MI Rewind: Bitcoin Conference Recap w/ Blue Collar Bitcoin

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25:20To begin getting smarter about investing, just visit theinvestorspodcast.com slash get started with stocks. That's theinvestorspodcast.com slash get started with stocks. And for a limited time, you can use code stocks15 for a 15 % discount at checkout. All right, back to the show. Well, let's transition to another group of speakers, Michael Saylor and Kathy Wood. They talked quite a bit about regulations and that kind of ties into the political and sovereign aspects you guys are chatting about. And first off, having these two at the conference is pretty big. They're both really big names in the space.

25:57And these are two people that investors are always tuning into to hear what they have to say. The first point that Kathy Wood had was related to the politicians. She mentioned how many politicians are beginning to realize that there are more and more people out there that are becoming single issue voters. And that single issue is your stance on Bitcoin. So if politicians are pro Bitcoin, they can pick up a lot of new voters, whether that politician's on the right or the left, because this is a bipartisan issue. So politicians are asking the people what they want as far as Bitcoin regulation goes.

26:31And we're seeing more and more pro-Bitcoin regulations coming out. Most notably, I would mention Texas. Texas is bringing in a lot of businesses, especially when it comes to the Bitcoin mining space. And Austin is also a big city when it comes to Bitcoin companies. All of this really brings in additional tax revenue for their state and it helps stabilize their grid as far as the Bitcoin mining piece goes. So Preston talks about this too a lot of times is how the The United States is one country, but there's 50 states in that country that are all competing for these US businesses. So it's really interesting to see that game theory play out just in the US alone.

27:10Yeah. On the same note as the politicians, she, Cathie Wood, she mentioned how Yellen is softening her tone towards Bitcoin just in the last week. And she believes personally, she said she doesn't have any inside information, but she thinks Gensler has gotten to her and whispered in her ear like, hey, let me help you out. Let me help you understand a little bit more about this. because I don't want to mischaracterize this, but what she said the other day was this guy named Satoshi came up with this way for people to exchange value without an intermediate, without a middleman or a bank. Her demeanor towards it was, this is an interesting thing that's going on and I'm learning about it.

27:42And I think that's compared to the disposition she had towards this a year to two years ago or five years ago in 2017, when she was speaking and some guy was holding a buy Bitcoin sign behind her. This is an entirely different world she's operating in as far as I can tell. Oh, completely agree. Her comments blew me away. She's probably getting the canvas ready to paint CBDC on it, but still she's recognizing the innovation and that's a huge step forward and just an indicator that this is not going anywhere. This is not a fad that's going to disappear next week. You've got the head of the SEC and treasury and every person you can imagine now.

28:18We got an executive order from the White House. This is not disappearing, whether you want it to do so or not. This commodity security distinction, which you alluded to, Josh, is really significant. And I know there's a lot of hardcore libertarian Bitcoiners that are like, screw regulation, it doesn't matter. I understand that and I get that disposition, but let's just talk about the potential regulatory framework we're going to see this decade. It's very clear when looking at Gensler and the way this is being tossed around. As you said, Bitcoin is a commodity and the rest of these tokens are going to be fed to the wolves, that being the SEC.

28:56And they are, based on the Howey test, I'm no Howey expert here, but it seems quite obvious they're securities. And that distinction is really significant. And it's a very, very big deal for Bitcoin. And it should be on the mind of investors from a risk analysis standpoint. This being a commodity in many ways de-risks it, it's going to be left alone in a way that securities won't be, at least in my opinion. And once again, surprising. I mean, it does appear that Gensler, it's widely known, he's taught a course on Bitcoin at MIT. And I think he understands the innovation here. And I think it's his intention, at least within the confines of the current framework and expectation to quote unquote, leave it alone based on today's standards.

29:39Yeah. And Saylor referenced the presidential order, which basically was ordering an assortment of different three-letter agencies to learn as much as they can about this industry and understand it, but he said there is no outcome other than favorable for Bitcoin at this point. And I think primarily, Dan, like you just said, because Gensler has made it very clear that this is a commodity and that it's basically outside of their jurisdiction and there's no worry about them trying to clamp down on it in any way, any meaningful way. It's going to be interesting to see when the CFTC really starts making noise on this, because this could go from like, we've long viewed this as like sort of a threat to these agencies, but you could see this becoming like the CFTC's little power baby, that they now have domain over this huge blooming asset class.

30:21And they've been, at least to my knowledge, and I don't know if you guys know more, they've been fairly quiet on this front. I mean, it's obvious that it's going to be in their domain, but they haven't been talking much about it. So it'll be interesting if they ever come out and start getting more vocal. It will be. One other comment I have on this, Kathy Wood said, this was an interesting comment she had, she thinks Bitcoin is going to be successful and appreciate in value, whether we see inflation or deflation. And deflation might sound surprising to people, but I think she's talking about in the slightly longer term deflation, which would be Bitcoin's got no counterparty risk.

30:52Because one of the largest problems with deflation is that there's a lot of assets that are floating around that are paper that potentially have a cascading counterparty problem. Bitcoin clearly doesn't have that problem. So I mean, something to mull over and think about like this thing could potentially work just as well for you financially in an inflationary atmosphere or a deflationary atmosphere. And who knows, we might see some combination of stagflation, which is kind of both. So you guys hear a sailor's comment. I loved his comments on Merrill Lynch in this talk. He said like 24 months ago, they were basically like, no, we won't, we won't touch this with a 10 foot pole.

31:28And now he's getting email in his inbox from them with analysis on Bitcoin. And this plays into something that Josh and I talk about on our show. We have these four eyes that we go through of at least our exposure to people that work in traditional finance of at first it was idiotic, then it becomes interesting, then eventually it's important and we'll get to a point where it's imperative. I think we're mostly in the interesting phase, fringing on important, but the tune has changed so dramatically from Bitcoiners being the biggest buffoons on planet earth to now every brokerage firm on planet earth having a new branch that's researching this full time.

32:03It's adorable. Yeah. Pretty incredible stuff. I love the four eyes analogy you guys use and bring up often on your show. And I completely agree that many people, me and you guys probably included, have moved through each of those four eyes. And people also talk about the three touch points where it takes three times for you to hear about Bitcoin to actually start learning about it and maybe potentially buy some. Before we close out our discussion on Saylor and Kathy, I wanted to pull a quote from Kathy Wood as I just thought it was just so interesting that people might hear a quote like this and just think that it's a big nothing burger.

