In this interview with the Practical Islamic Finance podcast, Saifedean discusses Bitcoin from an Islamic perspective, and makes the case for why it is more compatible with Islamic Sharia law than government money. Whereas the creation of government money happens through the creation of interest-bearing debt which is forbidden in Islam, the creation of bitcoin is no different than the creation of a market commodity, with a competitive market for its production. Bitcoin's decentralization makes it uniquely different from all other digital currencies because it makes it a free market commodity, and not a tool that allows its issuer control over its users.
Resources
In this interview with the Practical Islamic Finance podcast, Saifedean discusses Bitcoin from an Islamic perspective, and makes the case for why it is more compatible with Islamic Sharia law than government money. Whereas the creation of government money happens through the creation of interest-bearing debt which is forbidden in Islam, the creation of bitcoin is no different than the creation of a market commodity, with a competitive market for its production. Bitcoin's decentralization makes it uniquely different from all other digital currencies because it makes it a free market commodity, and not a tool that allows its issuer control over its users.
Resources
Rakaan Kayali: [00:03:02] All right, As-salamu alaykum everyone, we have a very special guest for this episode, Dr. Saifedean Ammous! Dr. Saifedean is the author of The Bitcoin Standard - the best selling book on Bitcoin translated into 30 languages. He is also the author of The Fiat Standard and the forthcoming textbook Principles of Economics.
He teaches courses on Bitcoin and economics on his online learning platform Saifedean.com, we'll link to it in the description of this video, and if you're listening on podcast, in the description of this podcast, and hosts The Bitcoin Standard Podcast. Dr. Ammous holds a PhD in sustainable development from Columbia University, a Master's in development management from the London School of Economics and a bachelor of engineering from the American [00:04:02] University of Beirut.
Dr. Saifedean welcome!
Saifedean Ammous: Thank you so much for having me, it's a pleasure to be here.
Rakaan Kayali: If you don't mind. I know that myself and probably a lot of the listeners and viewers are interested in knowing a bit more about you - the person, before we just delve into Bitcoin. So anything you'd like to share about your story and how you got to where you are.
Saifedean Ammous: Sure. So I was born in the west bank in Palestine, in Nablus. And I grew up all over the world basically, I traveled a lot as a kid. Lived in Saudi Arabia initially, and then we lived in Brazil for a while, then we lived in Jordan for a bit, and then back in Palestine. I finished high school in Ramallah in Palestine.
And then I did my undergraduate at the American University of Beirut in Lebanon, and then I did the Master's at LSE as you mentioned, and a [00:05:02] PhD at Columbia. After that I returned to Lebanon, I was teaching at the Lebanese American university for about 10 years, and at the end of those 10 years, I published The Bitcoin Standard.
And after that I left my university job and I work independently now. I write and self-publish books and I have an online teaching platform for teaching economics. So instead of teaching at a university, I teach at a website, at my own website - Saifedean.com.
I do online courses, which allows me to reach many more students than I would at a university. And works out much better because saves me on a lot of the needless bureaucracy of the fiat university system, and allows me to work with a lot more students and reach a lot more students. And just last year I published The Fiat Standard, my [00:06:02] second book, which was a sequel to The Bitcoin Standard, explaining and trying to study the fiat monetary system.
Rakaan Kayali: Perfect. So we were talking a bit before we started, you have a decentralized presence globally as well, which is interesting since you've modeled your life off of this structure of Bitcoin, which leads us to the obvious topic of this episode, which is Bitcoin. And I wanna take this opportunity to introduce those who are not introduced yet to Bitcoin, as well as deepen the level of understanding that people who already may know a thing or two about Bitcoin. And to do that, I wanna go over first your understanding of Bitcoin and your reasoning for being so optimistic about its prospects, and then in order to deepen our understanding even further, I'll [00:07:02] play devil's advocate and try and see what are the responses to arguments that may be in people's minds about Bitcoin.
So we'll start with, what is Bitcoin? If someone doesn't know anything about Bitcoin, how would you describe Bitcoin to that person?
Saifedean Ammous: Bitcoin is a software that works to operate a payment network that runs on a peer-to-peer basis. And it is a very important concept - peer-to-peer, is that we have a lot of networks, you're part of a lot of networks, you're in Facebook, Apple, Google, all of these things are networks, but all of these networks have an admin and a user.
And so as a Facebook user, you have no control, you have some degree of control over your profile, but don't have any control over the company and over the network overall.
So any day they could decide to suspend your account, they could decide to change your experience. And that's of course perfectly fine in that context. It [00:08:02] is a business and people seem to be using it, but it's distinct from the peer-to-peer networks, which are things like BitTorrent or Bitcoin in which anybody who runs the code becomes an equal member on the network.
And anybody who runs the code has the same privileges and the same responsibilities and the same capabilities that everybody else on the network has. So there are no admins, there are only users. Bitcoin is a network that is peer-to-peer, so it only has peers, it only has users, it has no admins, and it operates a payment network and that payment network has its own currency.
And the reason I think Bitcoin is extremely important is because that currency is the hardest money that has ever been invented. It is the hardest form of money that has ever been invented. And I think this is going to be an enormously consequential, civilizational invention [00:09:02] that is going to be enormously important for the world. Because everybody in the world now can use this, because it's digital, it's entirely digitally native, and there are no admins and there is no single point of failure.
So there's nobody you need to rely on, anybody can use it. If you just download this software, you use it. And if you use it, you are able to access a form of money that there's never been anything like it before, because nobody can make more of it.
There is a limited fixed quantity of it. And a quantity is produced at a set schedule and can only produce more of it at that schedule. So there's no way of anybody increasing the supply. So effectively anybody has the ability to save for the future. And this is what I think is so enormously significant about Bitcoin, because we've spent a century in which governments have taken away from people the ability to save for the future by taking away their gold, and forcing them to use paper money, fiat money, and credit money, and [00:10:02] all these horrific inventions.
And that's destroyed people's ability to think of the future and the long term and made people far more present focused. Far more short-termist in their perspective. So more high time preference. In other words, heavily discounting the future. So Bitcoin offers everybody in the world access to the best form of money that has ever been invented.
And I think that's going to be a huge deal.
Rakaan Kayali: So I think initially when people hear about this description where you have a payment network, it has no admins, just users, couple questions pop into a person's mind. Number one is how did this thing start? If there's just users, there's no admins, how did it actually start?
And number two, if there are no admins, decentralization definitely makes it robust in a sense, but [00:11:02] also who's responsible for development of this payment network. Who's responsible for maintaining this payment network. This is a structure we're not familiar with. Perhaps you can educate us on the answers to these questions.
Saifedean Ammous: Okay. Obviously, the topic of Bitcoin is an extremely complex one, and so I won't be able to cover all of these issues in detail, but I highly recommend reading about it. And reading about in particular the way that open source software projects work.
So a lot of the software that you use every day, you may not even know it, but it is integrated into your browser and operating system and phone. A lot of that software was developed through open source collaboration. In other words, people are interested in some kind of functionality from their computer.
They'd like to build it, so they set up an online community, a forum where they discuss it [00:12:02] with people who have the same interest. They provide code, they iterate on it. Anybody can use it, anybody can change it, everybody proposes changes and everybody views everybody's changes, and then the end result is anybody can use the code, anybody can fork the code in a certain way.
Sometimes these things get appropriated into companies that can appropriate them and turn them into a private centralized software. But in some cases, it just continues to live as an open source project online.
