is --
Phil Geiger: Currency collapse is a real bitch.
Peter McCormack: Energy collapse is a real bitch.
Phil Geiger: Currency is what coordinates the extraction of energy, and right now, the energy, we're not extracting it and harnessing it very well.
Peter McCormack: Yeah, and we're blowing up pipelines which distribute energy across Europe. But an energy crisis and a currency crisis at the same time is quite the fucking mix.
Phil Geiger: Well, Bitcoin, it's money and it's energy at the same time; it's the marriage of the two, energy, money. So I think maybe, regardless of how your currency is secured, your currency is always a form of energy, it's always the output of delivering value of human energy in action. You should save that value that you've produced in a form of money, and regardless of how that money is saved or secured, energy has always been expended to achieve it.
Peter McCormack: Yeah. I don't want to let you off completely on this fossil fuels thing yet, I do just finish off because it is an evolving understanding that people are having; certain people have brought new information to the table. But I think the unknown area is that if we continue to burn fossil fuels as we are, and we continue to increase carbon in the atmosphere, what are the consequences before we transition away from that?
We are seeing the consequences of an increase in carbon in the atmosphere, the planet is warming up quicker than it would, and I know some people say it's always been warming, no, it's not warmed at the rate it's warming now, and there are consequences for that, and we don't fully know the impact of that. Now, those who have catastrophised it, they've not done a great PR job for the cause they're trying to support, but there are significant risks of a massive increase in warming, there are significant risks of increasing sea levels. I mean, we do have an increase in sea levels, and there is a significant increase to people living in coastal regions, but we don't know when these consequences hit; it might not be us, it might be my grandchildren that are suddenly hit with a different scenario.
Phil Geiger: Sure.
Peter McCormack: We don't know these, and I think it's only right, for the smart, right, intelligent people who aren't being lobbied, just do the right research on what will be the impact on the environment if we do continue to increase carbon in the atmosphere, because that's the bit we've always struggled to find good data on. There are good models on the changes in temperature if we continue to increase carbon, but nobody's done any particular good work on the impact of that; that's the bit I struggle to find.
Phil Geiger: The way I think about it is --
Peter McCormack: Fuck them?!
Phil Geiger: No. I think that this, very well, could be a crisis or a real problem. We don't know how it will manifest; we don't know when it will manifest; I've heard lots of predictions over the years that have proven to be false. What we do know for certain is what happens when you try to push a civilisation to a form of energy that isn't as reliable quickly. We have evidence and certainty about how societies collapse and the suffering that it causes.
Peter McCormack: Yes.
Phil Geiger: We think that there will be a problem in the future. We have certainty; if you move off of fossil fuels today and you try to go full wind, solar, whatever, you're going to be in the darkness, like Bangladesh. We believe that there might be a problem in the future; it's like an unwinnable situation. I think what we can do is try to remove, what I would I say is, remove all the subsidies, get a real market price --
Peter McCormack: Even for oil?
Phil Geiger: Hold on, first of all, step back, foundationally reset the entire global economy on a sound money, step one. Then, when we have real prices again, because we don't have real prices right now, our prices of everything are heavily, heavily manipulated by what Jerome Powell is feeling on a given day; once we have real prices you'll be able to see what is the most efficient way to produce energy, we will produce energy that way, and the people who are the most profitable at producing energy will have additional resources to invest in getting more efficient at producing energy.
Bitcoin mining helps us get there because any excess energy that is generated you can just mine, just offload to the Bitcoin network. So, yeah, that's kind of my strategy here, is first of all rip out the Frankenstein financial system with a bunch of different, 100-whatever different currencies that are all collapsing, replace it with sound money, we have real pricing mechanism so we can see now, with much greater clarity, what's the most efficient way to produce energy, invest in that.
Peter McCormack: You should go and get Jerome Powell's job.
Phil Geiger: Yeah, you know what, I should just call him up.
Peter McCormack: You have massive conviction on this. Okay, do you think, if we replaced the world's global currencies on sound money and have proper accurate pricing, do you believe, therefore, what is the role of the state in this, or is it, "See you later"?
Phil Geiger: No, we have to have an entity that has a monopoly on violence.
Peter McCormack: Wow, okay, bold statement.
Phil Geiger: Absolutely.
