The Bitcoin Standard Podcast

88. Is bitcoin good money? A debate with Paul Frijters

November 07, 2021 Dr. Saifedean Ammous
The Bitcoin Standard Podcast
88. Is bitcoin good money? A debate with Paul Frijters
Show Notes Transcript

In this episode Saifedean invites back Professor Paul Frijters of the London School of Economics to debate whether bitcoin is a good form of money. Saifedean makes the case for money as a market phenomenon, and argues that bitcoin has the scarcity, divisibility, fungibility and transportability that humans have historically valued in monies. Paul questions whether bitcoin mining is a zero-sum game and whether the fact that people hold bitcoin really demonstrates it has value. The debate touches on the demonetization of silver in China, the scarcity of land, and whether government force is legitimate at all.


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Saifedean Ammous: [00:05:10] Hello and welcome to another Bitcoin Standard Podcast seminar. Today's guest is Paul Frijters, Professor of wellbeing economics at The London School of Economics. Professor Frijters joined us last week to discuss his latest book The Great Covid Panic, and we had a very interesting conversation about it.

During that conversation, we got into the topic of Bitcoin and we decided that was a topic that deserved its own episode. So he's very kindly agreed to join us today to discuss Bitcoin. This is going to be an interesting discussion between me, an Austrian leaning economist who is very much pro - Bitcoin, and professor Frijters who is an empirical economist.[00:06:00]

Methodologically we're quite different and he's also skeptical of Bitcoin, like most economists are. And to his credit he's come to the lion's den to bring his skepticism to discuss this question where most economists generally would avoid that. And seeing as we had a very productive and useful conversation on the topic of COVID last week, where we happened to agree on quite a lot in spite of our methodological differences in economics, I think this should be quite interesting.

Paul, thank you for joining us.

Paul Frijters: It's great to be again Saifedean, and the whole team.

Saifedean Ammous: Great. I guess I should, since I'm the one who's introducing this, who's in favor of this crazy new invention called Bitcoin, I'll try and make a brief opening statement about what the case for Bitcoin is and why I think it's [00:07:00] interesting and why I think it's likely to win.

And that's going to be a brief summary of some of the main ideas in my book, The Bitcoin Standard. The book starts with looking at the history of money and I make the argument that historically what ends up being chosen as money, what ends up being used as money on the market is whatever is the hardest to produce.

And we have many examples that we can see that can support this contention. In prison, people will use cigarettes because nobody can manufacture cigarettes in prison, and so they're rare and they're not easy to make, and so they get used as money. Historically, people have used rare seashells as money. For instance, in west Africa where they did not have the technology to make glass, glass beads that were imported from abroad were very rare and they were very hard to make, and so they were used as money.

And of course [00:08:00] most importantly, gold became money historically and was money basically all over the planet at the end of the 19th century, because the chemistry of gold makes it so that it has a supply that increases at the lowest rate of all metals.

 We had been mining gold for thousands of years, all throughout history. And since gold does not ruin and does not corrode and does not go bad and there's no way of destroying it. We're constantly accumulating a larger stockpile of gold. So the liquid supply of gold on the market that is being bought and sold by people is always very large compared to any year's annual production.

In other words, on any particular year, even though every year we make more gold and we get better at looking for it, and gold production annually increases, it still always remains a small fraction of the existing stockpile of gold, meaning that the supply of gold is always growing at around 1,5% to 2% per year.[00:09:00]

In my opinion, that's what makes gold money, that's what made gold money. Gold wasn't money because it's yellow or shiny or nice, it's money because it's the one thing that is the least inflatable if you want. It's the one thing whose supply can't be increased the most. In second place comes silver, but silver can corrode and silver is more common in the Earth's crust than gold.

And so it had historically a supply growth rate somewhere around 5% to 10% or so, but for all other metals, the annual supply growth rate is much larger. It's closer to 50% or 100% or maybe 200% because every year the stockpile is being consumed. Whether it's oil or copper or zinc, these things get used in industrial applications where they get consumed.

So they're no longer part of the liquid supply that is available on the market. Their production is always very large compared to the [00:10:00] existing liquid supply on the market, and that makes them useless as money. Because if everybody wanted to choose copper as money, a lot of Marxist economists will tell you that money is a common hallucination, that if we all decide to hallucinate hard enough that something is money, then we will use that thing as money, and I think that's completely ridiculous, like everything that Marxists say.

Because if we all decided to hallucinate that copper is money, then copper miners will just make a lot of copper and they will flood the market with it, and all of the money that we stored in copper will just end up being a donation for copper miners.

They will meet the demand of the market for industrial copper and meet the demand for monetary copper with a lot of ease because the stockpile of existing copper is always very small compared to the quantity that they can produce. Or not small, but in the same kind of range of magnitude as the stock.

If we [00:11:00] take the inverse of the annual growth rate, we call it the stock-to-flow ratio, and that's a key concept in my book. The ratio of the existing stockpiles to the annual production. For gold, this has historically been something around 50 to 60, 70 maybe sometimes.

For silver, it's around 20 historically, now it's much lower, it's closer to three, which is why silver is losing its monetary role. And for all other metals, for all other market commodities that ratio is closer to one. So every year we're producing roughly what we consume every year, maybe 50% less, 50% more but generally with all these non-monetary commodities, they can't have a monetary role because the stockpile is very similar to the animal production.

So that in my opinion, is what makes money, that's what ends up being money on the market. For one reason which is the less obvious reason, or the less [00:12:00] powerful reason is that people can think about this and can understand it, but I argue that is even irrelevant.

People don't even need to understand that this is economic reality that forces itself. In other words, if we lived in a world in which people randomly chose their money from all the objects that they find and didn't ever think about this issue of what holds value better, we will still end up in a world in which gold becomes money, simply because everybody who puts their money in other things will witness the value of their wealth disappear.

So, if you put your money in copper, in oil, in fish, in, water, in zinc, nickel, whatever it is, the producers of this thing will make more of it because you are increasing the demand for it, and so you're increasing the price, and so you're increasing the incentive for the producers to make more of it.

And therefore, the producers will make more, and they will flood the market with it, and the value that you put in it will disappear. This is going to destroy the value, the monetary value that you've stored in it. The only [00:13:00] monetary value that will remain will be the one that is stored in the metals that have a high stock-to-flow ratio.

So even if we go around choosing monies randomly for 100 years, at the end of those 100 years, the majority of wealth will be stored in the money that is the hardest to produce because that's the one that will maintain its value. So historically, this I think is the case for why we can understand that gold became money.

