If I could hope for but one thing for you, so you'd be curious in all that you do.
Cause love like a flower just wants to grow.
Oh, and knowledge like your heart just wants to be known.
If you like, please subscribe. This is Bitcoin Study Sessions.
America's Future in the Age of the Electron. It's an essay taken from this anthology, National
Security in the Digital Age. Bitcoin is a Tool for Modern Statecraft. We've already talked about
two essays from this collection. It's incredibly fascinating. This anthology is just very well put
together, and all of the essays are peer edited by the other members of the anthology because
they cross-reference each other and it's all of the highest quality. So this particular essay,
Securing America's Future in the Age of the Electron, I'll give a kind of quick summary of
the essay and then Lucas and I will jump into discussion on it. This one's by James McGinnis.
He is the CEO of David Energy and a founder and leader of the DER task force and he's big
into the DER world. DER, Distributed Energy Resources. That's something I had not heard
about before this, but it's basically like consumers having small-scale energy production
capacities on their own premises, like a solar panel on the roof, small-scale wind turbine,
integrating those types of clean renewables into kind of your own homestead, small-scale
commercial endeavors.
Really cool thing that they do.
He's on a podcast, the DER task force as well.
Very high information density, a great podcast to listen to, a great sub-stack associated
with that.
So again, this essay, though, Securing America's Future in the Age of the Electron, is about, well, first of all, the age of the electron, this concept of what it will mean for us to enter into a decarbonized age.
an age that will be marked by cheap and abundant electricity, primarily from solar and wind,
in which the lithium battery will be the motor driver of that progress,
a sort of new steam engine, a new internal combustion engine.
This essay is about how to manage America's shift into this new age
and away from the age that we are currently in, which is the age of oil.
So there's going to be four primary theses in this essay.
on the age of the electron. The first is the U.S. dollar as global reserve currency is undermining
the U.S. by preventing the domestic reshoring of industry. That's the first thesis. The second
thesis is that the age of the electron will make energy cheap to produce but expensive to transport,
which will be a deglobalizing force leading to the reshoring of industry. The third thesis is
here and here Bitcoin comes in. Bitcoin is well situated to be the new global reserve currency
in the age of the electron and Bitcoin mining will end up setting a floor price for productive
use of energy of electricity. And the fourth and final thesis, China is dominant in the
infrastructure for the age of the electron. So the US needs to strategically consider how to
enter into the age of electron in a way that's going to enable us to compete with China.
The first thesis then regarding entering the age of the electron is that our current monetary system
is preventing industry from locating in the United States and has caused industry to flee, in fact.
So to better understand this, we consider the age that we are currently in right now
and the monetary trap that that age is laying for us.
So we are currently in the age of oil.
We could, I think, define that as like a period of rapid globalization after World War II
that was fueled by fossil fuels.
So in short, this is a story of the petrodollar system,
A story we've told and talked about a couple of times in our conversation, but it bears repeating because that's the framework we're in right now.
And here McGinnis has also framed it in a very interesting way.
So the petrodollar system as the monetary system of the age of oil is based on the following arrangement.
The U.S. will ensure protection of Saudi Arabia and the trade routes for oil and will secure a world order that allows the distribution of that oil around the world.
In exchange, Saudi Arabia and the rest of OPEC will sell their oil exclusively in U.S. dollars to other countries, which would then cause other countries to have to stack dollars and save in U.S. treasuries.
because other countries could only get their oil through U.S. dollars.
This agreement preserved the U.S. dollar as the global reserve currency
after the U.S. went off the gold standard.
So in the age of oil, oil is the blood of global commerce,
and the dollar backed by the U.S. military is the beating heart
and the infrastructure of veins that allows for that global flow of oil around the world
and all the countries need to stack dollars to get it.
So it's the, again, all of the circulatory system is the petrodollar system.
The beating heart is the U.S. dollar that moves the blood of oil around the world.
We can look at it that way.
But in this way, the dollar is a global reserve currency
in a very specific sense in the petrodollar system.
In the age of oil, we have a petrodollar,
a form of currency that is essentially backed by or based in oil, which is the most important
global commodity. So the petrodollar system, as we have it in the age of oil, is currently
unraveling. Even outside of this essay, we can see Treasury Secretary Scott Bessette talking about
a global economic reordering. We can see all the problems. Here, McGinnis thinks that our
monetary system will change as we move from the age of oil to the age of the electron,
from a petrodollar system based in oil to an electrodollar system based in electricity.
So the unraveling of the petrodollar system as we exit the age of oil is not necessarily a bad
thing for the U.S. Under the petrodollar system, the U.S. has suffered from what is called the
Triffin dilemma. We've also talked about this in the past, a dilemma that impacts or affects any
global reserve currency issuer. We talked about this in the context of Lynn Alden's broken money.
She talks about it. Also, Matthew Pine's essay, Great Power Network Competition in Bitcoin,
he talked about it. But this is just an immensely important concept with huge implications.
You will not understand what is happening in global commerce in the next 10 to 20 years
if you do not understand the Triffin dilemma and how the U.S. is trying to unwind it.
So I'll give it again here in kind of McGinnis' specific formulation
because he embeds the petrodollar system in this explanation of the Triffin dilemma
in a way that I think gives it a slightly different nuanced description.
So the Triffin dilemma embedded in the petrodollar system is this.
The world needs dollars to buy oil, which is an absolutely necessary commodity.
The U.S. is the issuer of dollars and so must provide the world with sufficient dollars to buy oil to fuel all of this global commerce, to be the beating heart that keeps it all going.
That means more dollars need to be leaving the U.S. than are coming into the United States.
That is a structural deficit.
More money goes out than comes in.
We buy more goods than we export.
This is the dilemma.
As the printed dollar flows out, cheap products flow in.
U.S. domestic manufacturers then of products cannot compete with that, so they relocate abroad where labor is cheap.
We get cheap goods, but the middle class loses job opportunities, even as the financial and upper classes accumulate assets and become very rich.
That is where we currently are in the age of oil, where the global reserve currency is the U.S. dollar backed by oil, which is causing the United States deindustrialization.
That brings us to the second thesis.
That first thesis kind of sets the stage for how the age of the electron is going to change things.
The second thesis is the age of the electron will make energy cheap to produce but expensive to transport,
which will be a deglobalizing force leading to the reshoring of industry.
So what that means then, in the age of oil, energy comes in the form of extracted fossil fuels.
This energy is overall expensive to produce and everything, but it's easy to transport as barrels of oil around the world.
Domestic deindustrialization occurs in the United States in the age of oil, in part because energy is so expensive to produce but so cheap to transport.
Therefore, it's cheaper to move industry to an area where there's a lot of cheap labor you can exploit because it's easy to also move the energy there.
You go to where the labor is cheap.
That's the variable that you want to plug in to decrease the cost of manufacturing.
And so under the Triffin Dilemma, there will always be cheaper labor outside the United States because the dollar is very strong, because the world is hungry for dollars to fuel global commerce.
And so that's where industry will go because it's easy to transport energy.
So if energy was more expensive to transport, but far less expensive to produce, that would cause the reshoring of energy intensive industrial processes closer to the sources of power production and make labor cost less of a factor.
That is electrical energy under the age of the electron.
electricity is expensive to transmit through the power grid but very very cheap at the source in
the form of abundant wind and solar energy mcginnis summarizes it in this way quote this is a
meaningful difference from the petro-industrial complex where we went to where oil was cheapest
extracted it and then sent it where we create goods we can do this because shipping oil was
comparatively cheap. In cheap energy networks, Bitcoin mines will move in first and industrial
centers will not be far behind. That is, cheap labor pools may not have access to cheap power,
disrupting the globalized dynamic that exists today. So cheap energy and the Asia Electron
can help us reshore domestic industry. That's the second thesis, essentially. The third thesis is
that it will also allow us to transition to a new global reserve currency that is not issued by the
united states that is a neutral reserve asset backed by electricity so perhaps this is the
thesis bitcoin a currency backed by electricity we could call it an electro dollar can become
the new heart and vein circulatory system of global commerce what does it mean to consider
Bitcoin an electro dollar? Or to put it another way, we often hear this, what would it mean to
say that Bitcoin is a currency backed by electricity? So first to understand that,
we can recall that in the age of oil, the dollar currently is essentially backed by oil,
because that is the most essential commodity, the lifeblood of global commerce.
and there's explicit and there's arrangements to again price things in oil to encourage dollar
usage in the age of the electron electricity from renewable sources is now the most valuable
commodity not oil and so it will in some way take over the role of backing the um global reserve
currency and fueling a de-globalized yet international commerce. Bitcoin is the lead
contender to play in that role because its production is directly tied to energy consumption.
