WBD659 Audio Transcription

10 Rules for Life with Michael Saylor

Release date: Wednesday 17th May

Note: the following is a transcription of my interview with Michael Saylor. 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.

Michael Saylor is the CEO of MicroStrategy. In this interview, we discuss his 10 tips for young adults, the opportunities and threats of AI, the importance of Bitcoin in an automated world, the strength of ossification compared to accelerating change, and the criticality of Bitcoin miners to the Bitcoin network. We also talk about Michael’s navigation of the bear market.   

“There’s this phrase Bitcoin fixes this… I’m of the opinion that Bitcoin fixes everything. I think Bitcoin is a solution to every city, every state, every country, every corporation, every network, every application, every product.”

— Michael Saylor

Interview Transcription

Peter McCormack: Okay, Michael, this is my son, Connor.

Michael Saylor: Great to meet you, Connor.

Connor McCormack: Cheers, you too.

Peter McCormack: We've told him a lot about you.  I'm going to tell you a little bit about him.  So he quit uni, how long ago? 

Connor McCormack: About a month ago. 

Peter McCormack: And I'm conscious when we make this podcast, you do interviews, you do a lot most of the time, if not all the time, talking to our peers or people of a similar age, but there's a whole generation like Connor, who some of them have gone to uni and realised it's not for them, some of them are learning things right now, I even think of my daughter, which are going to be unrequired with AI in the future.  And so I think there's this whole different crowd that we can talk to.  But I just think for someone like Connor, you've been successful, you've had a hugely successful career; it would be good to hear some of the most important lessons you've learned that maybe you could share with Connor, and Connor might have some questions back. 

Michael Saylor: Well, cool.  First of all, you're lucky, you get to start life fresh with none of the baggage of the rest of us and the opportunities in the 21st century are extraordinary.  I was at a social gathering a number of years ago and a multi-billionaire walked up to me and he said, " I've got twins, a boy and a girl, and on their 21st birthday I want to give them a book of advice that I gathered from all of my friends.  So if you could, I want you to write down your advice to my 21-year-olds on the occasion of their maturity".  I said, "Really?"  He said, "Yeah, and I'm going to put it together with everybody else I know.  And so I said, "Okay, I guess I can do that" and I thought that was one of those things where he was going to wait a few months and I would send him my email.  But he takes out a little red book, he puts it in my hand with a pen, he says, "Okay, write it down now". 

It's a big party, it's a cocktail party, people are going around, it is a spectacular villa looking over the Mediterranean, I didn't really think I would be asked this question, "Give me advice for two young adults".  But I thought, "Okay, think, think".  So I sat down and I wrote down ten things and I handed it back to him.  So I'm going to start by giving you those ten suggestions, and then I'm going to give you some practical suggestions that I would give to anybody that go beyond the theory.

Okay, so the theory.  One: focus your energy.  You think you can do everything you can't and everybody overestimates all the things they can do.  The things I regret in my life are all the good ideas I pursued to the detriment of my great idea.  You're going to have 27 good ideas and Peter interviews people with good ideas all the time and then you ask the question, "Well, do we have the energy to make it work?"  So you got to focus. 

Peter McCormack: Connor, every time I do an interview with Michael, it ends with him telling me this again as well. 

Michael Saylor: Focus; and you go to my Twitter profile, I got laser eyes, the message of laser eyes is focus.  I'm not against 1,000 things, I am not in favour of 100 things; I am simply trying to advocate for one thing and the one thing is Bitcoin.  So, focus your energy. 

Second: guard your time.  Everybody is going to actually want to take your time, there's going to be a million things you can do with your time, and when I was growing up, we had three channels and we had every night programming that was original from 8.00am to 11.00pm.  And, there was no porn.  There was one Playboy magazine I saw in the woods once in my entire childhood. 

Peter McCormack: Why is it always in the woods?  Do you remember that; it was always in the woods?

Michael Saylor: That was it, it was sitting in some wrecked car, and it was it was legendary; all the teenage boys would talk about the one Playboy magazine!  So today, you've got Twitch and you've got YouTube and you've got infinite porn, you've got infinite games, you've got infinite everything.  And if you look at the scourge of modernity, it's every possible thing people ever thought they might want.  We figured out how to manufacture it in bulk pharmaceutical grade and drive the variable cost to zero.  So infinite music; used to be music cost money.  Infinite books; used to be books.  I went to the library, I checked out books, I had to take them back, there was a limit on the books. 

So, no limits today and you really have to ask yourself the question, how are you going to spend your time, because you could literally spend the next 30 years of your life watching chess videos on YouTube, not playing chess, just watching the videos of other people playing chess, right?  There's infinite, hundreds of thousands of hours of chess videos to be watched. 

So, the third piece of advice is, train your mind.  Train it, right?  Train, what, maths?  Learn maths, learn to speak, learn a language, learn logic, especially logic and language and basic thinking skills.  How you do that doesn't necessarily mean you need to go to university.  I launched the Saylor Academy and we've given education to 1.5 million students.  We don't charge them a nickel, it's absolutely free.  In my opinion, you can probably train your mind better, faster, not in school today.  Because the options I had when I was going through school, when I was in high school, I could learn Spanish or French or Latin, but that's all I could learn, and I could learn two years of it, and I could learn at the same rate as everybody else; and I could learn one semester of calculus or half a semester of calculus.  That's all I can learn.  So, train your mind, use technology to do it. 

The fourth, train your body, be healthy.  You don't have to do things that are inflammatory and dangerous.  I'm not telling you to go be a boxer or take excessive risk, but I think any kind of healthy training, a pattern you get into your entire life, is important.  It won't be that important right now in your 20s or your 30s, you can get away with really, really bad behaviour.  There will be a greater price to pay in your 40s, it will get exponentially worse in your 50s.  If you engage in really bad behaviour and you don't train your body by the time you get to your 60s, sometimes the journey is over; and when you get to your 70s, you'd like to be able to walk around and being able to walk around into your 80s, or the like, is a function of the way you treat your health.  So, if your body goes, your mind will go later and life is just not that fun. 

Fifth, think for yourself.  Everybody's going to tell you what to think.  Every media organisation is in the business of telling you what to think, and generally they all have an agenda.  At some point in your life, you'll read a story and you'll ask the question, "What was the agenda of the journalist that wrote the story; and what was the agenda of the media organisation that published the journalist; and what was the agenda in the nation where the journalist lives?"  And if you start to think about all those things, then you'll realise that oftentimes in life, especially if you run a business, I want to do something, maybe I want to buy a product, I never bought the product before, and Peter sells a version of the product and Danny sells a version of the product and you sell a version of the product and all three of you are experts, I know nothing. 

What I do is I try to buy from each of you and then I triangulate between each of you and you can tell me lies, you can tell me lies, you can tell me lies, I wouldn't know the difference, but at some point you will rat out him, he will rat out you, you will rat out him, I will create a mosaic of it and I will figure out what the truth is by inferring it from a bunch of distorted information.  So, assume everything is distorted and it's your job to synthesise and get to your version of the truth. 

Six, curate your friends.  Be careful the company you keep, right?  Some people will make you better and they'll lift you up and other people will drag you down, and plenty of people's lives are ruined by a bad friendship in their teens, right?  Your friend wants -- I'm not going to go into details, you figure it out.  Choose your friends carefully, choose their values and you have infinite choice.  There are 8 billion people on the planet, you can find three friends that will work well with you, and so figure out the right ones and run from the wrong ones, cherish the right ones.

Seventh, curate your environment.  Look where we are right now, there is good light in this room, didn't have to be good light in this room, Peter could have picked one that has awful light.  Pick the environment that's happy, that's healthy, curating an environment means choose where you will live, what city, what neighbourhood, how you will live; do you want to live in a house with green grass; do you want to live in an apartment?  Think hard about that.  You have more choice than you think you have.  It will impact your mental health, it will impact your physical health.  For example, you study statistics, you find that the likelihood of you getting mugged or murdered is highly correlated to your pedestrian pattern.

So, if you actually walk down ten blocks in a bad neighbourhood and you walk back and forth every day to work in the wrong place, you're 1,000 times more likely to get killed, mugged, murdered, whatever, right?  So you made that choice.  You might not realise you made that choice, but where you are and how you live makes a difference to your mental and your physical health. 

Eight, keep your promises, whatever they are.  The one thing people remember about you for the rest of your life, if you promise them something, 27 years later they will still remember if you lied to them or if you promise them something and you didn't do it.  The problem with that is that credibility over time compounds and if you don't have credibility, people aren't going to want to help you, they're not going to help you, in fact they're going to actually celebrate your failure.  So, don't make promises you can't keep, but bend heaven and earth to keep the promises you do make.  Obviously in business, it's the difference between businesses succeeding and failing.  When you get in the public markets, my stock trades every day from 9.30am to 4.00pm.  If people felt like I was going to do something different than what I told them, hundreds of millions or billions of dollars of capital would disappear in a heartbeat when people feel it, when you lose credibility.  So your ability to accomplish something in life is based on your credibility, so don't make promises you can't keep, and keep your promises. 

Nine, stay cheerful, be constructive.  The world is full of 10,000 things that are ugly and awful and you can talk about them ad infinitum, but if you sit with someone for three hours and you talk about how awful the world is or how much you don't like it, at some point if you watch them, I do this with my employees, I've lived this life, so I've sat with employees and I'm in a bad mood.  I'm like, "This isn't working, this isn't working, this is not working, this is not right, we could have done this better, we could have done this better, we could have done this better".  And this is what happens to the person on the other side of the table.  Start here, they're like, "Hey, what are we going to do today?"  And then pretty soon, they're like beat down, exhausted and then you end with that parade of horribles.  You're like, "So we can do this", but you've already beat them to death.  They need to enjoy and look forward to their engagement with you.