And then of course we had the 20th century where humanity took a massive hit to its civilizational project when we decided to give up on, we didn't decide, but governments decided that hard money that allows people to store wealth and maintain value into the future is not conducive to their spending plans.

And so they forced people effectively to use horrible inflationary national currencies. And if we look at the track record of these national currencies, fiat monies, we see that the best fiat currencies increase [00:14:00] at around 5%, 6%, 7% per year in terms of their supply. And of course, the worst ones will increase at much higher than that.

Some of them will increase in their supply by a 100% or 200% or even 300% per year. That I think has been massively destructive for humanity because it has destroyed our ability to save, it's destroyed our ability to provide for the future, and my favorite focus, my hobby horse is the topic of time preference.

By reducing our ability to provide for the future, this basically reverses the process of lowering our time preference and forces us to become more present-oriented and less future-oriented in our approach to these kinds of questions, to all questions across life. And I think you see this reflected in all aspects of things throughout the 20th century.

Where Bitcoin comes in is that gold is stoppable by governments. In order to use [00:15:00] gold as money, you need to be able to move gold around internationally in order for it to function as money. And as world trade became more and more international and as global markets became more and more interconnected, trade in gold became reliant on central banks and on governments allowing gold to trade.

Effectively, the topic on the concept of the salability or the liquidity across space of gold is reliant on governments, and then governments managed to stop gold from trading by confiscating it and by banning people from setting up free market gold-based banks and forcing people to use their inflationary currencies. Where Bitcoin I think is really important is that it sidesteps this.

It allows us to have gold's hardness and salability across time, and the ability to save and store value into the future. And it also allows us to have a salability across space that is much higher than gold. [00:16:00] We can move Bitcoin across the planet in a couple of hours without needing to resort to any political Institutions or any government institutions or any legal institutions.

And so therefore we have the makings of a free market monetary system. Decentralized with no central authority, and it's something that can continue to operate, I think without governments being able to stop it. And this means that we now have free market competition in money for the first time in a century.

And I think that's going to restore the natural order of people always seeking and finding and using the hardest money. In a nutshell, this is my case for Bitcoin.

Paul Frijters: Thank you very much Saifedean, that's very useful because I haven't read all of your book, and this is a very useful sort of summary for me.

Can I introduce by introducing myself a little bit as [00:17:00] not just an empirical economist, I've also written a textbook on macro economics, introductory economics, and I put various proposals in papers and other outlets on how to reform the financial system.

I once, during the great financial crisis said that government should print more money for their population. I was an advocate of the notion that everybody would have an account with the central banks and would get several thousands of dollars as a means of overcoming the problem with liquidity constraints at that time, but also as a means of overcoming some of the inequality. Basically it was helicopter money.

So I'm very sympathetic to the Austrian school, I'm not a member but I certainly buy some of its main tenants, particularly when it comes to prices and markets as a discovery mechanism, complex thing. So we're not that far apart, as it were, in our economic ancestry. I [00:18:00] would like to ask you some sort of questions about Bitcoin and the market for Bitcoin, but let me finish by reacting to what you said.

Lots of things are scarce, the ultimate scarcity is probably land, it can't be made either. And land as a unit of value, definitely as a store of value is probably historically speaking the main form of money, as a store of value. But of course, money has two roles and they don't necessarily need the same type of money.

So you have money that has a role as a store of value, and land is like that, lots of assets are like that, housing can be like that and is like that in the current time. But you also have means of transactions. And so we can talk about Bitcoin as an asset, which is the predominant way in which you choose now, or we can talk about it as a means of trade.

And as a means of trade, the notion that something [00:19:00] needs to be scarce is much more difficult. Land is not used as a means of trade, essentially. It's used as a means of asset, but not as a means of trade. And with a means of trade, you basically want other characteristics. You don't really want it to be the case that it cannot be further produced.

Because it has been remarked by many economists on Bitcoin, but if you have something that is basically in fixed supply, so I suppose those 20 million odd Bitcoins, but anything else it would go for as well. If it's in totally fixed supply, and if trade is increasing, production is increasing, there's growth, there's more and more demand for the unit via the trade takes place.

And so the price of that money itself, as it were in terms of its value, in terms of what you can buy with it, in terms of real goods increases in principle over time. Now then you have a problem, you effectively are then in the kind of deflation [00:20:00] scenario, and what happens then is that people no longer trade with whatever is their money.

They hang on to it because it value will increase tomorrow and in the future. So it stops being used as a unit of trade and starts to be purely an asset. And that means that it's no longer actually useful as this lubricant in terms of trade between people. And that has been one of those criticisms of Bitcoin, that it basically cannot be a means of exchange if it is in fixed supply, because then it's value will increase as the economy increases.

And if it increases, it will become an asset. And we've seen this before in the world, we've seen this when it comes to silver in China. I'm not a hundred percent sure of all the details of the story, but I think this is true that in the 19th century China was still using silver as a means of trade.

Transactions were in silver, but the world economy was growing and the silver price was increasing. [00:21:00] And so what happened is that Western foreign agencies bought up all the silver from China because it was just worth more than they had to pay for it in terms of the goods and effectively trade became very difficult within China itself.

And so what has happened in that sense historically over time is that as a unit of value, governments have started to give out money. Although you're right in the 19th century, there were lots of commercial forms of money as well, but government started to give out money and started to regulate the supply of money, putting in more or less.

Effectively in order to prevent deflation. Deflation was seen as something that was incredibly negative because then you get this phenomenon that people hang on to money itself because money itself increases in value over time and starts to be an asset, which is then a good bet as it were, a good investment.

And so trade dries up. In that sense, there has been a gradual divorce between things that are in totally fixed supply, [00:22:00] like gold and things that are useful as a means of trade, which is the money that are now given out by central governments. So I think in that sense, Bitcoin has a problem in trying to be both.

And I noted that in your book you have as it were Bitcoin being an ultimate settlement currency, if I can put it like that way, that major financial institutions, central banks would settle their own balances with each other by means of Bitcoin, which is a little bit tradish.

We can have a discussion about that, but I was also interested in asking you general questions about the Bitcoin market, but I guess this depends a little bit on who's interviewing who Saifedean. So in that sense I'm I willing to, since it's your show, you basically call the shots on the rules.