There's a lot that can be said about the technology of Bitcoin. We're not going to talk about all that
right here. Here we will consider what McGinnis calls, quote, the most interesting property,
unquote of Bitcoin in that it incentivizes productive use of energy by always acting
as a buyer of energy below a certain price level.
This is either like a, for me, it's, I find it quite complex.
And if it's that made sense on the first saying, it's probably deceptively sense-making.
So we're going to break it down here to hopefully make it make sense and also see the complexity
of it at the same time.
Basically, the idea is that the profitability of Bitcoin mining is tied directly to the
cost of electricity. Electricity is the major operational input to Bitcoin production and
Bitcoin mining, and its output is a type of commodity, Bitcoin, which is currently volatile,
but still has a market price that's set. So to give an example, if a Bitcoin miner gets $100
per megawatt hour in Bitcoin for that amount of energy expended, it will always be willing
to buy energy at that cost or slightly below that cost because that energy is less expensive
than the $100 they're getting worth of Bitcoin for that amount of energy expended.
If other users are willing to spend more than that, say $110 per megawatt hour, but the
Bitcoin miner can only get $100 worth of Bitcoin out of it, the miners can't compete and they just
turn off. Bitcoin has a commodity price, so Bitcoin miners can put a specific kind of maximum amount
on how much they are willing to pay for electricity. All energy uses that are willing to pay more for
electricity than a Bitcoin miner then are, under this framework, by definition, more productive
than the base level activity of Bitcoin mining. McGinnis summarizes it this way, quote,
If you can create more economic profit using power to mine the currency that enables trade, then you can create by producing a good to trade for that currency, and you probably shouldn't be using power to produce whatever good that is.
That is, Bitcoin mining acts as a filter by disincentivizing economic activity that will not lead to actual growth and productive surplus.
This is unlike the fiat currencies we have today that, through cheap debt and targeting 2% annual inflation, drive us towards spending, mindless consumption, and creating companies that are oblivious to true value creation.
Again, I find this a deceptively simple and complex idea, so maybe we'll talk about it more in conversation.
But even taking that for what it is that Bitcoin might set a price at which things are to be considered productive uses of electricity, some might have the concern that this means valuable uses of electricity will be driven away by Bitcoin mining because mining will set that floor price too high.
That is that what if the Bitcoin price skyrockets and mining is just immensely profitable?
Won't that cause it to rob energy from other quote unquote productive uses?
So McGinnis thinks that this ignores an important dynamic of Bitcoin mining and that a higher price for Bitcoin incentivizes more miners to enter the market.
more miners in the market means more energy must be expended to receive the same amount of bitcoin
because the amount of bitcoin rewarded to the miners does not go up so now if bitcoin miners
were earning a hundred dollar megawatt hour previously they might now be earning fifty
dollars megawatt hour as more miners enter the market so the marginal cost is driven down
to give an analogy i think this is an okay analogy even in a gold rush scenario it's sometimes more
profitable to sell pickaxes to gold miners than to go mine the gold yourself. There's a cost at
which it's not profitable to go mine that currency. It becomes more profitable to give, you know,
haircuts to miners instead of risking it and going and doing it yourself.
We see this dynamic, Beginner says, already beginning to play out in Texas. It's not playing
out globally. The network is not yet mature enough to where it is setting that kind of
floor price for productive energy usage.
But in Texas, we've seen miners shut down when the price of power exceeds the marginal
cost to a Bitcoin miner producing more Bitcoin.
So to summarize this again, because I find it a little bit complex, McGinnis notes, quote,
only those goods that can be traded for more Bitcoin than the equivalent value of electricity
needed to produce them will be produced.
so that is a summary of how bitcoin could be considered an electro dollar backed by electricity
by setting a floor price essentially on energy use to quote mcginnis again um as electricity
now fast becomes the most important commodity in the world it makes sense to explicitly tie our
money to its production that's the electro dollar in the age of the electron just as we have the
petrodollar in the age of oil. That brings us to the final thesis. So to recap, first we saw how it
is problematic that the US dollar is the global reserve currency and that it leads to the United
States de-industrializing domestically. Second, we saw how cheap renewable energy that is expensive
to transport can de-globalize industry in a sense by causing industry to reshore to where the energy
sources are rather than going to where labor is cheap. Third, we saw how Bitcoin is the logical
choice for a new neutral global reserve asset in the age of the electron in the way that it sets a
floor price and in the way that it's directly tied to energy consumption and how it produces Bitcoin.
So the final thesis then, this is why this is in national security in the digital age.
All of the essays we've read so far have essentially said, how does this impact
kind of our inevitable confrontation with China or something like that.
So now we'll see how China presents a threat in the U.S. transition to the age of the electron
and what can be done about that, essentially.
So basically, the threat is that China dominates in the production of lithium batteries,
solar panels, and other such tech.
We can overcome this by an Ouroboros, I think I'm pronouncing that strategy,
a snake-eating-its-tail type strategy, where we can import clean energy tech,
which will result in more industry returning home,
which will allow us to begin producing more tech on our own,
or a boros because we can use our position as the global reserve currency issuer
to buy the technology, which allows us to produce the cheap energy.
The cheap energy then allows the industry to come back home.
that is the old system the age of oil will eat itself and become the new system the age of the
electron this will be difficult and so we and we need to acknowledge the difficulty of this dynamic
mcginnis notes that the more clean energy tech we import import the more our dependence on fossil
fuels declines which could bring down the petrodollar system that is allowing us to fuel
our adoption of the age of the electron system,
thus diminishing, again,
our ability to finance the clean energy tech.
So to conclude, I'll quote McGinnis.
So if there's one thing to take away from this piece,
it is this.
The structure of the U.S. dollar as reserve currency
prevents us from making anything at home.
There is no keeping the system as is
and also bringing home manufacturing.
You are for or against.
we must transition to a neutral reserve asset world and prepare ourselves for the inevitable
decline of the petro-industrial complex and again mcginnis thinks we do that by
consciously navigating how we're going to enter the age of the electron which he believes is the
next age that we're going to enter so that's a quick summary there's four theses here so
we could kind of go through them, Lucas, and talk about the significance of each one.
The first thesis is something we've talked about a lot in the past. The U.S. dollar,
as a global reserve currency, has a lot of problems when you're the issuer of the global
reserve currencies, most specifically kind of de-industrialization. But do you have thoughts
on that, about whether being the global reserve currency issuer is a good or a bad thing?
what I have is
as you were talking
kind of an analogy
or metaphor
a story popped into mind
which is
how I'm trying to
explain this to myself
and
explain
explain what
like the whole idea
or just this one idea
of the US dollars
gold reserve currency
basically like the
Triffin dilemma
because it's
it's not
it's not necessarily
intuitive
no yeah you know so the what i'm thinking of is think about like an elementary school bully
who finds somebody and says look i'll beat you up unless you give me your homework
and that works until something changes like the petrodollar works until there is an increase in
the availability and a decrease in the cost of alternative forms of energy, solar, nuclear,
wind, etc.
So it works until something changes.
So you're the elementary school bully from fourth grade until sixth grade.
You don't do any of your homework.
You just threaten to beat up the other guy, which is what the United States does.
We basically say, we'll keep you safe if you give us your production.
And if you don't, then, you know, bad things will probably happen to you or we'll just rearrange the order.
But then something changes.
In the real world, it's the technology that changes.
It's the battery storage capacity and the cheapness of solar panels and the ability to produce things just generally cheaper due to automation.