If you want to accomplish something, find a way to do it in a cheerful, constructive way.  Things that go viral on Twitter, more often they are constructive, cheerful things, if you are entertaining.  If I post a criticism, then some people see it but it doesn't go that far.  When I post a solution like, "Here is a free thing, here is a free course, here is a free resource.  You can have this for free.  This is a tool you can use".  For example, the other day I saw a really nice video on, "What is Bitcoin?" and it had been posted by a Bitcoin advocate and it had like 800 views because she didn't have that many followers.  I thought, "This is kind of sad, this is sitting and languishing".  It was like three and a half minutes of why Bitcoin is good.  So I retweeted it and I said, "There will only be 21 million Bitcoin [or] there will never be more than 21 million Bitcoin" or something like that.  It went to like 200,000, 250,000 views. 

But what happened was all the other people on Twitter said, "Hey, this is a really good orange pilling video", and they started retweeting it.  And you can see on Twitter now how people bookmark things, you can count the bookmarks.  It had the number one set of -- like thousands of bookmarks.  People were bookmarking, like you could see in their mind, they're like, "I should save this because I might need to send this to my father, my mother, my friend".  It's like, I post something kind of snarky or critical or pessimistic, no one's bookmarking that.  So cheerful and constructive works better.  You want people to look forward to seeing you, whether it's in a working environment like, "I enjoy working with you", or if they're a customer or if they're a supplier or if they're just a friend.

Number ten, upgrade the world.  There are a lot of ways to do it.  Figure out how you're going to upgrade the world, have a way.  So that's my theoretical advice for someone entering their adulthood.  Practical advice, stuff that I think is useful.  I wish I'd studied even more history, like especially serving a lot of history.  By the way, history, his story, it's just a story, right?  Alexander the Great took Herodotus with him on his campaigns; that's why Alexander is the Great, because he hired a historian to write the book about him.  There's 10,000 stories, okay, and if you read all the stories, there's a story from the point of view of 1,000 different Indian tribes, from the point of view of the Mayans, the Aztecs, the Europeans, the French, the Spaniards, the Americans; everybody's got the story, the Romans, the Gauls, the Russians, the Japanese, Chinese, they've all got the story from their point of view and they're the hero and the other tribe is the villain, the barbarian, the whatever. 

So, if you read history, enough of it, then you'll be empathetic and you'll be better able to interpret what's going on now.  For example, all these things, taxes, there were monopolies on who could bake in New York City in the 1600s; there was monopoly on who could make a hat; you had to have a seven-year apprenticeship before you could make a hat.  Who wanted them?  The hat makers in London wanted them.  There are monopolies on who could trade with what.  We had tobacco notes as money, and then there was a massive fight because someone wanted to cap the price of the tobacco money and the ministers getting paid in tobacco had a fit and appealed to the Crown. 

When you read history, all these things, then you realise everything you're seeing today is not new, and when someone says we have to do this because this is unique, it's not unique, right, you won't be so easily manipulated.  So history is good.  And maths, a lot of things I studied in maths aren't useful.  Calculus, calculus of variations, differential equations, complex, things like that.  The only way in which those are useful, it's useful that I studied vector maths or linear maths because I could think about vectors and I could think n-dimensionally.  So the idea of n-dimensional maths, the idea of non-linear maths, some of these things are useful to study; but the actual technique, unnecessary because the computer and now the AIs will do it for you in a split second. 

But I tell you the kind of maths that I use every day, every hour of the day, and if you don't have this, you will never be successful in business and you probably won't be successful in politics or life, and that is applied statistics.  By applied statistics, I mean --

Connor McCormack: Can you just explain that quick?

Michael Saylor: I mean, understanding how significant it is the thing someone is telling you.  For example, the problem in this country is people slipping and falling in bathtubs and therefore we need a tax to rebuild everybody's bathtub.  Being able to figure out how many people actually slip and fall in bathtubs, and comparing it to shark attacks, and comparing it to death by drinking too much alcohol or a heart attack, or the likelihood of you dying in a car crash or crossing the street, or the example I gave you, which is statistically you're a lot more likely to get mugged if you walk, you can correlate it to the number of minutes you spend on the street in a bad neighbourhood. 

So, if you understand, once you think about statistics, statistics is essential to do business, because you have to pick.  For example, what's the statistical likelihood that BlockFi, Celsius and FTX are going to fail each year?  That's counterparty risk.  If you thought they were going to fail once in 100 years, that's a 1% risk a year and you have to put a 1% premium on top.  It turned out they were basically likely to fail within 36 months, so the risk premium was 36% and if they were paying you an interest rate less than 40% on your money, you're statistically losing all your money. 

So, understanding statistics and being able to apply it to business, to life, to your social life, that's kind of useful.  It's useful in purchasing, it's useful in governance if you're ever a politician.  If I actually shut down the entire economy of the state because I think there's a hurricane that's going to hit Miami, what's the statistical likelihood it hits Miami?  What's the amount of damage it does when it hits Miami?  What happens if it doesn't hit Miami?  What's the cost of the shutdown in the state?  That's something you kind of have to make a decision on when you decide where you're going to live, and if you're ever lucky enough to be a leader, you need to know that.  And generally, when you do study statistics, you start to learn that most human interventions are iatrogenic, iatrogenic being a long complicated word for "does more harm than good", when the cure is worse than the disease.  Most things are iatrogenic.

If the odds of you actually having a disease are one in a million and the medicine is 99% effective, that means that 1% of a million people that take the medicine, in this particular case it's 1%; 100,000; 10,000, so you got 10,000 people that take the medicine.  One of them is going to die of the disease.  So that means that in that case, 99.99% of the people that take the medicine are going to be sick from taking the medicine and they're not going to be helped.  But to figure that out, you have to understand, you have to ask some basic statistical questions, "How likely is it that that thing that you fear is going to kill me or hurt me versus how much damage will your prescribed cure do to me?"  And we all had a lot of examples of that lately.  So statistics I think is really valuable and I guess I'll end with just practical suggestions on how to be successful.

In every generation, there's a tool, a platform, a new thing, a new technology, and when that technology hits, if you take advantage of it in the first five years, you'll probably be immortalised.  For example, Led Zeppelin and the Beatles, if you look at all classic rock from 1969 to 1975 and you made a list of all the truly insanely great stuff done, and then you see an exponential decay in unique rock and roll music from that point forward, it gets exponentially harder.  The piano, the work by Chopin, Beethoven, Mozart, extraordinary.  It gets exponentially harder to make a unique piano contribution. 

If you look at the mainframe, then the minicomputer, then the PC, then the internet, when you're coming of age, you ask the question, "What's the new thing, what is the extraordinary thing now?"  If Michelangelo lived today, he wouldn't do what he did then; just like if Beethoven lived today, you'd probably be seeing some exquisite, dynamic, metaversal construct created.  So there is human genius in every generation and you have some talent, but the issue is, what do you harness?  Is it Instagram?  That's the old thing.  Was it Snapchat?  Was it TikTok?  Or in the current time period, this explosion of AI, mid-journey and chatbots and the like. 

I went to school at MIT and the previous generation, the generation of engineers that put the man on the moon, they designed spaceships with slide rules.  I used an HP-15C calculator.  A decade later, they had spreadsheets on laptops.  And I just think, "Man, I could have been 100X as effective if I had a spreadsheet on a laptop".  And then they had the internet, and today you could say, "Give me a Shakespearean sonnet in the style of, whatever, about roses and Bitcoin".  It's like, well, maybe four years of English literature studies down the drain because it turns out, in some ways, the person that has no talent…

Yesterday was Mother's Day, I wanted to post a picture for Mother's Day.  First, I went to Google, I Googled, "Bitcoin, Mother's Day, memes", nothing.  Then I went to Twitter and all my memesters, my favourite accounts that post memes, I'm like, "Okay, well there's a mother, there's another one, I don't know if that will play very well, some people might not identify with that image".  So, then I went to Midjourney and I typed, "Bitcoin bouquet", something like that.  Bam!  I got 12 different pictures, click, click, click.  "Ah!  There's one with the Bitcoin in the middle and orange.  And I like the orange and black background.  Copy, paste", okay?  I just made it myself and I would say as an artist, I have no talent at all, and when I was going through school I would not have been interested in art history or art, because if you take an art class but you can't paint and you can't draw, this experience comes to a grinding halt in a hurry. 

But if I could roll the clock back and do it again, I would take a really detailed art class, because now what I realise is, I can produce anything in any style and any texture in the style of any of 10,000 artists, right?  And then you start discovering light.  There's infinite light.  I tripped over anodised titanium and I was typing, "Give me a Bitcoin in anodised titanium".  It's posted on Twitter, it read really well by the way.  I didn't even know there was a style of anodised titanium, but once you have the tool in your hand, you realise that there's an entire language of imagery that professional photographers and professional artists, they know, and it was off limits to the layman until Midjourney or other AI generative tools.  But today, you could generate your own music, you might generate your own video, you might generate your own art, you might generate your own songs, your own raps, your own whatever.  And the ROI is much higher. 

I had two paintings on my yacht, I don't like the paintings.  20 years ago you have to hire an artist to repaint them, this time around I said, "Give me two Polynesian girls in the style of Kandinsky", and someone said, "Why don't you try this one", plugged in another one, I spun up some images, I shipped them off to a painting, like a 3D printer that does paintings on canvas.  They come back, I'm going to put them on my boat, I do my own art, I can curate my own life.  So it's new platforms, new things, and sometimes, the old way was you're in a big organisation surrounded by hundreds or thousands of people and there's a big network and you can say one-tenth as much or one-one-hundredth as much and you're a hundred times slower.  The new way is maybe it's Peter and Danny, and you're your own network and you do what you want to do and you're much more agile and you've got more distribution channels and you can create totally new forms of content never before possible.

So, I would say you, look at the platforms of the day and ask the question, "If I put an hour of work in, what gives me the biggest bang for the buck?"  And, not to be Debbie Downer, but my advice is I wouldn't go back and try to replicate the successes of each previous generation of the people that are admired in the culture.  They did the best they could at the time, but they were working in unfamiliar territory when they did it, so don't copy them.  It's okay to learn to play the guitar, fine, but it's an avocation, it's for fun, it's a hobby.  It's fun to play chess, yeah sure, play chess as a hobby, but the two most successful chess players, Hikaru and Magnus, they figured out that chess.com and they're streaming on Twitch, they're monetising on chess.com, and the greatest example right now, for those people who like chess, is Magnus said, "I am not playing for the world championship in classical time format, I'm going to play rapid matches, blitz matches, etc".  

