The Commodity Shift, Credit Crisis & Bitcoin | Eric Yakes

26:27It's quite a positive spin to put on it for the market that you're actually getting rid of these people. Exactly my point. Exactly my point. It's a positive spin for the market. Everybody's saying it. You got Marc Andreessen running around like, oh, no, we're not eliminating jobs. We're eliminating tasks. Yeah. It's like, no, look at the numbers. and they're just going to get worse. Like, because jobs emerge as contracts and employers don't care as much. Like employers want to eliminate contracts because contracts cost money. Yeah. And I don't see how we argue against that. So yeah, there's definitely a lot of people talking out of both sides of their mouth on this.

26:59But the interesting piece of that is that like for every company now in Silicon Valley that's like, shit, our head counts too high. This is costing us a fortune. Yeah. They can now do it in a way that will probably bump their share price. Yeah. They can be like, we're getting rid of these people, not because we're struggling, but because of AI bro. Totally. Yeah. AI bro. And then that we're AI native. That's what our employees. Yeah, exactly. Yeah. And like, so like that job loss trying to scary, that's, that's a huge question mark for people right now, I think. And, and then we had like the private credit crash as well alongside this.

27:29And like that, I think is, um, that's another huge question mark. I'd say like AI huge question mark, private credit, huge question mark. And the reason private credit's a huge question mark is it's a very easy thing uh for people to point their fingers at like it's a very because if if there's not that much information on something then it means it's not a complex topic for people to understand so it's easy for people to say oh look at that because it's just like oh there's not a lot of transparency in that market it's like you know people estimate it's a shadow banking market so like people are estimating size around like two to three trillion of this thing um 20 of that market is like publicly filed report earnings um and then like 10 of that is like um actual like publicly traded liquid so the rest of the market is just like a private black box like you know us being a venture capital fund we have an lp base who's aware of the investments we're making we report our portfolio companies on our website.

28:31But if we didn't do that, nobody knows. You don't have to. You have to be an investor to know our information. So like the intelligent investor, the guy who has the best perspective in private credit is a guy who's invested in every private credit fund in the country and gets reports from all these guys. Maybe that guy exists. But it's really hard to actually know what's going on. That said, people draw parallels to GFC and they say, well, look at this. Here's markdowns and certain assets, how big are these category of assets? Is there more? It's a very easy thing in the same way that private credit has persistently expanded as long as it has.

29:06I remember five years ago when I would, for fundraising for a venture capital fund, we go to the TradFi bro type things. And I'm at an RIA summit and all these guys are just large RIAs managing on behalf of high net worth and institutional type clients. And private credit, private credit, private credit. It's free money, you know, 11 to 14%. It's like no risk. Um, there's this really funny post from Chamath last year, basically saying that about private credit. He's full of good takes. He's just always, he's the canary in the coal mine on everything. And, uh, and it was basically that is this bunch of people hopping on stage.

29:43Like we're getting our, you know, clients private credit, you know, it, and like, that's been persisting and persisting. And like, I remember being at that summit back in like 2020 and be like, Oh God, you know, because it's all these people talk about and it just becomes like this huge narrative the reality is is we can't look into like michael burry and the big short right uh he was able to pull a bunch of mortgage value and like these guys you got to go run around and look at these homes and talk to people and that gives you enough of a sense of like oh these things are trash that's hard to do in private credit because it's everywhere you know credit is everywhere what's the different types who owns what um there's definitely very large categories that we can look into but it's not all publicly reported.

30:21So for the same reason it can persist for a long time is the same reason people can get scared very easily about it because they look at this like, okay, these guys just gated their fund. That's bad. Um, these guys are changing credit terms here. Oh, they just marked that one to zero. Like there's a bunch of things we're going to be like, that's bad. But to be like, Oh, private credit's going to completely collapse. Still going to be hard to say. So it could be very much bank run type mechanics just because everybody gets fearful, which is why the narrative needs to be managed publicly. So there's a ton of pressure on people to make sure that they're not causing fear about it.

30:56But in any event, that's a question mark is kind of how I view it. It could very much be another financial crisis. But you know, nobody just really knows, we can look at like 20 % of the market and start making bets on a few things based off that. I did a show with Jeff Snyder recently, and he was talking about this private credit issue. and he was saying that he's not sure. But there's like, there is just maybe small signs that this could escalate into being like an actual financial crisis. Exactly, yeah. I mean, gating funds, the amount of write downs that they've had, like these are serious numbers.

31:29It's intuitive to people who have looked at this market and like, I think when you're on the inside talking to a lot of people that allocate to these things, like when you talk to financial allocators, these are guys who are working with the person who has a lot of money directly, and they're saying, we're going to allocate you X percentage into venture capital, X percentage into head funds, X percentage into the stock market. And they kind of form financial opinions on a lot of things. I think I kind of have a bit of a thesis that like financial crises are driven by allocators just because they have a very bird's eye view of everything, enough to think they know about them and enough to also completely not understand like all the categories that they're allocating into.

32:12But their actions can spark something. But their actions are actually consequential in terms of what gets allocated to. These are the people at the summit who are all like, you know, pushing all their money in private credit because these people rely on paper. They rely on what's on paper because they don't, one, have the expertise to go look under the hood, two, have the time to go look under the hood. And the games, the guys who are like a guy running a private credit fund who's taking on a lot of risk, how is he thinking about things? He's like, well, I'm going to get my probably like one in 10 type terms on my fund.

32:44And I want to raise and report good numbers to these people because that means more money comes in the door. Historically speaking, we've been able to manage this open-ended fund or closed-ended fund or open-ended funds at 10 % of the flow will ever withdraw. So as long as we can stay pretty liquid on some of our investments for that, I'm just printing money on my 1 % fee. And then we'll make some money on the carry-up side. but they're not thinking in terms of, am I starting a financial crisis and taking on too much risk? They're thinking in terms of, I wanna have a big fund where I make a lot of money.

33:19A lot of guys are thinking this way. And so I think that the managers, if they see good paper and they do their due diligence, but they don't know about these actual investments. And all they see is on paper, if some of these mortgages look good or some of these business loans look good, that that's good. The thing that keeps me up at night is the idea of a critical error with my Bitcoin cold storage. And this is where Anchor Watch comes in. With Anchor Watch, your Bitcoin is insured with your own A-plus rated Lloyds of London insurance policy. And all Bitcoin is held in their time-locked multi-sig vaults.

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36:36When we make an investment, you know, when you invest in a founder three months into it, you figure out reality, you know, after the investment, you get a lot closer to like, okay, here's some of the, like the skeletons in the closet. Here's some of the major problems. That's just the reality of any investment. Due diligence is a really hard thing unless you're incredibly patient. I think the only way to really be incredibly patient and do it is to be incredibly rich those are the guys you can sit they don't have to do a deal they can sit around they don't have to make a living they can sit around and then they just like sit there get to know people learn about situations and then like when a home run just emerges out of nowhere it's like let's go do that I think for everybody else there's more of a you know there's a need to allocate capital and And I think from that perspective, it changes some of the incentives.