In this instance, maybe it's like puberty.
Like you go through and all of a sudden now you're not the biggest, scariest guy.
And you're a seventh grader now.
and where are you in the terms of things is that you haven't grown physically,
but you also haven't grown mentally.
You haven't grown academically.
You haven't put a moat, basically like a moat of intelligence around yourself
that you can use to navigate the world.
You know, if you, let's say you miss out on a couple years of academics
and you're a fourth grader competing against seventh graders, eighth graders, ninth graders,
you know, what then happens?
What happens is that in a lot of cases you're kind of too far behind to catch up.
And this dovetails into a lot of things that we've talked about before.
one of the things that
it makes me think of is the network state
that we're talking about concurrently
which is that we
we grow to, we basically grow to understand
that
we can't change things once they start to go bad
in order to make them the new better thing.
So I gave the analogy to my sister last night
when I was telling her about this idea
that something new must arise.
You can't fix the old thing.
And it's not that you can't,
it's just that it is too,
it's not cost effective.
It's not efficient.
It just doesn't work.
And I gave the example of like,
Imagine that you had a car and you drove this car for 50 years And then all of a sudden there new technology that allows for the making of jets and um changing things in like to try and change the current order
in order to uh accommodate that would be like trying to change your car into a jet it's just
not going to work very well. What you should probably do is build a jet from scratch and, um,
that will work much more efficiently. So, um, so we're presented really with this idea of, um,
the, the global economic order is changing and it's changing because energy is becoming so much
cheaper at the source and it's becoming cheaper at the source because technology has advanced to
make it cheaper at the source to capture the solar to capture the wind which is always there
possibly nuclear he does he does go into that a little bit but you also have
another factor which is a decrease in the cost of labor so as we automate as we put in put in
machines to do human processes, you no longer, as he mentioned, you no longer have to go to the area
of labor. You can have the power there. And since the power is so much cheaper and the power is what
is what feeds the labor in terms of feeding a machine that's powered by electricity or something
like that, then you have two forces that are coming together and meeting that are having
a massive effect on the current system, really undermining this idea that we are going to
take power from here in the form of a barrel of oil and move it to here where labor is
cheap.
And we're going to bring it there.
we're going to use that to power the factory that is run by the cheap workers.
And now we're flipping that all on its head and we're saying,
actually what we're going to do now is we have the technology to have the power right here.
And because we have the power right here and an abundance of it,
we can use it to power replacement for human workers in the form of machines.
And also we have another option, and that option is whenever it's more profitable
for us to mine Bitcoin than it is to make something,
then we can just transition and flip.
No one's ever had that option before.
You couldn't be a baker and power your bakery by solar
and run your oven by solar and use the excess
and put it into batteries and save it.
And then at night when you leave and go home,
just flip it over to mining Bitcoin.
and make money during the night.
You couldn't do that.
It just wasn't available.
And so this is another case of how technology,
an advancement of technology,
fundamentally changes the face of the entire world
so that it's just not recognizable anymore.
Yeah.
I kind of ranted a little bit there
because I wanted to get out my junior high.
Well, I think that's, yeah, I like that analogy
because again, I think the Triffin Dilemma is a very complex thing.
And I think you're right that it's not intuitive.
I think metaphors can help us understand aspects of the dilemma.
And one aspect of it is like that bully who depends upon their already existing strength
rather than developing a new capacity allows them to be parasitical.
And that parasitism is part of the system and that they're providing protection to support the system.
But that's not good in the long run for the bully because they don't develop the industrial capacity.
They don't develop talents or whatever.
And, you know, any transition is inherently painful.
You know, you mentioned puberty just offhand.
Adolescence, I think etymologically you see dol, D-O-L, dolore, pain.
Like adolescence is a stage of pain.
Transitionary stages are painful because the old is dying and the new is yet to arise.
and this process is our concurrent.
We have a transition from the age of oil to the age of the electron.
Before that, we had the age of wood to the age of coal to the age of oil.
So we've had these energy transitions in the past where the primary source of fuel changed to a new type,
and that requires new technologies, new productive capacity, new institutions, really.
And that's a big part of this essay. McGinnis is like, once we go to the age of the electron, it's not just a technical endeavor. We need to have new institutions that enable that and that deal with its consequences.
One of those being, again, if the U.S. dollar is now backed by oil in the sense where it's tied through the petrodollar system to the Saudis and OPEC, you know, requiring, denominating their oil in dollars, requiring dollars to buy that oil.
If that is, in a sense, what backs the dollar, once that backing is really gone and needs the electron, what happens? We need new institutions and the United States needs to be very conscious about how this transition is done, both so that the U.S. currency doesn't just hyperinflate and once it loses its backing in oil, but also so that we don't become another global reserve currency in the future based on electricity or something.
that it's not good to be the global reserve currency.
This is both a terrible thing
because the old system is dying,
but also a huge opportunity
to allow us to throw off the yoke of this system
that has really led to huge,
like vast income inequality,
the loss of the blue collar working class
as a really formidable economic class
in the United States
and the deaths of people, honestly,
through depression, despair, and all of that.
Yeah.
When we're looking at the United States
and seeing where we're going as a country,
we do appear to be in both the best and the worst position.
We're in the best position.
We are currently that global leader,
but it's like we are in a race,
and the race is, say, you're just running and we're leading that race.
But the race is about to change to, say, flying.
And all of a sudden, you know, like your lead doesn't matter as much,
but we can utilize it.
So this goes, it speaks, I think, directly to this sunk cost fallacy.
We have a massive economy based around oil, based around drilling oil, transporting oil, storing oil, refining oil.
Protecting oil providers.
Yeah. I mean, if you think about, you think about like vehicles, like the seats are made of oil derivatives.
The dash is made of an oil derivative, the tires, you know, like petroleum is in shockingly nearly every single thing that we have.
It is incredibly difficult to find something that you have that doesn't have some sort of petroleum influence into it.
And so we have a massive amount of infrastructure dedicated to it that is not particularly helpful in transitioning to, say, Bitcoin, a Bitcoin centric system that is based on solar, that's based on wind.
And however, because we have that big lead, because we have that industrial capability, we are able to utilize that.
But it's just really hard to do that, right?
It's really hard to be the creator of something.
You know, we created this petrodollar.
We created this U.S. dollar.
and it's really hard to admit that it is failing
and then use that in order to subsidize
and to pave the way for the replacement of that thing.
You know, like, it's just, there's pride involved in it.
There's sunk cost fallacy involved in it.
There's the logistics of it.
And there's the fear.
Are we, like, are we paving the road to our own...
Demonstrates.
Yeah, absolescence. One way is to say, no, let's not acknowledge that the age of oil is over and let's resist. Historically, resisting the future has not been a good strategy, but it's also difficult to tell what the future is going to be. And so people can present it as a viable thing.
like, no, you know, oil has these uses and we don't need to change our institutions.
Even if we do use more electricity, we can just keep on gliding along as the way things
are.
We're pretty, you know, as the global reserve currency issuer, we at least have a lot of
wealth coming into the United States, a lot of goods and stuff.
So why worry?
Why rock the boat, you know?
Yeah.
I think that is the attitude that people who are in the top 5% have, right?
The fire, the financial insurance and real estate, that's how I think Pines framed it as the classes that benefit.
Right, yeah.
So asset holders.
Yeah.
Right?
Those who hold assets effectively, I guess insurance is a little different.
They insure the assets, right?
Yeah, exactly.
They insure the assets.
And if you insure the asset and the asset has been monetized, meaning that the value of it is driven up,
then that means that the premium in order to insure that asset also goes up.
By the way, this is, I think, kind of one of the fascinating.
We're going to deviate just a little bit here, but we're going to talk about the fires that recently occurred.
I was just in L.A.
And I tried to go to Pacific Palisades.
I was turned away.
I wasn't allowed to go in.
Turned away, but like, there's like a roadblock or like how it's military.
I assume National Guard.
Yeah.
But yeah, I tried to go in and, but anyway, so one of the things that I learned listening
to, listening to the All In podcast was that what had happened.
