1
00:00:00,000 --> 00:00:14,500
All right. So I'm here again with Lucas for another Bitcoin study session. We're reading still Lynn Alden's Broken Money, Why Our Financial System is Failing Us and How We Can Make It Better. We're on the chapter five and six today.

2
00:00:14,500 --> 00:00:23,940
so as usual I'll give a small summary to hopefully kind of bring everybody up to date on where we're

3
00:00:23,940 --> 00:00:28,960
at so if you haven't been reading along then hopefully this will get you to as if you have

4
00:00:28,960 --> 00:00:33,560
been reading along so you can then afterwards listen to the conversation that Lucas and I are

5
00:00:33,560 --> 00:00:38,340
having as we kind of parse out the topic and if you haven't I would encourage you to be reading

6
00:00:38,340 --> 00:00:44,480
along this is definitely a book that very lucidly written very very well written so we finished up

7
00:00:44,480 --> 00:00:46,880
Last time, we finished up chapters one through four.

8
00:00:47,120 --> 00:00:53,160
Those constitute part one of this book where Alden answers the question, what is money?

9
00:00:53,220 --> 00:00:54,840
That's what she posed to herself in part one.

10
00:00:54,840 --> 00:00:59,600
She discussed the anthropology or the history of money as it concerns humans.

11
00:01:00,100 --> 00:01:05,520
And as she told the story, there were two systems of kind of prehistoric to ancient money.

12
00:01:05,520 --> 00:01:16,280
Those were first credit where people just exchange favors with each other as a form of ledger that they keep between themselves as a form of money.

13
00:01:16,800 --> 00:01:22,520
And second was commodity, a type of money based on the physical characteristic of the thing that's being interchanged.

14
00:01:24,040 --> 00:01:29,160
Physical characteristics that make a thing suitable to be used as money, like scarcity.

15
00:01:29,160 --> 00:01:43,300
She also discussed how gold then emerged as the best of the commodity monies, largely because of its physical characteristics, of course, but largely because of its high stock-to-flow ratio, its scarcity.

16
00:01:44,280 --> 00:01:53,740
She then looked at both the credit theory of money and the commodity theory of money, the theoretic frameworks for credit and commodity as forms of money.

17
00:01:54,300 --> 00:01:58,760
She then didn't declare a winner between these two frameworks, even though they're kind of opposed.

18
00:01:58,860 --> 00:02:02,300
They have seemingly different ideas about what money is, either a credit or a commodity.

19
00:02:02,880 --> 00:02:20,800
Instead, she proposed a unified theory where she looked at the underlying logic of both theories, the credit theory and the commodity theory, and said, hey, what is common between both of these is that both the credit and commodity theory of money are based on the idea of a ledger.

20
00:02:20,800 --> 00:02:27,420
That's the underlying idea that unites them, a way that they both are ways to record kind of transaction, keep track of who owns what.

21
00:02:27,920 --> 00:02:32,000
So then she proposed the ledger theory of money as a way to unify those two.

22
00:02:32,700 --> 00:02:38,920
And the question then arises kind of who controls the ledger and other things.

23
00:02:39,080 --> 00:02:44,180
But the real basic idea is that, that the money at its most basic is the ledger itself.

24
00:02:44,800 --> 00:02:48,340
And the thesis kind of overall of her book, I'll read that again.

25
00:02:48,340 --> 00:02:53,180
And that's in the introduction, but I think it's good to keep that forefront in your mind.

26
00:02:53,380 --> 00:02:55,160
And this brings us to this idea of a ledger.

27
00:02:55,280 --> 00:02:58,420
So she says, quote, at its core, money is a ledger.

28
00:02:58,920 --> 00:03:01,940
Commodity money serves as a ledger governed by nature.

29
00:03:02,460 --> 00:03:05,760
Bank money serves as a ledger governed by nation states.

30
00:03:05,760 --> 00:03:08,700
Open source money serves as a ledger governed by users.

31
00:03:09,240 --> 00:03:16,160
As this book explores the evolution of technology, changes the prevailing power structures and incentives surrounding money from era to era.

32
00:03:16,160 --> 00:03:35,580
So today we're moving into part two, the birth of banks. So we're going to begin to see banks' money serving as a ledger, as she says here, governed by nation states. And we're also going to see the technology of banking emerge as a thing that kind of changes, defines money from era to era, as she noted.

33
00:03:35,580 --> 00:03:51,360
So we're entering part two. Part one is what is money. Now part two is birth of banks. Today we're doing chapter five and six. Chapter five, proto-banking and the Hawala system. So in this chapter, she begins to give kind of a history of the development of banking.

34
00:03:51,360 --> 00:03:57,460
banking um this is a book about technology and for alden banking is a series of legal

35
00:03:57,460 --> 00:04:03,860
and technological layers that develop on top of a commodity money uh we still got we can see that

36
00:04:03,860 --> 00:04:09,080
actually in our other chapters the way that um banking is an abstraction that makes gold more

37
00:04:09,080 --> 00:04:15,020
usable as a money and we're going to see that here today as well um so she starts with uh

38
00:04:15,020 --> 00:04:24,860
something called the Hawala system, H-A-W-A-L-A, which was kind of coincided with the rise and the

39
00:04:24,860 --> 00:04:31,220
spread of Islam, both geographically and in time. But it was also used by non-Muslims. And so the

40
00:04:31,220 --> 00:04:37,800
Hawala system is a form of proto-banking, one might say, an antecedent to banking. It is a legal

41
00:04:37,800 --> 00:04:44,720
concept where debt is delegated between a decentralized system of specialized brokers.

42
00:04:45,380 --> 00:04:54,520
So here's an example. Alden walks you through this in the chapter. So the person using the

43
00:04:54,520 --> 00:05:00,820
Huala system, the customer A goes to Hualadar. That's the specialized broker in the system.

44
00:05:01,440 --> 00:05:03,340
Customer A goes to Hualadar A.

45
00:05:03,760 --> 00:05:14,920
The customer gives money to the Hualadar, a password, and then a specification that the money be given to customer B, who's in another area.

46
00:05:15,020 --> 00:05:17,720
So they want to give money to somebody else who's in a different area.

47
00:05:18,700 --> 00:05:25,520
Customer A communicates then the special password related to this money they've given to the Hualadar to customer B.

48
00:05:25,520 --> 00:05:33,120
So they communicate somehow, Fred, who's in a distant town, the password is Apple's in order to get this money.

49
00:05:34,900 --> 00:05:41,080
They've also deposited that money with the Hualadar in their own area.

50
00:05:41,820 --> 00:05:49,280
The Hualadar in that customer A's area then communicates with the Hualadar in the other area that password.

51
00:05:49,280 --> 00:05:52,180
so now the

52
00:05:52,180 --> 00:05:53,380
the

53
00:05:53,380 --> 00:05:55,960
Hualadar in the new area and the customer

54
00:05:55,960 --> 00:05:57,900
in the new area both know that password

55
00:05:57,900 --> 00:05:59,960
the customer in the new area

56
00:05:59,960 --> 00:06:01,640
customer B who I called Fred

57
00:06:01,640 --> 00:06:03,180
goes to the Hualadar there

58
00:06:03,180 --> 00:06:06,040
tells him the password and then receives

59
00:06:06,040 --> 00:06:07,180
funds in the new area

60
00:06:07,180 --> 00:06:09,980
what you see in this example and what's key to the

61
00:06:09,980 --> 00:06:11,900
Hualadar system is the money was never

62
00:06:11,900 --> 00:06:13,960
actually sent there was money deposited with

63
00:06:13,960 --> 00:06:15,960
the Hualadar the specialized broker

64
00:06:15,960 --> 00:06:17,960
in one area and then in a distant

65
00:06:17,960 --> 00:06:27,200
town, the Hualadar disperses funds to a different customer just based on information having been

66
00:06:27,200 --> 00:06:32,300
sent. So basically, value has been transported without having to move underlying coins.

67
00:06:33,240 --> 00:06:38,380
And then the Hualadars, who are this decentralized network, can later settle their transactions

68
00:06:38,380 --> 00:06:44,400
amongst them. They can batch settlement of transactions and so do them at the same time

69
00:06:44,400 --> 00:06:46,440
and so make it do it efficiently.

70
00:06:48,500 --> 00:06:51,840
In talking about the Hawala system,

71
00:06:53,420 --> 00:06:55,460
Alden actually begins talking about the Suftaja,

72
00:06:55,680 --> 00:07:01,140
which she later characterizes as like a specific instrument used in the Hawala system.

73
00:07:02,220 --> 00:07:08,500
It's like a traveler's check maybe or a wire transfer prior to those things coming into existence

74
00:07:08,500 --> 00:07:09,980
between the Hualadars.

75
00:07:09,980 --> 00:07:25,080
The Suftaja was the document itself that a person in one area could deposit their money with a person, get a Suftaja that would then entitle them to give the Suftaja to the Hualadar in another area and receive that money.

76
00:07:25,620 --> 00:07:26,960
So again, like a traveler's check.

77
00:07:26,960 --> 00:07:34,940
And so the benefit of a thing like Huala system or the Suftaja is that you can send money at a distance without transporting it.

78
00:07:34,960 --> 00:07:52,480
So this is back in the days of commodity money, like gold coins, specifically gold, which is, you know, relatively, you know, it's portable, but it's more convenient definitely to not have to take it with you because there's the risk of theft by bandits in route and things like that.

79
00:07:52,480 --> 00:08:05,520
So that's the benefit of the Huala system is its efficiency, convenience, and kind of this safety element of not having to walk about with a lot of money on you.

80
00:08:06,900 --> 00:08:18,760
The one thing that is required, though, is trust in a Huala system. The Hualadars have to have trust amongst themselves. So, I mean, that's kind of the benefit of it, too.

81
00:08:18,760 --> 00:08:26,660
the Hualadar system based on reputation. If one Hualadar doesn't follow through on this ledger

82
00:08:26,660 --> 00:08:30,860
they're maintaining between themselves, then that person's going to fall out of the network and

83
00:08:30,860 --> 00:08:34,440
reputationally, maybe even kicked out of the community, something violent happens to them,

84
00:08:34,520 --> 00:08:42,120
who knows. So this is the Huala system as a form of proto-banking. These are technologies that are

85
00:08:42,120 --> 00:08:48,320
arising to mitigate some of the difficulties of using commodity money prior to actual banking.

86
00:08:48,760 --> 00:08:54,180
which arises as this way to facilitate payments between people in different areas.

87
00:08:57,780 --> 00:09:01,200
So it's called the Huala system, and I said it rose and spread with Islam,

88
00:09:01,380 --> 00:09:04,120
but also it came into contact.

89
00:09:04,300 --> 00:09:05,140
This is a technology.

90
00:09:05,240 --> 00:09:06,120
Technology spreads.

91
00:09:06,200 --> 00:09:06,720
It diffuses.

92
00:09:07,360 --> 00:09:12,160
It came into contact with the West, too, through the Crusades, Alden mentions.

93
00:09:12,160 --> 00:09:25,120
The Knights Templar are this religious order that has – they have an office in Jerusalem and they also have their order headquarters throughout Europe.

94
00:09:25,120 --> 00:09:28,300
and people who want to go to the Middle East and join the Crusades

95
00:09:28,300 --> 00:09:32,240
could deposit money with one of the offices or their branches or whatever,

96
00:09:32,520 --> 00:09:35,200
maybe forts, I don't know what they had, in Europe,

97
00:09:35,400 --> 00:09:39,040
and then get some sort of document or code or whatever,

98
00:09:39,180 --> 00:09:40,740
and then go to the Middle East, the Jerusalem,

99
00:09:41,020 --> 00:09:43,420
and then from the Knights Templar in Jerusalem,

100
00:09:43,740 --> 00:09:45,920
be able to take out that value down there.

