WBD630 Audio Transcription
Beginners Guide Part 1/3 - Why Bitcoin? With American HODL
Release date: Monday 13th March
Note: the following is a transcription of my interview with American HODL. 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.
American HODL is a Bitcoiner who has been promoting the innovation for over 8 years. In this interview, we discuss why is Bitcoin important: what makes it an improved version of money, why society needs it, how it improves inclusion and thereby the world, the proof we have that Bitcoin can work, and how the world will look in the future with and without Bitcoin.
“The way in which you think about it will not be the way in which you think about it in 10 years time, but you are involved in something here that is going to be one of the defining things you do in your life; this will be the thing that your grandchildren ask you about.”
— American HODL
Interview Transcription
Peter McCormack: So, what is Bitcoin?
American HODL: Bitcoin is the next evolution in money, it's a next generation money technology that is supplanting fiat currency.
Peter McCormack: What actually is money?
American HODL: Yes, that's such a deep rabbit hole of a question; what is money? Money is three things. Money is a store of value, a medium of exchange and a unit of account. And really, what money is to me is money is a proxy for human time. We're all born with the same scarce resource: we have a certain amount of time, we have a life, we don't know how much that is but it's in a range. Some people get 10 years, unfortunately; some people get 120 years, but everybody has a scarce amount of human time and attention that they can spend on this planet, and what we use is money as a proxy for human time.
So, when you work a job, you're spending your time and you're being paid in money and ideally, you're getting more time out than you put in. So, if you work a job -- we all have this idea in basically every western society on Earth, every global society on Earth, that you should be able to put in your time, effort and energy when you're young and vigorous, and you should be able to take some of that energy out and essentially retire with dignity, have leisure time to do what you want, be able to spend time with your family, and everybody's looking for the perfect balance of that.
Where things can sometimes tip into malice with human beings is that human beings like to perpetrate time theft on other human beings, and if you look at almost all of the worst human atrocities, they all boil down to time theft. Murder is the ultimate time theft; slavery is definitely a form of time theft; and we have all these subtle versions of those extreme versions of time theft in the world today. So, if I'm working a job and I'm selling my time, energy and effort into the marketplace and then the proxy, the money that I'm receiving back for that amount of human life capital that I expended is being inflated away from underneath me, that is a version of time theft, and I think that most people when they hear that feel that that's evil and shouldn't be allowed to continue.
Peter McCormack: So, what defines good money?
American HODL: Good money, going back to what we talked about with money being a proxy for human time, good money is a proxy for human time that is essentially immutable, that doesn't degrade over time. So if you think about, for a long time in humanity, we had gold. Gold was humanity's global money for about 5,000 years. There were other money substrates that existed along that time period, but when you look at the big sweeping arc of human history, it's really just gold and gold is a tremendous technology for transporting value through time because gold does not degrade. It's also very difficult to create gold, and so we had a tremendous proxy for human time.
As we reached modernity, gold is not able to be transported very fast. So, if you think about how heavy gold is, how easy it is to centralise gold, how physical it is, it worked very well for a time period when nobody really moved greater than 30 miles beyond the town that they were born in. But as we moved out into cities and began to live in cities and we began to have to send information and money across the world and suddenly you were having business relationships with people in Japan, for instance, gold was no longer a monetary technology that was a good substrate.
So, what makes a good money is a good proxy for human time. If you're going to be paid in money for expending your time, energy and effort, you want to be able to be sure that that money doesn't degrade over time, that proxy doesn't degrade, that your time is stored effectively and that you'll be able to use it when you see fit, for leisure, for retirement, for goods and services that might greatly enhance the quality of your life. So, the more fidelity you have, the more immutability you have, the closer that your proxy tracks your actual human time, the better money it's going to be.
Peter McCormack: So, why do we need Bitcoin?