Well, the classical time format games are all boring, they take four hours to six hours.  Who's going to watch a six-hour chess game in the year 2023?  And so, they're just not good content, they're not fun.  Everybody would rather watch three-minute, plays. 

Danny Knowles: Sat in his bedroom with his mates playing on Twitch. 

Michael Saylor: And Hikaru, who probably is the highest paid, wealthiest US chess player, he plays on Twitch and he sits and he banters with his audience, he chats.  People are like, "Man, you're not looking --" he's like, "What could I say?  Guys, man, this is just who I am.  What do you think about such and such?"  And he gives you political opinions, it's hilarious, he crushes his opponents, and then he's got the chess.com logo on the bottom and people are giving him tips or something on Twitch.  He's like, "I can only stream on Twitch guys, that's just the rules, I don't make the rules", etc,  and then later on he posts on YouTube.  And When you ask him, what's his profession, he's like, "I'm not a chess player, I'm a streamer!"

Peter McCormack: It's happened with cricket. 

Michael Saylor: The guy thinks for himself, so there we go, end of sermon, good luck! 

Peter McCormack: Good luck, man, how was that?

Connor McCormack: It was good.

Michael Saylor: You have the one thing, by the way, that no one else has which is, you're young, you have your youth and anybody in their 40s 60s and 80s would pay nearly infinite to be sitting where you are right now, to have the tools at your disposal.  So, have at it. 

Connor McCormack: I was going to ask quickly, you talked about that five-year window with any new technology that comes into the world, to have a significant impact with it, you've got to get in early.  With AI, do you think that five-year window has run out now? 

Michael Saylor: No, I think the clock started six months ago.  What you saw was, okay, well people can go and they can chat on GPT, but what you haven't seen is people unleashing an artificial intelligence agent.  You see the news this week was Carol AI, some Instagram or some Snapchat personality, created an AI girlfriend version of herself that she's actually selling online to thousands of men!  So, she created an AI girlfriend with a combination of things.  And so, she's the first woman to launch an AI girlfriend, she won't be the last.  She charges by the minute, right?  It might be that the business model is AI girlfriend, $10 a month, not $10 a minute, but we'll see. 

I think creating full, autonomous AIs that do things, right?  Can you create a bot that'll drive your car; can you create a bot that'll do your accounting; can you create a bot that will be your lawyer?  I talk to people in the Saylor Academy, we have courses, we upload them, they're free.  I said, "It seems to me like now you can create a digital professor that's got 100 PhDs that will interactively tutor anybody for free that knows everything".  So, once upon a time, the most powerful man in the world was Philip, King of Macedon.  The most promising heir in the world was Alexander, his son, soon to be Alexander the Great.  And Alexander's tutor was Aristotle, the most learned polymath in the world at the time.  It's not often that you get the smartest person in the world to be your personal tutor, but now everybody can have the smartest person in the world maybe.  It's coming. 

So, with regard to AI, I think you've got 60 months and in those 60 months, people are going to chip away at that.  Some time, it might be you've got 10 years on certain things, but this is the decade where people are going to create extraordinary things.  I'm sure there will be a girl, I mean look at the Kardashians, could you imagine the Kardashians being billionaires 40 years ago?  In an era of People Magazine, it was the magazine and it was Entertainment Tonight that monetised your celebrity and they kept all the money.  The Kardashians were possible because social media platforms allowed them to own their own brand and monetise their own celebrity.  But imagine what happens if you can convert yourself and you can do something for me, well maybe you can create an AI that can do that thing for a million people at the same time.  So what will it be?  I don't know, but I think you should pay attention and think real hard.

Generally what happens is, again, you notice how octogenarians don't really embrace new ideas as enthusiastically as 20-somethings and teenagers.  It's just human nature.  At some point you just (a) don't have the need, they're comfortable, they just want to be left alone; and then (b) they don't have the kind of neuroplasticity.  When you're between 0 and 10, you want to learn Chinese or Spanish or Russian, it's 100% likely you'll master it fluently.  And then every decade that goes on, you just get less flexible and you get less economically flexible, less culturally flexible, less technically flexible.  And so right now, I think it will be somebody will just look and they'll create some outrageously compelling thing that no one could ever do before, that no one ever thought to do, and it will probably almost certainly be with one of these new platforms, because you get to the point where humans just have this way, within ten years, of using a new technique every which way they possibly can, and it's what they call the S-curve.  You can't do anything for 1,000 years, and then you hit the curve of commercialisation and now you can do stuff and we go from the Wright brothers to the moon in 66 years.

Then you hit a wall, and all the modern airplanes designed in the seventies and the sixties, they kind of got stuck because fuel and engine technology, they just didn't advance.  And so, we're waiting for this fundamental engine that allows you to do something catalytic and transformational.  You know it when you see it.  When you see an AI bot that's read everything the human race has ever written and can spit it back to you in a split second, it's like, "Okay, interesting", you've just got to internalise that.  There's a few other things, like there's certain types of chips that are interesting.  The Unreal Engine, when I look at that, I think someone can create a world that's getting close to the real world. 

Danny Knowles: Yeah, it's unbelievable.  Have you seen some of this stuff? 

Peter McCormack: I have seen some of it, but not recently. 

Michael Saylor: Look at Unreal Engine 5.1.

Peter McCormack: I mean, look, you've had a multi-decade career now, you've seen a lot of technologies come, you talked about it from the computer, you've seen the internet, Bitcoin, now AI.  Is AI just another technology or is it something even more special to you; like is it cool, has it grabbed you in a way maybe other things haven't? 

Michael Saylor: It's pretty transformational.  I would call it digital intelligence.  For the first time, we're just on the cusp of real digital intelligence and it's more than just a tool, because digital intelligence means once the computer is able to do it, it does it a million times better, a million times faster, a million times cheaper; it's a singularity type moment.  And then, generally technology is an acid and at some point it just dematerialises and eats away the thing that you use.  For example, this destroyed the 8-track tape, the record, it destroyed CDs, it destroyed DVDs, it destroyed cameras, it destroyed scanners.  So many things that used to be physical things in the world, voice recorders, they all just kind of dematerialised into the phone. 

With AI, I think it's dematerialising things, services and products and ideas, in a disturbing fashion.  We could talk -- it's a totally different subject, but I think it's a more powerful technology than certain other technologies people get excited about.  If they figure out how to make the car drive itself, then you're talking about increasing the capital intensity by a factor of ten of all the vehicles in the world, but it may be profoundly -- how many tens of millions of jobs just get eviscerated?

Peter McCormack: Is that a concern, or do you think we will just figure out -- 

Michael Saylor: No, I think we should be concerned. 

Peter McCormack: You do? 

Michael Saylor: I think it's one of humanity's great opportunities and one of humanity's great threats. 

Peter McCormack: Because we've started to use it, I've started to use it.  I compare AI to me to Google.  When I first discovered Google, I had that moment I realised I could do all of this, find all this information all of a sudden, and it just became something I used every day.  There's lots of cool internet technologies that come on.  Spotify was great, but this is the first time I'm genuinely going to AI regularly to solve problems and do things for me.  It's making me more productive.  Anything where I have to do any writing, I don't have writer's block anymore because if I do, if I can't think of it straight away, I go into the AI, I say, "Write me something", and I use that as the kind of trigger to write what I want to write.  I might take part of it, all of it, or none of it, but it's just it sped me up. 

I wrote a strategy for my football team the other day.  I started it in AI and that gave me a nine-point plan.  I turned it into a ten-point plan, I removed a bit, added a bit, but I'm quicker and faster, and we can see with this what we do, the amount of things it can do.  So then, when I try and think about other careers, businesses, industries, I realise there's a lot of jobs under threat.

Michael Saylor: If you're a Roman general and you have a trireme and there's 300 rowers in it, then you're generating 30hp.  If you have one of those dinky, like really small, dinky dingy engines, you have a 70hp engine behind your boat in the modern world and we obliterated the need for manpower in so many areas.  A typical car's got 300hp to 400hp.  Think about the average person when they get 300hp.  It used to be 100 years ago, the rich person had a 2hp or 4hp carriage and we went to the point where a poor person has 400hp.  I think AI is like that, where there's a lot of people that weren't able to generate perfect legal documents or prose or perfect business letters or a witty rap, and now anybody can.  And in fact, the person that uses the AI will probably look more intelligent than the actual talented person that doesn't.

So, in this particular case, there was a world where the strong could dominate the weak, and then we invented the gun and then the weak with the gun became the strong.  And, you could spend your entire life training in the martial arts, but at the end of the day, when you when you read the book, What Should I Do? well, if you really need to defend yourself, you should get a gun. 

Peter McCormack: So it's a leveller. 

Michael Saylor: Yeah, it's a leveller.  But, let's take robots.  I see the Lex Fridman interview with the CEO of Boston Dynamics and they've got the one little robot dog and they're going to make him a happy robot dog to be your pet, and they just talk about that for four hours.  And then you go on Twitter, you see a video that's maybe ten seconds long without any narrative, and it's a warehouse with 1,000 of those robot dogs doing push-ups.  And then you go and you see one robot dog with a gun on it, shooting the gun.  And then you think, it's kind of hard, we're talking about getting robots to be able to cook our food and be nice to us and be companions and box things and carry boxes through warehouses and do backflips; that's all hard. 

But let me tell you what isn't hard.  Put a bomb on a robot dog.  At the end of the day, if you're asking how will the next war be fought, just give me 10,000 robot dogs and put an explosive device on each of the 10,000 dogs.  It's too hard to aim the gun, right?  It's certainly too hard to get the -- and now, let's say you're a soldier.  I don't know, I get it.  Should you be afraid for your job?  Like, who wants 100,000 soldiers in the army with guns?  And by the way, would you want to be one of those 100,000 soldiers when 27 robot dogs with explosives come walking one at a time towards you?

Peter McCormack: No!  I see that, Black Mirror! 