Peter McCormack: I'll tell you why this is interesting, because --
Phil Geiger: You didn't let me finish, but go ahead!
Peter McCormack: No, because this debate hasn't really come up and I've wanted to hear this because certain people would argue that it's morally wrong for someone, an entity, to have the monopoly on violence. But I've also heard the argument that if somebody has a monopoly on violence, there is less violence.
Phil Geiger: So, the way that I think about is, so first of all, the way that governments work today is out of control, they're way too large and they're way too abstracted away from your local community. So in my opinion, you need to have some form of protection and I don't subscribe to the 100% homestead or self-sovereign mountain man out in the woods method because --
Peter McCormack: Doesn't exist.
Phil Geiger: Society is formed through humans cooperating, and the whole is greater than the sum of the parts. When people get together and collaborate and cooperate, we produce something that is way more impressive and better than any single individual can produce.
Peter McCormack: So, we need hierarchy?
Phil Geiger: What you need to have in order to maintain the peace in a civilisation is some entity that, yeah, basically, it's a justice system. You need to have laws, you need to have people who enforce those laws, and you need to have consequences for breaking the laws. So, I do believe that civilisations have, historically, formed in this way because it's the best way to form a civilisation, we've never built a society on top of a sound money, which I think will really change the dynamic, like the communities will be much more local, politics will be much more local.
Peter McCormack: We've had close to a society built on a sound money when we had the gold standard.
Phil Geiger: That's close, but gold is --
Peter McCormack: But we understand the difference in productivity and the accuracy with pricing when we did have a gold standard.
Phil Geiger: I would say that we didn't have sound money -- so, gold is not a sound money, it's close, it was the best that was available, but it's not sound because it's physical and it has an unknown total supply. So, if you think about money as a ruler, like money is a tool that allows you to store and communicate value, it allows you to measure the value of your output and purchase goods and services which is the output of others; it's a tool. We've never had a tool that is an accurate measurement of output until Bitcoin because Bitcoin has a supply of 21 million, it's fixed, it's set.
Peter McCormack: No, I agree with you, I'm just saying we had closer to it.
Phil Geiger: Yeah.
Peter McCormack: Even though it wasn't a sound money system, it was closer to a sound money system, and again, Ben Prentice will point to 1971, and he will say, "Look at the difference; look what happened when we came off the gold standard". So, all we've done is get further away from a --
Phil Geiger: Coming off the gold standard is an inevitability with gold because it's physical and because it has an unknown total supply; you can't verify how much gold you have very easily.
Peter McCormack: And it's centralised.
Phil Geiger: Well, it's centralised because it doesn't scale for a global society, like we can't travel to different solar systems on gold, using gold as our money, we can't travel to different planets even because you can't lug around piles of gold.
Peter McCormack: You keep dipping into Dhruv's ideas.
Phil Geiger: I've just been thinking about space recently.
Peter McCormack: Yeah, I love Dhruv's articles.
Phil Geiger: They're great.
Peter McCormack: Yeah. Okay, fine. Where were we? You were you in the middle of something.
Danny Knowles: You were asking Phil about what the society he envisaged would be like.
Peter McCormack: Yeah, so the monopoly on violence, yeah.
Phil Geiger: So, yeah, a lot of Austrian thinkers have written about the role of government in a society, Mises wrote a lot about that, and I think it's correct. I think, first of all, from the first principal, the ultimate sovereign individual just cannot produce as much value as a collection of people working together.
Peter McCormack: Yes.
Phil Geiger: So, civilisations grew because it's more efficient, it's better, it delivers more prosperity, and human nature is such that, if you can cheat, you will cheat, maybe not a given individual but in a collection of individuals, somebody is going to take a shortcut somewhere. And so, I do think that you need to have rule of law and you need to have a system of government. Again, I just think this federal system around the world, or these federal systems, are hugely inefficient, they're bloated and they don't work very well anymore, and the only reason that they're sustained is because they have the power of the printing press. So, that's my two sats on that; there will be government, it'll be much more local, the local civilisations will be much more prosperous.
Peter McCormack: I mean I completely agree with you, but there are lot of people in Bitcoin who wouldn't agree with you, and don't agree with you. Giacomo Zucco would say millions of people interact with each other voluntarily every day and we do not need any form of monopoly on violence.