37:22Like due diligence is just something where you're never going to get everything. And when you don't have as much of an incentive because the check that you're receiving doesn't care as much. They just care about certain things on paper. If you say they're good loans and they're good loans and they look at some credit rating agencies, we've seen the perverse incentives that exist within credit rating agencies. If you can manipulate the paper, you can manipulate the allocation. That's kind of what it comes down to. And then these crises happen when the reality departs from what's on paper. And there's always very few people actually doing that due diligence.

37:55That's what Michael Burry was doing, is actually trying to figure out, how do I match paper with reality? And nobody's going to be able to do all of that within private credit, but if enough people get fearful and spooked, and if that 20 % of the publicly reported market really does go into 45 % withdrawals on a major BlackRock or Blackstone fund within that area, then that'll cause like a panic. So I don't know what you're saying here. Are you saying you think this could be the start of the financial crisis? Certainly. What I'm saying is that there's some sort of like, I'm saying a bunch of hand wavy bullshit because that's all you can say.

38:29Like all you can say right now, because we don't have enough in the numbers is that we've seen stressors. We've seen people pulling money out. We've seen increasing credit terms on things. We're like, like the arguments it's called like, uh, with, with credits, It's like either you're in like a covenant light type situation where there's not a lot of restrictions on the credit. And like, that's one of the arguments people say about private credit. It's true of a lot of things in credit. Since I was, you know, a budding analyst coming out of college, people have been talking about the covenant light environment within credit.

39:00And things have been going up since then. But nonetheless, it is true. And then they start like changing the terms on these things where people aren't paying back. There's something called like a pick note, a payment and kind note. um and that means you have an option instead of paying your debt in cash you can pay it with more debt okay and there's like things like that are increasing so there's all these little variables we're looking at that basically say people don't have the money and people aren't able to get their money out as easily from these funds and they're marking some of the loans down but like during the great financial crisis like that was the problem if you kind of remember um in the big short when like steve corral is um you know like what the hell this whole thing's crumbling and these things are staying mark to market right or they're not being marked to market right now they're saying this thing's worth like 90 cents on the dollar this thing's not worth anything and like that's what we're going to see on paper is like nobody wants to do this because the norm wants to admit the reality of it nobody wants to admit reality for systemic reasons too so this started with like how can these countries around the world grow themselves out of debt.

40:07Is what you're saying here, if this is the case, then not only can they not grow themselves out, but debt's going to increase because someone's going to have to print the difference. Yeah. It's just like somebody's going to have to print the difference. I think that like, it's more important to understand that like the high level things are easy. It's to the broader points I was making, debt's everywhere. It's cracking in all these different areas. We're looking at different pockets of it and trying to see where it's cracking earliest. Multiple variables combined is usually what creates like structural drawdowns.

40:35we can see it at a geopolitical level that there's inflationary things happening, which puts us in a very tight position as it relates to Fed policy going forward. Because if we have to tighten under an inflationary environment, it's a precise opposite thing that we'll need when credit is contracting. Hard place in Iraq, they're going to print. I think we all know that. I think we prove that in 2020. And there's really no other option that they're going to have through some of it. So that's what the white collar economies are going to have to do because of their exposure to debt. And then the commodity based economies are going to be growing a lot of wealth.

41:14So the movement from credit to commodities is the huge structural shift for everyone. That's the trade. So it seems like we're in a hell of a predicament where if the private credit market is breaking down, if inflation is ramping up again because of like oil prices, which an oil is an input to almost everything in the economy. Yeah. And alongside that, we've got like the geopolitical uncertainty of what's happening in the world, like Trump throwing wild cards out left, right and center. Like, do you think we have a big print this year? So here's the argument against. Give me the argument for first.

41:55I mean, we've just done it on the private credit side, but do you think that is the sort of, is that your base case? I think that when we look at like the I think if we look at job losses and consumer leverage like if you go look at the like consumer credit chart on Fred type consumer credit Fred and then type per capita after two whether you look at it in absolute terms or per capita it's just yeah it's crazy so everybody has more debt than ever because no one owns anything and everybody's getting laid off and everybody in the US is like you know generally speaking some sort of like email job and those are worthless and they've been worthless for a long I thought they're worth those for a long time it's just credit makes it easy for companies to let those exist but with AI it's just way more obvious how much worth how worthless they are I this this the labor market is going to change everything and that's just why was Powell kind of holding out I think on a lot of the tightening was because he was following a lot of what was happening in the labor market And I think he was saying that the labor market's really strong.

43:01And I think that all changes. So we have the consumer, we have private credit, we have geopolitical tensions that are inflationary. So that creates a balance. It creates, if there's going to be printing, it's going to be the hardest printing they've ever done. But nonetheless, there isn't much of another option. And nuclear options, aggression, forth-turning type vibes are things that I think come from being in a hard place in Iraq. um that's the stage the thing that saves us the thing that you know uh scott bessett was saying about uh when we're announcing you know an increase on deficit spending with the trump administration uh you know last year it was like we're gonna grow our way out of it yep it was cool i really like him he's definitely small yeah yeah he's smart he'll say shit like that and he threatens to punch people in the face.

43:57It's so funny. My guy. He's just like another dude trying to manage the most indebted country in the world. But like, I don't feel like we've got into how they would possibly grow their way out of it. I know, I keep dancing around it. It's AI. I know they want to bring a load of production back to the US. Maybe that will happen. And that's, I guess, more blue-collar jobs which won't be taken by AI as quickly. but is ai the only way out of this it depends on what happens with productivity we don't because like what we don't understand yet are the second order effects of ai um and and i think people are framing a lot of those in a negative sense because it's easy like everybody's very i feel like everybody's been very or at least from the commentary i've seen like egocentric about uh their perspective on ai where in what way from the perspective we think about in terms of like Will AI take over humans?

44:48And like, will we be controlled by AI? And people talking about that, I think from more of like a macro perspective or not macro perspective, I think a pragmatic view of it is that we kind of know, I have a different case, which we can get into at the end. It's not as important of like what intelligence might actually be and what it means when an AI is actually like, you know, gonna be conscious or something to us. But putting all that aside, it's just like, okay, we know AI is increasing. We know the rate's going to increase significantly more. We know the smarter it gets, the smarter it can increase its improvement because we're developing through it now.

45:23So anything that's software. AI is building the next AI. AI is building the next AI. That's an exponential growth curve. So that's like, whoa, and everybody's freaked out. And I don't know if it's as much of a cause to be freaked out as much as – what I'm trying to think about is what's a second-order impact on industry? It's not just like, okay, people get laid off. but it's what changes in the cost structure of things how are we going because really what's happening is we're restructuring how we organize like if we look at from the inception of like the corporation to like these very old century old forms of construction and property rights that we've had amongst people um that's changing that's the thing where we're saying can i start a business as a single person now and run it and become wealthy doing that?

46:12What's my cost structure? I mean, we see it as a venture fund all the time. We talk to our founders and we're talking about raises. It's very like practical, tangible things where they're saying we're doing this raise where we initially wanted to allocate, you know, X percentage of the proceeds towards multiple developer hires. We don't need those anymore. Startups are just one of the most efficient things that you could be looking at. It's like very easy. The costs are so much lower. Um, so that there could be a new model emerging for the individual to be an entrepreneur. Yep. And, um, and then we're, we're witnessing how people organize around that.