Michael Saylor: You can see there's no future, like the idea of armies, there's no future to armies.  The idea of aircraft with pilots in them, there's no future to that.  The Navy, there's no future to a ship with people on it.  Yeah, the future is swarms of drones in the air and on land and the sea, and when I say swarms, I mean I'm not going to manufacture one, I'm going to manufacture 100,000 of them and I'm going to get the manufacturing cost down to $1,000, $2,000, $3,000 a thing, and the cost of a pilot in an F-35 is $3 million to train and the F-35 is a $50 million, $100 million aircraft.  Why not just a $5,000 switchblade and why don't I just drop -- I could drop 1,000 of them out of the back of a C-135 or a B-52, anything 500 miles away.  And of course, the initial reaction, if you go and you watch drone races, they're sponsored by the US Air Force.

Okay, interesting.  So the Air Force wants to sponsor drone pilots because it wants to recruit the next generation of drone pilots.  But the point I'm getting to is, that is even looking antiquated right now.  I mean, why wouldn't you just put an AI chip in 18,000 drones and just give them a target or just give them an algorithm.  Like, every time you see a tank, a tent, a building, a cluster of ten soldiers with uniforms on, you're done.  So every war, you fight the last war, and all this stuff in our world is about fighting the last war, but the next war is something profoundly different and a lot of it is because of the ability to put digital intelligence into anything.

Danny Knowles: It also makes the idea of war much more politically palatable, because if there's no human cost to your country at least, if you're just sending robots, I don't think people will be against the war as much.  If it was all robots in Iraq and Afghanistan --

Peter McCormack: The robots would slog it out. 

Michael Saylor: I don't know, it's terrifying if you're on the receiving end of the robots.  We do a movie about that, a very famous one. 

Danny Knowles: Is this the one I've not seen; is this Terminator? 

Michael Saylor: What are we going to do when Skynet becomes self-aware? 

Danny Knowles: Yeah.

Peter McCormack: So, we had it up in a recent interview.  I brought up Terminator 3, because that's the moment at the end where he realised there was nothing they could ever have done, this was always going to happen, it's a reality.  And I said to Danny last night, "We're going to watch Terminator 1, 2, and 3, we've got to see how this plays out". 

Michael Saylor: Well, I think there's a lot of opportunity.  We could talk, we're going to be cheerful and constructive, I'll give you four hours of great AI things we could do.  But in terms of the threat that I would immediately focus on, it's basically AI-driven bots in cyberspace and AI-driven robots in actual space.  And the AI-driven robots are a bit behind, because it's harder to do.  A robot is a machine that also has digital intelligence.  The bots though, the bots, I think fundamentally, there's no reason why you can't launch millions, tens of millions, hundreds of millions, billions of bots in cyberspace that will imitate humans and actually, they will be better humans than the humans are.

I actually believe that to a certain degree, there are many distortions we have in the world today that have been bot driven.  I have observed, when I drilled down, that 95% of the toxicity in my own online experience was bot driven, it was never humans.  When there's a malefactor attempting to sow the seeds of civil war, it wasn't a human.  It's like, what would I do if I wanted to destroy your society?  I would convince you that he's going to murder you and convince you that he's going to murder you and I would do it by distorting reality, and I would just step back and let the two of you fight it out.

Peter McCormack: Do you think there's a chance, with this kind of malignant behaviour that could plague the internet, that we may end up rejecting it and go back to a lot of in-person interactions; is there a hope, a potential for that? 

Michael Saylor: It's a very healthy response and I've had the same thought myself.  Like when you see this, you start thinking that maybe we rely on these things too much. 

Peter McCormack: Just a small analogy to this would be the podcast during the COVID era, when everything was remote.  I mean, the first time we did an interview was remote, and that was a more efficient way of doing things, and we could make more money and we didn't have to travel, we didn't have the cost.  We could also get easier access to bigger guests and more downloads.  As a business model, it worked better. 

But we've sacrificed all that and chosen to travel, chosen to have the studio, chosen to rent the thing, and we make 25%, 30% less money we can because we know this is better.  And so, my only hope is that in some ways it becomes almost unusable so you just reject it; I can't go into that place anymore. 

Danny Knowles: Go back to the woods with the Playboy magazine! 

Michael Saylor: The future will be some hybrid, what mix is not clear. 

Peter McCormack: What's it like for you as kids? 

Connor McCormack: The world you're describing, I find it very hard to come to a place where humans are even needed at all. 

Peter McCormack: That's pretty true. 

Connor McCormack: I know it's a topic that's brought up a lot within AI, but what's your view on where it leads us and what it leaves us? 

Michael Saylor: Well, if the AIs do take over, hopefully they'll like us.  I rather think they might run the world better than we do.  We'll see.  We're approaching the singularity where things can veer in so many different directions.  I joked to someone, "I feel like I know how the world will end".  The other day I woke up and I looked at my iPhone and it said, "There's a security update".  You read the description, it says, "Certain bug fixes and security improvements".  You either install or you don't, but if you don't, every day it asks you to install, so you're going to install it. 

I feel like if there ever really was an artificial intelligence and they infiltrated the centre of Apple or the centre of Google, they would just insert a Trojan Horse piece of code into that security update, push it out to 5 billion or 6 billion smartphones, just sit there with a back door for who knows how long, then one day you just wake up and your phone either just goes blank, or maybe if it's colourful, if you want some melodramatic meltdown, everybody's phone just turns off; but more likely, you would just see the 100,000 most powerful people in the world, they would just start to send messages to each other, moving money around or launching initiatives or starting wars or whatever they're going to do, and the human race will just get taken along for the ride. 

I think that, if there's any result, it's made me much more passionately committed to Bitcoin, because I actually think if Bitcoin -- what's the problem with every system in a world of AI?  The problem with every system is what you just said, which is the AIs are better than the humans, the humans aren't necessary anymore.  So to the extent that there are humans in the loop, whether they're soldiers or pilots or whether or not they're programmers, if the AI gets smarter than us and starts to learn a million times faster than us, then every single system with a human in the loop is a weak link.  The struggle we have all the time is, how do we take the humans out of the loop? 

Bitcoin is the greatest example of a system constructed so that no humans are in charge.  There are no humans to corrupt it.  You're not trusting Apple, you're not trusting a set of developers, and I think that if AI is capable of interfering in the concerns of mankind, then every system that has a human in control of it, or has an attack surface via a code update, is going to be attacked.  So what do you want?  You want analogue devices that can't be updated.  So for example, the swimming pool in your backyard isn't going to get a code update from Tesla.  So when the AI takes over, there'll still be water in the swimming pool, and there may still be potatoes growing, and your horse may still be a horse, and a car with an internal combustion engine without software downloaded from the central system will probably still keep working, and your gun will keep working; so, physical things.  And Bitcoin, the Network, will keep working. 

The things that are going to fail the fastest are the most fragile, are these systems get continually updated.  And it's a reason why I think the concept of ossification is more important than ever.  It's the things that work well in the universe.  If we think about the world, it's like the speed of sound and the speed of light are constant; the laws of thermodynamics, the laws of gravitation, attraction, they're constant.  No one fixes them or improves them every month, there are no security updates to the universe.  That's why the universe works.  No one has changed rate at which the sun converts mass into energy.  And so, natural law is constant and stable and the result is that things that are based on it aren't natural and healthy by our standards. 

Now, when you look at man-made things, right, there are certain things that are stable that will probably continue to work even after the AIs melt everything, and they're kind of off the grid.  And the stuff that's on the grid, you just can't rely on any of it, and you can't rely on any human being to make the decision.  So oftentimes, with regard to Bitcoin, you ask me what I want; don't change it.  Don't change it, just leave it, leave it alone.  Like maths, the protocol, there's a certain set of numbers, there's a zero, a one, a two, a three, a four, a five, a six, seven, eight; leave it.  Yeah, you can come up with other things you could do, but --

Peter McCormack: What if you've got some malignant AI core devs that are anonymous, that we can't prove who they are, so they stay anonymous and spend some time getting to know the other core devs, propose a BIP that gets approved and it's a malignant attack. 

Michael Saylor: And that's why you don't want to have centrally downloading, self-updating software.  Most of the software on your iPhone right now is just self-updating in the background, you don't even know it updated.  So the question really becomes, how secure are all these organisations; how secure are these governmental agencies; and how secure are these banks?  How many people would it take in any given company to see superuser privileges, or have root access control?  And, what is the process? 

I think the danger is, if there are three people and they can jointly decide to do it, then I can come up with lots of ways to lever, spoof, coerce, co-opt the three people, right?  So that's why bitcoiners, we know no central counterparty is trustworthy, the theoretical reason why no bank is trustworthy, no company is trustworthy, no counterparty is trustworthy because they're all run by people.  You know what is trustworthy?  What's trustworthy is gravity.  If you lean back in your chair, I can guarantee you, you will fall over and I can guarantee you that someone in the Himalayas that never had a college education will also fall.  It is completely trustworthy and because it's trustworthy, you can build a machine based on gravity.  I can create skis that will work in the Himalayas or in America because I know the physical qualities of snow and gravity, and no one's going to change it. 

So Bitcoin, to the extent that it's physical, you can build a machine on it because you can trust it.  You would never want to be in a situation where the Bitcoin nodes were getting auto-updated and someone's auto-pushing.  The truth is that at some point, the developers will come up with an idea which is iatrogenic.  I personally tend to be of the belief that the -- I mean, the only real interesting use case for changing Bitcoin Core code is when there's a bug that is crippling and we all understand it and agree it's a bug, or when there's a fatal threat and we build consensus that there's a fatal threat that will burn the network to zero.  And if there's a fatal, call it a fatal bug or a fatal attack surface that forms 50 years from now or whenever it does, then I suppose you might dispatch people to change protocol. 

But changing the protocol for functionality or performance or to make it sexier, bells and whistles and this, all of those things are just profoundly dangerous, I think.  And the idea in the crypto ecosystem, which this is not strong in Bitcoin, Bitcoin is probably the most conservative, right; but the idea you see in the other proof-of-stake networks, where it's just routine, "We'll do a hard fork, hard fork, we've got a roadmap", the idea that we have to keep upgrading and keep changing things, that itself is pernicious and it's going to be more pernicious in the world of AI, because what that says is you've got an application but you don't have truth or integrity or the base layer. 