Phil Geiger: I think that's also a perspective; if he feels that way then that's Giacomo's perspective. I just think you have to pay someone for security or you have to secure yourself, and I don't subscribe to the mountain man in the woods with a huge arsenal and homesteading, it's just not the society I want to live in. I want to live in a nice community where I can trust my neighbours, and yeah, maybe I can defend myself, but on the whole, we have to hire somebody to defend us because I can't specialise in defence, I need to specialise in helping people hold their keys. That's the division of labour and I think that that's what civilisation was built on. So, yeah, I would happily pay somebody for protection.
Peter McCormack: So, how fundamental to this is 21 million?
Phil Geiger: It's everything, yeah, so it's the reason that we're here talking today. Bitcoin is the discovery of digital scarcity, it's the permanent solution to this idea of inflation or printing money. The unfortunate side effect of Bitcoin is that people who don't understand that the innovation was removing the printing press from the hands of everyone view it as, "Oh now I can become a central banker".
So, the broader crypto scene is people who want to be their own central bankers. Bitcoin and bitcoiners are the people who understand that we've got to separate money production from the hands of any given individual so that we can all use this neutral currency and it can accurately store value over time.
Peter McCormack: And it's a non-negotiable for you?
Phil Geiger: 21 million is non-negotiable. So, I wrote a couple of articles a few years ago about this, and the reason I wrote these articles was really a few reasons. First of all, a lot of crypto marketers will compare their currency, their currency's inflation rate to Bitcoin's inflation rate because every 10 minutes 6.25 Bitcoin are released through the process of processing transactions, which we call mining. That categorisation is totally wrong; Bitcoin does not have inflation; Bitcoin has a supply of 21 million that is released on a fixed schedule that we can all verify on our home computers.
Peter McCormack: So, they already exist.
Phil Geiger: I believe that they already exist.
Peter McCormack: Yeah, I know, Parker told me about this last night.
Phil Geiger: Yeah, so I think about it as your mom bakes 21 cookies and you get 1 cookie every 10 minutes for doing your maths homework.
Peter McCormack: This is how I got like this!
Phil Geiger: Exactly. You don't have control of all the cookies yet, but do the cookies exist? Yes. If somebody comes in and says, "Actually, I have another 21 million cookies", those are a different set of cookies.
Peter McCormack: So, I need to ask a couple of technical questions on that then.
Phil Geiger: Sure.
Peter McCormack: So, at the point where a block is found and the coinbase reward is created, is a UTXO created at that point? I don't understand this part of the thing.
Phil Geiger: Yeah, so when a block is discovered, the mining pool that discovers the block is issued the subsidy, and yeah, it's issued as a UTXO.
Peter McCormack: So, the UTXO is created at that point?
Phil Geiger: The UTXO, yes, is created at that point.
Peter McCormack: So, I don't think all 21 million exist then.
Phil Geiger: So, they have to already exist because we know that the supply is 21 million, and then we also know if the schedule has been broken. So, if a miner finds 12.5 Bitcoin at the next block, we know that that's invalid, that's not Bitcoin, that's a hard fork, right?
Peter McCormack: Yeah.
Phil Geiger: But how do we know that it's a hard fork if the Bitcoin doesn't already exist? We already know that there's 21 million, we know exactly how they're released, and if anything about that schedule changes, that's a hard fork that we can claim and sell for more Bitcoin.
Peter McCormack: So, I'm going to argue back with you that I don't think they exist; I was thinking about this quite a bit last night.
Phil Geiger: Okay.
Peter McCormack: So, I understand your point in that there can only be 21 million and that every 10 minutes, these are issued out to the pool or the lucky solo miner. But my argument is that you can only identify Bitcoin by UTXOs, and therefore those Bitcoins that haven't been issued yet, because they don't have a UXTO so they don't exist, but the software only allows Bitcoin to be issued up until the point it hits 21 million.
Phil Geiger: But we know exactly where those Bitcoin are living in future blocks. You can pick any block in the future and I can tell you how much Bitcoin lives in the coinbase reward there. What we don't know is the existing UTXO set, how that's going to move. The HODL Waves is how we kind of see the existing UTXO set and how it moves over time.
