Why Bitcoin Now: Andreas Antonopoulos and Dan Held on Bitcoin’s Monetary Policy

Andreas M. Antonopoulos, speaker, educator, and the author of Mastering Bitcoin, Mastering Ethereum, and The Internet of Money, Volumes 1, 2, and 3, and Dan Held, growth lead at Kraken Digital Asset Exchange, discuss the core features of Bitcoin’s monetary policy, including how it differs from traditional central bank monetary policy, what gives it value and yet how it seems to have derived value from thin air. Plus, we talk about how the coronavirus pandemic will affect Bitcoin. In this episode, we cover:

• how monetary policy in general is defined
• the core feature of Bitcoin’s monetary policy, and how it differs from previous forms of money
• the similarities and differences between Bitcoin and gold
• why the hard cap on Bitcoin is unique and so important
• the difficulties in analyzing and classifying Bitcoin
• whether or not transaction fees alone can sustain the network once all 21 million Bitcoin have been minted
• if Bitcoin will be able to fulfill its original vision of democratizing finance and serving as an everyday medium of exchange
• why they think Bitcoin has recently been more correlated with the stock market
• their thoughts on the stock to flow model and whether it works for Bitcoin
• how they think the coronavirus, unprecedented quantitative easing, and increasing inflation will impact Bitcoin’s adoption and price
• how crypto banks that don’t conduct fractional reserve banking or lending might change the economy

Thank you to our sponsors! 

Crypto.com: http://crypto.com

Gods Unchained: https://playgu.co/unchainedpod

Episode links: 

Andreas Antonopoulos: https://aantonop.com

On Twitter: https://twitter.com/aantonop

YouTube: https://www.youtube.com/c/aantonop/

Dan Held: https://www.danheld.com

On Twitter: https://twitter.com/danheld

Dan Held on Bitcoin’s monetary policy: https://medium.com/the-bitcoin-times/information-theory-of-money-36247aebdfe1

Dan Held on Bitcoin’s security model: https://www.danheld.com/blog/2019/6/16/bitcoins-security-is-fine

Unchained interview with Saifedeam Ammous: https://unchainedpodcast.com/why-bitcoin-now-saifedean-ammous-on-why-bitcoin-is-the-most-advanced-form-of-money/

Mises’ Regression Theorem: https://mises.org/library/bitcoin-regression-theorem-and-emergence-new-medium-exchange

Stock to flow model: https://medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25 https://medium.com/@100trillionUSD/bitcoin-stock-to-flow-cross-asset-model-50d260feed12

Why the stock-to-flow model is wrong: https://www.coindesk.com/why-the-stock-to-flow-bitcoin-valuation-model-is-wrong

Federal Reserve announcement about letting inflation run higher than normal to achieve a 2% target rate of inflation: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200827a.htm

Kraken launching the first crypto bank: https://unchainedpodcast.com/the-first-crypto-bank-what-kraken-financial-will-do-and-how/

Transcript:

Laura Shin: 

Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full time. Subscribe to Unchained on YouTube, where you can watch the videos of me and my guests. Go to YouTube.com/c/UnchainedPodcast and subscribe today. 

This show is sponsored by Gods Unchained, the digital card game that offers true ownership to players. It’s fun, engaging, competitive and has more NFTs than any other Ethereum game on the market. You can try the game out at https://playgu.co/unchainedpod Crypto.com Crypto.com is waiving the 3.5% credit card fee for all crypto purchases until the end of September. Download the Crypto.com app today.

Laura Shin: 

This is the sixth in the Why Bitcoin Now series, in which we take a closer look at Bitcoin in the context of macroeconomic forces, including the pandemic and the economic response, and today’s episode will focus on the coin’s monetary policy. Here to discuss are Andreas M. Antonopoulos, speaker, educator, and author of Mastering Bitcoin, Mastering Ethereum, and the Internet of Money, Volumes 1, 2, and 3, and Dan Held, Growth Lead at Kraken. Disclosure, before we begin, Kraken is a previous sponsor of my shows. Welcome, Andreas and Dan.

Andreas Antonopoulos: 

Hello.

Dan Held: 

Thanks for having me.

Laura Shin:
To start, let’s define what we’re going to discuss today. What is a monetary policy?

Dan Held:
I guess I can go ahead. So, a monetary policy is what a government or central bank would define…more eloquently, a central bank would define as its issuance schedule of currency and/or the inflation targets or other socioeconomic targets. Recently, the Fed has described its monetary policy as to accomplishing several other factors outside of just like an inflation rate, and now, for example, I think they’re focusing on solving inequality now, as well. So, that’s how I would define a monetary policy, and also note that this is distinctly different than a fiscal policy, fiscal being more associated with the Federal Government or on a government level, which would be around the spending on different programs for Medicaid, Medicare, or Social Security.

Laura Shin: 

Andreas, do you have any thoughts?

Andreas Antonopoulos: 

From a mechanical perspective, I think of this as you have central banks that are quasi-independent, and they have a bunch of dials, and what they’re trying to do with these dials is adjust the supply of money, itself, in order to affect the velocity of money through the economy, and they use different dials. Some of them are things like the balance sheet dial, which is a relatively new one, where the central bank goes in and buys things on the market, like treasuries. The most important dial, the traditional dial, is the overnight interest rate for inter-bank lending at the Federal Reserve window, which is basically where banks park their cash overnight, and by tweaking that dial, they can control how much money is effectively in circulation versus parked at the Fed, and through that, they can then affect other parameters. 

I think one of the things that I find fascinating about monetary policy is that, first of all, it’s extremely variable and subject to political pressure, which is why central banks are quasi-independent. The other thing is that, in many cases, tweaking the dial has a delayed effect, and this is tricky. Now, this is a bit like, you know, you start changing the rudder on a ship, and it turns three miles later. Because of this delayed effect, it’s not always clear how much control the central bank actually has over the thing they’re changing because they don’t change that thing directly. They tweak one of the other dials, and then they have this delayed effect. So, for example, inflation, they don’t control inflation directly. They control interest rates on the overnight window, and the secondary effect happens later. Would you agree with that, Dan? 

Dan Held:
I would, and there’s a useful analogy that I came up with, which is imagine you’ve got the Fed, and the Fed is driving the car, which is the economy. The Fed can’t see into the future, so you can’t see out your front windshield, but you can use your rear-view mirror. So, they’re looking at historical data, and they’re using that to influence which levers they press. So, they look, historically, they look at the road behind them, and they go, okay, it’s gone to the left, we need to make it go back to the right, and so they press the brakes, but the problem is, like you mentioned, the brakes don’t kick in for another mile. So, it’s a little bit tricky, and they’re steering the steering wheel and pressing the gas, but these are all very delayed reactions to historical information. You know really at the core root of this is a very tricky information problem and a very tricky influence problem where they don’t have, you know, a really tight latency. You know there’s not a really low latency there between their actions and their outcome.

Andreas Antonopoulos:
I love that analogy because it immediately makes me think of how if the central bank of the US Dollar is a car driven by a rear-view mirror, Bitcoin is a train, and it’s on rails. We know exactly where it’s going. 

Laura Shin:
Yeah. Well, I was just about to say that one of the most fascinating things about the way that this discussion started is how different it sounds from Bitcoin’s monetary policy, which we’re going to dive into deeply, and I would say, at least in my mind, probably the most prominent feature of Bitcoin’s monetary policy is the cap on its money supply since the software will stop minting new bitcoins once 21 million coins are reached. Why is the cap on the money supply such a core feature to Bitcoin’s monetary policy, and how would you say that it differs from other previous forms of money?

Andreas Antonopoulos: 

Dan, do you want to go for that one?

Dan Held:
Sure. The disinflationary, so, it’s not technically a deflationary monetary policy. It’s a disinflationary monetary policy. It’s a decreasing issuance rate, or you could call it an inflation rate, but there’s a bit of a nuance to some people’s definition of inflation rate versus issuance rate, but essentially, the Bitcoin protocol issues bitcoin at a decreasing rate over time, and those moments in which the newly minted coins decreases are called halving events, and the reason why the monetary policy with a hard cap is important is because Satoshi was trying to solve for a couple different problems. 

One was the impossibility of choosing a proper rate of inflation, and so, and Satoshi actually jokes about this, a little bit, where he goes, you know, if we could trust someone to take data outside of Bitcoin’s blockchain and bring it in accurately, then there might be a way to adjust the supply in reaction to demand, but I think he’s saying that a little bit in a jokingly manner, you know, you can’t really trust anyone on the outside to pipe in that data in a totally trustless manner. 

There’s always some degree of trust that you’d have to have, and what I think he fundamentally understood was that the inflation rate or the proper rate of inflation is impossible to determine. So, let’s say after Bitcoin has totally issued 21 million coins, there is no proper way to choose the right inflation rate. There’s an information problem in which for us to choose the proper rate of inflation, we would have to digest trillions of data points a second, every single consumer’s purchasing behavior, all across the world. We’d have to ingest that, parse it, and analyze it instantaneously, and there’s just no way we can do that, and so what Satoshi decided to do, instead, was set the rate at zero, long term, so as soon as all the bitcoin are issued, the inflation rate is zero percent. 

That also reduces a political attack vector. When the rate of inflation is constantly and subjectively up to discussion, then that will be used as a lever for certain powerful groups to influence the inflation rate for their benefit. You know we commonly refer to this in the space as the Cantillon effect. I’m not sure how many people outside of crypto have ever heard of that before, but it’s essentially those closest to the money printing benefit from it. So, those closest to the monetary policy, influencing it, will likely benefit from it.