If you're going to build a machine, you need to build a machine based on natural law that is invariant.  It stands to reason that Bitcoin is the only network in cyberspace that runs without human intervention that's secure.  Then probably the only way to create anything else that's secure in cyberspace is to integrate it with Bitcoin.  There's this phrase, "Bitcoin fixes this".  I'm of the opinion that Bitcoin fixes everything.  I think Bitcoin is a solution to every city, every state, every country, every corporation, every network, every application, every product; there's a way to embed Bitcoin in it that makes it better.  And I think right now, the one thing Bitcoin does is it gives you this immutable, immortal ledger that's shared, and it gives you a form of integrity and truth and a physical presence.

So you have a good idea, public-private key cryptography, so you spin up a public key and a private key and you create a Nostr account.  That's good, but the problem with that is my AI can create a billion Nostr accounts.  How long did it take you to create your Nostr account?  It took you like 20 minutes and then it takes you 20 minutes to post every day.  My AI created 20 billion Nostr accounts and it posts 20 billion times as frequently as you, and it's actually more entertaining and more charismatic than you are and so maybe I'm just going to warp reality, because what you've got is you've got something in cyberspace but there's no thermodynamic materiality to it or thermodynamic conservativeness to it. 

So you want to fix it, you have to combine the idea of the public-private key with a transaction on the Bitcoin network.  You do one transaction, you showed me you spent a dollar.  Okay, well now your billion Nostr bots cost you $1 billion.  And when I find out that you're a Nostr bot and I block you, it cost you $1.  So there's a cost and there's a consequence.  If I want to make it a bigger consequence, I think the most stunning thing right in front of our face is the Satoshi phenomenon and it's this: Satoshi has got $30 billion of Bitcoin sitting on that blockchain and we can see it in the form of a million coins.  We know that Satoshi could digitally sign a message and prove that he, she, they exist and they control that money, and they could do it quickly.  And we know that for 14 years, there's been a multi-billion dollar reward to anybody that could hack that.

Peter McCormack: Still there! 

Michael Saylor: And so if, what about this?  What if I actually want to create an orange check where I basically have a public key burned in the Bitcoin blockchain with one transaction, but then I create a green check which is I've actually got that transaction attached to a million satoshis, and then a proof of reserve for identity.  And then what if I do a blue check with 100 million satoshis, and what if I do a purple check and it's tied to an account with 100 Bitcoin, and now you've got a hierarchy of identity and you can now build a hierarchy of security and cost and consequence and you could layer that sort of idea into all of these other systems, the Facebooks, the Apples, the Googles, the Microsofts? 

I think what's special about Bitcoin is, the Bitcoin community, they understand proof of work.  So they've got hard, physical energy, analogue energy, they've combined with digital energy in the form of the SHA-256 hashing.  So they've got digital power there.  Actually, what I meant was, yeah, compute power plus analogue energy gets you digital power.  So we've got this concept of digital power and it's the most powerful network; we also have the concept of public and private key cryptography implemented; we've also got a third concept, which you went ad infinitum about in a number of your interviews on multisig, and multisig and multi-factor and digital hardware signing devices. 

If you look at the things people are struggling with in this world, we're struggling with, how do we actually secure a system?  And the answer is probably some combination of multi-signature, physical signing devices, real-world presence of energy and then computer power that is defensible.  If the AI took over all of Google, Facebook, and Apple, I'm comfortable that they still can't stop the Bitcoin Network.  And, if they took it over on one day, every single thing turned to attack the Bitcoin Network, no amount of intellect allows you to brute force it because it literally is a brute-force defence.  And so cryptography is brute force, 350 exahash is brute force, 15 gigawatts is brute force.  And so right now, what Satoshi created was the world's hardest money, the world's greatest decentralised network, the first decentralised network. 

But Satoshi also showed us that I can prove authenticity to the entire world instantly, and I can defend something worth billions or tens of billions or hundreds of billions against a brute-force attack, and that actually offers the promise not just of fixing the money, but it actually offers the promise of securing cyberspace, because I think at some point we'd like to see all these people that have control of these enterprise systems, we'd like to see their privilege checked by something in the physical world like multi-signature, thermodynamically sound authentication network.  You can do it, you could implement orange checks on Twitter where everybody that wanted to post on Twitter needed to do a Bitcoin transaction once in their life, and you completely change the way people think. 

But I'm personally interested in the enterprise applications for enterprise security.  So, in the very colourful Ordinal Inscriptions debate that popped up and NFTs -- 

Peter McCormack: I'm just totally on the fence on that.  I've been kind of on the fence with it, in that I want Bitcoin to be really good money, but I don't really care if people find other uses for the protocol if they're useful, because I think if it's useful, it will stick around.  I don't think the future of Ordinals is jpegs, I think it's something else, I'm not sure what.  And therefore, if this network can do more than money and do other things, then great, we should embrace that. 

Michael Saylor: Yeah, I try to look out 30 years, and when I look out 30 years, I think there's going to be hundreds of thousands of corporations that are going to build something on top of Bitcoin, and there's going to be endless generations and evolutions of Layer 2 protocols.  There'll be Lightning, the next version of Lightning, there may be a competitor to Lightning called Thunder.  There'll be all sorts of open protocols.  There'll be a market debate over that.  There's going to be lots of people using Bitcoin in lots of different ways.

My view on this entire debate is, I'm an Austrian economist, so if all value is subjective and the world, the marketplace, is continually generating ideas faster than we can conceive them, then we should just let the free market function and it's going to generate all sorts of ideas, and 99% of them are going to fail.  And so there's a 99% probability that some new idea that someone came up with is not a good one and it's going to fail, but if you're an Austrian economist and you believe in freedom, you can be free to not invest in that business idea, but you should just let all the businesses get launched and wait and see what happens. 

I think of Bitcoin as scarcity and I think of types of scarcity.  First-order scarcity is 21 million Bitcoin.  There will never be more than that.  There will be lots of people that will buy Bitcoin that you will not agree with, and there will be lots of uses of Bitcoin you will not agree with, and there will be governments that love it, you will not agree with it and they call it "money for enemies", right?  So I don't criticise whoever for buying the Bitcoin.  There were people that didn't want MicroStrategy to buy Bitcoin, you remember, "That's bad for Bitcoin".  Well, I mean, the truth of the matter is 30, 40 years from now, if Bitcoin is the solution to everything, everybody owns Bitcoin, so it's just a question of the order.  But the critical thing is, don't increase the number of Bitcoin; 21 million is the critical thing. 

The second-order scarcity is the bandwidth, the transaction bandwidth, the block size.  Right now, post-SegWit, we're at the 4 MB blocks and the purists would say we probably should have stuck with 1 MB, but I wasn't here then and maybe I wouldn't have been that smart then, maybe I wouldn't have been a purist, maybe I had to go through it to think it.  But it is what it is, and I don't think the exact number matters, whether it's one, two or four.  I think what's critical is that it not change.  You remember we talked about plasticity, neuroplasticity?  When you're young, in your youth, you can take a lot of knocks and you will recover.  You get more fragile as you get older.  And so, Bitcoin in its youth went through a few distortions, not nearly so many as the other cryptos, which is why it's Bitcoin and why it succeeded.  But there's a point when you fill your niche and you just can't radically change anymore without killing yourself.  And so, the commonly understood reason for why you don't want to change the block sizes, we don't want to centralise the network, we want to keep nodes that you can run; but it's not actually, in my opinion, it's not the best argument.

The truth is you could probably make an argument that an 8 MB block space will also be decentralised or not.  Now we're in this little debate over the cost of storage versus the rate at which the Bitcoin blockchain increments.  And the better debate is, don't change it because it's unethical to change it.  Don't change it because it's evil, it's unethical.  That's why you don't do it.  Why?  Because every time you change the block space, you defraud or you deprive the Bitcoin miners of revenue.  So if you actually keep doubling the block's size, you keep driving transaction fees down, and so you're meddling in the economics of someone that in good faith invested in Bitcoin. 

If I invested all of my life savings in Bitcoin mining on the assumption that the blocks would remain constant and the Bitcoin would remain constant, and then some developer came up with a really good reason why we ought to increase the Bitcoin, give some of it to the developers and then triple the block size so the transaction fees at Binance won't be as expensive, I would be furious, more than furious.  You have stolen their property in the same way that the Nazis stole the Jews' property.  You've stolen it in the same way that every authoritarian has stolen property for the past 10,000 years.  The history of humanity is full of powerful people that change the rules so that they can steal your land, so they can claim it via eminent domain, so they can tax it away.  They pass a law making it illegal for you to bake bread; it's illegal for you to ship; it's illegal to cross the river from New Jersey to New York.  These are all just different unfair rules.

So changing the transaction bandwidth fundamentally is an unprincipled decision because you deprive people in the ecosystem of their property rights, and it's to the benefit of someone, to the detriment of someone else, and you basically retroactively change the rules. 

Peter McCormack: You're 100% right, in that I understand changing the 21 million, that is essentially theft in that you are debasing the Bitcoin for everyone else.  But for a long time, we've been doing this.  I've heard many people say, "Look, there may come a time in the future where we will need to increase the block size because Bitcoin is so popular, it's become prohibitively costly to use".

Michael Saylor: Doubling the block size is theft too.  Doing anything to interfere with the scarcity of -- the first derivative of scarcity is transaction bandwidth.  So obviously, if you double the amount of Bitcoin and gave it all to yourself, that's obvious that people can figure it out.  But if you double the transaction bandwidth such that you drive the transaction fees from $25 billion a year to $25 million a year, you've stolen hundreds of billions of dollars from somebody.  The actual free market and transactions is sensitive to the bandwidth.  So tinkering with it in an artificial way, and it is artificial when you change the code, means you are directly depriving all of the miners of their revenue. 

Danny Knowles: Assuming that transactions remain constant. 

Michael Saylor: Well in any scenario, increasing the amount of bandwidth drives down the transaction fees.

Danny Knowles: But I guess the point I'm --

Michael Saylor: Regardless of what you assume; you can have any assumption about transaction demand for the next 100 years, but if you double or triple or whatever the bandwidth of our transactions, you drive the fees down by some substantial portion, and that means you probably take Bitcoin miners that might be profitable, make them unprofitable, and you take a lot of businesses that would be in business and you drive them out of business.  And of course most horrific is anyone that's a theoretician looks at it and says, "That was an attack on Bitcoin because you've corrupted the protocol, therefore I don't trust the network any more", which means the next $100 trillion doesn't go on the network.