101
00:09:45,920 --> 00:09:50,560
So join the crusade without having to travel with all their wealth on them.

102
00:09:50,560 --> 00:09:59,660
um all the notes also interestingly that the huala system is still in use um she gives an

103
00:09:59,660 --> 00:10:05,500
example which is not a she's not like recording an anecdote maybe she is but she's that she has

104
00:10:05,500 --> 00:10:11,240
seen personally it's just kind of like a probable situation of this happening and what she says is

105
00:10:11,240 --> 00:10:16,760
imagine somebody who's an indian migrant worker in the united arab emirates wants to send a

106
00:10:16,760 --> 00:10:23,620
remittance back to their home country. And maybe the advantage again, the advantage in the present

107
00:10:23,620 --> 00:10:28,420
day of the Huala system is that, you know, there's no border frictions, there's no money,

108
00:10:28,980 --> 00:10:34,700
you know, that you don't have to go through like a foreign exchange or whatever, or get taxed or

109
00:10:34,700 --> 00:10:41,860
whatever, you know, a legal border between two nations is going to entail. And also just the,

110
00:10:41,860 --> 00:10:55,100
There are, of course, broad swathes of the world population that are simply unbanked and don't have access to what we take for granted in the West. And so something like a Hawala system still functions for individuals and is used nowadays.

111
00:10:55,100 --> 00:11:05,780
um what does so the question again for alden money is a ledger who controls the ledger then

112
00:11:05,780 --> 00:11:11,200
in this situation so she notes that this is a channel-based ledger that's controlled by the

113
00:11:11,200 --> 00:11:16,580
hawaladars and they're kind of each maintaining the ledger just as part of the network um quote

114
00:11:16,580 --> 00:11:22,500
this is what alden says quote nobody knows or keeps track of the full network ledger there is

115
00:11:22,500 --> 00:11:29,380
no master Hualadar that they all report to. Instead, it operates by individual Hualadars

116
00:11:29,380 --> 00:11:34,100
keeping accurate books for their individual channels with other Hualadars, along with

117
00:11:34,100 --> 00:11:38,880
reputations in the broader region so that each Hualadar is known by many Hualadars.

118
00:11:39,020 --> 00:11:41,820
So that's who maintains the ledger for the Hualadar system.

119
00:11:41,940 --> 00:11:45,960
So that's chapter five. We get this idea of proto-banking, that there are systems in

120
00:11:45,960 --> 00:11:49,900
place prior to banking that are going to lead to it. Chapter six is called the innovation

121
00:11:49,900 --> 00:11:57,380
of double entry bookkeeping and is more about the rise now of modern banking in Italy. So

122
00:11:57,380 --> 00:12:03,480
double entry bookkeeping is going to facilitate this rise of modern banking. Double entry bookkeeping

123
00:12:03,480 --> 00:12:08,540
splits ledgers. You may be kind of broadly aware of this. Splits a ledger into liabilities and

124
00:12:08,540 --> 00:12:13,780
assets and those two then reconcile. And this type of record keeping is going to allow for more

125
00:12:13,780 --> 00:12:19,020
elaborate sorts of financial services that we associate with modern full service banking to

126
00:12:19,020 --> 00:12:25,540
be developed. Banks actually get their names etymologically from banco is an Italian word

127
00:12:25,540 --> 00:12:32,300
meaning bench. The modern bankers, in this sense, would sit on a banco, a bench in the merchant

128
00:12:32,300 --> 00:12:38,520
square, and they would serve the merchant class. Each of the bankers would maintain a ledger.

129
00:12:39,320 --> 00:12:44,920
And if you just go to the banker and they would do the accounting between different merchants who

130
00:12:44,920 --> 00:12:50,160
were there. This would increase efficiency. So if two merchants had the same banker, they could just

131
00:12:50,160 --> 00:12:56,480
move money between their accounts with the banker, instead of having to do material transactions,

132
00:12:56,480 --> 00:13:03,540
weigh the gold, test the gold, all those types of things. And so it increases efficiency to have

133
00:13:03,540 --> 00:13:08,560
a banker in this way who's maintaining a ledger. It just requires a simple update of the ledger.

134
00:13:09,060 --> 00:13:14,080
It also then is going to allow for bankers to begin to innovate, and they begin to develop

135
00:13:14,080 --> 00:13:20,720
paper instruments. Previously, we heard about the Suftaja, that was a type of paper instrument that

136
00:13:20,720 --> 00:13:27,060
was linked to a specific person. The person would go to the Hualadar in one area and get the note

137
00:13:27,060 --> 00:13:32,120
saying something like person X is entitled to payment. With modern banking, now we begin to see

138
00:13:32,120 --> 00:13:37,840
the development of this idea of negotiability, which is financial jargon term for you can just

139
00:13:37,840 --> 00:13:45,540
transfer this paper instrument to a different party. A banknote is a bearer asset without a

140
00:13:45,540 --> 00:13:50,040
name party, so it can be given to somebody else, and then they can negotiate, transfer it further

141
00:13:50,040 --> 00:13:58,860
on to another person. So what are then the effects of the rise of this type of modern banking,

142
00:13:59,360 --> 00:14:06,640
where we begin to get negotiable paper instruments that can be transmitted to other parties?

143
00:14:07,440 --> 00:14:11,980
This further enhances gold's portability, liquidity, and divisibility.

144
00:14:12,160 --> 00:14:18,460
You have the bankers, again, that are holding the deposits, but then what's moving around are these banknotes.

145
00:14:18,700 --> 00:14:21,020
Very portable, very liquid, very divisible.

146
00:14:21,800 --> 00:14:24,760
Another effect is abstraction.

147
00:14:25,360 --> 00:14:29,560
Now, legal ownership can move faster than physical possession.

148
00:14:29,560 --> 00:14:40,980
So legal ownership of the deposited asset, the gold coin or whatever, can move around faster as a banknote, separated from the physical possession of the actual gold itself.

149
00:14:41,540 --> 00:14:49,520
This increases convenience. Paper is easier to carry, and it's more divisible. All these types of things for transactions just requires updating a ledger.

150
00:14:50,000 --> 00:14:54,260
And also safety. Again, robbers and bandits, you don't have to worry about them taking the gold as much.

151
00:14:54,260 --> 00:15:08,660
But it does increase counterparty risk because like with the Hualadars, again, there's trust is required in this type of system. Once you begin adding abstraction, you begin to have to trust those who manage the abstraction.

152
00:15:08,660 --> 00:15:15,340
so the next part of the story of chapter six is the development of modern banking and the rise

153
00:15:15,340 --> 00:15:21,380
of paper instruments that represent claims to gold we see a kind of this inevitable slide or

154
00:15:21,380 --> 00:15:27,900
tendency towards fractional reserve banking so in a basic bank it's purely custodial one-to-one

155
00:15:27,900 --> 00:15:32,800
they hold the gold in a vault whatever you give to them they hold until it's withdrawn

156
00:15:32,800 --> 00:15:34,820
minus a small fee for their service.

157
00:15:35,720 --> 00:15:41,000
But then there's this slippery slope or tendency to fractional reserve.

158
00:15:41,000 --> 00:15:47,740
So that's where, of course, just a fraction of the deposited item is held by the bank

159
00:15:47,740 --> 00:15:48,900
and the rest is loaned out.

160
00:15:49,460 --> 00:15:53,400
And this tendency is guided by competition.

161
00:15:53,700 --> 00:16:00,080
Banks are competing for your deposits, bankers were.

162
00:16:00,080 --> 00:16:07,040
And so they would be like, you'd be like, who's going to charge me the least amount to manage my deposit, to hold my deposit?

163
00:16:07,760 --> 00:16:15,020
If they then reloan the money out, they can charge less and less fees and even begin to offer you money back to hold your deposit to pay interest.

164
00:16:16,260 --> 00:16:22,600
So that competition is going to lead banks to embrace this idea of French reserve banking.

165
00:16:22,600 --> 00:16:26,100
And the banks also realize, I mean, they're not stealing, unquote, unquote.

166
00:16:26,100 --> 00:16:36,200
And they realize, okay, say I'm holding 40% or say 40% of my assets never leave deposits, right?

167
00:16:36,240 --> 00:16:38,060
They're deposited with me and they just never go out.

168
00:16:38,360 --> 00:16:43,920
Then as long as I maintain 80% of what I have and loan out 20%, I'll be safe.

169
00:16:44,480 --> 00:16:47,900
So banks realize that and can loan some out.

170
00:16:48,020 --> 00:16:48,980
And that's not necessarily bad.

171
00:16:49,060 --> 00:16:51,500
Of course, the banks are upfront with the customer about that.

172
00:16:51,500 --> 00:17:05,780
But then the tendency then is to want to compete for more and more deposits, offer lower and lower fees, give out more and more interest, which means loaning out more and more, maintaining less of that fraction as actual reserves.

173
00:17:05,780 --> 00:17:12,940
governments, all the notes, are also going to kind of have the tendency to encourage this

174
00:17:12,940 --> 00:17:20,820
increasingly fractional reserve banking. There are more claims with fractional reserve banking

175
00:17:20,820 --> 00:17:25,900
and lending out than there are now more claims for gold than actual physical gold because money

176
00:17:25,900 --> 00:17:31,440
that is lent out can then be redeposited and then only a fraction of that needs to be retained and

177
00:17:31,440 --> 00:17:36,380
then it can be loaned out again. And so again, for governments, everything's going to look good,

178
00:17:36,440 --> 00:17:41,640
like there's a double entry bookkeeping showing assets and last liabilities are matching up,

179
00:17:41,680 --> 00:17:46,520
and the economy is booming. And so politicians, government officials are like, we'll encourage

180
00:17:46,520 --> 00:17:53,240
this embrace this. But then the tendency, then the slippery slope tends to go too far,

181
00:17:53,380 --> 00:17:58,240
bankers keep pushing the limit on how much can be loaned out. All the notes of this system then is

182
00:17:58,240 --> 00:18:04,020
unstable and risky quote there is an there is an inherent instability in this type of design

183
00:18:04,020 --> 00:18:10,080
because it relies on the false promise that demand depositors can pull their funds out at any time

184
00:18:10,080 --> 00:18:14,740
even though if most of them were to try it once they wouldn't be able to and of course that's the

185
00:18:14,740 --> 00:18:21,480
situation of a bank run um because although everything is balancing out on the ledger

186
00:18:21,480 --> 00:18:26,040
through the type of bookkeeping they're doing they do not have liquid reserves their reserves

187
00:18:26,040 --> 00:18:34,560
There's maybe loans denominated as, you know, they're loans that are on the ledger as an asset, but they're actually, you know, loans out to somebody.

188
00:18:34,660 --> 00:18:41,040
And so it's not a liquid asset that can be given to somebody who shows up at the bank and says, hey, I want my deposit back.

189
00:18:41,040 --> 00:18:52,460
banks then in the modern area came to have five to 10x more deposits on their record

190
00:18:52,460 --> 00:19:06,080
than they did liquid reserves be able to give out to people who had deposited the money so in the 2008 financial crisis all the notes it ran up to 23x more deposits than liquid reserves

191
00:19:06,260 --> 00:19:09,660
which meant there was only $1 in the bank for every $23

192
00:19:09,660 --> 00:19:13,361
that had been given to the bank and the rest being loaned out, etc.

