[00:00:00] The market of bitcoin holders will ultimately expand to be larger than the size of any single country, and direct exchange will be possible by and between more people than ever before.
[00:00:14] That itself might be the single largest driving force that will expand the scope of trade and direct exchange. More people holding and being willing to accept bitcoin will create more trade channels than could possibly exist in the fiat world.
[00:00:35] The best in bitcoin made audible. I am Guy Swan, and this is bitcoin audible.
[00:00:58] What is up, guys? Welcome back to bitcoin Audible. I am Guy Swan, the guy who has read more about bitcoin than anybody else. You know, if you would like to support this show and my work, the best thing you can do is share it out. Drop me some zaps on Noster or boost on fountain, a super huge shout out to everyone who does. Thank you all. Then. Also, I have a. I've put together a collection of links just to the services and people and businesses and products that I trust and I like and I use in this space. And I have put them down in the show notes. Most of them are affiliate links, but a couple of. A couple of them aren't. They are just things that I. People ask me about options, and so I have added them there as well. I kind of want to have a place where this will also be available on the website when we get that done, and it will be a little bit more comprehensive on the website. But I think just having the basics down in the description, uh, not only is a great way for you guys to support the show, but it also heads off a lot of questions and messages that I have to answer. Not that I don't want to talk to you guys, but I get a lot, and I'm very, very bad at keeping up with it. So this one, uh, in fact, I'm gonna. I'm going to make you all feel guilty for not tagging me or letting me know about this one. And then I'm also going to feel a little bit guilty that I wasn't keeping up with Parker Lewis's blog because I did not know about this one until literally just a few days ago. But Parker Lewis dropped another really good one on bitcoin, the exchange theory of value on his gradually, then suddenly newsletter, blog, whatever you want to call it. And per usual, it is a really fantastic read. And there's a lot of things to break down in this. I want to expand on a bunch of different ideas that he brings up because I think there are some broader economic concepts that actually are illuminated by, I guess probably in reverse as he understands the economic concept. And then that has led him to position this explanation for why money obtains value and how to apply and think about it in the context of bitcoin, and specifically in that framing, that mindset of, or really kind of to destroy the idea of the framing of store of value, medium of exchange, unit of account, as if these are independent things. And I think he makes a really, really strong argument and always fun to break down. And I've got some, a little bit of back and forth, maybe some nitpicky stuff that arguably is semantics, but it's worth, it's worth noting, in my opinion, in the guys take afterwards. So stay tuned. This one actually ends up being a pretty long one, but it was a really great piece and a really fun discussion. And shout out to Parker Lewis for always, always doing great stuff. Oh, in fact, actually on that note, I will have a link to his hard cover for gradually, then suddenly, if you don't have a copy of his book yet, I highly recommend it, but I don't want to lead anymore. And we will just get right into Parker Lewis piece on how and why money obtains value, and it's titled Bitcoin's Exchange Theory of Value by Parker Lewis Tldr. The premise of this theory is that bitcoin derives its value through exchange. Its ability to store value is of course, anchored to its fixed supply, but its utility is in future exchange. Value is realized at the point of future exchange, and value in the bitcoin network is actually created as bitcoin coordinates the transfer of value between economic participants, both in the nominal value of the currency unit and in the network as a whole.
[00:05:02] As a result, bitcoin increases in value as it enables more trade, and that trade will naturally gravitate toward direct exchange for goods and services for reasons fundamental to the nature and utility of money.
[00:05:18] Overview and introduction Bitcoin is money, and that is a conclusion actively being accepted by more people in more places. Adoption occurs as knowledge distributes, which increases naturally as a function of time. What it means for bitcoin to be money, however, remains subject to debate. Is bitcoin currency or property? Should it be used as a medium of exchange, or should you never spend it? Working on bitcoin payments at Zaprite over the past year has given me exposure to a cross section of interesting perspectives. Most bitcoin holders don't want to spend their bitcoin. Most investors don't think they should, and most operators in the legacy payments industry think that it's too early to focus on bitcoin payments. Specifically, it is increasingly clear that more and more merchants want to accept bitcoin as payment. And while it is early days for sure, those merchants are finding willing buyers despite the fact that no one really wants to part with their bitcoin. In my pay me in bitcoin theory, I explain why it is rational for business owners to demand payment in a better form of money, and why it is even rational for customers to pay in bitcoin in certain scenarios, despite the friction and opportunity cost, without needing to predict who someone is going next explains the logic as to why growing business demand for bitcoin payments is inevitable. Whereas these two articles explored the logic of human decision points at an individual level, this piece, bitcoins exchange theory of value, makes the broader case that bitcoin, as with any money, derives its value through exchange and that bitcoin increases in value as its utility as money increases. Specifically, bitcoin increases in value as it facilitates more exchange and as more value is transferred by and between more human beings through the bitcoin network. Importantly, there is no moral imperative to spend your bitcoin. This is not a case or a plea for why anyone should spend their bitcoin. Instead, it is an explanation as to why bitcoin does not derive its value solely through a willingness to save it. And it presents a logical case as to why bitcoin increases in value as it coordinates economic activity. In fact, as it is exchanged in an active sense, building tools that improve and over time, perfect bitcoins. Utility as money is the input that allows bitcoin to increase in value on a nominal unit basis and in aggregate, is it paradoxical that bitcoin will increase in value if it is easier to spend it? No, by definition, it would mean that bitcoin would be that much easier to acquire. At the same time, and at a fundamental level, money derives its utility through trade, and trade is not zero sum in the most tangible sense. Value is created through trade, and that is why bitcoin increases in value through trade and the exchange of value.
[00:08:38] The utility and value of money money is the intermediary good used to facilitate trade. It is a market good or a tool that allows trade to scale beyond the needs of a very basic or rudimentary barter economy. The use of a common form of money enables benefits to be gained from the division of labor and specialization within an economy. People use money to coordinate economic activity and to build tools that wouldn't be possible without it, such as a modern airplane or iPhone, and to sell those tools to the market. Money is the tool that makes it more practical for people to trade with each other.
[00:09:24] Being a medium of exchange is the quintessential function that defines money. In other words, it is a good purchased, not to be consumed, a consumption good, not to be employed in the production of other goods, an investment or capital good, but primarily for the sake of being exchanged for other goods.
[00:09:44] Saifadin amus the bitcoin standard today, bitcoin is primarily used as a store of value, and that is how most people who have adopted bitcoin think of it in an academic framework. Economists will generally describe money as collectively being a store of value, medium of exchange, and unit of account. Despite being volatile, bitcoin has been an exceptional store of value. But many debate or believe that bitcoin is not viable as money because it is not commonly used as a medium of exchange. As Seyfeddin Amus explains in the bitcoin standard, being a medium of exchange is the quintessential function that defines money. Bitcoins fixed supply of 21 million is what allows it to be such an effective store of value, but it is also what will dictate bitcoins use as a medium of exchange. In fact, while often thought of as distinct properties, store of value versus medium of exchange, the two functions are one in the same, dependent on each other at the broadest level. Think about money as the coordination function within an economy where the utility of money is to intermediate a series of exchanges, that is, to facilitate trade. In order to be an effective form of money, which really means to be used as money at all, any respective unit of money must reliably store value between exchanges. Receive, hold, spend, that is the life cycle. It's that simple. There is an exchange value on either side of the period over which money is saved, and the ability to easily exchange money for value delivered by others is both what allows money to store value and what defines money, trade is not zero sum.
[00:11:43] Value is tangibly created through trade, division of labor and specialization.
[00:11:50] Money enables all three. If not for the benefits that come through trade, money would be a turtles all the way down problem. There would be no utility of money if not for the economic reality that trade produces non zero sum outcomes. Trade benefits both parties to an exchange. A consumer that purchases a good or service with money benefits from consumption of that good or service in the present. A producer that purchases a good or service benefits from the future production of a capital good. The seller or provider of a service benefits from the optionality of the money's purchasing power in the future. It takes two to trade, and both stand to benefit. It does not mean that all trades work out or that all trades create value. Some trades can be zero sum, and some entrepreneurs can fail to produce value despite their best efforts. Despite some trades not creating value, the basis of trade is mutual benefit. That is what sustains trade. Producers of goods need money to produce, and consumers need money to consume in any sustaining way. All consumers are producers, and all producers are consumers.