Andreas Antonopoulos:
I think it’s also a battle between savers and debtors in that inflation can be used to shift gains from those who save to those who have debt by making debt cheaper and removing the burden of paying back the debt by making it payable in less and less and less valuable money. That’s one of the arguments against the current US dollar monetary policy is that the government is effectively destroying savings, making it impossible for people to save because the interest rate you get from your bank or any form of savings is minuscule to zero, but the benefit that has for the government is that that makes the 23 trillion dollars’ worth of debt or however many we have now, those are denominated in dollars. So, the more inflation you have, the less value that has. So, essentially, the debt gets smaller in purchasing value over time because of inflation, and that’s another thing that is very subject to political manipulation. If you can shift power between debtors and savers, you can very much manipulate the economy.

Laura Shin:
Yeah, and one other thing I would add is that I read in Saifedean Ammous’ book, The Bitcoin Standard, and it’s so obvious and yet just this simple statement struck me. He wrote until the invention of Bitcoin, scarcity was always relative, never absolute, and it is true even if you think about other scarce forms of money, such as gold, you know, it’s not something where there’s a finite amount. So, you know, the fact that that can be known in advance about Bitcoin is pretty remarkable, and well, actually, so let’s actually maybe dive into a little bit more the comparison of Bitcoin to gold, because it is often called digital gold, and I did just point out one difference between them, and yet they are often compared. So, how would you say they’re similar, and how would you say they’re different?

Dan Held:
It’s all about the predictability of the monetary policy. I think that at the core root of what we’re all talking about here with Bitcoin, gold, fiat is the predictability of it, and with the supply we, for sure, we concretely, 100 percent know that it will only be 21 million. With gold, we know that it was scarce, scarce on Earth, but if we zoom out and we look at the solar system and we look at these asteroids circling around the Earth and other parts of the solar system, they contain large, large amounts of gold. So, we know, certainly that gold is only finite on Earth. 

We don’t exactly know how finite it is, and then we know that it is not finite outside of Earth. So, gold was only used as a mechanism for money because that was what we had at the time, but with Bitcoin, with digital gold, we can concretely understand that there are only 21 million, and that assurance, that confidence, that absolute confidence in that number, means that trust can flow into Bitcoin, which brings in deeper liquidity, which brings in more and more folks believing in Bitcoin and understanding it and placing their money, which money is a representation of time, energy, and trust, you know, placing that into the Bitcoin protocol.

Andreas Antonopoulos: 

I would add to that that there are a number of properties that are unique and fundamentally different in Bitcoin as compared to gold that actually make it much more powerful than traditional gold. As someone who has investments in gold and Bitcoin, you know, it’s always been a very difficult problem, which is owning gold is not easy, and using gold as a store of value isn’t easy, even for its main purpose, which is store of value, let alone secondary purposes like medium of exchange. The bottom line is that I do not have the technical capability to verify that physical gold that I hold is actually gold. It’s not easy to do, and to do it consistently and to do it safely. It’s difficult to store securely, and it’s extremely difficult to transport securely, or even at all, because it’s damn heavy. If you ever held gold, you know that. 

So, it has a number of problematic properties…that physical gold has a number of problematic properties. It’s much easier to confiscate, seize, freeze, or put such conditions on its storage that it’s very, very difficult for many people around the world to actually hold it. So, all of these properties, especially the forgeability aspect, are resolved in Bitcoin. Bitcoin is infinitely transportable with great ease. It has zero weight. It can be subdivided very, very finely, and it is also absolutely unforgeable and easily verifiable as genuine and real Bitcoin. 

So, all of these properties make it a much better store of value, and then you add, on top of that, that Bitcoin also has a number of very strong properties as a medium of exchange, not yet perhaps for the smaller payments that you might think of, the buying of a cup of coffee example that we always think of, but certainly, for me, as a businessperson, getting paid and paying payroll, and getting paid for jobs, which are slightly larger payments but often across borders, it’s a fantastic medium of exchange, and for that purpose, it’s very, very suitable, and I could never use gold like that. So, Bitcoin is digital gold if digital gold put on a cape and became supergold.

Laura Shin:
Yeah, and one other aspect of the cap that I think has been crucial to the success of Bitcoin was in helping it get off the ground. So, why would you say that is?

Andreas Antonopoulos: 

FOMO.

Laura Shin:
And specifically how did that play out with, you know, miners and people wanting to buy it and stuff like that?

Andreas Antonopoulos:
Well, it’s an interesting idea, and first of all, to define FOMO, I said jokingly FOMO, fear of missing out.

Laura Shin:
But I think that’s true.

Andreas Antonopoulos:
But it is very true, yeah, and so I think there’s two aspects to this, and often, there’s a discussion in Bitcoin about the utility versus scarcity aspect of Bitcoin as a chicken and egg problem. You know one of the things we celebrate in Bitcoin, I even have a mug with a symbol for it, is pizza day, right? Pizza day represents the utility moment, the moment when Bitcoin was used to buy something that somebody wanted, and before that, its value wasn’t really yet defined. Interestingly enough, though, you could make an argument that its scarcity had not yet really become noticeable, so that’s another reason why its value wasn’t defined. So, in the genesis of Bitcoin, one of the big discussions and debates, I think, is did Bitcoin need to become useful before it became valuable, or did the scarcity make it valuable even before it was really useful, and there’s differing arguments on this. I think they both work hand in hand, but the scarcity is becoming more and more and more noticeable over time. 

With each halving, it gets felt in the markets very acutely because, of course, miners do sell a big proportion of their newly-minted bitcoin in order to pay electricity, and that’s a specific amount of bitcoin every day that has to be picked up by someone buying just for the price to remain stable, and as long as there are more people buying than that, then that pushes the price up. So, the scarcity is being felt in the market, especially after each halving, and that is, of course, generating fear of missing out. Arithmetically, a lot of people say, well, if you think about it, 21 million bitcoin is far less than the, I don’t know, 40, 50 million millionaires that exist on the planet. So, that means that not even every millionaire on the planet can have one bitcoin. When you grasp these little nuances, it becomes very clear that the scarcity is getting more and more real over time.

Dan Held:
And there’s a couple really fun things to kind of break out here and talk about. So, one is the decimal, where Satoshi put the decimal, at 21 million versus 21 billion or 210 billion. I thought that was a really interesting, you know, decision to dig into in terms of how Satoshi felt that 21 million bitcoin felt, maybe it would feel more scarce than 21 billion. I think Satoshi, you know, this was the first cryptocurrency that actually worked. There had been other failed attempts before, and I’m not sure if he was super confident that it was going to work, and I think we all forget that Bitcoin didn’t have a price for a year and a half. That’s a long time.

Andreas Antonopoulos: 

Oh, Satoshi Nakamoto was definitely the first Bitcoin skeptic. He didn’t think it was going to work, necessarily.

Dan Held:
It was an experiment to him.

Andreas Antonopoulos:
Yeah.

Dan Held:
And I think, largely, and his language echoes that, with the other developers, of him encouraging them to experiment with going, hey, you should go try this out for XYZ sort of utility or application, and he wasn’t sure, as well, that…he hypothesized that scarcity, alone, could be the driving factor behind price appreciation, but he wasn’t sure, and he encouraged other people to go, you know, use Bitcoin for different types of applications, you know, with the hypothesis that that might drive demand.

Andreas Antonopoulos:
There’s a lovely little myth that actually the 21 million was a mistake, and in the calculation of halvings, Satoshi was actually aiming for 42 million.

Laura Shin:
Yeah.

Andreas Antonopoulos:
Exactly double, which is, of course, the answer to the eternal question of what is the meaning of life, the universe, and everything.

Dan Held:
42, you find it everywhere.

Laura Shin:
But then also, and that’s from Douglas Adams’ book, which I’m just blanking…Hitchhiker’s Guide to the Galaxy.

Andreas Antonopoulos:
Hitchhiker’s Guide to the Galaxy.

Laura Shin:
Right, but then, also, if that were the case, which there’s something about that that seems plausible, which is the fact that then the block reward would’ve started at 100 bitcoins per block rather than 50, which is where the software started. So, I also thought that was a very interesting theory, but one other comment that I wanted to make, so, I’m asking these questions, but then I also sort of want to jump in.

Dan Held:
Yeah.

Laura Shin:
Which is that, you know, I feel like having that specific number, and you’re right, Dan, it almost doesn’t matter what the number is. It’s just the fact that you can know what the number is, and that allows you to make calculations, right? So, like, with a miner, they could calculate, okay, that like they have actual numbers that they can plug into an equation and be like will I be profitable, and they can figure out the answer to that, right? So, if they, for instance, know, okay, there’s going to be 21 million bitcoins ever, you know, at these different points in time, this will be the supply, you know, then they can calculate that against known money supplies. 

You know I’ve seen comparisons of the trillions of dollars that are in gold, currently, or the M0 money supply, or the M1 money supply, or whatever, and so they can make projections, but then also, they can, once the price of Bitcoin became known, or once there was a price on Bitcoin, then they could also use that to then plug in whether or not their mining operation would be profitable. So, I feel like all those things were helpful to people who, you know, heard about this new thing, didn’t know whether it was going to take off, and yet could do math to kind of figure out, okay, is this worth my time and effort.

Dan Held:
Oh, sorry, finish up.

Laura Shin:
Oh, well, just the last thing, also, is that I feel like, in a way, the cap creates this sort of like space of digital real estate, you know, like a future Manhattan, if you have this idea that, oh, okay, there’s going to be some kind of future monetary version of Manhattan that will exist in the digital sphere. Sort of Bitcoin was like that, and you know, obviously, Manhattan, nowadays, is very expensive real estate. So, you know, knowing like, oh, if I get a piece of that, like that’s going to grow in value. Like, I feel like the cap is what does that. You know it creates this like Manhattan-sized island.

