Read_944 - Proof of Work in the Real Economy

[00:00:00] Speaker A: If your money isn't sound, it is [00:00:03] Speaker B: not reflecting any proof of work. It is not reflecting anything about who should be able to consume or how [00:00:11] Speaker A: much there is available to consume. [00:00:13] Speaker B: It's just being corrupted. It's being defrauded so that certain people [00:00:17] Speaker A: get bad price signals. [00:00:19] Speaker B: And this will incentivize them and everyone else to literally make economic decisions that. That appear to be economically profitable, that are actually destroying the society. [00:00:31] Speaker A: The best in Bitcoin made Audible. I am Guy Swan and this is Bitcoin Audible. What is up, guys? Welcome back to Bitcoin Audible. We got a guy's take coming up pretty soon. I got. I ended up ranting out is actually because of this book that I'm in the process of reading right now. I'm doing an audiobook for it. And I know I said I wasn't doing any more audiobooks. This is mostly just because I had already had an agreement with Brains and I wanted to get through a bunch of stuff that they wanted in audio. Most of the books are pretty short. And this is also a book by a friend of mine, Wyatt, who I've worked with, and he's a really great guy and it's really good book. So that's actually what I'm pulling out of today. This is a chapter from the Bitcoinization of Finance. And he actually asked me to do the foreword for this book, which was pretty cool and I was pretty stoked about. But this book is dense. There's a lot of fantastic stuff in it, especially coming from the standpoint of if you're trying to learn and wrap your head around a lot of the financial tools and what's kind of moving in the financialization of the bitcoin industry. And then what bitcoin, what the consequences of bitcoin entering into the finance world will be. This is just a really, really information and signal dense book for exactly that. But I've actually been writing my own book for a while now. I've talked about it a little bit on the show and in like a video or two that I've done. But some of the best ways for me to get ideas out, I'll. I'll read something else and then it will catch something. Something will just kind of like spark or light a fire. And I'll immediately be like, oh, this is actually a great idea. Or this, this really hits home. This one chapter that I had in mind and it just kind of puts me on a sprint and I will literally sit down and write five or ten pages of the book. Just off one idea and trying to explain it. And I recently, I think it was. I'll have to go back and find the quote. I think it was actually this piece that I'm in the chapter that I am sharing right now. But I'm going to do a guy's take on that because one of my best ways to get the idea out of my head or like really flesh it out and see how I think other people are going to respond to the idea or the analogy is to talk it out. And so you get the benefit or the pain of having to listen to me record that and publish it. You're welcome. You know you'd like it. You know it's. You feel special. So I got a guy's take coming that is inspired by something that Wyatt had in this book and it's titled Free Rent for the Rich. So stay tuned for that. Today we are reading a section from Wyatt's book and this will be available on both Audible and from the Brains website. Obviously when I have it done, the book is already available if you want to read it yourself. A quick shout out to our sponsor. We have the Bitbox 02 hardware wallet. Love these guys. Love their hardware wallet. Been a huge fan for a really long time. You've probably seen some of my old ads, but I got you a discount code as well as an affiliate link. If you haven't grabbed your bitbox or you've been looking for a really good hardware wallet, you literally cannot go wrong. You will find the details right down in the show notes. With that, let's get into today's article and I'll follow it with a little bit of Guy's commentary and it's titled Proof of Work's Role in the Real Economy. Worthwhile creations like monuments, architecture, or ideas all require substantial investments of time, energy and resources. This effort isn't just a cost, it's a signal of durability and quality, a testament to their lasting value. In America, this philosophy is woven into our ethos. We take pride in crafting things meant to endure. So why isn't this approach proof of work, where value reflects effort, the universal standard for everything we build? Well, the answer is both a mix of the quantitative and qualitative. In order to build high quality creations that last a long time, you need sound money that won't rug you. In the meantime, you also need to embrace a moral worldview that encourages low time preference and optimism. You need the belief that what you are doing has purpose and you will be appropriately rewarded for the risk you take the Gilded age of America, 1870-1900 was highlighted by an economic boom and transformation. It was a period of rapid industrialization, expansion, ingenuity and wealth accumulation. This period was in fact the foundation for quasi modern capitalism, technological innovation and industrial power. Many of the technologies still pertinent today were invented during this era. This was the rise of the American Empire where markets were most free and open. Risk takers such as Rockefeller, Carnegie