[00:13:10] Each individual contributes their time in the production of a good or service to help solve a problem or a need of someone else. It is not altruistic. It is done to symbiotically satisfy ones own wants and needs. The best way to get the best outcomes is to specialize and to focus ones own time on an endeavor for which they excel. Compensation for time and value produced comes in the form of money. Money coordinates the orchestra, and the aggregate output from a trading economy is greater than the sum of what any group of individuals could produce or consume working independently on their own.
[00:13:54] That is why trade is not zero sum, and that is how money fundamentally derives its value.
[00:14:04] Saving alone does not give bitcoin value.
[00:14:09] If money derives its fundamental value by coordinating and facilitating the exchange of goods, in other words, trade, then bitcoin does not derive its value simply or solely by ones willingness to hold it. That can only be part of how bitcoin derives its value. The act of exchange is principle to how bitcoin derives its value.
[00:14:32] Imagine you have one bitcoin and you never plan to spend it, but instead plan to save it forever. Even in this scenario, the bitcoin is only valuable to you because it's there in your possession, and it's available to be exchanged should you ever need to do so. If your plans change, you have that optionality. Your act of saving is an act of future exchange. It is deferring consumption or production into the future. The promise of exchange gives it value, even if you don't plan to spend it. Even if your plan is to pass it on to your heirs, the value must first transfer to your heirs, and its value to them is then derived from the promise of future exchange.
[00:15:17] Now assume a scenario in which you destroy the keys to your bitcoin so it can never be moved. Or assume upon your passing, you have instructions for the keys to be destroyed, so the bitcoin can never move. Some may think of this as saving bitcoin forever, but it is not. The bitcoin no longer has value zero. It also does not add value to other bitcoin a discussion for another day a valuable tool is simply lost and can never be used to facilitate exchange. It is no longer being saved because it can no longer be exchanged. Now again, this is not an argument to go spend your bitcoin, nor is it a statement that bitcoin is not valuable if you are not willing to spend it today.
[00:16:02] The explanation is more fundamental in regards to how money and bitcoin derives value. If you are saving bitcoin, its value proposition to you is the promise of future exchange and optionality, both in terms of what you might purchase and when. Even if you do not plan to spend bitcoin anytime soon, its value is predicated on your ability to exchange it or your expectation of exchanging it for value in the future.
[00:16:35] In fact, its value is only realized when you do exchange it, whether for dollars as an indirect intermediary to then acquire a good or service, or whether you exchange bitcoin directly for goods and services. And bitcoin increases in value by the function of exchange each time. Bitcoin effectively transfers value from one human to another. Again, direct or indirect through fiat, both sides of the trade get something that they want. The successful transfer of value, or the realization of value being transferred itself, creates value in the underlying medium of exchange. The medium bitcoin is a tool to coordinate trade. Even if some believe themselves to only be using bitcoin as a store of value, he or she is using it to coordinate a series of exchanges. In other words, to coordinate trade. Even if the time horizon between the exchanges is very long, bitcoin is coordinating trade. Even if bitcoin is first converted to dollars, bitcoin is coordinating trade. Even if bitcoin is used as collateral to borrow against to get dollars, bitcoin is still coordinating trade. In each scenario, the value of bitcoin is not derived simply by a willingness to save it.
[00:18:02] The value of bitcoin derived through exchange, exchange and the transfer of value is core to how bitcoin derives its value, that is, the realization of its utility as a store of value. If bitcoin were never exchanged, and if it were never used to transfer value, then it would not be valuable as money. Conversely, as bitcoin facilitates more exchange and transfers more and more value, that is how the network as a whole increases in value. Because trade is not zero sum, the more opportunities for trade and exchange, both in terms of conversion to fiat and direct exchange for goods and services, the more valuable bitcoin becomes. Consider Elon Musk and Tesla. In 2021, Tesla bought bitcoin shortly thereafter, Tesla sold 10% of its bitcoin, which, with Elon Musk stating that Tesla did that quote essentially to prove liquidity of bitcoin as an alternative to holding cash on the balance sheet.
[00:19:08] Later and cumulatively, Tesla sold 75% of its bitcoin for nearly $1 billion. While bitcoiners understandably mocked Musk for his poor financial decisions, there inevitably was some truth in his statement taking Musk at his word. He needed to know whether Tesla could actually get value in return for bitcoin, and it inevitably informed his understanding of bitcoin, even if through selling it.
[00:19:37] The tweet from Elon Musk April 26, 2021 no, you do not. I have not sold any of my bitcoin. Tesla sold 10% of its holdings, essentially to prove the liquidity of bitcoin as an alternative to holding cash on balance sheet.
[00:19:56] Everyone assumes he or she can get value from their bitcoin when and if ever they need to exchange it. But until they do, it is an inherent unknown. If you've never exchanged your bitcoin for value in return, you are assuming that you can. But until you do, you don't really know, and when you do, it reinforces the value you place on bitcoin, both in terms of value realized through exchange in the present and the value of your remaining bitcoin savings. It also serves to make the point that the transfer of value is how money derives its value.
[00:20:34] Even when you sell bitcoin, the value of bitcoin as a medium of exchange is increasing, someone else is buying, and, importantly, value is being transferred. Step outside of the narrow view of bitcoins dollar value. After each tick up or down on an exchange, more trade equates to more value. Today, that trade is largely facilitated through dollars or other fiat currencies as an intermediary. But think more tangibly about the future world where bitcoin is being exchanged for goods and services and actual capital is being built. Bitcoin itself is not capital, at least not in the sense that capital is traditionally defined. Bitcoin is money. Money is traded and exchanged to build capital, homes, cars, roads, telecommunications networks, water and waste management systems, shipping supply chains, electricity grids, pipelines, pump jacks, drilling rigs, grocery stores, etcetera. Steve Jobs used dollars to pay employees and suppliers to design and build the iPhone. Capital was built through the exchange of money. The same is and will be true of bitcoin. Bitcoin will be used to build phones, pave roads, drill oil wells, etcetera. However, with bitcoin, it will be more clear that the value of money is derived through exchange and the accumulation of capital. The total nominal supply of bitcoin remains constant. With a fixed supply of 21 million in a terminal state, no more money can be created. But recognize that the consequence is 100% of all money is always being saved by someone, that money will be traded between individuals and businesses, and more capital will be accumulated as more things are built. And that is how each unit of bitcoin becomes worth more. That is how the purchasing power of each unit increases. More goods and services become available relative to the same nominal amount of money in aggregate.
[00:22:52] Gold as a system corollary if it is hard for you to imagine how bitcoin transitions from a stock like financial asset to a stable form of money, facilitating day to day trade, think about gold as a corollary. Most people do not understand why gold emerged as money over thousands of years, and that's okay. But just accept that the gold standard existed and that JP Morgan, the man himself, did in fact say, gold is money. Everything else is credit. There was a time when nearly the entire world converged on gold as money, as a standard of value, and the dollar began as a note or contract that was convertible to gold. The dollar's basis as money derives from gold.
[00:23:43] Now think back in history, to when gold was first discovered in raw ore form, before the word gold even existed in any language. When gold was first discovered, gold was not money. It is typically found in different types of ore, and actual gold, which tends to be only a small percentage of the mined rock, is extracted by metallurgical techniques. Over centuries, the commodity gold was refined, and eventually a monetary system was built. Fast forwarding past its early industrial and ornamental uses. Standard weights and measures were established. Mints were created to refine the gold into coins and bars with standard weights and measures. People built vaults to better secure the gold coins and bars. Tools were created to assay gold to determine if gold was really gold. Armored vehicles and wagons before them were manufactured to facilitate the more secure transfer of gold. Settlement networks emerged to trade gold. Eventually, fiat currencies emerged to scale the transfer of claims on gold that were secured in vaults and settlement networks.
[00:24:51] Gold evolved from raw ore in the earth to a fully functioning money system. It was not always stable in value. Gold remained the same in elemental form, but its utility grew as the raw commodity was refined and as a system to facilitate trade was built on top of it. The purchasing power of gold grew and stabilized as its utility increased, and specifically as it was capable of facilitating more trade, which would not have been possible without the tools being built to make gold valuable. As money, its value was derived through trade, and trade increased as gold was refined into a working money system. Therein, its value increased as it facilitated more trade.
[00:25:46] The evolution of bitcoin bitcoin is still very much at the raw ore stage of its development. As money, it exists, but most of the world does not yet understand the significance of its fixed supply.
[00:26:03] It combines the property of finite scarcity with the ability to be transferred over a communication channel and in a way that is resistant to all forms of censorship. A commodity, finite in supply that can be sent over the Internet by anyone is the foundation for a new global standard of value, and a growing number of individuals and businesses are working to turn the clunky raw ore that is bitcoin today into a fully functioning money system.