Peter McCormack: So, was SegWit a theft then, the upgrade to SegWit, where block space went up from essentially 1 to 4 MB, the increased block space we'd got? 

Michael Saylor: It was an ethical quandary, wasn't it?  It was a war.  It was a war and the way to justify it would be, it was a war and we thought this was the least worse option because the other side was going to do something worse.  But I don't think there are good guys in a war. 

Peter McCormack: Yeah.

Michael Saylor: If you look all around the world and study the history of politics, it seems like the winners are just the least worst governments.  They're all bad, there's no good.

Peter McCormack: It's like Trump's answer the other day when they tried to corner him and made him choose who he wanted to win the war and he wouldn't pick and he said, "I just want it to end".

Michael Saylor: But the slight change, the truth is SegWit undermined transaction fees to a certain degree.  I mean, it changed the contract with the miners after the fact, and then Taproot changes it again.  These are very risky things because they change all the economics and the economic incentives and the densities.  You could argue they were done either for expedient purposes or for functionality, and it's right, it's true.  There's a lot more functionality post-Taproot, and there's a lot of functionality you couldn't implement without SegWit.  But the fundamental things we're staring at right now, like Lightning and like inscriptions, benefited and maybe were essential.  You almost needed SegWit and Taproot to get there, right? 

So that's a very scary history, the 14-year history of Bitcoin is very scary, but we've arrived at this place right now where it's pretty clear that there's extraordinary functionality that you can implement.  You're staring at it with all these inscriptions, and it's pretty clear that you can do extraordinary things with Lightning.  It seems to me there's no reason why you can't go from $500 billion to $5 trillion to $50 trillion, and I'm not even sure we can't go to $250 trillion, based upon the current functionality I see.  When, if the base layer can't do something, then the question is, can the Layer 2 do it, and if the layer 2 can't do it, if you wanted to achieve it, you would have to do it with Layer 3. 

You can make an argument, right, you can make an argument that if SegWit and Taproot had never happened, you wouldn't be doing this stuff in the Layer 2 protocols, but Layer 3s; the money might have been harder and maybe the Layer 3s would have come along and people like Apple and Google would have embraced Bitcoin, or would be embracing Bitcoin or some other company or bank would embrace Bitcoin and they would just fill the gap.  There's trade-offs everywhere.  But having said that, just to be clear, I'm not going to second-guess history.  I would say war is hell.  Bitcoin was a very unlikely creation, it was very unlikely to survive.  So many other versions didn't survive.  When it got to the Blocksize Wars, it was a bitter civil war and there were probably, what would be the word; misunderstood decisions made on both sides and there was probably some very poor logic in lots of places, or maybe logic that would be easy to criticise today. 

But I do think Bitcoin is better.  Bitcoin is better for SegWit, it's better for Taproot, they are stable.  If they had blown the network up, then I wouldn't be saying that, we wouldn't be here.  But now, once you've achieved a miracle, you've started a nuclear furnace, you've started a star, you've achieved a miracle, once you've achieved the miracle, don't look the gift horse in the mouth, don't let the fire go out.  And I think you have to shift your view from being aggressive.  I think when there was Bitcoin Cash and there was a lot of other forks, they thought that the mainchain might die.  I mean, they literally were fighting for the survival of Bitcoin. 

I don't think we're surviving, we're fighting for the survival of Bitcoin with the next cool idea that comes along in the year 2024.  I think it's very important right now that we have a stable network that people can build upon.  And I think that stability means it needs to be stable economically, and that means you've got to cap the number of Bitcoin, but you got to cap the bandwidth, right, because otherwise it's not stable economically.  We talked about adiabatic lapse or a hole in the fuselage.  If you don't cap the bandwidth, then there won't be a healthy transaction fee market.  And if there isn't a healthy transaction fee market, then you're eventually going to see all your miners go bankrupt and go to zero; and then you open up this Pandora's box of discussing putting in an inflation supply to feed, to support the miners, and that's an awful place to be. 

So it needs to be economically sound to be successful, it needs to be technically sound and you're a lot more likely to be technically sound if you stop changing things.  If you live long enough, you find that most software becomes a Rube Goldberg device; there's too much code and every piece of code's got more bugs, and eventually you're carrying so much technical debt, you can't maintain it.  So we don't want it to be one iota more complicated than it needs to be.  Then it needs to be ethically sound.  The root cause of all unethical behaviour is someone that thinks that they can work the political process, or weaponise the political process, in order to distort economics to their benefit. 

So for example, who's winning if we censor inscriptions?  Well, I mean Binance would be winning.  Binance wouldn't actually have to install Lightning, they wouldn't have to implement Lightning.  Coinbase doesn't have to implement Lightning if you just artificially keep all the transactions that are not pure monetary transactions off the network.  So the exchanges that don't embrace Lightning are winning, Lightning is losing, companies that implement good Lightning implementations, good channels with good functionality, they're winning from this inscription brouhaha; they would be losing if people were doing a lot more transactions cheaper on the base layer. 

Companies that want to launch Layer 2, especially Layer 3 apps that move Bitcoin at the speed of light on a Layer 3, they're losing if people are using the Layer 1.  But those are all second-order changes.  Everything you do, it affects, there's a positive, there's a negative, someone's winning, someone's losing.  People that don't offer Lightning in general are going to suffer if the transactions go up. 

But let's talk about miners.  Miners are the line of first defence for Bitcoin, and a lot of people don't understand just how profound and important they are.  One thing they do is they throw up a 350-exahash wall and that's pure, they're digital power centres, and you're going to want as much digital power as possible, and you want to stay ahead of Google and Amazon and the worldwide compute power if you're going to stay secure.  So we need them to spend billions and billions of dollars a year on that.

I mean, the second thing that they're doing in addition to just defending that, I mean, they're creating a censorship-resistant messaging network, because if the miners are spread all around the world and they're that powerful, then you can't physically stop the transactions, so that's really important.  But the second thing they're doing is, the miners are the ones that are going to actually be lobbying the politicians to not outlaw Bitcoin in every country.  So when a country comes along and they attack Bitcoin, the first thing they attack is the miners, and the miners suffer; like in Sweden, when there's a massive tax on electricity; or if this White House proposal comes to see any support at all, the miners are the first ones to suffer.

The miners will all go bankrupt a decade, 10 to 30 years before the network dies, before Bitcoin dies.  But think of the miners as your skin.  If I flay it off you, you won't be immediately dead, but death will follow.  And so you need the miners to be healthy for a bunch of reasons.  They're your political defender, they're your physical, thermodynamic defender or computational defender, they're also the financial defender of the network, because if you look at one of the reasons why Bitcoin is more secure and more successful than every other crypto, there's 20 or more publicly traded companies that are Bitcoin miners.  So the miners actually went and they raised billions and billions of dollars' capital and then they took themselves public, and you see the Riots and the Marathons and the Hut 8s of the world and the Irises of the world. 

Those corporate operators are then the ambassadors of the Bitcoin community to Wall Street, to the investment banks, every one of those companies has general counsels, they can all afford PR people, they can afford lobbyists, they create jobs.  When a crypto promoter or a guerrilla marketer for a crypto proof-of-stake network, when they actually funnel millions of dollars to a politician, kind of like what Sam Bankman-Fried did when he dumped the hundreds of millions of dollars on the politician, when they funnel the money and then they whisper in their ear that Bitcoin is not environmentally friendly and that they should be banned, it's going to be the Bitcoin miners that are going to be on the front line fighting that battle, and they're going to be fighting that battle against everybody who comes up with a too-good-to-be-true, proof-of-stake, yo-yo coin that is going to print the coin, sell the coin, buy a bunch of politicians, buy a bunch of lawyers, buy a bunch of marketers and they're going to spread all the anti-Bitcoin FUD. 

So if you don't have the miners, you don't have physical presence in the real world and that means you're spinning off in the metaverse, you become virtual only, but you also don't have political presence.  You're losing your political presence, you're losing your physical presence and you're losing your legal presence.  So, the biggest problem with either changing the block size or censoring the transactions is you're depriving the miners of a revenue stream.  Satoshi gave us this block reward as a subsidy to bootstrap the network, but by the year 2035 it's 99% done.  You've got 1% in the next 100 years and of that 1% in the next 100 years, you've got 90% of that coming in the next 8 years or something. 

Peter McCormack: Do you know what it reminds me of?  Kevin.  Do you remember, who's that Australian comedian, the gun debate? 

Danny Knowles: I know who you mean but I can't remember. 

Peter McCormack: Yeah, and he talks about the security guard, Kevin, who's paid minimum wage and he's your security guard.  If you want the best security in the world, you want to pay your security guards.  You've got to have top-level security.  If you have security, you want top security.  Anyone who's a Bitcoiner has to think about themselves, they want top security.  You're basically talking about the security of the network, the first line of defence.  And then we've got to ensure they're paid.  We weaken them, we weaken Bitcoin. 

Michael Saylor: If you look at it from an Austrian point of view, you got a city, the city has got ten square miles in it, you're the mayor, are you going to pass law after law telling people what kind of things they can do on their land in your city?  I don't like bookstores, I do like libraries, I don't like bakeries, I do like restaurants but not restaurants that serve cake but restaurants that serve healthy food defined by me.  Pretty soon you've got someone dictating who can do what in a city that's very puritanical and central planning, and the result is generally the city fails.  Any intelligent person leaves the city because there's an authoritarian telling them what they can and can't do in city limits. 

If you look at this in the context of Bitcoin, if you started telling people who can own Bitcoin and who's not allowed to own Bitcoin, that's first-order censorship.  When you tell people what kind of transactions they can do on the network, that's second-order censorship.  When you start dictating who's allowed to mine Bitcoin, that's third-order censorship.  The Austrians would just say, "Leave it all well enough alone.  You're right, probably that person such-and-such sets up a garbage business selling unhealthy food, but then maybe they make enough money to invest in a research effort that discovers penicillin".  Who are you to judge where will the money find itself?  And the world is full of people, entrepreneurs that started a business, they failed the first time, they changed it, it became a second thing, they changed it again, and the third time around, it's actually pretty useful.