So Bitcoin is one of these. And the history of the attempts to build digital cash is a long one. So people have been working on these problems since the 1970s, and there have been many attempts and many solutions proposed by different people and many steps of progress that have been made along the way. And then in 2009 somebody made this contribution [00:13:02] which, it was just one of many, there'd been many before. Somebody who was an anonymous made this contribution and then disappeared, but it worked.
And the amazing thing about it is that, and this is why it works - it works because the person is anonymous, and it works in spite of him being not there. That's why it works. This is really the important thing about it, and what distinguishes Bitcoin in my opinion, and in the opinion I think of people who really understand what is going on - this is what distinguishes Bitcoin from all the other digital currencies - in that there's no CEO. There's no person in charge. There's no guy you can talk to. There is no person who's out there on Twitter or on YouTube saying this is what we're gonna do with our currency.
We're gonna do this. We're gonna change it. We're gonna make it. We're gonna do this. There is nobody. And the history of Bitcoin and again, this is something that is well worth getting into - the history of bitcoin is full of people who had some kind of role in [00:14:02] the software development process or in the early growth of the network, assigning to themselves these roles about needing to intervene, and needing to be in control, and needing to make changes, and essentially veering off to the path of insanity. Because the code is not something that any one individual can control, it's essentially functioning as a consensus in that everybody agrees on these parameters.
And so you only are able to make changes, you can propose changes, all the changes you want, but you're only able to make changes if everybody chooses to adopt your changes. And so the only changes that get adopted are ones that do not compromise the essential and most important critical parameters of the network that allow everybody to be compatible with one another. Most important of [00:15:02] these is the money supply.
How many coins are there and where are they? And that's really the most important thing. So everybody has to agree on these things. And if you break away from this, you break away from the consensus rules that were laid at the beginning, then your Bitcoin is no longer operable with the Bitcoin network as it was at the beginning, you are on a different monetary standard and effectively you are part of a centralized network where you are the admin.
So over the last 13 years, What has happened is that Bitcoin has accumulated all the people who are interested in being users of a peer-to-peer network. Whereas all the alt coins have accumulated all the people who are interested in being admins and the people who are running centralized platforms.
So Bitcoin has really proven itself. And this is why I discuss this to some extent in my book, The Bitcoin Standard, read about the [00:16:02] year 2017, there was something called The Blocksize War, which was really informative in understanding just how Bitcoin operates as these sets of rules, which you can use, but you can't alter. It's almost alien to the modern mind because we think of technology as something that is almost up to our whims and fancies, it's what I want. I want this to be done as I want.
And everybody who comes at bitcoin with this mentality of - all right let's look at it, what Bitcoin should do is they need to increase the block size so they have more transactions. All those people end up being massively frustrated because they think the issue here is simple engineering issues.
Whereas the important thing is compatibility with everybody else and sticking by the consensus rules. Because maintaining this kind of imutability where everybody agrees to those rules is the only reason that we can maintain the [00:17:02] integrity of the monetary system, which rests on the supply.
As long as the thing works everybody who is just looking for monetary integrity can find it in Bitcoin. And therefore, as long as of course they don't wanna change Bitcoin, and so all the people that are interested in being free from inflationary, manipulation would gravitate toward Bitcoin.
And that's what makes it so hard to change. Because those people are there precisely because they don't want anybody to mess with their 21 million. So to answer your question, this is I think what, in terms of the development of Bitcoin, has made it such a different prospect from other projects, because it doesn't have a central point of authority.
And we'd had other forms of digital money, they always had a central point of failure. There was always an individual in the middle that the government could arrest, and then the [00:18:02] whole thing falls apart. And Bitcoin was built by a person who was anonymous because he built it on this idea. He built it on an idea that it doesn't have to trust in anybody.
So it was built as an experiment, but would only work if the person who did it wasn't known. So he didn't use his name and he disappeared. He used the fake name and he disappeared. And nobody knows who he is or what's going to happen, and I think it's at this point it doesn't really matter in the same sense that you use a car, but you don't know who invented the wheel.
But the wheel works. It doesn't matter if you know who it is. And this is what Bitcoin is. It's software that you run yourself. You choose with software to download. You can audit the software yourself, and the person in charge is no longer there and it's worked without him.
And the other thing is the software is constantly being audited by thousands of people worldwide, and the more the network grows, the more people who [00:19:02] are not friends and not allies and who don't trust each other, join the network, the more new eyeballs you get who go through it and understand it and analyze it.
And we are constantly seeing more and more people get into this - let's study this properly and figure out how it works. And so far it's gotten the approval of a lot of individuals, but also private companies and also governments. So two governments have announced that they're going to be using Bitcoin as part of their official reserves - El Salvador and Central African Republic.
And Tesla has Bitcoin, which is one of the biggest companies in the world. Microstrategy is a billion dollar company that's listed on the NASDAQ, it also has Bitcoin. It has billions of dollars worth of Bitcoin. So these people, they're not making these purchases out of the blue, they're hiring serious due diligence to look into the code and to ensure that their money, cuz you know, [00:20:02] they're putting it in code. They're putting their very hard earned money in software.
And obviously they're not trusting anybody and they're not getting any kind of government safety net that's telling them - Buy your Bitcoin and we'll guarantee it that you're gonna get your dollars back. If you put them in the Bitcoin. They're entirely trusting in code. Tesla's already done it with more than a billion dollars. MicroStrategy has done it with close to $3 billion, I think, or something like that - and it's working.
They've done their due diligence and the network hasn't failed them. So it's very difficult to explain the network from a technical perspective in a brief podcast like this, obviously. There's an enormous amount of material out there that explains it.
Videos on YouTube, my book. Incidentally, my book is available for free on my website in Arabic saifedean.com/arabic, you can find my book for free as well as a [00:21:02] few good introductory articles, How To Use Bitcoin that were written in English, but I've translated them to Arabic. You could use these and get a good idea about how to go about using Bitcoin.
But I think the important thing to keep in mind is that this thing is working. And at some point the skepticism here can be counterproductive. It's extremely counterproductive. There comes a point at which if everybody around you is able to use cars while you're still skeptical, because you think that's just because there's a genie inside the car, and one day the genies are gonna get angry and the cars are not gonna work, so you're not gonna invest in one.
You can only maintain that kind of faith for a while, but eventually life becomes more and more difficult when everybody's using it. So this is I think the thing that I would urge people who have some kind of technical objections to [00:22:02] Bitcoin, particularly people who arguably don't have a lot of experience in computer software engineering. Generally, they can be very easily skeptical of this and comment from the perspective, Oh everything has been hacked, everything can be hacked. I'd urge them to study this before passing judgment on it in that - look at the technical aspect of Bitcoin and how it works and look at the people that have studied it and look at what they've said about it.
And why is it that such a growing number of computer and security experts worldwide are studying it and coming up with no obvious failures and finding no way of attacking it or derailing it.
Rakaan Kayali: Without going into any technical details, if you could Saif, when you mentioned that developments in the Bitcoin software happen by consensus, who is offering their consensus and by consensus do you mean [00:23:02] majority or do you mean a hundred percent or how is that governance actually?
Saifedean Ammous: Yeah, basically consensus means that anybody who is on the network, who's able to make payments on the network, whose payments need to be accepted on the network, has to abide by the rules of everybody else. There needs to be one set of rules that makes everybody else compatible.