We have very little clarity, like Satoshi could market sell his 1 million Bitcoin for Ethereum proof of stake tomorrow, seems a little unlikely to me but they could because they have the keys to it, the UXTOs are under the controls of their keys. What Satoshi can't do is, I don't know what block we're at, but 5 blocks from now, change the 6.25 subsidy to something else.
Peter McCormack: But to me that's the rules that says what Bitcoin can be created at that point. The rules say, they don't exist yet, but they say they can be created at that point, when that block is created, the consensus rules pass and those Bitcoin are created. Again, I don't know the technicals of how, what or what part happens when they're created, but the UTXOs are issued at that point therefore, once the UTXOs are issued, then that Bitcoin exists.
Phil Geiger: So, I think of it as, again, like Bitcoin is the software that we run on our computers, and it's the private keys we hold to our Bitcoin addresses, and the software we run, the node has the roadmap laid out, it has all 21 million Bitcoin and exactly when they're going to be released, in which block. So, I think that if you understand how this system works, you can just assume that all 21 million Bitcoin exist and you can profit from that information. Miners out there are not investing in massive mining infrastructure with the knowledge that this thing could change.
Peter McCormack: No, I agree.
Phil Geiger: They're doing it because it's fixed, they understand that there will only be 21 million Bitcoin, and so it's just better to think of them as already existing. So, again, the reason that I think that it's important to think like this, and it's very esoteric, but when shitcoiners are marketing, like "Oh, Ethereum is now ultra-sound money because it issues less per day than Bitcoin", that's insane.
First of all, you can't change something to become more sound; that's an oxymoron. Number two, you don't know the ultimate supply of Ethereum, you don't know the ultimate supply of gold, you don't know the ultimate supply of really any currency because none of their supplies are credible.
Peter McCormack: We don't even know the current supply!
Phil Geiger: Exactly. With Bitcoin, you know that there will only ever be 21 million and you know exactly how they're going to be unlocked or issued. So, I just think switching your mindset into understanding that they really exist helps you to understand sound money principles, and it helps you to understand why broader crypto is, in my opinion, a scam.
Peter McCormack: Yeah, I can understand the mind switch, I just don't agree they exist yet. What you think, Danny; do they exist?
Danny Knowles: I don't really see why it matters either way, not the 21 million but whether they already exist or they're getting unlocked over time; it makes no real difference. I think the idea, for a marketing side of things, is really good in terms of clarifying the difference, but it makes no difference, does it?
Phil Geiger: Yeah, if that's the only reason then that's a good reason because you have these idiots out there marketing Ethereum as ultra-sound money, which is there's nothing even remotely minimally sound about it, and they're looking at this one metric and saying the inflation rate is what makes it ultra-sound money, and they look at Bitcoin's inflation, it's whatever percent per year, 1%-something per year. The way I look at it is, no, Bitcoin's inflation is zero because --
Danny Knowles: It's always been zero.
Phil Geiger: -- the supply is fixed, it's the only currency that has ever existed that has a fixed supply. All other currencies don't have a fixed supply; even the other cryptos that say that they have fixed supply, they're centralised and so it can be changed, and there are plenty of examples of all of those other cryptos changing.
Then, the fact that the innovation of Bitcoin is the discovery of digital scarcity and broader crypto is just proof that things that are digital are extremely easy to copy, like you can copy Bitcoin's codebase, change a few things here or there, launch your own currency, you've proven that things that are digital are typically not scarce but what you can't do is create more than 21 million Bitcoin.
Peter McCormack: So, I see your point now, there is an inflation rate at zero.
Phil Geiger: Yeah.
Peter McCormack: There's just a release schedule.
Phil Geiger: It's a schedule.
Peter McCormack: It's a schedule, yeah. That's actually a really good point, and I can see the benefit there, then explaining it to people because another thing I was discussing with Parker yesterday was that my way of explaining Bitcoin to people is evolving, it's moving from telling them what Bitcoin is to telling them what is wrong with fiat money, and then what Bitcoin solves.
Now, I think it's going to be far easier to say there is an inflation rate at zero and there are 21 million and there's a release schedule, than to say there's this inflation rate and every four years there's a halving, because you have to get into all this other shit you don't need to get into; that just makes it easier, I get it. I think you're wrong! Jeremy, do they already exist? Yes or no.
Jeremy: No.