The only way you can invent things is you've got to have the freedom to fail.  99.9% of the mobile apps all fail, 99% of all the ventures all fail, I mean businesses fail all the time.  That's why, when we come to this issue of, Ordinals, Inscriptions, NFTs, I would never endorse any of it, right?  I'm not going to endorse an NFT, I'm not going to endorse a system for creating NFTs, I'm not going to even endorse the use case; I'm just not going to censor someone's ability to do it, I'm not going to deprive them of their freedom, because depriving them of their freedom is an ethical lapse, I believe.  It's a problem.  But also, maybe someone will come up with something to inscribe that will be profoundly beneficial to the world, and how are we going to find out unless we give people the freedom to do it?

Danny Knowles: Let the market decide. 

Michael Saylor: Yeah, let the market decide, that's just Austrian economics.  Stop meddling.  We're all here in Bitcoin because we believe that politicians shouldn't meddle.  So, I don't think we should meddle in this.  I don't think you can deprive people the ability to experiment.  What you can do is protect the protocol.  I think, by the way, the transactions are going to get much more expensive, Peter.  This entire debate, it misses who cares whether it's $1 or $10 or $25.  I mean, let's take the big picture, look out 30 years.  If you're looking to save your wealth, if you had $10 million and you had a choice to buy a $10 million painting, pedigree painting, to buy a $10 million apartment in New York or to buy $10 million in Bitcoin, what would you buy?  Most people would buy Bitcoin, right? 

Peter McCormack: Most bitcoiners would buy Bitcoin. 

Michael Saylor: Most people on this podcast. 

Peter McCormack: Bitcoiners would.  I'm just saying, it's like the people outside haven't figured it out yet.

Michael Saylor: Yeah, so it's a $1 million transaction fee to buy the art and it's a $600,000 transaction fee to buy the apartment, not including taxes.  So probably the transaction fee for both of those first two trades is $1 million.  It could be $2 million for the art.  You're talking about a 10% commission.  6% commission is basically the status quo for all residential real estate in the world, and if you can get down to 5% or 4%, you're a genius.  So the question is, will people one day pay $600,000 to buy a Bitcoin worth $10 million?  I think yes.  Would you?  Of course you would.  If you believed in Bitcoin and your choice was you pay a $600,000 fee to buy a piece of residential real estate that's got a 2% annual property tax on it, and it's in a high-rise and someone's going to put another one up next to it, or you could buy the Bitcoin, you would say, "Okay, well I guess I'll just buy the Bitcoin".

The transaction fee, whether it's $1, $10, $100, $1,000, $10,000, $100,000, or $1 million, that's just a matter of time.  So, I think if you look at all ways that people store value, all the networks have transaction fees, the transaction fees are quite high.  The transaction fees to own $10 million of an ETF would be $900,000 over 10 years.  I mean, 90 basis points for a year for 10 years, that's what you get.  So high transaction fees on a final settlement are actually much higher in everything else in the world, they've just been obscenely low on the Bitcoin Network.  And for someone that wants to move $25, then yeah, you care whether it's $1 or $25; but the truth is, even $1 is too much to move $25.  You should be using something like the Lightning Network or you should be using Cash App and going cash tag to cash tag, or you should find some more efficient way to do it. 

We want the transaction fees to go up because we want this to ensure the security of the network.  But it's fair and ethical because the truth is, no one's got a gun to their head and they're not forced to use Bitcoin to do consumer transactions.  Everyone that complains about it could have downloaded a Lightning wallet anytime they want.  You have the freedom download any of 20 Lightning wallets, and anytime you want when the Bitcoin Network is slow, you can move some money into the wallet, move your money from your savings account to your chequing account, and then once it's in the Lightning wallet you move it around in essence friction-free cheap.

All this does is just catalyses new applications on Layer 2 and Layer 3, and that's healthy because there needs to be an explosion of those applications.  These Bitcoin miners are like a network of fortresses.  You need a network of Bitcoin miners everywhere in the world, because the miner in Kazakhstan is fighting for Bitcoin in Kazakhstan, and the miner in China is fighting for Bitcoin in China, and the miner in Europe is fighting for Bitcoin in Europe or Sweden or Iceland or Ireland.  And I could go on ad infinitum.  When Ethereum went to the merge, they unilaterally disarmed, de-energised, but it's kind of like scuttling your entire Navy, right, or basically throwing away your Air Force, okay, and it got cheaper.  They're like, "Oh yeah, it's so much cheaper now.  We got rid of our Army, our Navy, and our Air Force.  It's so much cheaper".  "And so what are you going to do with the DOD budget?"  "Well, we're just going to give it to ourselves".  It's kind of what they did.  It's like, "We're just going to give it to ourselves and we're going to eliminate the defence and the security system of the network".

The problem is twofold.  The first problem is an ethical problem.  You basically stole the property.  You stole somewhere in the range of $10 billion to $40 billion worth of property from ETH miners, whatever the numbers, a lot.  They just stole it and they just gave it to themselves, and so there's an ethical problem there.  And then there's a systemic problem, which is there's never going to be an ETH miner that goes public.  And if you knew enough about securities law, you would know that ETH validators are securities and they're unregistered securities, and that's the entire debate that the SEC has right now on staking and the like.  If you create your own staker, you've created a financial services company that's hyper-complicated and there's no real precedent for it.  So, I don't think it was wise for a number of reasons.

I think we're lucky right now.  I would summarise, we're lucky, we're through SegWit, we're through Taproot, right?  It was a war, bad things were done by everybody in the war, some stuff you do you regret.  Now we're here, the issue is do you have to do it again; have we grown up?  And I think the Bitcoin at this point has grown up and now you just let these people launch all these things.  If it wasn't for inscriptions, I wouldn't have told my own executive team, "I want you to focus on developing enterprise security applications that leverage the Bitcoin blockchain base layer".  So, I'm diverting corporate development effort and money and energy to create multi-factor authentication and multi-signature capabilities, and maybe we'll inscribe contracts, maybe we'll hash some of our documents, maybe we'll create some other security update that we can use and give that to millions or hundreds of millions of corporate accounts.  But I had the idea from -- it's like, they're doing it.  I don't really care for a monkey jpeg, I'm not going to burn that.  But what is something valuable I might burn? 

The example I gave, it's like my will when I burn my will.  And I could burn my entire will or I could just hash it.  I could burn that.  I could basically inscribe the hashkey of my will, store it away, because right now my will is sitting somewhere on paper, and anybody with an iPhone could just go and photograph the thing, change a few words, right? 

Peter McCormack: We should do that, man! 

Michael Saylor: Counterfeit it. 

Danny Knowles: Inscribe a will?

Peter McCormack: Well no, change Michael's!  Just to change track, what has this last two years been like for you?  Or even a different question to add into that is that people say Bitcoin changes them; do you think you've changed during these two years; has it had a profound impact? 

Michael Saylor: Yeah, look, there's been lots of ups and downs. 

Peter McCormack: Well, big ups and downs for you! 

Michael Saylor: I think it's made me even more focused.  Stress, like volatility, impacts different people differently.  Some people that were part of the Bitcoin community when it was going really well, when we entered that bear market, they kind of distanced themselves.  And the impact of that on them was they should diversify.  So some people's lesson they take away from it is, "I've got to diversify or distance myself".  The lesson I took away from this is, "This is not going to be easy.  We're going to have to redouble our efforts and focus even harder.  You thought you could do this and maybe do one more thing or two more things and you realise, no, you just need to keep focused, keep laser-like on this thing.  This is going to be an intense struggle". 

Peter McCormack: What's the biggest part of the struggle?  Is it the eyeballs on you or the criticism, or is it just managing the up and downs of the value?

Michael Saylor: I think probably the most challenging thing for me in my current condition, or position, is just managing the mood of the rest of the market, like all the media, the investors.  If you invest enough time like you have and you have in Bitcoin, then the price fluctuations or the routine FUD doesn't really affect your worldview. 

Peter McCormack: Yeah. 

Michael Saylor: But if you haven't spent that much time and Bitcoin trades down $5,000 and someone contemporaneously releases some FUD, "The US Government is going to sell some Bitcoin", I would think, "Well, it doesn't matter one way or the other, if it's true or not true, and it's irrelevant".  But the volatility creates a news event and when the price is going up, people have to come up with a narrative explanation for why it's going up and so that's good.  There will be just 100 really good stories when the price is going up.  And when the price is going down, there will be 100 bad stories or negative stories that have to be invented.  There's something deep in human consciousness that drives people to want to explain everything. 

Danny Knowles: There has to be a reason for it. 

Michael Saylor: There has to be a reason.  So, there will be all this negativity and then someone is going to say, "Okay, I heard about this, this is good for Bitcoin.  What happens next?  Are we okay?"  So, I just have to communicate a lot.  If Bitcoin was just plus 20% a year, actually Bitcoin has been --here's the irony, Peter.  Since we actually got in to the Bitcoin investment, Bitcoin is the best performing asset in the world by far; it's up 140% or more.  It's more than 10X Nasdaq, it's more than 6X or something S&P, it's 100X gold, it's destroying everything.  You can look back and see this, it's kind of clocking up about 40% to 50% a year, steadily.  So, you wouldn't think that would be a problem, but it is emotionally torturous for investors that aren't really extremely well-educated bitcoiners to handle that volatility.

So, you have to continually explain it.  We explain it to the media, we have to explain it and talk to public investors, we have to always deal with the Twitter trolls, people that want to come up with some negative cynical interpretation in order to drive engagement. 

Peter McCormack: Well, they want you to fail, they want it to have been wrong.  There are people who want that. 

Michael Saylor: Yeah, it seems we have that. 

Peter McCormack: Yeah.  But the thing is, another cycle, you can be very right, and it's a whole different ballgame for you then.  But I think even yourself, when Bitcoin started to hit about $15,000, $16,000, it must have been like, "Fuck!  We were here, now we're here".

Michael Saylor: Yeah, riding it from $66,000 to $15,000 is a little painful, especially levered, especially with the Silvergate loan. 