193
00:19:14,300 --> 00:19:18,780
And then so kind of more to the even more current quote,

194
00:19:18,780 --> 00:19:19,760
all the notes quote,

195
00:19:19,920 --> 00:19:22,400
as of the end of 2022, banks in the United States

196
00:19:22,400 --> 00:19:31,760
had approximately 18 trillion worth of deposits that they owed to customers and only had a little

197
00:19:31,760 --> 00:19:36,180
over 3 trillion worth of liquid bank cash, unquote. So that just gives you an idea of the numbers.

198
00:19:38,380 --> 00:19:43,720
Alden ends this chapter again with the question that's most present for her in this part of the

199
00:19:43,720 --> 00:19:49,760
book, which is who controls the ledger? She then posits that, imagine we're still in a gold-based

200
00:19:49,760 --> 00:19:54,861
banking system. She's going to look at fiat-based banking in a later part of the book. But we're

201
00:19:54,861 --> 00:20:01,420
considering proto-banking up to modern banking. So now consider then in a gold-based banking system,

202
00:20:01,960 --> 00:20:07,261
who controls the ledger? And basically, it's three parties. Banks, the government,

203
00:20:07,261 --> 00:20:11,741
and individuals control in different ways. So banks control their own sub-ledger.

204
00:20:11,741 --> 00:20:20,601
individuals have to trust that the bank is maintaining the ledger correctly. And then

205
00:20:20,601 --> 00:20:27,140
the bank then either holds it 100% if they're fully custodial, or they, you know, maintain that

206
00:20:27,140 --> 00:20:31,020
fraction that they've promised that they were going to maintain. So the bank maintains their

207
00:20:31,020 --> 00:20:36,940
own sub ledger. The government, though, also partially controls the full ledger, because they

208
00:20:36,940 --> 00:20:43,741
have the power to order banks to do things like freeze or liquidate accounts, which they can do

209
00:20:43,741 --> 00:20:48,580
for seemingly good reasons, like it's money laundering, or this person's a criminal, this is

210
00:20:48,580 --> 00:20:53,960
all drug money, or for maybe seemingly bad reasons like political persecution. We don't like this

211
00:20:53,960 --> 00:21:01,160
person, so freeze, liquidate their account. They can also, of course, just order the money to be

212
00:21:01,160 --> 00:21:04,220
taken from a bank and centralized in a central bank.

213
00:21:05,080 --> 00:21:11,700
Last is individuals, though, because this is a gold-based system, still control the ledger

214
00:21:11,700 --> 00:21:14,680
to the extent that they retain the gold themselves.

215
00:21:15,601 --> 00:21:21,660
You can not deposit the money in a banking system, in a gold-based banking system, assuming

216
00:21:21,660 --> 00:21:22,180
it's not illegal.

217
00:21:22,820 --> 00:21:29,200
And then people holding the gold are relying on the natural qualities of gold to maintain

218
00:21:29,200 --> 00:21:29,700
the ledger.

219
00:21:29,700 --> 00:21:54,400
That's for Walden, the commodity money. Nature maintains the ledger. It's maintained by the physical transfer of the commodity and the physical characteristics of the commodity itself, its scarcity. Individuals, banks, governments all have a role in that sense in controlling the ledger in the gold-based modern type banking system.

220
00:21:54,400 --> 00:21:58,020
so that's chapters five and six

221
00:21:58,020 --> 00:22:04,341
Lucas then what do you think about that do you

222
00:22:04,341 --> 00:22:08,980
I don't agree or disagree with this is a historical account and I don't suppose

223
00:22:08,980 --> 00:22:13,180
you're going to put on your historian's hat and disagree that this is

224
00:22:13,180 --> 00:22:16,520
how it developed but did you have did you find her

225
00:22:16,520 --> 00:22:19,460
history I guess persuasive for what it was

226
00:22:19,460 --> 00:22:27,241
I found these chapters easy to read, informative.

227
00:22:27,241 --> 00:22:40,220
They piqued some curiosity in me in terms of wanting to learn more about the whole wall of system, thinking about tally sticks, which we can talk about.

228
00:22:40,220 --> 00:22:50,400
But thinking about the tally stick system and how that was used, kind of contemplating the nature of the benefits of the Huala system.

229
00:22:52,520 --> 00:23:00,400
And, yeah, so I, again, as we've talked about it before, Alden does a fantastic job writing this book.

230
00:23:00,980 --> 00:23:03,501
She's incredibly thorough and she provides.

231
00:23:03,501 --> 00:23:07,980
This is like if you've ever read a Tom Clancy novel.

232
00:23:08,580 --> 00:23:12,021
I think it was one of the first, or if not the first.

233
00:23:12,320 --> 00:23:18,980
He wrote this book called The Hunt for Red October, which got turned into a movie and later, I think, into another movie.

234
00:23:19,341 --> 00:23:28,480
Anyways, but supposedly after he wrote it, he was called in to the White House and basically investigated

235
00:23:28,480 --> 00:23:32,680
because his accuracy and the detail that he had was so thorough

236
00:23:32,680 --> 00:23:38,620
that they felt that he must be getting some sort of information

237
00:23:38,620 --> 00:23:40,160
that he wasn't supposed to be able to.

238
00:23:40,160 --> 00:23:45,300
But Alden is kind of like the economic Tom Clancy.

239
00:23:45,660 --> 00:23:51,420
She's doing a really good job of walking through all these different systems.

240
00:23:52,741 --> 00:23:56,660
One of the things that I guess kind of the first thing that struck me about this,

241
00:23:56,660 --> 00:24:05,780
So Hawala, I guess, is Islam for trust. And that's, I think, a well.

242
00:24:05,800 --> 00:24:07,841
Cool. That encapsulates it.

243
00:24:07,841 --> 00:24:08,420
Yeah.

244
00:24:08,420 --> 00:24:32,140
Yeah. But so I was thinking about this, how in previous talks, I've talked about one of the benefits of Bitcoin is that it will shift the focus from growth to innovation for companies because they won't have to fight every year to overcome a 12 percent cost of capital because of inflation.

245
00:24:32,140 --> 00:24:41,261
and so that will allow them to make more long-term decisions and growth throughout the

246
00:24:41,261 --> 00:24:47,700
talks that you and I are having growth is evolving to me to be much less of the positive thing that

247
00:24:47,700 --> 00:24:54,341
I always thought it was before where bigger is better when I think about growth in terms of a

248
00:24:54,341 --> 00:25:01,200
banking system I think so if we've got the whole wall network and we have one bad actor in that

249
00:25:01,200 --> 00:25:07,580
network, then they basically get cut out, not even by the customers, right? Like the other

250
00:25:07,580 --> 00:25:15,900
Hualadars will cut them out much like a cancerous spot before it's allowed to metastasize and spread

251
00:25:15,900 --> 00:25:23,900
to the rest of the network. But in terms of the banking system that we have today,

252
00:25:23,900 --> 00:25:38,200
I before I was just mentally running through in my mind all of the massive fraud embezzlement, just outright theft, et cetera, et cetera.

253
00:25:38,200 --> 00:25:48,120
news stories that I've heard in the last five or 10 years of banks. Um, and it's very clear when

254
00:25:48,120 --> 00:25:55,521
the details of stuff like that starts to come out in Ron would be one of the earlier examples. Um,

255
00:25:55,800 --> 00:26:01,341
when the stuff like that stuff starts to come out, it's very clear that it's not a single actor.

256
00:26:01,341 --> 00:26:08,660
It's complicity by, you know, tens, 20, hundreds, thousands of people.

257
00:26:10,660 --> 00:26:23,841
And size can be a major detriment because it can allow that cancer to mesasticize and spread throughout the entire network.

258
00:26:24,120 --> 00:26:27,400
So I found that really interesting.

259
00:26:27,400 --> 00:26:41,620
I don't know. I mean, so again, that kind of takes us back again to, you know, what is Bitcoin and Bitcoin is, it is decentralized that every node is separate, every actor is separate.

260
00:26:41,620 --> 00:26:48,980
you know you don't you can you can have bad actors in the system and it doesn't affect the rest of

261
00:26:48,980 --> 00:26:57,700
the system at all like yeah one bit in fact if you were to say if you were to say you know as a

262
00:26:57,700 --> 00:27:05,620
network as a community identify certain wallets that are bad actors and everybody is then going

263
00:27:05,620 --> 00:27:10,180
to just say well we're just going to refuse to accept or do business with those wallets and

264
00:27:10,180 --> 00:27:19,400
And all that really does is it makes everybody else's Bitcoin worth more because now you've effectively taken some out of circulation.

265
00:27:19,400 --> 00:27:32,241
So, yeah, there's this self-protection mechanism to the whole wallet network that I think you see reflected in Bitcoin as well.

266
00:27:32,761 --> 00:27:38,680
Yeah, the Huala system is very interesting because it is, I mean, it shares with Bitcoin at least that it is decentralized.

267
00:27:38,680 --> 00:27:47,820
It requires trust, but as you know, there are ways that that trust is enforced through reputation.

268
00:27:49,160 --> 00:27:56,480
And also, in some of my side reading on it, it seems I think that a lot of the Hualadars were also like friends and kin.

269
00:27:57,080 --> 00:27:59,261
Like they were like tribal affiliations and whatnot.

270
00:27:59,261 --> 00:28:13,380
So we learned in a previous chapter that like credit based systems seem to work well on the local level when you between friends and Ken where you can enforce reputation and there are maybe other reasons to cooperate with a person.

271
00:28:13,380 --> 00:28:24,060
And so the Hualadar network then just finds a way to make the network through these, it's a channel-based ledger as all the notes.

272
00:28:24,200 --> 00:28:35,101
And so the channels of the ledger then become based on friend and kin and allow non-friend and kin to use it and kind of divert their credits through those channels.

273
00:28:35,101 --> 00:28:52,281
I mean, it's not a pure credit system because we don't have negotiable banknotes yet, but it is a way at least in where friend and kin type networks can become even transnational and people who are not friend and kin can use them to teleport money.

274
00:28:52,281 --> 00:28:59,040
and on that one of the things that all the notes in there is that the huala system kind of

275
00:28:59,040 --> 00:29:07,021
contemporaneously has come under attack i guess you would say or suspicion as as a conduit for

276
00:29:07,021 --> 00:29:13,160
terrorist money laundering and getting money to terrorists and things like that and you know i

277
00:29:13,160 --> 00:29:20,620
don't doubt that that could be true but i wonder is we see the kind of weaponization of anti-money

278
00:29:20,620 --> 00:29:26,540
money laundering stuff against Bitcoin as well. It seems to be a way that governments go after

279
00:29:26,540 --> 00:29:32,440
decentralized networks that are not controlled by the government is to point out the nefarious uses

280
00:29:32,440 --> 00:29:37,521
of it, even though, of course, the US dollar is also being used for terrorism and money laundering.

281
00:29:38,140 --> 00:29:45,741
And so I just I thought, you know, this Huala system, is it maybe another thing that is coming

282
00:29:45,741 --> 00:29:52,980
under attack simply because it is decentralized in an age of centralization where power wants to

283
00:29:52,980 --> 00:30:00,680
have the final say. Yeah, it turns, it really matters what window you're looking at that

284
00:30:00,680 --> 00:30:07,920
through, what shores you're looking at that from, because, I mean, for starters,

285
00:30:09,241 --> 00:30:15,720
one man's terrorist is another man's freedom fighter, and always has been. I think that

286
00:30:15,741 --> 00:30:22,120
It depends on who's trying to define it as such.

287
00:30:22,120 --> 00:30:46,440
One of the things that is really resonating with me since starting to study Bitcoin is that if you want to know what the liberating, freedom granting, decentralizing, power back to the people technologies are, look at what criminals are using.