32:42She goes, listen to every word because every word is important. Bitcoin is the first global private, it's open source, but there's no government involved, digital rules-based monetary system in the history of the world. It is a very big idea. I just thought that quote was so profound, especially with the number of people that just totally ignore this asset. Yeah. And I think she said that she uses that to catch people that are maybe ignoring it. Think about it in this way and there's certain points and she's absolutely right. That nails it. That set of outlines the complete idea of what this encompasses, which is something that we just that I've never seen before and we're unlikely to ever see again.

33:25It's a once in a millennium kind of thing. I recommend if you're listening and that went over your head, rewind this episode and go re-listen to that sentence. And I don't mean to sound hubristic here because we're far from arrival. We're still learning a ton. But if every single word in that sentence doesn't click for you, the implications don't click for you, you need to keep learning until they all click for you. Because all those things combined are the innovation here. There's so many mind-blowing things that have coalesced in this protocol. I love how she laid that out. Great headline thesis for what Bitcoin is and why it matters.

33:59Absolutely. And if all of that stuff, if nobody heard that, here's the one thing that Cathie Wood said that might catch her interest, which is her price target for Bitcoin by 2030 is$1 million. So that's interesting. Well, I love the way she got there too, before we get off that. 2.5 % of assets will be allocated to Bitcoin, right? Yeah. So she's saying, I think something to the effect of 2.5 % of institutional assets will be in this. So that's a ton of money. I don't mean to undermine that amount of money, but that's totally feasible. And this is why, in our humble opinion, this is the largest addressable market mankind has ever seen.

34:30And when you think about the bite that this could take out of a plethora of asset classes, I mean, it makes your head explode, man. I mean, it keeps me up at night thinking about all the use cases that this could absorb and how much capital could flow into this. Scary and exciting stuff. I want to just take one second here. I promise it won't be long to diverge on use cases because I I don't know if anyone... This wasn't announced at Bitcoin 2022, but it was just before it. Lightning Labs is working on what's called Taro. It's a piggyback onto Lightning Network, which will allow them to have stable coins running on Lightning.

34:59Any kind of asset you can imagine running on Lightning. So you've got an instantly settled, completely bare asset that's settling around the world for less than pennies that completely disintermediates any use for 99 % of shit coins at this point. A lot of maxes have been saying this is going to happen, but this is actually happening. This is something they're working on. They're very close to completing. And this is going to change everything in this realm. It's going to be a giant steamroller and it's happening. We would be getting into the weeds here, but to summarize, Josh and I were actually talking about this at work.

35:29Anyways, the point we were establishing with each other in the locker room was this is an altcoin absorber. An analogy I drew was like, it's as though right now we have all these people inventing different internets. The TCP IP has come out and tons of other people are inventing base layer internet protocols. And when you see innovation like this on the base layer of Bitcoin, it is like watching HTTPS or SMTP come on top of TCPIP in the internet protocol stack. Translation, one of these is going to be able to do most, I'll use most use cases and moves forward like this on the Lightning Network are going to absorb an enormous number of altcoin use cases, which is just back to, this is an investment podcast, this is part of the risk profile.

36:14Is your altcoin that you're investing in have the potential to be absorbed onto a more secure, more liquid protocol like Bitcoin? In our opinion, most of these use cases are going to get absorbed and innovation like this that just keeps happening year after year is evidence that this is likely to occur as we move into the future. Yeah. And it's happening extremely fast. I mean, we'll get to Jack Mahler's. I'm not going to ruin that one already, but I mean, just what he single-handedly is doing in combination with this and a myriad of other things going on in the space, it is moving at a pace that nothing else in the world besides maybe Elon Musk's rockets are moving.

36:47Yeah. A lot of people think innovation will happen linearly and adoption for that matter. And this is something that's happening exponentially year after year. So it's pretty incredible to be a part of this movement and still be early on it. Let's talk Peter Thiel. This was one of the speakers I was most looking forward to. His book, Zero to One, very popular book. And a lot of people know who Peter Thiel is. Co-founded PayPal with Elon Musk and the PayPal mafia. So at the beginning of this one, he played this video where it was him speaking in 1999 about how since everyone will eventually have a cell phone, countries won't have control over what money people hold.

37:27He was mainly referring to how other countries won't be able to stop their citizens from holding US dollars. And this was in 1999, he was saying this. But today, it's really anyone that has a cell phone has access to Bitcoin, the asset. And governments really can't stop it without shutting down the entire internet, which is truly incredible to think about when you have many countries that have hyperinflation, you have censorship and things of that nature. I had an episode with Alex Gladstein where we discussed all these issues and the things Bitcoin is doing for those that need it most, really.

38:00And then during Peter Thiel's speech, he hit on the idea of money being high velocity or low velocity. One example he lays out is gold, which is low velocity as it mainly sits in central bank vaults, while the Visa payment network is efficient at transferring value very quickly, which makes it very high velocity. Then he ties in Bitcoin and Ethereum saying that Bitcoin is the replacement for gold, while Ethereum is potentially the replacement for Visa if it actually ends up working. And those are his words, not mine. I'm sure a lot of people at the conference would disagree with that conclusion as Bitcoin currently has a lightning network that can be used to transfer value instantly, which you guys just outlined with some of the innovations we're seeing.

38:42And that's also with zero fees. So what are your guys' opening thoughts on Peter Thiel's speech? One thing I want to throw in here at the beginning to piggyback on your cell phone comment and his comments back from the late 90s, There's a tweet by Will Clemente that I think is apropos here. He says, we should expect Bitcoin's network effect to expand faster than the internet for one simple reason. The internet spread on analog rails. Bitcoin is spreading on the digital rails of the internet itself. And this is some of what Tio was hitting at. And it actually goes back to the previous segment we just had of exponential adoption, because you're building out rail cars on an already existing railroad.