And if you mess with one of the parameters that makes you incompatible with everybody else, then you're just not part of it. So it doesn't really make sense to talk about what percentage, I guess you could say 100% of the people who abide by the same rules get to be on the same network. So you can't have people on the same network abiding by different rules.
You just have two networks then, you'll split the network.
Rakaan Kayali: I guess what I meant was like any sort of development in the software itself. So you mentioned there was open source software and basically [00:24:02] developers were contributing to the code, but before the code is actually committed, to the actual program, and let me know if this is too technical, but before the code is actually committed, what needs to happen in order for that new code to be committed?
Saifedean Ammous: Yeah. There are there are forums in which, and GitHub essentially is a place where Bitcoin coders discuss these things and they make proposals for things that they'd like to work on.
And then they review each other's works. And then, after a very thorough process of a lot of independent people going through things, they could propose something as a software and then they put it up as a Bitcoin software that you, as a user can choose to adopt, but you don't have to adopt, you can always change anything you want with it.
So there is a development process that is [00:25:02] not centralized in any meaningful sense in the sense that there's no corporation that is in charge of it, there's no person in charge, it's just volunteers and people who are paid by Bitcoin businesses and Bitcoin companies to work on things, to maintain the code and to ensure that it runs well.
So there is a process within GitHub of how to submit proposals for changing Bitcoin. And there's a process for review, but ultimately you decide what software you run on your computer. So you decide what kind of Bitcoin you want to have. And the only way to continue to have a Bitcoin that is interoperable with everybody else, and the reason that the Bitcoin networks survived for so long is because it sticks by the basically important consensus parameters that we're there at the beginning in terms of how the network is run, at least economically.
Rakaan Kayali: Got it. I've seen you [00:26:02] mention on numerous occasions that you felt Bitcoin was anti Riba or anti interest, and the interest bearing loan system that we have with our current fiat currency. If you'd like to expand on that topic.
Saifedean Ammous: Yeah, I think this is something that is becoming increasingly intriguing for me. Because I think Bitcoin is a far more Shariah compliant form of money than the money that we use every day. And I think the implication for this is enormously important for the Muslim world. Because first of all Bitcoin, studying Bitcoin allowed me to really understand money properly and then after studying Bitcoin I studied fiat and how the fiat monetary system works. And that was the topic of my second book, The Fiat Standard. [00:27:02]
And the conclusion that I came up with of about how fiat works is I think enormously significant for the Islamic world, because the way that the system works is not just that the money itself is used in Riba and usury, it's not that it's just that you can use dollars in usurous lending, it's that dollars themselves are only created through the process of Riba lending.
So in order for dollars to come into existence, somebody needs to take out a loan. That somebody is either an individual or a corporation or a government. And a lot of debt is being taken out constantly by individuals and corporations and governments in the fiat system, because creating debt, issuing debt, taking on loans, are similar to mining Bitcoin or mining gold in the Bitcoin or gold monetary system.
In other words, [00:28:02] when you when you dig a hole and you find a gold nugget, you've increased the money supply in the economy and effectively you've devalued everybody else's gold. Now the reason gold works well as money. The reason gold is historically chosen as money is precisely because it's very difficult to find large quantities of gold that can significantly devalue everybody else's holdings.
That's why other things don't work well as money. That's why copper doesn't work as money because it's very easy to find a lot of copper and bring it on the market. And I discussed this in a lot of detail in The Bitcoin Standard. In the fiat standard however, if you think about how it works in the fiat system, it's not hard to mine fiat like it is hard to mine gold, because you just need to issue credit and you have an entire financial system that's geared toward the issuance of credit and everybody wants to issue credit.
So the issuance of credit increases at a much faster rate than the issuance of gold. And that's why [00:29:02] money loses value a lot more in the fiat monetary system than it did under the gold standard. And that's why people can't save for the future, but the implication here is that issuing a loan or taking out a loan in a fiat monetary system is the equivalent of finding a gold nugget or mining new Bitcoin.
But the difference is that it's expensive to mine Bitcoin and gold. You can't just find free Bitcoins or free gold running around everywhere, that's why they're good money. Whereas with fiat, it's very easy to be able to take out a loan or issue a loan. And so everybody's always trying to take out as much loans as they can in the fiat economy.
Everybody wants to take out loans to the point that, and in the Islamic world this has just become accepted, and a lot of scholars even say that this is accepted in the modern monetary system because there's no way around it, and -I'm not a Sheikh [00:30:02] so I don't have strong opinions on how I think on this.
But I can certainly sympathize with the perspective that you are essentially sabotaging yourself economically if you don't partake in the fiat system. Because if you don't partake in the fiat monetary system, by not taking out loans, you know if you want to buy your house with cash, if you wanna buy all your property with cash, you are saving money that is losing value.
So you're choosing to donate wealth all the time to everybody out there who's taken out loans. So you're still involved in Riba. If you're holding government money in any form, you are still involved in Riba, you're just paying for it. You're paying for everybody else's Riba. You're witnessing the value of the house that you want to buy is constantly going up and your savings are never keeping up with it.
Why? Because you're paying for all the people that are actually buying that house and the house like it on credit because they get [00:31:02] it at a much lower rate because they get it with borrowed money and their debt declines over time.
The loan amount, so let's say the house is worth a million dollars, you need to work up to a million dollars with a melting ice cube. The money that you're saving is losing value. They take out the million dollars, they borrow it so the money that they owe is diminishing in value. So the value of their debt is declining. So it's incredibly easier to buy a house with credit than it is to buy it with savings.
And you can understand why under this kind of fiat monetary system, why Muslims would do this? Because there is no alternative. It's very difficult to have an alternative because gold doesn't keep up with inflation very well anymore, and even if you did save in gold, you can't really move gold around, like you can move fiat.
You can't pay your business bills with [00:32:02] gold. You can't pay people in another country with gold. We don't wanna have gold banking, and governments have done a very good job ensuring that we don't get gold banking because it's not it's in their interest that we have gold banking, because they wanna maintain this monopoly.
They prevented the Shariah compliant, alternative which Muslims would've used. Muslims worldwide would've, if we had an alternative, if there was a free market in money in the 20th century, Muslims worldwide would choose a gold based monetary system.
Maybe silver, but I don't think silver would survive in front of gold. People would eventually end up on gold, but people would use a gold based monetary system. And it is entirely possible to build a digital payment system based around physical gold with only occasional physical gold clearance between banks and central banks.
But the reason that it doesn't happen is that central banks don't let it happen because it's far more [00:33:02] profitable for them to run a monetary system based on their debt. Because that just allows them to keep borrowing and keep spending, and it allows them to subsidize all their cronies and buddies.
So it's an enormously corrupting moral influence on society - inflation. Both because it destroys the value of the currency, destroys people's incentive to think of the long term, but also because it empowers the government to have an enormous amount of resources to shape society as it views. And so that's why government then becomes extremely powerful.
And then they choose to impose their vision on things across society, because they have the money to force those things and they try to hide the effects of inflation by telling people to eat cheap food. And they try to hide the effect of inflation by telling people to use sustainable, which is in other words for pre-industrial forms of energy.
So don't consume oil. Live on windmills like medieval [00:34:02] peasants used to live. And don't enjoy all the modern technology cause that stuff is expensive with inflation. So you have this double evil, where we're taking away wealth from people in order to finance this endless evil of Riba system and financed government. And Muslims have no choice but to partake in it, effectively.