46:51So people are like, okay, well, if I'm going to run it myself and you see all these posts going viral of like AI slop about how to use AI, people saying, here's, here's how you prompt best. But there, there are really valuable things in all of this because now the skillset is changing to how do I get the outputs using the English language from this LLM model. I just did a show with Jesse Posner on this yesterday from Vora. And he said something really interesting there as well, where he was basically saying the developers we have today are not going to be people that are good at vibe coding. Because it's all about language now.

47:22And he thinks it's like the philosophers that are going to have the next leg, basically. Totally. People who are strong linguists, I think, that's an interesting take. um i because semantics now matter in coding totally totally i i think with yeah it's interesting how much yeah semantics matter in coding because semantics are inherent to the training that's interesting yeah and and that makes a ton of sense right so there's there's knock-on effects like that that we're going to be looking at how many english majors that were like you know starving artists working as a barista at a coffee shop maybe they're going to be exceptional vibe coders, you know, things like that.

48:00That's a second order effect. What happens to startups? Like when we look at it, the way I see it now is that the marginal cost, any sort of industry, you want to go start anything. There is some sort of upfront cost that it takes you to do that. Got to hire these people, got to raise this amount of money. Some are much easier than others. At one end of the spectrum, you just have like, you know, starting up a services business. You do consulting. I just go talk to people. If they like my advice, they pay me money. You know, not a lot of fixed startup costs. The other end of the spectrum, you have something like starting like a bank where you got to go spend millions of dollars to get a federal charter to even begin to play in the game and a million other things you got to worry about.

48:42The fixed cost to participate in something is kind of, you know, at a, at an aggregate level, dropping off a cliff in it. And for businesses within software, it's completely dropping off a cliff so much so that it may not even be a business anymore because individuals can create that in the same way that, you know, you don't have a service for, um, you know, cleaning because it's so easy for you to clean or something, you know, there's all these different things that we do every day. And like, that's kind of what software is becoming is something that we, it's going to become so simple. We may not even need to outsource it.

49:11Um, so that, that trend has so many knock-on implement implications for other industries and people and how we structure and organize. And, And I think what's really interesting for us is how we've been looking at AI as it relates to founders for having a playbook of different hierarchies and structures. We're in the experimentation phase with all that this year. I think next year it's going to be a lot more tangible. I'm not letting you get away without answering how we grow our way out of debt, because I think you've just done some of the groundwork for it. But what has to happen? What has to happen is that the cost of things and the process.

49:49So, okay, let me let me make it simple. So

49:59we need to have some sort of, you know, exponential increase in productivity and wealth. Meaning that, so you have like a Cobb-Douglas production function. That's your macro economics 101 productivity within an economy. And that has the amount of capital in the economy, the amount of labor, the changes in growth within those times technological productivity. and what labor times labor and capital times technological productivity is this variable that is like from the macro you know astrologer economist types is just like a plug it's just to say like here's what the output was we we know that um labor and capital we estimate around here okay so technological productivity must be this variable to get our output to this um so it's just like the that's kind of how we'll like think about growth within an economy and um and i think so it's that technological productivity variable is where we say okay the multiplier of the technology we use means that for any hour i spend trying to accomplish a task technology allows me to do it much more quickly you know that's obvious to all of us for a million different things that we do and and the greater that increases the more it multiplies our economic growth.

51:30And, and that question means because less capital in gives you more output because of technological deflation. Yes, exactly. Yeah, less, less can less could mean more. Yeah, depending on what the variable is. But like all else equal increase it the same amount equals more. Okay, so the same amount of labor and capital will create more output. Yep. And in that, that view, I think what it means is that if we think about it for how did the U.S. grow in the first place in terms of, you know, us protecting property rights and extracting native commodity resources that we have and, you know, building engineering and capital around that, there's all these different industries that we grew very rapidly.

52:20And then moving into the, you know, of technology, we've been the preeminent power in the world, so much so that we created far more competitive industries in the US that have, you know, effectively drained human capital from all the other countries. You know, where do the smart wealthy send their kids from China? They send them to the US to go to our top schools. Or Cambridge or Oxford. Yeah, US is probably a bit better as a thing. But, but you know what I mean? Like there's, there's so much brain drain into these economies. And, you know, for a period of time, it was Wall Street and then tech showed up and then now it's tech.

52:55And and we've just been a world leader within those categories. So what's the impact on our GDP from all of that? That's the question. When we have companies like, you know, Meta, et cetera, all growing here, it's a major impact on our GDP. So for U.S., like we have this AI arms race right now. if there were and maybe there won't but if there were a very dominant um u.s ai provider globally then that means a massive amount of a wealth will accrue within the u.s because everybody's going to use it for their needs so let's assume that we end up in an oligopolistic market for ai and two of the four most dominant providers are in the u.s and uh and they control 70 percent of the market, then the wealth productivity that accrues to us.

53:46And that means ultimately the tax receipts to pay off the deficit, let's say it doubles GDP, doubles tax receipts, all of this changes the calculus of our deficit. All of a sudden we have a little bit more wiggle room than we did before. Um, and what does that mean in terms, if we do have some sort of increase in productivity like that, what does it mean? Well, I see a bunch of businesses right now. Well, sure, people are getting laid off. But what does it mean? It means their cost structures are going down. So if we were to assume that the operating costs of every business in the U.S. is, you know, roughly like 20 % of their capital structure for small business, maybe 30%, then what happens if that requires 10 % of what it needed before?

54:29How much more profit margin does everybody have now? What does that mean in terms of how much cheaper they can now sell you goods for? Yeah, see, this is where I struggle. And I don't like being a Duma. I don't feel like I'm a very Duma person. Yeah, you need to be more positive. I can't see how there's not a really tricky interim period in this. Oh, it's going to be horrible. Because let's say GDP is going up rapidly because of all this boost in productivity. But at the same time, there's huge job losses because AI is replacing people. Companies are getting way more efficient, selling products cheaper, making the same profit.

55:04Those two things can happen at the same time. And if you have a massive layoff in jobs, people don't own their homes, they don't own their cars, they don't own, like they have credit card debt. If people start defaulting on all that debt, then you go into financial crisis and it doesn't need to be that many people. Totally. So like, how do you get through that interim step? Well, let's simplify the model down a little bit and like take a lot of the terms out of it. What happens when you have one group of people controlling a valuable resource that's going up rapidly and valuable, And then you have other people whose resource they control is dropping off a cliff in value.

55:40They end up working for the people that are going up in value. But they're not hiring. Maybe. I don't know. But it could lead to a UBI situation. There's not an argument against it. I get told off this in the comments being like, why are you pro-UBI? I'm not pro-UBI in any way. I don't see what other option they're going to have. It could be far too drastic. I think the problem with like structural changes is I think that the reality is, is that AI is going to change a lot of things. But for you, if I'm a 45 year old white collar guy who has a job in marketing at a company and my job's gone, what am I going to do?