288
00:30:46,440 --> 00:30:54,160
look at what criminals are doing in order to um in order to get out of the system because

289
00:30:54,160 --> 00:31:02,261
in a lot of ways that is going to be what everybody else catches like moonshine guys

290
00:31:02,261 --> 00:31:08,620
that ran moonshine was the they were the first people to adopt the car like you know the car is

291
00:31:08,620 --> 00:31:15,300
certainly not an element of terrorism um but it but it certainly did allow them to escape authorities

292
00:31:15,300 --> 00:31:24,300
But, you know, so it was a horrible thing back then, awful, that these people were running moonshine in cars.

293
00:31:25,120 --> 00:31:30,841
But, you know, you look at it today and you're like, I don't know, was it really a very good idea to outlaw alcohol?

294
00:31:30,841 --> 00:31:47,320
It pretty much seems like all we did was jumpstart organized crime and give it steroids and a structure, basically, to run the country from this kind of underground method.

295
00:31:48,700 --> 00:31:57,200
If criminality is good for innovation, maybe that was like a Y Combinator thing to have prohibition, like make something illegal to see how these criminals are going to innovate.

296
00:31:57,200 --> 00:31:58,460
It's a lab for innovation.

297
00:31:59,001 --> 00:32:00,900
We can harness criminality to our benefit.

298
00:32:01,320 --> 00:32:03,460
Yeah, you're stress testing it, right?

299
00:32:03,560 --> 00:32:10,601
I mean, you're putting the lid on and you're adding stress to it and something is going to pop out.

300
00:32:11,200 --> 00:32:13,180
And I don't know necessarily.

301
00:32:13,521 --> 00:32:20,261
It doesn't seem – it probably doesn't track with me that it's the criminals that are doing the innovating.

302
00:32:20,261 --> 00:32:34,001
It's probably more just it seems to be that it's the criminals that see they see the technology for the liberating thing.

303
00:32:34,001 --> 00:32:42,841
that it so like i i think a good way to look at it is like it probably like it's not illegal

304
00:32:42,841 --> 00:32:49,320
to send money from one person to another person until somebody tells you it's illegal because

305
00:32:49,320 --> 00:32:56,560
they want you to do it through their system yeah right you know so like it's it's like yeah i think

306
00:32:56,560 --> 00:33:02,741
it's interesting that you can um that we you know we can hear this talk about it um but then you

307
00:33:02,741 --> 00:33:07,001
break it down and you look at it from really what is actually happening.

308
00:33:07,001 --> 00:33:11,640
And it's like, I'm giving this guy money and he's giving another guy money or I'm giving

309
00:33:11,640 --> 00:33:15,241
this guy money and he's letting somebody else take money from another person.

310
00:33:15,320 --> 00:33:21,101
It's like, that doesn't seem like that's not, you know, that's not child trafficking.

311
00:33:21,101 --> 00:33:22,060
That's not cocaine.

312
00:33:22,241 --> 00:33:28,880
That's not, you know, um, but for the same reason, um, we've got, that's why, that's

313
00:33:28,880 --> 00:33:30,241
why Ross Ulbrich is in prison.

314
00:33:30,241 --> 00:33:30,660
Right.

315
00:33:30,761 --> 00:33:30,940
Yeah.

316
00:33:30,940 --> 00:33:38,120
But even historically, like you say, it's not a crime to send money to another person.

317
00:33:38,120 --> 00:33:49,241
But like there have been religious prohibitions like against usury and like interest and things like that that have almost prior to certain transactions.

318
00:33:49,241 --> 00:33:55,900
take you know it does serve as a prohibition on maybe sending money to another person to the extent

319
00:33:55,900 --> 00:34:00,761
it's going to require you know a third party to hold the money and get some sort of transaction

320
00:34:00,761 --> 00:34:05,241
fee or whatever so even in ancient times it might have been like i don't mean that's what

321
00:34:05,241 --> 00:34:10,160
while i think was like some of those things were like these are like kosher or whatever

322
00:34:10,160 --> 00:34:15,240
interpretations of um the religious strictures in place that like yes this is good against the

323
00:34:15,240 --> 00:34:20,541
backdrop of islam you can do it this way um oh no actually i guess alden does note in this chapter

324
00:34:20,541 --> 00:34:26,800
that like part of the historical relationship between hawala and the sushtafa the financial

325
00:34:26,800 --> 00:34:32,981
instrument is a little bit obscure because there are this background of islam and so you know

326
00:34:32,981 --> 00:34:39,860
the hawala dars maybe don't want to have how they're operating become perfectly transparent

327
00:34:39,860 --> 00:34:45,120
in that era because then maybe the reigning religious authorities don't, you know, find

328
00:34:45,120 --> 00:34:47,521
that it's not consistent with some religious text or whatever.

329
00:34:49,840 --> 00:34:51,021
I don't know.

330
00:34:51,300 --> 00:34:57,280
I can't say this for certain, but I don't think that there's an example of a law being

331
00:34:57,280 --> 00:35:03,280
passed outlawing the transfer of money by someone who didn't offer their own way to

332
00:35:03,280 --> 00:35:04,021
transfer money.

333
00:35:04,021 --> 00:35:12,501
so that to me means that it is not motivated by religious reasons and there are other reasons like

334
00:35:12,501 --> 00:35:20,120
like you know i i but i again i don't know i don't know that for a fact but um that seems to

335
00:35:20,120 --> 00:35:26,601
me very consistent where i guess i i take so much of a more squinty-eyed look at these things now

336
00:35:26,601 --> 00:35:32,360
whenever i hear the word terrorism whenever i you know these are these are um words that people

337
00:35:32,360 --> 00:35:40,521
what is the there's the saying um do you still beat your wife yeah have you stopped beating your

338
00:35:40,521 --> 00:35:43,960
wife yeah have you stopped beating yeah have you stopped beating your wife and it's like well

339
00:35:43,960 --> 00:35:50,481
you know like it's this indefensible thing that you yeah that people get locked into um yeah so

340
00:35:50,481 --> 00:35:58,581
i don't know that's kind of how i think about it i guess um fascinating to to read so the islam

341
00:35:58,581 --> 00:36:07,180
network was using checks as early as the 10th century at a time when like Europe was

342
00:36:07,180 --> 00:36:12,200
still kind of starting to fumble around maybe a little bit with metallic coins.

343
00:36:13,800 --> 00:36:21,440
And so, you know, that area of the world has given, you know, modern mathematics and navigation

344
00:36:21,440 --> 00:36:29,880
and I think the oldest university in the world and, you know, really has developed a lot of things

345
00:36:29,880 --> 00:36:38,481
that when they spread throughout the rest of the world had a shocking impact on the way they were perceived.

346
00:36:38,780 --> 00:36:40,240
Here's something I want to ask you about.

347
00:36:40,400 --> 00:36:44,541
So what did you think of when you read about the tally sticks?

348
00:36:44,720 --> 00:36:48,581
I'm sure you're probably aware of it or you thought of it before,

349
00:36:48,581 --> 00:37:07,561
So the tally sticks were accountants would sit on the benches, the bancos in Italy, in Florence and Vienna, and two merchants would come up and merchant A would say, hey, I want you to make a mark in your ledger that I owe this guy 500 whatever.

350
00:37:08,140 --> 00:37:09,360
And the other guy goes, yep.

351
00:37:10,041 --> 00:37:17,380
And so then what the guy would do is he'd make the mark and he would take a stick and he would break it and he would give each person half of that stick.

352
00:37:17,380 --> 00:37:20,380
and that was basically put that back together.

353
00:37:20,940 --> 00:37:23,501
That's how you made the claim in order to get it.

354
00:37:23,920 --> 00:37:25,360
What did that make you think of?

355
00:37:25,380 --> 00:37:27,121
Because that sure made me think of something.

356
00:37:27,581 --> 00:37:28,021
Yeah, yeah.

357
00:37:28,621 --> 00:37:30,680
Public and private keys at the...

358
00:37:30,680 --> 00:37:31,780
Yeah, 1,000%.

359
00:37:31,780 --> 00:37:32,880
Yeah, yeah.

360
00:37:34,001 --> 00:37:37,140
I found that incredibly fascinating, the tally sticks.

361
00:37:39,220 --> 00:37:41,601
So I did some extra reading on that too.

362
00:37:41,780 --> 00:37:43,521
I think that this wasn't as much used

363
00:37:43,521 --> 00:37:45,280
by the merchants on their bancos

364
00:37:45,280 --> 00:37:53,121
And like this was an alternate way that the ancient English, I think some Germanic tribes used.

365
00:37:53,121 --> 00:37:53,460
Okay.

366
00:37:53,460 --> 00:38:05,081
So this wasn an Italian banking like modern banking emerges in Florence and whatnot Um cause you get like I think if I read this correctly like part of this one part of the stick is called the stock and one is called the foil

367
00:38:05,981 --> 00:38:10,921
Later, these things become so widely used, the tally sticks, the stock and the foil that

368
00:38:10,921 --> 00:38:14,061
they bring the stocks to a place and that place becomes the stock exchange.

369
00:38:14,881 --> 00:38:17,001
And so, yeah, yeah.

370
00:38:17,201 --> 00:38:22,061
And also the short end of the stick is another phrase that I got the short end of the stick

371
00:38:22,061 --> 00:38:23,341
that comes from tally sticks too.

372
00:38:23,341 --> 00:38:27,381
And just so to make it less abstract, I got a picture here I wanted to share.

373
00:38:27,961 --> 00:38:30,001
Can you see that, Lucas, right there?

374
00:38:30,001 --> 00:38:31,541
I can see your thumb.

375
00:38:31,761 --> 00:38:32,461
Oh, yeah, I got it.

376
00:38:32,681 --> 00:38:33,961
Oh, that's what that looks like.

377
00:38:34,361 --> 00:38:39,081
Yeah, so it's split lengthwise like this.

378
00:38:39,861 --> 00:38:41,921
And these – can you really see it good?

379
00:38:42,081 --> 00:38:43,281
Am I just pointing it not right here, Lucas?

380
00:38:43,281 --> 00:38:43,601
Yeah, I can see it.

381
00:38:43,881 --> 00:38:47,361
It looks like a dull saw blade, basically.

382
00:38:47,361 --> 00:38:47,761
That's it.

383
00:38:47,841 --> 00:38:48,981
That's a good way to describe it.

384
00:38:48,981 --> 00:38:54,221
And the notches, the serrations, each of those are indications of different denominations.

385
00:38:54,441 --> 00:38:58,901
Like this is a bigger one and these are just different types of denominations in the exchange.

386
00:38:59,641 --> 00:39:02,921
And the really – so I think this is a quote maybe from Wikipedia.

387
00:39:03,501 --> 00:39:05,821
No, this is – it's from some article online.

388
00:39:05,881 --> 00:39:06,401
I won't read it.

389
00:39:07,081 --> 00:39:13,301
But basically then the tally stick is then you have these two things split lengthwise like that.

390
00:39:13,301 --> 00:39:18,421
If they match together perfectly, then you know each part of the exchange gets one of them.

391
00:39:18,421 --> 00:39:24,121
when they match together you know that the um the person did hold the debt or the credit or whatever

392
00:39:24,121 --> 00:39:31,481
corresponding to this other person and the really cool thing is um random this is a i wrote it on

393
00:39:31,481 --> 00:39:35,561
the word document you might have saw it there randomness in nature is the best cryptography

394
00:39:35,561 --> 00:39:43,421
because the grain of the wood not just the notches but like this is is it's so elaborately

395
00:39:43,421 --> 00:39:48,481
like not purely random of course there's like a reason the grain is as it is but it's not

396
00:39:48,481 --> 00:39:54,241
replicable and so like a tally stick you could probably use this today with quite a level of

397
00:39:54,241 --> 00:39:59,601
cryptographic security or whatever because like the you can't recreate the wood grain you don't

398
00:39:59,601 --> 00:40:05,301
have to do the notches perfectly or whatever like how subtle that is in the wood when you see if

399
00:40:05,301 --> 00:40:12,001
everything lines up absolutely perfectly it was an immense level of security obviously back in

400
00:40:12,001 --> 00:40:16,041
the day where you need to maintain a ledger in some way.