But those who don't effectively end up subsidizing it. So effectively you can think about fiat as being a giant tax on Islam. It's a giant tax on people who have a problem with Riba. It's a giant tax on people who have a problem with usury, because these people don't take part in this debt and then they end up subsidizing everybody else.
Whatever your views are before Bitcoin came about, whatever your views are I think is now a different question, whatever your views were about Riba and fiat money before Bitcoin is one thing. Now it's something else, cause now you do have an alternative. [00:35:02] Now with Bitcoin, you do have an alternative that is 100% free of Riba. There's no Riba involved in the creation of Bitcoin.
And that I think makes it extremely different from fiat money. And also it's extremely beneficial to hold Bitcoin. It's much better to hold Bitcoin than to get into fiat Riba debt in the long run. Yes, you can make good returns by going short fiat and borrowing say at a 4% and investing in things that yield 10%.
But that's 6%, these are rookie numbers in Bitcoin world. Bitcoin is doing something like 170% a year over the first 11 years on average, a compound annual growth rate of 170% over 11 years. So that's enormous.
Rakaan Kayali: I think at this point would just be content with their purchasing power staying the same, and not [00:36:02] depreciated.
Saifedean Ammous: Exactly! And this is the thing, so you can opt out of the fiat monetary system, you can hold onto your Bitcoin, watch your Bitcoin appreciate more than if you had gone into debt and used your collateral, instead of using the money to get into debt, you save the money in Bitcoin and you want you to appreciate more than the value of the returns that you get on investing in the fiat world.
And by doing that, you benefit financially, but also you starve the beast. You don't take part in the fiat Ponzi and you don't help it grow. So I think it's it's a pretty compelling case for Muslims to look into it. Because I think the objections that a lot of Muslims have toward bitcoin stem primarily from not quite understanding what it is in that people see that the value goes up and down and the price goes up and down and they think this must be a scam, this must be a Ponzi scheme, this is just [00:37:02] another one of those things.
But the thing that distinguishes Bitcoin from all these scams and Ponzi schemes, why it cannot be like them, what is different fundamentally about it is that nobody has a way of making more Bitcoin. Nobody has a way of increasing the units of the Bitcoin network, of the claims on the Bitcoin network.
There's no way that one person can find a way of making more. And we've had that running for 13 years now, and we haven't had one person figure out a way to change this. And again, if you understand how it works, you see why it doesn't work. You see why in a sense saying that it can be changed begins to look a little bit like, again, having crazy ideas about cars being driven by ghosts rather than machines.
And so there's a very mechanical process that takes place with the numbers. Once you understand how the cryptography works, how the process works, it's an extremely reliable thing. And we can very confidently say - There's [00:38:02] not going to be more Bitcoin.
As long as there's not going to be more Bitcoin, and as long as you can maintain your Bitcoin, then nobody else can force inflation on you, nobody can devalue your coins, and nobody can force you to take part in any kind of inherently Haram activities with your Bitcoin. That's the difference between it and fiat.
So if you hold fiat money, you are effectively subsidizing everybody else's Riba and usury loans. If you hold bitcoin, you hold your own bitcoin, it's like a pot of gold that you hold and that's it. And nobody's borrowing against it. Nobody is using it. Nobody's devaluing it. Nobody can take it away from you.
It is exactly money in a very Islamic sense. By now I've done three podcasts on this topic. I did one and I urge listeners to check this out on my website saifedean.com/podcast on my podcast, The Bitcoin Standard [00:39:02] podcast you'll find there's an episode with Harris Irfan, where we discuss why he thinks Bitcoin is the most Islamic form of money and where another one with Safdar Alam where he gives his perspective on his problems with the industry of Islamic banking and why he says they don't really, and I think he makes a very compelling case for why what passes for Islamic banking today is really just Islamic whitewashing of clearly forbidden Riba lending, and then a third one with Tarek El Diwany who is written an excellent book - The Problem with Interest, making the Islamic case against interest.
And I've had a very interesting discussion with all three of them on Bitcoin from this perspective.
Rakaan Kayali: That's great. I think this is a really like useful viewpoint for people to see, and perhaps they haven't really thought of it in that perspective. [00:40:02] Although, not everything that ends up serving Maqasid al Shariah necessarily has to come from someone intending to do something Islamic, and in the case of Bitcoin it's very possible that this is something that serves Maqasid al Shariah quite well, especially as it relates to people being able to save their money in a way where their purchasing power is preserved over time. On this topic. I wanted to ask you, on the topic of max supply of Bitcoin, I see this as it's a great feature if you wanna use a Bitcoin to save your purchasing power, but if you want to create a currency, you wouldn't necessarily cap its supply somewhere because then you basically disincentivize people from actually spending it. You incentivize people to actually just buy and hold. What's [00:41:02] your thoughts on this?
Do you actually think Bitcoin will be a currency like people use in their day to day transactions to buy and sell things? Or do you see it as really a store of value, and then when you actually wanna transact use something else?
Saifedean Ammous: I think at this stage Bitcoin is going to be primarily used as a store of value. People are not going to be using Bitcoin for a lot of their daily transactions. And I see it as a kind of horse-before-the-carriage problem, in that what matters in this issue is how much of people's cash balances are in Bitcoin versus other currencies.
And currently if you live in the U.S. for instance, everybody around you runs all of their cash balances in dollars. So all of their payrolls, all of their incomes, all of their receipts, everything is in dollars. So the idea that they're going to start taking Bitcoin is not a straightforward process because everybody [00:42:02] who's paying them is paying them in dollars and everybody they pay is getting paid in dollars.
And so if you have complicated and sophisticated production, if you're a big firm and you have plenty of suppliers, this isn't an easy change to do. And ultimately it doesn't quite matter what the currency is of the exchange. And it can be done in a trivial sense that you could set up an account with a payment processing company that accepts Bitcoin on your behalf, sells the Bitcoin immediately and buys dollars for you and gives you dollars into your bank account.
So you could do that, but as long as you're holding dollars, then it doesn't really matter. What matters is the kind of cash balance. So I think the way that I see it and the way that I explain it in terms of the evolution of money historically is that the thing that has the hardest supply to grow gets used as the most common store of value. Either because people recognize this, or even if they don't recognize it, just because the people who don't use [00:43:02] it as a store of value, which is they'll witness their wealth go away.
People can use anything as money, but the only people that are gonna keep their money for a few generations are the people who use something like gold. So within a few generations, everybody ends up on gold basically because everything else is constantly increasing in its supply more and more.
And so losing value more and more. So people either lose their wealth or realize the mistake and switch to gold. Effectively you end up with one dominant money, which is the hardest thing to produce, and then because people use that as their store of wealth, their cash balances in that continue to grow, and then they start taking payment in that, and they start making payment in that. When that is the predominant cash balance, this is what it is to be the money. So currently of course the dollar is far larger than Bitcoin. And for the vast majority of people, the odds of the person that you're transacting with being a Bitcoiner is less than 1% or the percentage of their [00:44:02] balance sheet is going to be in Bitcoin is likely very tiny.
So at this point, you're not going to see as much daily transactions happening with Bitcoin. At this point, people are accumulating it as a an asset and whose value grows up. However, in the long term, I don't see how this process is resolved in any way other than this hardest money becoming the money that is used. Because why would you want to accept payment in other forms of money?