[00:26:40] A combination of custody and custodians, wallets, nodes, and mining are critical to the security of the network. Bitcoin miners and nodes secure the integrity of the system as a whole, collectively enforcing bitcoins fixed supply and ensuring that the network is resistant to censorship.
[00:27:01] Bitcoin custody solutions and wallets, on the other hand, secure the economic interest held by each respective participant in the network.
[00:27:10] For bitcoin to be an effective store of value, it must credibly enforce its fixed supply and each participant must be able to securely custody their funds. If it were possible for someone to lose their bitcoin, bitcoin would not be an effective store of value. However, being an effective store of value is predicated on a future exchange. That is really why you need to safekeep bitcoin. Secure custody is critical to bridge the period between a past exchange and a present or future exchange, and bitcoin would not increase in value over time if infrastructure were not built to make it easier to both store and transfer value by and between more people.
[00:28:00] To be clear, bitcoin is being used to transfer and exchange value both when an individual or business uses a bitcoin exchange to convert fiat to bitcoin or vice versa, and when bitcoin is used directly as payment for goods and services.
[00:28:17] In the first instance, the value transfers indirectly through an intermediary. The institution and the fiat currency are each intermediaries, but bitcoin is transferred from one person or entity to another all the same, even if indirectly, bitcoin is facilitating the exchange of value. Similarly, when an individual or entity purchases a good or service with bitcoin as payment, value is being transferred and exchanged. In this latter case, the value exchange just happens on a direct basis investment in infrastructure to support both increases the ability to exchange and transfer value using bitcoin.
[00:28:58] When the next bitcoin adoption wave occurs safely, assume that the universe of bitcoin holders will increase by five to ten times. While you might think of it as more people buying bitcoin to force its price higher, what is actually occurring at a fundamental level is that bitcoin is transferring from one individual or entity to another. Bitcoin is facilitating trade and the transfer of value between more people. Value is created in the medium. Through that process, the network as a whole and the nominal unit of currency both increase in their fundamental utility.
[00:29:40] Value is similarly created when trade and the transfer of value occurs directly using bitcoin as payment. In either case, the infrastructure must first exist to easily transfer value with bitcoin before the network can increase its ability to facilitate exchange. And importantly to the broader point, if the utility in money lies in its ability to coordinate trade, then bitcoins value is not merely tied to ones willingness to save it, it is tied to its ability to coordinate trade and to transfer value between humans. All infrastructure that makes the exchange of value easier increases bitcoins value, one, to make bitcoin accessible to more people and two, to make more types of trade possible.
[00:30:33] Within this framework, exchange of value will naturally gravitate to direct commerce as payment for goods and services because that is what makes trade most efficient collectively in terms of expanding the addressable universe of people who can adopt bitcoin. In maximizing the market opportunities for exchange and in cost bitcoin as a direct exchange medium bitcoins logical endgame is collectively as a store of value, medium of exchange, and unit of account. That is the vision. Everything is priced in bitcoin, and practically every good or service is traded in direct exchange for bitcoin. This is the logical conclusion because it maximizes and perfects the utility of bitcoin as money. To the greatest number of people on earth, the incentives of an open and permissionless form of money with a fixed supply will dictate it. Regulatory regimes and tax codes will inevitably have to adapt around bitcoins use as money. Not every jurisdiction has to participate, but anyone who wants to benefit economically from trade specialization and the division of labor will. Similar to how El Salvador has organically, as bitcoin becomes accessible and adopted by more people, the opportunities for direct exchange increase by orders of magnitude. Naturally, as more people value bitcoin, the population density of bitcoin holders increases, and that will create more scenarios where willing sellers of goods or services that want or demand bitcoin overlap with willing buyers or customers that have bitcoin. In the end, introducing an entirely separate currency system as an intermediary to the process of trade will become an inherent inefficiency for the principal reason that bitcoin is perfectly capable at a fundamental level of facilitating trade directly. In the future, a separate currency system as an intermediary would stand to only increase cost and friction in the process of exchange.
[00:32:45] Today, however, the legacy currency system is leveraged as a pricing mechanism to facilitate bitcoin payments. In other words, it actually creates efficiency. Today, a price is typically set in dollars, and at the time of purchase, the amount of bitcoin to be paid is calculated using a bitcoin to dollar exchange ratio. But in the future, prices will simply be denominated in bitcoin, and that itself will increase the ability for bitcoin to facilitate exchange efficiently. Adoption will increase as the ability to exchange directly increases and vice versa. Stability in the price of bitcoin will emerge as a function of mass adoption. Stability in price will actually come in the form of everything being priced in bitcoin, but stability will follow as a function of direct exchange.
[00:33:43] If the utility of money is derived through trade, the value of the money increases as more trade occurs. That is the baseline. The following explains why that trade in the context of bitcoin, will naturally gravitate toward direct exchange as a derivative. It explains why the value of bitcoin will increase more through direct exchange than through the fiat monetary system as an indirect intermediary.
[00:34:14] Every premise builds on the principle that trade is not zero sum, such that as more trade occurs, more value is delivered and derived.
[00:34:25] One expanding the addressable universe of trade use of bitcoin in direct exchange for goods and services will expand the universe of possible exchange. Today, the dollar, euro, and yen are the global reserve currencies, with the dollar being by far the largest in aggregate. Fewer than 1 billion people have access to these currencies on a daily basis, and of those people, not everyone has access to each. And for those who do, foreign currency exchange between the currencies is extremely expensive, in other words, inefficient. With nearly 8 billion people on earth, more than 7 billion people do not have access to the most reliable currencies in the world. If you were to exclude populations with access to the chinese yuan, british pound, canadian dollar, and australian dollar, five to 6 billion people do not have access to the world's most popular and reliable currencies.
[00:35:28] Large fiat exchanges may be popular in countries and regions where legacy financial centers exist like the US, the UK, Europe, Japan, Hong Kong, Singapore, etcetera. It is logical for bitcoin to fiat exchanges to be popular where financial centers exist, because the financial centers exist there for a reason, for the rule of law, respect for the movement of capital, and the present reliability of local currency.
[00:35:55] This does not mean that fiat cannot be exchanged for bitcoin outside of countries or regions with well established financial centers, but the cost and friction increases measurably. Exchange between fiat currencies as intermediaries becomes more inefficient and cost becomes even more prohibitive.
[00:36:16] More consequentially, the transfer of bitcoin directly for goods and services will be more accessible to more people in the world. Simply by definition of access, it is not feasible to get bitcoin to everyone in the world through fiat exchange. Bitcoin is permissionless and it is able to be transferred at lower cost than fiat. This ultimately makes it more logical for bitcoin to flow through the world, both distributing within local economies and cross borders between developed and developing economies directly rather than through fiat currencies to maximize trade.
[00:36:55] Two maximizing the market opportunities for exchange.
[00:37:01] Because bitcoin is capable of direct exchange, restricting exchange only or principally to fiat currencies would limit the bitcoin networks ability to facilitate trade and create value. It would inevitably result in bitcoin being exchanged for fiat, with the fiat then routed through large financial institutions unnecessarily, which would merely serve to reintroduce the cost and friction of routing money in the legacy system, whether locally or cross border.
[00:37:31] Less trade would actually be affected between direct counterparties in the bitcoin network if the fiat system were used as an intermediary. If fiat were used as the last mile currency, bitcoin would be transferred between large institutions rather than directly between individuals and businesses. And more trade directly affected by the bitcoin network would simply be better for the market of bitcoin holders that actually want bitcoin, for the reason that it can cut out an unnecessary middleman system that introduces friction in the form of trust in additional counterparties, time delays, and the inefficiency of an entirely different price system beyond just the tangible costs.
[00:38:17] Furthermore, because bitcoin is able to effect fully funded trustless transactions, bitcoin will also be able to affect transactions that are not possible in the fiat system. And this is not just a matter of small subpenny equivalent microtransactions on the Internet. As a few examples, remittances can be sent from one family member to another in a different country with immediate access to it and without a middleman, payments could be made intraday to pay power contracts, or a paywall could be set up for instant access to an API service, online coursework, or for ebooks or other content without needing to attach identity. And with immediate settlement, the range of trade will expand through efficiency gains of the bitcoin payment system, and that will drive more trade.
