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The key way to think about this is optionality. If you hold Bitcoin for the long run, you have the

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option to bring that portion of your wealth with you anywhere in the world or to make permissionless,

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censorship-resistant payments to any internet-connected person in the world if you want to or need to.

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Your money can't be unilaterally frozen or debased by any bank or government with the stroke

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of a pen. It's not stuck in one jurisdiction within narrow borders. It's global. Those features

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might not seem important to many Americans, but it's huge for a lot of people in the world.

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Greetings and salutations, my fellow plebs. My name is Walker and this is the Bitcoin podcast.

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The Bitcoin block height is 827-035 and the value of one Bitcoin is still one Bitcoin.

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Today's episode is Bitcoin Out Loud, where I read you a Bitcoin or Bitcoin adjacent piece out loud.

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Today, I'm reading Assessing the Health of Bitcoin by Lynn Alding. This is actually my first time

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reading this piece since Lynn just published it, but Lynn is one of my favorite thinkers and writers,

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so I know I'm going to enjoy it and I figured if I was reading it, I may as well read it out loud for

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you. Before we get started, I want to remind you that the Bitcoin halving is just a couple months away,

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so now is a very good time to get your Bitcoin off of the exchanges and into your own custody.

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Go to bitbox.swiss.walker and use the promo code Walker for 5% off the Bitcoin only

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Bitbox O2 hardware wallet. Again, it is Bitcoin only. It's fully open source. You can go to their

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GitHub and verify for yourself. No need to trust me. It's super easy to set up and it's a great

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tool for seasoned psychopaths and new Bitcoiners alike. Plus, when you go to bitbox.swiss.walker

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and use promo code Walker, not only do you get 5% off, but you also help support this show, so thank you.

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If you want to watch the video version, you can always go to rumble, YouTube or X by searching

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at Walker America or listen on fountain.fm or wherever you get your podcast by searching for

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the Bitcoin podcast. And if you have not checked out fountain yet, I highly recommend it. You can

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send Bitcoin to your favorite podcasters if you find their work valuable and you can earn Bitcoin

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just for listening to this show. Fountain has honestly become my go-to podcasting application

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now because honestly, Apple Podcast just sucks and I don't really like Spotify. So check out fountain.

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And finally, if you are a Bitcoin only company interested in sponsoring another

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fucking Bitcoin podcast, hit me up on social media or through the website bitcoinpodcast.net.

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Without further ado, let's get into this Bitcoin out loud read from Lynn Alden.

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Assessing the Health of Bitcoin by Lynn Alden. When investing in Bitcoin as an asset or companies

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that build on top of the Bitcoin network as part of an asset mix, we need some metrics with which

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to evaluate the progress of the investment thesis and by extension, the health of the Bitcoin network.

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It's more than just a price on a chart. It's an open source network with millions of users,

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thousands of developers, hundreds of companies, and several ecosystems built on top of it. Most

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Wall Street analysts and retail investors haven't actually used a Bitcoin wallet,

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taken self custody of the asset, sent it to others and or used it in various ecosystems.

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And yet doing so is very helpful for fundamental research. Bitcoin means a lot of different things

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to a lot of different people. It enables portable savings, censorship resistant global payments,

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and immutable data storage. If you're an American or a European investor in high-quality stocks and

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bonds, and are not thinking about the Bitcoin network from the perspective of a Nigerian,

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Vietnamese, Argentinian, Lebanese, Russian, or Turkish middle class saver, for example,

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then you've not yet fundamentally analyzed the assets use case. And on top of that,

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people assess the health of the network in multiple different ways. If Bitcoin doesn't conform to what

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they want it to be, they might conclude that it's not doing well. On the other hand, if Bitcoin fits

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exactly with what they want, they might think it's doing great, even if there is plenty of

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frictions remaining to be solved. Having spent a lot of time studying monetary history, as well as

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spending time in the startup venture space around Bitcoin, and studying the technical details of the

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protocol in recent years, I have a handful of key metrics that I personally look at when assessing

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the health of the Bitcoin network. This article walks through them and sees how the network is

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doing in terms of each one. 1. Market capitalization and liquidity. 2. Number of conversion points.

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3. Technical security and decentralization. 4. Quality of user experience. 5. Legal acceptance

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and global recognition. 1. Market capitalization and liquidity.

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Some people say price doesn't matter. 1BTC equals 1BTC is how they like to put it.

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It's not that Bitcoin is volatile, it's that the world is volatile around Bitcoin, man.

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And there's indeed some truth to that. Bitcoin has a fully diluted supply of 21 million Bitcoin,

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technically 2.1 quadrillion SATs, which are the smallest denomination of on-chain Bitcoin.

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Created and distributed in a pre-programmed decreasing pattern,

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produces blocks on average every 10 minutes thanks to an automatic difficulty adjustment,

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and has operated with remarkable consistency since its inception with a higher uptime rate

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than Fedwire. I don't know what the dollar supply will be next year, but I know what the Bitcoin

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supply will be and can directly audit its exact supply at any time. But price is an important

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signal. It doesn't mean much on a day-to-day, week-to-week, or even year-to-year basis,

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but it certainly means something across several years. The Bitcoin network itself might be serving

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as a heartbeat of clockwork order in a world of chaos, but price is nonetheless a measure of its

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adoption. Bitcoin is competing in the global marketplace of monies now, against more than

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160 different fiat currencies, gold, silver, and various other cryptocurrencies, as a store of value.

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It's also competing with non-monetary assets, like equities and real estate,

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or other things we can own with our limited resources. It's not really that the dollar

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is fluctuating in price around Bitcoin, as some proponents like to say. Bitcoin is the younger,

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more volatile, less liquid, smaller network compared to the dollar. It's indeed the one

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fluctuating more in price. In some years, Bitcoin holders can buy a lot more property,

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food, gold, copper, oil, S&P 500 shares, dollars, rupees, or whatever else compared to what they

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could buy in the prior year. In other years, they can buy a lot less. Bitcoin's price is mainly

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what's fluctuating on any given intermediate term basis, and the fact that it fluctuates

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affects the purchasing power of the holders. So far, the fluctuations have aimed sharply up,

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meaning that a holder of Bitcoin can buy a lot more than they could several years ago.

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If price stagnates for a long time, that's a piece of information. If that were to happen,

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we should reasonably ask why Bitcoin is failing to appeal to people. Is it not providing solutions

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to their problems? If not, why? Fortunately, as the chart above shows, this has not been the case.

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Bitcoin's price keeps making higher highs and higher lows, cycle after cycle. It's one of the

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best performing assets in history, and I would say it has held up rather well, given the aggressive

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tightening of central bank balance sheets and the sharp rise in positive real rates over the past

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couple of years. Looking at on-chain indicators, its historical correlation with global broad

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money supply and other factors, Bitcoin continues to enjoy long-term adoption and growth, but it

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must be monitored. And then there's liquidity. How much daily trading volume is happening on

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exchanges? How much transaction value is being sent around on-chain? Money is the most saleable good.

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Liquidity is very important. Bitcoin has been ranking very well in this metric, too,

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with billions or tens of billions of dollars worth of daily trading volume against other

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currencies and assets, which puts it on par with Apple stock in terms of daily exchange liquidity.

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And unlike Apple, where the vast majority of volume is on the Nasdaq exchange,

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Bitcoin's trade in many exchanges and currencies around the world, including some peer-to-peer

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marketplaces, there are also billions of dollars worth of on-chain transfer volume in a given day.

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A way to think about liquidity, and it'll likely make you more bullish when you realize it,

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is that liquidity begets more liquidity. For money, that's a big piece of what the network effect is.

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When Bitcoin had thousands of dollars worth of trading volume per day, someone couldn't put

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a million dollars into it, even spread out over weeks, without drastically moving the price.

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It wasn't a big and liquid enough market for them yet. And then when Bitcoin had millions

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of dollars worth of trading volume per day, someone couldn't put a billion dollars into it,

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even spread out over weeks. And now that Bitcoin has billions of dollars of trading volume,

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there are trillion-dollar pools of capital that can't put meaningful percentages into it.

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It's still too small and too illiquid for them. If they start putting a few hundred million dollars

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or a couple billion dollars per day into it, that's enough to tilt the supply demand toward the buy

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side and seriously inflect the price upward. Since inception, the Bitcoin ecosystem has had to

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achieve certain levels of liquidity before it even gets on the radar of bigger pools of capital.