Peter McCormack: But I'm agreeing with you, it's a useful thing to say, and I'm going to use that because sometimes it's better to do it that way.
Phil Geiger: All right, well I've changed maybe one mind, or at least I've tipped the needle a little bit.
Peter McCormack: You've tipped the needle.
Phil Geiger: So, the other reason that I wrote the first article and the second article is, when you understand that there will only ever be 21 million Bitcoin because Bitcoin is in fact the supply of 21 million, you can't separate the two, you then realise that the other marketing angle that a lot of crypto and shitcoin founders will take is this idea that, at some point in the future, Bitcoin will be unsecure.
Peter McCormack: It's one of the most regular emails I get.
Phil Geiger: Yeah.
Peter McCormack: It's, "What happens in, you know, three halvings' time if the Bitcoin price is already at this point and we have a much lower hashrate, then we'll be less secure and what if that is a trend? Can you get somebody on to talk about this?" I'm like, "We can't make a whole show on that", but it is a question that comes up a lot.
Phil Geiger: And it's a really tough question to tackle because I don't think that the answer is what people want to hear. So, the way that I think about this is, is Bitcoin secure today?
Peter McCormack: Deal with it at the time.
Phil Geiger: Well, is it secure today?
Peter McCormack: Yes.
Phil Geiger: Was it secure five years ago?
Peter McCormack: I don't think you can say whether it is binary secure.
Phil Geiger: Exactly.
Peter McCormack: Yeah.
Phil Geiger: Is it still alive?
Peter McCormack: Yeah.
Phil Geiger: So, then it was secure five years ago.
Peter McCormack: Yeah, you can do a couple of things; you can calculate the cost of how much hash power you have to --
Phil Geiger: I think that that's the wrong approach, personally, but yeah.
Peter McCormack: But just bear with me, to be able to attack it, you have to be able to do that, but then you also have to rationalise the actual process of being able to accumulate that hash power which is even more likely. So, when somebody says, "Well, you need $20 billion of mining", yeah, fine. "Oh well, somebody's got $50 billion; they can do it", yeah, but you can't actually go and accumulate the hash power, and if you do, other people will start accumulating hash power.
So, I think you can create a risk model of how much hash power there is, how much do you need, how easy is it to get it, because look at BCH or BSV, you could very easily accumulate that hash power, you could destroy those networks, it's very easy to do; with Bitcoin, it's close to impossible right now. So, that's the way I think of it, like how risky, what is the risk model rather than the cost.
Phil Geiger: So, I think about it as the network's security is discovered on the free market, and the fact that it's alive today, 13 years after its founding, is proof that the incentives to secure it were set up correctly. So, Bitcoin's hashrate was, what, a quarter of what it is today five years ago, but it's here today and the hashrate is now at an all-time high. What hasn't changed throughout that time is that there will only ever be 21 million Bitcoin.
The other thing to think about, I think anyone who's doing any sort of modelling using the US dollar is on the wrong path because the value of the dollar is constantly changing, the value of Bitcoin is constantly changing, you have to take those as things are going to continue to be true forever with Bitcoin. The value of the currency is always going to change, even when it's globally adopted by 8 billion people because people are exchanging it constantly.
So, what I look at is, is there incentive today to invest in Bitcoin mining or invest in securing this thing; and the incentive is, is it profitable to actually do that? And the answer is unequivocally yes. Large companies around the world are investing massive amounts of capital into mining Bitcoin because it's a profitable endeavour, and it will always be true because Bitcoin mining is actually part of the energy production industry, it's not its own carve-out industry.
Part of energy production is that you have to balance the amount of energy you're producing with the amount of demand for the energy, and you can never perfectly balance it, and so you're always going to have a scenario where you produce too much energy and demand doesn't quite meet it and you need to do something with that energy or waste it. So, today, when we look at energy production, especially in the renewables, there are a lot of times when the supply and demand are out of whack, and so they have to shut down production.
So, I was reading a statistic about wind energy that said that, in California I think, in like 2018, 2019, 17% of the time they're shutting off production of energy, they're producing way too much wind energy than they can deliver to the grid. Well, what if you had a tool that would always buy your wind energy?
Peter McCormack: But it's only going to buy the wind energy if it can mine Bitcoin.
Phil Geiger: Sure.