Dan Held:
Money serves a very, very important…and I love your thoughts here, and this is, I got really excited once you brought this up because this brings me to an analogy that I find really, really useful that money is the measuring stick of capitalist experiments, which are entrepreneurial efforts. Money is that measuring stick to help us evaluate is the allocation of capital towards a service or good building that or creating that? Is that a productive utility for society? So, if I hypothesize that hot dogs are needed on my street corner, and I buy a little stand, and I buy the hot dogs, and it turns out that no one wanted hotdogs, and I fail, money is the ultimate measuring stick of me allocating capital effectively in the economy to solve problems for humans, and so Bitcoin being a 21 million hard cap is a finite, exact measuring stick. 

Before, we’ve got this variable measuring stick, which we’re not even sure exactly how many dollars are out on the market. You know there could be some numbers that are either fudged, or you know, it’s hard for us to validate the entire supply of dollars or Euros or Yen, and with Bitcoin, we could now concretely measure, and this is a problem that we see in the sciences. If you don’t have a precise measurement of a kilogram or a meter, then how would you go evaluate different experiments or different endeavors to measure and try out new things? And so, with Bitcoin, it is the first time we have a concrete measuring stick for all business outcomes.

Andreas Antonopoulos: 

Well, one of the interesting conclusions you get from that is that, in the end, it doesn’t really matter how big a meter is as long as everyone has the same idea. So, the actual unit doesn’t matter. 21 million, there are some aspects of human cognition where certain round numbers are more appealing, easier to understand, etcetera, etcetera. We don’t really work very well with things after the decimal point. So, there’s an argument to be made that that was a good choice for the primary unit, but ultimately, the size of the measuring stick doesn’t matter. Now, that comes to a second, very important aspect of this, which is ultimately, it’s not the money that has the value. It’s the things you do with the money that have the value. 

The measuring stick, itself, isn’t its length, and that’s important to realize. It’s not money that has value. It’s the things you get for it that have value, and in order for the measuring stick to work, you have to have that stability, or you have to have very, very massive utility. It’s interesting because in all of this discussion, we talk about the US dollar as a currency that doesn’t have these characteristics. Yet the US dollars is an incredibly successful currency. It is still the world reserve currency and is likely to remain the world reserve currency for a very long time. So, then, the question is why? How can you have a world reserve currency that doesn’t have sound monetary properties and solid store of value and fixed unit of measurement? I think that’s a really interesting question to explore.

Laura Shin:
Do you want to make a theory because I’m curious to know your thoughts on that?

Andreas Antonopoulos:
I think it’s momentum from utility. The US dollar has enormous utility, and as long as most other substitutes are inferior in more than one ways, either politically inferior, the yuan, for example, inferior in terms of breadth of trade, vis a vis other economies and things like that, and inferior for geopolitical reasons, such as control of oil-producing economies, that utility can carry it forward with momentum much longer than you would expect on paper, in theory, and of course, that’s exactly the thing that is being challenged by Bitcoin. Bitcoin offers a viable alternative on certain dimensions. In my opinion, there is no perfect system, and I think it’s important to recognize that. Bitcoin has its own weaknesses, and so, from a broader perspective, it’s really a matter of which dimensions are important for the thing you’re trying to do, and that’s why the dollar isn’t just going to disappear overnight.

Laura Shin:
Yeah. So, I actually, I want to ask two questions based on these comments. One was I was going to ask you guys if you thought that Bitcoin, or any digital currency, would be successful or whether its monetary policy would still be superior to existing fiat currencies even without a cap? So, for instance, if there was some kind of perpetual inflation, which I know other cryptocurrencies use, but then the other thing that I was going to ask, which was, as we know, Austrian economists have been really enamored with Bitcoin, but there is like one theory from Austrian economics that doesn’t quite explain why Bitcoin’s been so successful, which is something called the Mises’s Regression Theory, which is that the value of a currency comes from the likelihood it will continue to be valuable, which means that, you know, in reverse, the current value is based on the previous value, and yet, Bitcoin caught value out of thin air, so I’m interested in your thoughts on both of these things.

Dan Held: 

Yeah. So, to the second one, I think that a lot of Austrian economics, like economists, they looked at previous commodity monies and hypothesized that as these monies came into existence, they came to existence because they previously had utility as a commodity. So, we saw all different types, you know, some people also look at gold, and they claim that gold has some alternative utility for industrial use and/or jewelry, but what’s funny is that the industrial use for gold is a very new invention. Like, 200 years ago, gold did not have a utility and industrial use case, and then, if we look at…

Andreas Antonopoulos:
Yet, it still had enormous store of value use, regardless, right?

Dan Held:
Correct. Its use is as a store of value, now, versus like a lot of these economists go, oh, well, these commodity monies that have previous like real-world functional utility as for something other than money, but that’s the whole point is, is function is money. That’s its utility, and with gold, people will often say that, oh, well it’s also used for jewelry. Well, no, jewelry is the same objective. It’s a display of your store of value. It’s not an alternative use. It’s not an industrial use. There are plenty of shiny metals out there that are less scarce and easier to work with than gold. So, gold’s main value is its utility in money.

Andreas Antonopoulos: 

Right, and you know, the interesting thing is that a lot of these economic analyses of Bitcoin, like many of the analysis we see in the financial space, are based on 18th and 19th-century economic doctrines. So, the problem with all of those is that we’re attempting to analyze something that is truly novel. It’s truly novel in that it doesn’t neatly fit into any of the categories that preexisted on which all of the analytical tools that we’re using are currently based. So, all of the economic theory that comes from Austrian economics or from Chicago school economics or from any economics or MBA type of university training is based on certain assumptions about the structure of an industrial, primarily an industrial economy, and certain assumptions based on the historical perspective from the 18th, 19th, and early 20th century. These are not new schools of thought. 

Bitcoin confounds a lot of these analytical tools because it doesn’t neatly fit into any of the categories that preexisted, and it exists in a realm, the internet, which doesn’t neatly fit into any of the macroeconomic or even microeconomic analysis of the past. You know the idea that the internet is an economy of its own was completely controversial less than 15 years ago, and the idea that you could have an entirely intangible economy that transcends borders, completely controversial 15 years ago. The idea that Bitcoin isn’t just a currency or a stock or a bond or an investment or a commodity, you know, and a lot of people say, well, what do you think Bitcoin is? Is it a bond? Is it a stock? Is it a currency? Is it a commodity? I’ll tell you. The answer is really simple. Bitcoin is a cryptocurrency, and so we don’t yet have that category and the analytical tools that come with it. We are now building the analytical tools to be able to rationally speak about how cryptocurrencies behave over longer-term and larger economies. Until now, we didn’t have any, and this has happened before. 20 years ago, there were no financial tools for speaking about derivatives, simply did not exist in their modern form. They had to develop these. We have entire institutions, like the commodities and futures organization and regulator here in the United States that is…half of its regulatory mandate is on something that didn’t exist 25 years ago.

Laura Shin:
Yeah.

Andreas Antonopoulos: 

We need to have new tools in order to speak intelligently about new things that do not simply fit the behavior or the tools we have in the past.

Laura Shin:
Yeah. This is why I love covering this space because different analysts will come up with new ways of modeling out the value of Bitcoin or other cryptocurrencies, and it’s, you know, they’re just making it up, and you know, which is not, I’m not dismissing what they’re doing, but I’m just trying to explain everything that we’re doing is new. Like, it’s all, we’re just creating it on our own, and it just requires our creativity and our smarts, and yeah, just new ways of looking at the world and trying to figure out what it is that is being built, and I think Spencer Bogart wrote this great post saying that Bitcoin is sort of like this platypus because it’s this animal that has all these different features from other animals, and yet it’s all in one, and that’s why the US government has had a hard time classifying things like Bitcoin. You know the IRS calls it property, and the CFTC calls it a commodity, and you know, etcetera.

Andreas Antonopoulos:
But this is cognitive dissonance, playing out in very tangible and real ways in our industry, this cognitive dissonance as to expecting Bitcoin to behave as something that preexisted and then trying very hard to squeeze it into that category and either being surprised or even more so, being righteously outraged that it doesn’t conform to those things. It’s a bit like the new automotive industry emerging into a world of horses and horse carriages, and the analysts are still trying to figure out how it works by estimating annual consumption of hay and the regulators insisting that it is common-sense to have a veterinary doctor on staff in any transportation company, and it is both unreasonable and dangerous for public health not to have one, and this is exactly the kind of framework that is being hosted around Bitcoin.

Dan Held:
To kind of wrap up here, and I think it’ll go back to your first question, which I don’t think we answered.

Laura Shin:
Yeah, about the inflationary, you know, whether there could be perpetual inflation.

Dan Held:
Let’s see if I can tie this together.

Laura Shin:
Okay. Okay.

Dan Held:
All right. So, while Bitcoin is this new species of money, I mean, it is a wild new exotic species, right? Like, this isn’t anything of like we’ve seen before. It’s very different from these commodity monies, from fiat, from gold. For this new money to permeate the consciousness of like what is money, why is Bitcoin better or different than previous monies, and for that to happen, that takes a long time to do, I mean, and so when it comes to…Bitcoin is fundamentally different from a technological perspective and from a species of money perspective, but it is somewhat the same in terms of the problems that it’s solving, and ultimately, it’s all about trust that makes it work, and this was Satoshi’s first, after the white paper, this was Satoshi’s first post, and in the second paragraph, he goes trust is required to make it all work. 

We have to trust in the central banks. We have to trust in our banks, and Bitcoin essentially is solving the problem of trust. So, while it’s a new technology, it solves a very fundamental, I would say, problem that has always existed in humankind. It solves the problem of trust. Now, tying this back to the monetary policy and inflation, a monetary policy would say a perpetual inflation rate versus one that has no inflation rate, post-21 million issuance or post-total issuance, the monetary policy is a really tricky thing in the issuance schedule, and the security models are all intertwined. 