39:21You don't have to lay the rail ties. And that's why things are moving so quickly in Bitcoin and why the potential is so dramatic to continue to move forward at this exponential pace because of how widespread internet adoption is. I mean, I think it's talking a little out of turn here. I don't have the research right in front of me, but I think there's some expectations that smartphone usage, especially in the third world, is going to double even the next five to seven years. So the increase of technologies like this are piggybacked on the internet itself, which is extremely entrenched. And the implications are dramatic.

39:55One thing I didn't know about PayPal so much, I've never really done a deep dive on them. He said that when they started, they had a lot greater of a goal initially, him and Musk. He said they wanted to replace the central bank or treasury. They didn't actually know the difference between the two at the time, which is hilarious that they founded this company about money and didn't know the difference. The other thing I wanted to comment on is exactly what you got to Clay at the end there, which was he said Ethereum was like Visa, Bitcoin's like gold. I don't know what his knowledge base is on what's going on in Lightning, but clearly he doesn't quite understand or hasn't...

40:25I don't know what his deal is there, but obviously Lightning is going to be far superior to Visa very quickly. The thing too, and I think we were maybe texting about this with you, Clay, that from this speech he gave was comparing Bitcoin market cap and equity the last time we had a significant inflation environment. So he had this chart up where he said there was a period of time, was it in 80? I can't remember, maybe 80? 1980. It was early 80s, yeah. Global equity was at 2.5 trillion. And then the market cap of gold was at 2.5 trillion. And today we sit in an environment where global equity is something like 115 trillion.

41:01And if you look at comparable hard money assets, let's call it gold 12 trillion. Although I think tradable gold is somewhere between five and seven trillion. You had a trillion dollars of Bitcoin. Let's say we have a sea of 5 to 7 trillion of hard money assets juxtaposed against equities at 115 trillion. In my opinion, it's very clear which direction osmosis is going to move economically, especially in an inflationary environment like we talked about off the front. It seems very plausible that it's going to move towards hard money assets. And our contention is there's none better on planet Earth than Bitcoin.

41:32Before I get off this, it does make me think of our discussion with Lawrence Lippard. He did something similar to what Thiel did when he was on with us. And he talked about gold's move from when we broke the peg in 71, basically that decade going from$35 an ounce to like$700. And he said, essentially at that point, gold itself got to about 7 % of global assets, which in today's dollars would be about 35 trillion. He did the same math I just did, hard money's at 5 to 7 trillion. He thinks this inflationary environment is going to be far more dramatic than what we saw in the 70s, early 80s. So he has the lower bound of hard money assets this decade and maybe the next decade at, we'll call it 5X where it is today.

42:14Point is, this is some long-winded elaboration on how we can compare this potential inflationary environment to the last time we were in something similar and the move we saw to hard money, which has not yet occurred in dramatic fashion, which is, I think, extremely bullish for Bitcoin. Yeah. For Bitcoin hard money. And it reminds me of, I can't remember the bond investor off the top of my head who said this now, but it might've been Paul Tudor Jones, actually. He said, if gold is a racehorse, but Bitcoin is a Ferrari, in this environment, this Ferrari is going to move. The other thing that he said, which I found funny is that at the end, he outlined the enemies of Bitcoin and Buffett was at the top of the list, having called it rat poison.

42:54He called him the sociopathic grandpa from Omaha. I thought that was hilarious. He said, Diamond has called it worthless. Jamie Diamond from JP Morgan. Larry Fink from BlackRock, I believe, is pro-blockchain, which is kind of the assuming that this whole blockchain, not Bitcoin nonsense. And he called this the geritocracy versus youth movement. Then Bitcoin and crypto, I guess, would be the youth side of that. The geritocracy is these old men that don't understand it who are against it because they have interests against it. Warren Buffett owns a whole bunch of other financial assets that are giving him the inclination to be against something that would destroy those things.

43:30So it's pretty obvious that his incentives are against Bitcoin. There's a scathing comment on Buffett. TIP could be in Buffett's crosshairs here. I mean, it's like TIP network is like Buffett gone Bitcoin right now. You know what I mean? Like you've got all these value investors who met at a Berkshire, you know, what is it? Preston and Stig met at a Berkshire meeting, right? Yeah. I think so. Man, everything's going bright orange over there. We need to bring Buffett on the podcast. Yeah. I mean, is it just an age thing with Buffett? What's your take, Clay, on that? Well, I think there's a number of things at play here.

44:05One, Buffett's been known for saying that technology or certain things are in the too hard pile. So Buffett's widely known for staying invested in his circle of competence. He doesn't really study macro. Who knows how much he's actually studied macro or how much he's actually studied Bitcoin, hard money. For a while back, a year or two ago, he owned a little bit of gold miners, but I'm pretty sure he ended up selling that. So he's a long-term equity value investor. And like Peter Seale mentioned on the stage, he's talking his book. He knows that if all this money were to flow to gold or Bitcoin, whatever the hard money asset is, that it would not be good for his equity portfolio.

44:46And we saw it in the 1940s and the 1970s. We saw high inflation and deleveraging in the system. That would be a very bad decade for equities. You guys have studied Dalio and studied the long-term debt cycles. This cycle could be much, much worse than the 1940s and 1970s, like what Ricardo was talking about with potential hyperinflationary scenarios where all the leverage just gets completely wiped out. Yeah. Here's the other Buffett comment I have, and I'm no Buffett historian here, but if I remember correctly, Warren did sit out most of the dot-com boom and bust. So he sat around in his candy equities while the system ballooned up and then imploded.

45:29And I think that he thinks he's looking at the same thing. Where I disagree, and the main piece that I believe he's missing, is he is looking at Bitcoin through the lens of a tech stock instead of viewing it as a foil to the entire foundation of the global monetary system. I don't know how much time he's taking, but it's a different asset than he's aware of. And the ironic thing is I kind of view being Bitcoin focused or Bitcoin only as similar to a Buffett perspective. We're waiting out altcoin mania because it's devoid of fundamentals, hanging in the value investments that is Bitcoin. But back to Buffett's confusion, I think he's looking, I think he thinks he's looking at the same thing he saw in 1999 that he thinks is going to implode, but he's made one key miscalculation.