[00:39:11] Lastly, the market of bitcoin holders will ultimately expand to be larger than the size of any single country, and direct exchange will be possible by and between more people than ever before.
[00:39:26] That itself might be the single largest driving force that will expand the scope of trade and direct exchange. More people holding and being willing to accept bitcoin will create more trade channels than could possibly exist in the fiat world.
[00:39:46] Having a single medium of exchange allows the size of the economy to grow as large as the number of people willing to use that medium of exchange. The larger the size of the economy, the larger the opportunities for gains from exchange and specialization, and perhaps more significantly, the longer and more sophisticated the structure of production can become.
[00:40:08] Seifedine amus the bitcoin standard three reducing direct cost of exchange a bitcoin transaction is more similar to a cash transaction than a debit or credit card transaction from one bank account to another, for the principal reason that bitcoin transactions, whether on chain or lightning, are fully funded. Bitcoin allows for trustless transactions that can actually be funded at the time of purchase. Even if a bitcoin transaction included financial institutions on either side, the transaction would be cheaper to effect than a comparable transaction in the fiat system. Because the fiat system is an inherently trust based system, fully funded digital transactions cannot be affected in the fiat system without a trusted counterparty. Because it is an inherently trust based system, cheaper transactions lead to more efficient trade, and more efficient trade leads to more trade.
[00:41:18] Conclusion Bitcoins exchange theory of value despite it being in its raw ore phase today and admittedly still clunky, there is no technical constraint that will prevent practically all trade in the future from being facilitated directly in bitcoin without fiat as an exchange intermediary. And that is a good thing because bitcoin derives its value as a value transfer system. The more efficient value transfer becomes, the more value that will be transferred, and the more value that is transferred, the more valuable bitcoin becomes each nominal unit and in total, if you follow the premise that bitcoin cannot derive its value solely by being saved, and that its ability to be an effective store of value is predicated on its ability to be exchanged in the future, then it should logically follow that its value increases as it becomes exchangeable between more people and for more goods and services turned around. The value of bitcoin would be inherently capped if it were only exchangeable for fiat currencies and if it were only saved and never spent. Trade and the transfer of value through which bitcoin derives its value would be unnecessarily and artificially constrained. Fiat currencies and the institutions with permission to the fiat system are by definition a smaller universe than fiat currencies, and all individuals and businesses selling goods and services on a direct basis. And never forget the wisdom of old adages. You have to spend money to make money, or rather, you need money to coordinate economic resources and to build and accumulate capital.
[00:43:15] If bitcoin is money, everyone is going to have to spend it in the future, and the key to accumulating savings in bitcoin will remain anchored to your ability to produce more value than you consume.
[00:43:31] Consider the thought exercise if 100% of your savings were in bitcoin. In other words, in the better money, never spending your bitcoin would mean never consuming anything produced by others. Not only would never consuming anything produced by others be unrealistic to survival, but it would mean no trade. And no trade would mean no benefit from specialization and division of labor. It would also mean no entrepreneurs taking a risk to build a new business, to offer a new service, or to invent a new technology separately. Constraining yourself to only being able to trade bitcoin for fiat currencies to then consume or produce goods and services would limit your ability to freely exchange and inevitably introduce greater friction. In other words, cost to trade.
[00:44:23] Every participant in the bitcoin network would benefit from more infrastructure that increases bitcoins utility as money. That universe spans across custody, ore, safekeeping, mining, and importantly, payments.
[00:44:39] Thinking narrowly about saving bitcoin as a means to increase its value and your purchasing power is inherently limiting and fundamentally inconsistent with how value is derived through money. In order to create wealth, you have to take risk to solve problems, to build capital, and to deliver value through goods and services. Nothing about bitcoin changes that. Instead, bitcoin will serve to improve the markets ability to create wealth by serving as a better form of money.
[00:45:14] The purchasing power of money is the output of trade.
[00:45:19] Making a conscious effort to avoid using a currency to facilitate trade runs counter to its utility, and making a conscious effort to not use bitcoin to facilitate trade would limit its value. In other words, in scenarios where it is more convenient, cheaper, or if the merchant prefers bitcoin, it would be short sighted in the grand scheme of building a stronger, more stable economic system. Such a strategy would run counter to increasing your purchasing power or even acquiring more bitcoin by building tools to perfect bitcoin as money. That is also why infrastructure to facilitate the transfer of bitcoin in direct exchange for goods and services is vital to the future value of bitcoin. Bitcoins highest and best use is as money and its value is derived through exchange or the promise of future exchange over time. That is why bitcoin stores value.
[00:46:21] To learn more about bitcoin, check out my book gradually. Then suddenly you can read the online version for free at the Nakamoto Institute or buy a copy of the
[email protected]. dot if you or your businesses business is interested in accepting bitcoin payments for your business, check out Zapright. I'm part of the team and we are here to help. I read that specifically because one I will have the link to the book. I have a hard copy myself. Obviously the audio version of the article series, which has changed a little bit from his official version or the published version, but from the series you can find right here on this show. Granted it's like 300 reads back or something like that. I think it's in the 500 range, if I'm not mistaken. And then also because I am a really big fan of Zapright, I think they just have a really, really clever model. Bitcoin veterans are actually a really good example because they've been taking donations with Zapright. And I kind of thought, I thought about it afterward. I was like, why? I could have actually done that exact same thing with the donations I did for Helene and the North Carolina recovery. Not that just posting address doesn't work, but the records would have been better to deal with or easier to deal with through Zapright. So just wanted to give a shout out there. Also, don't forget to check out the many different tools and services that I use that I have available in the description. In fact, I'll actually add, I think I have a Zaprite. Zaprite's a good one. I'll have a link to Zaprite as well. I went yearly. It took me like a month of using it because I use it with my producer. I'll be setting up April who my my sister in law who does all of my branding and graphics and stuff. We finally set her up to receive bitcoin and we're just kind of doing it in a very naive way, but it'll be super easy to just go through Zapright, and I think that is going to be way more, far more up her alley for how she wants to do it on her end. But honestly, Zaprite is just a really easy thing. Because if you, here's the, here's the clever pitch for where Zaprite really shines is that you can put whatever you want on the back end, so you can put your BTC pay server, you can plug in cash app or strike or an Albie thing, I think. I don't know, there's like a ton of different options for things that you can plug in to receive the bitcoin payment on the back end, but then you put one, you just put Zaprite in your website interface or whatever it is. And if for any reason anything on the backend isn't working, it will just, you can just switch it over to the next thing and you don't have to change anything on your website or on your link or on your Nostra page or anything like that. It's just kind of, it's kind of like a go, a go between and, or translation machine between all of the different ways and services that you would be using to accept bitcoin, and a common invoicing and website interface to make use of it all. But it's kind of crazy how much like basically everybody, everybody I've been working with, my accountant guys were using, are using Zaprite, my producers using zaprite, I'm using Zaprite. And honestly, guys, I can just say this as being on a bitcoin standard.
[00:49:33] It is literally when I have to go back that I, I remember how much friction there was in sending money.
[00:49:43] You have got to try it. If you haven't try to get on a bitcoin standard, try to find a way to get paid where it goes to your bitcoin wallet first. And yes, it will mean that you will have to spend money when the bitcoin price goes down sometimes, and you'll have to spend a little bit more. But it will also actually help you control your spending really well, because when the bitcoin price falls, you won't want to spend it. But the thing is, is when I've been transferring in and out of bitcoin with cash app or whatever service that I'm using at the time, I constantly hit fiat limits. So the more my purpose in getting everybody to accept bitcoin, which most people did like, my developers accepted bitcoin. I just paid them that way. My producer accepts bitcoin very easy. And April, who does all my design and stuff with Merc creative, was doing it in fiat because she didn't know how to deal with the taxes and also just wasn't comfortable with the tools. I have her, she has a hardware wallet and everything, but it's few and far between that we ever even touch it. She has an auto pay that just goes directly to it, so she doesn't even think about it. And she certainly doesn't get it out thinking that, oh, yeah, I'm going to break out my hardware wallet and sign some stuff and send some transaction. I'm going to do multisig. No, she's not. She's not playing that game. She just saves a little bit in bitcoin constantly. But basically, when I got to the point, and also the, the guy I'm working with for the accountant, I mean, excuse me, for marketing and my chief stacker of Satsde, also, I will be paying him in bitcoin. So I will literally only have to go to fiat for now that we have my branding and design work on bitcoin as well. I will only ever have to go to fiat to pay fiat bills. Specifically, I want you to understand how unbelievably nice, like, relieving it is to never have to think about limits for when you're sending money. Somewhere when you're working in bitcoin is that you don't have to think about limits or delays. Like, you just, do I? You just think, do I need this to happen right now, or do I need it to take a little while or does it matter if it goes through in a day or two? It's just your priority. What do you want it to be? And you can make a payment right now, and I can pay $3 on the transaction fee and I can get it absolutely confirmed in the next block. And you know what? If I'm moving ten grand, I'll pay five. Just so I don't have, don't even have to worry about if, like, a big dump of new transactions come in. Like, who cares? That's such a tiny fee in relation to what I am moving. And if it is time sensitive, just do it now. Don't care. I just need the transaction to go through so I get it the next block. If I'm not in a hurry, I'll just slap 40 cent on that thing and just let it go. Dude. The, the power of being able to control that and knowing that there's no limits that if you ever run out of a light what you have in a lightning channel, I can just open up a new channel and try the payment again. Like I have full control over it. And I don't think it's until you get really comfortable with that. That like that's what you are doing with your payments and your money day to day. That when you go back to cash app or trying to move between Apple cash and this service and that service and trying to get it to your bank versus having to pay a fee to get it to go through your credit card and having a $2,000 daily limit on this one and then a $1500 weekly limit on this other one and it asking you to prove your identity four different times because you're moving too much money. Like, holy crap.