401
00:40:16,421 --> 00:40:18,181
If you just purely write it down,

402
00:40:18,321 --> 00:40:20,961
all of the trust is on the person maintaining the ledger.

403
00:40:20,961 --> 00:40:23,501
But if it's like maintained in this tally way,

404
00:40:23,621 --> 00:40:28,121
then there is that, like you kind of hint at the analogy with Bitcoin.

405
00:40:28,781 --> 00:40:31,421
People do have their own key to the exchange,

406
00:40:31,681 --> 00:40:36,261
to their own funds that is going to cryptographically secure it.

407
00:40:36,321 --> 00:40:39,021
So yeah, the tally sticks are a really interesting

408
00:40:39,021 --> 00:40:46,601
forecursor, precursor, forebear to Bitcoin. Yeah. Oh yeah. Precursor, forebear. Tally sticks. Do you,

409
00:40:46,601 --> 00:40:52,901
do you think that tally sticks are the world's first example of biometric, uh, scanning or by

410
00:40:52,901 --> 00:40:58,181
say like biometric? Cause I mean, like you, you bring up a very good point where it's like,

411
00:40:58,181 --> 00:41:06,081
you can't take a stick and, um, get another one and match the grains. You can't cut that same

412
00:41:06,081 --> 00:41:09,601
stick and use it shorter and get the grains to match. Like it's just not going to happen.

413
00:41:10,741 --> 00:41:17,301
It's like a fingerprint, except probably I would say, I would assume it's more accurate, but I'm

414
00:41:17,301 --> 00:41:23,261
not sure. Yeah. No, you ask if it's history's first example and there's actually another practice

415
00:41:23,261 --> 00:41:34,181
called chirography, C-H-I-R-O graphy, chirography, where an agreement is written up on a piece of

416
00:41:34,181 --> 00:41:40,661
paper and the paper is torn so you then oh i love it yeah the paper is the jagged edges of the tear

417
00:41:40,661 --> 00:41:46,861
also occur in this sort of random way that two torn pieces of paper are really never going to

418
00:41:46,861 --> 00:41:52,641
line up perfectly unless you have the actual one that was torn um and so there is this whole art

419
00:41:52,641 --> 00:41:59,681
i this whole history too um like tally sticks are not i asked chad gpt if tally sticks are a form

420
00:41:59,681 --> 00:42:05,921
of chirography and they're not because chirography is limited to paper but there's probably um other

421
00:42:05,921 --> 00:42:12,561
yeah there's tally bones that was on the wikipedia page so there's other instances of using um nature

422
00:42:12,561 --> 00:42:19,801
to secure the ledger not in the form of like the commodity characteristics of a money but like

423
00:42:19,801 --> 00:42:26,861
literally using nature as the ledger instead of writing it down in um having a double entry

424
00:42:26,861 --> 00:42:33,821
bookkeeping thing in that way. I had a band that was called the Jagged Edge and it turns out,

425
00:42:33,821 --> 00:42:39,201
it turns out that there is a like R and B group from Atlanta. That's also called the Jagged Edge.

426
00:42:39,641 --> 00:42:44,521
Cool. And we, we played a gig one time and a bunch of people showed up early and they were

427
00:42:44,521 --> 00:42:52,561
very disappointed to find out that we were, we were not the Atlanta R and B five dudes piling up,

428
00:42:52,561 --> 00:42:57,981
piling out of a truck wearing boots and flannels and they're like with a jagged edge we're like oh

429
00:42:57,981 --> 00:43:04,241
shit yeah it's us but you're gonna be disappointed they came they came in with the jagged edge of

430
00:43:04,241 --> 00:43:08,601
their top tally stick and you came in with yours like these things do not fit together this does

431
00:43:08,601 --> 00:43:16,501
not match up at all it doesn't work one bit um one of the things uh that i thought was interesting

432
00:43:16,501 --> 00:43:24,681
I wanted to talk about was the, um, so three, um, three layers of basically, uh, how, how

433
00:43:24,681 --> 00:43:26,521
notes evolved.

434
00:43:26,521 --> 00:43:33,041
So they went from, um, here's a, here's a note specific from me, specific to you for

435
00:43:33,041 --> 00:43:34,021
a specific amount.

436
00:43:34,161 --> 00:43:37,381
And then, um, that note became negotiable.

437
00:43:37,381 --> 00:43:42,661
So it became like if, uh, and a lot of people probably are young enough that they never have

438
00:43:42,661 --> 00:43:46,481
done this, but you can take a, if somebody writes you a check, then you can indeed,

439
00:43:46,501 --> 00:43:53,681
that check. You can sign the back of it over to them. So that's like an, that's a negotiable,

440
00:43:53,821 --> 00:43:59,421
that makes it a negotiable thing. And then the, the, the next layer of that was that

441
00:43:59,421 --> 00:44:07,641
we just went to standardized units and they were bearer assets. So instead of it having your name

442
00:44:07,641 --> 00:44:14,241
on it, instead of it being for a specific amount, now it was a $20 bill, a $5 bill. Here's a quarter,

443
00:44:14,241 --> 00:44:19,521
here's a nickel, et cetera, et cetera. Everybody could use them. We talk about what the benefits

444
00:44:19,521 --> 00:44:25,881
of that is, right? Which is that it, I would argue, I don't say that I don't think it increases

445
00:44:25,881 --> 00:44:29,741
the portability of gold. I think it increases the illusion of the portability of gold.

446
00:44:30,321 --> 00:44:39,901
I think it, I think it contributes to a greater blow up in the end, which is what we see from this,

447
00:44:39,901 --> 00:44:47,901
the rise of this, of fractional reserve banking. But one of the things that popped into my mind was,

448
00:44:48,501 --> 00:44:55,781
so what did we lose when we did that, when we changed, when we changed from this specific me

449
00:44:55,781 --> 00:45:02,941
to you? What we lost was all of the time that people have spent cumulative over the last couple

450
00:45:02,941 --> 00:45:12,241
thousands of years making change. Like when you go to a standardized unit, then every transaction,

451
00:45:13,141 --> 00:45:18,601
like the odds of it being exact change, like when was the last time you had exact change for

452
00:45:18,601 --> 00:45:28,681
anything? Right. You know, very rare. Um, and so that necessitated another switch, which was to

453
00:45:28,681 --> 00:45:35,461
a type of digital bearer asset, basically, like the credit card. It used to be that the credit

454
00:45:35,461 --> 00:45:40,541
card, by the way, was something that you verified every time you used it, right? So it used to be

455
00:45:40,541 --> 00:45:46,301
that you walk through Walmart and if you checked out in Walmart, then they asked you for your ID.

456
00:45:46,921 --> 00:45:52,061
I haven't had my ID. I haven't had anybody ask for my ID for the use of a credit card for like

457
00:45:52,061 --> 00:45:57,941
15 years, probably. Yeah. Something like that. At least 10, at least 10. So, but anyway, so then that

458
00:45:57,941 --> 00:46:06,261
that obviated the need for change again. So we, we didn't need change. Then we did change,

459
00:46:06,261 --> 00:46:14,421
need change. And now we don't again. But what, what Bitcoin is, it allows you to have the perfect

460
00:46:14,421 --> 00:46:18,521
amount. I was thinking about that. I was like, like, what are, what are the things that are

461
00:46:18,521 --> 00:46:24,181
different about different kinds of money? And it's like with, with physical money, with commodity

462
00:46:24,181 --> 00:46:32,141
money, you always had to have change. But Bitcoin, as it is in every instance, the paradox of paradoxes,

463
00:46:32,521 --> 00:46:37,101
Jason Lowry talked about this with he, he was like, dude, everything about Bitcoin is a paradox.

464
00:46:37,101 --> 00:46:43,581
Like it's, uh, you know, um, the thing that it, the, the class of things that it falls into,

465
00:46:43,581 --> 00:46:49,001
it shares lots of the characteristics. And then there's always this one thing that is just

466
00:46:49,001 --> 00:46:54,701
monumental that sets it apart, which is like, so it's a commodity money. Commodity monies, um,

467
00:46:54,701 --> 00:47:02,201
have historically been really awful to work with because you have to, um, cut them apart and all

468
00:47:02,201 --> 00:47:05,921
this stuff. And it's like, well, it turns out this is a commodity money that you have perfect

469
00:47:05,921 --> 00:47:11,741
change for every time you use it. Um, I don't know. I was just, that was a, that was a paradox

470
00:47:11,741 --> 00:47:18,181
thing that I guess that kept popping into my mind thinking about, um, as we transitioned from

471
00:47:18,181 --> 00:47:25,641
different types of instruments for transporting value that again, back to, back to what we've

472
00:47:25,641 --> 00:47:30,781
said before, which is that there are no choices, only trade-offs. It's like, yeah, there definitely

473
00:47:30,781 --> 00:47:37,661
are trade-offs when you standardize money and you make it so that anybody can use it.

474
00:47:38,061 --> 00:47:45,981
There's no need to circle back to the originating issuing banker or whoever it was that started that

475
00:47:45,981 --> 00:47:52,181
transaction in order to close it out. Yes, that increases the velocity of money. It increases the

476
00:47:52,181 --> 00:47:57,121
amount of people that can use it, et cetera, et cetera. But what else does it do? One of the

477
00:47:57,121 --> 00:48:02,881
things is that it makes it easier to make claims upon the commodity, the underlying commodity. So

478
00:48:02,881 --> 00:48:10,421
that's the fractional reserve banking where that's terrifying. Another thing is that it creates

479
00:48:10,421 --> 00:48:19,081
it creates this inconvenience of having to give change if you ever do have to settle in the commodity.

480
00:48:19,381 --> 00:48:22,561
So I found that – I just found that really interesting.

481
00:48:22,721 --> 00:48:24,581
I didn't have anything to say about it.

482
00:48:24,581 --> 00:48:31,361
I think that's key to this chapter for Alden is that developing negotiability through banking

483
00:48:31,361 --> 00:48:36,761
was this technological innovation that changes the nature of money

484
00:48:36,761 --> 00:48:41,961
because it allows these other more elaborate types of services

485
00:48:41,961 --> 00:48:44,041
that banks are then later going to operate

486
00:48:44,041 --> 00:48:48,261
when you are later negotiating where the subprime mortgage crisis,

487
00:48:48,401 --> 00:48:51,161
they're passing around bundles of mortgages and stuff like that.

488
00:48:51,241 --> 00:48:54,101
Like how far have we gone down the route of abstraction?

489
00:48:54,381 --> 00:48:58,741
And I think that that's what it is, you know, drawing again from Lowry,

490
00:48:58,741 --> 00:49:03,721
just really thinking about the danger of abstraction

491
00:49:03,721 --> 00:49:10,721
as a way that the underlying nature of something is then forgotten.

492
00:49:11,401 --> 00:49:14,101
So I guess to back up a step,

493
00:49:14,741 --> 00:49:17,481
we've already had a few layers of abstraction

494
00:49:17,481 --> 00:49:20,901
on top of commodity money to seemingly make it more workable.

495
00:49:21,161 --> 00:49:23,981
Gold has some drawbacks in divisibility.

496
00:49:24,261 --> 00:49:27,321
We talked last time, maybe it's actually a density problem,

497
00:49:27,421 --> 00:49:28,841
that gold is too valuable,

498
00:49:29,641 --> 00:49:33,341
so you can't really cut it up small enough to buy a slice of bread, right?