So the average house price was like $9 million, you know, like houses ranged up to like 50,
$60 million, but the average house price was like $9 million. And the inflationary effect on those
housing prices, obviously you're going to have the inflationary effect of this is monetized real
estate. It's close to the ocean. It's a prime real estate. Therefore, people are going to want it.
Michael Saylor talks about this with his example of the house in Miami, right, that was originally
$100,000 and now it's $30 million. But one of the other things that happened was that the state of
California told insurance companies that they had to cap their insurance rates, that they weren't
allowed to charge over a certain amount. And so if that happens, then that has another inflationary
effect on the value of the real estate, right? So if you have a $10 million home and a $30 million
home, and they put a cap on the insurance so that insuring the $30 million home costs the same as
the $10 million home, then you're more incentivized to buy the $30 million home. If you're more
incentivized to buy the $30 million home, that means there's more people who want it. If there's
more people that want it, that means that the price goes up. And so it's the, it's a circle
where it drives the price up continuously. Um, and so that anyways, that there's just kind of
like a, a little side side note onto that. But, um, it's another example, I guess, of how meddling
in markets, uh, sends a bad signal that ends up being very disruptive. Anytime you, anytime you
meddle in some sort of market, you disrupt the pricing signal, and that leads to bubbles and
collapses. So anyways, that was just something I wanted to talk about because I thought it was
interesting. But if you're looking at where we are in the United States today, and what can we do
in order to compete in the future,
we are in a very difficult position
because these are kind of like vectors
and it's as though we are going this way
and we're leading everybody going this way.
But we look over here and we know that in order to compete,
we have to drastically alter vectors.
And the further we go along this path,
the farther we get from the other one.
Yeah.
So, yeah, we are in a very difficult position that I think, yes.
So hollowing out the middle class, but not just hollowing out the middle class, hollowing out the hard sciences class, the academics.
And so I want to share this.
This is from the website WTF happened in 1971, which the author, I believe, pulls a couple charts from.
So I'm going to, because you've got a law degree, I was in law school for a very brief time.
This is one thing that is interesting.
In 1971, here's 1971, we go off the gold standard.
and what happens is the number of lawyers shoots up.
Not only does the number of lawyers shoot up,
the number of physics PhDs by U.S. citizens drops drastically.
It has started to come back a little bit.
There's another one down here that I wanted to show.
it was
growth of physicians and administrators
so this is
the brown or reddish whatever
tome is the physicians
the yellow is the administrators so we have
basically since 1971 we have
increased basically like the ratio of administrators to physicians has gone from like
whatever it's increased by a factor of like 25 to 1 or something like that um you had mentioned um
kind of this extractive economy and that's um you know the legal system does great things but it is
at its core extractive. It is not producing a good. Administrators do a good job of doing what
they do. They're needed, but they are at the core extractive. They are not producing a good.
And so we've developed all of these extractive economies built on top of where our hard sciences
used to be and i think there there may be a saving grace the saving grace may be that ai makes it so
that it can do all of the hard sciences stuff and we just need to be able to know how to prompt it
we just need to be able to be creative and be able to um be able to imagine um you know if you
live in this world where anything that you imagine AI can help you create, then I think that
that puts us in a great position. That puts us in a great position because we do have the
strength of being that imaginative country, that, you know, that bright spark, that light,
that creative kind of, you know, like the United States has always been a very creative place.
because it is populated by all of the chaotic rebels.
And therefore, I think we're in a good position there.
But yeah, things don't look great in terms of where we sit in our ability to reshore that production.
He talks about stranded assets, like literally trillions of dollars worth of factories and refineries and equipment that is in other countries that we put there in order to move production to the source of cheap labor.
Right. And now now that's flipped. So we don't have the cheap labor. The cheap labor is not the the driving factor anymore, not the forcing factor. It's the cheap energy. So in the future, we will go or well, actually not the future right now. We go to where the cheap energy is and we bring the production there.
Yeah. And like the United States has the capacity for a lot of cheap renewable energy. But in addition, McGinnis mentions a phrase that I had not heard before that I really like. There is like there is reshoring of an industry. There's also friendly shoring. So it's not necessary that we have to reshor everything from China that went there.
if we have an antagonistic relationship with China, we can friendly shore it to countries that we have really good diplomatic relationships with.
And that's kind of the last essay we read was about how Africa might be that new place.
They have a lot, they have abundant cheap energy resources, and it could be a lot more friendly to the United States
in that the people there seem to incline towards a liberal, small-l liberal, freedom-oriented vision of the future,
that they would be more inclined to opt out of China's techno-authoritarian stack if there was an alternative.
Could you share your screen and go to that Google document on the two causal chains?
So I think this was a good way to explain also...
another way to explain so it makes sense um why the age of the electron is going to
lead to a different outcome structurally than the age of oil so this is these are two charts from
the essay that mcginnis made to kind of explain his thesis first we see the age of oil so i'll
try to explain this um i i think i understand this we'll see if my understanding falters halfway
through. So the first square in the causal chain, we see a structural increase in global energy
pricing. That is just because oil becomes more expensive over time as more and more countries
begin to use it and it fuels global commerce. Yeah, demand increases. So the increase in demand
because energy has such a multiplying effect.
The increase in demand outpaces the increase in supply,
and therefore the pricing goes up in real terms.
Right on, yeah.
So there's that structural increase in energy prices.
That leads causally, he says, to the emergence of the petrodollar in a few ways.
I think most generally you can just say that the most expensive commodity logically is going to serve in some way to back the global reserve currency.
When gold was that, the gold backed the currency when gold was the most valuable thing.
And now oil is the most valuable commodity.
And there's, again, this kind of quid pro quo arrangement that arises.
the U.S. smartly, intelligently understands that if we have this structural increase in
global energy prices based on the rise in the price of oil, if we can tie the dollar
to oil, then that's going to be quite a good system for the U.S. dollar.
But that brings us to box three.
It turns out maybe it was really good for the dollar and for the financial classes that
benefit from a strong dollar.
But the Triffin dilemma, the structural need for trade deficits, this led to us needing to supply the world with dollars to export less than we imported.
And as we've been talking about, to kind of hollow out the industrial capacity of the United States, which leads.
Let me pause you.
Yeah, go ahead.
So this is the structural need for trade deficits. So what we're talking about is that in order for this system to work, the rest of the world has to have dollars and we have to get those dollars to them somehow.
And so how do we get those dollars to them? We get those dollars to them really by moving our manufacturing and industrial capacity to other countries and then buying those products that are made there so that ostensibly it looks as though we are moving money to those other countries so that they have dollars.
And I just I wanted to pause you because I wanted to go up here and show right here.
This is the balance of trade.
So what we're talking about is the structural need for trade deficits.
So trade deficit.
So look up here.
Yeah, it's a great chart here.
United States balance of trade.
So when the petrodollar system began in the mid-70s, so we had had effectively a trade.
We were trade neutral.
We didn't really have a surplus or a deficit leading up to that.
You know, we vacillated just a little bit.
But when we instituted this program, just to really hammer home, what happened is that you see that the trade deficit just goes straight down.
Bonkers.
Just, you know, absurd to the point.
And all of this, by the way, so a way to think about all of this blue shaded area under the zero, a way to think about that is this is all of the value that was being, it was being created domestically, and now it's being created internationally and then imported.
and so
this is the true
this is just the picture of the hollowing out
of the middle class
so I just wanted to highlight that
that's a terrifying chart
when you
us dipping below zero into deficit territory
and trade relations
if you can't see the chart
it's pretty phenomenal
it's an immense amount of deficit action
sinking like a stone
so that brings us
we're in this causal chain from an increase
and energy prices, emergence of the petrodollar, which causes us to be subject to the Triffin
dilemma, the structural need for trade deficits.
Now we're on to the fourth link in this causal chain, the globalization of the industrial
base.
We've been talking about that.
Again, now production is moving to cheap labor pools around the world.
Our industry is going out to places where it's cheaper to manufacture.
The dollar is very strong because the world wants it.
And so paying people domestically to do the thing is much less cheap than sending it to a third world or another country to have them do the thing and having them receive their local currency.