[00:53:24] The number and degree of frustration and friction when I have to do this, this is why I bugged like every single month, I'd be like, April, April, please, we have got to figure this out so that I can pay you in bitcoin. Because she basically would hit. Would clear my weekly limit and I would have to go through some other route or some other like roundabout way to get from one account to the next. And with fold as my main card, it's like, it's not easy. Like I have to. I'll have to like ach. And then I have to do. If I want to charge directly from a card in fold, I've got a fee because of all the. Cause it's literally a merchant fee for charging to the card. But then I've just paid a fee to sell the bitcoin and then transfer the bitcoin to the card just to charge the card to get to fold only because I hit my limit somewhere else. We're racking up to like four to 5% fees just to get the money from one place to another. And it is entirely, entirely because I can't use bitcoin for everything. But at every single step, the more and more I am able to use bitcoin. Granted, that's not the common scenario that I was just talking about.
[00:54:38] Usually it's a 1.5% fee and that's what it costs to get it to where it needs to go. Actually, I guess sometimes the aggregate is mostly.
[00:54:48] Is probably closer to 2.5% as a typical because I sell bitcoin on a platform which has a 1% fee generally. And then if I have to move it immediately, Apple cash will charge me $15.01.5% up to $15, but I usually try to move two to $3,000 at a time, like paycheck chunks. So if I'm having to do it more often with smaller amounts, and I need to do it immediately, then those fees can rack up. But if I do it in large chunks and do it and I don't need, I don't have like a huge time crunch, I can get really, really low fees. I can, I can actually get it down to 1% completely just on the sale of bitcoin. If I don't need it today, if I need it two days from now, then no problem. I just send it to my fold bank account card or bank account details. It just takes a day or two in order to make the transfer. But man, when you hit those limits, it is so frustrating. And if you need money quick, fiat sucks. Fiat sucks so bad. Now onto the premise of the article here. I kind of want to for. I want to agree with a lot of his framing and I think he's spot on with his fundamental argument, but there's a bit of a nitpick that I make about the contesting or the positioning this as a counter to the bitcoin saving in bitcoin gives it value argument. Maybe it's specifically because of how, what I mean, when I have said that in the past, and I really kind of feel like he is responding to a more prevalent idea that is, that is espoused on twitter, rather than kind of the nuanced conversation or the argument about why savings or why the, the purchase of bitcoin in order to store value or to save capital that will be used again in the future, which I think is really kind of the caveat that he's trying to hone in on, but that it is explicitly the purchaser that is assigning a higher value to having that bitcoin, as opposed to the other good that is transmitting the value of the good into the bitcoin asset because they are the ones that are using it to transmit it across time. But I think it's a bit of a nitpicking hairs because he kind of steps away from the, the direct exchange conversation about value and thinks about money as a system value and ultimately the units ability to derive value from the system. So it's not, I don't think I'm really disagreeing with him. I think a lot of it is kind of semantics and where you frame the beginning and end of the explanation of how bitcoin derives its value, but we'll get there in just a minute. So 1st 1st thing that I noted was just quote bitcoin's fixed supply of 21 million is what allows it to be such an effective store of value, but it is also what will dictate bitcoin's use as a medium of exchange. In fact, while often thought of as distinct properties, store of value versus medium of exchange, the two functions are one in the in the same, dependent on each other. End quote. This I cannot believe how difficult it is to get this into people's heads is these are the exact same thing. The store of value function is exactly why the medium of exchange function becomes possible to begin with, and vice versa if you do not have the liquidity to get rid of it later. It also doesn't store value. Like there is no competition between these two ideas. Like, none I know. As someone who has been roped into this framing multiple times in the past and tried to, it's almost silly to even separate them out as if it's two different tasks. Because as Parker Lewis explicitly explains, like, he does such a good job of detailing it out, that the only reason it stores value is because you intend to retrieve the value at a later date. Otherwise it's not storing anything without the future exchange being the other end of it. Like it's like saying that he's going really fast, but he was in a single position. Like no, if he is going fast, the only way that you know he is going fast is by him being in two different positions. A store of value storing value is an action. It is explicitly something that happens across the dimension of time. You were able to put value in at one time, and then at a later time you were able to take it out. That simply denotes its use in exchange and going back to something or hitting on something that he kind of talked about later. But I think is also just a really important framing to understand how bitcoin is being used to facilitate trade. That there is no difference between use between selling bitcoin for fiat on a currency exchange or some sort of network or system that just kind of aggregates or has some sort of counterparty in order to trade between to get to the other individuals versus doing it directly. It is literally a limit based on the number of connections possible in the network. It's just making hubs because the network isn't big enough yet to do in person or direct exchange yet, but that ultimately not only are they not any different, they are the exact same thing. But to say that only exchanges and money markets and financial institutions should be involved in bitcoin is to say that bitcoin won't ever be money. It's to believe that bitcoin cannot be a monetary system, and that all it can be is a financial asset, which there is no what limitation? Where, where is the wall? What's the thing that will prevent it from being that? How could you stop it from being that? Like, it won't be a choice. If bitcoin continues to work and it continues to be 21 million, and it continues to be good for exchange from now and into the future and storing value, it will be a medium of exchange and a unit of account. And as Parker Lewis explains very pretty damn well in this article, it will necessarily be the biggest and most successful digital unit of exchange that we've ever had, or just unit of exchange, period, that we have ever had. It will surpass what gold ever was specifically because of its ability to control or to, to move across networks. Its digital nature will make it accessible in ways that no other money has ever been before, and that a permissioned, trust based system can't buy in, like, inherently, by its nature, cannot facilitate the degree, the breadth, and the amount of potentially conflicting inter juristic, cross jurisdictional, across network, cross cultural communications and exchanges that no other money can actually accomplish. So if it is ever going to be money, it won't just be a good money or one of the top monies. It will necessarily be vastly more successful than anything in the fiat system. And that is purely because of what it is and how it works. Nothing else but the normal march of progress and the playing out of incentives has to occur for us to get there on a long enough timeline that will just happen because that's where all of the incentives will push. To say that it could only be exchanged by fiat financial institutions and as a commodity is to make a claim that it will have some sort of network restriction that does not exist today, and that the only market, the only market that it will ever sustain or that it will ever actually satisfy in exchange of is with other financial intermediaries.
[01:03:28] And we already have enormous. We always already have way more than enough evidence to know that that just won't be the case. Noster is one of the biggest sources of lightning payments. Did you know there are 6 million? I just went on Nostra ban. I'm curious about that. How many people have actually set up and are using lightning, that there are 6 million different profiles? It's like 5.98 million profiles with a lightning address connected to them. Now, I know that's not like a perfect metric there's a lot of caveats, whatever. But by itself giving some leeway for statistical ambiguity. Doubled up. Ln edge lightning addresses multiple people or a person with multiple accounts, et cetera, even accounting for those things, that's kind of crazy. And it is certainly nothing to scoff at.
[01:04:24] But in the context of that, I have already seen, like, I know exactly what it looks like to be able to pay directly and get paid directly to people and use bitcoin in direct commerce.
[01:04:37] I do that now more than buying it on exchanges and as a commodity.