499
00:49:33,341 --> 00:49:38,121
So you need some way to make it less dense, quote unquote, and more divisible.

500
00:49:38,721 --> 00:49:56,441
So the idea, first we have innovations like legal tender coinage, which is just a way to make uniform the pieces of gold you're carrying around to mitigate another seeming drawback.

501
00:49:56,441 --> 00:50:02,761
Seeming drawback with gold as commodity money, which is that maybe you need to test it to see if it's gold each time.

502
00:50:02,761 --> 00:50:17,921
Whereas if you have legal tender coinage, maybe you have the emperor's face stamped on the front. So there's some sort of verification there. And if you have the ridges along the side, then you have some other verification that it hasn't been shaved or modified. So you have a standard unit.

503
00:50:17,921 --> 00:50:42,741
But that's legal tender coinage. These are technological innovations, and they're kind of like abstractions. The unit of a coin is the physical shape of the piece of metal, but it's also an abstraction that gets in people's minds that allows central authorities to then debase the currency because you are now accepting a coin as legal tender and not exactly like that amount of gold.

504
00:50:42,741 --> 00:50:51,021
You assume it is, but then the centralized authority can say, now we're going to change the composition of gold in this coin.

505
00:50:51,121 --> 00:50:52,741
So they manipulate those variables separately.

506
00:50:53,221 --> 00:50:55,741
The physical commodity itself is separate from the coin.

507
00:50:55,941 --> 00:50:59,181
You've added a layer of abstraction with legal tender coinage.

508
00:50:59,521 --> 00:51:07,401
Now, banking and negotiability of paper instruments in lieu of that coin, obviously another huge layer of abstraction.

509
00:51:07,401 --> 00:51:34,481
And so I think it's good to keep in one's mind that the more layers of abstraction that are added between the actual quote-unquote money and your use of the money are always layers for potential manipulation, always routes of attack, things that can be manipulated or managed by whoever is defining that abstraction.

510
00:51:34,481 --> 00:51:41,021
the centralized authority defining what a coin is um and obviously with the negotiable paper

511
00:51:41,021 --> 00:51:46,821
instruments if you have a centralized bank um they have various ways to manipulate the currency by

512
00:51:46,821 --> 00:51:54,081
just creating more of the that paper note and so i just think that you know with bitcoin it's a hard

513
00:51:54,081 --> 00:51:59,281
asset and we don't see those layers of abstraction to make it usable it is what it is it's peer to

514
00:51:59,281 --> 00:52:06,661
peer, people can transact directly without an intermediary. And that's a very valuable thing.

515
00:52:07,161 --> 00:52:12,781
People's, you know, maybe a good comeback when people say there is nothing to Bitcoin and then

516
00:52:12,781 --> 00:52:17,561
money seems real is begin talking about the abstraction that our fiat money actually is,

517
00:52:17,641 --> 00:52:22,721
of course, it's how many layers of abstraction, even if it was based on a commodity, even if we

518
00:52:22,721 --> 00:52:29,501
were on a gold standard um the how many layers of abstraction are you are there between you and

519
00:52:29,501 --> 00:52:35,641
the gold sitting in a vault somewhere and so with bitcoin if you self-custody you know and do peer

520
00:52:35,641 --> 00:52:42,161
to peer transactions you've eliminated abstraction it's realer and more present in that sense than

521
00:52:42,161 --> 00:52:46,701
gold-based banking is where um you do have layers of abstraction between you and the asset you

522
00:52:46,701 --> 00:52:56,741
purportedly own and are transacting in yeah the i like that she's introducing without like really

523
00:52:56,741 --> 00:53:03,821
jumping up and down and screaming about um the dangers of fractional reserve because that i think

524
00:53:03,821 --> 00:53:11,861
that can take you off into that can take you like deep down into the dark pits of hell if you really

525
00:53:11,861 --> 00:53:17,921
start to think about. Um, and this was something I was still, I was still in banking. I was still

526
00:53:17,921 --> 00:53:24,741
in lending when I read, uh, the creature from Jekyll Island and I started to kind of try to

527
00:53:24,741 --> 00:53:31,601
piece together, okay, I'm actually in this system. What does this mean? And, um, I think the quote

528
00:53:31,601 --> 00:53:38,681
you read from Alden was that, you know, like if a majority or if it, even if like most people,

529
00:53:38,681 --> 00:53:45,341
not all want to come get their money. It's not there. Um, and I don't think that's, I don't,

530
00:53:45,461 --> 00:53:51,801
that might not be an accurate quote, but it's, it's so much worse than that. It's so, so, so,

531
00:53:52,001 --> 00:53:57,801
so, so much worse than that. It's, it's not most people. It's not a majority of people.

532
00:53:58,001 --> 00:54:06,121
It's not even a large minority of people. It's basically if like one in 10 people want their

533
00:54:06,121 --> 00:54:14,721
money. Yeah, it's, it's not there. And like, and that's like that, that's not a, this is not a

534
00:54:14,721 --> 00:54:20,301
campfire ghost story. This is not something that's meant to scare people. This is utter fact, like

535
00:54:20,301 --> 00:54:27,341
that money is not there. And so here's how it works. The Fed, let's say, let's say, you know,

536
00:54:27,401 --> 00:54:31,181
the Fed decides that they're going to create a million dollars worth of money. They create a

537
00:54:31,181 --> 00:54:36,821
million dollars. They give it to the treasury. The treasury takes it and they sell the bonds and then

538
00:54:36,821 --> 00:54:42,121
they put it into one of the banks. And now that bank has a million dollars and it's going to write

539
00:54:42,121 --> 00:54:48,201
$10 million worth of loans on that. And then that's a big bank. Those $10 million worth of

540
00:54:48,201 --> 00:54:54,281
loans are probably going to go to smaller banks. So now you've got $10 million that gets a million

541
00:54:54,281 --> 00:54:59,601
apiece dropped into another 10 banks and they're each going to create $10 million worth of loans

542
00:54:59,601 --> 00:55:05,961
off of that. So we started with, we started with $1 million of money that has nothing behind it.

543
00:55:06,121 --> 00:55:12,761
Yeah. And, and what did we do? We created a hundred million or 110, you know, so that's

544
00:55:12,761 --> 00:55:19,041
like, we're, we're already at less than 1% claim on something that doesn't even exist.

545
00:55:19,321 --> 00:55:24,321
Yeah. And that's, that's before it ever gets to a small town bank. You know, this is,

546
00:55:24,321 --> 00:55:41,781
Yeah. You know, they they talk about like when Silvergate Bank and when when Silicon Valley Bank, when they got taken out in Operation Chokepoint 2.0, they talked about them as, you know, these are regional banks like these are hundred billion dollar banks plus.

547
00:55:41,781 --> 00:55:50,441
Right. I mean, these are these are big, big operations. So these are the like these are they're all they're already like the third, fourth in line.

548
00:55:50,881 --> 00:55:59,821
And then, you know, trickle down to your, you know, farmer state bank, your national, your national federal or whatever you call it.

549
00:55:59,821 --> 00:56:15,541
But the amount of abstraction, it cannot be overstated how little money there actually is in the system to satisfy any claims.

550
00:56:15,541 --> 00:56:19,821
And I'm reading one of Nassim Taleb's books on the side right now.

551
00:56:20,321 --> 00:56:22,681
This one is, this one, Anti-Fragile.

552
00:56:22,681 --> 00:56:30,101
and, um, you know, talks a lot about, you know, fat tail risk and talks a lot about how it's not

553
00:56:30,101 --> 00:56:34,601
the thing that happens every day that you need to be prepared for. It's the thing that happens

554
00:56:34,601 --> 00:56:41,081
like once every hundred years. And that's what you have to, like, that's the thing you need to

555
00:56:41,081 --> 00:56:45,901
protect yourself against because the thing that happens every single day, everybody's protected

556
00:56:45,901 --> 00:56:48,081
against that, you're already immune to that.

557
00:56:49,501 --> 00:57:07,701
And and talks a lot about you know how we we draw volatility out of the system because we think that that a good idea but volatility is what makes that system work It what makes it robust and and strong um and resilient And so yeah I I just

558
00:57:07,701 --> 00:57:13,881
you think about it's like, um, you know, what we did during the global financial crisis in order

559
00:57:13,881 --> 00:57:20,621
to keep people from, from just taking runs, um, was to just backstop these banks with even more

560
00:57:20,621 --> 00:57:24,821
money and then, and then clamp down on the lending standards.

561
00:57:25,321 --> 00:57:31,001
Um, so that we just, all we did was nationalize the banking system wholly, like fully outright,

562
00:57:31,001 --> 00:57:35,341
like the buyouts that all the big guys got, those were, you know, that's just the cost

563
00:57:35,341 --> 00:57:36,601
of giving your soul up.

564
00:57:36,601 --> 00:57:41,561
Um, basically, no, once, once things are too big to fail and you have a centralized entity

565
00:57:41,561 --> 00:57:46,181
that can backstop them all, then the amount of money in the system is infinite.

566
00:57:46,321 --> 00:57:49,941
It's not like there is no limit to the amount of money in the system because the central

567
00:57:49,941 --> 00:57:55,561
bank will just simply backstop any failure. And then, you know, you're then motivated to

568
00:57:55,561 --> 00:58:01,481
the tendency towards increasingly risky fractional reserve banking that all the notes in this,

569
00:58:01,561 --> 00:58:06,621
you've just added another incentive to, for banks to push it even further to the limit.

570
00:58:06,621 --> 00:58:11,921
If they think that a bailout is if they're too big to fail or whatever. I mean, we all hear that.

571
00:58:12,761 --> 00:58:18,181
Yeah. Um, that brings a, that's a really good one. Um, I think to talk about, which is like,

572
00:58:18,181 --> 00:58:24,021
what does protect people in that instance? Like what protects you if your money is in a bank that

573
00:58:24,021 --> 00:58:29,941
gets run on? And it's, that's FDIC, Federal Depositors Insurance Corporation, I think is what

574
00:58:29,941 --> 00:58:37,061
it is. So FDIC is something that came along. Yeah, did it come along in the 40s? I'm not quite sure

575
00:58:37,061 --> 00:58:44,361
when it came along. But anyways, it's supposedly there to insure up to $250,000, all of your money

576
00:58:44,361 --> 00:58:54,561
that's in the bank, right? But what that is, it's a set rate that banks pay. So like for every $250,000

577
00:58:54,561 --> 00:59:03,221
worth of deposits, they pay X dollars in order to have this FDIC coverage. And so that would be like

578
00:59:03,221 --> 00:59:10,461
every single driver in the entire world paying the exact same amount on their insurance, regardless

579
00:59:10,461 --> 00:59:15,641
of what vehicle they drove, how often they drove it, how recklessly they drove it, how

580
00:59:15,641 --> 00:59:16,961
many accidents they got into.

581
00:59:17,821 --> 00:59:23,981
And so that's something I think that's another thing that's kind of alarming about this

582
00:59:23,981 --> 00:59:29,061
situation, which is that the insurance is not insurance.

583
00:59:29,261 --> 00:59:33,761
Insurance is something that you get a different rate than I get.