That’s what makes this really, really, you know, the more I’ve been in the space for a long time, not as long as Andreas or others, but you know when you first get in, you go, oh, it’s digital gold, gold 2.0, and then you’re like, you go down the rabbit hole of proof of work, and you’re like, wow, this is pretty fascinating, and then you get into functions of the security model, and you’re like this is incredible, the intricacies of how this is all tied together, and so let me play out a couple here on the issuance schedule. So, every four years, the rate of newly minted bitcoins drops in half, and that occurs every 4 years or every 210 thousand blocks, more accurately, until 21 million bitcoin are created.

Andreas Antonopoulos:
Well, 21 million are never created. 20,999,999 bitcoin .9999997, specifically. If you work out the correct…and I’m going to be pedantic about this, but the correct one is 21 will never be reached. It’s an asymptotic that never touches 21 million.

Laura Shin:
Yes.

Dan Held:
That’s why we have Andreas on the call. He understands the nuance of it and can also explain it simply. Yeah, so with this issuance schedule, why did Satoshi choose every four years, and what happens during those halving cycles? You know Satoshi hypothesized that, you know, Satoshi, before Bitcoin had value, hypothesized that due to the scarcity of it that FOMO would indeed be a core critical element in terms of user adoption, because as the price increases, more people become aware of it, who then buy in anticipation of the price increasing further. He’s essentially describing FOMO in a very volatile market cycle. The market cycles are Bitcoin’s main user acquisition method. 

We all became aware of it, probably, in 2013 or 2017. I think Andreas was either, but you know for a lot of us, in terms of like the big adoption waves, ’13 and ’17 were huge because the price appreciated, and Bitcoin’s monetary policy, since there is no increase in supply when demand increases, that creates very volatile moments where the price skyrockets up, and similarly, when demand decreases, the price drops, and so that is, one, a user-acquisition method, but what’s also interesting is that as Bitcoin issues coins over this next hundred years or so and that eventually becomes asymptotic with 21 million, there’s something called the block reward, and the block reward is what miners receive, which is the block subsidy, the newly minted coins, plus transaction fees, and this is Bitcoin’s long-term security model, or it’s been Bitcoin’s security model, but when we project and look into the future for its long-term security prospects, Bitcoin’s security model is dependent on, you know, the subsidy that newly-minted coins keep dropping in each block reward. 

That has to be compensated by a rise in transaction fees, and those transaction fees come about through these market cycles, where, all of a sudden, there was a million Bitcoin users, and now there’s 10 million. So, there’s many more transacting on-chain, which means there’s many more transaction fees, which means it replaces the subsidy. So, when you look into the intricacies of how the monetary policy, the issuance schedule, and the security model are all intertwined, it’s pretty fascinatingly complex, and so, there’s some protocols out there that look at that long-term security model, and they hypothesize, what if we had a perpetual rate of inflation because we’re not sure if the transaction fees will replace the newly-minted coins or the subsidy in these block rewards, and you know, I admire their want to go look at that very, very long-term security model and look at improving it, but they’re also going back and destroying the fundamental thing, this is in my opinion, destroying the fundamental thing that makes Bitcoin or blockchain technology great is that it removes trust. If we have to trust that you won’t change your monetary policy again after you’ve chosen a perpetual rate of inflation, which is impossible to choose, then you’ve now inserted trust back into the mechanism that we use to remove trust or remove trust with humans.

Laura Shin:
So, I definitely want to dive more into this, because I have a lot of questions on a lot of what you just said, but this is the latest I’ve ever done an ad break. You guys were having such a good discussion, I couldn’t break it up. So, we’re going to talk about all these issues, you know, involving the cap and changing the issuance and etcetera, but first, a quick word from the sponsors who make this show possible. 

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Laura Shin: 

Back to my conversation with Andreas and Dan. So, Dan, I was so curious. This is something I was kind of looking into before the show. So, you know, as you mentioned, at a certain point, when the block reward stops, there will be a transition where miners will be compensated in transaction fees, not in the block reward, and the current amount that they earn from fees is about nine percent of the block reward, and so we’d have to see transaction fees 11X by roughly 2140, which is when the new Bitcoins will stop being minted, but I just wondered, you know, if we don’t see like an increase in the amount of transactions that can happen at layer one, then can transaction fees 11X in that time, or will that require people to pay a lot more per transaction?

Dan Held:
That’s a great question, and I’m not sure how many people who are listening to this work in tech, but in tech, we have something called a KPI, a key performance indicator, and we use it as a calibration method to coordinate our efforts at a company and use that metric to define success. For example, that might be user signups or number of users trading at Kraken, etcetera. The KPI for this, for what we’re looking at right now, which, the question we’re trying to answer is are transaction fees replacing the block subsidy in the block reward? So, are newly-minted coins, you know, as those decrease, is that value being replaced by the subsidy, and so we can calculate that. 

That would be our primary KPI. So, you could look at transaction fees over the subsidy, transaction fees in a block divided by the subsidy, and you brought up that’s at nine percent. If we look at that, historically, and we make it like a rolling 60-day to smooth it out a little bit, and we look at this over time, on a log curve, it’s very much trending in the right direction, where 11X sounds like a lot, but Bitcoin moves in really intense cycles, where we’ve all seen it go from a thousand to 10 thousand or 20 thousand. When that happens, that means there’s not an equivalent but a directional rise in transactions and transaction fees, and so we have seen transaction fees replace the subsidy over time, and so it very much is trending in the right direction to where over the next couple halving cycles, we should see it start to predominantly be the value that is compensated to the miners in the block reward. 

Now, you know, we certainly can’t predict the future. We do not know if there will be future speculative bubbles or what Bitcoin’s future adoption rate should be, but if Bitcoin doesn’t become adopted, if it remains a more niche sort of a service for humankind, where only, you know, let’s say 20 million people use it, well, then its long-term security will be weak, and I think that’s what’s really interesting, and in a really…you know people worry about, like, oh well, if Bitcoin is the world reserve currency and it doesn’t have a strong security model, like, there’s not a lot of monetary compensation in the block reward due to transaction fees, well, will that be a bad scenario? Well, it’s an impossible scenario, because if it is the world reserve currency, there’ll be very, very many layer-one transaction fees.

Laura Shin: 

Right, but what I’m asking is, because the number of layer-one transactions is limited, and right now, I feel like a lot of the scaling is focusing on layer two, so I just wonder, will layer one be big enough to handle, you know, the amount of transactions that will need to be on layer one in order for the miners to get enough fees to, you know, be incentivized to do that?

Andreas Antonopoulos:
Can I add a different perspective here, the lends, the two topics of monetary policy and the tactical implementation, and maybe, Dan, you can jump on that topic as well. But from my perspective, the monetary policy creates a very specific microeconomic environment. If you think about the commodity of money that is Bitcoin, there’s supply and demand. Supply, because of Bitcoin’s monetary policy, is fixed and diminishing, tapering off asymptomatically and ultimately capped, and demand is variable, and the equilibrium between the two is the Bitcoin price. 

Now, if you think about that market, one of its characteristics, its strongest characteristic and what gives it all of this FOMO is the concept of an inelastic market response. The supply cannot adapt to a change in price. If you take something else, potatoes, and suddenly potatoes are worth a thousand dollars a spud, well, my garden, right on front, here, is getting plowed up, and I’m planting potatoes. So, the price causes an immediate response in the market, where a production of that good increases proportionately to the demand, and the price acts as a mechanism, a signaling mechanism, to encourage production of that good. Now, think about Bitcoin supply. 

So, price goes up, same amount of Bitcoin, in fact, less, after four years, is going to be produced. There is no elasticity. There will not be a response in production. So, that’s the monetary policy. The same game plays out in transaction fees, and most people don’t really see this, but if you think about block capacity, the space for transactions that exist in a block, that is also fairly inelastic, perhaps not as inelastic as the Bitcoin supply, and it’s not diminishing over time, but it is still inelastic in that there is a limit, and that limit does not respond to surges in demand. So, when demand goes up for block capacity, that is a market. It’s a microeconomics market determined by the supply of block space by miners, which is fixed, and the demand for transaction capacity, which varies based on price signal and also varies based on some optimizations in how transactions are stored, but not that much. 

So, when you have these spikes that Dan was describing, what that does is it pushes up the transaction fee, as everybody’s trying to cram into this one tiny block all of the transactions because of FOMO, and so, the price responds accordingly because you have this inelastic block supply. Now, the question is are these two inelastic supplies the same, and they’re not. The block space is actually fixed, but it’s not diminishing. There are some aspects of this that create some concerns for the future. One of them is the fact that miners can collude in some very creative ways. 

They can, first of all, collude to restrict supply further and for the capacity of the block. Instead of mining blocks that have a megabyte of or two megs’ weight of transactions in them, they can mine blocks that have fewer transactions, all the way to the extreme of mining empty blocks. Now, they can do this like an OPEC of miners, where they collude to reduce the space that they occupy in the block, thereby driving up transaction fees, and this can be profitable, just like OPEC is profitable for the oil-producing countries, and it’s very difficult to break out of that collusion. The other thing miners can do, which is very interesting, is they can occupy some of that space by basically rigging the auction. If you think about it, the block space is auctioned off to people who bid with their transaction fee and hope to get in. 

That type of auction has an obvious problem, which is that you can have, what do they call them, ringers in the auction. A miner can put a transaction up for confirmation with a very high fee, driving all of the other transaction bidders to increase their bids to compete against that, and then if that transaction is included in the block, and that miner has enough hash rate, they have a pretty good chance of paying themselves, which means this is a low cost. That depends on how much hash rate they have, but again, this is a tremendous opportunity for collusion because if most miners do that, they’re either getting paid when they win the block from their own transactions that they use to rig the auction, or they’re getting paid by the other miners, someone’s getting paid. So, then, it’s a very low-cost way to create essentially a cartel for the block capacity. 