Saifedean Ammous: No, I think we can have [00:23:00] both way, we can ask each other questions. But so you've raised quite a bit of points that I'd like to get back to. First of all, the issue of land. Actually there aren't many things that increase in supply as little as gold. And land is not a good example because land's supply can actually increase very quickly if people need it. The vast majority of land on Earth is uninhabited.

And it's not on the market, not because there's something wrong with it, it's just we haven't gotten to it. So if there is increased demand for land, as there has always been, as the natural land increases, what happens is people dig further, travel further, build more roads and access new lands.

So this notion that we can't make more land is wrong, we can always keep making more and more land, and we can always increase the supply. So it doesn't have that low [00:24:00] elasticity of supply that gold has. And of course the other major issue with land is that land is terrible money.

You can't move land around and it's not easy to divide land into small pieces. So you can't give me three square inches of your land to pay me for lunch. And I can't then use those three square inches of your land to then pay somebody else for the raw materials that I need to make the lunch.

It's not divisible, it's not portable, it's not fungible, and it doesn't meet any of the criteria. So there are properties that make something good money and land doesn't have them. Land is great, people now use land as a store of value because government money is so terrible as a store of value that people have to resort to holding all kinds of other assets as a store of value.

Now, secondly I think the deflation issue is of course the biggest and most obvious objection that we keep hearing about Bitcoin. [00:25:00] I disagree with you entirely because there is no, you said that it is a problem that the value of the money increases, but I think that is in no way a problem.

That is in fact, the whole point. People are always looking to make more money and to have more wealth and to have more value. And so if you tell me that I have a form of money that's going to increase in value over time, then you're not being very convincing by telling me that's a failure in money.

And this dichotomy, the idea that there is a dichotomy and a difference between being a medium of exchange and a store of value, I think is completely false. There is no dichotomy. And in fact, you have to be a good store of value in order to be a good medium of exchange, because anything can be used as a medium of exchange.

In other words, we could use tinder sticks, we could use wood, we could use [00:26:00] plastic, we could use pieces of paper, we could use anything and exchange it. Exchanging things is a very trivial problem. In the digital age all you need is just a signal of moving one thing from another.

We already have a way of communicating through messaging apps, which allows us to basically communicate signals for free almost, across the world, close to free. So the idea of signaling that I give you one or the other is just a very trivial and cheap problem to solve.

The tricky part is how to combine a system of moving value around with an underlying asset that is valuable, that holds its value, that people want to accept. So you can pay me, we can send each other all kinds of different things, but how do you and I agree on one thing that I want to accept as payment from you? You have to give me something that's valuable that I want to keep as [00:27:00] payment.

And in fact, the whole point of money is that effectively it solves the problem of coincidence of wants. That I take it as a payment so that I can then use it in order to make other payments, and that necessitates that I'm going to store value in it. So I can't use something as a medium of exchange without first storing value in it.

And I can't exchange something for something else unless I first store value in it. And whether that value is stored for a day or for an hour or for a week or for a year or for 10 years, it has to be stored in that money. So the really tricky part about what makes money is the store of value.

And that's why I think the idea that deflation is a problem I think is completely misplaced. And I think the example that you gave is beautifully self-refuting. China on silver was in fact suffering from the exact opposite problem, and there is a chart in my book, in my [00:28:00] book I argue that basically silver was losing its monetary role globally since 1870, and if you look at the price of silver to gold, the silver to gold ratio in 1870, it was about 15:1. So one ounce of gold could buy you 15 ounces of silver. Today, it's closer to 100:1. So it's been a continuous decline in the value of silver.

And that's the root of the problems of China and India in the late 19th century. They were the last two countries in the world that remained on the silver standard after everybody had moved to the gold standard, and so their problem was not that their money was deflationary. On the contrary, their problem was that their money was inflationary.

It was the closest thing that we had ever seen on metallic money to hyperinflation. Obviously metallic monies are never going to do hyperinflation as well as government money. That's one app that government money completely excel at. But that was the case, and I have the statistics, between 1870 and [00:29:00] 1930 when China and India went off the silver standard, their currencies had lost something like 70% of their value compared to gold.

That was the problem for China, the problem was that their currency was just constantly losing value and that foreigners who were on a gold standard could come to China and India and buy up things at the cheap price. Because people there were witnessing their wealth disappear effectively. And this was the issue.

At that time, the value of gold was going up in real terms and in silver terms, and the countries that were on a gold standard during that period did not have a deflationary problem. This was the golden era of capitalism between 1870 and 1914. 1817 incidentally was the end of the Franco-Prussian war.

And it is a historically important milestone in monetary history because when the Prussians won the war, they asked the French [00:30:00] to pay their indemnity in gold, and before that Germany was on the silver standard.

So when Germany won the war, they asked the French to pay them their indemnity in gold, and then they used that to go on the gold standard. So when Germany switched from silver to gold in 1870, it was the decisive switch away from a world in which we had countries that were on silver and gold. Once Germany, which was the biggest country on silver, or the biggest economy on silver switched to gold, that was it. That was the end for silver.

So then all the smaller countries that were still on silver switched to gold as well, and the value of silver began to collapse. So when all of those countries were on a gold standard at that point, you had the U. S., Britain, France, Switzerland, Holland and many of the major economies were already on a gold standard and then Germany joined them as well.

That's when the world witnessed the first truly international monetary standard where all of the world was on one money [00:31:00] and that money kept on appreciating. And the result of that was really the golden era of capitalism. It's La Belle Époque in French, it's the golden Victorian age in England.

It's the Gilded Age in the U. S. It's the age that gave us the car and the airplane and all of the modern technologies that have shaped our world and the 21st and the 20th century, they came from that period. So the notion that the fact that the value of the gold was going up was in any way problematic, I think is massively unsupported by the data.

And the example of China was an example of what happens when the money was losing its value. And I think the other historical problem with this idea is that, and this is the narrative that is taught at economics universities and economic programs, it's the idea that gold didn't work and that's why we needed to shift to fiat [00:32:00] money.

That's not accurate because actually gold did work. And the shift from gold to fiat money was caused by the fact that governments needed it to finance themselves. So it's not like gold was failing.

And it happened during World War I that the governments shifted to a fiat monetary system because they needed to finance war, they needed to finance their spending. So it wasn't an economic failure. Later on, we came up with these kind of after-the-fact rationalizations by Keynesian economists that have said, ah well, gold was failing because of this or that or the other thing, but it's not true.