584
00:59:34,041 --> 00:59:39,881
It's a premium and it's called a premium based on the risk factors because we're taking into

585
00:59:39,881 --> 00:59:45,741
account the risk factors, but they don't do that with banks. And so if you don't do that with banks,

586
00:59:45,741 --> 00:59:52,861
if there is no penalty in terms of a higher premium for being more risky, i.e. having lower

587
00:59:52,861 --> 00:59:59,341
amounts of reserves, loaning out more at a higher fractional reserve, having higher amounts of

588
00:59:59,341 --> 01:00:06,321
defaults, lending to less credit worthy people, like if there's no punishment for that and my

589
01:00:06,321 --> 01:00:12,261
insurance for doing that is the same as your insurance for being a fully custodia bank 100

590
01:00:12,261 --> 01:00:19,881
percent backstopped every asset has its own match like all that that creates this moral hazard

591
01:00:19,881 --> 01:00:27,221
that people are just racing towards the edge of what can we do how fast can we do it how hard can

592
01:00:27,221 --> 01:00:33,081
we do it what are the risks we can take and inevitably i mean that's just that's just it

593
01:00:33,081 --> 01:00:36,941
it would, it's just like, it's like telling somebody that you can't die.

594
01:00:37,761 --> 01:00:40,021
So what are you going to do if you can't die? I mean,

595
01:00:40,021 --> 01:00:42,321
you're going to go bungee jump without a cord.

596
01:00:42,321 --> 01:00:46,121
You're going to go parachute without a parachute. Like you're,

597
01:00:46,121 --> 01:00:50,701
you're going to, you're going to play, um, you, you're going to,

598
01:00:50,781 --> 01:00:52,661
you're going to have whatever, what do they call it?

599
01:00:52,661 --> 01:00:55,521
When you go right at each other? I don't know. Anyways, you're,

600
01:00:55,941 --> 01:01:01,201
you're going to play chicken with a, with a Harrier jet. Like, yeah, I mean,

601
01:01:01,201 --> 01:01:07,501
you know like if you can't die you're going to do really stupid shit yeah and and that's what we see

602
01:01:07,501 --> 01:01:12,281
banks doing like the during the height of the global financial crisis when there's like oh you

603
01:01:12,281 --> 01:01:17,321
know here's the you know this guy's dog owned three houses right like this guy's this guy's

604
01:01:17,321 --> 01:01:23,821
this guy's dead grandfather was the co-signer on three apartment buildings or duplexes like

605
01:01:23,821 --> 01:01:33,001
yeah no so that is all terrifying of course this foray into fraction reserve banking and the

606
01:01:33,001 --> 01:01:40,681
ways that in its modern iteration it interacts with human nature to impel us to riskier and

607
01:01:40,681 --> 01:01:46,501
riskier and a more unstable financial system but if you go way back like fractional reserve banking

608
01:01:46,501 --> 01:01:49,681
I think as Alden describes it

609
01:01:49,681 --> 01:01:51,781
in a gold based system

610
01:01:51,781 --> 01:01:53,941
isn't necessarily evil

611
01:01:53,941 --> 01:01:55,481
or subject to those things

612
01:01:55,481 --> 01:01:57,541
there are these tendencies to take it further and further

613
01:01:57,541 --> 01:01:59,761
but if it's

614
01:01:59,761 --> 01:02:00,741
if the

615
01:02:00,741 --> 01:02:03,041
if it's gold

616
01:02:03,041 --> 01:02:05,461
based monetary system

617
01:02:05,461 --> 01:02:07,481
there at least is supposedly

618
01:02:07,481 --> 01:02:08,761
something there at the end of the day

619
01:02:08,761 --> 01:02:10,541
an asset for which you

620
01:02:10,541 --> 01:02:13,501
deposit and the claims

621
01:02:13,501 --> 01:02:14,441
against a real thing

622
01:02:14,441 --> 01:02:22,401
um and but it's less it's less of the real thing yes but also on that like with flex correction

623
01:02:22,401 --> 01:02:28,361
reserve banking if people have an alternative if they did have an alternative to a fully custodial

624
01:02:28,361 --> 01:02:36,421
bank um and they the risk was made known to them um this is how risky it is and then people buy

625
01:02:36,421 --> 01:02:41,601
into that risk but the problem is that with the bailouts again there is no risk and so like you

626
01:02:41,601 --> 01:02:42,761
You were told there was risk.

627
01:02:42,821 --> 01:02:43,721
You accepted the risk.

628
01:02:44,021 --> 01:02:47,701
The risky thing came about, and you said, you know, I want to do over.

629
01:02:47,801 --> 01:02:50,281
I no longer accept this risk that I said I accepted.

630
01:02:50,741 --> 01:02:51,441
So, yeah.

631
01:02:52,001 --> 01:02:55,701
I mean, like, theoretically, it could work if we did, like, perfectly rational actors.

632
01:02:55,821 --> 01:02:56,521
You accept the risk.

633
01:02:56,581 --> 01:02:57,641
You live and die by the risk.

634
01:02:58,301 --> 01:03:03,761
But then too big to fail comes along, and people begin to whine and scream and stuff.

635
01:03:03,761 --> 01:03:21,921
So I think theoretically it doesn't work because I think the second that you issue more claims against the money than there exists, then you have opened yourself up to Nassim Taleb's black swan to the fat tail risk to the it will happen.

636
01:03:21,921 --> 01:03:25,641
Like it will happen that everybody wants to get their money out.

637
01:03:25,641 --> 01:03:34,261
It's there's just, yeah, you can't predict it and you can't back test for it and you can't use this data to say that it'll happen, but it will happen.

638
01:03:35,261 --> 01:03:39,181
If it's if it's in the realm of possibility, it will occur.

639
01:03:39,421 --> 01:03:41,461
There is a way to mitigate it.

640
01:03:41,641 --> 01:03:55,401
Like in all the notes, this certificates of deposit where you match the duration of the loan with the deposit duration such that someone promises, I won't withdraw this deposit for 10 years.

641
01:03:55,401 --> 01:03:57,881
then the bank can loan it out.

642
01:03:58,281 --> 01:04:01,181
It can be a fractional system because they're not maintaining the full reserve,

643
01:04:01,301 --> 01:04:05,721
but you promise not to kind of make a run on the bank for a certain amount

644
01:04:05,721 --> 01:04:07,821
until the loan is paid back.

645
01:04:08,581 --> 01:04:12,261
Yeah, that only works if all of it is that way, though.

646
01:04:12,641 --> 01:04:19,821
Like every single bit of money that's issued is backed by something that is time-dated.

647
01:04:19,821 --> 01:04:42,841
And even still, then you're being disingenuous to the users of the network unless you're upfront telling them, hey, by the way, you know, we are now operating on a four to one, which means that the money that you have is worth 25% of what it was to begin with, just flat out.

648
01:04:42,841 --> 01:04:49,701
Like there's, there's no way around it. You can pretend as long as, as long as the music doesn't

649
01:04:49,701 --> 01:04:55,781
stop. And this is why in modern, so this is why you hear these macroeconomist guys always talking

650
01:04:55,781 --> 01:05:01,901
about the velocity of money. Like in order for our modern system to continue working, we have to have

651
01:05:01,901 --> 01:05:06,741
a high velocity of money. We have to have money keep moving because if the money ever stops,

652
01:05:06,741 --> 01:05:21,521
then that means that we don't have people taking out new credit and injecting new life into the system by basically mortgaging the future.

653
01:05:21,761 --> 01:05:27,141
If all of that money went and sat, then the whole thing would collapse upon itself.

654
01:05:27,141 --> 01:05:32,321
And so velocity of money decreases when you have higher interest rates.

655
01:05:32,321 --> 01:05:41,361
And that's what we're experiencing now is like on the, probably the verge of, um, of, of, of a, of a depression recession type of thing.

656
01:05:41,361 --> 01:05:46,741
Maybe I think we've been, I think we've been in a shadow depression, shadow recession for two years.

657
01:05:47,221 --> 01:05:52,221
Um, but yeah, I, I just think fundamentally you can't get around.

658
01:05:52,221 --> 01:05:59,281
And look, if I mean, if you offer more claims on something, then the thing exists like.

659
01:06:00,421 --> 01:06:02,541
It's the game is over at that point.

660
01:06:02,541 --> 01:06:05,241
It's just a matter or it's just a matter of time.

661
01:06:05,241 --> 01:06:16,481
Like we all know, we could do fractional reserve with Bitcoin if a bank said we'll accept we have three Bitcoin in deposits or four Bitcoin in deposits.

662
01:06:16,481 --> 01:06:21,581
But just so you know, we're only going to maintain 75% of those deposits here.

663
01:06:22,021 --> 01:06:28,181
We're going to loan one of those Bitcoin out so that other people put the money to work and then charge them interest on the loan.

664
01:06:28,901 --> 01:06:30,021
You're taking the risk.

665
01:06:30,161 --> 01:06:32,701
If you come here, the loan might not have come back.

666
01:06:32,801 --> 01:06:37,081
So you could have – as long as people accept that risk, their Bitcoin could be loaned out.

667
01:06:37,461 --> 01:06:40,301
They're just accepting the risk that if they go there to the bank, it's not going to be there.

668
01:06:40,681 --> 01:06:41,541
Well, that's what I'm saying.

669
01:06:41,961 --> 01:06:43,621
It's just a matter of time.

670
01:06:43,621 --> 01:06:46,661
like that loan eventually won't pan out.

671
01:06:47,541 --> 01:06:50,081
Well, there could be defaults, that's for sure, but that's not every loan.

672
01:06:50,081 --> 01:06:52,401
Well, no, it's not that there could be.

673
01:06:52,661 --> 01:06:56,161
It's that there's a guarantee that there will be.

674
01:06:57,621 --> 01:07:01,041
If it can happen, it will happen, right?

675
01:07:01,041 --> 01:07:02,041
Yeah, to some, right.

676
01:07:02,301 --> 01:07:04,201
I'm just saying I think that there is probably a way,

677
01:07:04,581 --> 01:07:08,881
if the risk is stated up front to people and they're savvy financial customers

678
01:07:08,881 --> 01:07:12,981
that you can't have a fractional reserve system.

679
01:07:12,981 --> 01:07:15,061
So I'm not saying I want to do it or it's a good idea.

680
01:07:15,541 --> 01:07:17,701
The velocity of my Bitcoin is zero.

681
01:07:17,901 --> 01:07:18,341
It's dead.

682
01:07:18,581 --> 01:07:19,441
It doesn't go anywhere.

683
01:07:19,441 --> 01:07:25,761
So it's still, but it doesn't, it doesn't matter what the, it doesn't matter what, um,

684
01:07:26,161 --> 01:07:28,861
what, what claims they make to the customers.

685
01:07:28,861 --> 01:07:30,981
It doesn't matter how savvy the customers are.

686
01:07:31,061 --> 01:07:33,001
It still only ends one way.

687
01:07:33,041 --> 01:07:35,341
It ends with the money not being there.

688
01:07:35,381 --> 01:07:40,981
Like that, and, and, and that, and that, that may be that it lasts a million years before

689
01:07:40,981 --> 01:07:41,341
it happens.

690
01:07:41,341 --> 01:07:41,461
Yeah.

691
01:07:41,461 --> 01:07:41,721
Yeah.

692
01:07:41,721 --> 01:07:49,561
you know so let the ponzi play on let the people keep on doing it until yeah yeah so i see there's

693
01:07:49,561 --> 01:07:55,101
it's risky it is risky and that risk maybe asymptotically approaches 100 so i don't know

694
01:07:55,101 --> 01:08:01,201
yeah yeah i think i just yeah i just think it it gets there um yeah the uh the knight templar

695
01:08:01,201 --> 01:08:05,481
that's the uh that's the forebearers for the masonic knights and the shriners did you know

696
01:08:05,481 --> 01:08:09,981
that oh no i didn't i wonder if they have some sort of whole wallace system they use i was wondering

697
01:08:09,981 --> 01:08:24,641
I was really wondering that too. If they have this thing where maybe you can just like somehow, I don't know, or if maybe they used to, obviously they used to, but like it would be cool.