46:17And that's the real problem that Bitcoin is solving at the base. And that mistake he's making is in part because of a potentially a lack of macro interest. Just a thought. Yeah, maybe. I also think that he's just, I mean, the guy was over 70 years old, even in the dot-com era. I think that he's just in very comfortable in the water he swims in and he's not going to be jumping into the other stream. There's salmon are jumping upstream and he's not following. He's going to go drop his eggs over in the calm stream that he's in. Yeah. Another comment I'd like to add is, I'm pretty sure he's been on the record for saying that the businesses he owns, they're going to transact in whatever currency everyone's using.

46:56So a lot of the companies he owns and operates are essentials to the economy. Call it insurance, railroads, utilities. These are not going anywhere, whatever happens with the currency. And you got to remember this guy is, his time horizon is practically forever. I mean, he's looking for companies that are going to be around for a very long time. They're kicking off these free cash flows. So he knows that even in this kind of scenario, obviously he's not positioned for that, ideally for that transition to happen, but it's not like he's going to get totally wiped out. And it reminds me of the kind kind of the tortoise and the hare analogy.

47:33People were calling Buffett, his methods are dead. His time is gone while Cathie Wood's ARK Invest is going to the moon. Everyone's flocking to her fund. Well, now you look back and compare Berkshire to ARK over the last two or three years, Berkshire has actually outperformed it. It depends on the timeframe you're looking at, probably. But ARK has just come way back with interest rates moving back up. And even Buffett, after people have said, yeah, his time is gone, he's lost it. He even outperformed ARK over the last few years. So I think that's also worth mentioning and just to give some credit to Buffett.

48:07Let's transition again. Do you guys want to cover what Jack Maller's announcement was at the conference? Yeah, absolutely. Give it a quick couple minute introduction to what Lightning Network is. So basically, Lightning Network uses the Bitcoin's blockchain base layer for security. So there would be a transaction that happens on the Bitcoin blockchain that would lock those coins into a wallet. Now, from that time, they're enabled on the Lightning Network. So there's no credit going on here at all. This is all still a bearer asset. So say one Bitcoin is locked in a specific wallet. Now that one Bitcoin is enabled on Lightning, and there's another set of nodes that can now transact through channels back and forth together.

48:45Let's say Dan and I each have a node. We open a Lightning channel between each other. Now, Dan and I can transact unlimited amount of times instantaneously that one Bitcoin balance between ourselves. So I can send Dan half a Bitcoin, he can send it back as many times as we want, no transaction fees, because all of this is being done off chain. So the thing that this improves on is speed number one, number two, transaction fees are negligible to almost zero. They're less than a penny. And so what happens is this is a network of multiple nodes. So Dan and I, and say, I think right now there's 16 ,000 Lightning nodes.

49:17So they're routed through nodes. So if Clay wants to receive a transaction from me and Dan's node is connected to Clay's node, my transaction goes to Dan and then to Clay. And it could go through say 25, 30 of these nodes in order to get to the place it's going. The whole time this is happening, nothing's happening on the Bitcoin blockchain. All of this is completely off chain, which is the reason it can be happening so fast. Yeah. So to draw an analogy - The bar tab analogy would be perfect. Yeah. Yeah. I was going to say Bitcoin has a scaling issue, right? The base chain is settling every 10 minutes.

49:46I think the throughput is something like five transactions a second. Visa is doing thousands. So Lightning's created. And by the way, it's not like we're married to Lightning. There's other second layer protocols that could be built, but this is basically enabling more throughput. It's the scalability solution to a very secure, but limited base chain. And the thing Josh ended at, a common analogy in Lightning is it's like opening a bar tab and then opening and settling the bar tab, which is actually this two of two multi-sig transaction that is the Lightning Network. Those are base layer Bitcoin transactions.

50:18But what Mallers is doing, to bring this back to this discussion, he runs a company called Strike that's enabled on the Lightning Network. And where this really gets pretty frisky and exciting is this is when we see multiple use cases coming together. And this is one of the most fascinating things about Bitcoin. You come in with one lens or perspective, something grabs you, that's store value or whatever. Store value is a common one. Maybe it's decentralization, censorship or resistance, whatever. And then you realize like, oh no, this monetary network's going to do it all. And what Lightning ends up signaling is that, hey, this is more than just a store of value protocol.

50:51This is also going to work for medium of exchange because Lightning theoretically has unlimited throughput if enough liquidity and nodes are available. So it's pretty remarkable what's happening in Back to the Speed, which we've hinted at a number of times in this episode. I mean, Strike is moving at a torrid pace. Some of the announcements that went down. What is it? It's NCR, right? That's the payment processor. Cash apps using it. Shopify is using it. You're just starting - Blackhawk network. Yeah. So NCR makes one in six payment terminals in the world. So there's a one in six chance that your lightning payment is going to work at whatever merchant you're at.

51:24It basically started just take it right from you, Dan. But what this does is it completely disintermediates Visa altogether. It creates a way for transactions to happen so that all of the middlemen are completely cut out. That 2.5 % to 3 % fee that every merchant is paying to Visa or MasterCard or Discover, it's now zero. So the incentive here now is if I'm a merchant and I'm watching inflation numbers go up, I'm getting squeezed on both ends. The customers don't want to pay more. My suppliers are charging me more. I've got to find some way to maintain my margins. And this is the lowest hanging fruit there is.

51:54I can just simply start using this new payment network and I can recoup 3 % of these transactions. And so I own a small business on the side. There's a significant amount of money that we bleed every year paying two to 3 % to Visa. It's a lot of money. And I absolutely want to make sure I can figure out how to make this work because I'd rather not see five figures just not disappear every month or every year to Visa. I'm sure there's a lot of others. Follow the incentives. The beauty of this talk that Mallers gave was he basically went through the history of credit card processing. He went back to the 1940s with credit cards and basically said the rails of the ways in which money move in the credit card system have not changed since like, I think he said like 1949.

52:36The consumer facing apps have changed dramatically. And we'll get to that in a second. But the actual rails, the intermediaries, the way money's moving, the fees that are being collected haven't been innovated on since the mid 20th century. And let's talk about this intermediation. You have in a credit card transaction, you've got the consumer, you have the merchant, you have the consumer's bank, you have the merchant's bank, and then you have a credit card processing company, and then a credit card company. You have all these intermediaries. This is a protocol that enables... This is back to...