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It's like leveling up. So, who would buy Bitcoin when it's over 100K or 200K per coin?

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Entities that can't really buy it until it's that big is who. And at $100,000 per Bitcoin,

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each sat is worth a tenth of a cent. Kind of like how the price of a 400-ounce gold

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good delivery bar doesn't really matter for most people, the price of each full Bitcoin,

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an arbitrary large unit, doesn't really matter. What matters is overall network size,

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and liquidity and functionality. And what matters is whether their share of the network

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is preserving or growing its purchasing power over the long run or not. Like any asset,

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Bitcoin price is a function of supply and demand. Supply is fixed, but portions of it can be in

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weak hands or strong hands at any given time. During bull markets, a lot of new people excitedly buy in,

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and some longer-term holders trim their exposure and sell to those new buyers. During bear markets,

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a lot of recent buyers sell out at a loss, and the more steadfast people keep dollar cost averaging

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into it, rarely if ever selling. Supply rotates from fast money weak hands to vaulted money strong

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hands that won't easily part with it. This chart shows the percentage of Bitcoin

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that hasn't moved on chain in over a year, along with the price of Bitcoin. When Bitcoin supply is

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tight like that, it only takes a small spark of new demand and fresh capital inflows to raise the

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price significantly, since there won't be a big supply response function from existing holders.

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In other words, even a sharp price increase won't encourage much selling from those 70% of coins

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that have been held for over a year. But where does that demand come from? Generally speaking,

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the biggest correlation I have found to Bitcoin demand is global broad money supply,

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denominated in dollars. The first part, global money supply, is a measure of global credit growth

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and or central bank money printing. For the second part, the reason dollar denomination is

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important here is because the dollar is the global reserve currency and thus the primary unit of

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account for global trade, global contracts, and global debts. When the dollar strengthens,

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it hardens the debts of various countries. When the dollar weakens, it softens the debt of various

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countries. Global dollar denominated broad money is like a big liquidity metric for the world.

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How quickly are fiat currency units being created? And how strong is the dollar relative to the rest

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of the global currency market? Look into Bitcoin, has a macro suite, and as part of that, they show

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the rate of change of Bitcoin price relative to the rate of change of global broad money. And I've

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made a custom chart set out of it. Basically, we're comparing the exchange rate between two

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different currencies here. Bitcoin is smaller, but is getting harder over time thanks to its

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ongoing supply havings and its supply cap of 21 million coins. The dollar is way bigger and goes

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through periods of softening and hardening, but mostly it is softening and ever increasing in

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supply with briefer periods of cyclical hardening. Both the fundamentals of Bitcoin and the

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fundamentals of the dollar, global liquidity, affect the exchange rate between the two over time.

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So when I am assessing the market capitalization and liquidity of the Bitcoin network, I am doing it

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in relation to global broad money and other major assets over time. It's fine for it to have major

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ups and downs. After all, it is bootstrapping from zero to who knows what. And that comes with

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volatility. Price appreciation attracts leverage, which eventually causes crashes. Bitcoin has to

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keep going through cycles and shaking off leverage and rehypothecation if it's going to become widely

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adopted. Bitcoin's notorious volatility is unlikely to diminish much until it's more liquid and more

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widely held than it is now. There's no fix for Bitcoin's volatility other than more time, more

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adoption, more liquidity, more understanding, and better user experience with the wallets, exchanges,

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and other applications. The asset itself is only changing slowly. It's the world's perception of

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it and the leverage built on top of it or ripped away from it that goes through manic and oppressive

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cycles. What would make me concerned? If the Bitcoin price were to stagnate despite a prolonged

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period of rising global liquidity, or if Bitcoin were to fail to keep making higher highs and lower

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lows over a multi-year time frame, despite global liquidity doing so, we would then have to ask

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difficult questions about why the Bitcoin network is failing to take market share for a prolonged

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period of time. So far, it's quite healthy by this metric. Two, number of conversion points.

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Bitcoin has gone through a number of narrative transitions over its 15-year life cycle. Although

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the funny thing is that virtually all of them were discussed by Satoshi Nakamoto,

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Hal Finney, and many others back in 2009 and 2010 on the original Bitcoin Talk forums. But since then,

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the market has bounced around to emphasize different use cases of the network over time.

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It's like the parable of the blind men and an elephant. In the parable, three blind men are

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all touching an elephant. One touches the tail, one touches the side, and one touches a tusk.

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They all aggressively argue with each other over what they are touching, when in reality,

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they are all touching different parts of the same thing.

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A big narrative that bounces back and forth in the Bitcoin ecosystem is whether it's a payment

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method or a savings method. The answer, of course, is both, but the emphasis tends to change sometimes.

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Nakamoto's original white paper was about peer-to-peer electronic cash. Although in his

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early posts, he also talked about central bank monetary debasement and how Bitcoin is

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resistant to that due to its fixed supply, i.e. useful as savings. Money does serve multiple

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roles after all. Do I contradict myself? Very well, then I contradict myself. I am large,

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I contain multitudes. Walt Whitman. Both payments and savings are important,

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and both aspects strengthen each other. And because Bitcoin is mainly designed as a low

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throughput network, which maximizes for decentralization, it primarily serves as a settlement network.

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Actual day-to-day coffee scale transactions need to be done on higher layers of the network.

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Bitcoin's ability to be sent from any internet user to any other internet user in the world

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is an essential part of what makes it useful. It provides the one holding it with the capability

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to make permissionless, censorship-resistant payments through points of friction.

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In fact, one of the first ever use cases for it was well over a decade ago, when WikiLeaks was

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deep-platformed by major payments platforms. WikiLeaks then turned to Bitcoin to continue

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receiving donations. Democracy advocates and human rights advocates in authoritarian regimes

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have made use of it by bypassing bank freezes and so forth. People have used it to evade

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unjust capital controls that tried to keep them permanently locked into a rapidly debasing,

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developing country currency. Similarly, Bitcoin's 21 million supply cap and its decentralized

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immutability that keeps its ruleset credible, including that supply cap, is what makes it

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attractive to hold. Most monies increase in supply over time with no limit, and even refined gold

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increases in supply by an average of about 1.5% per year. But Bitcoin eventually does not,

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if people didn't want to hold it, and instead just converted back and forth from fiat currency

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to Bitcoin to briefly make settlements and payments, then that would add all sorts of frictions,

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costs, and external points of censorship for the network. Paying with Bitcoin or receiving

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payment in Bitcoin works best when you actually want to hold Bitcoin for the long term as well.

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So, it's that blend of both payments and savings that is important.

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The key way to think about this is optionality. If you hold Bitcoin for the long run,

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you have the option to bring that portion of your wealth with you anywhere in the world,

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or to make permissionless, censorship-resistant payments to any internet-connected person in

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the world if you want to or need to. Your money can't be unilaterally frozen or debased by any

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bank or government with the stroke of a pen. It's not stuck in one jurisdiction within narrow

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borders. It's global. Those features might not seem important to many Americans, but it's huge

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for a lot of people in the world. Many countries place capital gains taxes on Bitcoin and most

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other assets, meaning if people sell or spend it, they have to pay taxes relative to their cost basis,

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and they have to keep track of the accounting for that. That's a big piece of how countries maintain

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their currency monopolies. Over time, that might go away for Bitcoin as it becomes highly adopted

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and as some countries make it legal tender, but that taxation is the reality for most places now,

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and that makes it less attractive to spend compared to fiat currency in many contexts.

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That contributes to me not particularly wanting to spend mine much yet, but then again, I'm in a

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jurisdiction and line of work where I rarely run into domestic payment frictions with my fiat systems.

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Gresham's law states that given a fixed exchange rate, or I would argue some other friction as

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well like a capital gains tax, people will spend the weaker money first and hoard the stronger money.

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In Egypt, for example, if someone has US dollars and Egyptian pounds, they'll spend the Egyptian

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pounds and keep the US dollars tucked away as savings, or if each of my Bitcoin transactions

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has a tax on it and my dollar transactions do not. I'll usually spend the dollars and keep my Bitcoin.

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The Egyptian could spend the dollars and I could spend my Bitcoin in many cases,

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but we're choosing not to. Thier's law states that when a money gets extremely weak beyond a

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certain point, merchants won't accept it anymore, and they'll instead demand payment in the stronger

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money. That's when Gresham's law gets overridden and people have to spend their stronger money.