American HODL: Bitcoin is the next evolution in monetary technology. Bitcoin builds on the back of gold except for with gold, you had a tremendous ability to store value across time, but not necessarily a very good ability to move value across space. So, we had basically the fiat standard, paper money, which sought to right this limitation in gold, so you were able to move value across time but not across space. Then when we had telecommunications, it became easy to use paper money and double-entry accounting ledger systems in order to move money across space.
So, fiat was a tremendous monetary technology for moving value across space, but not necessarily across time, because fiat tends to degrade over time. We've seen 2% annual inflation throughout the birth of the American dollar, so if you were holding American dollars for 100-plus years, you lost the vast majority of your wealth, the vast majority of your value, the vast majority of your time because again, money is a proxy for human time.
Now we have Bitcoin, which is a tremendous monetary technology for moving value across both space and time. Bitcoin is immutable; Bitcoin has a programmatic monetary policy; there will only ever be 21 million Bitcoin; Bitcoin is extremely scarce; Bitcoin is disinflationary moving to deflationary, similar to gold; and over time, we feel confident that we've seen Bitcoin's logarithmic curve rise in value, we feel confident that Bitcoin will continue to rise in value over time and at least when it reaches its zenith or the S-curve of its adoption, it will continue to be able to hold purchasing power over time. That is to say, you will be able to store your human time in Bitcoin and be able to access it when you need it.
Now, at the same time, Bitcoin's an information technology and so we're able to seamlessly zap money across the planet instantly using second-layer protocols, like the Lightning Network. And even the mainchain of Bitcoin, which is the most secure way to transact Bitcoin, has 10- to 15-minute wait times on average, depending on how much you want to pay to get in the block, and so Bitcoin is a tremendous monetary technology for the modern digital age. And in some ways, it's a very progressive technology, because the tech that is used to make Bitcoin go is extremely cutting edge, but at the same time it's a very restorative technology because it gives us back what we lost on the gold standard.
Peter McCormack: Why is decentralisation important?
American HODL: Back to the question of time theft, when you have a single issuancer for a currency, say a central bank who's issuing a fiat currency, and they have the ability to press a button and change the monetary policy of that currency, the amount of monetary units of that currency, they're able to press a button and from far away, steal your human time. If you were storing time in this proxy, which is the money that you're using, and somebody decided to inflate the amount of units that are in the supply that are circulating, then suddenly the units that you're holding are worth less, you just took a wave of dilution.
We have this problem, called the Cantillon effect, where the new money that gets created goes to the people that are already wealthy, and the people that are not wealthy, they tend to get the short end of the stick on this. Most people that aren't wealthy don't have significant investments, they're not able to store their wealth over time in investments, in equities and things of this nature. Most people don't even have access to these markets. I think it's something like 60% of the world lives on less than $3 a day.
If you're living on less than $3 a day, it is absolutely crucial that your money act as a significant one-to-one proxy for your time expended. And if it doesn't act like a significant one-to-one proxy for the amount of time that you expended, the energy and effort that you put in, then you're having your time, your life, pieces of your life stolen away from you. To me, that's immoral. That's why I think it's important that we spread this message about what Bitcoin is as far and wide as we possibly can.
Peter McCormack: How does fiat money lead to distortions?
American HODL: Fiat money leads to distortions in society because of malinvestment largely. So, when you have a dollar that's constantly inflating, basically what you can think of this as is oftentimes, currency can act as a proxy for measurement. So, if I put money into XYZ investment and then I'm using the dollar as the unit of account to track it over time and the dollar is continually inflating, suddenly my calculations get all wonky.
You can sort of think of this as like, if you were to build a house and every night somebody would come in and add inches or centimetres to your tape ruler, and then every time you try to measure the house, you've got a different measurement. Well, you'd look at the house when you were all done putting nails in the wall and it would look like something out of an Escher painting, it would be all topsy-turvy, it would have weird angles, things wouldn't match up, things wouldn't join.