[01:04:44] Like, as someone like, I don't know.
[01:04:48] I know it's hard for some people who don't do this every day to think they're like, oh, we'll never be used for that. But as understand how silly that sounds to someone who literally does that and how everyone around me is slowly being added into my network. Nobody's leaving it. Everybody who I've gotten to pay in bitcoin has stayed getting paid in bitcoin. And everybody who isn't yet being paid or doing business with me in bitcoin is slowly making their way there. I'm even setting up a wallet with my contractor. One of my neighbors just asked me ask for an episode of my podcast and understand, yes, yes. Even if on the other end of that, which most of them absolutely are, they are just converting it into dollars, that is still a massive additional value to the utility and the use of bitcoin. Because it means that I don't have to worry or think about the fact that I am putting all of my value into bitcoin immediately. It gives me a new place. Understand? If I only can sell bitcoin on cash app, I have one network connection in order to use bitcoin. Now, if I have six other people that I work with, and even if all of they, all that they do is sell on cash app when they need dollars, if they accept it directly to their cash app, then understand I am removing one of the intermediaries from my interactions because now I have six additional network connections that I know I can move directly to it. Is there a next step? Not mine. It is their next step, in which an intermediary is now being entered into the equation. It's their selling and using of bitcoin that doesn't have a network except when they are working with me. But I have six new connections in the bitcoin network that result in direct exchange. It's funny, I think even Parker Lewis talks about this too. Is that like, what happens after is totally irrelevant because you're building your network. This is the pay me in bitcoin. I think this was in his pay me in bitcoin theory or whatever, that article that we read. I'll dig that one up and have the link in the show notes. And also he has a really good, he had a really great talk on that one at Bitblog. Boom. But the growth, the point is the growth of that network, the growth of the number of people willing to ascribe more value to the holding of bitcoin than the holding of some other good or service, or choosing to sell your service or your skill for bitcoin instead of fiat, even if it is to get fiat, or to test to see if I can get fiat on the other end in the case that I need it. That is the explicit growing of the network that makes bitcoin valuable.
[01:07:47] It is a communications network. It is a record keeping system. And the more amount of the higher degree and the higher value of exchange being trust entrusted to this record keeping system is exactly the value that is reflected in the network itself. Now, I want to read a another section from this article that I think does a really good job, and I want to hit this again from a different angle, because I think it does a really good job of explaining what the value of money is. So, quote.
[01:08:25] Each individual contributes their time in the production of a good or service to help solve a problem or a need of someone else. It is not altruistic. It is done to symbiotically satisfy one's own wants and needs. The best way to get the best outcomes is to specialize and to focus one's own time on an endeavor for which they excel. Compensation for time and value produced comes in the form of money. Money coordinates the orchestra, and the aggregate output from a trading economy is greater than the sum of what any group of individuals could produce or consume working independently on their own.
[01:09:14] What does that mean? What is, what is he saying here?
[01:09:19] So we talk about monetary premium.
[01:09:22] That money itself doesn't have a utility, but it has a utility like it doesn't have some other utility. And in fact, whenever it does have some other utility, if it becomes a good money, it gets priced out of that utility almost indefinitely. Why? The reason is, is because the most valuable utility in any economy is to allow the economy to trade. It is to enable the ability to exchange trade and price relative value of goods and services in the society. Because without it, without that tool, society cannot work together. It is literally the difference in value between individuals trying to do stuff all on their own and people doing stuff together in a giant cooperative system. That is the value.
[01:10:09] I want to say that again, the value of money is the difference between the value that a million people can create individually, things that they can build and do on their own, without trade, or only in social systems that are close enough that they can actually directly trust and easily barter with one another.
[01:10:34] It's the difference between that system and one where a million people are working as a single cohesive economy with the same record keeping system that can make exchange frictionless from any one person in that million person group to any other one person, and to any two people, including you, to yourself, from the current time, to some pr to some time in the future. And all you have to do in order to begin to see what the value of what that value chasm could be, is to look around at your house, look at the stuff in your house, and ask yourself, without trading, without going to Amazon, without going to the hardware store, without even asking anybody else, without working with anyone else, what of all of the things around you, what percent of value of those things could you actually accomplish entirely on your own?
[01:11:43] Listen, I'm pretty mechanically inclined. I've worked construction for a long time. I've built just about anything on a typical residential house.
[01:11:55] But if I told you that I could do 1% of the things that I have in my house without any trade or anybody else, I would probably be being very, very generous to myself. I know I am more technically and mechanically and structurally inclined than the average person by a, a pretty big margin. And yet even all of my value is dependent on the fact that I can go get a new battery for my drill. Because without that drill, I steeply, steeply lose my skillset and capacity to accomplish things. I have a bunch of extremely useful and very specific tools in my workshop, and I am useless without all of those tools. And importantly, I didn't make any of those tools. And in fact, a few of the tools that I did make or things that I did build, I only did because I had those other tools. It is explicitly due to trade and the market and access to a network of other specialized people who have access to networks of other specialized people. And every little person and every little thing and idea can take its one tiny little piece and then accurately transmit value and understand its cost throughout the entire system of billions and billions of people and trillions of transactions, and coordinate people to come together to build something that includes the touch and the thinking and the innovation and the ideas and the skill sets of literally millions and or billions of people. In fact, if you just take the normal stair step function of money as an understate, just pull it through the economy, there's actually nothing of any degree of complexity that doesn't basically touch every other person in the economy. At some point it really just depends on how many degrees of separation you are concerned with accounting for, because it all touches everything.
[01:14:11] Money is the tool that captures the difference in that value, the value, the difference in value between a bunch of individuals and a society. And it does so explicitly because society doesn't exist without good money, and a bad money creates a bad society. That's why it inevitably cannot capture as much value, and is exactly why for so long we have all been talking about everybody who saw this picture and understood that bitcoin is 21 million, and there is no changing that and understanding that value as a digital, trustless intermediary, that the money system that will be built from this thing cannot be surpassed by any alternative system known today. It will be the largest, most valuable monetary system in the world. And there is absolutely nothing anybody can do. No matter how much you yell about how it's only a store of value or how it's a commodity and it's only an asset, there is nothing you can do to trap it in only a bunch of financial markets and exchange markets. The only reason those hubs are needed right now is because of the difficulty, the lack of network connections in physical, in actual direct network circles, like my personal social circle, in exchanging with bitcoin. And same goes for businesses and things that I, places that I shop at. But that's it. It's purely a lack of network connections that I have to go through an intermediary to make that network connection. It's like not knowing anybody in your area on Facebook. So when you go on Facebook, you can only talk to or exchange with people that are over, like in a different place, or that you've never actually met in person. The only reason you need Facebook in that instance, in order to conduct all of your trade with your social group is just because you don't have anybody in your physical social group that actually is on Facebook. But if you met somebody locally and then they got on Facebook, well, then you could talk to them without needing Facebook. But it's not even a super good analogy, just because in the context of bitcoin, bitcoin is digital. So there's an actual, there's no physical limitation here. You can do business or conduct, you know, communication and transactions or whatever with anybody else. Anybody else you want at any other place, anywhere in the world. The thing is that you just have to be part of the same network. But using bitcoin and living off of bitcoin, even through exchanges or intermediaries, is still the same thing. You're still just connecting to someone else on the other end. It's just that the network is so thin. Like it's a vast, broad, global network, but it is also thin because of how global it is. There's no, like, local place where the network is dense enough to be self sustaining. That's why we have these hubs to connect people. But it is literally just one other person buying on cash app when I sell on cash app, or me buying on cash app when some other person sells on cash app, it's still just connecting to different people who are using bitcoin in exchange. It is no different. It is absolutely no different. It always just bugged the crap out of me when people are like, oh, you just, you just sell it for dollars. It's like, well, no shit. Dollars are the biggest payment network in the world. You're just telling me that the network is thin, which I'm already perfectly aware of. I live on a bitcoin standard. Congratulations, you just figured it out. But it's really funny that day by day, slowly but surely, it gets bigger and bigger, and I don't have to do that as often. Now, there's actually another quote on this specifically, I think.
[01:18:14] Yes, the medium. Bitcoin is a quote, by the way, is a tool to coordinate trade. Even if some believe themselves to only be using bitcoin as a store of value, he or she is using it to coordinate a series of exchanges, that is, or in other words, to coordinate trade. Even if the time horizon between the exchanges is very long, bitcoin is coordinating trade. Even if bitcoin is first converted to dollars, bitcoin is coordinating trade. Even if bitcoin is used as collateral to borrow against to get dollars, bitcoin is still coordinating trade. In each scenario, the value of bitcoin is not derived simply by a willingness to save it.