56:23And people say you'll retrain, you'll learn to use AI like bullshit. Well, you can learn to use AI, but there's a bunch of other things you can do. You can literally go to a trade school and literally be a plumber. South Park already did an episode on this like five years ago of like all the like white collar guys like working for the plumbers and stuff. And like, you know, there's tons of things like that that will happen. I think there, but there's plenty of jobs. It's weird though, because like what does, like, I think if you're a plumber right now, you've picked a great career. And I think it's awesome.

56:55But like, do you think that like lawyers are going to want to become plumbers? Oh, they're not going to want it. I don't think any of this happens because they want it. So what does that do to society? Like as a, as a whole? I think a good bet on some of this is to like get really long, you know, exposure to like alcohol and things like that. Exactly. Yeah. This is like, I totally agree. Yeah. It'll, it'll be like an economy of despair. Exactly. Yeah. I mean, there's going to be a lot of, I'm not saying that there's not going to be massive structural shifts and things won't change, but the reality is, is like people adapt and like people will learn new skills.

57:31So there's retraining. There's also learning AI. Um, and then you pair that with how much cheaper things are going to be able to be produced with. I mean, the second we do get a robotics, uh, once we crack robotics pretty efficiently, which is probably not very far away. It's not that far away. That's when costs drop off a cliff. That's when being a plumber doesn't even work anymore. There's going to be a lot of yeah there's gonna be a lot and then that's when we get to a state where it's just like okay most like things just become so cheap it's very easy there's gonna be this handful of things that you know ai still can't do and it's probably just gonna be a question of like who wants to some of those are gonna be commoditized some of those might not be i think of the commoditized ones it's just a question of who feels like putting in the time to do it and it's kind of like yeah i want a little bit extra money but everything's so damn cheap um but if i get a little bit extra money, I could go to this thing.

58:20Yeah. I'll put in the time into the commodity commoditizing and the non-commoditized is going to be more like highly academic things that people, you know, you're not getting out of school until you're like 35. Cause like, if I asked you in 10 years, do you think you'll have like an AI robot guy in your house? Um, as much as I would think, I don't know. I still drive cars from the nineties and I love Okay, do you think more than 50 % of Americans will? Yeah, if it's economic. I view it as something that's probably just because there's such a materials cost to it, it's probably something that's just not going to be economic for a long time.

58:57I think it'll be possible to have good robots. I think it's not going to be that economic and widespread to have robots for people for a period of time. Okay. Because the materials cost is high. Whereas like with LLM, it's compute. That's the expensive part, but it's, you know, just software really is what you're buying. Because my question really is like, if you do get to that point and that AI robot in your house can do the plumbing for you, it just needs a download from the mothership. Like at that point, what jobs are left in the economy? I agree. And I guess the point is like, because that's all speculation.

59:31The point is if you assume that happens at some point in the future, how does fiat move from the system that we live in today to that system? Can it survive that change? I don't think so. I don't think this is... Okay, so yeah, let's tie this to Bitcoin. So... No, I don't think it's persistent. I think that it can delay. I think it can delay fiat. I think the major exponential trend that we're going to witness from this as it relates to Bitcoin is as this economy restructures, as the order of an organization is completely changed, the scale of it, the flatness of it, the volume of it, as all of these characteristics fundamentally change, And we have an economy where decisions are being made by non-people.

1:00:29And I think that, you know, people have talked about this ad nauseum, right? And this was something that's been around for a long time, where people are talking about, what about Bitcoin payments with AI? And is this an inflection point that you pair this with the whole macro environment we talked about at the beginning of this? It makes a lot of sense to people who use Bitcoin. Now, I think when this first, there's two things. I'll give my devil's advocate take and then where I kind of think now. But when this narrative first started emerging, people were like, AI is going to use Bitcoin. It's the best money for AI.

1:01:04You know, I was just like, well, bullshit. Like the reality is, is that like these LLMs aren't decision makers. They are trained. They'll use whatever you tell them to use. They'll use. Yeah. Yeah. So, and that's, I was kind of alluding to this earlier of like my take on like what will be intelligence for AI. I think the reality is like because this is important because it decides what is a true decision or not.

1:01:29To say that when you work with an LLM, I think it kind of ironically teaches you more about how people work when you think about what's the memory context window I'm dealing with with a person very real thing. I've noticed it as I've gotten older. I feel like I just have like the memory of a fish. you know like i'll like whenever because you get an avopilot more and i'll like go into my room and i'll be like what the hell did i go in here to get and then i have to like go to you know when i was younger i didn't do that as much so like my memory context window or i don't know like there's things my gray matter is not as prevalent as it was when i was 25 like i was smarter at 25 fundamentally i was less experienced and knowledgeable but my like engine was a bit faster um i think that And you kind of think about how people work more and you realize like, oh, this structure of an LLM.

1:02:17And then you think about training and you're like, okay, well, there's this like training in the model that makes it like no matter what produces outputs. That's basically what your genetics are. Like your genetics are just like these kind of like unchangeable things that are like hardwired into you, but you can provide a context that makes it respond differently in different situations. And in like when people started creating these open claw instances, it was kind of like you're raising a kid. And you're just like, for sure things I say to it. And the first like few things in the context window and what it, what it, I ask it to do.

1:02:49All these things have either direct or indirect impacts on how I build this. Like a genius teenager. That's not great at making decisions. Exactly. Yeah, exactly. And it's not, and you have to like give it all the right and you have to give it a ton of context. You have to teach it all these things. It's like you're raising a kid. So it has this genetics. That's the model you're plugging into. And then you got to raise it right. And then once it kind of gets mature is when you're kind of dealing with this. So like we're, we're, we're kind of learning all that. And it's cool because it does seem very human like, but I think to truly like the missing piece to truly have independent decision-making from these to where they would, you know, when people are scared about this, like AI future of control is they need to have an incentive.

1:03:28And I don't think that they have a true fundamental incentive yet. People are like AI says that it wants to be a person. It's like, well, AI just is repeating an average of things it's talked about. But a true incentive would be if there is a way, and this is like, you know, call it wherever, but the fact that we naturally have a nervous system that produces pain and pleasure, that makes us human. That makes us say, this is good, this is bad. And we behave in ways that exist from that reward mechanism. So if we can produce, you know, some sort of whether it's directly that or something akin to that in decision making.

1:04:04And then, you know, and it's, and it's consuming its own data in the real world, like we do, and not just the data that's being force fed to it. Now we're talking about an independent person, basically with its own motivations that are determined by pain and pleasure systems. Um, so will that come? Yeah, but I'm not, I'm not too concerned about any of that happening near term. And then to tie this back to what money is it going to use, It's gonna use the money that's most practical for the people that are leveraging the agents for what they use And I think that I don't think that's a bad thing for Bitcoin.

1:04:37I think that Stable coins are very obvious and like all the VCS are like stable coins and money of AI stable coins money They because we own stable coin companies and and obviously it's true that It is in a lot of different ways, but But when we pair this with the global geopolitical environment that we've been talking about this whole episode and we say fractured system, people want to use commodities, et cetera. It's like, okay. And then why would large scale institutions, whether it's through AI or themselves directly, want to use money that can be blacklisted and censored? We basically like it.