I'm going to jump in again real quick.
So I think it's important to note that it is not the United States that is losing that industrial base.
it is the bottom 99 of the United States Yeah The top 1 owns it So when is something that does feel very devious and just doesn feel
good about this because we are losing
this manufacturing capability to other countries. The industrial base is
moving to other countries. We are doing that in order to feed those
other countries with dollars. You would assume that
those other countries are becoming more wealthy, but they are not.
In fact, in terms of the wealth inequality, those countries are now sinking further and further and further into debt
and having to hyperinflate their currency as well.
And so it's like the top 1% of the United States plus the top 1% of whatever country that we're moving this to that benefits.
It does not benefit the people as a whole in either country.
And so I just thought, I think that's important to note because it's not, there is no, there is no like consolation prize of like, oh, the people in America can no longer afford to move out of their parents' home or buy a house or own a car or raise a child or pay off their student debt.
But people in Mongolia, people in El Salvador, people wherever, they can now do this stuff.
That's not the case.
The case is that the top 1% of both of those countries has seen an outsized gain in their wealth while the bottom 99% has truly suffered.
Yeah, now that's an excellent and a very, very important and subtle nuance.
I'm glad you highlighted that because it's easy to talk over that point.
I mean, the real, the two big...
Globalization sounds good, right?
Yes.
It sounds like we're cooperating.
It sounds like we're being friendly.
It sounds like we are blurring borders between countries
and we're becoming more a people of the world
instead of people of X country or Y nation, etc.
But the reality of it is that the wealth inequality in all countries involved all across the world is becoming worse and worse and worse over time under this situation.
Yeah, no, and McGinnis points that out. The two problems with globalization are the huge amount of wealth inequality that's constantly being created, and also the risk to our supply chains that if we are locating our things in hostile powers territory, that's not good if we didn't go to war with them, of course.
So that brings us to the final link in the chain, which I guess we've been talking about, domestic wealth inequality.
Right. That's where we end up in the age of oil, beginning with a structural increase in global energy pricing.
We end with domestic wealth inequality. So the causal chain for the age of the electron could look different.
This is McGinnis's hopeful description of a new causal chain.
So what if we begin with a structural decrease in the cost of energy production?
And that's what we've been talking about. If specifically solar and wind energy, which are incredibly abundant, can be produced incredibly cheaply and really in dramatic fashion, lower the cost of energy, what are the effects of that?
So the next link in the causal chain, McGinnis says, is a deflationary effect on local energy prices.
These, again, the age of the electron is about renewable energies that are cheap to produce and abundant, but expensive to transport.
So that has a deflationary effect on local energy prices where that energy production is occurring,
which leads to the third chain in this causal chain the third link in the causal chain
localization of the industrial base the thought is that now the industrial base doesn't move to
the cheap labor pool it goes to where local energy prices are very very low which leads to the fourth
link the re-emergence of opportunities for domestic labor you know the the most important input is the
energy price. And if that is very, very cheap in a place, the domestic labor stands a chance of
making a decent wage, which leads finally the final link in the chain, the electro dollar
paradigm. And I take that to be the use of Bitcoin as a neutral reserve asset backed by electricity.
Is that how you're interpreting that, Lucas, this causal chain here?
Yeah, we're moving toward Henry Ford's vision of an electric currency that we discovered in Jason Lowry's software thesis, which is, I think, beautiful and brilliant.
One of the things that I wanted to mention here is that localizing the industrial base, moving that production back.
So I want to kind of hammer home the idea or the concept that may be hard to grasp, but we are, I would say, rapidly moving toward an era where everyone becomes their own power plant.
where you're, you know, right now it's a very niche thing to be living off the grid.
Yeah.
To, you know, producing your own power and not be dependent upon an energy source
in order to power your home, to turn your lights on, to run your microwave,
to take a shower, etc.
And the reason being is that the primary source of power is oil or nuclear.
And having an oil refinery in your backyard is not feasible, nor is having a nuclear reactor in your garage feasible.
However, the end result of both of those energy production methods is electricity.
We refine the oil or the coal to burn in order to generate electricity.
You don't heat your house with oil, you heat your house with electricity.
You don't run your microwave on nuclear energy. You run your microwave on electricity created by steam that is heated by nuclear energy.
And so the end result, the thing that takes us to the final is electric energy.
So what is the gap?
Like what is keeping us from having our own power plant in our backyard, in our garage, on the roof of our house?
It's the refining of whatever that power source is into the final product of electricity.
We haven't been able to do that because those methods just weren't feasible.
But now we are seeing Moore's Law being applied to solar panels and also to battery storage.
So we are seeing solar panels become much, much more efficient and able to extract more energy per photon, basically, light photon that hits it.
And at the same time, we're also able to take that energy and store it in a smaller place, in a smaller battery, the same amount of energy being stored in it, or more energy being stored in the same size of a battery.
And so we are on the cusp of being able to be our own power plant.
So what does that mean if you can be your own power plant? That means that you are now in the position to join together with other people who have their own power plants to create a local grid that can service industry with the excess electricity that you create.
And so if you're able to do that, then you can create this, as we see, reemergence of opportunities for domestic labor.
Right now, that's not feasible because the cost of labor is too great.
But if we are able to have this deflationary effect on local energy prices, then we can move into that.
And so, yeah, we rapidly, I think, move into an electro-dollar paradigm. I personally think that it will be led by other countries. I think it will be led by countries in Africa that are leapfrogging and moving from literally having no electricity at all to having an electro-dollar paradigm where they are their own power source.
I think about this because I think about like, if you look at cities that are in the Midwest, the cities in the Midwest that get the same type of infrastructure that was originally put in in the big cities in the East and the big cities in the West.
you know, a subway system or a rail car system or high speed internet, things like that.
Those cities in the Midwest are able to leapfrog to go from nothing to being the best.
Kansas City went from just a little place in the Midwest to a almost global tech hub because Google Fiber chose that location
to put the world's fastest internet into.
And so you see that you're able to leapfrog with less infrastructure.
Now you'll be able to leapfrog with Starlink,
having the fastest internet in the world,
and you don't have to build any infrastructure for that.
You just have to plug it in.
So, yeah, I think it's really fascinating
because it gives us a path for where the United States can go,
but it also really highlights how much of a head start it actually is to be behind,
to be in the position that has none of this infrastructure,
has none of this sunk cost,
has none of this administrative, extractive economy built around
that has legal protections and trade unions.
Yeah, lobbyists.
right lobbyist exactly so um it's a it's a fascinating position to be in yeah um yeah no
this is a common theme that we talk about when we talk about bitcoin and the societal changes around
it is the decentralizing impact that it and the constellation of technologies accompanying it
will have and i think you're very right to emphasize that and talking about the
electro dollar paradigm and just to plug for one our last conversation about um bitcoin in africa
but two um for james mcginnis's podcast der task force that's distributed energy resources a topic
that i had not really read about much at all prior to reading this essay and there's a whole
sub community based around again as you know lucas like we can't have a nuclear reactor in
our basement, but we can't have a solar panel on the roof. And these like, it sounds like both
enthusiastic hobbyists, but also people who are starting their own companies around energy
production and doing very exciting things because it's such a nascent industry. And it's so
decentralized, distributed that it's viable to start that company from your basement. Yeah,
you got the website there, they have a sub stack that's very interesting. And again,
And it looks like a whole community around this.
And that's kind of the mission of the DER task force.
Very Bitcoin adjacent, I would say.
I've listened to a couple of them.
I listened to one on Bitcoin, one of their podcasts on Bitcoin.
It was very interesting because one of the hosts was for it.
I think that was McGinnis.
One was kind of, yeah, I'm kind of for it.
And one was kind of vaguely against it.
But all of them had, they were good faith in their positions.
It wasn't just a retread of the same bad arguments.
Even the people that were kind of vaguely, you know, not against it, but kind of vaguely negative opinions, they had a deep understanding of Bitcoin.
So, yeah, I just I would definitely check them out if you want to go deeper down this rabbit hole.
One thing I'll go ahead.