[01:18:55] To reinforce this point, coordinating trade is the only thing bitcoin can do.
[01:19:02] Like with the bitcoin monetary unit, its value is entirely as a money. It's the only thing it can be, because it is just a digital unit of measurement. That's the only thing that it can really do. And the fact that one uses dollars or gets a loan out against it, or whatever it is, does not in any way like this to suggest that that's not coordinating trade is to say that trade can only be with a certain type of thing. Like. Like only gross. Only when you buy groceries as a trade.
[01:19:39] That if you buy a stock, it's not a trade. That if you make a loan contract, that's not a trade. That your access to the dollar capital from that contract doesn't enable you to trade that carrying that value across some chasm of time is not coordinating trade. Of course it is. That's literally the only thing it can do. That's what a store of value means. Again, it necessitates a unit of time. It necessitates a dimension of when it was stored and when it was released. Which means on two ends of this, there was a trade. And the only way to fulfill the function is for those trades to have existed. And I really like his remark about bitcoin. That is lost. Is no longer storing value because it can no longer be exchanged. However, I do not think he is right about the the fact that the value is not ascribed to other bitcoin. That the value is simply lost. That, I think, is inaccurate. Simply because it does not change the network of resources that are available to it. It simply turns the previous trade of bitcoin. Into essentially a donation into the bitcoin network. It simply changes the unit available. In order to measure all of the other goods, services, skills and people. And the value that they contribute to the network. So if those things have not changed. And the liquidity from all of those other people has not changed. Then what has meaningfully changed is the amount of liquid units. The nominal amount of units that are then being divided up. In order to measure the relative value of all of those other things. So again, I take a little nitpick with that comment. That the loss of the coins doesn't then transfer to the other coins. Because, again, we're separating out between the units themselves and the network as a whole. That the exchange value of bitcoin is a network as a whole delineation. Because. And this is actually really closely tied to some of the definitions of money. That we have used and explored in the past. And one of the best definitions that I have always thought is the. Is far and away the most accurate. From a purely kind of characteristic sense. Is that money, the money of a society, is the most liquid good. It is the thing that most more things than anything else can be traded with. And that lends itself perfectly to Parker's fundamental argument here. It can and only will be so liquid. If the only thing it is liquid. With is financial markets. Financial markets are a small part of the real economy. And in a sound money economy, they're a much smaller part of the real economy. Because financial markets are just there to facilitate the exchange of ownership of capital goods, of stocks, of larger and longer term contracts. Whereas most of the actual, like these actual stuff is the stuff that is valuable. Like this is something that I have such a hard time getting through to a lot of people, is the financial markets should not grow in relation to the rest of the economy. The financial markets are a friction.
[01:23:03] They are a organizational system. It's like your budget for how much accounting that you are doing in your business. If the amount of resources that you are spending on your accounting department triple when your business only doubles in size, then you have a really big accounting friction. Or your accountants got worse at their job, because now they are a bigger portion of your business expenses. To organize the same amount of capital in that same way, Wall street should not grow proportionally to the rest of the economy, or at a greater proportion than the rest of the economy. If the financial markets are 8% of the market of the entire economy, well, then in ten years we would want them to be 7%, not 12%. Because it would mean we have automated away intermediaries. It would mean that we are better at organizing and dealing with ownership, and trading ownership without these intermediaries. It means that we would be more efficient and there was less friction if it was 10%, 12% of the economy. It means there is more friction, more intermediaries and more pointless waste in doing the exact same task that took only 8% of the economy 30 years ago. And I mention those numbers specifically because the financial markets have been growing as a portion of the economy for a long time, at least since, you guessed it, 1971. I can't remember what the exact numbers are, but I put it in my, in the slides, in my talk for the bitblock boom talk on inflation.
[01:24:50] Something, I don't even remember what it was called. I've got it on my YouTube channel, and I've got the slideshow thing somewhere around here, but I'm too lazy to look it up and I don't have time. I'm busy. That's your one job, guy. That's your one job. Don't care not doing it. Now, actually, actually, this quote, the one that ends, even if it's used as collateral to borrow, it's still coordinating trading, even if you just convert it dollars, still coordinating trading, et cetera, et cetera. But it says in each scenario, the value of bitcoin is not derived simply by a willingness to save it. Now, this is where I'm really just kind of getting semantic and nitpicky, because he also says, which is kind of the fundamental of, or what I think is the basis of the opposing argument, if we're steel manning it, because I will say he's addressing a lot of people who do literally say it and mean it literally and explicitly, that only saving is the only thing that creates its value. And I think, I think he is right on a, in a broader sense, on the exchange theory of monetary value, that it is the premium of its ability to coordinate trade and the value that is derived from being able to successfully communicate that value, and the value add of people being able to trade, that is the source of monetary premium. So he is right about that. But he also says a little bit earlier in the article, actually quote, your act of saving is an act of future exchange, end quote. This a thousand times.
[01:26:34] But this is also why I say that the purchase, the buying, the saving of bitcoin, or at least I have said in the past, and this is probably a good caveat. This is probably a good, a more solid explanation to get people to understand.
[01:26:49] I mean, Parker Lewis's explanation specifically in this article. But regardless, what I mean when I say savings is the thing that creates value is someone's willingness to ascribe more value to holding the bitcoin than some service that they provide, then the dollars that they have right now, more than this portion of their paycheck, or more than putting that value in anything else for the next six months or a year, that act of exchange is what ascribes greater value to it. And the reason they would want to do that is because of the ability to exchange it later. And explicitly, when you save money, the act of saving is a promise of future exchange.
[01:27:42] So really, the act of saving is just a trade. It is a trade. It is a trade to initiate and a promise of a trade in the future. And while you can get nitpicky and say it is only the person who is ascribing more value to it at this one point in time that is adding value to bitcoin, and therefore it is only the buyer that makes the bitcoin price go up, that is also not entirely accurate. And I think Parker Lewis obviously does a pretty good job of kind of explaining the bigger picture why. But really, in my opinion, the simple way of explaining why it's not perfectly accurate, even though it's a easy dumbing down of the way to think about it. Probably easier to relate to. But the reason is, is because every purchase is a sell. Every sell is a purchase like it. It's just like the. Whether or not there is one person ascribing value to it or the versus the other is not really relevant. Because every trade, it simply is someone ascribing more value to something, period. Like that's just what a trade is. And to use bitcoin in that trade, which again, there is somebody buying and somebody selling on every side. So there's not like a special time where only somebody is buying and somebody isn't selling. No, they're, that is always happening. They both exist in every single situation. But the value of the trade, what the net positive gain is for those two people to be able to connect and trade fiat or some goods or some services or whatever, that makes them both individually better because they could obtain the other thing through an intermediary, through a, excuse me, through a medium. That is bitcoin. That is exactly the value that gets ascribed to bitcoin specifically. That is the monetary premium.
[01:29:45] So like I said, it's, it's kind of hard to say I'm disagreeing with him because I'm really just kind of nitpicking about what each of the. When you say each of those things, what they mean, which feels a little bit like semantic bitching. All right, another like, great quote that.
[01:30:09] I mean, I guess I'll do the whole thing. I'll guess I'll do the whole paragraph. It also serves to make the point that the transfer of value is how money derives its value. Even when you sell bitcoin, the value of bitcoin as a medium of exchange is increasing.
[01:30:24] Someone else is buying, and importantly, value is being transferred. Step outside of the narrow view of bitcoins. Dollar value. After each tick up or down on an exchange, more trade equates to more value. I want to say that again, because going back to the idea that the money of society is the most liquid good, more trade equates to more value. Now, there are caveats.