1:05:21That's what Tether is. tether something that gets blacklisted and censored and that isn't solving a very like very important problem for international money transfer because it isn't final settlement a stable coin is not final settlement it's settlement of receipt that is effectively backed by the reserves of a company like tether which are you know holdings in u.s cash and cash equivalence angled in Bitcoin, which is sweet. But, um, but nonetheless, like that, that is not a revolutionary system. Um, that's not something where if I'm trying to operate independently within an economy, whether I'm a large scale sovereign, that has a conflict of interest with the U S or if I'm, you know, an individual person who wants to freely conduct what I'm doing.

1:06:12that's not valuable. On top of that, I'm expecting that, and I think it'll take a long time, I'm expecting that there's going to be a credential layer that starts getting added to stable coins. And that's what makes people want to use stable coins in Bitcoin today when they're with an agent, is it doesn't require credentials. And I was making this point on X, that any sort of system that doesn't require credentials is the agent type of system. Yeah, because when you go play with these agents, you're like, oh, damn it. Like, I got to go get an email to use this. Like, what's the thing where I don't have to get an email and I don't have to have all these credentials just to use a software app?

1:06:48And whether if that doesn't exist today, there's going to be a whole economy of it that does eventually. And we're starting to already see that happen. And it's happening at a rapid pace. So there's like an agent economy emerging that doesn't require credentials. That is an interesting case for Noster. Totally. And that's what's really cool about Noster is I think that the non-credentialed version of pseudonyms. You just give them a public-private keypad and off you go. Boom. It's easy. And there's all these other startups being like, here, let's use these old email-based protocol systems to conduct this.

1:07:17And just like, dude, this system's – it's fundamentally better. It's flatter. It's simpler. It allows agents to operate in a certain way. So that could be – I remember when Dorsey was making the point about Noster after it took off. He's like, look, it's a hobbyist thing that we care about today. I believe there's some sort of use case coming. I don't know what it is, but there will be some sort of use case coming. It's like, this could be it. That would be super cool. So the hard thing is like, whenever you talk to like your AI, whichever LM you use, like it knows about you. So like mine knows that I'm into Bitcoin because I talk to about it all the time.

1:07:47So if I ask it to try and give me like an unbiased take on what the best form of money is, it's probably going to come back with Bitcoin. But I know BPI just did a report on this and it was saying like AI overwhelmingly picks Bitcoin as the sort of preferred choice of money. Yeah. If you asked a completely unbiased, clean slate LLM that question, is that an inevitable answer? Because like they can't pick gold, they can't use gold. Like there has to be something digital and Bitcoin obviously in our opinion and I think the facts are on our side is the best form of money. I think the one problem, the one reason that I think in an unbiased way that you would want to use something like a stable coin is just simply acceptability.

1:08:33Like that's, that's the number one reason that, and that's, that's the best problem to have. Like that we all own a stake in Bitcoin, um, and we benefit from it growing. I love the fact that we're early into Bitcoin. I love the fact that it's not as accepted yet. Cause that gives me the ability to invest in more people that will accept it over time. That's the edge. That's, that's the edge. So that's, it's the best possible problem. I think the last time I was on this podcast, you know, I was making the point, it's like, it's like, you know, being able to invest in LeBron James's career when he was in high school, you know, it just like everything else is there, all the fundamentals, all the characteristics you want.

1:09:09It's just early and young. Um, so that's, that's ideal, but it does make it, I think a less desirable form of money for an AI today. And that's fine. Let them, let's get everything set up on stable coin rails. And then all of a sudden we have an entire economy running on stable coin rails that everybody wants to use because everybody wants to use agents for everything. So we're going to watch this whole shift into commerce happening through that type of economy. And guess what it's using? It's using payments where you are producing a signature. You're producing a signature that's verifying your digital address.

1:09:42You're using digital signatures to sign payments. That's like, that's the rail. That's the new economy. Sure, it's some sort of stable coin that's issued on a bunch of different types of blockchains. But the reality is, is we're getting everybody away from taking a credit card and typing the number of the credit card in to digital signature button. And that means that it is this easy to start paying in Bitcoin. And that's all that matters because now we've just opened the floodgates. So if we have a huge, um, we have a very wide transition of capital into this agent type economy and everybody's leveraging stable coins.

1:10:20I just view that as one of the largest, uh, um, that is going to be one of the largest ways to open access to commerce and capital within this system. And this is, this is like a broader point for, I think the way that I view Bitcoin adoption, that's gotten more nuanced over the years is just when we say we're still early, it's like, okay, so what makes us late? What creates that environment of where things are actually late? When do we cross the chasm? When do we cross the chasm? What needs to exist are avenues because what does Bitcoin need? Bitcoin needs capital to flow into it. How do we get capital to flow into it?

1:11:01Well, there's a litany of areas around the world where capital exists. How do we ingrain that into Bitcoin? This agent economy example could be a major one. But if we go and we isolate, what are the largest capital pools and how do we get institutions, regulations, leadership, all of these different variables that impact whether or not it's easy for that capital to move in and out of Bitcoin? um that's the step that we're all fighting right now you know that's that's what's valuable about what all these treasury companies are doing is that they're fighting in capital markets they're creating more capital access towards bitcoin it's not in the way that everybody would want in like bitcoin world guess what there's more of that coming because there's a lot more pools of capital and there's a lot more other people that are going to fight and they're going to make money off of it because they're spending hours of their time and if they didn't make money off of it that would suck because then people aren't going to do it we're not going to get the access to the capital.

1:11:56And so that's the idea is we're creating avenues for people to ultimately say, if you want to transfer this to Bitcoin, it's easy. And getting people on digital signature payments is like massive for the money global vision of Bitcoin and the economy over time. So if you take into account the fact that there's going to be a really rough interim period if AI does start replacing jobs in a meaningful way, on the other side of that, we have AI agents potentially using Bitcoin, that becoming its whole new economy. Is AI the way that we move to hyper-biclinization? I could see what I think. So we've, yeah, to answer it in short form, yes, I think it's a major catalyst.

1:12:36And I think we've kind of answered this like productivity side of it, right? There's a few other interesting things about it. Well, we've answered productivity. We've talked about here's how it could restructure the way an organization works, I think one of the last very interesting inflection points is what it's going to do to open source software. Well, everything is going to have to be open source. Exactly. And it's not going to matter as much anymore because proprietary software is just not that valuable anymore. So that's interesting because if you... Open source has always been valuable for X, Y, and Z reasons, but it's had a bit of a tragedy of the commons that always existed where you had a very, very small number of developers that were pushing the vast majority of the most impactful open source projects.

1:13:26And then a bunch of other people that just kind of, you know, are like barnacles on the ship. They're just kind of leaning on them. And it always felt like a very hobbyist, like ethical thing to do. Hobbyist ethical. Yeah, exactly. It wasn't something where we had some, here's some persistent growing business model around this. And the question was, and the problem, because it was this, you know, natural tragedy, of the commons where you have a common resource and, you know, some people consume it too much without giving back to it. That was always, you know, you needed to donate to open source and, you know, people would contribute their work and there was an incentive.

1:14:00Like the incentive as a developer is like, I want to go work in a certain area of software. I'm going to start contributing to open source projects. It's in the same way where you're like, if I want to be an influencer online, I'm going to go give out a bunch of free content until I have a million followers and I'll start making money off of it. Kind of like that. So that's a good incentive that allowed it to be a very large thriving ecosystem, but it doesn't mean that there's not an issue because code is easier than shit posting pictures of yourself or whatever. So it wasn't quite that easy because you still have to manage code bases.