698
01:08:24,641 --> 01:08:39,981
Oh, one of the things that I read about the whole wall of system was that the amount that they charge for their services can range from like 0.5% to like 7%, but also in some instances, like up to 25 or 50%.

699
01:08:39,981 --> 01:08:45,501
And so I found that really interesting because I like the idea.

700
01:08:45,981 --> 01:08:49,401
I think I was in grad school when I first heard of this idea.

701
01:08:49,401 --> 01:09:02,701
And I think this is the proper term for it, which is called third degree, third degree price discrimination, where it's basically like every customer is, is assessed individually.

702
01:09:02,861 --> 01:09:08,261
And so therefore everybody gets charged a different, there's no, there's no standard.

703
01:09:08,261 --> 01:09:15,621
and so who you are how long you've been doing business with the wall how much money you're

704
01:09:15,621 --> 01:09:21,681
sending how fast you want it to get there where it's going who it's going to etc etc like these

705
01:09:21,681 --> 01:09:31,261
things can all factor in and to me this makes it much more like a much more like a consumption tax

706
01:09:31,261 --> 01:09:38,521
type of approach where it seems to me way more fair. Like it seems to me, um, that the system

707
01:09:38,521 --> 01:09:48,541
is assessing the risk, um, individually. And that means that the risky actors are the ones,

708
01:09:48,681 --> 01:09:52,821
you know, so maybe there are terrorists, maybe there are criminals, et cetera, et cetera.

709
01:09:53,081 --> 01:10:00,221
But, um, you know, one thing, you know, I think so many, so many people I've heard that were

710
01:10:00,221 --> 01:10:03,561
criminals are like, what would you do if you had to do it all over again? They're like, I'd go

711
01:10:03,561 --> 01:10:08,281
legit. Like it's way easier to just go legit than it is to be a good criminal. You know, they always

712
01:10:08,281 --> 01:10:13,701
say about like, the thing about being a criminal is you have to be right every single time. And if

713
01:10:13,701 --> 01:10:16,921
you're trying to catch the, trying to catch the criminal, you only have to be right once.

714
01:10:17,581 --> 01:10:23,501
Yeah. You know, you only have to be in the right position once. And so, um, I actually think that

715
01:10:23,501 --> 01:10:30,961
that sort of discrimination in terms of pricing is a wonderful deterrent to crime.

716
01:10:31,241 --> 01:10:36,781
It's a, you know, like it's, this is kind of flipping around what Alden had in the book

717
01:10:36,781 --> 01:10:41,881
where she talks about how those networks have come under scrutiny as being channels for

718
01:10:41,881 --> 01:10:43,541
terrorist money, et cetera, et cetera.

719
01:10:43,961 --> 01:10:50,521
But I think that they probably do as good of a job of anything at dropping, you know,

720
01:10:50,521 --> 01:10:58,761
And of course, you know, if if it's somebody who supports the action and they're encouraging it, then that's probably not great.

721
01:10:58,761 --> 01:11:01,721
But then again, yeah, I think it all comes back.

722
01:11:01,721 --> 01:11:08,121
And and of course, like, I don't know, just just read like terrorists have their money in every bank in the world.

723
01:11:08,421 --> 01:11:13,581
Like they prefer the U.S. dollar like that is the preferred.

724
01:11:13,581 --> 01:11:29,921
I know Special Forces soldiers who have told me stories about carrying literal duffel bags of cash to warlords and giving it to them.

725
01:11:29,921 --> 01:11:33,721
Like, you know, like it, I just think it's funny.

726
01:11:33,781 --> 01:11:41,061
I think it's hypocritical as hell that, um, the system that created the perfect currency

727
01:11:41,061 --> 01:11:49,561
for, uh, illicit activity would ever complain about somebody like, no, like you're stealing

728
01:11:49,561 --> 01:11:50,421
our market share.

729
01:11:50,541 --> 01:11:52,101
Like that's really what you're doing.

730
01:11:52,861 --> 01:11:53,381
Right.

731
01:11:53,521 --> 01:11:58,641
And I think that critique is often disingenuous and an attempt to, you know, gain greater

732
01:11:58,641 --> 01:12:05,821
surveillance powers for sure yeah i yeah i think there's a scene in the movie war dogs have you

733
01:12:05,821 --> 01:12:11,521
seen that it's about arms dealers and it won't ruin anything to say that there's a true story

734
01:12:11,521 --> 01:12:16,821
right it's based on a true story and there's a scene where they're they get some arms to iraq

735
01:12:16,821 --> 01:12:23,621
and the u.s military there just has a warehouse full of u.s dollars that and i think it was like

736
01:12:23,621 --> 01:12:30,401
seized dollars like that's that that is the um what would you say the briefcase of cash that you

737
01:12:30,401 --> 01:12:34,941
mentioned they just had warehouses of it and then you know just give it out and they introduce that

738
01:12:34,941 --> 01:12:40,561
money into the system or whatever um but i i know i think i have two final points to make both of

739
01:12:40,561 --> 01:12:48,541
them just utterly ridiculous like hoala hoala koala um i just want to say that yeah the word

740
01:12:48,541 --> 01:12:53,301
koala probably has no rhymes it seems like an orange situation and so if you know the word

741
01:12:53,301 --> 01:12:58,481
hawala and you are a rapper and you stumble upon the word koala accidentally use it i don't know

742
01:12:58,481 --> 01:13:06,761
how rapping works you have something to pull you out like that what do you mean i don't know but

743
01:13:06,761 --> 01:13:12,381
i i was gonna say not like that and then i regretted the second i said it because i'm like

744
01:13:12,381 --> 01:13:17,581
oh actually it probably works exactly like that so it's like if you're is like if you're like free

745
01:13:17,581 --> 01:13:23,241
what do they call it? Free, free, free flow, whatever it is. Like you're just like free verse

746
01:13:23,241 --> 01:13:27,621
and something like that. Um, I suppose you have to think like two lines in advance or something

747
01:13:27,621 --> 01:13:32,881
like that because you got to get to the word that is going to become your subsequent rhyme. So it,

748
01:13:33,021 --> 01:13:37,541
um, I suppose you don't often end sentences with koala, not knowing where you're going to go,

749
01:13:37,581 --> 01:13:42,901
but if that should happen though, you do have a walla now in your repertoire. That's, yeah.

750
01:13:42,901 --> 01:13:47,761
I hope somebody finds a rap with koala in it now.

751
01:13:47,841 --> 01:13:48,041
Yeah.

752
01:13:48,181 --> 01:13:48,921
I want to hear it.

753
01:13:48,921 --> 01:13:50,641
It uses, talks about the koala system,

754
01:13:50,901 --> 01:13:53,381
and it just breaks down the history of money and protobanking

755
01:13:53,381 --> 01:13:54,761
through the metaphor of a koala.

756
01:13:54,901 --> 01:13:56,001
Koalas have pouches, right?

757
01:13:56,601 --> 01:13:59,041
I don't know anything about koalas other than-

758
01:13:59,041 --> 01:13:59,861
Maybe that's a kangaroo.

759
01:14:00,441 --> 01:14:03,241
I think they're marsupials, so they probably have a pouch.

760
01:14:03,601 --> 01:14:03,741
Yeah.

761
01:14:04,821 --> 01:14:06,261
I don't know any koala facts.

762
01:14:06,461 --> 01:14:09,621
So the other thing was, I'm going to go down to the local Masonic Lodge

763
01:14:09,621 --> 01:14:12,001
and ask them if I can join the Crusades.

764
01:14:12,001 --> 01:14:14,621
not because I'm interested in any sort of religious warfare.

765
01:14:14,841 --> 01:14:17,401
I just want to see if there's a holdover policy on the Crusades

766
01:14:17,401 --> 01:14:18,281
that's still in the books.

767
01:14:19,161 --> 01:14:22,841
Like, oh, shit, our bylaws, we've still got a crusade,

768
01:14:22,961 --> 01:14:26,321
like a section 37.A, B.6.

769
01:14:26,321 --> 01:14:28,541
He says the magic words, give him a sword.

770
01:14:29,041 --> 01:14:29,681
That's right.

771
01:14:30,521 --> 01:14:32,461
Break out the shield.

772
01:14:33,201 --> 01:14:38,061
Yeah, so I suppose they're not too involved in the Crusades at this point.

773
01:14:38,061 --> 01:14:42,261
the Knights Templar is now totally dissolved and they are just Masonics.

774
01:14:42,521 --> 01:14:43,201
So handshakes.

775
01:14:43,741 --> 01:14:44,221
Supposedly.

776
01:14:44,541 --> 01:14:45,581
You never know.

777
01:14:45,741 --> 01:14:47,541
There's probably a front for something even better.

778
01:14:48,641 --> 01:14:49,081
The,

779
01:14:49,081 --> 01:14:49,221
the,

780
01:14:49,221 --> 01:14:49,681
the,

781
01:14:49,681 --> 01:14:52,201
the declaration of independence movies,

782
01:14:52,301 --> 01:14:52,881
whatever they're called,

783
01:14:52,941 --> 01:14:54,041
the ones with Nicholas Cage,

784
01:14:54,081 --> 01:14:54,821
they were really good.

785
01:14:55,361 --> 01:14:56,461
I enjoyed those.

786
01:14:58,141 --> 01:14:58,581
Yeah.

787
01:14:59,881 --> 01:15:02,901
I didn't really have a whole lot to say about the double entry bookkeeping.

788
01:15:03,121 --> 01:15:03,361
Like,

789
01:15:03,421 --> 01:15:03,921
I just,

790
01:15:04,241 --> 01:15:04,721
I don't know.

791
01:15:04,801 --> 01:15:05,801
Like that was the second,

792
01:15:05,801 --> 01:15:07,441
kind of the second part of what we talked about.

793
01:15:07,441 --> 01:15:09,381
It excites many souls.

794
01:15:09,681 --> 01:15:12,981
And like when you hear double entry bookkeeping, you know, people get going.

795
01:15:13,161 --> 01:15:14,721
It's exciting enough as it is.

796
01:15:14,801 --> 01:15:17,661
I don't even, I can't even add anything to it to make it more exciting.

797
01:15:17,881 --> 01:15:18,001
So.

798
01:15:18,401 --> 01:15:18,981
It's a good point.

799
01:15:19,101 --> 01:15:19,261
Yeah.

800
01:15:19,281 --> 01:15:23,181
That's like a Ferrari doing a burnout on top of a chocolate cake with a stripper inside.

801
01:15:23,381 --> 01:15:23,821
So yeah.

802
01:15:23,821 --> 01:15:24,521
Something like that.

803
01:15:24,581 --> 01:15:24,781
Yeah.

804
01:15:25,021 --> 01:15:25,421
Exactly.

805
01:15:25,901 --> 01:15:26,141
Nope.

806
01:15:26,141 --> 01:15:28,261
On that, I think that's a great place to end it.

807
01:15:28,301 --> 01:15:28,681
Are you good?

808
01:15:29,281 --> 01:15:29,881
I am good.

809
01:15:29,981 --> 01:15:30,461
Huala huala.

810
01:15:30,521 --> 01:15:31,081
Let's get out of here.

811
01:15:31,601 --> 01:15:31,961
Awesome.

812
01:15:32,161 --> 01:15:32,521
All right.

813
01:15:32,601 --> 01:15:34,181
I am at Lucas Matty on X.

814
01:15:34,281 --> 01:15:35,421
That's at the whole frame.

815
01:15:35,421 --> 01:15:51,641
And we will catch you guys next time as we go into what would be chapters seven and eight, I think, of Lynn Alden's fantastic wander through money and money as a technology called broken money.

816
01:15:52,481 --> 01:15:55,021
Thank you guys for joining us and we'll see you guys later.

817
01:15:55,541 --> 01:15:55,661
Bye.