53:05I've got the white paper back up here. This is a peer-to-peer monetary network. This is in the title of what Bitcoin is. We get back to peer-to-peer payments with Lightning, where I as the merchant and Josh as the consumer can have a transaction and get rid of... I mean, we start doing the math here. You're talking 2 % to 3 % savings on every single transaction on planet Earth. The incentives are there. And here's where people get confused. The application layer, the consumer layer, the cash app that you're using, the Venmo that you're using, the payment processor, the point of sale you're using, none of that needs to change.

53:38They can integrate with Lightning Network. The other component that has to be identified is the distinction between Bitcoin the asset and Bitcoin the network. You do not need to transact in Bitcoin. You can have a company like Strike take your euros, convert them into Bitcoin, and send US dollars across the country. So you put euros in, somebody gets USD out. You don't even know that you're using the Bitcoin protocol. Let's draw another internet analogy here. We're on Skype. None of us have any clue what part of the internet protocol stack these data packets are traveling through. We're just talking and there's video here.

54:12This is how Bitcoin is going to work in the monetary future. You're going to have people moving fiat currencies, maybe CBDCs, stable coins, who knows what it's going to be. They're going to be using the most secure, stable monetary protocol on planet earth to move those units, those data packets back and forth. And they may not even know that Bitcoin's involved. This is where it's taken over, man. I don't know what to tell you. The other thing that he said, which is really cool. So Visa, MasterCard, Discover, those are closed networks. If you want to use Visa, you got to get Visa's permission.

54:44You've got to have Visa's say-so or MasterCard or Discover. With this, this is an open network. There's no coming to ask mother may I, if you know how to code or you can find someone who does, you can plug into this and you can make whatever app you want. Do you want to compete with Strike and make a new Strike you think can be better? You can immediately do it. There are no gatekeepers. And that is just such a different world than people are used to in the world of finance. You don't have to go ask a government institution. You don't have to go get someone's permission in any capacity. You can just build on an open source network called Lightning.

55:15And oh, one of the things I want to add about Lightning before we move off topic. I don't think people understand the scale at which this thing can move. Visa does at the maximum 65 ,000 transactions per second, which is a lot. Theoretically and practically, Lightning can do 1 million transactions per second. So I mean, we're talking about a 15X increase on the maximum amount of transactions that Visa ever does. So there's some room for massive scaling here. And we're also talking about immediate cash finality. I mean, a typical credit card system, There's a whole debt layer, folks, that's built on this system.

55:48These things are settling two to 15 days after your transaction. On the Lightning Network, we're talking about immediate cash finality. Another thing we have to introduce, and I think this is where the Lightning Network really clicked for me practically, was just the use cases. And there's so many you can think of, but one very practical one is Podcast 2.0. We're on it. It's a new way that you can podcast and get revenue directly from listeners where people can stream you fractions of a cent. right? They can send you five Satoshis for comments in the podcast that they enjoy, right? Streamed over the Lightning Network.

56:20It potentially completely redefines the way content creators are going to get paid. That's one example. Another is the way you pay employees. There's already things being built out. I think Strike is involved in some of this where you can pay employees by the second or by the minute, right? I can't imagine what a nightmare the accounting would be for that. We're talking about streaming money here though. This is money that's going to be streamed over the internet. We're not going to live in a future where you're getting paid every two weeks, right? Where is it in my bank account? That's going to cease to exist as money is moved natively to the internet.

56:52And this is one of the key differences of like, this is maybe a blunt way of describing it. We're on an analog monetary system that's been uploaded to the internet. The Bitcoin protocol and the stack that's going to be built on top of it is native to the internet. And there's a huge difference there. And we're seeing that manifest in the lightning network. Absolutely.

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1:00:34All right, back to the show. I hear all this and all I can think about is the Trojan horse. You have costs going from 3 % to near zero. You have instant finality. You have the decentralized piece of it. Everything you guys outlined, it just screams Trojan horse in my head. So what are the announcements that Jack Mallers made in relation to the partnerships he set up for Strike? Jack Mallers He had basically Shopify, they partnered with NCR, which is a huge payment processing network. And they create one out of six terminals and then partnerships with the Blackhawk network. And that in itself covers a wide swath of transactions.

1:01:15He said Walmart was on the list, Walgreens, McDonald's, Sparrow, Chipotle. And there was a long list of companies that will almost immediately be enabled for you to just walk in and use a Lightning wallet, pay with a QR code, have your money switched into Bitcoin, at the speed of light over to the other guy's terminal, flip back into dollars, and on you go. I have questions for you guys related to the Lightning Network. I often think, okay, how scalable is it? Is it possible today for Amazon to plug their company into Lightning and start seeing some of these cost savings? Or does Lightning itself need to scale with people depositing Bitcoin into payment channels and more development happening on the backend?

1:01:55The one thing about lightning that I think maybe is confusing for people, it doesn't matter how many channels are on there. So I was just looking at this block clock I have behind me. One of the metrics it'll display is how many lightning nodes are in the network right now. And just earlier today, it was 16 ,500. So what that is, is 16 ,500 nodes that have channels set up in between each other. If you can imagine in your head, a giant web of points, each one connecting to the next, kind of like the internet. It's the same thing. But the amount of channels and number of nodes doesn't matter. What matters is that one node can speak to another that's five hops or 10 hops or 50 hops away.

1:02:28So right now, to my understanding, again, I'm a caveat with that because I'm not a computer engineer, this thing can do a million transactions per second. So there's absolutely nothing keeping Amazon from using this. This could absolutely scale right now to fully do every single transaction that they accomplish in a single day. And as far as I understand, the rest of the world as well. It is still a beta project. So I mean, there are still some kinks to be kicked out of it. But I've not heard of anyone not being able to establish or send a transaction in quite a long time. And the only issue that people could run into at this point is simply liquidity issues.

1:03:03So large transactions, something in the order of like$5 ,000 to$10 ,000 or higher, you might not be able to send it through because if the channel liquidity is not high enough, it's simply not going to go. So with those larger payments, you just have to go back to the Bitcoin blockchain for those. Yeah. I was just going to say, Josh nailed it. Liquidity, based on my understanding, is one of the primary hangups. And like I said, we're throwing in disclaimer after disclaimer, but we're not experts. I mean, we do both run lightning nodes. We both mess with liquidity on the lightning network. I think I've heard Preston Pysh mention this, using lightning, running a node, and actually working on inbound liquidity and messing with these channels really helped click for me how this thing works.