These are real problems, and there are a number of proposed solutions, including advocating for block-size increase, which has other undesirable side effects, but I think it’s important to know that these things are not finished. It is quite possible that, over time, the block size may be increased. If there’s enough demand for that, the consensus on that can change, but the consensus on the 21 million coins, in my opinion, cannot change because, to me, that’s a defining characteristic of what Bitcoin is. If you create a coin that has 22 million coins issuance, you can do that using the Bitcoin codebase. No one will call it Bitcoin, and there will still be a number of people who will remain on the one that has 21 million cap, and everyone will call that Bitcoin. 

So, in the end, the only way you can change that number is by forking off another coin that’s less valuable, not a winning solution. However, in the block market, the inelastic supply can be dealt with, with broad consensus. So, over time, people may agree and say, you know what, at this point, the technology has caught up, and we can afford to do four meg blocks. I don’t know. It’s a very controversial topic, but I think it’s important to recognize the similarities of the inelastic supply between these two markets but also the differences in how critical these are in terms of principled aspects of consensus and how unchanging they might be.

Laura Shin:
Okay. Yeah. So, it sounds like you think it is possible, people might consider that because…or rather, it’s possible that the amount in transaction fees will maybe not be enough on layer one to replace the block reward when the time comes.

Andreas Antonopoulos:
Okay. Well, two things. First of all, and I think this is…by the way, this is the number-one question I get, for the past eight years, all I’ve been doing is answering questions about Bitcoin. The most common question I get is what happens in 140 years when block subsidy stops? And the answer, the most important part of this answer is it doesn’t happen in 140 years. It happens today and tomorrow and the day after. Every single day, miners are making the profitability calculation, and they are taking into consideration the ratio of fees to subsidy and the current price of Bitcoin to decide if they’re profitable and adjust their hash rate. There is no cliff moment where this happens. This happened in 2017. It’s happening today. It will continue to happen every day, and so this balance, this equilibrium is dynamically moving through Bitcoin with a heartbeat of 10 minutes every single day. 

The question is are fees enough today to maintain the current level of security we need today in ratio to block subsidy, and given the hash rate today, the answer the miners have given us is, yes, resoundingly yes. So, then we look at tomorrow, and so, over time, though, this may lead to moments where you have very, very expensive transactions, and that tests the market. It tests the market because it puts the use of Bitcoin as a transactional medium of exchange against the use of Bitcoin as the FOMO engine of store of value. In those moments, it becomes a less useful transactional medium of exchange precisely because it has suddenly become such an incredibly powerful FOMO mechanism for store of value. So, it’s not one or the other. It’s a shift.

Dan Held:
Okay. I’ve got a great thought to append to Andreas’ direction here. So, Nick Carter wrote a really good article a few weeks ago about this with Ethereum, and Bitcoin has the, you know, they both have this fixed parcel of land, this block space, and we are all bidding to get into that block space. So, all of the bidders, whether whatever, you know, if your store of value, medium of exchange, or CryptoKitties use case, you are bidding for that fixed parcel of real estate, and so you’re bidding to get a spot on that piece of real estate. Now, when we look at Bitcoin, Bitcoin has two primary use cases, which are store of value, gold 2.0, and there is the transactional use case if you want to send large amounts of money across borders. What’s interesting is that for both Ethereum and Bitcoin, as transaction fees rise, which I think everyone’s very acutely aware of over the last few months on Ethereum. They’ve risen to all-time highs. Bitcoin is similarly high relative to historical fees. 

As those rise, the use cases that move the largest amounts of money, which are likely to be more store of value or maybe like very large smart contract use cases, those will outbid every other use case. So, it’s a really interesting thing to think about because, for Bitcoin, as Andreas brought up, the store of value, more FOMO or gold 2.0 folks, if that rises and becomes very, very popular again, and it’s always been popular, but as that crowds out that fixed real estate, it’ll push out the medium of exchange use cases because they’ll be able to pay more in transaction fees. For example, if I’m wanting to send a million dollars, I’m fine with paying a hundred-dollar transaction fee, but if I’m trying to pay for my Netflix using Bitcoin, a hundred-dollar transaction fee is super onerous, so I’m not going to do that.

Laura Shin:
Right, but is this kind of against the original vision of Bitcoin, then, because, you know, I think a lot of people like the idea of Bitcoin because they think of it as democratizing access to finance, and there is a fly, by the way, for the people who are watching the video. There is a fly in my room. It is attacking my face. I don’t know what’s going on, but you know, is it possible to fulfill that vision of democratizing finance for everyday people if it’s only reduced to people who want to send a million dollars’ worth of bitcoin being able to do so?

Dan Held:
Yeah. I mean I wrote a comprehensive thread on like Satoshi’s intentions when he launched Bitcoin. I mean I don’t think any of us can go back and weigh those intentions and then weigh those perfectly and spit out like this was 100 percent Satoshi’s intention. I mean Satoshi, the first message, the only message he ever put in the Bitcoin blockchain is UK chancellor on the verge of second bailout for banks, not Visa on the verge of raising processing fees. There’s also, like, he references that Bitcoin is digital gold, 4 or 5 times, or he calls it a precious metal, sorry, and there’s also some functional aspects. Like, the monetary policy has no supply response, which makes it very poor as a medium of exchange because it’s not a stable unit of account. It’s hard for people to mentally reconcile, like, oh, I have to like remeasure certain items that I’m purchasing, like I’d have to remeasure the purchasing power of my coin constantly. It’s a deeply nuanced topic, but Satoshi…

Andreas Antonopoulos:
Well, I have a slightly different perspective on this, if I may interrupt. These two visions are not only not a direct trade-off, but in fact, they’re highly synergistic. Here’s the thing. Democratizing access to money makes sense if that money cannot be subjected to prior restraint, confiscation freezing, and shutdown. The ability to make a transaction at will through the democratization of money has to assume an environment in which there is an adversarial relationship with those who do not want you to democratize the access to money, and if you ignore that adversarial relationship, then you can assume this is a simple trade-off, which is, listen, it’s okay, what we do is we just increase the capacity, make transactions cheaper, and then we democratize access to money. 

The problem is that what you’ve done in that trade-off is you’ve required the money to become more permissioned, less resistant to prior restraint, and less resistant to various types of censorship attacks. What ends up happening is exactly what has already happened, most recently in Zimbabwe. You have these incredibly versatile micro-transaction platforms for mobile digital pay, and then, when those threaten the stability of the financial system of Zimbabwe’s kleptocracy, they remove permission, and those things are shut down. 

Now, these people also don’t have democratic access to money, and they don’t have democratic access to money even though they had a platform for very low fee transactions. You can’t separate the two. The reason that trade-off is important is because unless you have a system that cannot be shut down, having a system this cheap is worth nothing. The cheap system that can be shut down will be shut down at precisely the moment when you need it not to be shut down, and I think people don’t appreciate the fact that we are operating in a currency environment that is becoming even more so adversarial than it already is. This is not simply a matter of playing nice when you’re dealing with considerations that go far beyond the transaction fee. Having a low transaction fee without a network to run it on isn’t a useful property of money.

Laura Shin:
Well, so, I did want to ask a little bit more about this, what’s it called, medium of exchange use of Bitcoin. Is the monetary policy of Bitcoin conducive to it being a medium of exchange, because I’m sure you guys are aware, a lot of people will say, oh, I don’t want to use Bitcoin to buy coffee because then, a year or two from now, I’ll realize that I just, I had bought myself a hundred-dollar cup of coffee. So, I wondered, do you think that we’ll see it being used more and more as a store of value and not really see the medium of exchange use gain adoption?

Dan Held:
Yeah, Murad, a really famous trader in the space, he developed a graph that shows…it’s a very rough graph, and it’s more for visualization purposes, but it shows the evolution of Bitcoin through time, you know, just like a tree or just like a person goes through stages of development, from being a young child to becoming a teenager and an adult and a tree growing up and becoming stronger and stronger and bigger, Bitcoin, over time, has different characteristics. So, due to Bitcoin’s lack of supply response to increases in demand, that makes the price very volatile, and volatility in price makes it very, very hard to be a unit of account. A unit of account is great with Bitcoin in terms of its, you know, a precise measurement of how many coins are out there, you know there’s 21 million, and that gives us a very precise ruler or measuring stick. 

However, the purchasing power fluctuates constantly. So, you know, Bitcoin acting as a dollar substitute or a replacement for a world reserve currency in that unit of account aspect, from a stable purchasing power perspective, is very far away. Now, I think that is many, many decades. Bitcoin’s use as a speculative store of value, it’s had that use case since day one. It’s very, very good at that. The increase in speculation increases awareness and adoption, which then drives to Andreas’ point, then drives medium of exchange. The more and more people who hold Bitcoin means that the price goes higher and higher, which means that the market cap is higher, the liquidity is deeper. 

Eventually, volatility should start to decrease over many decades, which makes the purchasing power more predictable and easier to understand and use on a day-to-day basis. So, I see it as like a multi-decade evolution of a store of value, store of value plus medium of exchange, medium of exchange, store of value, plus unit of account, many decades later. So, I see it as like there isn’t a clear-cut like, oh, it’s only useful for this, at this moment. It’s more of a gradient, over time, of which one becomes more or less useful, but as we see with transaction fees, to me, it seems very clear that Bitcoin, over the next decade or so, and until layer two technology becomes more prevalent and very widespread and easy to use, that Bitcoin’s primary use case will be store of value in the next bull run as transaction fees largely, probably, go past 50 or 100 dollars per transaction. That crowds out pretty much everything else other than store of value.

Andreas Antonopoulos:
I disagree slightly in that I think there is a function of medium of exchange today, and it does exist, but it depends on your context and perspective. So, there’s two aspects to this context. The assumption can I or should I use it to buy a cup of coffee comes with a set of assumptions around it that are very, very specific, and it’s probably the worst example to use, and I am totally guilty. It’s the number-one example in my book, and it was obsolete the moment I wrote it. We need to stop thinking about buying a cup of coffee as the primary activity of a medium of exchange system. You know buying a ticket out of Syria may be a much more interesting use in that context. At that point, as a medium of exchange, it is all-powerful. So, I think there’s two presumptions or pre-assumptions that come to this context. 