So one what are what were some of the arguments, if you remember, like, do you remember any of these?
if it is a well thought out argument
there's Nassim Taleb
who's a very intelligent person
who does not support Bitcoin
there's another guy named Mike
I think his name is Mike Green
he's a really talented macroeconomist
who also doesn't support Bitcoin
but those are the only two
I would say smart people
who I think have looked at it
that either don't get it
or don't support it
because I'm always interested to hear, obviously, and you and I both,
we're invested in this thing, and therefore we more than anyone are interested in knowing how it doesn't work.
Do you remember any of those reasons that they gave?
This podcast was mainly centered around Bitcoin's effect in stabilizing energy grids,
so not necessarily like, is it a good currency?
Will it be a good global reserve asset or whatever?
and I think
yeah no I wouldn't want to say
I wouldn't be able to restate the argument
for or against right here
but it was some that just didn't think that
in that specific role it was going to play
as maybe an emphatic role
as a lot of Bitcoin oriented people
think that it will play in stabilizing energy grids
we do have one critique that
McGinnis notes in this essay
I'll read it
It's on that Google Doc on page 5.
So I'll read what McGinnis writes, and we can see what we think of this as an argument.
He says,
The counterpoint, however, is that fixed money supply, as Bitcoin has, introduces a new tyranny.
The price of money will continue to rise against other goods and commodities, essentially turning savers into a landed aristocracy.
As Bitcoin gets more expensive against other goods, it will be impossible to invest Bitcoin to create more Bitcoin given its fixed supply.
It effectively says that savers do not need to reinvest their savings into the economy to continue receiving gain.
If Bitcoin becomes too expensive against other goods and its price cannot be lowered through new supply,
it will not be an effective medium for trade and market participants will turn away from it.
This is a bit of a moot point as it is not an actionable perspective for decades as its transition takes place.
Bitcoin functions as a deflationary force against the inflationary regime for now and is not yet a medium of exchange and trade.
if Bitcoin doesn't course correct
as it begins to be used for trade
it will simply get too expensive
so what do you think of that argument
that there's a limited amount of it
people save it, the value is going to keep on going up and up and up
that maybe in any balance
there's a balance between savers and lenders
and that Bitcoin goes too far in the direction of saving
because the cap, this thing you're saving is limited,
and so it's going to keep on going up in value as more people want it.
I think if you replace the words fixed money supply
with some other asset like real estate or Google stock or whatever,
then you can kind of take a look at this from a market dynamic perspective,
which is simply to say that whenever an asset becomes too expensive for – whenever the asset's price exceeds its value, then the market corrects.
And I think that this is, my critique of this critique is simply that it lacks a fundamental understanding of markets.
I think that we see this in real estate.
We see this in certain monetized assets because those monetized assets are very much controlled by the asset class, by the landed aristocracy.
Bitcoin can't really be controlled in that manner to really corral the same plurality of a global asset,
such as BlackRock has been able to do with real estate or financialized assets.
It would be very difficult.
What I'm just saying is, he says,
if Bitcoin becomes too expensive against all other goods
and its price cannot be lowered through new supply,
well, if it comes too expensive against other goods,
its price doesn't need to be lowered through new supply.
its price gets lowered because those other goods then gain relative value for it.
It's not like you're still going to eat.
You're still going to watch a movie.
You're still going to buy a pair of shoes.
I think what this argument says is that,
oh, Bitcoin is so valuable that I can't afford to buy a banana with it
because the value that I get from the banana is not equivalent to the value that I'm trading for it.
That's not true.
Like, you need that thing.
And so I guess I would just say that this, it just fails to recognize that in a free market,
you have market signals, and those market signals are used to dictate the price.
You know, the clearing point between buyer and seller.
And so this to me does not seem like a well thought out critique, but I understand kind of what the point is.
So there are, I guess, two things to that.
One, I think we shouldn't underestimate how different Bitcoin is than any other asset class in being capped.
So when you started off your explanation, you said if we substitute in for cap supply, real estate or these other things that don't have a cap supply for real estate, you know, you could build new houses.
I mean, there's only so much beachfront property, but there's still a lot of housing capacity to be built and to be had.
Well, and you can make beachfronts.
There we go.
Right.
I'm moving to a man-created beachfront, right?
Yeah.
So it's just like if the price is right, you can make more beachfront.
Yeah.
No, and so, you know, sometimes I think Bitcoiners have a tendency to look with rosy colored glasses at the cap supply and think that all consequences of this can only be good.
And I'm of the opinion that most of them will be good and in any case they will be better than the current system.
But I think I'm very curious as to what the potential negative consequences will be.
and I think there's a very suggestive phrase here that savers will be turned into a landed
aristocracy um in that I mean sailors compared bitcoin to real estate um and the thing about an
aristocracy is they don't have to have a corner on the market like and prevent new entrants they
just have to have the most of it at any given time to like constitute a new social class that's just
kind of a dimension different than others just based on the amount that they have if some people
have a whole bitcoin or 10 bitcoin and other people have 700 sats you know that's quite a
an inequality and you know we live in a very in a unequal system right now so i'm not this is in a
defense of the current system but i don't think you have to defend the current system to also say
there might be some bad aspects of a new system based on a cap supply as well.
I would say that the Pareto principle is going to play out everywhere.
We see it play out everywhere that 20% of the players in the NBA make 80% of the salary,
that 20% of the race car drivers win 80% of the races,
that 20% of the people have 80% of the children,
that 20% of the men sleep with 80% of the women.
The Pareto principle plays out across effectively everything.
And so I don't think that we're going to see anything that displaces that.
But we have, because of the manipulation of the monetary supply and the cancel on effect of people that are close to it gaining disproportionately from the creation of new money, we have gone past that.
So we've gone way past the 20% having 80%.
Now it's 1%, right, has 80%.
And I do, I can't pull them up right now,
but there are people that have shown,
I would say very conclusively,
that the distribution of wealth in the Bitcoin ecosystem
is far more democratic, meritocratic, whatever you want to say.
It's far closer to the Pareto guidelines, the Pareto distribution than the fiat system.
I wanted to take that to a different direction, though.
But in that sense, aren't the Pareto people, the 20% that's getting 80% on the fiat system
are people that are exploiting the system,
but also people that are making bold moves
to make a lot of money,
like the Elon Musk, the Bezos, and whatever.
Whereas what he's saying here...
What's that?
Or the people that are adopting Bitcoin.
Yeah, right.
But on the Bitcoins,
if in a hyper-Bitcoinized system,
where Bitcoin is the global reserve currency,
savers then become the landed aristocracy.
People that save rather than spend,
rather than people that venture
to try to gain something new.
Does that make sense? Like maybe saying there's a switch?
Yeah, and I think – I mean I don't think that I'll get much argument if I say that savers being valued more than spenders is probably a good thing.
Yeah, and I think so, but that's my thought naively.
And they're modern monetary theory people, and I disagree with most of their presuppositions, but I think that they think innovation is driven by lending.
And maybe – I don't know. I need to read. We need to read a book on that, I guess.
No, that's a really, that's actually, that's like, I think that is the best argument for modern monetary theory is that what you essentially do is you steal capital from the future and you bring it into the present and you make it cheap enough that instead of 10 people being able to try something, a billion people can try something.
And if one of those billion people gets it figured out and there's an asymmetric benefit to whatever it is that they discover, whatever it is that they create, then everybody benefits.
The counter argument to that, though, is that when you do that, when you steal that capital from the future and you bring it into the present, you create a cost of capital that has to be overcome in the present.
So it depending on who you talk to between say 7 and 12 per year that is your minimum cost of capital that you have to get over just to be able to stay in the exact same position
And so what that does is that forces people into a certain path.
The path then diverges from innovation to growth.
That instead of trying to innovate on something that is uncertain,
We don't know how long it's going to take. We don't know how much capital it's going to take. We just know that if we get this thing figured out, we will have an asymmetric benefit. That becomes a much less palatable option for people to pursue than to say cost of capital is 12%. We are currently making 15%. If we expand, if we grow, if we scale, then we'll be able to take advantage of economies of scale and we will be able to make 18%.