and Vanderbilt were appropriately rewarded for their efforts. The American economy was rooted in tangible production, accurate market signals and real value. The Gilded Age was defined by the massive expansion of railroads, raw material processing and large scale capital formation. These ambitious projects demanded immense physical energy, labor and investment that drove economic growth and transformed society in profound ways. What follows the rise? You guessed it, the Fall Once the money became unsound, Americans began operating under entirely different economic and moral pretenses. Enter the Zero Interest Rate phenomenon ZIRP era 2008-2022 ZIRP was initiated in response to the 2008 financial crisis, allowing corporations, governments and investors to access nearly free money and encouraging excessive risk taking. This Federal Reserve induced sugar rush fueled speculative bubbles leading to a proliferation of unproductive enterprises that lacked any real proof of work. This is also known as the Cantillon Effect which states that those closest to the money printer will benefit while average savers or workers are left behind as their earnings, savings and time are debased. During ZIRP, a particular sector thrived disproportionately. Venture backed SaaS software as a service companies While I am a self proclaimed techno optimist, I want to hone in on this industry as I believe it to be a great case study to fully grasp grasp the ZIRP phenomenon. Growth in this ecosystem was largely driven by cheap money. Chamath Palihapitiya reflected on how the era of zero interest rate policy influenced perceptions of financial acumen. He noted that many investors and entrepreneurs attributed their successes to their own skills when in reality the favorable economic environment played a significant role. This period of easy money led to inflated valuations and a sense of complacency masking underlying vulnerabilities that became evident as monetary policies tightened. Chamath Palihapitiya argued that the ZIRP era led to inflated valuations and a false sense of accomplishment as many investors and entrepreneurs mistook the effects of easy money for their own skill. Investors poured billions into high growth startups, many lacking any viable path to self sufficiency. Many well intentioned entrepreneurs were misled into building companies based on vanity metrics such as headcount and DEI initiatives. This was done so their venture capital partners could inflate valuations, tout paper gains to investors, raise their next fund, and collect management fees. [00:09:14] Speaker B: Companies like WeWork and Quibi are stark [00:09:16] Speaker A: examples of capital being lit on fire. Austrian economist Ludwig von Mises published human action in 1949, describing how artificially low interest rates led to boom and bust cycles. The autopsy on the ZIRP era, while still ongoing, has been best analyzed by Jeff Booth and Lynn Alden. Lynn, in her book Broken Money, describes how the fiat system incentivized financial engineering over economic productivity. She explains how ZIRP fueled asset bubbles rather than investment in energy, manufacturing or sustainable industries. Jeff Booth, in his book the Price of Tomorrow, argues that ZIRP prolonged zombie companies, preventing true innovation and deflationary progress. As the ZIRP era ends, capital must flow into productive investments rather than speculative bubbles. The return to the Gilded Age is based on the larger macroeconomic view that smart capital allocators should recapitalize their balance sheets with scarce hard assets. Finance writer Tom Luongo believes that the underlying strategy of the US Federal government's newly proposed Sovereign Wealth Fund, or swf, is to recapitalize their balance sheet with scarce hard assets. Tom specifically mentions gold, oil, etc. He suggests that they are doing this to back the dollar indirectly with assets outside the control of the Federal Reserve. Tom also claims the SWF is a liability to the government and an asset to the people. It's not the way I would do it, but that's better than nothing if done well. No guarantee. This is the government. I see Tom's point that this will help recapitalize broadly the US Balance sheet. As a patriot, that is a good thing for my country. That said, my perspective is ultimately shaped by something higher. I believe there's an even greater opportunity, the recapitalization of everyone's balance sheet. The only way to do that in a decentralized, transparent and incorruptible way is through Bitcoin. Bitcoin's proof of work model forces discipline on capital allocation in a way Fiat never could. Like steel and railroads, a bitcoin based economy will take an intentional capital intensive energy driven infrastructure buildout. Unlike SaaS or fiat financial systems, Bitcoin has real production costs. It is energy based and backed by real world work. Bitcoin mining is industrial scale work converting energy into monetary security, economic coordination and financial sovereignty. Mining connects the physical world of energy production with the digital economy, enabling new investment opportunities. The Bitcoin protocol is beautifully designed with a built in incentive structure that can create a real economic foundation that is decentralized and resilient. I believe that the future success of modernized economies will depend on whether their investment