Gold was not failing. The only thing that gold failed to do is finance the senseless pointless carnage of World War I. And that's not a failure of gold, that's a feature. That's the thing that meant that the 16th, 17th and 18th century were far more peaceful than the 20th century and the 19th century, [00:33:00] or more peaceful than the 20th century because governments were restricted by how much gold they could collect in taxation for financing their war.

But once we removed this restriction on them, then they could go crazy with their spending, and that's what indeed happened.

Paul Frijters: I clearly need to read that a little bit more on the Chinese silver aspect, but I clearly wasn't also talking about gold. I was basically just talking about silver in terms of its value of commodities.

My understanding was there was a silver standard but the currency itself is something different, right? That was the paper money bandied around. So silver could be bought up and indeed that sort of has done that impact on the currency, but it's a different notion of what the value is.

Gold to silver relativities are neither here nor there. But I did want to come back to the land point, because you did say that land is produced and it's not, [00:34:00] but what is the case of course, is that land's value is really different from where it is.

At the top of a mountain land is worth less than at the bottom of a value where it's fertile and lots of people live. So land is by definition still scarce and cannot really be produced in significant amounts more, but there was a local value to it.

And that is of course different from a currency that is used for trading, where you like to have the same value everywhere, because otherwise it's not very useful. But as a store of value, land is extremely useful. Whether or not it's at the top of the mountain or the bottom of the valley, doesn't matter. It's sort of the local production value which pins it down a little bit, but it also has, as it were, in keeping with lots of other things, including Bitcoin, a speculative component.

And that's certainly the case, or has been faced when it comes to land in sort of [00:35:00] some of the major cities, where the crisis is largely a speculative aspect. But I wanted to start asking you a couple of questions on the Bitcoin phenomenon itself. One of the questions I have is, you've already talked about why you think economists didn't see it's going up and up and up. And I've definitely been one of the people who've been surprised.

But I, I think it's fair to say that the mainstream economic community doesn't quite yet have a good handle on how the whole market for Bitcoin is organized. Now, I don't mean the hashtag phenomenon, but I particularly mean the mining phenomenon. One of the things that we're unsure of as well who the miners are. Economists are in that sense a bit skeptical.

They don't [00:36:00] know who the miners are, they worry about that. They worry about the organization involved. One of my questions to you is do you know who the miners are? Would you able to say, ah yes, 99% of the miners are these and these groups that and that kind of person, do you have profiles in mind, do you know the concentration, your involvement of government? Is there some sort of sense in which you think you have a handle on who the miners are?

Could you explain in a brief way whom we should think of as the miners.

Saifedean Ammous: The short answer to this is that it doesn't matter who they are. It's a completely impersonal system and that it doesn't really matter who you have behind it because it's run in a mechanical [00:37:00] way that prevents people from being able to manipulate or control the system, that makes their identity irrelevant.

In other words, the metaphor that I like to give for the miners is that they're a bit like the janitors in The White House. So who are the janitors who are cleaning the bathrooms in The White House? And if you think that the minors can control Bitcoin, it's a little bit like thinking that the janitors in The White House are going to take over the U. S. government.

You can see a sort of scenario where this is likely. So if the janitors don't clean the bathrooms in The White House, then the bathrooms think and then you get diseases and conceivably this could lead to health problems that affect the U. S. leadership and then the miners can take over. Can you say it's impossible that this will happen?

No, you can't. But it's also not [00:38:00] going to happen because the moment that one janitor in The White House doesn't do their job cleaning the bathroom, effectively they have a boss, and that boss fires them. And if the boss is in on the coup attempt, then the boss of the boss will fire them. And then the boss of the boss will fire them.

So basically they exist within a system of economic incentives where it doesn't really matter what they choose to do. Effectively with Bitcoin, miners are not in charge of the network, they're not in charge of the consensus rules of the network, they're not in charge of deciding what happens on the network.

Miners solve the proof of work problem and sell it as a good to the network. And the governance of the network is controlled by the nodes. And so there's a distinction between the nodes and the miners. The nodes are anybody who is part of the network. Anybody who becomes a node on the network and downloads the software and then is validating every single transaction, and is [00:39:00] validating the blocks that are being provided by the miners with these transactions, and is validating the proof of work solution.

So effectively the miners are just providing a good to the market where they solve this proof of work and they attach it to the transactions and they give it to the network. If they attach only valid transactions with a valid proof of work, then the block gets merged into the blockchain and it becomes part of the record of transactions, the network goes on and then we find another block. If they try and mess around by providing an invalid solution to the proof of work problem, or by trying to put in an invalid transaction or trying to change anything in the supply, then all of their blocks just get rejected, so they're no longer part of the network.

That's just how it works so effectively they have no sovereignty over the [00:40:00] network. They have nobody to dictate terms on the network. They're in a position of weakness because in order to be a miner, you have to expend an enormous amount of resources on building the infrastructure that is needed for you to be able to solve that.

So miners today, they spend thousands or most likely even millions of dollars to build their facilities in order to produce those blocks and then give the blocks to the Bitcoin network, and they have to abide by the rules of the network.

And if they don't abide by the rules of the network, then all of the capital that they have invested goes to waste. And we saw in 2017 and that's something that I mentioned in the book, we saw it in 2017 how there was essentially an attempt by miners to try and change the consensus rules of Bitcoin in a way that was more favorable to them.

And all that it did was that they ended up creating another fake Bitcoin. And there's thousands of these at this point, and that fake Bitcoin has now continuously finding new [00:41:00] zeros to add on the right side of the decimal point in terms of its price. So it's just, it's flat-lining and it's discovering new depths.

Like you can keep zooming in and it keeps it keeps finding new space between it and the X axis. So it's gone to zero and it's a fascinating experiment to see how long something can take to truly find the zero. To really go to proper, true, complete zero. Because you can always keep adding zeros next to the decimal point.

The network's rules are determined by the nodes, by the users of the network, and anybody can run a node, you just need to download software and put it on your computer and run it. And then you decide what the rules are for Bitcoin and effectively, the rules are sclerotic, they can't be changed.

It's a situation where there's consensus around this and there's a new block that needs to be confirmed every 10 minutes. And if you try and change the rules, you fall off this consensus. [00:42:00] It's like a train that's relentlessly running, and you can either hang onto the train as it is. And if you try and say, let's change the direction of the train, all that happens is that you jump off the train and the train continues.