Yeah. Right. So you can. So if it goes into the idea of like everything in moderation, but if some is good, more is better. That's kind of like the new that's kind of like the fiat mindset of pursuing growth instead of pursuing innovation.
Yeah. And so, yeah, I think I think that is a great argument. I think that MMT argument is a great argument that you reach into the future and pull capital and you can use it now in order to potentially benefit the future.
The problem is in practice, what happens is that people, because you then create this short-term mindset where the short-term is that we just have to get over this 12% hurdle every single year, then you go for the safe option.
you go for the easy way out
because it's easy to build another factory
and make another 5% profit margin.
What it's not easy to do is create a rocket engine
based on a new type of physics that hasn't been understood yet.
So I understand.
Well, you go ahead because I've got a question for you.
I'm going to wrap it up on that point.
No, I've got a question for you.
My question for you was, so before we started recording, you talked about how you had this realization that, you know what, I'm not really a Bitcoiner per se because we've been talking to these like super hardcore Bitcoin people that are really, really, really in depth to every aspect of it.
But I'm curious if like reading about, basically you said that, you know, what I really think that I'm just like interested in being a generalist and looking at all these advances in different areas and kind of coalescing and bringing together how they come together.
I'm curious, was like reading about the DER task force, was that kind of like, did that sort of push you in that direction?
Because that, for me, I find that infinitely fascinating.
And like the idea that everybody's going to become their own power plant, that they're going to supply their own, maybe not every single person, but to a large group.
Like, was that something that sort of like, you're like, oh, this is really, really interesting and it's not really Bitcoin.
Yeah, no, it's that.
But in all the readings we've done, there have been things like that.
In learning about Bitcoin in Africa, you learn about the future of Africa.
in learning about Bitcoin as a power competition
through network adoption.
In Matthew Pine's essay,
you learn about the importance of networks as such
and the importance of having freedom-oriented networks.
And these are ideas that go beyond Bitcoin.
Bitcoin is an instantiation of a lot of the best principles
related to these things,
but it's only one technology.
And it's fun because it's a technology
that deals with money, which is a very social technology that has lots of downstream consequences
for how society is organized and human behavior.
So it's fun to look at all of the necessary and interesting and all these things to look
at all the consequences of Bitcoin.
But yeah, no, I enjoy Bitcoin because it opens the door to a lot of other interesting things
that you otherwise maybe would not have exposure to.
And I hope that people listening to these conversations also have that, that these are
not Bitcoin or conversations about the how amazing Bitcoin is, but about, you know, how
people with a lot of very educated and diverse perspectives outside of Bitcoin are saying
interesting things about Bitcoin and how if you're interested in Bitcoin, you can now
learn about these other worlds that touch upon it because Bitcoin is going to, as emerging
technologies do transform a lot, if not every existing industry or academic domain in some way
have some sort of effect. And it's, it's all connected. And that's why it's very interesting
to think about Bitcoin in the context of everything else. But yeah, my perspective is not as a
Bitcoiner, but as somebody who is interested in Bitcoin, because they're generally interested in
everything i guess yeah well the you know the the trope is that bitcoin fixes this but
bitcoin doesn't fix this unless people fix this yeah right so it may be bitcoin enables somebody
to do something different but you still have to do that thing you still have to move in that
direction and so and the other thing about um being a bitliner um or being you know just
it's so easy. All you have to do is buy Bitcoin and then you're done.
There's no, you don't have to get a PhD. You don't have to build
a solar generator in your home. You don't have to learn how to use
AutoCAD or anything like that. You just buy Bitcoin and you're done. And to be honest,
yeah, you're right. It opens
the door to all of those things, but I think there are a lot of people that are standing,
you know they open that door and they stand there and they just look in as opposed to walking in
and going and taking a look at um not only what the future looks like but how does the future
look in their mind that they want to create so i yeah i think that was a really perceptive thing
to pull out um that we are we're just entering an era i think of higher agency uh that is enabled by
this novel technology, Bitcoin, that removes the need for every person to be something and
an asset manager, a teacher and an asset manager, a personal coach and an asset manager, where
the decision is easy. You just buy this thing. It's the most valuable thing. It's the best thing.
If it stops being the best thing, buy the thing that is the best thing.
But right now, we live in this world where most of the world, you can't tell what the best.
If you remove Bitcoin from the equation, you can't tell what the best thing is because the market signals are so muddied.
They're so distorted by printing of money, by manipulation of markets, by price ceilings and price floors and lobbying and all kinds of things.
It's difficult to find the best thing.
And the truth is that there is not a clear best thing.
There are things that are better at this time than they are at other times.
And so you constantly have to be managing your own finances in order to just stay afloat.
So if you remove that obligation from everybody, then you do allow them, I think, to flourish in whatever they're chosen, whatever their true perspective on life is and move forward into that.
So, yeah, I think.
No, on a related point that we don't know what in any given sphere of what the new technological paradigm is going to look like.
I mean, that is an aspect of this essay, this essay where McGinnis is making a prediction that we're going to enter an electro dollar paradigm with plummeting costs of electricity driven by cheap renewable sources.
So I made a note of this.
I wanted to bring this up that he that McGinnis does.
So a lot of people are really bullish on nuclear energy, and especially within Twitter circles that tend to be pro-Bitcoin.
And so I wanted to read something that McGinnis wrote to kind of acknowledge this.
He says, while we should be funding SMR and that small module reactor nuclear deployments,
there is a strange phenomenon in the tech community that believes nuclear,
which has only seen costs increase over the following decade,
is somehow superior to solar, wind, and batteries,
which has seen one of the most drastic reductions in costs
that continues of any technology in modern history.
The growth rate should make any tech investor's eyes pops,
and it is discussed at length in Sung-Hoo's excellent piece,
and that piece is the Clean Energy Transition Guide by Sung-Soo,
T-S-U-N-G-X-U.
at, he's got a, maybe we can have a link to this if you remember to do it, at a substack.
And we have, I mean, maybe he doesn't, wouldn't repay the effort to do it, but I did have a
couple of charts in that Google document. And what they just show is what McGinnis describes
here, that solar and wind, the cost of solar and wind energy is declining. It doesn't really say
anything about nuclear power, but that's what he's reporting here, that nuclear power energy
has increased in cost.
So this, I mean,
I just want to note that asterisk.
I think some people are strong proponents
of nuclear energy.
This piece does really go hard
for solar and wind.
If you're skeptical,
I would read this piece and also read,
I started reading that piece by Sung Tzu
and he definitely does make a very strong,
the most bullish case you can imagine
for wind and solar energy,
even acknowledging the strength
of nuclear energy going into the future.
So definitely worth a read if you're interested in that.
Yeah, so here's the...
There it is, yeah.
So, tsungxu.com, and then you'll be able to find a guide to the energy transition.
But you've got to...
Yeah, I mean, it is fascinating to see that...
This is something that I was actually very unaware of,
was that the advancement of battery technology is progressing very fast.
A close, fairly, fairly modeling Moore's law.
And so, yeah, we are at this crossover point, at this tip over point,
where the cost of building batteries to store electricity is equal to utilizing fossil fuels to power things.
And it's only getting cheaper. And so, yeah, we're in this great crossover point where, you know, here, you know, cost fall and cost fall and performance improves.
And so we deploy more and it just goes around and around and around and around.
And that drives the cost down. It drives the deployment up and that drives the performance up.
And so, yeah, it's a it's a self-reinforcing cycle that really has a dramatic effect.
There's another part in that essay. He notes another part in that positive feedback loop where the deploy more and create more or whatever, or deploy more, cost drop.
There's also deploy more. We develop new technologies in that loop too, and the new technologies cause the price to drop.
But in any case, throughout the essay, he talks about that, that each energy transition revolution has led to the development of new technologies that were not foreseen when we went down the road of entering into that.
Like with coal power, we got the steam engine because when we switched from wood to coal, we got the steam engine because they created this steam powered way to pump the water out of coal mines because people were drowning when they were trying to mine coal in these mines.
And so the initial development of the steam engine was just to enable more coal mining.
But then obviously it has this huge impact in transporting coal and then even beyond that and powering boats and things like that.