strategies, monetary and fiscal policies and moral approach to free markets look more like that of the Gilded Age than the ZIRP era. You know, an unsung hero of the bitbox that I think doesn't get enough attention is just how good and simple their wallet software is. It's a fantastic introductory for. I mean introductory, but then also if you want to actually do a little bit of advanced stuff with it, but just a wallet that just works and is very simple and works directly with your hardware wallet. I actually used the default software for a really long time. I still have the wallet that I use on my original bitbox with the default software because when you find something that's good, that's easy to use and just works, it's really hard to let it go and change and complicate the setup. Even if I do do something else over on the side, I kind of keep the original if it just works. [00:13:17] Speaker B: Check it out. [00:13:17] Speaker A: If you hadn't snagged one yet, you can find it right down in the show notes. I've got a discount link as well as an affiliate and everything so they know I sent you. Don't forget to save it in your bookmarks if you're planning on doing it later. I actually thought this was a fantastic follow up to the Fabric of Desires that we just did by Nick Szabo, because I think when you put these two ideas together, it really paints a much broader picture as to what money is supposed to be, what sound money does in an economy. So if you haven't listened to the Fabric of Desires, I suggest you go back and do so. But just the title of this Proof of Work's Role in the Real Economy. Going Back to the Fabric of Desires. Consider the story that he had going throughout that that article that a canoe was stolen, there were two tribes and a canoe was stolen over a long dispute over fishing rights in a certain area. And then the kinsmen of the victim went upriver early morning and literally fought, battled with this other tribe. Then a ceasefire was called and they came together in a neutral area and discussed who should pay what, like what tribute there should be to deal with this conflict. And they presented these very valuable, very hard to obtain shells as payment for the wrongdoing. Now, looking through the sources for that, I suspect this was actually a True story. But whether or not it was is kind of beside the point because it's. It's a telling of something that hap. That occurred many, many times. This was a common occurrence. And so what was it about these shells? I mean, obviously it's. It's their money, right? But why does it actually work like this? And why did it work for so long? Like this is something that survived as a major store of value and a major settlement tool and transfer of wealth tool for at least centuries, likely millennia from what I've read, depending on the area. And gold obviously served the same role in many different ways. But why are these things so successful? Sound money itself is a proof of work. Like that's what it is. That's why it is actually a legitimate. It serves the role that it is able to pull off in the economy. So what was happening in the context of the Yuruk and the. That exchange between those two tribes, that tribute to for wrongdoing, was essentially this. I am taking the value that I have given in the past, that I have created in the past, and I am offering it to you in exchange, I am giving my past to you. The stuff that I have crystallized the work that I have done and the value that I have produced in the economy into the world. I've placed it, I've transferred it into a form that essentially represents all of that work that has been done and is tradable for my past. And I am giving it to you so that you can benefit from my past, from the work that I have proved I was able to do. Literally, it behaves as if I have like, let's say there's just a profound amount of knowledge. I've got like this really important piece of knowledge and I write it out. I write it out on it. Takes me a hundred pages to get the entire concept and all of the important pieces to then produce the value in someone else's life. But I write it out and I put it into a document and I put it on a USB drive. That USB drive has crystallized that knowledge that it's turned it into a physically transferable means or medium. Sound money does this, but it does so in a way that cannot be, that is exclusive. Where I can put it down. Let's say I put this knowledge down on that hard drive or I put it down on the USB drive, but if I give it to you, it's gone from my memory. I can't even benefit from it. And that's explicitly because I cannot create it again in the context of sound money. The reason sound money works is because [00:17:59] Speaker B: I have to reproduce all of the [00:18:01] Speaker A: value in order to get it back back. There's no cheat, there's no workaround, there's no trick. I either produce the value and exchange it for the money or I'm not going to be able to get it. There's no shortcut. That's what makes it a proof of work. And that is the only reason an economy can be sustainable. [00:18:25] Speaker B: It's unbelievable. [00:18:28] Speaker A: Unbelievable to me how much our political system will pontificate and BS about sustainability and balance and all of this crap, when they fundamentally have destroyed any sense [00:18:40] Speaker B: of ever even being able to make a sustainable signal present in the