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When a currency utterly fails, those people who have been saving in dollars in those countries

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tend to begin spending them, with the dollar and other monies taking over the weaker currency,

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even in the medium of exchange role. And in most economic environments, it's not just

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merchants selling goods and services that matter. It's also currency brokers. In Egypt,

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or many developing countries, a random merchant like a restaurant might not accept dollars,

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even though dollars are treasured things that go for a premium within the country. Sometimes you

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need to convert to the local currency first in order to spend at an official merchant.

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Less official merchants are often more readily accepting of premium forms of payment. Suppose

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I bring a wad of physical US dollars, a couple South African Krugerrand gold coins, or some Bitcoin

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with me to a random country, and I don't bring my Visa cards. How could I acquire local goods and

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services? I can either find a merchant to accept one of these monies directly, or I can find a broker

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that will convert these harder monies to local currency for me at the fair local price. For that

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latter method, it's like I'm entering an arcade or casino. I might need to convert my real globally

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saleable money to this place's centralized monopoly play money while I'm here, and then convert

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back out to real globally saleable money when I leave. It sounds harsh, but that's how it is.

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In other words, what we need to know is how saleable or convertible a type of money is,

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not just how many merchants directly accept it, or how much merchant volume is being done in a

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given currency. For a clear example, the amount of people paying for things directly in gold

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throughout the world is extremely low, and yet the liquidity and convertibility of gold is high.

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You can pretty easily find a buyer for a recognizable gold coin at fair prices almost

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anywhere. Therefore, gold gives the holder quite a bit of optionality. Bitcoin is similar in that

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regard, but way more globally portable. Most fiat currencies are extremely liquid and saleable in

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their own countries, accepted by virtually all merchants. But all fiat currencies, except for

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the top handful, quickly lose saleability and convertibility outside of their borders, outside

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of their enforced monopolies. In this sense, they are like arcade tokens or casino chips.

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My physical Egyptian pounds and Norwegian kroner are nearly useless in New Jersey, for example,

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even in terms of finding a place to easily convert them, to roughly quantify things.

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The physical US dollar has 10 out of 10 saleability in the United States,

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7 out of 10 saleability in some countries, and maybe 5 out of 10 saleability in other countries.

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There's a range, but overall it's generally the most saleable money in the world currently.

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Sometimes you can directly spend it, other times you have to convert it first,

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but either way, there tends to be plenty of liquidity. Most physical currencies also have

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10 out of 10 saleability in their own countries, but they have either 1 out of 10 or 2 out of 10

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saleability everywhere else. It'll take quite a while and potentially a steep discount rate

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to find someone who will exchange value for them when they are outside of their host jurisdiction,

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like an arcade token. Gold has probably like 6 out of 10 saleability almost everywhere,

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which makes it one of the more saleable bearer assets around, up there with the dollar.

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You can't spend it as easily as a country's local fiat currency, and very little spending

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volume happens with it overall. But in just about any country, you can exchange it for liquid

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value easily. Gold is a globally recognized liquid and fungible form of value. Bitcoin has

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something like 6 out of 10 saleability in many urban centers of the world, similar to gold in

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that sense, but it drops down to 2 out of 10 or so in many rural areas, similar to fiat currencies

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outside of their monopoly borders. But it's on the strong uptrend, and it has come that far

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from nothing in just 15 years. Plus, it can also be converted online in most countries

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to mobile phone data top ups, digital gift cards that are spendable locally, and other forms of

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value. So the overall number of offline and online conversion points for those that bring

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their Bitcoin around with them is substantial. The right question to ask in my opinion is,

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if I bring Bitcoin with me, could I spend or convert it for value without much hassle?

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In urban centers of many countries, like South Africa or Costa Rica or Argentina or Nigeria as

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developing country examples, or basically any developed country, that's a pretty resounding yes.

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In other countries like Egypt, it's not really there yet. So what we need to monitor is the

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general direction. So far, Bitcoin is definitely becoming more saleable and convertible over time

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in any given multi-year time period. The rise of Bitcoin hubs.

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In my view, the most promising trend is the growth of many small Bitcoin communities around the world.

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Elzonte and El Salvador was among the first, and it triggered the president of the country

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to take notice and make it legal tender across the whole country. But it also sparked other

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communities like Bitcoin Jungle in Costa Rica, Bitcoin Lake in Guatemala, Bitcoin Acasi in South

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Africa, Lugano in Switzerland, Free Madeira, and many others that have become dense areas of Bitcoin

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usage and acceptance. The salability and convertibility in those places and others are both

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rather high. These hubs just keep popping up. In addition, Ghana has hosted the Africa Bitcoin

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conference run by a woman named Farida Naborema for two years in a row. She is an exiled democracy

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advocate from Togo, who is deeply familiar with financial repression as a tool for authoritarianism,

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and is also a critic of France's neocolonialist ongoing monetary arrangement in over a dozen

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African countries. In addition, Indonesia now has a recurring Bitcoin conference run by a woman

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named Dea Raskitha. There are conferences in countries all around the world, and there are

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small organizations like Bitcoin Commons in Austin, Texas, Bitcoin Park in Nashville,

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Pubkey in New York, and Real Bedford in the United Kingdom that serve as local Bitcoin hubs.

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It's becoming increasingly common that in a given city, there is a dedicated Bitcoin community

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or recurring meetup there. Bitcoinerevents.com and other sites help you find them, and they can

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serve as a means of convertibility and salability as well. There are also apps that let you find

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Bitcoin merchants in your area. BTCmap.org, for example, lets you find merchants around the

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world that accept Bitcoin. The 2023 BTC Prague conference and the 2023 Africa Bitcoin conference

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had FETI event apps. In addition to serving as a Bitcoin wallet, this app provided schedules for

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all major events at the conference, includes this interactive map that showed locations of

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merchants in that area that accept Bitcoin as payment, and provided other services like AI

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assistance paid with Bitcoin microtransactions over the Lightning network. As a disclosure,

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I'm an investor in FETI via EgoDeath Capital. Here were some of the questions I asked it,

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without using a chat GPT subscription, but rather just within the Bitcoin wallet app

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that reached out to chat GPT via an API, and paid for by the end user, me in this case,

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using Bitcoin. Which developing countries have the highest level of Bitcoin adoption?

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As of my knowledge cut off date, in early 2023, Bitcoin adoption has been notably higher in several

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developing countries where people face unstable economies, currency devaluation, difficulties

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with remittance flows, or lack of access to traditional banking services. Here are a few

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of the developing countries with a substantial level of Bitcoin adoption. Nigeria. Nigeria has

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one of the highest rates of cryptocurrency adoption in the world. Many Nigerians use Bitcoin in other

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cryptocurrencies for payments, remittances, and as a hedge against inflation and currency devaluation.

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Venezuela. Due to hyperinflation, political instability, and economic sanctions,

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Venezuelans have turned to Bitcoin as a means to preserve their savings and conduct transactions.

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El Salvador. As the first country to make Bitcoin legal tender in September 2021,

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El Salvador aims to foster financial inclusion and reduce reliance on remittances.

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Bitcoin adoption has been encouraged by the government through various initiatives.

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The Philippines. The Philippines has a large remittance market, and many Filipino workers

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abroad use Bitcoin and other cryptocurrencies to send money home due to lower fees compared to

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traditional remittance services. Argentina. High inflation and capital controls have led

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many Argentinians to turn to Bitcoin as a store of value and a way to transfer funds.

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Turkey. Economic uncertainty, inflation, and the depreciation of the Turkish lira have driven Turkish

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citizens to invest in cryptocurrencies as an alternative to preserve their wealth.

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Kenya. Kenyans are increasingly using Bitcoin for payments and as an investment. The country has a

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high level of mobile payment penetration, which facilitates the adoption of digital currencies.

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Vietnam. Among countries in Southeast Asia, Vietnam has seen a substantial rise in

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cryptocurrency usage for remittances and as a form of investment. South Africa. With relatively

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high penetration of internet and mobile phones, South Africans use Bitcoin in cryptocurrencies

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for transactions and as an investment vehicle. It's important to note that data on Bitcoin

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adoption can be difficult to obtain precisely, and it can change rapidly. Usage patterns are

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influenced by various economic, legal, and social factors unique to each country. Therefore,

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the countries listed above may experience shifts in Bitcoin adoption levels as their

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circumstances evolve. Always check the most recent data and reports for the latest information on

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Bitcoin adoption trends around the world. What are the benefits of Bitcoin for people in developing

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countries? Bitcoin and other cryptocurrencies can offer several benefits to people in developing

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countries, particularly in regions where the traditional finance systems are either under

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developed or inaccessible to a large portion of the population. Here are some potential benefits.