So, when we have this level of malinvestment in the economy, essentially what we're seeing is that it's very difficult for individual actors and actors in aggregate to get a sense of what is the appropriate amount of investment, or how much something is generating, or what is their return on investment; and also most people, in an effort to store their wealth into the future, most people are forced into investing and they're forced into investing in broad market index funds, they go further out on the risk curve and they invest in things like monkey jpegs, or what we colloquially refer to as "shitcoins", in the Bitcoin space, these junk monetary units, or for instance Michael Jordan rookie cards.
Every time you see a new wave of monetary stimulus, there is a new wave of money chasing wealth preservation essentially, and this chase causes assets to inflate. And people without assets get further priced out of the economy. So, every time there's a bunch of monetary stimulus, the rich get richer and the poor get poorer because if you don't have assets, you're not taking advantage of this.
Peter McCormack: So, how do Bitcoin and fiat incentives differ?
American HODL: If you think about the way that monies are structured, when you have something like the Federal Reserve board, what you have is a small cadre of individuals who I think are honestly, I'm just going to go out on a limb and some bitcoiners are going to hate this, but I think they're well-intentioned individuals honestly. I think they're doing the best job that they can and if we were sitting in their shoes, in their chair, then we would probably make many of the same decisions that they make. But they're low-fidelity informational participants in the market because no matter how intelligent you are as a human being, let's say you have a 150 IQ, you're still not going to be able to see what markets can see in aggregate.
Essentially, there's this idea of, "The crowd is always wrong", and generally the crowd is always wrong if they don't have any skin in the game. But if the crowd has skin in the game, if people are betting on the outcomes of what's going to occur, then actually the crowd is much smarter than any individual market participant. This is sometimes known as efficient market theory, or the efficient market hypothesis. And essentially, when you have a small group sitting round a table trying to decide the fate of a monetary economy, what you have is a low-fidelity amount of information on which to make these decisions. So, this is a very top-down system and these things are decreed from on high.
For instance me, as a bitcoiner, every time I look at the new CPI print, or Jerome Powell, the current Fed Chairman, is going to speak, all the investors gather around and you can watch the market trade on every word that this man says; one man. No one man should have all that power, like Kanye says. I think of smoke coming out of the Vatican. For anybody who's not aware, the way they pick a new Pope is the cardinals get together and every day they don't pick the Pope, there's a certain different colour smoke. I'm sorry, I didn't pay attention in Catholic school, I'm a bad Catholic schooler, so I don't know what colour it is; but essentially, I see that! I see a religious fervour to us paying attention to one small group of individuals trying to plan the fate and decide the fate of an entire economy.
Now, you compare and contrast this to Bitcoin, which is a bottom-up, emergent system, it's an aggregate market, data collection system, where all human beings who are invested in the system have skin in the game, are making their own individually rational decisions, and the result of this is an emergent order. Now, here's the interesting thing about these systems. If you have a top-down system, that system cannot account for unknown unknowns, otherwise colloquially known as "black swans". If you have an emergent system, these systems tend to be much more anti-fragile. And interestingly enough, the aggregate amount of human information that are in these emergent systems can account for unknown unknowns; they're more robust than systems that are top-down architected, they can sort of see around the corner, that's one way to think about it.
Peter McCormack: What are the differing needs for people in the developing world with Bitcoin?
American HODL: So I think in the developing world, if you're one of the 60%-odd of people that's living under $3 a day, or living on less than $3 a day, I think the prime concern for you is having a unit of account that's not going to degrade, and also having a unit of account that's not volatile. So, as much as we think that long term, when Bitcoin reaches its zenith at the top of its S-curve, that it will be very valuable for people in the Third World because it will be very stable, it's not quite there at the moment, so there are more proxies used in the Third World, for instance, or the developing world, if that better suits you.
Basically, stablecoin issuance is quite high in the developing world, and stablecoin use is quite high in the developing world because these people are getting the meagre amount of money that they're being paid to do these really hard jobs that they're working for. They're selling their whole life away for something that the average American might spend on a car, a one-time car purchase. So, when you think about their needs, they're very different than the needs of privileged westerners; and what they need, I think, is something that day-to-day is going to be there for them.