The first one is, at the moment, Bitcoin, for most of its users, acts as an intermediary economy where you pass things through Bitcoin on the way to somewhere else. So, you start with fiat. You own, earn, and live in the fiat world. You take the fiat. You transmute it into bitcoin, and then you either hold it, or you convert it into something else, usually by converting it back into fiat after it’s traveled somewhere. So, this is the Bitcoin as rails perspective. When you look at it from that perspective, the economics really make it very challenging to use the medium of exchange. If you’re coming from fiat and ending up in fiat, if Bitcoin is simply a highway that has on-ramps and off-ramps, but most of your life is lived in the neighborhood, that’s a whole different ballgame. I can tell you, from experience, as someone who lives in the Bitcoin economy and treats it as a circular economy, the hoarding instinct and volatility and remorse of buying a cup of coffee reverse themselves very, very quickly, and here’s why. 

I don’t buy bitcoin. I earn it. I earn it through my labor and through my entrepreneurial activities. So, when I earn bitcoin directly, not as fiat, the price volatility works both ways. It cuts both ways. When I pay payroll at the end of the month for my employees and contractors, suppliers, etcetera, if the price has gone up, that really works nicely for me because I give out less of my bitcoin in order to fulfill my liabilities, but at the same time, if I’m getting paid next month, and the price of Bitcoin goes up, I receive less bitcoin for the thing I charge because my unit of account is still fiat. So, if I’m in that circular economy, the volatility in purchasing power works for me on liabilities and against me on my receivables, on my income, and if you take it over a long period of time, it’s a wash. 

I have used Bitcoin in a circular economy like that since it was less than 10 dollars per bitcoin, up until last week, when I did my payables for the mid-month payables, and so, from that perspective, all of that goes away. I don’t have remorse because, yes, I paid a thousand dollars for a cup of coffee, but I also got paid 10 thousand dollars an hour that month, you know? So, it balances out, and so the perspective of I’m an affluent American who has access to alternative mechanisms of payment, and I mostly live in the US dollar economy. 

Visiting Bitcoin as a tourist is very different from the perspective of living in a circular economy, and even more importantly, for all of those people who do not have the comparables, the alternative mechanisms of payment, it’s easy to say I’m not buying a cup of coffee with bitcoin, I’m going to use X, when X exists. When X doesn’t exist, or when X is Zimbabwe dollars, then that equation may change rather dramatically, and I’ve heard this from a number of people who don’t live in the environment where they have 20 other things to choose from that are actually pretty damn good as medium of exchange.

Dan Held:
Yeah. I certainly live in a privileged environment and country. I live in San Francisco, which, out of all the cities in the world, we’re very, very affluent, so totally understand that. I come from a different perspective. I was there with you when we worked at blockchain.com in 2014, and blockchain.com paid everyone in bitcoin. I was there while I saw thousands of Bitcoin businesses struggle, you know, as demand decreased after the 2013 bull run, and the price, so the price is a function of…price, as it increases, increases demand. 

Bitcoin operates in a really interesting way as that price becomes that signal to the market, like, hey, come pay attention to this, but it also signals to the businesses, like, hey, be prepared as the price goes down, be prepared for a drop in your customers, and it’s really, really hard when Bitcoin businesses when they had, you know, let’s say you have…you know you could be paid in bitcoin, like this circular economy idea where like everyone gets paid in bitcoin, you receive your income, your revenue in bitcoin. It becomes very, very tricky when the price is so volatile to plan out a business operation. So, let’s say I want to deploy a million dollars to go build a building, and the price of Bitcoin is at a thousand dollars. Well, if it drops to 500, now I may not be able to finance that operation, and maybe I can’t make that decision within one day because I need to talk to many different stakeholders internally, get legal to sign up, get the permitting in place. So, Bitcoin for a business purpose is really, really tough.

Andreas Antonopoulos:
Yeah.

Dan Held:
I experienced it at my own startup, ZeroBlock, which we sold to Blockchain.com. I saw it at Blockchain. You know that’s why we have that more unit of account currency, like the dollar, used for business is because it makes it easy for business planning purposes. It is predictably decreasing in value over time.

Andreas Antonopoulos: 

Yeah, and any sensible business will not operate in one currency, nor will it keep its treasury assets in one currency. Diversification applies on a business level just as much as it applies on a personal level, and I don’t keep all of my business treasury assets in bitcoin, or, at the same time, I don’t keep it all in dollars, and being able to diversify and take different levels of risk accordingly actually gives me some great…has given me, at least, some great results over time, but it does take a longer-term approach and is very, very difficult to do planning with a volatile asset. I agree with it.

Laura Shin:
Okay, so I was curious, you guys, you know, we’ve been talking about Bitcoin being used as a medium of exchange, or store of value, unit of account, and okay, this fly is like literally officially driving me nuts. Sorry about that, but anyway, I was so curious because, you know, the idea that Bitcoin works as a store of value is probably one of the predominant narratives around Bitcoin, but then obviously we saw with Black Thursday earlier this year, in March, when Bitcoin was actually, surprisingly, correlated with the broader markets, and it did experience a precipitous drop on March 12. Why do you think that investors actually did not turn to Bitcoin at that time but instead sold it, and how does that affect that theory about Bitcoin being a store of value?

Dan Held:
That’s a great question. A lot of people bring this is up, which is, hey, Bitcoin sold off while the risk-on assets, like equities, also sold off. Like, doesn’t that, you know, conflict with the idea that Bitcoin’s a good store of value? But when we see a liquidity crunch, which is what that, back in March, what we saw there with the huge decrease in equities and Bitcoin price, that was a liquidity crunch, and we saw gold sell off tremendously, and gold is a four-thousand-year-old store of value. I mean it is the oldest store, or one of the oldest stores of value still in existence that humankind uses. 

So, gold also sold off. So, I don’t think that, you know, because gold sold off, does that make gold a poor store of value? No. I think, in a liquidity crunch, everyone is selling everything they can get their hands on to meet their margin calls. There’s a series of cascading margin calls that essentially crunched and crunched the market to where people are entering this liquidity crunch, and they’re selling everything they have to meet those margin calls. Now, what we’ve seen in 2008 and now is that after that moment, months and years later, then the store of value assets like gold start to perform. As people start to price in inflation concerns and pricing concerns over the monetary policy of the government, then those store-of-value assets start to rise, and so I don’t think we’re going to see that impact on Bitcoin’s price, materially, until 6-to-12 months from now.

Andreas Antonopoulos:
I think another factor that’s playing in this is that what we’ve seen over the past 10 years, at least, is an unprecedented injection of liquidity in pretty much all of the global economy, but especially in the United States. What that has done is it distorts markets by creating an environment in which more and more and more assets become correlated, not just to each other, but in fact, they become correlated to one and only one action, which is the degree of stimulus that is being anticipated at the next Fed meeting, and it creates these weird phenomena like good news is bad news because it will lead to less stimulus, and bad news is good news because it will lead to more stimulus, and essentially, more and more of the assets become correlated to that one aspect of stimulus. 

Investors who have undergone this battle to find yield and you know keep looking in dustier and dustier corners of their portfolio to find yield because they can’t generate yield, because money is free, and everyone’s chasing yield, and there’s too much money out there, they will use Bitcoin and other crypto assets of various types to chase yield, and that does correlate Bitcoin closer to all of the other assets because it’s responding to the same incentives. You know the majority of people who are invested in Bitcoin, in every bubble, are not there because they understand the principles of Austrian economics and sound money and the technological robustness of Bitcoin. 

They’re there because, you know, to the moon, coin went up, number go up, yay, FOMO, but that kind of speculative behavior is both incredibly useful and very valid, but what it means is that those investors who chase yield will chase yield into crypto just as much as the other places. Crypto is experiencing asset inflation as a result of too much money sloshing around in an investor community, especially in the United States, and when there is a supply crunch, when there is a liquidity crunch, as Dan described, everything goes on the table, and Bitcoin, as one of the riskier, more volatile assets, and because of its inelastic behavior, will drop harder and faster than all of the other assets in the short term. 

That is normal behavior, and in fact, if you looked at most of the people who were talking about this, they had predicted that the disaster glee that you see in some Bitcoin circles, where it’s like I hope the economy crashes, because then Bitcoin’s going to the moon, and I’ll have bags, that disaster romanticism is both creepy as well as irrational because in the short term, exactly the opposite happens. In the short term, Bitcoin does get sold off just as hard as the other assets, and probably harder because it has this extreme volatility. There are no mechanisms to stop it from dropping just as hard. So, I think this is predicted behavior. Bitcoin is currently much more correlated than other assets than it’s ever been before, I think, and in the short-term, it is going to bounce around with the rest of the economy because scared investors are going to pull their money out of everything, but short-term and long-term, two different things.

Laura Shin:
I also want to talk about something else that, in a similar vein, is just a question around kind of how things will go against a pretty popular theory. So, I’m sure you guys both know of this stock to flow model, which really made the rounds, and people really glomped onto, and it’s basically saying that the amount of new bitcoin, the ratio of existing Bitcoin to new bitcoin being created will affect the price, and so as that ratio, I guess, it would be that it increases because the number of new Bitcoins will be decreasing that we should see the price go up at the same time. 

However, so, after this came out, I don’t know if you guys saw, there was a column by Nico Cordeiro, the Chief Investment Officer and Fund Manager at Strix Leviathan, and he published an article kind of saying that the premise of this stock-to-flow model, which is based on stock-to-flow in gold and how, historically, that has correlated to the price of gold. He said, well, actually, you know, the author cherry picked the points and when you look at historical data, and he said “gold’s market capitalization held valuations between 60 billion and 9 trillion all at the same stock-to-flow value of 60,” and he said a range of 8 trillion is not very indicative of explanatory power and lends itself to the obvious conclusion that other factors drive gold US Dollar evaluation. So, do you guys think that the stock-to-flow model works for Bitcoin, or you know, what’s your take on this theory?