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Financial Inclusion Many individuals in developing countries lack access to banking services due

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to a range of issues, such as lack of documentation, trust in financial institutions, or the absence

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of necessary infrastructure. Bitcoin can serve as an alternative form of money that doesn't

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require permission from a bank or government to use. Remittances. Sending money across borders

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using traditional banking systems can be costly and slow. Bitcoin can facilitate remittances more

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efficiently and at a lower cost, as it does not rely on the existing banking infrastructure or

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exchange rates. Protection Against Inflation In some developing countries, hyperinflation can

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erode the value of the local currency, leading to a loss of purchasing power for the residents.

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Bitcoin can act as a store of value that is not subject to the monetary policy of any single

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country, potentially offering a hedge against inflation. Currency Stability In countries with

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unstable currencies, Bitcoin can provide an alternative means to transact and store value,

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which can be particularly useful for businesses that engage in international trade.

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Bypassing Currency Controls Some countries impose strict currency

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controls, making it difficult for people to exchange the local currency for foreign currencies or to

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move money out of the country. Bitcoin can be used to circumvent these controls, allowing

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individuals to freely move their funds across borders. Lower Transaction Costs

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Bitcoin transactions often have lower fees compared to traditional banking systems,

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especially for international transactions. Enhanced Security

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Bitcoin transactions are secured by cryptography and the decentralized nature of blockchain

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technology. This can reduce the risk of fraud, corruption, and interference from third parties.

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Empowerment Bitcoin can empower individuals by giving

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them direct control over their financial assets. With Bitcoin, users don't have to

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rely on traditional banks to manage their money. Transparent Transactions

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Bitcoin's underlying technology, the blockchain, provides a transparent ledger of all transactions.

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This can reduce corruption and increase trust in environments where financial systems lack

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transparency. It's important to note that while Bitcoin does offer these benefits,

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there are also significant challenges, such as price volatility, technological barriers,

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regulatory uncertainty, and lack of infrastructure that supports cryptocurrency transactions.

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Therefore, the adoption of Bitcoin in developing countries can be a complex process that requires

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addressing these challenges. Technical Security and Decentralization

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My friend and colleague Jeff Booth often uses the phrase,

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as long as Bitcoin remains secure and decentralized, before describing his future outlook on the asset

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and its macroeconomic implications. In other words, it's an if-else view that rests on the caveat

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that the network continues to operate roughly as it has for the past 15 years,

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and that the traits that make the Bitcoin network valuable continue to persist into the future.

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Bitcoin isn't magic. It's a distributed network protocol. For it to continue to be valuable,

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it has to function through opposition and attacks, and it has to be the best and most liquid way to

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do it. The concept of Bitcoin is insufficient to really matter for anything. It's the reality of

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Bitcoin that is important. If Bitcoin suffers from catastrophic hacks, or gets captured and

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centralized and permissions or censored, then it would cease to offer the use case that it does now,

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and its value would be partially or entirely degraded. In addition to network effects and

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associated liquidity, the focus on security and decentralization is largely what makes Bitcoin

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different from other cryptocurrency networks. It sacrifices performance in almost every other

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category, speed, throughput, and programmability, in order to be as simple, streamlined, secure,

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robust, and decentralized as possible. Its design maximizes for those traits above all else.

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All additional complexity must be built on layers on top of it, rather than embedded into the base

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layer, because embedding those traits into the base layer would sacrifice performance in those

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key attributes of security and decentralization. Therefore, monitoring Bitcoin's level of security

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and decentralization is important when building or maintaining a long-term thesis on the network's

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value and utility. Security Analysis Bitcoin has had a very robust security track record

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for an emerging open-source technology, but not a faultless one. As I wrote about in my book,

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Broken Money, here is a list of some of the more notable technical issues it has faced so far.

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In 2010, when it was still brand new and barely had a market price, the Bitcoin node client had an

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inflation bug, which Satoshi fixed with a soft fork. In 2013, a Bitcoin node client update was

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accidentally not backward compatible with the prior, and widely used, node client due to an oversight,

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resulting in an unintended chain split. Within hours, developers analyzed the problem and told

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node operators to fall back to the prior node client, which resolved the chain split. Since

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that time over a decade ago, the Bitcoin network has enjoyed 100% perfect uptime.

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Even Fedwire has encountered outages and failed to achieve 100% uptime during that period,

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and doesn't even attempt to run 24-7-365 to begin with like Bitcoin does.

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In 2018, another inflation bug was accidentally added to the Bitcoin node client. However,

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this one was identified and discreetly fixed by developers before it was exploited,

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and so it never caused an issue in practice. In 2023, people began making use of the Segwit and

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Taproot soft fork upgrades in ways that were not intended by the developers of those upgrades,

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including inserting large images into the signature portion of the Bitcoin blockchain.

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While this is not a bug per se, it shows the risks of how certain aspects of the code can be used

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in ways that were not intended, and therefore shows the ongoing need for conservatism when

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performing upgrades in the future. Bitcoin suffers from the year 2038 problem that many

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computer systems have. During the year 2038, the 32-bit integer used for Unix time stamping

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will run out of seconds for many computer systems, resulting in an error. However,

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because Bitcoin uses an unsigned integer for this, it won't run out until the year 2106.

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This can be fixed by updating the time to a 64-bit integer, or by taking the block height into account

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when interpreting the wrapped around 32-bit integer. But as far as I understand it, this may

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require a hard fork, which means an upgrade that is backward incompatible. This shouldn't be hard

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in practice because it's obviously necessary, and can be done well in advance of the problem,

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years or decades even. But it may open a window of vulnerability. One potential way to do it would be

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to release an update that is backward compatible first, but that activates when the integer runs out

399
00:43:16,480 --> 00:43:24,560
and thus solves the problem. Broken Money, Chapter 26. Bitcoin can indeed rebound from technical

400
00:43:24,560 --> 00:43:31,200
problems. The basic solution is for node operators on the decentralized network to roll back to a

401
00:43:31,200 --> 00:43:38,160
prior update before the bug existed and reject the new updates that are causing the problem. However,

402
00:43:38,160 --> 00:43:45,280
we must imagine a worst case scenario. If a technical issue goes unnoticed for years and becomes

403
00:43:45,280 --> 00:43:52,160
entrenched as part of the broad node network and then gets found out and exploited, then that is a

404
00:43:52,160 --> 00:43:59,920
more catastrophic problem. It's still not unrecoverable, but it would be a serious blow. As Bitcoin's

405
00:43:59,920 --> 00:44:06,960
codebase exists over years and decades, it hardens and benefits from the Lindy effect. The Lindy

406
00:44:06,960 --> 00:44:12,880
effect, also known as Lindy's Law, is a theorized phenomenon by which the future life expectancy

407
00:44:12,880 --> 00:44:18,400
of some non-perishable things like a technology or an idea is proportional to their current age.

408
00:44:18,400 --> 00:44:24,000
Thus, the Lindy effect proposes the longer a period something has survived to exist or be used in

409
00:44:24,000 --> 00:44:30,400
the present, the longer its remaining life expectancy. Longevity implies a resistance to

410
00:44:30,400 --> 00:44:36,400
change, obsolescence, or competition in greater odds of continued existence into the future,

411
00:44:36,400 --> 00:44:43,680
where the Lindy effect applies, mortality rate decreases with time. Mathematically, the Lindy

412
00:44:43,680 --> 00:44:50,080
effect corresponds to lifetimes following a Pareto probability distribution. The concept is

413
00:44:50,080 --> 00:44:56,080
named after Lindy's delicatessen in New York City, where the concept was informally theorized by

414
00:44:56,080 --> 00:45:01,920
comedians. The Lindy effect has subsequently been theorized by mathematicians and statisticians.