I'm going to be honest and say that right now, Bitcoin is not that thing. But we think that in the long term, Bitcoin will be that thing for everybody on Earth, not just privileged westerners. There are interesting technologies and interesting experiments, like the Lightning Network allows a lot of instant settlement between network participants, and it's very frictionless at a very low cost, especially if you're using a custodial wallet. Like, in El Salvador, we see Bitcoin Beach, and obviously the Lightning wallet proliferation there is very interesting. Some people who can afford to, they do get the message and they are able to save Bitcoin over the long term and deal with the volatility, because they know that based on the regime or the government that they're dealing with, that even with the volatility, Bitcoin might be the better bet in the medium to long term.
Peter McCormack: How does Bitcoin improve financial inclusion?
American HODL: I think Bitcoin improves financial inclusion by creating a fair rules-based system that enshrines property rights for all people. And in fact, Bitcoin makes good on the American promise of treating everybody equally. That was a very high and lofty ideal that Jefferson and the other framers of the Constitution put in. And some have said, and I think rightfully so, that maybe even they themselves didn't believe in it, because these were men from a different time, they had very anti-progressive ideas for how we interoperate with the world and there was a lot of human bias in the system. So, in order to enshrine rights, property rights, for individuals who came to America and became American citizens, there were a lot of parts that fell short and there were a lot of communities that felt that, and I don't think it's right to shy away from that and act like America was perfect. America was the best idea we had at that time, but it wasn't able to make good on some of the promises that it made.
Interestingly enough, Bitcoin follows in this tradition by becoming the world's new City upon a Hill, in a sense; that's what they called America when it was first founded because it promised freedom and equality for all. Bitcoin is now promising freedom and equality, property rights and a fair rules-based system for all. And how do we do it, how do we accomplish it? We accomplish it by ridding ourselves, to the best of our ability, to the highest degree we can, of human bias, we take human bias out of the system.
The nodes in the network are machines, they're computers. They don't know what colour skin you are, what religious creed you are, how short, how tall, how ugly, how fat, how beautiful, how rich, how poor; they don't know anything about you. They validate everybody's transactions just the same and they provide the same inclusive system for every single participant on Earth. That's something extremely special, extremely beautiful, worth fighting for and I think why many of us have dedicated our lives to this technology.
Peter McCormack: What would the world look like without Bitcoin?
American HODL: I think that unfortunately, if there is no Bitcoin or if Bitcoin didn't exist or if Bitcoin failed for some reason, we're barrelling towards a dystopia that I don't think any of us are ready for, and it sort of terrifies me. The sweeping authoritarianism and tyranny that we've seen, especially post-COVID lockdowns in the western world, is now matching that of Third World dictators from decades ago. These new technologies, while they enable freedom, the double-edged sword is that they also enable anti-freedom, and that's something that we have to really contend with. CBDC, Central Bank Digital Currency, that wasn't a thought in anyone's mind before Bitcoin.
So, when Bitcoin burst forth onto the world and escaped the Pandora's box that Satoshi released it from, it was always inevitable that people were going to use the technology to try and tamp down on freedom, and I think that's what we're seeing with central bank digital currencies. Now, there's a lot of design heuristics and differences between central bank digital currencies and Bitcoin, and because of these design heuristics, I'm very confident that over the long term, Bitcoin will win. But I do think we're going to live in a world with both; we're going to live in a world with central bank digital currencies and we're going to live in a world with Bitcoin, at least for a time period. And on a long enough time scale, it's very hard to think about what will win.
But if Bitcoin doesn't win, I'm not bullish on the world that we're going to leave our children and that saddens me, because if you think about back to what I said at the beginning of this show, the amount of time theft that's possible with a fully global panopticon is terrifying, and it's not a world that any of us want to leave behind. We have to fight the good fight and make sure that these systems are designed with freedom, with property rights, with equality, with inclusion at the forefront, and Bitcoin has all those and has had all of those from day one.