1:14:31And that was kind of the problem. But now that the marginal cost of production for code has dropped off a cliff, it's like, how does that change open source? and it changes everything because now the labor costs associated with it is almost nil. And they're creating these own like, you know, there's like the agent GitHub now. And agents are just kind of interacting around this. But I think the reality is like the majority of software is probably just going to be like an open source common resource, like utility almost for people. And - Because if not, if you have a closed source piece of software that's very expensive and very valuable, we're going to be, if we're not already at the point, we're going to be at the point very soon where you can go to your AI agent, look at this and build at me.

1:15:10Totally. And it will just spin that out for you in a few hours. Totally. And we think that's going to happen in a year. Yeah. Where's it going to be in five years? We don't even know. And it's like, cool. So software is just like air. Yeah. That's where we're heading. And I think that's cool because it actually changes the open source community, I think, in a lot of ways for the better. We'll see new business models emerge. The business models in open source software traditionally were like, you have some sort of like open core or like the core of the software is open. Other people are using that, but then you have extra features or you have like a freemium type model for it, or you have like a managed services.

1:15:49And I think that'll be the big thing is like, cool, there's going to be a ton of open source software up there. You're a business. We'll package it specifically for like your needs around something. Because like for me, I have a million things I have to do every day. You just want something to work. I need something to work and not think about. I don't have the bandwidth to think about these things. There's still going to be people doing that that are going to say like, I don't have the bandwidth to vibe code and fuck around with whatever the software is. But still, even in that scenario, it's going to drive the cost of that software down.

1:16:16Totally. So it'll be like a lot of like consulting type businesses that I think emerge around AI agents that are managing some of this. And that'll be the way to monetize open source in a lot of ways. So that's pretty cool. I think that'll create... And I think, what does that mean for productivity? There's a lot of people that have made... Before... I used to be very pro-intellectual property rights before I got involved in this industry. And then I learned about a lot of the perverse incentives that exist. I think when you think about the idea of like, oh, if you create something, the fundamental idea for property rights, if you create something and you can't control it, then it's going to kill the incentive to create the thing in the first place.

1:17:01We want to protect intellectual IP for people in the U.S. because we want people to create intellectual IP in the U.S. And that the reality around how people control, gatekeep, litigate, you know, if you read into like patent trolling, all these different like malincentives that come from trying to create protection over something that's hard to protect. Because what truly is an idea and where truly does it come from? It's that gray area that leads to all these problems with intellectual property. That is something that I think has created these fundamental issues that over the long term have been less than desirable, but there's never been an easy answer for it.

1:17:46And at least as it relates to software, we're going to answer it by just eliminating the other side of the market around it and saying, well, you don't really care about those property rights anymore because they're not that valuable to you. So that's an interesting trend as to how I think it's really going to be impacting our belief in what is a property right. And then there's all these other questions around that that start to emerge as well from, well, who owns what from AI? What is intellectual property when it's trained on your intellectual property? And I'm producing ideas because my AI told it to me.

1:18:20And it's just going to be far too much of a great... It's a mess. Yeah. Yeah. So I think we agree on like the path. Yeah. Why does the market not agree when you look at the price of Bitcoin and it's like$74 ,000 a month right today? People are so wrong about Bitcoin, man. They are so wrong. It is awesome. Like, I love it. I didn't think it would get this low. The market doesn't agree because I think gold sucked a lot of the wind out of the sales. I think that - And the AI trade. Yeah. And the AI trade, there's a ton of capital. What people forget is that Bitcoin is a massive asset. The culture of the buyers, I think, is still a very small minority of the world.

1:19:05And for that reason, when you think about there's some theoretical base of potential Bitcoin investors that exist today, whether or not they own it, but would be open to owning it. And then they have a set of constraints based around what else they could own. And I think a lot of those investors come from either technology or they were gold bugs. So a lot of them might have moved into gold and a lot of them probably moved into this AI trade. We see that in broader crypto where crypto is basically dying and there's just a bunch of people moving into AI from all of that. Because it was never really about the project.

1:19:42Because it was never about the project. Exactly. It's those types of people have been in that in the first place. They're more like mercenaries for like, where is capital today? Okay, I'll build stuff in this area. And back in 2021, it was the most heavily invested venture capital industry in the world. So that's where they all showed up. Now they're going to the next biggest one. We'll see where they are in another five years. So I think with like those two variables of, you know, AI and gold sucking the wind out of the sales, that's kind of part of it. Uncertainty, risk off asset, you know, there's all these things that we can say.

1:20:15Everybody's been trying to, I said this on the last podcast, like everybody's been trying to attribute a narrative. And I think the more that this year has unfolded, it's been too hard for people to. And now there's all these counter narratives. It's like, Iran war starts risk off asset. It's going up. Yeah. Like, you know, and it's such a question of scope. And it's just like, I agree that it's way too soon to say that. Yeah. And it is like a question of scope, but it has been interesting to see Bitcoin go up when everything else has been going down. Totally. And that makes you think like, it's just, it's trading from the capital flows of specific people within this.

1:20:51so like as the substitute investments change as more people are kind of like okay like this ai trade was it's funny there was um somebody posted this picture of like the ftx asset ownership and how much i sold that that was insane and they'd have made like billions and billions and billions of dollars yeah so it's just like what happens when like capital allocation and like the valuations of these ai companies is based on very extreme expectations maybe it fulfills it maybe it's a bubble um where's that capital where are these technology investors and gold bugs going to be rotating once they feel like they're really getting to peak euphoria i think bitcoin's a very strong answer for that and everything about the thesis for bitcoin is playing out perfectly i'm not worried about any of that at all credit's going to be entering the ecosystem much more in the future um i think when we get into from a uh a regulatory standpoint the amount of institutions with under the trump administration that have been getting federal charters, et cetera, to provide financing to the industry.

1:21:52I won't say financing to provide financial services to the industry. That's been at historic rates. And we expect more of that to happen. And that'll change the way that I think the type of credit and the expansion of that credit and how it exists within Bitcoin. All of these variables, and what I said on the last podcast is just Bitcoin is always and everywhere a major announcement away from some significant rally. More central banks participating. What happens as it fractures? Some of these, I think it comes from Sovereigns next. I just think we're going to start seeing more and more headlines.

1:22:30Pretty simple thesis. World's fracturing. People want to own commodities. Bitcoin's LeBron James in high school of commodities. And it's the only one that you can permissionlessly send with final settlement in the world. Look what's happening with trade routes and settlement as we start to compete against the Eastern economies. Bitcoin just makes absolute perfect sense. The only thing it's limited by is the depth of liquidity in its capital market. If I go try to liquidate$100 billion tomorrow in Bitcoin, it's going to drastically move the market. That's not how it exists within gold. Gold, you could go liquidate$100 billion in gold, and you're not going to move the market that much because it's the deepest, most liquid commodity asset in the world.