415
00:45:02,560 --> 00:45:08,560
Nassim Nicholas Taleb has expressed the Lindy effect in terms of distance from an absorbing

416
00:45:08,560 --> 00:45:15,040
barrier. The Lindy effect applies to non-perishable items, those that do not have an unavoidable

417
00:45:15,040 --> 00:45:21,280
expiration date. For example, human beings are perishable. The life expectancy at birth in

418
00:45:21,280 --> 00:45:26,480
developed countries is about 80 years. So the Lindy effect does not apply to individual

419
00:45:26,480 --> 00:45:31,920
human lifespan, all else being equal. It is less likely for a 10-year-old human to die

420
00:45:31,920 --> 00:45:36,960
within the next year than for a 100-year-old, while the Lindy effect will be less likely

421
00:45:36,960 --> 00:45:43,440
for a 10-year-old, while the Lindy effect would predict the opposite. Overall, the rate of major

422
00:45:43,440 --> 00:45:52,080
bugs has decreased over time, and the fact that the network has had 100% uptime since 2013

423
00:45:52,080 --> 00:45:55,840
is remarkable. Decentralization Analysis

424
00:45:57,840 --> 00:46:04,240
For decentralization, we can measure node distribution and mining distribution as key variables.

425
00:46:04,240 --> 00:46:09,680
The widely distributed node network makes changing the network's rules very hard to do,

426
00:46:09,680 --> 00:46:17,200
because each node enforces the rules for its user. Similarly, a widely distributed mining network

427
00:46:17,200 --> 00:46:24,240
makes transaction censorship harder to pull off. Bitcoin Core developer Luke Dasher estimates

428
00:46:24,240 --> 00:46:30,560
that there are over 60,000 nodes when taking into account ones that are running privately.

429
00:46:30,560 --> 00:46:38,000
In contrast, Ether nodes identify about 6,000 Ethereum nodes, of which about half are hosted

430
00:46:38,000 --> 00:46:44,800
by cloud operators, rather than run residentially. And because Ethereum nodes use too much bandwidth

431
00:46:44,800 --> 00:46:52,560
to run privately via Tor, that's probably close to the actual number. So Bitcoin is rather strong

432
00:46:52,560 --> 00:46:58,720
in terms of node distribution. Bitcoin miners cannot change the core rules of the protocol,

433
00:46:58,720 --> 00:47:05,360
but they can determine what transactions make it into the network or not, so miner centralization

434
00:47:05,360 --> 00:47:12,560
can increase the odds of transaction censorship. The largest publicly traded miner, Marathon

435
00:47:12,560 --> 00:47:19,760
Digital Holdings, Mara, has less than 5% of the network hash rate. There are a couple other

436
00:47:19,760 --> 00:47:25,440
private miners roughly on that scale, and then there are various public and private miners

437
00:47:25,440 --> 00:47:33,680
with 1-2% of the network, and many with less. In other words, mining is indeed quite decentralized.

438
00:47:34,240 --> 00:47:40,560
Even the largest players have tiny allocations of the network. Ever since China banned Bitcoin

439
00:47:40,560 --> 00:47:47,440
mining in 2021, the United States has been the largest mining jurisdiction, but it is estimated

440
00:47:47,440 --> 00:47:53,840
to have less than half of mining hash rate. China is ironically still the number two mining

441
00:47:53,840 --> 00:48:00,400
jurisdiction, because mining is really hard to stamp out, even with their level of authoritarianism.

442
00:48:01,280 --> 00:48:07,200
Other energy-rich countries, like Canada and Russia, have sizable mining infrastructure,

443
00:48:07,200 --> 00:48:12,560
and dozens of countries have small operations. Mining companies usually direct their hashing

444
00:48:12,560 --> 00:48:19,760
power to mining pools. Mining pools are currently rather centralized, with two pools collectively

445
00:48:19,760 --> 00:48:26,080
controlling about half of transaction processing, and the top ten pools controlling virtually all

446
00:48:26,080 --> 00:48:32,320
of the transaction processing. I think this is an area for improvement. There are, however,

447
00:48:32,320 --> 00:48:38,960
some important caveats. Firstly, mining pools do not custody the mining machines, which is a

448
00:48:38,960 --> 00:48:46,880
critical distinction. If a pool misbehaves, miners can easily switch to another pool. So while a few

449
00:48:46,880 --> 00:48:53,200
pools could work together to do a brief 51% attack on the network, their ability to sustain such an

450
00:48:53,200 --> 00:49:01,040
attack is likely very weak. Secondly, Stratum V2 has been rolling out recently, which allows miners

451
00:49:01,040 --> 00:49:06,320
to have more control of the block construction process than just letting the pools do all of the

452
00:49:06,320 --> 00:49:14,160
work. The physical mining supply chain is also rather centralized. Taiwan semiconductor, TSM,

453
00:49:14,160 --> 00:49:20,240
and a few other foundries in the world serve as the key bottlenecks for most types of chip production,

454
00:49:20,800 --> 00:49:27,600
including the application-specific chips that Bitcoin miners use. In fact, I would go so far as

455
00:49:27,600 --> 00:49:34,400
to say that I think pool centralization is an overrated risk, and that semiconductor foundry

456
00:49:34,400 --> 00:49:41,040
centralization is an underrated risk. Overall, ownership of active mining machines is very

457
00:49:41,040 --> 00:49:47,040
decentralized, but the fact that some countries have a large percentage of miners, that certain pools

458
00:49:47,040 --> 00:49:52,640
have a lot of mining power directed at them, and the mining supply chain has some centralized aspects,

459
00:49:53,360 --> 00:49:59,840
chips away at that mining decentralization to a moderate degree. I think mining is an area that

460
00:49:59,840 --> 00:50:05,360
could benefit from more development and attention, even though the most important mining variable,

461
00:50:05,360 --> 00:50:11,360
the ownership and physical distribution of electrified mining machines, is fortunately very

462
00:50:11,360 --> 00:50:20,480
decentralized. 4. Quality of user experience. If Bitcoin is hard to use technically, then it mainly

463
00:50:20,480 --> 00:50:27,600
gets restricted to programmers, engineers, ideologues, and power users that are willing to put in time

464
00:50:27,600 --> 00:50:34,560
to learn it. On the other hand, if it's nearly effortless to use, it can spread to people more

465
00:50:34,560 --> 00:50:43,040
easily. When I looked at cryptocurrency exchanges back in 2013-2015, they were very sketchy looking.

466
00:50:43,840 --> 00:50:49,360
Nowadays, it's generally easier to buy Bitcoin on reputable exchanges and brokers,

467
00:50:49,360 --> 00:50:55,520
and with simple interfaces. And back in the early days, there were no dedicated Bitcoin hardware

468
00:50:55,520 --> 00:51:00,720
wallets. People had to figure out how to manage their keys on their own computers typically.

469
00:51:00,720 --> 00:51:06,080
Most of the lost Bitcoins you hear about in the media were from that early era,

470
00:51:06,080 --> 00:51:12,320
when Bitcoin was not valuable enough for people to pay close attention, and when the keys were harder

471
00:51:12,320 --> 00:51:18,640
to manage. Over the past decade, hardware wallets have become more widespread and easier to use.

472
00:51:18,640 --> 00:51:23,360
Software wallets and interfaces have also improved a lot as well.

473
00:51:23,360 --> 00:51:31,040
One of my favorite recent combinations is the Nunchuk plus TapSigner combo, which works well

474
00:51:31,040 --> 00:51:38,640
for modest amounts of Bitcoin. The TapSigner is a $30 NFC card wallet that can hold private keys

475
00:51:38,640 --> 00:51:45,600
offline inexpensively. While Nunchuk is a mobile or desktop wallet that can work with many hardware

476
00:51:45,600 --> 00:51:52,400
wallet types, including TapSigners, for moderate amounts of Bitcoin or full-feature hardware wallets

477
00:51:52,400 --> 00:51:58,560
for larger amounts of Bitcoin. Decades ago, learning to use a checkbook was an important skill.

478
00:51:59,440 --> 00:52:04,960
Nowadays, many people get Bitcoin or crypto wallets before they get bank accounts.

479
00:52:05,680 --> 00:52:10,960
Managing public-private key pairs is likely to become a more routine part of life,

480
00:52:11,600 --> 00:52:17,600
both for managing money and for signing things to differentiate real social content from fake

481
00:52:17,600 --> 00:52:23,920
content. It's easy to learn, and many people will grow up with the technology around them.