Andreas Antonopoulos:
I find it interesting as a descriptive mechanism to understand the concept of hardness of money, but I don’t pay particularly attention as a predictive theory to help explain or predict future price movements. I think hardness of money is an important, a very, very important characteristic of money, but it’s not the only characteristic of money, and money operates in an environment of irrational human beings. 

I think the whole rational market actor hypothesis, which is clearly debunked, could support a theory like stock-to-flow, but the problem is that people respond to money and other market things in irrational ways, and they evaluate risk in irrational ways. They far bias avoiding loss over gaining reward, and so we know that these irrational behaviors result in weird effects in markets. So, yeah, great, I mean, stock to flow explains why hard money is hard, and it also gives us a way to understand the hardness of Bitcoin vis a vis other forms of money. I wouldn’t take that to be a gospel as to how the price is going to play out, at all.

Dan Held:
No one can predict the future. I don’t think any model can, out there. It certainly might give us an insight into, trajectory-wise, what Bitcoin might look like, but I certainly don’t prescribe or really weight any sort of model, whether it be stock-to-flow or any other one, as having like superior or very high level of predictability. I personally find it very interesting because it models out scarcity, and it models out the hardness of money and attempts to look at that, looking at precious metals, and I think that’s pretty fascinating that we go through that sort of analysis, and that’s what makes the Bitcoin community really cool is they love the in-depth economic research done by a wide variety of different individuals who they go explore these different topics. So, you know, I haven’t dug super deep into the nuances of like how predictable it is. I know there’s some controversy as to some folks don’t like the methodology or there’s some holes or flaws in it. I, personally, haven’t dug in super, super deep.

Andreas Antonopoulos:
I would say it does relate to the point I was making earlier, which is that new things require new analytical tools. This is a useful analytical framework that gives us some insight into the hardness of Bitcoin in terms that we can understand in something like Bitcoin, that is entirely novel in every other characteristic. The reason it’s not predictive, in my opinion, is because there are so many other things to take into account and so many things that remain unanswered. 

We don’t know how the fee market is going to play out. We don’t know how Bitcoin’s privacy characteristics, which are rather weak, are going to play out, and most importantly, we don’t know how the geopolitical environment of currency wars is going to play out in the broader 150-trillion-dollar market that is the planet, and Bitcoin doesn’t exist in a vacuum. It exists in that soup of competing forces, and how it plays out will depend on a lot of other factors, of which Bitcoin’s inherent characteristics or design trade-offs are only a small, small part. No one can account for unforeseen events, you know, how does Bitcoin respond to a pandemic? That’s not a question we were asking eight months ago, right?

How does the dollar respond to a pandemic? You know what is China going to do next? We don’t know the answers to any of these questions, and the space, the geopolitical battle of currencies, has been heating up for a decade, but it has now reached a point that we’ve never seen before. So, you know, that’s why I think these models, interesting as they are, are basically operating only a very, very small part of the broader picture. I think there is a tendency in our industry to look for easy, comforting answers and take things as gospel. I think that’s a very dangerous tendency. This is still an experiment, and it’s gone better than I anticipated and is astonishingly intricate and operates very well, but that doesn’t mean that it will always go like that, and it doesn’t mean that it can’t stumble.

Laura Shin:

Yeah. So, this is actually where I wanted to take the conversation next is to ask about these different geopolitical forces, right now, because obviously, with the coronavirus and this unprecedented quantitative easing and now this recent announcement by the Fed that they’re going to target an average 2 percent inflation rate, and if that means letting inflation run higher than that for a little while, then that’s what they’ll do to achieve that. So, given all these factors or any other macro forces that you see that could intersect with Bitcoin in an interesting way, how do you think these things will affect Bitcoin’s adoption and price over the next 1 or 2 years?

Dan Held:
I mean Bitcoin is now such a large, like, from when we were in it, way back, when it was worth 10 dollars, like the evolution of Bitcoin, or Bitcoin getting to this level of adoption, liquidity awareness, we’ve got a bunch of macro folks, like Raoul Pal and others really digging in and talking about… Dan Tapiero, these guys really dig in, talk about Bitcoin from a classical like macro perspective. Bitcoin is becoming intertwined with everything. As Bitcoin grows larger and larger, it becomes part of every geopolitical conversation. It becomes part of every currency conversation, etcetera. So, I think that when we look towards Bitcoin’s future, it will be intertwined with many different actions in the economy. I remember back in 2013, I think it was ’13, where Cyprus was the big narrative in Bitcoin, about how Bitcoin could help the Cyprus population for them to get access to basic fundamental, you know, economic rights of like storing value and being able to…

Andreas Antonopoulos: 

Yeah, the bail-ins that were happening at the time.

Dan Held:
Right.

Andreas Antonopoulos:
They got a haircut on the bank account.

Dan Held: 

And that was a big narrative driver for Bitcoin back in 2013, and so I think, like, as Bitcoin grows larger, we’re seeing Bitcoin hit the Bloomberg headlines on a weekly basis, which is incredible. I mean I remember in 2014, we went to Bloomberg, and we were like, wow, this is going to be one of the first times we talk about Bitcoin at Bloomberg, and you know, to see it evolve this far, where it’s part of like…I mean Trump, even the President of the United States, talked about it. You also had…I feel you, Andreas.

Andreas Antonopoulos:
No. No. I mean I’m thinking back, when you said 2014, I’m like in 2014, Bloomberg invited me as a financial analyst. I mean imagine how empty the barrel was.

Laura Shin:
Well, Andreas, you’re actually a really great speaker for Bitcoin, so I wouldn’t be so self-deprecating, but actually, I think when you covered your face, I thought that was in response to Dan’s comment about Trump tweeting.

Dan Held:
Oh, yeah.

Andreas Antonopoulos:
Well, no, no, not, but I mean that, too, yeah. That too.

Laura Shin:
Anyway.

Dan Held: 

Yeah, and we have Jerome Powell, the Chairman of the Federal Reserve, say that Bitcoin is a speculative store of value. I mean that’s incredible. Like, we’ve gone from it’s a very nerdy, very niche group of people on Bitcoin talk forums to the highest degree of awareness in terms of like the big stakeholders in the mainstream economy. So, Bitcoin will be intimately involved in many major geopolitical conversations in the future, is the tldr of what I’m trying to…

Laura Shin:
Yeah. Guys…

Andreas Antonopoulos:
You mentioned the Fed targeting average inflation rates of 2 percent, and I found that fascinating because the word average is very misleading, because most people will have an intuitive understanding of what the word average means, and that intuitive understanding is almost always completely incorrect. Let me give you an example. The average person has a greater than average number of arms. Why? Because there are a lot of people with one or no arms, and there aren’t that many people with three, which means that two arms a greater than average number of arms, not the average. The average is 1.8, or something like that, if you do the math, and this fact relates to the Fed, in a sideways manner, as follows. In order to get an average of 2 percent, given the fact that over the past 10 years, we’ve been dragging along at somewhere between 0.5 and 1.5, that means that they have to go way above 2 percent in order for the average to calibrate to 2, and so when people hear the Fed is targeting an average of 2 percent, they think, okay, so they’re going to set the rate at 2 and just, and that will be the average. 

No, they’re going to have to set it much higher in order to drag it up in an environment where there are very, very strong deflationary pressures at the moment, deflationary not because of value appreciation of the dollar but because of a catastrophic collapse in demand, which is the same kind of deflationary thing you saw in the lost decades of Japan, that, the bad kind of deflationary pressure. So, in the face of catastrophic collapse in demand, because, apparently, people who don’t have money can’t buy shit, the end result is that the Fed has to pull much higher than 2 percent to reach an average of 2 percent. 

This is going to have really significant consequences because when you apply these types of percentage numbers to an economy the size of the United States, and you have the momentum of that economy dragging it into the future, when you realize you have overshot that target, that’s because you’re on the other end of the elbow of the exponential curve, and it’s way too late. So, this is very dangerous territory, and it’s unprecedented, and I think the word unprecedented during the pandemic has been overused, but in monetary terms, we are going through a monetary pandemic that is, indeed, unprecedented, and nobody knows how that’s going to play out. 

So, when I used to start my speeches about Bitcoin, I used to say let me tell you about the world’s most radical and unprecedented monetary experiment, and it’s not Bitcoin. It’s fiat. We have never done this shit before. This is a system that has only existed for 70, 80, 90 years, and we don’t know how it works under the current conditions any more than we know how our climate works at 450 parts per million of carbon dioxide. We’ve never been here before. It might work great, but it’s very dangerous when you’re talking about a 150-trillion-dollar economy when the answer is we don’t know.

Laura Shin:
And one other thing that I wanted to ask about the future and where things are going, and this really intersects with our conversations about things…the economy going kind of in a more deflationary direction, such as what happened in Japan, versus inflationary, so, we’re seeing these new innovations come online next year, such as Kraken Financial, which is the arm of Kraken that will be opening as the first crypto bank, and as such, it will not conduct fractional-reserve banking, and it will not lend, which obviously is not how normal commercial banks operate. 

So, let’s say, over the next 10 years, or even 5 years, that you know there’s an increase in the number of crypto banks that exist, and they do not engage in fractional-reserve banking, and that becomes a big trend. How do you think that would change the economy? Would it dampen entrepreneurship, or you know, I just wonder, you know, we’ve been saying that Bitcoin can have a deflationary aspect to it, or disinflationary, as Dan mentioned, and we’ve been talking about the downsides of that with, you know, what happened in Japan, and yet, at the same time, we also know the downfalls of an inflationary economy. So, when you throw this into the mix, what do you think will happen?