economy, to judge people's behaviors, to guide people [00:18:49] Speaker A: into smart decision making. [00:18:50] Speaker B: In fact, they've done the exact opposite in the effort of creating sustainability, which is not really their point. [00:18:56] Speaker A: Their point is to be corrupt and to make a whole bunch of money for themselves and to steal and siphon as much value away from us and towards them and their cronies as they can, obviously, but they. At least if you take them at [00:19:08] Speaker B: face value, I'm sure there's enough idiots [00:19:10] Speaker A: up there that actually think they're benefiting sustainability. [00:19:14] Speaker B: It's like burning down the forest so that you can steal 20 seeds from [00:19:18] Speaker A: somebody and plant 10 trees. [00:19:20] Speaker B: That's how stupid the idea of destroying the money so that you can politically [00:19:26] Speaker A: enforce sustainability is, and how disgustingly ineffective [00:19:31] Speaker B: it is because it destroys the foundation of. Of our ability to communicate what sustainability [00:19:37] Speaker A: is from the context of value being [00:19:40] Speaker B: siphoned up from resources being used up that we aren't actually replacing. You must have legitimate pricing, you must [00:19:49] Speaker A: have genuine pricing in the marketplace, and [00:19:51] Speaker B: you must have a money that is backed by proof of work. And I don't mean it like it [00:19:55] Speaker A: has to have proof of work, blockchain. [00:19:56] Speaker B: I mean that the money has to be sound such that nobody's cheating it or. Or it literally doesn't do its job. The whole idea behind why the scarcest [00:20:06] Speaker A: money ends up being the dominant money [00:20:08] Speaker B: is because it's the best proof of work. It's because it's the one that restricts consumption as tightly as possible to what actually exists, to what is actually produced, and properly funnels it to those who are the best at producing so that consumption is most likely used to make everybody wealthy, rather than to just use up crap and have everybody else starve to death. Because, you know, having stuff and surviving and thriving is a whole lot better than running out of stuff and starving and dying. Just, I mean, you know, you don't have to be all, oh, that's all subjective. No, you can very simply say that the former is better than the latter. [00:20:51] Speaker A: If your money isn't sound, it is [00:20:54] Speaker B: not reflecting any proof of work. It is not reflecting anything about who should be able to consume or how [00:21:02] Speaker A: much there is available to consume. [00:21:04] Speaker B: It's just being corrupted. It's being defrauded so that certain people [00:21:08] Speaker A: get bad price signals and this will [00:21:11] Speaker B: incentivize them and everyone else to literally make economic decisions that appear to be economically profitable that are actually destroying the society. And I don't say it like that to be melodramatic. That's literally what it is. If you eat 10 apples and you only grow eight apples, you're down two apples. And if you just keep doing that over and over, you're just going to run out of stuff. And make it even worse is that you cause people to double down on the investments of whatever system you have that's eating up 10 apples and only making eight. So anybody who was actually, you know, growing 12 bananas where only 10 bananas were being eaten are actually disincentivized. They're actually lied to about the fact that this other system that just destroyed two apples from existence and is a good profitable system and worthwhile and even better is that, or even worse actually is that it appears easier because you only actually have to make eight apples, but you get to eat 10. So it's actually the simpler investment. This is exactly why you get a veritable explosion into crap like dumbed down passive investment and just shove stuff into giant corporations. Like this is not arbitrary. It's not like a coincidence that our entire economy has been hollowed out. You have to look for what caused it to hollow out. It's insane to me the amount of [00:22:39] Speaker A: people who are just be like, oh, it's like, well, people are stupid. [00:22:41] Speaker B: It's like so you think people are so stupid that the natural inclination of people working together is to just obliterate society, is to just starve. That makes absolutely no sense. You would just not trade if the result was starving. There's clearly something that caused the disconnect between nobody likes to die. Nobody likes to die. I don't know a single person, not one person that I know in my entire circle of friends and associates and semi two steps removed associates that I know of is literally going to work to die. To just work every single day to go and make sure that they eat less or they have less gas. [00:23:19] Speaker A: None of them not one. [00:23:21] Speaker B: So please explain how it is that that incentive structure, that basic drive to [00:23:27] Speaker A: not die, to survive and to cooperate [00:23:30] Speaker B: with other people, get more of what they want, somehow turns into a, a self destructive behavior when you get a bunch of people together and you introduce [00:23:40] Speaker A: money into the equation. [00:23:41] Speaker B: Because it's not natural. It's not natural. And if you actually think people