Peter McCormack: I mean, look, we're on the same ride here, there's just a lot more zeros on that. 

Danny Knowles: But I'm really curious about that Silvergate loan, because can you explain how that deal was structured when it took place and how you actually ended up sort of closing it?  Because I don't understand how that worked with them having to basically close down the bank. 

Michael Saylor: Yeah, well we entered into the loan before Terra LUNA melted down.  So, if you recall what the state of Bitcoin was in the crypto economy before Terra LUNA, before Three Arrows, before every single bankruptcy --

Peter McCormack: Life was good!

Michael Saylor: I mean, generally.

Peter McCormack: We were halfway to the moon! 

Michael Saylor: Yeah, and everybody was in massive investment mode and I guess crypto VC was all-time high and Signature and Silvergate had massive expansion plans, etc.  And I had like ten companies offering me loans against Bitcoin, and we had quite a lot.  I don't know, I guess we had something like $4 billion of uncollateralised or just free collateral, so $4 billion of assets.  So, at that point, we were borrowing $200 million with $4 billion.  So it's like a loan-to-value of 5%. 

Danny Knowles: Yeah. 

Michael Saylor: So, it seemed fairly reasonable at that time.  I think Bitcoin was in the mid-$40,000s or in that range, $45,000, $50,000.  And then what just happened was a succession of meltdowns, and they started with Terra LUNA and then it was massive deleveraging.  It turned out that everybody was basically cross-trading with everybody, right?  I mean, Alameda and Three Arrows and Genesis and FTX and the entire thing just started to collapse.  But it didn't come all at once, it came in about five succession plateaus, so five brutal beatdowns, one, two, three, four, five.  And when we got to New Year's Eve of this year, fees on the basechain were sometime one, two vsat.  There were blocks with $300 transaction fees in the entire block.  I think Bitcoin was like $16,500 around New Year's Eve. 

At that point, all of the wildcat crypto banks had all been wiped out, but they were just all playing fast and loose, taking hundreds of millions of dollars of your depositors' money and then loaning it to another hedge fund, that would then put it into Anchor protocol with UST or something.  There were like seven layers of risk re-hypothecation there and so they got wiped out.  But Signature and Silvergate were still around and we didn't really have the banking crisis outside the crypto ecosystem.  And by the way, that entire thing, that was catalysed by the Fed, right; the Fed took interest rates from zero basis points to 500 basis points in 12 months.  That's the steepest incline in the risk-free overnight rate that we've seen in our lifetimes.  So they kind of crushed a bunch of stuff and the crypto ecosystem smashed first. 

With Silvergate, what happened really was just like with all the other fractional-reserve banks, they're sitting on long-dated treasuries or long-dated or mid-dated fixed income instruments, and anything that you bought, any bond, fixed-income bond that you bought with a duration of 7 to 30 years when short-term rates were zero, all of those things are yielding 1.5% to 2.5%, 3% interest, so they looked better than nothing.  But when overnight rates are 500 basis points risk-free and you're sitting stuck with credit risk and you're stuck with interest rate risk for 10 to 15 years, they all trade down. 

I think the entire bond portfolio, the Bond index, traded down 18% from August of 2020 to like last week.  So, all the bonds traded down and so if you look at the bonds for the banks, they're all trading down 10% to 15%, so they're all technically insolvent, because if you're a fractional reserve with a 10:1 ratio and your bonds trade down 10%, you've wiped out everything.  So that's an "oops", courtesy of central banking regulators.  How is that not going to happen? 

So Silvergate, I think, suffered from two unfortunate incidences or two situations.  One, they had a lot of money invested in mid-dated fixed-income instruments that traded down; that's the first, but that didn't kill them.  I think what killed them is their credit line with the Federal Home Loan Association was not renewed.  They got a margin call from the government, and I think the crypto-friendly banks have not been treated as generously as other diversified, plain, vanilla banks, right?  So, we saw with Signature a similar situation. 

Having said all that, I think Silvergate was a really well-run bank, is a well-run bank, and the fact that they didn't actually default, they didn't go insolvent, they weren't put into receivership, and they didn't lose their depositors' money, right?  So, all these other banks, they all actually had to be bailed out.  Silvergate didn't get a bailout.  The problem with Silvergate is they just didn't have the capital, so they had to wind down the business. 

Peter McCormack: I like Alan as well, I think Alan is a great guy. 

Michael Saylor: Alan's stand up.  He's done an extraordinary job. 

Peter McCormack: Yeah. 

Michael Saylor: He's actually, I think, if you're looking for a role model for how to be a banker, he is a role model.

Peter McCormack: Have you met him?

Danny Knowles: Yeah, he's great, I really like him. 

Peter McCormack: I've been down to San Diego a couple of times, he's just a top guy. 

Michael Saylor: Yeah, so I feel badly about that.  But they needed to basically sell off all their assets, and they needed to do it in a hurry.  So we had a three-year loan, so our loan was not due until I guess March of 2025.  So, we would prefer not to pay it off.  Obviously, we would like to keep it because I expect that Bitcoin will be trading at double or triple by then.  So, from our point of view, paying it off early wasn't ideal, that's why it was a three-year loan.  But the business decision, I mean, they were selling, Silvergate was selling their assets at a discount, basically liquidating them before their due and taking a haircut to do it.

In this case, the business decision was, do we hold out?  That might very well contribute to Silvergate being in receivership and not being able to wind down their business.  That's not really good for them.  We could be recalcitrant, but then who's going to take over the bank and then what's that situation going to be?  Or do we try to pay it off early?  The accommodation was we paid it off early, not ideal for us, but we got a 22% discount against the fixed loan.  And, you know, the world turned upside down.  The loan was SOFR plus 370 basis points or something.  So that was a 3.75% loan a year ago, but then SOFR went to 500 basis points.  It went from being a 3% loan to being an 8.5% interest rate in 12 months.  So the rest of our debt is 1.5% interest. 

So, this became the most expensive piece of debt we had and it was actually one-third of our interest payments a year.  We've got a really nice situation, like 1.5% interest on $2.2 billion of debt.  We're paying $30 million a year of interest on everything else, but we were looking at paying $15 million or $16 million a year of interest just on this one stub.  So from our point of view, we thought, "It's expensive debt, it's floating, who knows where Silvergate is going?  It didn't start out being a problem, but it was the least popular piece of debt we had.  You remember the entire MicroStrategy liquidation, Twitter party where everyone was just gleefully having a liquidation?

Peter McCormack: Yeah.  Was it $3,000, the number?

Michael Saylor: Well first they were like, "We think they'll get liquidated at $20,000".  Like, "No, it's less".  And eventually, I had to put out a tweet saying, "Look, I mean when Bitcoin goes to $3,500, we've still got the Bitcoin.  If it goes below that, we'll figure out something else".  But the Twitter people were just very unhappy that we weren't getting liquidated, at least the trolls, the Twitter trolls.

Danny Knowles: Well, they all got liquidated, so they wanted you to be! 

Peter McCormack: "This is not fair!" 

Michael Saylor: They're like, "The bull run can't start until Saylor gets liquidated"!  So, it turned out having that debt that was against collateral mark to market was politically a public relations liability for us.  And, if you're a public company, it's just one complication we didn't need.  For us to basically pay off the loan, we kind of got a triple benefit.  We got rid of a third of our interest payments a year and we blew away an obscenely expensive loan.  If you calculate the IRR on that, if you're basically buying out the loan at a 22% discount, you're avoiding $50 million of principal payments and you're avoiding another $35 million of interest payments, so you're avoiding $85 million on $200 million.  It's like a 30% IRR or something. 

Peter McCormack: It's a good trade.

Michael Saylor: Yeah, it's a no-brainer that you would want to do that if you had that option.  We took out expensive debt, we kind of simplified the balance sheet, we had nearly $1 billion of Bitcoin posted as collateral against it at one point.  You're freeing up $1 billion of collateral, paying off a loan, getting rid of the interest and now you're simplifying the capital structure, and now the next piece of debt coming due is December of 2025 and it's convertible to equity at like a $390 strike or something like that.

Let's say sometimes in public companies, you don't want your trolls to be able to generate or spin a negative hypothetical. 

Peter McCormack: Yeah, you don't want them to spook people.

Michael Saylor: The short sellers, if they can come up with a scenario under which things get scary, then they are incentivised to market that scenario.  By paying this loan off, it was a benefit to Silvergate because they're basically unwinding, winding down the company, so they have to get the loan off their books.  And it's a benefit to us because we clean up our balance sheet, and it was economically a win for the shareholders. 

Peter McCormack: Amazing.  Well, listen, I know we've taken up a lot of your time.  We could have gone for hours and hours and hours more!  This is brilliant.  Thank you so much for coming in, it's a totally different interview.  I didn't even look at this, I told you that.  Thank you for sharing your wisdom with my boy there.  And we're going to see you a few times this week anyway, aren't we? 

Michael Saylor: Looking forward to it.  Thanks for having me, as always.

Peter McCormack: As always.

Michael Saylor: And I should say, for the record, I'm a big fan.  I listen to a lot of your podcasts and a lot of times, I'll scoop through and I'll say, "Which of the Peter McCormack interviews this week do I want to listen in to?"

Peter McCormack: Thank you.

Michael Saylor: And I've got to say, it's exhausting for me to scroll through all your interviews and try to figure out which ones to listen to.  So, I'm very impressed with your work ethic.  You've created a lot of really high-quality educational content, it takes a lot of energy, so I don't know where you guys get it, but I think it's a great asset to the community.

Peter McCormack: Thank you.  Well, I mean six of us work on it now, so…  Did you watch the film; have you watched the mining film?  That's worth a watch.

Michael Saylor: It's on my tray of things, I'm working through that right now. 

Peter McCormack: Do what these are behind me? 

Michael Saylor: Tell me.

Peter McCormack: You know I bought a football team?

Michael Saylor: Oh, yeah.

Peter McCormack: Yeah, they're our trophies this season, we won the double. 

Michael Saylor: I think maybe I'd heard that!

Peter McCormack: Listen, thank you so much.  You know we'll be pestering you again in a few months to talk to you again, but thank you, and just keep doing your thing.  Really, really loved this.