1:23:11Bitcoin's getting there. Best problem to have. That's what you're investing in is, will this thing that's better than gold for every other respect of its monetary characteristics get as big as gold? That's your bet. That's an easy, easy bet to make. I think that's the best risk-adjusted bet you could be making right now. Do you think the gold trade starts rolling over into Bitcoin at some point? I find it funny that Bitcoin has been anti-gold during this ride. I think it's cool because I think it's the world waking up. Gold is sweet. Gold is sweet. This is the world waking up to needing a non-government issued money.

1:23:42Yeah. And that's where Bitcoin is going to fit perfectly. But do you think at some point people think the gold trade might be running out of steam for now and start moving money into Bitcoin? Yes, totally. I think there's a large percentage of those people. I think gold is kind of like the blue chip, first mover on all of it. And there's going to be a bunch of people that start to think like, okay, gold has now risen. They're going to look at historical charts under prior regimes of gold rallies and say gold has now risen to become, this is like a fourth standard deviation outcome with how much it's rose proportionally over the past few years.

1:24:21And then they're going to be like, okay, not the worst time to take money off the table. you're gonna have your like you know diehards that are diehard gold bugs and they're gonna say no probably still be right weimar yeah exactly and like and they're just gonna hold it but i mean even if it's like if let's say gold doubles over the next two years now we're talking about a 60 trillion dollar asset that's massive what if one percent of that you know moves into bitcoin that's 600 billion on a$2 trillion asset. That's massive. What if 10 % of that moves into Bitcoin? That's 6 trillion. That's three times the current size of the Bitcoin.

1:25:02Sorry, Bitcoin's at a trillion right now. I'm forgetting. 1.3 or something? Yeah, that's how cheap it is. It's at 1.3. So it's like six times the current size of Bitcoin's market cap. And it doesn't mean a six times increase because it's all marginal, right? Exactly. And it's marginal. So who knows how high it could go? Because what if people really just don't like to sell Bitcoin? A lot of people really don't um so i i look at these numbers that's just that's the gold market let's look at like sovereign wealth you know let's look at the size of like private capital assets like you go talk to all these ras around the world right now in the u.s i go to these meetings all the time you talk to these people and all i do is sit there and you know just orange bill these guys um it's always like socratic seminar is what i have with them where i just start asking them questions that point out contradictions and their beliefs against bitcoin that's the best way i think to get people open-minded about it um and you do that enough and just literally none of them understand this yeah and they get there i mean i was just this past weekend with a few finance people and they just started like trying to drill me and after an hour they're like oh like i you know light bulbs around a room and and it's just everywhere still i see it all the time on the ground.

1:26:15If you know what I'm looking at as representative of it, there's a reason that such a few percentage of portfolios are still in it. Um, the pools of capital and that are, you know, 20 trillion or whatever, that's in private assets and like a hundred trillion, that's in like more like global, like, or sorry, uh, um, uh, private wealth, like that is, uh, these numbers are so large, they're not worth talking about. It's really why I don't spend much time thinking about the precision around them. I just know there's a bunch of massive numbers out there. Um, so many of them don't get Bitcoin yet. And the ones that probably do get Bitcoin haven't allocated everything just because it's a bit too small for a lot of what that allocation would be.

1:26:56All it takes is, you know, another rally like we see. And then, you know, once Bitcoin gets into the five to trillion market cap range, that's when it starts to become, okay, a lot larger organizations can take pretty large positions in it without moving the market. that's when it starts to catalyze more towards a larger asset. That could be the suddenly moment. Yeah. So you think this is like golden opportunity, excuse the pun, to buy Bitcoin. Yeah. It's crazy. When I look at the price of Bitcoin right now, I'm like, this is as good value as I've ever seen. It's crazy. Like 70K doesn't seem expensive anymore.

1:27:31I look at this now as like, this is cheap Bitcoin. It's awesome. It's awesome. Yeah. It's such a good time to be getting in. um and it i i can't when you if you try to take it's just like okay let's not be ideologues here let's assess what could destroy bitcoin what would be fundamentally against its structural narrative what are the things that could like you know kill off any of this thesis and that would either be in it not working the way that it used to or some sort of new better thing emerging crypto spent you know however many over a decade trying to say that they could do that they can't do that hundreds of thousands of attempts yeah um you know billions and billions of dollars in funding dead uh wrong because people think it's facebook and myspace wrong you know bitcoin is a protocol at the beginning with the first mover advantage it can't be replicated once people finally get around to that is when they understand how to look at this industry and now that we're in this position it's like um you know with the competition you know peace pretty much being gone.

1:28:37Um, and then it just like, okay, well, what's, what's something that could destroy how it works. I do believe it is pretty prevalent within the investment community on the quantum narrative. A hundred percent. Um, I, I was skeptical of it at first, simply because I wasn't spending a ton of time talking with people at that point. I think we should be clear that this is the narrative is prevalent, not the threat is narrative is prevalent. Yeah. Uh, yeah. Sorry to the Bitcoin or commenters in this episode that are going to go off if I say that, but, but the reality is, is like for me talking to people in trad fi um you know i i i was just on a few calls over the past week where you know like how it works is like investors will look at me as like an expert and they'll want to like talk with me like what do you think about this in bitcoin what do you think about that in bitcoin um quantum something that people ask yeah quantum something that is it's prevalent not just in bitcoin it's prevalent outside of this is being driven by the likes of the chmats and who won't shut up about the quantum field.

1:29:32Yeah, and then, yeah, you have these big voices for all these like TradFi people that like listen to the all-in podcast and whatnot. And they ask all the same questions that those guys talk about. And then those guys just talk about things that pump their bags. It's awesome. They are like puppeteering a bunch of large people in capital. Like this large capital pool is that they puppeteer with their narratives. And I think that, yeah, I mean, there's much more intelligent people. We wrote in our annual report, a section on quantum, that got a ton of attention from Tradify people. So what is your take on that?

1:30:03Because like for me, I've done a couple of shows on it. I'm skeptical that the threat's even real in the next, you know, short period of time. Yeah. At some point, potentially. But if that threat ever comes into existence, we're going to have plenty of warning and there's things we can do to mitigate it. Right. But like, what's your take on it? The threat is just people are comparing what they call in Quantum Nevins Law to Moore's Law. Yep. Explain what that is for people. Yeah, so like Moore's Law was just this belief that we're going to be getting an exponentially greater degree of efficiency in computing hardware over time.

1:30:36But it wasn't a belief. It was an observed historical reality where 256-bit became 128, became 64, became 32, et cetera. And we kind of witnessed that efficiency stemming from lithography within semiconductors. And so that's cool. um and then people are like nevin's law is that quantum is going to follow a same rate of efficiency being found one's an observation one's a projection right one's an observation one is yeah it like it's a projection and it's a it's like a narrative you know um but all like i guess we'll put that aside but nonetheless like there there's kind of a false comparison i think that's being made within how the expectations of growth are going to be happening within quantum um and And I think that with that, there's these degrees, there's drivers that they look at to say that.