1:03:43I would say, first off, it's not all that intuitive, especially for tech dunces like us. It's actually quite complex. And it does lead me to believe you're going to have primary players like Strike who are managing liquidity in this space or smart node operators who there is an opportunity there, I think, on routing fees on Lightning, even though they're infinitesimal. If you have enough throughput, I think there is some revenue to be generated there in a totally secure, risk-free fashion. But it is just a function of liquidity. It's exponentially increasing, but there's not a ton of liquidity locked up on the Lightning Network.

1:04:14It's 3 ,600 Bitcoins right now, which is actually quite a lot. But the problem is not the total amount of liquidity locked up. What the problem is, it's always the weakest link in the chain. So if your transaction's going just fine, it's moving along through five different nodes, and then it hits a node where suddenly there's a dead end and there's only one Bitcoin of liquidity left in your transactions more than that, it stops there and it fails. Next question. So the liquidity piece might be an issue. Is there an incentive for more liquidity to be placed on the Lightning Network? Is it just a matter of strike filling in the gap if it needs to be filled in?

1:04:48Or what do you guys think about that? Let me chime in here. So my thought on this and tell me if either of you disagree. So the motivation to lock up liquidity is the motivation to use Lightning. So it's like consumers demand it and merchants see the benefit. it. So we talked about this earlier, disintermediating all these fee collectors saying, hey, this is a secure, instantaneous, immediately cash final global monetary network we want to be part of. We're a large corporation or a large merchant. We want to use Lightning Networks, so we're willing to lock up liquidity. And they're not losing anything there, right?

1:05:20Right. There's another function of understanding Lightning. It's not like they're giving money away. They can extract their money at any time. They're just inserting liquidity so that their merchants can use this new monetary network. So for me, I mean, there are ways to make money on Lightning through routing fees and other things, but the primary motivation to onboard is the motivation to use this new frictionless monetary network that is Lightning and Bitcoin. Yeah. And as this happens, the interesting thing about it is this is not a credit system. This is a bearer asset system. So this requires the lockup of more and more Bitcoin over longer periods of time while simultaneously increasing demand.

1:05:54Because as the Lightning network gets more useful, demand will inevitably rise. And you're simultaneously locking up assets while increasing demand. It's just almost like a supercharged way to increase the value of Bitcoin. Makes an already scarce protocol that much more scarce. Incredible. Thank you for laying out the Lightning Network. I am definitely new to that piece. And I think the listeners will really enjoy that too. Let's talk about another panel. and that's with TIP's very own Trey Lockerbie and Preston Pish, as well as Dr. Jeff Ross, Jeff Booth, and Mark Moss. Unfortunately, they got cut a bit short.

1:06:33It was only about 20 or 25 minutes, but there were some good pieces of information I thought out of this one. This was them discussing the macroeconomic landscape. Macro is something that a lot of people in the space like to talk about. With inflation running hot and the Fed raising rates, this leads to headwinds for many asset classes, I would say, including Bitcoin in the short run, at least. Trey opened it up asking Dr. Jeff Ross why Bitcoin is trading with high correlation to the stock market. He essentially said that the market treats Bitcoin like risk on asset, similar to stocks. So if investors are wanting to flock to safety, they're going to want the USD.

1:07:10But all the guys on the stage probably believe that the USD is going to perform miserably over the next decade relative to Bitcoin. So any pullback we see in 2022 is going to be very short term as the rapid adoption of Bitcoin continues. A lot of people who own Bitcoin get that. And that's why Will Clemente posted the statistics that 63 % of Bitcoin has not moved over the past year. And that just tells you how many people understand that this is a long-term investment and should be treated like a savings account is something that Dr. Jeff mentioned in relation to Bitcoin? I think we need the humility as Bitcoiners to recognize that first off, volatility is a manifestation of uncertainty.

1:07:53And I think Ross said something else to the effect of the people at this conference are not the market makers in Bitcoin. And that has changed a lot recently. For a hardcore five to seven year pleb, the institutional money coming in has totally changed the landscape. And you have to remember, these allocators are feeling the pressure because the coin is flashing brighter orange. You're seeing Super Bowl commercials. Millennials are hysterical. There's just so much noise in this space. It's crazy. Even having been in this for a little less than five years, just where we are today compared to when Josh and I first got interested in this.

1:08:29But these massive institutional players who are just at the very, very beginning stage of allocating, but they are currently allocating, they don't fully understand what they're involved in. This is still a tiny market cap, which it is in the grand scheme of things in their mind. And so it's totally understandable that this is going to be linked in their portfolios to risk on assets. Another thing to consider is their portfolios, although they're the experts, they do reflect the preferences of their constituents. And on a global scale, people don't understand what this asset is yet. My point I'm making is I think we're a long way from this decoupling.

1:09:03I think we will decouple from risk on assets. But I think it could be a long way off because I think until institutions really understand and big money really understands what it's invested in, this is going to be in the risk on bucket for a long time, even though architecturally and fundamentally, it's designed to be a risk off asset. I think we should all hope that it remains in that bucket for quite a long time because the way I view it, the only way that this turns into a very quick situation where trillions of dollars are pouring into Bitcoin out of the bond market and all these other risk-off quality assets at this point, at least how people view them.

1:09:38The only way that happens is if stuff really hit the fan in a major way. And I don't think any of us want to see that happen. We'd prefer to see this happen in a more orderly fashion. I think we all believe that this is probably going to happen in the longer term, 10 to 20 years. This just makes me think of the conversation we had with Lawrence Lepard, where he said, and the conversation he had with Preston, which he basically said, this is like a two to five-year thing. That means that some bad things are going to happen in the very near term. In order for it to happen that quickly, some really crazy stuff has to happen.

1:10:06So let's all hope and be optimistic that this happens in more like a 10 to 20 year timeframe in a more orderly transition. And everyone can kind of, like we've kind of said before, build a new house on the old foundation without letting this thing collapse. We talk on our show quite a bit about just be careful what you wish for. It's cool to sit around and say the whole system is falling apart, but that's not fun for humanity. That's probably not good for a lot of even your inner circle. In my life, most of those that I love and care for aren't by my lens properly protected against a really fragile system.