482
00:52:23,920 --> 00:52:30,000
The number of Bitcoin ATMs in the world, according to Statista, also increased by a factor of more

483
00:52:30,000 --> 00:52:39,760
than 100x from 2015 to 2022. And alongside ATMs, there has been a rise in voucher purchase methods,

484
00:52:40,320 --> 00:52:45,360
which I think is one of the reasons why the ATM numbers started to flatline recently.

485
00:52:45,360 --> 00:52:53,360
As Teco was founded in 2019, and in 2023, they raised $6 million in seed capital in a funding

486
00:52:53,360 --> 00:53:00,240
round led by Jack Dorsey. As Teco vouchers can be purchased for cash at hundreds of thousands of

487
00:53:00,240 --> 00:53:06,640
retail points and online platforms, particularly across developing countries, and then redeemed

488
00:53:06,640 --> 00:53:13,680
for Bitcoin, the Lightning Network ramped up over the past six years and reached very usable levels

489
00:53:13,680 --> 00:53:21,600
of liquidity by late 2020. Websites like Stacker News and Communication Protocols like Noster also

490
00:53:21,600 --> 00:53:28,400
integrated the Lightning Network, and this ultimately blends value transfer with information transfer.

491
00:53:28,960 --> 00:53:35,360
Browser plugins like Albi are fairly new and have made it easy to use Lightning on multiple websites

492
00:53:35,360 --> 00:53:41,440
from one wallet, and can be used as a sign-on method for many of them, instead of a username,

493
00:53:41,440 --> 00:53:50,320
password combination. Overall, the Bitcoin network has become easier and more intuitive to use over

494
00:53:50,320 --> 00:53:55,680
time, and from what I see in the development pipeline as a venture investor in the space,

495
00:53:56,400 --> 00:53:59,200
that will continue to be the case in the years ahead.

496
00:53:59,760 --> 00:54:04,800
5. Legal Acceptance and Global Recognition

497
00:54:04,800 --> 00:54:11,760
But what if the government bans it? Has been a common objection to Bitcoin since inception.

498
00:54:11,760 --> 00:54:18,240
Governments do enjoy their state-issued currency monopolies and capital controls after all.

499
00:54:18,240 --> 00:54:26,160
However, when answering that question, we need to ask, which government? There are about 200 of them,

500
00:54:26,800 --> 00:54:33,200
and game theory is such that if one country bans it, another country can gain business by

501
00:54:33,200 --> 00:54:40,480
inviting people to come and build with them instead. One country, El Salvador, even recognizes

502
00:54:40,480 --> 00:54:46,080
Bitcoin as a legal tender now. Some other countries are using capital from their sovereign wealth

503
00:54:46,080 --> 00:54:54,560
funds for Bitcoin mining. Also, some things are just really hard to stop. Back in the early 1990s,

504
00:54:54,560 --> 00:55:02,240
Phil Zimmerman created Pretty Good Privacy, or PGP, which was an open-source encryption program.

505
00:55:03,040 --> 00:55:07,840
It allowed people to send private information to each other over the internet,

506
00:55:08,400 --> 00:55:14,240
which is not something that most governments liked. After his open-source code found its way

507
00:55:14,240 --> 00:55:19,920
outside of the United States, the U.S. federal government launched a criminal investigation

508
00:55:19,920 --> 00:55:27,520
against Zimmerman for munitions export without a license. In response, Zimmerman published his

509
00:55:27,520 --> 00:55:34,560
full open-source code in a book, which gave it protection under the First Amendment. It was,

510
00:55:34,560 --> 00:55:40,400
after all, just a collection of words and numbers that he chose to express to others,

511
00:55:40,960 --> 00:55:47,120
or speech, in other words. Some people, including Adam Back, the creator of Hash Cash,

512
00:55:47,120 --> 00:55:53,760
which eventually was used within Bitcoin as its proof of work mechanism, even began putting various

513
00:55:53,760 --> 00:56:00,320
encryption code on t-shirts, with the warning on the t-shirt that the shirt was classified as

514
00:56:00,320 --> 00:56:07,360
munitions and thus illegal to export or show to a foreign national. The U.S. federal government

515
00:56:07,360 --> 00:56:13,280
indeed dropped their criminal investigation of Zimmerman, and encryption regulations were reformed.

516
00:56:13,280 --> 00:56:18,960
Encryption became a key part of e-commerce, since paying online requires secure encryption,

517
00:56:19,680 --> 00:56:24,800
and thus a lot of economic value could have been delayed or pushed elsewhere if the U.S.

518
00:56:24,800 --> 00:56:30,800
federal government had tried to persist beyond what was feasible. These types of protests were

519
00:56:30,800 --> 00:56:37,760
successful, in other words, and used the rule of law against government overreach, and also pointed

520
00:56:37,760 --> 00:56:44,640
to the absurdity and infeasibility of trying to restrict such concise and easily spreadable

521
00:56:44,640 --> 00:56:53,440
information. Open source code is just information, and information is hard to suppress. Similarly,

522
00:56:54,000 --> 00:57:01,280
Bitcoin is free open source code, which makes it hard to stamp out. Even restricting the hardware

523
00:57:01,280 --> 00:57:08,320
side is tough. China banned Bitcoin mining in 2021, but China is still the second largest

524
00:57:08,320 --> 00:57:15,120
mining jurisdiction. When China has trouble banning something, it's clearly not easy to ban.

525
00:57:15,760 --> 00:57:22,080
The software side is even stickier than that. A lot of countries have flip-flopped on banning

526
00:57:22,080 --> 00:57:29,440
Bitcoin, or ran into their own rule of law or division of power. In relatively free countries,

527
00:57:29,440 --> 00:57:35,440
government is not a monolith. Some government officials or representatives like Bitcoin,

528
00:57:35,440 --> 00:57:42,560
whereas others do not, and they are accountable to the people and to the rule of law. In 2018,

529
00:57:42,560 --> 00:57:48,480
India's central bank banned banks from interacting with cryptocurrencies and lobbied the government

530
00:57:48,480 --> 00:57:55,920
to prohibit cryptocurrency use entirely. But in 2020, India's Supreme Court ruled against them,

531
00:57:55,920 --> 00:58:01,920
which restored rights of the private sector to innovate with this technology. In early 2021,

532
00:58:01,920 --> 00:58:07,680
amid a decade of persistent double-digit inflation of their own currency, Nigeria's central bank

533
00:58:07,680 --> 00:58:12,720
prohibited banks from interacting with cryptocurrencies, although they didn't try to

534
00:58:12,720 --> 00:58:19,520
illegalize it among the public because it's really hard to enforce. Instead, they launched the

535
00:58:19,520 --> 00:58:26,960
E-Nira central bank digital currency and clamped down on physical cash with much stricter withdrawal

536
00:58:26,960 --> 00:58:33,760
ATM limits to try to corral people into their centralized digital payment system. During the

537
00:58:33,760 --> 00:58:40,960
ban, Chainalysis assessed that Nigeria had the second highest cryptocurrency adoption in the world,

538
00:58:40,960 --> 00:58:47,920
mostly stablecoins and Bitcoin, and specifically had the highest peer-to-peer trading in the world.

539
00:58:47,920 --> 00:58:54,640
Which is how they got around the bank blockage. In late 2023, after nearly three years of an

540
00:58:54,640 --> 00:59:01,360
ineffective ban being in place, Nigeria's central bank reversed their decision and opened banks up

541
00:59:01,360 --> 00:59:08,320
to interacting with cryptocurrencies with regulations. Back in 2022, amid heavy demand for

542
00:59:08,320 --> 00:59:14,400
cryptocurrencies by the public to defend against triple-digit inflation, some of Argentina's major

543
00:59:14,400 --> 00:59:20,720
banks were stepping up efforts to offer them to customers, but Argentina's government banned banks

544
00:59:20,720 --> 00:59:26,320
from offering them to customers. They cited the typical headline reasons of volatility,

545
00:59:26,320 --> 00:59:32,240
cybersecurity, and money laundering, but really it was about trying to slow the flight out of

546
00:59:32,240 --> 00:59:39,280
their failing currency. And then in 2023, they went to step further by also banning FinTech

547
00:59:39,280 --> 00:59:45,200
payment apps from offering digital assets to customers. But this started to be reversed

548
00:59:45,200 --> 00:59:51,600
after the election of Javier Malay, who is pro-Bitcoin and in favor of the market determining

549
00:59:51,600 --> 00:59:58,720
what it wants to use as money. During Malay's campaign, economist Diana Mondino, now Argentina's

550
00:59:58,720 --> 01:00:06,960
Minister of Foreign Affairs, wrote that, Argentina will soon be a Bitcoin haven for years. The

551
01:00:06,960 --> 01:00:13,440
United States Security and Exchange Commission blocked spot Bitcoin ETFs. Other countries

552
01:00:13,440 --> 01:00:19,440
had spot Bitcoin ETFs with no issue, and the Commodities Futures Trading Commission allowed

553
01:00:19,440 --> 01:00:26,480
Bitcoin futures trading, and the SEC allowed futures-based ETFs, both long and short. The

554
01:00:26,480 --> 01:00:34,160
SEC even allowed a leveraged futures Bitcoin ETF, but they repeatedly blocked all spot ETFs.