You don't accept other forms of money if you could sell them and hold the thing that you hold on for the long term. So I think in the long term, the thing that has the most cash balances is the thing that ends up being used for payment. That's currently the dollar and it's currently something in the range of about 200 times larger than Bitcoin.
A hundred to 200 times larger than Bitcoin is the amount of money that is in dollars and dollar denominated, other fiat currencies. It's about, Bitcoin is currently around a half a percent of the [00:45:02] global money market. Once it's more than 50%, then it becomes the money that people prefer to get paid with, but that's a way away, and that's only gonna come about after a significant appreciation in the price of Bitcoin.
Now to go back to your first question on whether it is good for the money supply to be limited. This is something I discuss in depth in both books. As I'm sure you know, I think it's one of the major problems with modern economics is this idea that they propagate, that money supply needs to go up in order for the economy to work.
For me, this is exactly like saying your we need to keep expanding the meter every day in order for children to grow taller. We don't. Children can grow taller without the meter increasing. And so we don't need more money. There is no such a thing as a shortage of money, any quantity of money is enough.
You could run the entire global economy on a supply of a [00:46:02] hundred trillion dollars or a hundred billion dollars or a hundred dollars or a hundred cents, as long as the cents continue to be divisible further and further, and you divide them into smaller units. So the absolute quantity doesn't matter.
What matters in money is its purchasing power. And the purchasing power is what people seek in money. They don't seek more numbers. People would rather have $10 than 100 Japanese Yen. You're not going after higher numbers, you're going after the purchasing power. And $10 are worth more than a hundred Japanese Yen, so people would rather have them.
According to the Keynesian perspective, people choose to spend money because they expect their money to go down in value. And so we need to take away the value of the money in order for the, in order for people to spend. But I think this makes no sense. People spend because they need to [00:47:02] consume and they want to survive.
The reason we spend is because if you don't consume anything today, you starve and you die. Yes, if you wait on your money, it's gonna appreciate 5% next year. Does that mean that you're not gonna buy anything this year? No, you will starve and die. You still need a home to shelter you in the winter.
You still need food to make you survive this year to get the next year's 5% bonus appreciation. You still need some semblance of clothing probably to survive. So you are going to spend money on those things. Even if you can get 5% more food next year, you're still gonna spend money this year.
Rakaan Kayali: What you're mentioning are like necessities. You are going to spend on food, on housing, even if the value of the asset in question is going up 5% or 6%. And that's true, however if you have [00:48:02] a high degree of confidence that the asset is actually going to appreciate in price, even to the tune of 5%, 6%, you're less inclined to spend on anything other than necessities, if you can.
Saifedean Ammous: You say it like, it's a bad thing! Think about it, this is exactly the problem with the modern world, is the consumerism. And why is this consumerism such a major problem? Why do people spend so much money?
Why do people not save their money? Because their money is losing value. Because it makes no sense to hold onto the money. Because your money is going to be losing 5%, 10% per year, and so therefore if you hold onto it today, you're going to get less stuff tomorrow. You're gonna get more expensive food tomorrow. You're gonna get more expensive, everything tomorrow, so it makes sense to spend all of the money that you have today.
And that's, what's destroying people's ability to provide for their future, because you're taking away their incentive to save. Because you're destroying their saving, and so you're incentivizing them to become [00:49:02] high time preference, to become materialistic about the present, to spend all their money, to focus their life on the life of excess consumption.
So the Keynesians are correct in identifying the direction of this. The entirety of the idiotic Keynesian propaganda that is taught in university rests on justifying inflation. They need to justify the inflation. But the reality of the matter is that nobody needs the inflation except them. They are the ones who need the inflation, the economy doesn't need the inflation.
If the value of money goes up, and you expect that things would become cheaper in the future, yes, you're going to save more, and you're going to spend less all else being equal. But you're not going to spend zero.
So what happens if people stop spending money on stupid nonsense that they don't need, and instead save more? What do you think is gonna happen? They'll be more financially secure. They'll have fewer stupid plastic nonsense toys that they don't need, but they'll be more [00:50:02] financially secure in the future and they'll have more ability to provide for their future.
And therefore they'll think more and more about their future. And more importantly, the fact that they're saving means because we're not spending money on these toys, where are the savings going? They're going into investments. So they're going to then generate more capital goods. The more savings we have, the more of our savings we can dedicate to investment.
And therefore the more investment, the more capital goods, the more of an increase in productivity. So effectively what the Keynesians are trying to say here is that the economic problem is that people don't want to consume enough, and we can fix that by preventing people from saving and forcing them to consume. When the innate desire of all living things is to consume, all animals wake up looking to eat, and all humans want to eat, consume, and they want nice things. There's no shortage of demand, everybody wants all those nice things.
The shortage is in our ability to produce and in our ability to sacrifice present [00:51:02] consumption in order to acquire capital goods, in order to make those capital goods produce more goods. So the only reason we have such a high living standard today is because we've spent millennia as a species accumulating capital to increase our living standard, to increase our technology, to increase our capital stock, increase our productivity.
And that all comes not because we don't have enough spending, it comes because we reduce our spending. We consume less needless nonsense and we have more capital, and we accumulate more capital. So the Keynesians are correct in identifying the direction. Yes, if we got the inflation out of the money, we would indeed have a lower supply growth rate of the money or a zero supply growth rate of the money, and that would translate into an increase in the value of the money over time, money gets you more things. People would spend less frivolously, [00:52:02] but people would still spend and we'd have a lot more capital. And so we would have a lot more productivity and we'd have a lot more abundance and a lot more production.
Effectively, they're describing the process of civilization, the process of economic development of production as if it is a problem, and they're saying that the solution is to reverse it, to take away people's savings and to make them consume today. Essentially, they're telling us to eat the seed grain. This is ultimately what modern fiat Keynesian and economics comes down to.
If you eat the seed grain, you're going to be happier than if you only eat the grain that was for eating, and don't worry about tomorrow.
Rakaan Kayali: I mean I certainly agree with you on the issue of inflation not being necessary. My point is that I think deflation would also probably be counterproductive as well.
The ideal currency would be one that just maintains its purchasing power over time, in which case you would have to increase its supply in [00:53:02] tandem with the increase in goods and services.
Saifedean Ammous: But why?
Rakaan Kayali: Because when deflation happens and people don't spend as much, you're essentially lowering the returns on investments that are possible.
Saifedean Ammous: That's not true! It's exactly the opposite. And on the contrary,
Rakaan Kayali: Because there's no, if there's no demand for,
Saifedean Ammous: There is demand! There's always infinite demand. No, there is always an infinite amount of demand. There's no shortage of people who want Ferrari's out there.
We could keep making Ferrari's forever and not satisfy people's demand for Ferrari's.
Rakaan Kayali: The return on the currency, let's say year over year, let's say the return on the currency is 10% for example, then every investment opportunity, let's say the return on Bitcoin is 10%, it stabilized around 10%, then any investment opportunity that gives you less than 10% is one that you're [00:54:02] not interested in.
Saifedean Ammous: Exactly. So what do people do? They will only invest in opportunities that offer more of a return than the holding of the money. So all the capital will be dedicated to the highest productivity opportunities and not be wasted on opportunities that are effectively destroying capital at this point. The other thing to keep in mind is that,
Rakaan Kayali: But if the return is positive, if it's returning like 6%, 7%, why should that investment opportunity cease? That business activity, why should that cease?