[01:30:53] This is also a little bit the whole velocity of money concept, which is not true because more trade equates to more value in the context of a same, of the same nominal unit and the same participants, like inside the same network. So even though I think it's a really great way to picture it, it's also not always true in all situations. This basically is true of sound money or. Wait, no, that's not the way to frame it. So it's, it is actually true of all things in all situations, except that the units, the supply of the thing that you are trading necessarily dilutes, is dividing up that amount of value. And if it fails to divide it up in such a way, that's actually good for all of the participants doing the trading. Even in the case of a sharp increase in the amount of trading in some specific period of time, it can still completely collapse because people will not want to trade it in the future. Specifically, I'm referencing the fact that, you know, if you printed a, you know, $80 trillion tomorrow morning and flooded into the economy, there would be way, way, way more trade in dollars. Like, there would be a massive, like they would look at their velocity of money metric and it would be off the charts. Now. Funny is it actually does in the short term increase the value of the trade network, but it destroys the value of the trade medium in the process of trying to expand the network. And those trades would end up becoming lopsided after they blew up, after they spiked, they would then plummet because people would start refusing to trade with it at all. There would be no buyers anymore. There would only be sellers. So that might not have been a necessary caveat. But just in case somebody is thinking that the quote more trade equates to more value, is related to and or defends the velocity of money concept, it doesn't has nothing to do with it. It means that the more direct exchange that people have and the more that I am trading my specialization with your specialization, et cetera, every single one of those trades adds value. If the money, if we're talking specifically in the context of money, then each monetary, or sound money, each monetary unit goes up in value and is reflecting the additional value of those trades. But for the monetary whatever the network is at all, the more there is voluntary trade, the more value that network has. The monetary units are just kind of a way to denote how we are measuring that value. But fundamentally, more trade equates to more value.
[01:33:43] Alright, another quote. Man, this is getting long. Okay, so in the future, prices will simply be denominated in bitcoin, and that itself will increase the ability for bitcoin to facilitate exchange efficiently. Boom. Yes. Adoption will increase as the ability to exchange directly increases, and vice versa. Stability in the price of bitcoin will emerge as a function of mass adoption. Stability in price will actually come in the form of everything being priced in bitcoin, but stability will follow as a function of direct exchange.
[01:34:14] Yes. So, and we've talked about this in I mean, 100 different times. But Parker Lewis also has. Bitcoin is not volatile, which I think does a really good job of laying out the foundations of this one as well. But holy crap, you still get people who like bitcoin can't work his money because it's volatile, because, like, look at, look what, look at what the price does. It goes all over the place. I'm like, dude, it is so much about timescale. People don't realize how long the timeframe of monetary shifts are. And I have no realistic idea of what it means to rebuild a monetary system, to build a new monetary system.
[01:34:53] No way in hell. This is happening overnight.
[01:34:56] The traditional shift in a monetary asset or the monetization of a good in history is measured in centuries.
[01:35:04] Like, literally, we only got really freaking lucky today because we have the Internet and digital communications and software and now AI. And so because of all of that technology and the. The innovations of giants on. Standing on giants shoulders, on giant shoulders for the last 500 years, because of that, it'll probably take us 30 years, roughly about the same time as it took us, to completely redesign and replace our entire communications infrastructure with the Internet, to go from analog to fully digital. But people who think that the stability and the price comes first and that somehow there's, like, some way to, like, artificially create that or to. To engineer stability in the price before you have a liquid market just don't understand what a price is. In my opinion, that could not be a more perfect example of putting the cart before the horse. Stability is a result of liquidity, and it literally cannot exist without it. It is only if you want. You're waiting for the bitcoin price to be stable.
[01:36:22] Then you are just waiting for there be to be no opportunity in bitcoin, period. You're just waiting for it to be available everywhere at every store and for every direct exchange and every good and practically everybody that you could want to trade with. Which means there will be only the slow and steady growth of society as a return on actually making a bitcoin, going to a bitcoin standard when if you did it now, you could probably make 100 or a thousand x in the process of actually betting on the fact that one day it will be stable, but it will never be stable first, and then everyone will adopt it. The adoption is what creates stability like the bitcoin. I mean, the dollar isn't stable because, like, the us government, like, makes sure it's stable. It's because it has the largest network in the world of anything. And without that network, the government could not do jack shit to make it stable. It would just be volatile. And any fake stability or price controls that they tried to put on it would get black marketed so fast it would be ridiculous. You just kill your own market. Governments notoriously attempt to control markets all the time and suck massively at it. Because you cannot control a market. The actual price and the actual value of goods will squeeze through. All you can do is make frictions and the market just breaks. It just doesn't work if you attempt to control it. So it literally either finds a way around your bullshit tyranny, or the government literally kills it and it doesn't work or produce anything and people starve to death. There's no middle ground the, the real price will get through, but the stability of that price, when we're talking in relation to bitcoin or anything, really is literally just in the liquidity and the volume of trade and exchange that occurs with it. Now, if you have some good or service that has a predictable amount of production and a predictable amount of consumption, well, it can stay relatively stable because it has a large amount of flow in the stock of those goods. But if you have a 21 million hard cap, well then its price is a direct reflection of its demand, its use in trade.
[01:38:56] So heres the funny thing. What that means is that while bitcoin is young and for take that back for a lot of bitcoins life and its market, bitcoin will be incredibly volatile. And it will stay incredibly volatile for a very, very long time because its supply is completely inelastic. But after it has adoption, it will paradoxically be the most stable monetary good we have ever had, ever, because its supply is completely inelastic. And what you really want to think about is what the price is reflecting. You're not talking about the price of bitcoin. What you are talking about is the emotional shifts and the knowledge and understanding and confidence in the value of bitcoin in relation to what you can do with it. Which means that what you're looking at is not the price of bitcoin. What you are looking at is the perception of bitcoin and the available network size and number of network connections in the bitcoin system. And so there's another quote I wanted to hit before we close this one out quote. Lastly, the market of bitcoin holders will ultimately expand to be larger than the size of any single country. And direct exchange will be possible by and between more people than ever before.
[01:40:29] That itself might be the single largest driving force that will expand the scope of trade and direct exchange. More people holding and being willing to accept bitcoin will create more trade channels than could possibly exist in the fiat world.
[01:40:50] I want to reiterate that this isn't just about creating more trade channels than the dollar.
[01:41:00] Bitcoin will ultimately, and necessarily, as long as it survives, create and enable more trade channels, more network connections than the entirety of the fiat system can. Cumulatively, in aggregate, bitcoin's success will not come when it's slightly bigger than the dollar. Bitcoins success will be shown and finally open up when it is bigger than every other currency combined. And I truly believe that if it survives, it simply will be so to everybody. I guess I'll end this episode with framing two everybody who thinks that bitcoin will only be a financial asset, that it will only be some sort of commodity, that it's exchanged in ETF's or, you know, through financial intermediaries, and that somehow it will be constrained to that. My question is, how on earth is anybody going to be able to stop it?
[01:42:08] Where exactly are the walls of that would make that possible? That would restrict bitcoin from being used in any way that anybody in the world wants to use it, especially when it comes to direct exchange.
[01:42:27] So those are my two stats on that.
[01:42:30] All right, shout out to Parker Lewis for continuously fascinating writing. Big fan of everything that he does. Love the book. I mean, he's just put together a massive amount of amazing explanation and detailed examination of so many different things around bitcoin, and just one of the ultimate destroyers of bitcoin fud. So shout out to him. Don't forget to check out his blog. Don't forget to check out zapright. I will have the link in the show notes. I'll add that one in. And don't forget to check out the many other just for the note. I don't think I have. I don't think there's an affiliate thing for Zaprite, so that won't be an affiliate link. But a lot of the things that I post in the show notes for services and products that I really like and trust are affiliate links. So it's a really good way to help support the show. So check them out if you're looking for services in bitcoin. In fact, ask me actually for what types of things you're looking for. But I've just kind of put together a list of the things I really like, the people I'm working with, or the tools and products that I trust so hopefully if you need something in bitcoin and you're looking for a quick answer, you may literally be able to just find it in the description of this show and hopefully it will help support me and my work as well. So thank you guys for that. And also a shout out to everybody who zaps on Noster and on Fountain and stream sats on Fountain for the show. It makes a huge difference. Seriously appreciated. And one of the best ways that anybody who wants to support this show can. I mean, obviously you can do streaming sets and boosts and stuff on Fountain, but honestly, leaving a review on Apple and Google Podcasts and sharing this show out, that is the only way that this show has ever grown, that word gets out is you guys sharing it and letting people know. And also, I think I'll have some really good two SATs videos in addition coming up soon. And I think those are really probably the best way to like hit an idea in as concise a way as possible. And you can look out for those on the YouTube, on my social and on Rumble all of those links which you will find right down in the description. So don't forget to subscribe, don't forget to share it out, and don't forget that I am guy Swan and I will catch you on the next episode of Bitcoin Audible. And until then, everybody take it easy guys.
[01:45:19] It is the mark of an educated man to be able to entertain a thought without accepting it.
[01:45:27] Aristotle.