And then becoming the dominant cheap transportation.
It's like steam-powered trains and steam-powered ships.
One of the things that I thought was interesting here was I had been probably very much leaning more towards the nuclear side
just because of the returns of energy.
you know you you get a lot for what you put in and mcginnis makes a you know he presents this
argument that i'd never really considered which is that you know the wind and the solar have a lot
of gains yet to come that will make it very competitive against nuclear and especially if
you consider trade-offs now there you know there's obviously the other types of trade-offs where like
um you know giant wind turbine generators terrible for the environment like we we know this now we're
aware of this um they disrupt the local ecosystem um they uh you know they they've seen like off
when they put them offshore whales for some reason start dying in the area if you have them on land
And then at the base of the tower is just carcasses of dead birds everywhere.
And it truly does change the ecosystem.
Obviously, with solar panels, there are environmental concerns as well.
And so nothing, you know, everything has a tradeoff.
But this essay framed to me, it made wind and solar a much more competitive thought in my mind than they had been previously.
And yeah, it's interesting to think about it that way, where the technology is right there for us to have a wind or a solar power generation plant at our home.
it's not there yet to have a nuclear generation plant at our home.
And yeah, that's, he brings up a really good point there that I think is,
I think is something that you're right.
Like a lot of people, I would say on the, on the X platform,
they lean more towards, let's just put these small nuclear reactors everywhere
and let's take care of everything.
China is building like a hundred of them right now, I think.
So, yeah, it just presents a new take on that.
McGinnis has, he really does, he does a good job of presenting some novel thoughts, or maybe not novel to other people, but definitely novel to me.
Maybe Bitcoiners, by ideology, if you are in Bitcoin because of the ideology, should incline towards solar and wind because it is decentralized in a way that nuclear reactors, again, that's the centralization of an energy resource.
And energy is what powers the Bitcoin network and gives it its security.
So, yeah, people may want to think about that, too, when they choose an ideological affiliation to a source of energy.
yeah and that that sort of that that triffin dilemma type thing applies applies there too where
um you know on the surface it looks like we're getting cheap goods from other countries but the
true cost is the loss of our ability to be um anti-fragile of our ability to be resilient and
so um that may be the exact same argument that comes with nuclear where you could you could have
super super cheap energy but you're um still dependent upon somebody else and the cost of
being dependent upon somebody else is not known until that dependency is challenged yeah trusted
counterparties when can you not trust them so yeah yeah that brings us to the last thesis here
talking about um the importance of solar energy and who controls your energy supply that what is
the role of China as a
potential strategic threat
because it is dominant
in solar and battery supply chains
which could give a dominance in the age of the
electrons. So yeah, go down on that last
chart there. This is something
I knew nothing about. So
CATL
is a
Chinese company that produces
lithium ion
batteries and they
have had, according to, I'll just
read, Chinese
He's CATL, a battery manufacturer, dwarfs our tech giants in growth rates.
And so, Lucas, you're better at understanding graphs.
I just see numbers and lines, and things are bigger than other things.
Can you interpret this graph?
Okay.
The thing to draw out, I think, is, so take note of what he puts here,
is that CATL is likely the fastest-growing 10-year-old company ever at scale.
So at scale is going to be a subjective thing.
So what we're looking at is we are looking at annual revenue growth in the 10th year,
so the 10th year, and revenue during the 10th year.
So one of those things is going to be basically how much have you grown on average over those 10 years
And then how much are you currently growing? Because, you know, it's you're going to slow down like you're you're you're obviously going to slow down because you can't grow at 100 percent every year.
I mean, you can, but that's exponential and that becomes exponentially more difficult to do.
But the interesting thing here is that look at the comparison of these companies.
These are the world's most profitable, largest companies.
Google, Amazon, AWS, which is a branch of Amazon, Amazon Web Services, Facebook, now Meta, and then Stripe.
And so when we look at these over their first 10 years, what is their annual revenue growth?
So the annual revenue growth is – wait, what am I – yeah, I'm trying to decide.
So like CATL is at 125% annual revenue growth in its 10th year.
Annual, yeah.
And then –
Yeah, I was trying to determine what's the axis over here for.
That's for marking the revenue during their 10th year.
That's the total revenue.
Yeah, the revenue during their 10th year has those orange box, spades, or diamond structures.
And so you have both the annual revenue growth in green and the revenue during the 10th year.
So the green is relative.
That's the percentage.
The green is the relative growth.
And then the yellow diamond is the nominal growth or it's the objective.
The actual revenue, like the revenue during.
Yeah, so during the 10th year, the only company that has grown more during their 10th year would be Google.
But they haven't grown more. They had more revenue.
Sorry, they had more revenue. Yeah, you're right. They had more revenue. Exactly. They had more revenue.
But the revenue grows.
So Google is the only company that had more revenue than CATL in its 10th year of operation.
And CATL had more revenue than Stripe, Facebook, Amazon Web Services, and Amazon, a company I'd never heard about in my life.
Yeah, exactly.
Yeah, and the growth rate is absurd.
So, you know, if you look at this, the difference between CATL and Stripe is the growth rate difference is about a little over 50%.
So Stripe is like average annualized growth rate of, it looks like about 70%.
CATL is, for all means and purposes, about 125%.
So the difference between those two, the first and the second,
is greater than the difference between Stripe and Google.
Like the second and the sixth here.
So a massive, massive outperformer.
And this is a hardware company, right?
So this is something that they...
One of the things that I have found in looking at markets is that...
This is intuitive, I think.
It's not like a great revelation.
But if you're involved in hardware, you have a greater moat against your competitors than if you're a software company.
because you don't have to go through,
if you're a software company,
you don't have to go through the physical side
of mastering production.
You only have to go through the virtual side.
There is, though, with software that are like social networks.
You have the network effect, which is quite a moat.
Yes.
But I see what you're saying.
Like hardware is different than software
in that you have to have real-world infrastructure
to build these things, which is quite the moat.
Yeah, all the factories and stuff.
Yeah.
Yeah, that actually,
I didn't see that chart.
I missed that chart until you said this.
This was a really small one.
This is actually, Sing Su also had this in his essay.
So I had to go to his essay to pull out a high-quality one.
It's printed in the essay in the printed book, but it's very small and easy to miss.
So there's another one that shows, I think, that CATL essentially has like 35% to 39% of global lithium-ion battery production supply.
supply like it's that's it's how much it's producing and again like lithium-ion batteries
i also didn't hadn't reflected before on how immensely important this has been this is a
technology that is only like 30 years old and yet you know smartphones and which in and of itself
the fact that they're powering smartphones would be enough potentially but like these lithium-ion
batteries are in everything now that is like electrical that we use on a daily basis it seems
yeah it's it's enabling the electric car revolution and everything like you know everything that is
portable and electric basically um yeah massive effect power tools think about guys you know like
the difference nobody nobody ever had portable electric power tools until lithium batteries
came along and you you know then you didn't have to have you know if you wanted to be portable
before that you had to have a gas or a diesel powered generator and you had to have your cord
and plug into it and carry all that and now you just have just a little a little little battery
that you plug in so yeah it's um yeah those knock-on effects are insane like what what what
that does to the rest of the world yeah in terms of easier to navigate yeah and so the the again
the key point is that that's the lithium-ion battery is key to the age of the electron and
the production of that is predominantly taking place in China.
So if the United States wants to position itself well to enter the age of the
electron,
it needs to reshore or friendly shore that battery and solar panel production
capacity.
Yep.
Absolutely.
What do you think?
That's all I got.
I thought this was an incredibly fascinating essay for all the reasons we
previously mentioned,
but yeah,
it's really cool.
I encourage everybody to check this one out.
It's going to deepen your knowledge of not just Bitcoin, but of maybe a coming generational shift regarding the type of energy we use.
Yep. James McGinnis of the DER Task Force.
Just check him out. Looks very cool.
A different take, a more real world application.
These are people that are really, I would say, moving the needle when it comes to making positive change.
So, yeah, fantastic. Great talk. And we'll be back soon. Later.
again, which would be wonderful. Thanks.