So that's been the experience for it. So that's why the question of who the miners are doesn't matter. The miners are people who have invested a lot of money in solving proof of work problems, and if they solve those proof of work problems correctly, they can get some of that money back and hopefully make a profit for them.

And if not, then they just become poor.

Paul Frijters: Thank you very much. Yes, that sort of clarifies a couple of things, but I was actually aware of the hash functions, sort of the basic way in which Bitcoin works. So I wasn't asking so much in terms of the authority of miners, when it comes to mind, of course I'm more [00:43:00] worried about what are their incentives?

 Is it globally productive, what the miners are doing? Or is there a loss there somewhere? So I have a particular question in mind there, but I also wanted to ask about the authority aspect. My understanding of the Bitcoin network is that it has changed its protocols, it has changed its rules, and there is a mechanism for the consensus to shift. Now I have noticed in part of your book, but also in what you said last week that you make great play of the notion that the rules will never be changed, so there won't be far more Bitcoins in the future. But of course, trust in that is trust in what a future generation who's not yet born will decide.

If there is a mechanism by which they can change their mind, there's never a guarantee [00:44:00] as to what a future generation will or will not do. So in a way it's asking us to trust in almost like social contract across generations. And so if there is a change in protocol possible, then of course you know there is nothing to keep future generations from reneging on what the current generation might or might not have in mind.

Now on the miners, I have a particular question. And I don't know whether this has come up before in the Bitcoin community, I have wondered where the energy comes from. So the miners use two main ingredients, there are the computers and some of them are very much specialized to particular hash functions used in their activities. But it's also of course fed by electricity going into the computer. And effectively it's a conversion of electricity to Bitcoins via this kind of [00:45:00] tournament process in which most of the most of the calculations don't get you anything, but the winner gets something. And that in principle allows a kind of laundering of stolen energy.

So one of my sneaking suspicions and I have no proof of this whatsoever but I wondered whether you do, is that much of the energy put into the mining and the mining is as you say, a vital component, we call them the cleaners, but they are basically administrators of the whole system, is that what they're doing is they're either stealing from their country, their employer or from bountiful regions, the energy that they then convert via their mining activity into what is private wealth.

So as it were public electricity, or at least electricity that's not theirs gets converted into something that is something valuable for them. And I wondered whether there's any study done on this, whether that's a prevalent thing or some sort of percentage [00:46:00] guess, I don't know. A quick search didn't tell me anything, but maybe that's because I don't know the keywords to look for it.

So I have a worry about the miners and I have a worry about the authority system of Bitcoin. Can you illuminate me?

Saifedean Ammous: Okay. So first of all, in terms of changing the protocol, I think there's an important distinction here between what is called a soft fork and a hard fork. And effectively you don't have to trust in anybody because you download the software on your computer and then you run the software that you want, according to the consensus rules that you like, and then nobody can change the software that's on your computer.

So nobody can force you to use another different kind of software, nobody can force you to change your Bitcoin. So you don't really have to trust in anything else because there's no, I think this is really the key thing about Bitcoin, and it's the main difference between [00:47:00] Bitcoin and all the altcoins, all the other digital currencies, which is that Bitcoin is made up purely of users. It has no admins.

There's there are no admins in Bitcoin, but there are admins and all the other digital currencies. All the other digital currencies, as well as basically every other kind of software or computer network, it does have admins. There's an admin to Amazon. If you have an account on Amazon, if you misuse it, they can kick you out.

They can introduce an upgrade to Amazon that changes the fees or changes your ability to list things, and you have no choice about that. The same is true for Facebook or for Apple or for Netflix or for Twitter. All of these things, there is an admin in charge and you are a user, but with Bitcoin, there is no admin. You are the admin, you decide what code you want to run.

Now there have been changes to the code but the changes that have been done are still not, the key thing about Bitcoin [00:48:00] is that your changes can be accepted as long as they don't kick people off the network.

So the remarkable thing about Bitcoin, which separates them from all the other currencies is that you could run the Bitcoin software that was used to mine the first lock of Bitcoin, which was mined on January 3rd, 2009, you could run it today. It's going to be slow, it's going to be buggy. It's been optimized and improved in all kinds of ways, but it's still compatible with the network today.

And that's an enormous difference. There's one bug that you have to fix, one problem with the coding, but it's still compatible with the code as it is today. So basically you can think of all of the changes that have been done as being cosmetic changes to superficial properties of the code to optimize it and to make it run better. But they are not changes that have affected the consensus parameters, and the important consensus parameters are the ones whereby if you change them in your code, you would leave the [00:49:00] network or you would have another coin basically.

And so whenever somebody has tried to introduce changes that would make your software incompatible with their software. We end up with two coins and we end up with Bitcoin and they ended up with another coin. So that's why we have many thousands of, well maybe not thousands, there's dozens or maybe hundreds of Bitcoin forks that have effectively gone to zero cause all of these people tried to change the code of Bitcoin.

They're like people who are again on a train and they thought, let's jump from the train and then the train will have to turn around to pick us up and change the direction. Nope, the train keeps going, you just fall on the floor into a muddy, bloody puddle.

That's the case. So the train is still on the same tracks and on the same consensus parameters, there's still the same supply, the same block size, the most important parameters of the network are still there, and nobody can force you to [00:50:00] change them. So effectively Bitcoin has selected for the kind of people, the kind of people who have used Bitcoin have all accepted this idea that money and monetary systems are not something that I choose to use myself, and I choose to make the rules for.

If you get into Bitcoin, you accept the fact of money as rules and not rulers. Money is not something for rulers, for people to be able to dictate and control. Money is a of rules that everybody plays by, and if everybody plays by these then we all win.

That's the basic idea of how Bitcoin has been changed. Now in terms of mining, the answer is very simple, economics value is subjective. And so is the use of energy productive in Bitcoin? Is your use of energy to have heating in your house productive?

Is your use of energy [00:51:00] to have a laptop productive? Is your use of energy and driving a car or getting on an airplane and flying to go to work or go to conferences, is that a productive use of manage? What decides what's a productive or what's an unproductive use of energy? The only way of deciding such questions is very simple.

It's subjective. If you pay for it, then you clearly value it more than the alternative. So if you have $100 and you decide that you want to buy an airline ticket to travel from one country to another with that $100, what that tells us is that you paid for the fuel to make that flight happen, and you value that trip more than that flight.

It's very simple. Now currently Bitcoin consumes enormous amounts of energy. It consumed something like 0.1% of the world's energy consumption most likely. Consumes more than small countries. And that's a feature, that's not a bug. So that's not something that can be stolen, you can't just get away with [00:52:00] stealing.