555
01:00:34,160 --> 01:00:41,440
Which is the simplest type, and which is what the market wanted. In 2023, the DC Circuit

556
01:00:41,440 --> 01:00:49,200
Court of Appeals found that the SEC's allowance of Bitcoin futures ETFs, but not spot ETFs,

557
01:00:49,200 --> 01:00:54,880
was arbitrary and capricious, rather than based on reasonable and coherent arguments.

558
01:00:54,880 --> 01:01:01,920
By early 2024, several spot Bitcoin ETFs began trading. They also allowed the SEC to

559
01:01:01,920 --> 01:01:08,880
make the ETFs trading. There are about 160 currencies in the world, and they have a sort

560
01:01:08,880 --> 01:01:15,360
of financial blood-brain barrier around them. They can control how much physical money,

561
01:01:15,360 --> 01:01:21,440
e.g. cash and gold, comes through ports of entry with tight restrictions, and they can

562
01:01:21,440 --> 01:01:26,320
control what currencies banks are allowed to operate in, what domestic and foreign bank

563
01:01:26,320 --> 01:01:32,880
wires they can make, and what denomination of currency accounts they can provide to their customers.

564
01:01:32,880 --> 01:01:37,840
Even if a developing market jurisdiction does allow broad access to dollar accounts,

565
01:01:38,400 --> 01:01:44,400
they can be dangerous for the holders. They are fractionally reserved, and do not have FDIC

566
01:01:44,400 --> 01:01:50,640
insurance backed by the US government and US central bank. In other words, dollar deposits

567
01:01:50,640 --> 01:01:57,120
in developing country foreign banks are basically junk-rated and uninsured leveraged bond funds.

568
01:01:58,240 --> 01:02:03,440
During times of currency shortage, the dollar accounts can be forcibly converted to local

569
01:02:03,440 --> 01:02:09,600
currency at a fake exchange rate, or blocked from withdrawal. If someone holds dollars in a domestic

570
01:02:09,600 --> 01:02:15,840
bank account in a country where hyperinflation occurs, they are unlikely to be getting most or

571
01:02:15,840 --> 01:02:22,400
any of their dollars back. These 160 different fiat currencies can be a real problem for a lot of

572
01:02:22,400 --> 01:02:29,840
people. Latin America has over 30 currencies, Africa has over 40 currencies. All of those

573
01:02:29,840 --> 01:02:36,480
financial borders are frictions for trade, and all of those financial borders keep people partially

574
01:02:36,480 --> 01:02:43,840
locked in to rapidly devaluing currency units. In other words, if I want to pay a graphic designer

575
01:02:43,840 --> 01:02:49,920
from a developing country using various traditional payment methods, and they want to receive dollars

576
01:02:49,920 --> 01:02:56,080
rather than their local rapidly devaluing currency, their government and banking system can block the

577
01:02:56,080 --> 01:03:02,160
transfer and make them receive it in local currency in any number of ways. And they can set an

578
01:03:02,160 --> 01:03:08,240
artificial exchange rate as well. It's tightly controlled. But if that graphic designer elects

579
01:03:08,240 --> 01:03:14,560
to be paid in bitcoin or dollar stablecoins, I could send it to them with a QR code on a video call,

580
01:03:15,200 --> 01:03:21,280
or over a DM or email, and it goes around their banking system. For legal reasons,

581
01:03:21,280 --> 01:03:26,720
I wouldn't send it to a country with sanctions. It would be too risky for me to do. But I'm happy

582
01:03:26,720 --> 01:03:32,160
to do it if they're in a country that is legally acceptable for Americans to send money to, and

583
01:03:32,160 --> 01:03:37,920
where the primary friction is on their side, which represents the vast majority of countries.

584
01:03:37,920 --> 01:03:44,000
Additionally, someone can bring unlimited amounts of bitcoin and stablecoins with them globally,

585
01:03:44,000 --> 01:03:49,840
just by having a private key. They could write it down in their luggage, store it on a device,

586
01:03:49,840 --> 01:03:55,120
memorize 12 words that represent the key, or stick it in a password protected encrypted

587
01:03:55,120 --> 01:04:01,840
cloud file temporarily, and thus bring unlimited value density through any port of entry. I see

588
01:04:01,840 --> 01:04:09,760
signs at airports that say, no cash over $10,000, and chuckle to myself, because they have no way

589
01:04:09,760 --> 01:04:16,400
of knowing who in the line has $10 million or any other arbitrary value of bitcoin or stablecoins

590
01:04:16,400 --> 01:04:22,960
accessible to them in some way. With this technology, those 160 financial borders that

591
01:04:22,960 --> 01:04:29,200
separate us all are increasingly porous. Trying to stamp out bitcoin or stablecoins,

592
01:04:29,200 --> 01:04:33,600
or similar stuff, is like trying to build sand walls to hold back the ocean tide.

593
01:04:34,400 --> 01:04:39,600
The ability to transfer money around banks, between any internet-connected parties,

594
01:04:40,160 --> 01:04:47,360
opens up global competition between monies. This is good for most people. It's only bad for people

595
01:04:47,360 --> 01:04:53,440
who rent-seek off the top, constantly dilute people's savings and wages, and channel that value

596
01:04:53,440 --> 01:05:00,480
toward themselves and their cronies, and that rely on obfuscation rather than transparency to finance

597
01:05:00,480 --> 01:05:06,480
themselves. Capital naturally flows to places with good legal protections and the rule of law,

598
01:05:07,120 --> 01:05:12,960
and technology makes that process quicker and smoother, and makes it accessible to the working

599
01:05:12,960 --> 01:05:19,920
class and middle class rather than just the wealthy. The mere holding and using of bitcoin puts

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01:05:19,920 --> 01:05:25,920
governments in an awkward place if they try to ban it, especially governments that have any semblance

601
01:05:25,920 --> 01:05:32,880
of rule of law. They have to argue that it's a bad thing for there to exist money that can't be

602
01:05:32,880 --> 01:05:38,800
debased and that people can hold themselves and send to others, or another way of putting it.

603
01:05:39,520 --> 01:05:45,200
They have to make the case that a decentralized spreadsheet is a threat to national security,

604
01:05:45,200 --> 01:05:51,200
and that such a dangerous thing as that must be banned under threat of imprisonment.

605
01:05:52,080 --> 01:05:57,920
Instead, the biggest legal challenges for the bitcoin network ahead are likely in the area of

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01:05:57,920 --> 01:06:04,480
privacy, and by major governments like the United States. Governments really don't want people to

607
01:06:04,480 --> 01:06:12,000
have any sort of financial privacy, especially at scale. Financial privacy was the default for most

608
01:06:12,000 --> 01:06:18,800
of history, but in recent decades it's increasingly not. The premise from their perspective is that

609
01:06:18,800 --> 01:06:24,880
in order to prevent the 1% of bad people from doing terrorist financing or human trafficking or other

610
01:06:24,880 --> 01:06:31,760
bad things, 100% of people have to give up their rights to financial privacy and allow the government

611
01:06:31,760 --> 01:06:38,240
to surveil all transactions between all parties. In addition, governments have shifted much of their

612
01:06:38,240 --> 01:06:44,720
revenue toward income taxes, which rely on ubiquitous surveillance of all payment flows to enforce,

613
01:06:45,280 --> 01:06:50,720
but of course, such a thing can lead to massive overreach and with grave consequences.