1:31:34Drivers are not the same thing as outcomes. I can look at things and I can say they're very deterministic relationships in the world that we can look at. And I can say that if I drink 50 beers, I'm going to be in a hospital. You know, like we know that's a pretty deterministic outcome for the most part within a small margin of error and then there's very like there's some relationships that we aren't sure what that relationship is and I think when we were looking at These relationships of quantum bits of qubits And then the different types those are kind of the drivers that people are saying represent what is the ability of a quantum computer to conduct factorization and And factorization is the output.

1:32:20That's what's scary. That's what could undermine cryptography. So people are saying, if the rate of creation in qubits, specifically logical qubits, gets high enough that factorization will be large. And I don't think we've gotten very high in terms of logical, but we have in physical. And I think it's like, so physical qubits are growing, then eventually logical qubits are going to grow. And eventually, we're going to get to some sort of larger degree of factorization. but there's one more variable and the other variable is the rate of error as you scale a quantum computer's factorization and and that's something where um there could be a very big fundamental issue if we can't get that figured out because it basically means um that as you conduct higher volume uh over time of a quantum's calculation that the error rates will increase almost, I won't say exponentially, but the error rate increases over time.

1:33:18So like, the more you want to go after bigger numbers, the greater your degree of error. It's the opposite of what you want. And so with that problem, it's like, I think the statistical relationship would be like heteroscedasticity. It gets more variable over time and continues to spread. And I think that that problem is something that would certainly need to be solved. It really makes the argument that even if we do see all this qubit productivity, if they can't solve this, this could be devastating to the future productivity of quantum in terms of factorization. So then the question is, well, where are we today?

1:33:54Today, quantum computers can't factor above like 21. Do you know the crazy thing about that? Do you know when they did that? 2012. Oh, okay. I did not know that. So they factored 21 in 2012 and they've not improved since then. Right. So that's output, right? Like that's, that's okay. If that was 20. And there's some like weird nuance in that where they factored larger numbers, but they were like basically told the solution. So people put higher numbers on that, but there's not actually it doing it from start to finish. I think with them saying, being told the solution, that was actually with a much larger number that it quote unquote factored.

1:34:28So like that was being used to say like, no, they've actually broken the digital signatures of some like very low grade old forms of cryptography, whatever that number required to factor was. I can't recall. That's actually true. But in the reality behind it was, it's like, okay, well, classical computers are actually much better at all these other things than quantum computers. So we can kind of set up a lot of the variables of the problems using these computers. And then given those things being done by classical computers, and we feed them into a quantum computer, that got to this factorization that broke this cryptographic signature, but it was kind of like giving it the answers in advance, basically.

1:35:04Yeah. Um, so I, I, I don't know enough to like a pine on every detail about that, but I do know that nobody takes that seriously. Yeah. And, um, and the reality is, is like the hard number I didn't know was in 2012, but like, I mean, that's what AI told me. I think that's right. So like, but the point is, is like the outputs of it are low. So if, um, you know, if you're telling me like you're, um, you know, some sort of like genius CEO and I should partner with you. and then I talk to you and you don't know the first thing about how to strategize about a business, then I'm not going to take you that seriously.

1:35:39If you tell me, well, I've been reading a lot of books or I've been getting a lot of experience and all these things, I'm like, that's great. Talk to me when you have a little bit more experience and strategy, and then I'll see what the outcome is. That's something that... That's how I view a lot of this. I get the argument of the purveyors who are like, this is a legitimate concern. This is something that we should be talking about and getting into. Completely agree. Let's do that. But I think when we get to not only here's where we're at with the risk today, the expectations for how that could evolve and what the potential solutions are for it and how we can plan around that as it specifically relates to Bitcoin, I'm not particularly concerned.

1:36:22The biggest concern about Bitcoin not adjusting to quantum security isn't really that we can't adjust it to a form of quantum security. It's that the form that we adjusted to could be premature if we do it too quickly. And that's a major issue. And that's what's hard with the narrative as well. Like if people are unsure about Bitcoin because of the quantum threat and they ask a Bitcoin and the answer is very nuanced, it's like, well, maybe these things exist in the future. If they do, we have mitigating solutions, but we don't know what they are yet because between now and then they might get much better.

1:36:54So we can't say definitively what the answer is. And then it's like, yeah, but this guy over here said quantum is going to break Bitcoin. It's like, that's an easy narrative. Whereas like the nuanced narrative is like, we will be okay. We just can't tell you exactly what the answer is today. Totally. Yeah, exactly. We, we, we don't know what would be the most efficient because there's a fundamental trade-off. If we, we have, you know, current signature schemes that exist within Bitcoin. If we implement a quantum resistant signature scheme, then that is a less, it's a much more, it's a much less efficient scheme.

1:37:26So it's more data intensive. And because we have fixed block size for good reason, it's going to fill more blocks, which means that the throughput of the Bitcoin L1 is going to be less. And that trade-off, if we were to wait, let's say, let's assume a scenario where quantum isn't a problem for the next 30 years and maybe 10 years from now, we say, okay, quantum resistant signature schemes are some sort of mathematical breakthrough. They're so hyper-efficient. It makes zero sense. They're just as efficient in the prior. Let's not wait. Let's just do it. Let's not wait. Let's do it now. That's something that'll get through consensus.

1:38:01Like that's something where people are like, duh, no brainer. The big risk is what does Bitcoin consensus look like in a decade? That's the other side of that argument because we don't know. Bitcoin consensus is an empirically observed experiment that we're all trying to decipher right now. So we don't know what that would be. But the belief is that simply it should work in a way to where if all the interests are pretty aligned or the vast majority of interests are aligned on something and it has no cost, then it should exist. And that'll be pretty simple when it's not debatable. And we're simply just not there yet.

1:38:37that if there was a very legitimate threat of quantum computers you know within the next year or so we have backup plans to protect coins and things like that if you read the report from chain code labs like they kind of break down two different time horizons of you know next two years plan and then next seven years plan for the long-term solution around signatures and I think that's fair and I think it's legitimate to look at and to check out like BIP 360 and some of the stuff they're working on. Um, but it's, uh, you know, it's just, it's just not the most, uh, it's, it's totally overblown. And I think in the investment community, if you're trying to like, look at the, what could destroy Bitcoin tomorrow, um, that this isn't the primary concern to be thinking about.

1:39:23I think it's, um, FUD doesn't go away. It just changes. FUD doesn't go away. It just changes. But to be fair, I will say with quantum there have there have been a decent amount of changes in quantum like I do understand kind of why it's coming back The problem with it that we put our annual report is just like we kind of flooded ourselves Normally FUD is something that gets created the mass media and then we have to respond to it as a community Whereas this is something we kind of created That got into the mass media that we now have to go respond to as a community so we're kind of I feel like we have good responses the big question then is like what happens to the funds do we freeze old Bitcoin and there's no easy answer to and I mean I don't think we change anything you can't you can't freeze old funds in my opinion totally I don't think you can but I'm not saying that that still isn't an easy answer you know but I mean the truth is there'll be a chain split and you'll get to hold both right that's true anyway Eric we've gone for ages there this was awesome how long did we go I don't know like I think that was nearly two hours hell yeah let's go that was good We've got to go play ping pong.

1:40:28Yeah, let's go play some. I got to bet that Danny's going to lose some ping pong to my analyst. There's no chance. I can't wait to make some money. All right. Thank you, man. Let's go. Thanks.