1:10:39So I do really appreciate the Booth's, the Jeff Booth's, the Greg Foss's. I mean, Pish talks about this a lot too. Let's hope not. Let's hope that we can have this new system being built alongside the old and we can slowly move from one to the other because I think that would be a net positive for human thriving. I think you need to be ready for it not to work that way. And when you look through monetary history, these things do often have a tendency to happen pretty violently and abruptly. So be prepared. But I think I would encourage people to be philanthropic and benevolent in the way that they think about this happening instead of just being like, I got mine, so screw everybody else.

1:11:17That's not a good way to look at the rest of mankind as we make a transition out of what's a pretty precarious predicament. Yeah. To follow up on that, you said, be careful what you wish for. And that reminds me of Jordan Peterson. He was another speaker at the event. He was hitting hard on... A lot of people think Bitcoin's just going to be this savior to everything in our lives and everything's just going to be great once Bitcoin is the base monetary standard. And he really emphasized that we should be cautious and Bitcoiners might be right about many of the good things that it's going to bring, but that doesn't mean that it's not going to come with unintended consequences.

1:11:58So I think it's important just to stay humble. I love what you guys are doing with your podcast and trying to educate people and just trying to bring it down to just your everyday person. You guys are firefighters. You're talking to everyone at your firehouse. So yeah, I completely agree with everything you said, Dan. And I think that part really hit a chord with me. I do love what Peterson said there. He made this other comment, something to the effect of when paradigm shifting discoveries happen, they rarely go in the direction we anticipate. I mean, look at how most people perceive the internet early on and look at what it's become.

1:12:32I do think Bitcoin is designed, you could say, with mankind in mind, right? And I think based on the way I size it up, it's pushing things in a positive direction. But we need to have the humility to understand, A, we don't fully understand Bitcoin whatsoever. There's still so much to learn, even for people that have spent thousands of hours studying it. B, to try to transpose that new discovery on all the things that are other discoveries that are going to happen, the trajectory of mankind. There's a lot of unknowns and we do need to keep our eyes and ears open. If you're just expecting this thing's perfect, it's always going to be perfect.

1:13:04That's a troublesome dogmatic viewpoint and nothing should be above scrutiny, Bitcoin included. So I did love where that challenge that Peterson presented at the conference. Yeah. I was always thinking about the unknown unknowns, something that, in essence, humility. It's understanding that I'm smart enough to know that I don't know everything. And therefore, there are tons and tons of consequences to the things I don't know that could potentially trip me up. That's the kind of humility I love out of Peterson. Clay, the one other thing I wanted to say from this macro panel, my highlight quote, Pish said, when you're looking at a protocol, is it going to be decentralized in 20 years?

1:13:43And this really is the crux of the biscuit. The protocol that you're investing in, is it going to stay that way? Does it have the architecture to survive institutional adoption, nation-state onslaught, yada-da-da-da-da? And back to what we covered earlier on, in our viewpoints, Josh and myself think there's really only one protocol that shows the potential to withstand what we perceive as viable risks. But I just loved pushing that timeframe out that far. And I think that that's maybe the most important question you could be asking in all of crypto right now. Yeah. And Preston's advice was simply buy Bitcoin and fall asleep for five years.

1:14:21I mean, that basically is it. That's all you have to worry about. Just do that and forget about it. Don't trade it. Don't try to get cute. Just sit on it. Stop listening to our shows. Turn them off. Just go buy Bitcoin and fall asleep. Don't lever it. It's painful. Let's see. Should we cover the macro panel a little bit more? Or what do you guys think? It is kind of a shame that they got cut short, to be honest with you, because there was some... Mark Moss said some really good stuff too. He actually hit some on the Bitcoin of all things. Moss said he spent some time unpacking, we've known it as store value, but it could enter that medium of exchange realm.

1:14:58And we've explored that some throughout this episode already. But this is, I think, what really sends people down the Bitcoin rabbit hole. When you see the elephant from one direction, and then you move the other direction, and you start to piece together what this thing is. And as we've already covered, this is how the internet came to fruition. The first application for everybody was email. And then next thing you know, now it's just doing everything. And the internet is subsuming all of information globally. And so the one thing I really like about Mark Moss is he's very multifaceted and interdisciplinary in the way he thinks.

1:15:29And he brings in both from a monetary history and just history perspective, but also currently contemplating the interplay of all these different dynamics. And I think that is the ignition for the Bitcoin bomb. You've got store of value here, medium of exchange here, censorship resistance, and you're combining all these things and realizing just the wide swathing implications of this protocol on so many different spectrums of the ways human beings exchange value. And that was one point Mark made in there. Another thing related to the macro panel and your comments right now on the internet. We've used the US dollar since 1971, since it was de-pegged from gold.

1:16:10And it's pretty insane to think about how revolutionary the internet was and how far it's come since 1999, 2000, whatever year you want to call it. And we're 20 plus years into this internet movement and we're still using the US dollar. And that's where Jeff Booth kind of comes in. Jeff is always hitting on this fact that technology is deflationary. The internet is massively deflationary, which means it lowers costs and brings abundance to everybody. But the conundrum we're in is that our current system requires growth and inflation and prices across the board. So to offset that, we've seen massive, massive increases in the debt levels, debt levels of the government, of consumers.

1:16:54You see all these headlines, how credit card debt, real estate debt, any kind of debt is hitting new all-time highs. And it's just something that continues to blow my mind. And Jeff mentioned how he invests in technology companies and he only invests in the companies that are bringing abundance to everyone and the companies that are lowering costs for everyone. And you have these two colliding forces that are constantly fighting each other. This force is fighting each other. It's happening at an increasing rate of change. And it just seems like it's not going to end well unless we have some sort of financial system to transition to over time because in the end, technology is an unstoppable force.