Saifedean Ammous: Because effectively it's destroying capital because it's bringing back less capital than you would hold. It's negative real returns. It's negative nominal returns. It's destroying capital. You just hold onto your Bitcoin, the Bitcoin appreciates in 10% as you're saying, and in that situation, investing a return that brings you 6% is going to mean that you get fewer Bitcoin at the end. So that's not going to get funded.
Rakaan Kayali: [00:55:02] Isn't that bad for the economy?
Saifedean Ammous: No, that's good. That's why you want to get rid of these investments.
Effectively, what you're doing with fiat is you're telling people that your capital is going to be losing 5% this year. And so therefore any productive activity that will bring you, that will only destroy 3% of your capital, is profitable. So people will put their money in things that destroy capital, because you destroying the alternative.
That's a purely theoretical construct. There is no such a thing as a fixed price because nothing is fixed in economics. Everything, the price of everything is always going up and down. And the supply of all goods is going up and down. Now historically, what does get selected as money?
This is the problem with this argument is that what it's saying is that the way that the market has historically chosen money over thousands of years is wrong, and the way that this criminal pedophile from England in the 1930s says that the money should work [00:56:02] is right. This is ultimately what this argument comes down to.
Like historically, everything that gets chosen as money is the thing that is the hardest to make. Why? Because people don't want to lose value. The whole point of holding money is that you want to hold the thing that gives you the best value into the future. So the notion that we have these Keynesian overlords in the 20th century telling us - No, what you guys need is not to have the thing that holds onto your wealth best, the best money is the one that leaks value best. And that's how we can get to get this magic machine that is called the economy to run most efficiently and make the highest GDP numbers.
This is all fraud. This is all fiat. This is all Riba. This is all Haram.
This is lies of the highest order and it's deeply criminal because the basis of the entire financial system of the world today is built on this idea that money needs to constantly be created. And who [00:57:02] obviously benefits from that idea, who likes that idea? The people who create the money, that's it.
That's a bunch of stupid stories that they made up to try and convince people that - It's for your own good, that we are evaluating your money to give ourselves money. We're printing our money, we're printing this money to finance government spending, we're giving banks this enormous advantage over society by allowing them to print money and making this enormously profitable business to this small section of society, but trust us! It's actually for your own good, because if we didn't do that, your money would gain value and then you would be rich in the future. Your money would hold onto its value and in the future you would be able to afford things, but don't worry. We are here to save you. We're taking away from you your ability to afford things, your ability to save and buy a house, your ability to pass on wealth to your children. We're taking all of that away from you, so making sure that you and your children would always be working as debt slaves, forever paying taxes [00:58:02] and paying interest and benefiting the people who benefit from the system.
That is clearly, the way that the money works, the idea initially that I was trying to get at is, the way that people choose is they choose the thing whose supply increases the least. And the people who choose that end up having more money than the people who choose other things. So inevitably the wealth ends up in that thing, that's what ends up being chosen as money. We don't have a mechanism for society ending up choosing an inferior money. You know why?
If this was the case, why didn't people up until the 18th and 19th century not use copper over gold? Why did gold win and copper lose? If the inflation is good, why can't we just use copper?
Rakaan Kayali: Yeah. And I don't think anyone would necessarily argue that inflation is good. Yeah, I [00:59:02] think that money, when you use the term as like a medium of exchange, it makes sense to me that since it's serving this purpose as a medium of exchange, to exchange things that the need for it would increase - the more things there are. So the more goods and services there are, the more that thing is needed. But I do agree with you that the thing that does win out as a savings mechanism is that which can prove itself to be like rare and incorruptible.
And I think perhaps we haven't seen anything like Bitcoin in history. From that perspective I think there's likely a good possibility that it wins out as a saving mechanism for humanity. My question to you is you do think it's a it's a [01:00:02] wise financial decision for people to save using Bitcoin despite its volatility?
Saifedean Ammous: Yes. I think the key thing to understand with Bitcoin is that it is a long term thing. So what you're betting on is the scarcity. I wouldn't say betting on, but what you're buying here, effectively the value proposition from buying is like buying gold. You're buying gold because 10 years from now, you pass this on to your kids.
10, 20, 30 years from now, no one will have found a gold printer that will have made an enormous amount of gold and devalued those things. So the value of your gold may go up a little bit. It may go down a little bit depending on the market. Depending on all kinds of different things. So when your kids will want sell it 30 years from now, the value may have changed a little bit.
But you know the value won't have collapsed because nobody has a way to print large quantities of gold. Bitcoin is that. Bitcoin, you're buying the fact that that you have a limited quantity of that network, and as long as the network continues to work, then almost certainly with time, the value of that [01:01:02] token is going to appreciate, because the rate of production is declining.
Currently the rate of production of increase in Bitcoin supply is around 2%, so it's similar to gold. It used to be much higher and it's constantly declining according to schedule. So now we're at 2%, we're gonna drop to around 1% by the end of 2025. 2025 is going to be about 1%, and then it's gonna keep dropping by half every four years, which is what it has been doing.
So you're effectively buying in this idea of money that can't be corrupted. You're buying into a form of money that beats all the other forms because all the others can be corrupted. The government money is corrupt by its nature. Gold can be corrupted because governments controlled the clearance in it.
So with Bitcoin, you're buying in the fact that nobody can make more of this, and so you're buying it for the long term. So don't buy it for the short term. I strongly urge people not to speculate on Bitcoin in the short term, because you could really get hurt. Like you could buy Bitcoin, and then in a few months time, it's down 50%.
So if you're planning on, for instance, you're saving up for buying a car [01:02:02] or a house next year, and you said, all right, let me put all the money in Bitcoin now so that I can sell next year and get a bigger house because I'll make more money in Bitcoin. Don't do that!
Put the money in Bitcoin that you want to hold onto for four years.
That you can wait on for four years, and then you can be fairly confident that in four years time you will be up. So far in Bitcoin's history, basically nobody's been down on a three year basis. If you waited three years, you're up. If you waited four years, you're up at least a hundred percent, 120% or something like that. So this is what you're really betting on in the long term. Holding on it for the long term will outperform pretty much everything. This is the thing.
All the other alternatives if you put money in stocks and bonds and real estate, sure you could make returns, but you can't really beat inflation, you definitely can't beat Bitcoin in the long term.
So I would begin with putting in the part of your savings that you want for the long term, and then accumulate periodically from your [01:03:02] income with an amount that you think of for the long term, 5%, 10%, something like that, and then continue to grow your position. If you enter in this kind of way, where you are not risking any money that you need over the next few months for any major life expenses and you have an emergency fund, then you are protected from the volatility.
Then you know that your money, it goes down, it can go down, it can go up. Tell yourself mentally that this is for the long term, so if it goes down, you're not gonna panic and sell at a loss. And if it goes up, you're not gonna panic and sell, and miss out on future gains, you're just gonna hold on and you're gonna forget about it.
And over time, as you increase your position on it, as the value goes up and you increase your position, you increase your technical knowledge in how it works, you take custody of your own coins. You secure them without having to rely on any of the Bitcoin companies, and you become very proficient in that. [01:04:02]
And then essentially, I can't overstate just how important this is. You effectively buying yourself and your children, financial freedom. It's something that nobody really has today. Everybody has to work every day because they have no way of securing wealth for the future.
Nobody has a secure way. If you ask people, how are you going to secure your wealth in 20 years from now? Where are you going to keep it? And the answer is you need to wake up every morning and listen to the news and try and take a guess of where you're gonna put it, in this stock, in this company, or this bond.