614
01:06:51,680 --> 01:06:58,480
In addition, we live in an age of surveillance capitalism. We are offered myriad free services

615
01:06:58,480 --> 01:07:04,960
by corporations if we sign away our digital soul, meaning all of our data. What we look at,

616
01:07:04,960 --> 01:07:11,040
and what we spend on, is very valuable commercial information, and governments enhance this and

617
01:07:11,040 --> 01:07:15,840
help make it the norm because they plug into the back end and collect that data too.

618
01:07:16,960 --> 01:07:21,840
Sometimes it could be for the national security reasons, and other times it could be to try and

619
01:07:21,840 --> 01:07:29,520
control the whole population, e.g. China's social credit scores. However, the ability for people

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01:07:29,520 --> 01:07:36,000
to self-custody their own money and send money to others and do it in such a way that corporations

621
01:07:36,000 --> 01:07:42,480
can't surveil it and governments can't surveil or debase it is an important check on power.

622
01:07:42,480 --> 01:07:48,720
For corporations, there are plenty of reasons to not want them to surveil us, not least being that

623
01:07:48,720 --> 01:07:54,960
they are often hacked and spill that data onto the dark web. And for governments, rather than being

624
01:07:54,960 --> 01:08:01,280
able to surveil and freeze funds without probable cause in sweeping manner in ways that benefit them,

625
01:08:01,920 --> 01:08:07,920
these sorts of technologies force them to have probable cause before using targeted enforcement,

626
01:08:07,920 --> 01:08:14,160
which comes with cost and legal procedure. In the 19th century and before, financial privacy was

627
01:08:14,160 --> 01:08:20,160
the norm because most exchange occurred via cash and coins, and there wasn't any significant

628
01:08:20,160 --> 01:08:26,640
technology to monitor that. The idea of monitoring everyone's transactions was a type of science

629
01:08:26,640 --> 01:08:31,920
fiction. Starting in the late 19th century and especially throughout the 20th century,

630
01:08:32,480 --> 01:08:37,280
people increasingly used banks for their savings and payments, and those banks were

631
01:08:37,280 --> 01:08:43,680
increasingly centralized and surveilled by governments. The telecommunication age and the age

632
01:08:43,680 --> 01:08:49,760
of modern banking that it contributed to enabled ubiquitous financial surveillance to become normal.

633
01:08:50,480 --> 01:08:54,400
Governments mostly didn't have to enforce privacy controls in individuals,

634
01:08:54,960 --> 01:09:00,560
they mainly just had to enforce them on banks, which is easy and happens behind the scenes.

635
01:09:01,120 --> 01:09:08,160
The rise of factories and corporations brought people off of farms and into cities, earning

636
01:09:08,160 --> 01:09:14,240
paychecks that they receive in their bank accounts, with taxes automatically withdrawn, and with all

637
01:09:14,240 --> 01:09:21,520
their financial activities easily surveilled. However, as computer processing, encryption,

638
01:09:21,520 --> 01:09:28,160
and telecommunications kept improving, eventually Bitcoin was created and allowed for peer-to-peer

639
01:09:28,160 --> 01:09:34,640
pseudonymous value transfer. The more widespread Bitcoin and adjacent technologies become,

640
01:09:34,640 --> 01:09:41,040
and particularly private layers and methods on top of them, the more untenable it becomes for

641
01:09:41,040 --> 01:09:48,400
governments to maintain that existing centralized surveillance apparatus. People can begin opting

642
01:09:48,400 --> 01:09:55,120
out, but governments won't make it easy. They are now trying to impose bank type surveillance and

643
01:09:55,120 --> 01:10:01,200
reporting requirements on individuals, which is orders of magnitude more difficult to enforce

644
01:10:01,200 --> 01:10:06,720
than on institutions. I suspect there will be more Zimmerman-like conflicts in the years ahead,

645
01:10:07,440 --> 01:10:12,240
but this time for financial privacy. Governments will increasingly tighten these

646
01:10:12,240 --> 01:10:18,000
frictions around people using various privacy-preserving methods up to and including trying

647
01:10:18,000 --> 01:10:23,920
to criminalize them, and the defense to such overreach is that many of them are open source.

648
01:10:24,800 --> 01:10:31,040
They're just information to restrict their creation and usage by people who are not otherwise

649
01:10:31,040 --> 01:10:37,600
committing crimes, requires criminalizing the usage of words and numbers in a certain order.

650
01:10:38,560 --> 01:10:45,280
It's both hard to legally justify in jurisdictions that have free speech, and hard to enforce in

651
01:10:45,280 --> 01:10:51,760
practice, because open source code spreads rather easily, and in the United States and

652
01:10:51,760 --> 01:10:58,400
certain other jurisdictions, well-funded lawsuits can push back on these laws as being unconstitutional.

653
01:10:58,400 --> 01:11:04,880
So, I expect that period to be messy. Final Grade A-

654
01:11:06,000 --> 01:11:12,080
Grading the network is kind of a joke since it's not really quantifiable, but basically most aspects

655
01:11:12,080 --> 01:11:17,200
of the network are either getting better or staying roughly the same. The areas where we can

656
01:11:17,200 --> 01:11:23,760
subtract points and thus bring it down to an A- rather than an A or an A+, is that minor

657
01:11:23,760 --> 01:11:29,200
decentralization could be better, particularly with regard to pools and ASIC production,

658
01:11:29,840 --> 01:11:35,520
and overall user experience and second-layer application ecosystem development could be

659
01:11:35,520 --> 01:11:41,920
further along than it is now. For that second item, I'd like to see more and better wallets,

660
01:11:41,920 --> 01:11:48,320
more seamless usage of higher layers on the network, more adoption of built-in privacy features,

661
01:11:48,320 --> 01:11:54,320
and so forth. If Bitcoin enters a sustained period of higher fees, as it has been in lately,

662
01:11:54,960 --> 01:12:01,200
then I think those second-layer developments will accelerate. When fees are low, people are more

663
01:12:01,200 --> 01:12:07,760
likely to use the base layer and have less reasons to use higher-layer solutions. When fees are high,

664
01:12:08,560 --> 01:12:15,200
various existing use cases get stress-tested, and users and capital gravitate toward what is

665
01:12:15,200 --> 01:12:21,760
working or what is being demanded. Additionally, governments have generally been pulled, sometimes

666
01:12:21,760 --> 01:12:28,800
willingly and sometimes with protest, toward accepting it to some degree. However, the battle

667
01:12:28,800 --> 01:12:36,880
ahead is likely around privacy, and in my view, that's nowhere near being finished yet. If anything,

668
01:12:36,880 --> 01:12:44,240
it's just heating up. Overall, I continue to view the Bitcoin network as being highly investable,

669
01:12:44,240 --> 01:12:50,240
both in Bitcoin directly as an asset and in the equity of companies building on top of the network.

670
01:12:51,200 --> 01:12:58,080
There are still areas of risk, but they represent areas of potential improvement and contribution.

671
01:12:58,080 --> 01:13:04,240
Part of what makes the Bitcoin network powerful is that its open-source aspect makes it so that

672
01:13:04,240 --> 01:13:10,720
anyone can audit the code and propose refinements to it, anyone can build layers on top of it that

673
01:13:10,720 --> 01:13:26,640
attach to it, and anyone can build applications that interact with it and enhance it for users.

674
01:13:30,400 --> 01:13:36,800
And that's a wrap on this Bitcoin Out Loud episode of The Bitcoin Podcast. If you are a

675
01:13:36,800 --> 01:13:41,840
Bitcoin-only company interested in sponsoring another fucking Bitcoin podcast, head to

676
01:13:41,840 --> 01:13:48,960
BitcoinPodcast.net. You can find me on Noster by going to Primal.net slash Walker. And if you want

677
01:13:48,960 --> 01:13:55,840
to follow The Bitcoin Podcast on Twitter, go to At Walker America or at TITCoin Podcast. You can

678
01:13:55,840 --> 01:14:02,000
also find the video version of this podcast at youtube.com slash At Walker America or At Walker

679
01:14:02,000 --> 01:14:09,920
America on Rumble. Bitcoin is scarce. There will only ever be 21 million, but Bitcoin podcasts

680
01:14:09,920 --> 01:14:16,720
are abundant. So thank you for spending your scarce time to listen to another fucking Bitcoin

681
01:14:16,720 --> 01:14:33,520
podcast. Until next time, stay free.