Peter McCormack: Or enough Bitcoin, and the unknown is, come 2141, but probably much before then, what do they actually mine in that block; what do they get out of that block?
Phil Geiger: Sure, and I like to point to another kind of historical Bitcoin moment which is when Laszlo purchased 2 pizzas for 10,000 Bitcoin, do you guys know what the transaction fee he paid was?
Danny Knowles: I do because I read your article!
Phil Geiger: Guess.
Peter McCormack: I don't know, five sats?
Phil Geiger: One Bitcoin. Today we pay -- I think each block, and we'd have to pull up Blockstream, that info to see exactly what the transaction fee is, but tens or potentially hundreds of millions of sats in transaction fees. At today's price, it's not that bad; in the future, as the value of Bitcoin changes, 10 million sats could be an astronomical fee to be paying.
Peter McCormack: If enough people are using the basechain.
Phil Geiger: But we know that the number of users of Bitcoin is continually increasing over time.
Peter McCormack: But they might do this, they might just be hodlers.
Phil Geiger: That's great.
Peter McCormack: Or using the Lightning Network.
Phil Geiger: That's Number Go Up technology right there.
Peter McCormack: Yeah, but what I'm saying is you could have a scenario where there just isn't the number of transactions to create --
Phil Geiger: I don't think that that can ever be the case because first of all, you have to make layer 1 transactions to use the Lightning Network, you have to settle your Lightning channels eventually, you have to manage channels. So even if you're using the Lightning Network, you're always going to be, at some point, making L1 transactions, layer 1 transactions.
Then on top of that, the difficultly adjustment of Bitcoin ensures that Bitcoin is always paying the market rate for energy. If it's not profitable for a majority of miners to mine Bitcoin at the current value and with the current transaction fee environment or subsidy environment, they'll shut off production, the difficulty adjustment kicks in and then it becomes profitable for somebody to mine at that value. So, the difficulty adjustment, I think, really takes care of a lot of this issue; it will always be profitable for somebody to be mining Bitcoin.
Peter McCormack: Agreed, but how many people are competing to mine that Bitcoin, and how much security is there at that time?
Phil Geiger: I think, bringing everything back to energy, one of my visions for the future is that energy production is also extremely localised, so solar panels on your roof or whatever, or a local nuclear power plant, or a little power plant that you can put in your backyard, something like that, you're going to individually have that problem of supply and demand for energy. So, it's like you're always going to need a tool to buy up any excess supply, and monetising any amount of that is better than shutting off production.
Danny Knowles: So, the hashrate has basically just gone up forever?
Phil Geiger: Yeah, it's on an all-time high right now; it crashed 40% when China banned the Bitcoin.
Danny Knowles: But that came back pretty quick.
Phil Geiger: On my gosh, yeah, almost immediately.
Danny Knowles: But you do think there's a time where the ratio between price and subsidy reaches a point where it has to start dropping again?
Phil Geiger: I don't think so because again, the problem that Bitcoin mining solves is not a Bitcoin problem, it's an energy problem. We're always going to be imperfectly efficient at energy production and this is a tool that energy producers can always use or rely on in a situation where they can't deliver the energy to people. It never competes with individuals for energy. In the UK, I'm sure all Bitcoin miners have essentially shut off production because it's so expensive to buy energy there that --
Peter McCormack: Even before this, we just don't really have mining.
Danny Knowles: It's too expensive.
Peter McCormack: Yeah, it was too expensive before that.
Phil Geiger: Exactly. So, it's like mining always goes to the places that is the remote straight energy, the cheapest energy, the excess hydro. Every single renewable energy setup should have ASICs on site because it's just a tool for them. So, yeah, I don't think it will ever be a problem, and I think the prediction articles that I've read have all made a lot of mistakes because they're trying to measure the value of the security in the dollar, but the dollar's changing value and Bitcoin is changing value. So, you have to think about it from Austrian first principles in order to have a deeper understanding of it, I think.
Peter McCormack: Well, this wasn't the show we expected to make at all.
Danny Knowles: Not at all.
Peter McCormack: Yeah.
Danny Knowles: The last point on that though, before we close out, that's the argument that all the ETH people are going to now try and target though, that Bitcoin mining means you can't have a light on. Now, they've gone to proof of stake, that's going to be attacked hard.