Historically I think initially in the previous, in the early parts of the Bitcoin network, yes, there was a lot of mining that was done where let's say, somebody is at a university, they plug in their computer at the university in their office where they're not paying electricity bills, which incidentally was probably the stupidest mistake of my life to not do that at a certain point to plug in computers into the university network, but let's not cry over spilled milk now.

So I think, yeah, in the early years, a lot of people were doing things like this and the mined Bitcoin at a very low cost, but with time, now Bitcoin mining is a massive, massive industry. So you have mining facilities that consume enormous quantities of energy that involve very large investments. Multi-million dollar companies are investing in Bitcoin and in Bitcoin mining. So it's an enormous amount of resources that goes into it.

But [00:53:00] you know, people are willingly paying for it. So people are willingly paying to consume that energy and they are being compensated by the Bitcoin network because Bitcoin users are willingly paying for the Bitcoin. So when you go and you buy Bitcoin, you're paying for the existing holders of Bitcoin to give you Bitcoin or you're paying for new coins that are being mined by the miners.

In all cases, some of that money is going back to the miners and they're profiting from this sale. And that's what's making Bitcoin mining profitable. So the question is, you can't just say, all right is this good, or is this bad? The question is, what is the value that people are seeing in it?

Why are people spending so much money in it? We can't just say is international aviation a waste or not? No, clearly people are willingly paying for all of these airplanes to fly all over the world so the question is, what value do they see in it? And I think there's an enormous value to be seen in Bitcoin.

And in my next book The Fiat Standard, which is going [00:54:00] to be out in a couple of weeks, I do a cost benefit analysis for fiat money and a cost benefit analysis for Bitcoin. And when you understand that Bitcoin is an alternative and an upgrade to the fiat monetary system, then yeah, it's definitely worth every penny that you people spend on it.

Fiat money's supply increases annually at a weighted average of around 14%. So your average fiat user is witnessing their currency increase in value at 14% every year. And that's just pure grift. That's pure theft. There's no reason for any money supply to ever increase, but the fiat money increases at 14%.

And so it's taken away about 14% of the value of the money every year from you. So if you're able to buy Bitcoin and hold Bitcoin instead, you're buying something that doesn't have inflation. It's resisting inflation. So that's what Bitcoin is providing us. It's building a monetary network that resists inflation. It's the [00:55:00] most advanced technology for countering Keynesians.

It's the most Keynesian-proof system, and yes, if you have a cheaper way of making money that is Keynesian-proof, then I promise you, Bitcoin users, the majority of them would definitely go along. It would be more economical than Bitcoin and it would be better, but this is the cheapest way that we found of building Keynes-proof, money. It's money that doesn't steal from you.

And so do you think there is demand for that? Do you think people don't like to get stolen from? I think so. I used to live in Lebanon until very recently and I would have been a victim of the government's hyperinflation if I had my money in the banking system. So do I think that the electricity that Bitcoin network has consumed has been wasteful?

Absolutely not. In fact, I can name many, many, many things in the world that are far more wasteful than the electricity that goes on Bitcoin. I think for instance, the entire [00:56:00] entertainment industry is completely superfluous. Why should we have movies? Why should we have music? I think, before we shut down Bitcoin, let's shut down movies and music completely. No more production of movies and music, no more streaming, no more CDs, no more videos.

Obviously I'm just being facetious here, but it's not my call. That's the whole point, there is no central planner out there who gets to decide who gets to spend their energy on what. People make their own choices about where they want to spend their resources.

Paul Frijters: Let me disagree with you on several points of what you said, but I was happy to get the actual explanation of who the miners were.

So you do have some idea who the miners were. And I think a lot of people would appreciate some sort of breakdown as to generally speaking where the miners are, what their concentration was.

Saifedean Ammous: I can give you a [00:57:00] general idea if you want. My answer was it doesn't matter, but we do have some idea. Up until May this year, about 60% roughly of mining activity was in China. And now approximately 0% is in China. In May, China announced that they want to ban mining, and so we witnessed the hash power of the network decline by about 50%, 60% over the space of a few weeks. It used to be in China and this was the major talking point of a lot of Bitcoin haters, which is it's all controlled by China and China controls it. China owns the miners and one day China is going to change the rules.

And unfortunately for them, things don't work out well for people who hate Bitcoin. And now they've run out of their ammunition because now China has kicked them all out. So they're not in China. I think now the biggest concentration is probably in the U. S. The majority of mining is not in the U. S. I don't think it's a majority, but I think it's the plurality, it's the biggest [00:58:00] single country.

And then it's distributed all over the world, and primarily the thing about Bitcoin mining is that it goes, this is the really powerful thing about Bitcoin energy mining, which I think is going to truly revolutionize energy markets around the world, Bitcoin is the first use of energy that is location independent. Bitcoin will buy energy from you from anywhere on the planet.

All other uses of energy, they're static because moving energy is very expensive. If you want to produce electricity and put it on wires, it costs a lot. You can't move electricity more than 500 miles. I think then it just loses, it's not worth it. And moving gasoline is expensive and moving oil is expensive and moving gas is expensive.

All forms of energy if you want to move them, they involve massive costs. But Bitcoin effectively has very, very little cost of moving energy because you can mine the Bitcoin wherever the energy is, and then you sell it through the internet connection. So all you need to do is just link to an intimate [00:59:00] satellite connection in the most remote area of anywhere, and you're able to sell the Bitcoin to the network.

So therefore naturally what this means is that all energy production that is close to population centers, that's where the energy is going to be relatively expensive. The average cost of electricity for the user in the world is around 14 cents per kilowatt-hour. For 14 cents, it's easy to get energy for 14 cents most places in the world.

So if you try to mine Bitcoin with energy that is 14 cents, if you were connected to a grid in your local city next to the power plant, you're paying 14 cents per kilowatt hour, but the other Bitcoin miners, they can mine electricity that costs them 1 cent per kilowatt hour or 2 cents per kilowatt hour, because they can go mine next to a hydroelectric dam in the middle of nowhere, with a lot of energy that goes nowhere.

They can set up mining facilities on a volcano in the middle of nowhere where you can't use that energy for anything else, but you can set up mining there [01:00:00] and then you're mining at one or two or three or 4 cents per kilowatt hour. And because of the way that Bitcoin mining works, because mining is extremely competitive, the miners that have to pay a high electricity price, they're driven out of the market and the market is kicking out the least efficient miners and only keeping the strongest.