Bitcoin is the one thing that you can just throw it into and know that 20 years from now, it's the least uncertain thing there is, in my opinion. And the more you study it, the more I think you come to this conclusion.
Rakaan Kayali: And do you actually dollar cost average, or do you try to like time the Bitcoin cycle?
Saifedean Ammous: No, I don't recommend trying to time Bitcoin. Because generally it's better to just keep, again, if you have a long [01:05:02] term perspective, then really these day to day movements don't matter. You just keep the long term perspective on it.
It becomes almost like following a spectator sport where you know, all right you're making and losing money, but it doesn't really matter because that money is in a locked cage and we can't find the key for years. The key thing is this, this is the peace of mind that I talk about, which is what people had under the gold standard, which is what Bitcoiners develop right now.
If you look at the culture of surrounding Bitcoiners, there's a lot of people that just save in Bitcoin and then are able to be free mentally and financially to pursue something that they couldn't really pursue when living in the fiat hamster wheel. So when you're on the hamster wheel, you can't save, and even if you're making a lot of income, and this is extremely common experience among Bitcoiners. A lot of the early Bitcoiners are, they needed to have some pretty advanced technical or above average capabilities in math, and [01:06:02] computer science, and programming, and these people generally tend to perform well in work and they can earn well.
But no matter how much you earn, you can't find an easy way of saving, and you have high uncertainty about how you invest it, and you're constantly worried, you're thinking about your job and the things that you're productive with, but you're also being a part-time asset manager, having to think about Netflix and Apple and Google and the Japanese Central Bank and the Russian war and all these other things and how they're gonna affect your portfolio.
But in the long run, effectively you're waking up and gambling every morning, and even if you're very good, even if you're extremely lucky, In the long run you're going to struggle to beat inflation and you will almost certainly not beat Bitcoin. So then what happens is that the Bitcoiner will just put the money in Bitcoin and then focus on in life and not follow the fiat world. Not follow [01:07:02] the, how do I keep making my interest payments? How do I keep running, all of this hamster wheel of ensuring that I could get the most assets for debt that I'm accumulating. The cost of debt of course is not just, religion doesn't just warn against it for nothing.
It takes a serious toll on a person. You lose your peace of mind when you know that you owe money, and when you have an uncertainty about the money and you worry about the fact that you could lose your house. Even if it doesn't happen, the mere possibility of it being there is a constant threat, and a constant reminder.
And if you switch from that to a Bitcoin world, you don't have to follow the news. You don't have to worry about making payments. You don't have to worry about those things. You just keep stacking more and more Bitcoin over time. And ultimately this is the thing, a lot of people that are haters of Bitcoin, a lot of people that offer a lot of criticisms of Bitcoin, 0% of those people will offer you a reliable plan that they [01:08:02] will offer you today, they will tell you - Do this and you will outperform Bitcoin in the next five years!
I challenge any of those people that to show me A) how they've outperformed Bitcoin over the last five years. And how they want to do that over the next five years.
Rakaan Kayali: Have you heard of the Luna token?
Saifedean Ammous: Yeah. I mean that outperformed Bitcoin over the last few months, and then... Incidentally the good thing about it was that a lot of people that talk badly about Bitcoin and Bitcoiners and say - You should be open to all these other scam coin projects, look at Luna! It was their favorite poster child about just how important and how big this important innovation is and it's collapsed completely. Really it's Bitcoin only. Bitcoin is the only thing that works in the entire cryptocurrency industry.
Rakaan Kayali: Interesting. I was gonna ask you about your position on alt coins.
So you see basically like [01:09:02] no utility in any alt coin?
Saifedean Ammous: No. None of them, first of all there's no utility in money besides the exchange. And the only thing that you need for that exchange is the reliability of the software and the reliability of the code through decentralization that protects the monetary properties. That's the only thing that you want.
Because if you don't have that, then the whole thing falls apart like a house of cards. If you can change a digit of the supply number, if you could just add a zero next to the total number of coins and then print 10 times as many coins and take them for yourself, you destroy any of those networks, you destroy anything.
So the notion that any of these networks is offering some crazy utility is nonsensical. There's no utility from digital information that's moving around. You could run a centralized payment network that is very trivial to run for all of these replacements.
So really all of these things are marketing apps that are not [01:10:02] competing with Bitcoin. They're competing with AWS - Amazon Web Services, which is a very efficient, very centralized way of running apps. Pretty much maybe half the internet or a third of the internet or something like that is run on AWS.
A very big chunk of the internet is run on it because it's very efficient and it's very well run and it's highly centralized. And there's a very good reason for that. You want most of your stuff to be centralized because it's more efficient to have things be centralized. The notion that we are going to need decentralization from any of the apps and any of the things that the tokens and the altcoin industry talk about, I think is absurd. Because none of these things justify the enormous excess cost of centralization.
So running an app on AWS is about a millionth as cheap as running it on any of these supposed smart contract platforms. So the only thing that they're doing is that they use these buzzword stories about a decentralized economy and doing this and doing that. They use these as marketing to introduce a new token, which is just a new bunch [01:11:02] of fiat Ponzi.
Each one of those tokens is just something that a small group of people are issuing. And like with Luna, like with thousands of these other tokens, essentially there's a small group of people that could control the supply, they issue it, and the price goes up because they list it on exchanges where more and more people start buying it.
And then the price goes up and they control the supply, in most cases, they eventually find a way of increasing the supply, bringing the price down, they profit at the end extent of the user. It's been a game that's been tried thousands of times.
And I challenge anyone to offer me a coherent case for why they would recommend their own mother or grandmother or aunt or uncle put their hard earned life savings in one of those coins. How can they guarantee that those coins won't get this rug-pull treatment as we call it. Which is the people behind the coin, just like governments, print a bunch of money and devalue the money that you have. Only Bitcoin can offer that guarantee.
And I will [01:12:02] sit you down and give you a hundred hours of reading and podcasts and videos explaining to you why, and the technical writing explaining to you why I feel entirely justified in recommending this to my own mom and my aunt and my own uncles, but I would completely question the sanity and integrity of somebody who recommends any of the other digital coins.
Rakaan Kayali: Got it. Yeah, I do think whatever utility has been advertised for these coins, at least at this point is in theory. No one is really using any of these coins for practical purposes as of yet. If they are, it's very limited in terms of scope. So the summarize your position on alt coins yeah the main weakness is number one, the centralization, and number two, even if you attempted decentralization as a sort of a mode for [01:13:02] offering these services, it's less efficient than a centralized version, right?
Saifedean Ammous: Exactly. And the only thing for which the cost of decentralization has so far proven justified is the function of money. Because it is supremely unique in the amount of economic value to amount of digital data ratio.
If I wanted to quantify, I should write this down, I think I should remember this as a note, money itself is the most extreme outlier of this phenomenon, in terms of - with Bitcoin, you can move a $10 billion worth of value on 300 bytes of data or 200 bytes of data or something like that, which is how much a Bitcoin transaction takes.
I think it's even less than that, 150 to 200. I forget the exact numbers. But yeah, a couple of hundred bites of data and you can move 10 billion of value. There's nothing else that comes anywhere near close to that. With money, because it's a purely information good, money [01:14:02] is just purely information.