1:17:33And that's me just paraphrasing many of the teachings I've learned from Jeff Booth and none of it's really my own original thoughts. So just incredible things that Jeff Booth has been teaching everyone in the Bitcoin space. It's kind of hilarious to when you read his book and you understand the deflationary inherency of technology and you look around and you say, the government has to be so flagrant and so gluttonous with its spending to outdo this ridiculous amount of technological innovation that all these private businesses are accomplishing, that they can manage to still just bludgeon deflation by being just so aggrandizing with printing money in every turn.

1:18:11In the last year, well, 2020 was the most ridiculous overstep of that we've seen between $3 and$4 trillion just getting tossed to the giant hog trough for everybody. And now we're seeing the inevitable occurrence of what happens. This is going to cause inflation in a very meaningful way for probably quite some time that we may not have even seen the top of yet. Basically, what I'm saying is just a comment on the gluttony is so over the top in the government printing money that they're able to counteract this deflation. And then on top of that, pour on an extra helping of inflation for all of us.

1:18:42What Booth does for me, gentlemen, is this. His book, The Price of Tomorrow, and a lot of other thinkers would drive you back to why is leverage where it's at? So this is an exercise I've gone through. So we're at this point, it's really popular in the Bitcoin space to talk about the end of a long-term debt cycle and all this money printer go burr and all this monetary and fiscal policy. Why are we here fundamentally? And Booth got into this and I'll get to his quote in a second. But basically he works through as economies of scale grew inherently global and demands on the velocity of money increased, we had to move away from a hard money standard.

1:19:15We had to innovate. There needed to be a new monetary technology. And so we moved to notes backed by hard money, which moved us into a credit-based system, which centralized control of the monetary system, which enabled manipulation of money. This is back to first principles of why do people have control of the money? It's because the velocity of money globally necessitated a new monetary technology. So he has this quote that this was like the standout quote for me of the entire conference. I tweeted it out. He said, the technology of Bitcoin allows you to build a system peer-to-peer that doesn't require debt for velocity of money.

1:19:52And he followed it up by saying this is the most important part of Bitcoin. And it hit me like a ton of bricks. Why do we have a credit-based system at the base layer of money? It's because of the limitations on velocity. Bitcoin brings back hardness and enables velocity. And its implications are just, they're hard to conceptualize, but once you get there and Booth has a unique way of like hammering that home. You did a really good job of explaining that because I don't think I really appreciated how incredibly important that was until maybe just right now, when you said that again, when you went through that whole thing, that is really, really huge.

1:20:26That's a profound statement. It really is. Yeah. That quote is that's in the, uh, like a top 10 Bitcoin quote for me. Jeff Booth is a sneaky genius. He's so soft-spoken and so just mellow that you almost are like, you just don't appreciate the genius he has until you really dig deep into it, read his book and listen very carefully to what he has to say. And the thing I love about his book is The Price of Tomorrow, I think he uses the word Bitcoin once. He has a follow-up article. If you do read The Price of Tomorrow by Jeff Booth, you have to read his article, The Greatest Game, which is, I've even heard him admit this is basically the last chapter to the book as he's come to understand Bitcoin as the transition or the solution out of the inflationary predicament we're in.

1:21:11But those are must reads. It's a quick read too. The Price of Tomorrow is a really profound but fast book. I love it. Well, do you guys have any closing thoughts or anything else you guys wanted to cover in regards to the conference? I have a couple of quotes from Jordan Peterson's talk that I thought were... I mean, everything Jordan Peterson says is awesome, but this is just a couple of things. One of the fundamental axioms of a free market is that the only way to properly compute the horizon of the future is by sampling and perhaps summing the free choices of a multitude of free agents. And he was going on about why capitalism is superior to socialism.

1:21:45And I think he really struck the heart of the matter, which is what capitalism is inherently is a decentralized computer of hundreds of millions of minds, all making independent decisions with what's best for themselves, communicating those prices, again, decentralized in a decentralized fashion to everybody else. And those cascading price signals through the system allow everybody to understand what value is, where, and why, and to operate with rationality. And that's why capitalism works so well and why centralized control inevitably fails because there is no single entity or person that has enough knowledge, enough information to coalesce all of it into a better system than capitalism, just because one single mind or a group of minds can't be smarter than literally everybody else in the world.

1:22:31I think that was an important one. I think my closing remarks on the conference are, we often close guest appearances or shows this way. Don't trust any of these people we've just mentioned. Don't trust us, including me. Definitely not, Dan. Seriously, go do your own homework. We're just a couple of firefighter clowns that are regurgitating information. Study for yourself. That is the whole ethos of Bitcoin. Don't trust verify. And I think one of the awesome components of this conference is it's so readily apparent there's no heroes. We had Kevin O 'Leary get up on stage and then following on the analyst desk, I think it was Marty Bent, Guy Swan, I think Mark Moss was on there.

1:23:12And they were tearing Kevin O 'Leary apart. You have this massive A-list influencer that just got on stage and was touting Bitcoin and they just proceed to tear them apart on the analyst stage. That is frustrating as that can be for people. That is the ethos of Bitcoin. It's like, go learn for yourself, study, learn these concepts, make your own decisions. So yeah, do it. Go do that homework. Don't trust what we're saying. Podcasts are great, but you got to read books. Go beyond just Bitcoin books too. If all you're ever reading is authors writing about Bitcoin, you're definitely in the middle of a bubble group think.

1:23:43Expand, never stop learning. Well said. And if you were looking for resources, our website, bluecollarbitcoin.io. We've got a spot for a bunch of resources that you can find and follow depending on how much time you have. We've got disseminated into different periods of time for how much you want to spend learning about Bitcoin. Fantastic. Well, it was a pleasure doing this episode with you guys. There's no way we could have covered a lot of the content that happened at the conference, but hopefully we hit some of the highlights. Josh, it was fantastic meeting you there. Dan, I'll have to check it.

1:24:13See you down in Miami next year. But it was just such a good time down there. And I'm really glad I had the opportunity to meet you, Josh, and many others in the space and can't wait for next year. So thank you guys for joining me. Definitely mutual, Clay. It was a pleasure. Thank you. All right. I hope you enjoyed today's episode. Please go ahead and follow us on your favorite podcast app so you can get these episodes delivered automatically. If you've been enjoying the podcast, we would really appreciate it if you left us a rating or review on the podcast app you're on. This will really help us in the search algorithm so others can discover the show as well.

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