Central bank digital currencies are a refinement of the current system of societal control. I mean, you can think about just very simply a money that decays over time rapidly; a money that is only able to be used on certain goods and services; a money that is tracked and surveilled at all points; a money that has error codes when you go to spend it on something that's not approved. That's terrifying, that's the most terrifying idea that exists right now. I talk to people sometimes about the Russia/Ukraine conflict and the possibility of nuclear war, and I think that's 20th century thinking and mutually assured destruction more or less prevents that. This idea is a brand-new idea and it's extremely scary.
Peter McCormack: So, is Bitcoin actually working?
American HODL: I think there's a lot of hope for optimism, because Bitcoin is working and every day, Bitcoin produces fresh blocks. We have a saying in Bitcoin that's, "Tick tock, next block", meaning Bitcoin continues to work, no matter what anybody does to it, no matter what anybody thinks of it, no matter how people are using it, no matter how people feel about it; Bitcoin simply doesn't care. Bitcoin is a machine, it's a machine that just produces blocks and validates its own endogenous truth. It's an impenetrable fortress of validation and it just does that all day, day in, day out, and I think we've seen the growth and the adoption curve of Bitcoin.
Some people think it's not going fast enough, some people think it's going too fast, I think we're right where we need to be. We've gone from nothing to, you know, the USD price is $24,000 at the time of this recording and we did that in a little over 12 years. 12 years from now, I think we're going to be much further along and living in a much different world.
I think one error that certain bitcoiners have made, myself included, and I would urge anybody who's new to this not to make the same error, is thinking about the world as a static thing that's going to continue to exist in the same manner it exists, but just plus Bitcoin. That's probably not going to be the way things shape up. The way things shape up, we're going to be a vastly different world. I mean, a world in which Bitcoin is at $1 million or $10 million is a vastly different world than the world we know today, and I think we're barrelling into like the Chinese proverb, "May you live in interesting times". We're barrelling into extremely interesting times. We're already in them and it's a gift and a curse.
Peter McCormack: What do you know now that you wish you knew when you first discovered Bitcoin?
American HODL: I'm going to take this in a different direction. I think the thing, when I first discovered Bitcoin, I think the error I made, the mental error I made, was snapshotting Bitcoin. I took a look at Bitcoin in its current form and I thought, "Okay, it's a weird nerd money for nerds on the internet. They're using it to send, I don't know, Pokemons back and forth to each other. I've no idea what's happening here. There's some sort of, what is it, dark market drug money? I have no idea what's going on". This was 2014, 2015 timeframe. And I think looking at it as a static system is an inherent mental error that many people have encountered, myself included.
I think the appropriate way to view Bitcoin is as an evolving system that's emergent. From simple rules and order, complexity emerges, and it's a highly dynamic system which is more flexible than it appears at first glance. So, I would urge people who are watching this not to think of it as one thing, not to think of it as it exists right now. Right now, maybe you have one crazy libertarian friend who told you about Bitcoin, gave you a whole speech about it and was like, "Bro, you've got to get into Bitcoin!" That's not what Bitcoin is going to be in ten years, it's going to be an entirely different thing and we've seen it shift over time.
As somebody who's been here eight years now, with the benefit of hindsight I can tell you that the way in which you think about it will not be the way in which you think about it in ten years' time, but you are involved in something here that is going to be one of the defining things you do in your life. This will be the thing that your grandchildren ask you about and I think it's best to just go slow, have a high degree of humility, be humble, ask questions, know what you don't know; all those things are extremely important in the beginning.
Peter McCormack: And, do you have any parting statements for people watching or listening to this?
American HODL: If I had one thought or idea to leave you with, I would say that I think in the end, Bitcoin is going to be the story of a bunch of imperfect human beings coming into contact with a perfect machine, and the collision of those two things and what happens next.