It's just a track record of economic value, because of that you can just move it with a very simple information signal, with just a few bytes. You can send the information that is needed in order to transfer money from X to Y. With nothing else is this amount of value possible with this little data, with everything else, you need a lot more data, and it's gonna be a lot less value.
So whatever it is, a video - that's a few megabytes of data or a few gigabytes of data, and what is the video worth? The video itself is just about being able to stream it. So for everything else, that's digital, the values on speed and performance, and the economic value attached is nowhere near high enough to justify paying for this. The competition for a $10 billion Bitcoin transaction is a $10 billion transfer of physical gold. Now, how much does it cost to move $10 billion of physical gold? Probably something like $10 million. But with Bitcoin you can move it [01:15:02] with 300 bytes, and still have some spare change, and a few dollars at this point.
So the price of moving money on Bitcoin can keep going up, and this use case will be justified. But all these other uses for distributed applications, they can't justify the, so with Bitcoin we have a 1 million fold discount on the real world alternative. The real world alternative of moving $10 billion of physical gold costs $10 million, with Bitcoin we do it for a millionth of the cost. With d(igital)apps we do the opposite, the cost of running a video app or a betting website or whatever it is on a centralized server is a million times cheaper than running it on a decentralized server.
Because you're just moving information around, it's not digital gold like Bitcoin, which is moving [01:16:02] effectively the equivalent of physical gold around, you're just moving information around.
And so you're doing it far cheaper and far more reliably on a centralized network.
Rakaan Kayali: So this might be a technical question but I'm curious, the Bitcoin blockchain actually records the transactions that happen in Bitcoin. So if let's assume, best case scenario, Bitcoin adoption reaches, as you mentioned, right now it's half a percent that maybe goes to more than 50% of the money supply globally.
Doesn't that blockchain record become so unwieldy and very difficult to actually manage?
Saifedean Ammous: No, because we're adding it, this is one of the important ways in which I think you could have attacked Bitcoin by trying to change Bitcoin blockchain so that you could scale it by increasing the throughput and then you make the blocks bigger.
[01:17:02] And then the blockchain becomes so unwieldy that not enough people can be able to run it online and then it stops being decentralized and it becomes centralized. And that was the key thing about the battle in 2017 that I mentioned earlier that prove Bitcoin was decentralized, that people couldn't change this one tiny little metric because of this threat.
And we stuck to the metric out to the network continuing to work as it existed. And the way that it is currently operating is that we're adding somewhere between half a megabyte to two megabytes every 10 minutes. So usually around one megabyte every 10 minutes. So one megabyte around every 10 minutes, which is growing at a rate that is still consistently manageable for regular home PC users to operate on.
Computers keep getting faster, Bitcoin is only growing at a very small regular rate. We're only adding one megabyte every 10 minutes. So computers keep getting faster and one megabyte continues to become less and less of a problem for [01:18:02] computers. You'll still be able to likely run a Bitcoin node on your computer for a very long time.
It is one of the top priorities for fit Bitcoin development because of the block size work. One of the top priorities for Bitcoin developers is to maintain this parameter in this sense, to ensure that it's continuously decentralized. And for your listeners, there was an interesting metaphor that was used by Harris Irfan in my podcast, he mentioned the decentralization of Bitcoin as being similar to the memorization of the Quran. In that before the Quran was definitively written, you had the network of thousands of people around the world who memorized the entire Quran and they could all correct one another, and they could all testify to the accuracy of each other's in translation, but there was no central authority and this continues to be the case today.
You have thousands of Qurans being printed probably every day, all over the world. From all over the world, they get printed [01:19:02] and they're all identical in their text. And there is no central authority that decides that. There's no central authority that is reviewing it.
And yet this is survived through the readers, and through the memorizers, and through the publication, we continue to have this imutable record. And Bitcoin is to an extent similar to that. This is the mechanism in which it is being propagated, that everybody agrees on this and then everybody continues to just replicate it more and more according to the agreement.
So it continues to survive.
Rakaan Kayali: Yeah. That'sa a really interesting thought. In a sense, everyone who memorizes the Quran acted as a node in the network and they verified that everyone else was accurate or not. So perhaps the Muslims were inventors of the very first blockchain in humanity.
Saifedean Ammous: Arguably, yeah. [01:20:02]
Rakaan Kayali: Last two questions. What probability do you assign for Bitcoin failure? Is it a 0% probability in your mind?
Saifedean Ammous: I don't give it a 0% probability, but I think it is infinitely lower than the probability of failure of all the other alternatives. And this is the frustrating thing about talking to people who are not into Bitcoin who continue to, primarily it's usually coming from a place where people don't really understand the mechanics of it, but they continue to just be skeptical from a place of ignorance. Which you can't really argue with because you can't teach a person, all of the technical stuff that you need to learn about Bitcoin to arrive at the level of understanding its degree of certainty and its degree of confidence.
And if you refuse to learn it, then you think Bitcoin is not important, and if you think Bitcoin is not important, you refuse to learn it. And so that's this cycle of skeptics was just impervious to logic, which is - [01:21:02] well it can't work, and therefore I'm not gonna spend any effort on trying to understand it.
And therefore I will continue to believe that it can't work. And the conclusion of that is, what are the alternatives? How likely is your national currency to hold on? How likely is your bank account to hold on? How likely is your stock portfolio, your bond portfolio? What are the risks that are facing your bond portfolio? Compare that.
You're lending to governments that literally lock up their people at home and stop them from working and throw them in jail because they're working, because of a respiratory illness, and you're lending them money, and you're thinking you're hosting your life savings with them, and then you think that's not risky, whereas Bitcoin is risky.
This is the problem. Of course it's not zero. Nothing is certain, but what are the alternatives and [01:22:02] what are you putting your money in? And this is the thing. So make an informed understanding of the risks involved with Bitcoin.
I should say the real and most important risk with Bitcoin is not some fantasy scenario where governments launch some quantum mega weapon for whatever activation, the real risk for Bitcoin, for you, and for pretty much everybody is you're going to lose your coins.
That's by far the number one risk, you're gonna misplace your private keys and you're gonna lose it. So worry about that. The second most risk is you're gonna get your coins stolen - somebody's going to take them. Beyond that, the network itself, the risks of the network itself are about a million times less likely than all of these things.
But far bigger risk than you losing your coins or your coins getting stolen is putting your money in government wealth, that's where the real risk is.
Rakaan Kayali: What is your price prediction for Bitcoin? Do you see it going up Infinitely in the future or do you have a certain price target in your [01:23:02] mind for Bitcoin?
Saifedean Ammous: No, I don't have a specific price target, but what I can confidently say is that Bitcoin is going to be higher four years from now than what it is today. This is my only confident prediction that I'll say. And I don't think anybody can make confident predictions about short term price movements.
Things are very volatile in the short term. One billionaire decides to buy, the price shoots up, one billionaire decides to sell, the price shoots down. So short term, I don't think you can make predictions, but I think the long term you can and you can predict, as we say in the Bitcoin world, number go up technology is going to work!
Bitcoin is built on number go up technology. The price just goes up in the long term.
Rakaan Kayali: Nice. Alright, on that note thank you so much, Saif! I really appreciated this conversation. I'm sure a lot of viewers and listeners found it really beneficial. Jazakallah khair and inshallah will talk [01:24:02] again!
Saifedean Ammous: Thank you, thank you. Thank you very much! Thank you for having me and I truly enjoyed this conversation and yeah, I hope we get to discuss it further.