So the cost of mining on Bitcoin, if you want to be profitable, from what I understand and looking at the mining industry, it's usually going to be something close to 5 cents per kilowatt hour. If you want to guarantee being profitable for the long run, you want to have mining at around 5, 6 cents per kilowatt-hour or so.

If you're mining at a price higher than that, you're not going to make it. You're going to lose out. You're not going to be profitable because mining difficulty always goes up in order to price out the least efficient. The majority of mining is held in places where it's isolated and stranded.

We have for instance, methane flare gas is used. We know an oil fields, they burn a lot of methane. [01:01:00] A lot of that methane is now being used for mining Bitcoin. Abandoned oil fields, where it's no longer economical to take out the oil and sell it. You can use that to mine Bitcoin, because you don't need to ship the oil, so you save on the shipping cost and you just run the oil domestically and mine the blocks.

Paul Frijters: Excellent. I want to make a couple of points in regards to the various things you've said. The first thing you said that effectively, yes, there is a means for changing the protocol in Bitcoin and that has happened as you said. You call them as were cosmetic changes or bugs, there were thousands of failed attempts to takeover Bitcoin and of course, thousands of failed attempts also mean that there is a method to change the fundamental rules of Bitcoin. It hadn't worked so far, but you are then betting on a future generation in which those attacks will not [01:02:00] work as more and more would hinge on it.

And that is of course, a trust in future generations. Then I want to make a point about the 5 cents per kilowatt-hour, as you say, that is not within the normal price, and boils down to niche notions of energy, and I totally agree with you. Energy transport is relatively expensive. The rule of thumb I have in my head is that every thousand kilometers of electricity movement, we lose about 7%, which starts to be an awful lot as soon as we're talking large distances between continents for instance. Which was exactly my point, this fines stolen energy anywhere around the world, if that is an issue.

And so one study one could do is, okay how much Bitcoin is mined within the places where there's a cost of more than 5 cents a kilowatt, and then there's a strong suspicion that that basically happens with other people's energy. But I want to come back to this notion of that Bitcoin is worth mining because well they're spending good resources on it and so [01:03:00] they must know what they're doing, and so it's valuable.

Which is in a way, a sort of an old style economic notion, but that of course goes against this notion of the tournament competition winner aspect of Bitcoins, right? In a way, there are two ways to see this, the ultimate value on the wellbeing guy would be in terms of how much society as a whole is benefited by these activities.

And of course the mining of Bitcoins can be seen as a tournament. As you said yourself, it's very competitive, and the total value of the extra Bitcoin is independent of who gets it. So in principle, it's like a tournament. Everybody puts in effort and that is in order to get a prize, but the value of the prize itself is fixed.

So all that effort basically should be seen as lost effort, right? It is like a tournament in which everybody spends a dollar, let's say a thousand people spend a dollar so that one gets a prize that is [01:04:00] worth a thousand dollars, but the net loss in this case is a thousand dollars worth of energy.

So I see the, as it were the total energy spent on Bitcoin as total loss basically of the effort. Now, individually, it makes sense. It's valuable for them because they get a prize. But that prize, which happens to be equal to the total amount of value of the additional Bitcoins being created by the mining process is effectively totally a zero sum game, right?

From the point of view of the minus, whatever one person loses, it's what the others have lost because they've entered the competition. And because there's no value in the competition itself, it's not like we're watching a wrestling match whereby we get enjoyment from the strength of the fights, this is purely a commercial activity.

So effectively that is not as it were, well they're paying money so it's worth something, no, no, it's a tournament. So they're putting in effort which is individually sensible, but not collectively sensible. But I want to go meta [01:05:00] on that, which is this notion of Bitcoin in that sense is like money. It is the asset aspect of money, right? In terms of means of exchange, it's not been very successful so far since the inception of Bitcoin, there have been many other sort of PayPal type financial innovations set up, which have grown much more as a unit of exchange.

So its success is much more as a store value. But all money, both the exchange of trade and the store of value is effectively a kind of a lubricant for what you might think of as time trade. If I trade with you actual physical goods, we are trading the results of our own time investments in the recent past, if I'm storing value and sell this later in life, because I stored it when I was young, then I'm trading with myself over decades, but I'm doing that via others.

So really I'm trading huge amounts of time [01:06:00] with others and with myself over time. And money in that sense is just the lubricant which allows these time trades. And as such, it has a social and economic role, allows for economic growth. Now in that sense, money has a value. And so if I were to put a value on Bitcoin, it would have to be because it is a superior means of exchange and a superior means as a unit of asset.

But in order to be convinced about that, I don't want to hear about even the technology of Bitcoin itself, it is more well does this indeed allow better trades? Does this allow me trades that I otherwise would not see? Are they quicker? Do they allow people to trade who otherwise wouldn't be trading?

Does this mean I'm avoiding inefficiencies which are there in the alternative money markets? So that has to hinge on an argument whereby one says the other means of money are basically causing problems that Bitcoin does not. And the same of [01:07:00] course for assets, which is very much where Bitcoin at the moment has a market.

In what ways is it a superior asset in the sense that the other assets market's have problems, have inefficiencies, are basically not good means of exchanging time. And I asked myself that question and when it comes to exchange of direct rates, Bitcoin is not used that much.

As an asset it's used more, but I also, myself, I don't know. I don't know in what way as an asset Bitcoin functions better or worse. It's basically expensive paintings. Some people seem to like it and it is used. Value in that sense is in the eye of the beholder.

It is in that sense just the social norm as to whether or not it's worth something. Convince me that it's a better asset. That it [01:08:00] makes that time exchange better. Because that is what money is, basically just a lubricant for time exchange. In that sense, the language of putting value in money is false.

The ultimate value always comes from time. And so it is just the societal gimmick at the end of the day.

Saifedean Ammous: Yeah, I mean I obviously disagree with this and I think the best way that I would express this is in The Fiat Standard, when I run the cost benefit analysis on fiat and the cost benefit analysis on Bitcoin, I look at the total amount of money that has been spent by Bitcoin miners in the 12 years in which Bitcoin has been operational.

So basically Bitcoin mining is a highly efficient market where you can't keep mining if you are losing money. If we assume that Bitcoin miners cost is equal to the rewards that they've made, they probably made a little bit more, a little bit less, some have made money, some have lost money, but if we take it to be [01:09:00] assumed that, then we've seen miners spend about $30 billion on Bitcoin in terms of electricity and equipment over the past 12 years.