Dan Held:
While Kraken may be full-reserve, there will be other banks that decide to fractional-reserve, and they’ll compensate the risk that their depositors are taking through giving them an increased yield.

Laura Shin:
Right, but those won’t be crypto banks because to qualify for the charter that Kraken Financial got, they have to keep full reserves, but so you’re talking about like a normal bank?

Dan Held:
Yeah. I’m talking about how in a…if we’re competing for customers, you’re going to have full-reserve banks, you’re going to have fractional-reserve banks, and there are different advantageous set ups with each one, and with the fractional-reserve banks, they’re going to have certain…where they lend out their…you deposit your money at a bank, they take those deposits, and they lend them out, and they give you a return. You know it’s likely that those banks will be able to offer you a higher rate of return than, say, a full fractional-reserve bank that does not lend out any money. So, there are advantageous and disadvantageous traits of both a fractional-reserve and full-reserve bank. 

With Kraken, we see this as an opportunity to layer on many other new types of functions for our customers. We are now much more tied into the banking system. We can get around certain sort of choke points in the regulatory models where before we would have to rely on someone else. So, now, we can have a more direct relationship with the mainstream economy. That way, we can offer more services to our customers. There’s a wide variety of things that we’re exploring there. I can’t really dig in or give any sort of concrete details as to what that feature or what that function might be. Just know that this is a giant leap forward in terms of a much more intimate, deeper, stronger tie to the mainstream economy that enables us to offer more crypto services.

Andreas Antonopoulos:
I want to add to that, which is that the fractional-reserve banking is tied very, very closely to the monetary policy. If you take something that has the monetary policy of Bitcoin, lending it out is an extremely risky business, very, very, very risky, not just for the lender but also for the borrower. Taking out a loan in Bitcoin that has to be repaid in Bitcoin, given both the volatility, the opportunity of a FOMO bubble event, appreciation storm, the overall deflationary characteristics, this is not a monetary system designed for lending. I think one of the challenges we have in this space is that people take a monopolistic money system that they understand, which is the fiat system, 194 countries, 194 flags, 194 colorful currencies and monetary policies, and they think of that in terms of a zero-sum game or a winner-take-all system, and from that perspective, you would arrive at the conclusion that, okay, so when Bitcoin replaces all money, then X happens, and I don’t think that’s ever the case. 

I think, in fact, that what Bitcoin did was that it created a mechanism by which various types of monies can be created with various types of monetary policies. Bitcoin has an extremely opinionated point of view on monetary policy, which is very suitable for certain things, but I don’t think that becomes the monopoly dominant system. I don’t see any reason why it would. It can become the dominant system for saving, but that doesn’t mean that there aren’t other monies, both national, fiat, and other monies that exist in other cryptocurrencies, and those may have very different monetary policies and may offer opportunities for lending and things like that. Now, that will mean that they’re not a sound money. 

So, I’m not really worried about the scenario of what happens if all money is Bitcoin, and therefore lending and entrepreneurial activity stops, not even what happens if Bitcoin is the dominant form of money? We are so very far from that and don’t really have the tools to analyze it. I think we’re past the era of a limited number of monies in our planet. We are now in an era of many different systems, and again, this is very controversial, and I keep getting flack for this. That doesn’t mean that’s what I want. That doesn’t mean that’s what I hope for. I’m simply recognizing what is actually happening, which is humans, in their irrational stupidity, are going out and creating monies with stupid names that they’re giving to their friends and other people, and then they’re pursuing these things even though they most likely have very, very poor value characteristics.

I am recognizing that this is happening, and I am recognizing that this is part of human behavior and will likely continue to happen, and we just have to accept that. That doesn’t mean that Bitcoin is any less, in exactly the same way that the Zimbabwe dollar doing stupid stuff with their economy doesn’t change the US economy. Just because there’s other money out there that is doing other things doesn’t change the value proposition of a money that has a different monetary policy. There can be other cryptocurrencies doing very, very crazy monetary policies. That doesn’t remove the value of Bitcoin, but it also doesn’t mean that the others are going to go away. They’re not, because of human nature.

Dan Held:
Yeah. I do think the experimentation allows us to explore in like a Black-Scholes model-esque way of like what monetary policies don’t work. We certainly see…

Laura Shin:
And explain Black-Scholes.

Dan Held:
A Black-Scholes model is like simply a random walk. It’s like how we go through pricing options. It’s how we look at modeling out future steps. So, we go, okay, well, what if we took every single random variation from this current moment of a price and model that out? And so, with these different, you know, the different cryptocurrencies that have existed over the last eight years that I’ve been in the space, I mean, I’ve seen about like 10 thousand cryptocurrencies come and go. So, we’ve certainly seen, like, that is never going to stop. There will always be new cryptocurrencies created. From a more Bitcoin-ery perspective, I mean, I’ve tried out things, like I’ve owned Ethereum, I’ve mined Primecoin…I thought Primecoin…Andreas probably remembers that. It’s a coin from back in the ’14 era, a long, long time ago, but it’s…

Laura Shin:
It has something to do with prime numbers.

Dan Held:
Yeah, using proof of work to find prime numbers.

Andreas Antonopoulos:
Yes.

Dan Held:
I thought it was more useful back when I didn’t understand proof of work fully. These were all experiments, and there’s so many of them. That’s why I call it more of like a Black-Scholes, because there’s so many random variations of monetary policy, block size, proof of work, proof of stake, hybrids. Hybrid proof of work, proof of stake were really popular back in ’14, and so we’ve seen what doesn’t work, and I think that definitely reinforces my belief and my personal opinion that Bitcoin is the like largest innovation in the space for me. It continually reinforces that Bitcoin’s design decisions were made properly, as we see it continue to thrive and grow, and we don’t know what that means in the future, if it’ll continue to thrive and grow, but it’s certainly done very well up until this moment, and will Bitcoin be the only currency in the future? No, but my personal belief is that it will be the predominant one. 

If it accumulates the largest amount of value stored in it, then it seems to be indicative that that will also be used in the medium of exchange function, where if I know that Andreas and Laura both have bitcoin, it’s likely that they will accept bitcoin from me, versus, you know, this very, very bifurcated world in the future where, let’s say, there’s 10 thousand currencies, and we’re basically back to barter. You know if we have a thousand different types of currencies or 10 thousand, I’m not sure if that’s really reflective of like a new money, which has superior characteristics to all previous forms of money, if that would be the case.

Laura Shin:
Yeah, well…

Andreas Antonopoulos:
I think one of the things that changes dramatically is when the switching costs between different forms of money drop to near-zero, and then the major cost is the time value of money for the time that you hold a specific money, which may be rather weak, versus the medium of exchange opportunities that that gives you. It may actually change this equation of there may be more types of money, but if that becomes a routing decision that your wallet makes automatically, then we may see a completely different conception of money, although I do agree with you. 

What’s fascinating to me is that Bitcoin in its current conception, which appears to have perfectly chosen all of the parameters or most of the parameters very neatly in this cohesive way, it is, in itself, an example of survivor bias, meaning that the reason we talk about Bitcoin and its parameters is because we don’t talk about the 30 currencies, private cryptography-based currencies that came before Bitcoin but all failed because one of those parameters wasn’t set up correctly. We talk about Bitcoin because it’s still around and therefore has proven, through persistence, that those parameters sustain it, and the longer that narrative continues, the stronger it gets. 

Its surviving is one of its measureable characteristics that strengthens its possibility of surviving in the future, and the narrative that a newbie hears, where they hear Bitcoin’s dead, again, and then they find out that’s not actually true, and that causes a moment of cognitive dissonance, what do you mean, it’s not dead, I thought it was dead when the Japanese CO was arrested, etcetera, etcetera. That moment of cognitive dissonance is a very strong point of narrative that reinforces the idea that Bitcoin is perfectly tuned, at least in the current context we live in.

Laura Shin:
All right. So, I honestly, we could just go forever. I honestly really did have quite a number of other questions that I didn’t get to, but I think through the, you know, various comments we’ve made, we managed to touch on all the topics. This is, I think, the longest episode I’ve ever done. Like, the conversation just was super fascinating and kept going. However, we should give the listeners more to look up, if they’re interested in learning more about this. So, where can people learn more about each of you, and where do you think they should look if they’re interested in to learning more about Bitcoin’s monetary policy?

Dan Held:
I guess I’ll go first. You can find me at DanHeld.com or find me on Twitter @DanHeld, and I wrote an article about Bitcoin’s monetary policy that dives into the more metaphysical, kind of a little bit more abstract idea of that Bitcoin is the best application of information theory with money. So, I’ve got a couple articles on my blog if you want to read those to give you a more informed, a deeper dive into monetary policy security models. So, I wrote an extensive piece on Bitcoin’s security model and other aspects of Bitcoin, and then on Twitter, if you want more sound-bitey, very kind of more quippy, quick hits on Bitcoin, that’s where you’re going to find that sort of content.

Andreas Antonopoulos:
You can find me as @aantonop on Twitter, and on YouTube, where I have 500-some videos on various topics around Bitcoin. Honestly, monetary policy isn’t a topic that I talk about a lot. Most of my focus is on the technology and its social and political implications on the future. So, if that’s interesting to you, then you can find that all on my YouTube channel.

Laura Shin:
Great. Well, thank you, both, so much for coming on Unchained. This has been such a pleasure.

Andreas Antonopoulos:
Thank you, Laura.

Dan Held:
Thanks, Laura.

Laura Shin:
Thanks, so much, for joining us today. To learn more about Andreas, Dan, and Bitcoin, check out the show notes for this episode. Don’t forget, you can now watch video recordings of the shows on the Unchained YouTube channel. Go to YouTube.com/c/UnchainedPodcast and subscribe today. Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Daniel Nuss, and the team at CLK Transcription. Thanks for listening.