are stupid and that's why it doesn't work, well then how the hell do you think you're going to get a political system where you have some people who literally just violently tell everyone else what to do, that this is somehow going to fix it? It could only ever make it orders of magnitude worse because now you've got a small group of stupid people that just have exorbitant amounts of power. You would at least want to decentralize the stupidity rather than centralize it into one person who's disconnected from everyone and put it all in the bottom left [00:24:12] Speaker A: corner of the give a shit matrix. [00:24:14] Speaker B: How on earth would that ever work? Like, even by their own stupid logic, it's a ridiculous plan. And they have no explanation as to how such a huge systemic consequence, negative consequence could actually come about. They just say it's like, oh, well, that's how people are. It's like, okay, well then why did the last 5,000 years get us here? [00:24:33] Speaker A: What happened? What changed? [00:24:35] Speaker B: Because we didn't used to just eat ourselves into starvation. There is such thing as a thriving prosperous economy. What the hell happened to that? What's the magic sauce? It's proof of work. It's proof of work. It's the fact that everybody can provably know that other people are contributing. And thus their contribution into the society can be, can be rightfully stamped, can be correctly compensated. Because that's the only way you actually get people to come to actually produce. That's the only way you actually get people to contribute, is they know they're actually gonna get it back. Why the hell would they give you something if they didn't think it was gonna be worth it for them in the long run? Nobody's just gonna feed somebody forever and then starve themselves. They want help. They want I scratch your back, you scratch mine. They don't want I scratch your back every single day and my back just itches for infinity. That's, that's not a plan, that's not a cooperation, that's not a trade. That's not anything. It's not even society. It's just one person doing something for somebody else and the other person treating them like their slave. And these same people will be like, oh, well, now that's shelf selfish. They just want what they want out of it. No, it's called shelf sharing. It's literally quite the opposite of what you claim. You're the one who's being selfish. You're the idiot who thinks that you can control this and just get and take whatever the hell you want and that there should be no mechanism to actually ensure that somebody's doing something for people. Society is a trade. It is a trade. That's exactly what the beginning of this piece lays out is the role of proof of work. Sound money, Is that proof of work? The role is to actually secure the ability to transfer value that can't be transferred, that is stuck in time, that is stuck where it is, that is lost to history. How do you actually crystallize it and make it so that it can be moved, so that it can be owned, so that when someone does produce something, like, it's like somebody got. If I produce a house in North Carolina, somebody gets that house. I have produced that into the economy, but I can't give it to somebody in California because you can't pick the house up and move it to California. Or if you do, it's. [00:26:51] Speaker A: It costs three times as much as [00:26:53] Speaker B: just building another house. But the value that I got out of that, if we're actually working as a society, the value I got out of that I should be able to return. I should get it back from anywhere else in the economy because anybody who does want that house in North Carolina can go get it in North Carolina. It is available for the value that those who actually went and traded their proof of work for is available in the economy. [00:27:20] Speaker A: I have increased the productive resources. [00:27:23] Speaker B: I have increased the value of everything that we have available to us. And thus I am owed that in return. Why the hell would I let somebody else live in my house if I wasn't going to get the value of it? If this wasn't possible, you would literally not have a home. You wouldn't have a place to rent nothing. You want to know why? Because you've never built a house from scratch, top to bottom. And I'm not. I don't have to be. And even, even somebody who's like, oh, no, I totally have built a house [00:27:55] Speaker A: like you work construction or something. No, you haven't. [00:27:57] Speaker B: You purchased windows that got shipped to you. You purchased nails from a store. You bought a spirit saw that was already configured with metal that was mined from halfway around the planet. You never actually Built it from scratch. You only were able to trade the proof of work of millions, literally millions of other people in order to do 99% of the work for you. And you did the last 1%. The other 99% was done over a series of centuries in making this available to you, in the knowledge of the tools, in the mining of the millions of man hours that are involved in all of the individual pieces so that you can get a nail at less than a penny per and for 50 bucks you can have a half decent nail gun that literally makes it so you don't have to pick up something heavy and hammer it. No one has ever built a house. No one, not any person, listen, listening this, not any