Phil Geiger: Yeah.
Peter McCormack: Well, they've already started, haven't they?
Danny Knowles: Yeah, they started as soon as they knew. Their timing for that transition, in terms of trying spread FUD, is perfect, but do you worry about that; what do you think about what Ethereum did?
Phil Geiger: I'm maybe naively optimistic about Bitcoin. I think that, because we have Bitcoin, the transition to sound money isn't going to be as catastrophic as some people are thinking; it's not going to be pleasant for people. I think that the Ethereum marketing is going to get more aggressive, but just the fact that Ethereum itself is inflation and they keep changing things and so it doesn't have a credible monetary policy, and on top of that, it is money, it doesn't really do all that much else besides be money. You can print your own money on top of their money, you can produce some tokens, some NFTs which are again like forms of money, so it's just money, but it's way crappier at being money than Bitcoin.
So, no amount of marketing will ultimately overcome that. Yeah, is it going to get worse? Sure. There are more and more people that are waking up to this idea that Bitcoin mining actually fortifies the grid. So, we're already seeing articles here in Texas about, during the recent heatwave, the grid was able to tap into 1% additional energy by just asking the miners to shut off production.
What's cool about mining is, yeah, you just flip a switch and then the energy is diverted somewhere else, and then, if there's too much energy, just flip the switch back on, you start buying the cheap energy again, so it's a really, again, super-useful tool for energy production. So, yeah, I think the economic reality of the fact that Bitcoin is sound money will just overcome any sort of marketing that is levied against it, as it has for the last 13 years.
I was just talking to some family members the other day, they were like, "Man, I've been hearing some really bad stuff about Bitcoin", and it's like, "Yeah, that's always been the case". I've been in Bitcoin for many years and it's always been dumped on by everybody, mainstream media, governments, shitcoiners, everybody is constantly dumping on Bitcoin, but the thing is antifragile, it absorbs all that and becomes stronger.
I think one of the clearest examples of that is when China banned mining last year, you saw a 40% crash in hashrate and then it immediately hit all-time highs again after the course of maybe three months, and the position that Bitcoin is in after the fact is way stronger than before because all that hashrate has dispersed across the globe.
Peter McCormack: Yeah.
Phil Geiger: So, when you try to ban this thing, you increase the level of decentralisation of it, it gets stronger every time you attack it.
Peter McCormack: Have you got that chart for Harry?
Danny Knowles: Yeah, I sent him that.
Peter McCormack: You did? Have you got it?
Danny Knowles: I'll pull it up.
Peter McCormack: It's brilliant. So, this is every chart you need for Bitcoin; whenever you have you have an argument with somebody, you're discussing Bitcoin, just send them this.
Danny Knowles: I can't find it.
Phil Geiger: I tried to describe Bitcoin to some people by showing them the HODL Waves to start; it don't go that well. Exactly.
Peter McCormack: All right, do you want to give a shoutout to Unchained before we finish?
Phil Geiger: Sure. So, yeah, I'm Phil Geiger, I'm the Managing Director of Concierge at Unchained and what we do is we help people hold the private keys to their Bitcoin in a way that you're not going to lose your Bitcoin. So, one of the biggest problems with self-custody is the thought of like, "Oh man, I make one mistake, I've lost my life savings", we use a type of address that has a bunch of redundancies so that if you lose a piece of information, you haven't lost your Bitcoin. It's all native to the protocol, it's multi-signature, and my team will help walk you through how to set this up from A to Z and then we take care of people after the fact.
What's cool about Unchained is, from a position of extreme security, multi-signature addresses where you have the keys, you can then do a bunch of cool financial products, like you can hold Bitcoin in a retirement account, in an IRA, where you actually hold the keys; you can buy Bitcoin from us directly into a cold storage, there are no other counterparties that you're dealing with; you can take a loan using your Bitcoin as collateral.
We're really trying to build a full suite financial services company on top of this foundation of clients holding their own keys, on top of multi-signature, which is again just native to Bitcoin; it's one of the tools that Bitcoin affords us.
Peter McCormack: Awesome, man. All right, Phil, good to see you. Please go and check out Unchained. We didn't plan to talk about any of this so, yeah, it is what it is, man.
Phil Geiger: Cheers.
Peter McCormack: Cheers.