person alive today has truly done what the, the natural thing by themselves of going out, finding the resources and building a house. [00:29:07] Speaker A: Maybe there is some lunatic who actually hand built a house from hand cut down trees or something, you know, using. I mean, you know, there's, there's probably some crazy psycho legend out there who's done it, but you get the idea. This is not possible without a proof of work to exchange. The ability to exchange a token of proof of work, whether it be shells, whether it be gold, whether it be, whether it be dollars. That's even terrible at this because it's explicitly exploitable. It is a proof of work. It is, it is a. It's actually a crappy proof of work. It is only proof of work due to the sheer liquidity of the network that's using it. But it is one that is explicitly cheatable by a huge subset of the economy and is fundamentally done systemically, done so by the structure of our financial system. But the only places, the only zone [00:30:03] Speaker B: in which it does work in any sense at all is where it is still able to transmit some signal as [00:30:11] Speaker A: a proof of work in the economy. And is no coincidence that Bitcoin is defended by proof of work, the money itself. Bitcoin is designed to be one of the most pristine proofs of work that is transferable and exists entirely in a digital realm. And the chain itself, the system, is defended from being edited from its history, being altered by a proof of work mechanism. That's not a coincidence. It's because it's the only way that you can actually prove that ownership is irreversible, that you actually can transfer it. [00:30:53] Speaker B: And it is exclusive. [00:30:55] Speaker A: Just like the shells that once they were sent from Panol to Waycoy or I think, I think that's their names. That way, Koi was now the owner. And there was nothing that Paynal could do to get those back. It was an explicit and exclusive exchange of his past for. For Waycoy's future. But it's not that markets work better with a proof of work. It's that if you do not have a proof of work, if you do not have a sound money, the market will never emerge. It is a prerequisite for the market to exist. The and that's exactly why when money loses that characteristic, the market rots until it dies. Because you simply can't sustain a market if you don't have it. So in Wyatt talks about like, it's about recapitalizing and rebalancing the economy. We're talking about curing the ride. We're talking about saving the economy from extinction, because that's what will happen. We will go extinct with our money, or at least all of our value and the capacity, the capacity to plan for the future, to extend out and actually see and understand the value of things and to actually operate and trade sustainably, which is society itself. So we're talking about. It's not a coincidence that when was it Argentina or was it Venezuela? I don't remember which country it was exactly that this happened in, but one of the recent hyperinflationary periods. I saw a video of some people who had walked by and they just got. They were so hungry that they broke into a field that had some cattle and they just picked up rocks and sticks and they beat a cow to death and ripped it apart in the field so that they could take some meat home. That is the end of society. And that is what happens when your money stops working. There is no way to trade. There is no way to crystallize the value you have created in the past. There is no way to balance or sustain activity across distance or across time. And if you don't have that, name me one thing in your house you have without trade. If trade breaks down, it all breaks down. Then we are back to walking out into the woods with our bare hands and trying to rip down trees so that we can build a house. And there's a reason why I'm confident that not a soul listening to this has ever done it. And it doesn't take that long for most of the useful stuff to degrade. You have to have a good money or society doesn't work. The question of when and how it breaks down is just a matter of time. Bitcoinizing finance is not a nice to have. It's a. We either do it or our country like everyone before, it will find itself dealing with crowds breaking into pastures to beat a cow to death just so they can have a meal. Shout out to Wyatt for the article. Another shout out to Zabo and the Fabric of Desires. If you didn't read that one yet or listen to it, it will be the it should be the previous one in the feed. I'll have the link to it just in case. Don't forget to check out the bitbox link and discount code in the show notes. Don't forget to check out a shout out to audionauts too for supporting the show and for everybody who zaps and shares it out on Fountain and Nostr. You guys are legend. Thank you so much. This show works exclusively by word of mouth, so getting some attention and shares is always immensely valuable and I really appreciate it. With that, I will catch you guys on the next episode. We got a guy's take coming again. Free rent for the rich. Stay tuned and I will catch you on the next episode. Episode of Bitcoin Audible and until then everybody, that is my two cents. When two opposite points of view are expressed with equal intensity, the truth tells does not necessarily lie exactly halfway between them. It is possible for one side to simply be wrong. Richard Dawkins.