And this has now given us a monetary asset, that's worth $1.2 trillion. So this is really the best kind of direct refutation of the idea that it is a zero sum game. It's not a zero sum game. We've put in $30 billion of electricity and computers. And what we've gotten out of it is $1.2 trillion held by millions of people all over the world.

$1.2 trillion is bigger than basically all national currencies, except for a handful or two handfuls. Something like, Bitcoin is around maybe the 10th biggest currency in the world at this point. Bitcoin's already beaten all the national currencies but a few, in terms of the value that is held for it.

So this is of course, this is value that's being held by people and it's extremely valuable for people, and it's been massively life-changing for many people, including me. I would have been [01:10:00] stuck with hyperinflationary Lebanese shit coins had it not been for Bitcoin. For me, this is why this can be a little bit frustrating when people tell me what they don't see the value.

It's a little bit like you went on a sinking boat and you survived thanks to a lifeboat and you come on shore and the people on shore are telling you, you know what, I think there's a lifeboat of yours consumes too much fuel, we need to stop. We need to ban lifeboats, I'm not so sure about lifeboats. Lifeboats are the reason that I'm not in the bottom of the ocean at this point.

The value that comes from it, the value of the of Bitcoin today, the market value is about $1.2 trillion. We know for a fact that the people holding the Bitcoin value it as more than that, otherwise they would be selling. You know, the valuation that people are attached to the Bitcoin is clearly higher than that.

So 1.2 is like a minimum of [01:11:00] the valuation. So we already done something like a 4000% appreciation in terms of just the input and output. So it's not a zero sum game because value is subjective. It's not the labor theory of value. It's not like value is just this juice that gets put into Bitcoin.

And so if you put $30 billion of equipment and electricity in order to make the current Bitcoins, we don't end up with $30 billion. On the contrary, if we build a form of money that resists inflation and that resists confiscation, that can travel internationally, then that's a form of money that will appreciate further beyond that.

So people will make a profit and people who have bought Bitcoin have made a profit and the miners have made more profit and that gap between 1.2 trillion and 30 billion effectively is 1.2 trillion because the 30 billion is a rounding error next to the 1.2 trillion. That gap [01:12:00] is essentially the value added of Bitcoin.

This is the economic surplus that Bitcoin has given the world because it has given people the ability to store value in it. And this is where, when you say is it used for trades, currently I think it's used for the most important trade, which is your trades with your future self. People save money in Bitcoin today, and then they're able to spend it next year.

And because it's such a superior monetary asset, they're able to spend more next year because the value of the money that they invest in is going up. And then when it comes to individual trades of people trading and buying, again I go back to the original point that we made, we can have a monetary system built on sticks and stones or anything.

The real value lies in the fact that we can make that thing hold on to its value so that then people can trust it and rely on it. And in this regard, you can see that what's been happening with Bitcoin right [01:13:00] now is basically the tip of the iceberg.

Bitcoin has gone from zero to $1.2 trillion in 10 years, as people are beginning to understand it and discover it, but imagine what happens when people realize that, when all of these kinds of objections of, it's going to get hacked and the miners control it, and the miners will shut it down, the more you realize, the more you learn, the more you realize that these are unfounded and largely, the more you'll see that they're not really a threat. And the more realistic way to look at it is to compare these threats to the threats that face you with national currency. So on Bitcoin, you download the software and you verify it yourself and you know how many coins there are.

And you can start thinking about all these hypothetical attack vectors that could maybe one day change it, but nobody can force you to change the software on your machine. But you know what, national [01:14:00] currencies, you don't get to download the software. You are a user and there are admins, and the admins, as they have done many, many times as they do always at all times, every morning they wake up and they have a new reason why they need to make more currency for you.

Every morning, they wake up and they make more and you have no idea how much they make. They've stopped, even many of them stopped even publishing statistics about how much of their currency is out there.

And they just continue to make more and hand it out to people more. And you have no choice and no say in the matter. So I think once this becomes more and more apparent, we're going to see even more and more value flow into Bitcoin. And this is what we're seeing right now. We're still at a point where Bitcoin is used by maybe 100 million people around the world.

I think that's probably somewhere in that range of the number of people that are using Bitcoin, but you know, the only ones that really need Bitcoin are [01:15:00] people who care about the future. And I think that's a market of somewhere around 7 to 8 billion people. So there's enormous upside potential.

And what we're witnessing is just simply this slow realization of the market, or the individuals who are on the market, coming to this realization and internalizing it and selling their inferior 20th century manual currencies for superior 21st century automated electric money.

Paul Frijters: We will see about that, but I definitely welcome innovation in the monetary sphere, just basically as a sort of an economic scientist, just well what's going to happen? And I will say that 30 billion as the cost for a mass societal experiment is not much. So I do see the 30 billion as a total waste because the zero sum of course holds for the miners, right?

Their [01:16:00] activities are zero sum in the sense that they are playing a tournament against each other, whereby as you say yourself, basically the profits they make is basically zero, which was my point. This is a tournament. They're paying for a prize and fighting for the prize means that they put in just as much effort as they get out in total in the prize.

That's in fact, an old economic theory, I think it's Lazear who's associated with it. So that's exactly what we expect in that sense that the market seems to be functioning very well. And for that to be true, by the way, it doesn't have to be the case that there are people who steal electricity.

What matters is whether the last person who is still competing is paying the fair price for electricity. If not, if the last person so the marginal one is a stealer of electricity, then the inputs can be bigger than the prize. So if your data tells you where the net profit is zero, that tells us that at the margin, it's [01:17:00] not a stealer of electricity anymore. Which is an interesting application of economic theory, I would say. But the $1.2 trillion, I disagree with the notion that is value from a societal perspective, I can totally understand that is value for the point of view of those who have it.

And I congratulate you Saifedean, and I congratulate everybody else who won in this particular investment of theirs, but of course simply by using the word dollar, you are effectively in that way assigning the value to something in the sense that the rest of society still sort of sees value.

Which is in the monetary unit that is most used, which is dollars. What do dollars represent? Dollars are in fact, just a representation of time investments and times of others. So they are call on time of others. And the key thing about time of others in that sense, that is the totally fixed [01:18:00] commodity. We cannot create more time, money is just a lubricant.

So in that sense, the $1.2 trillion is a pure transfer. So it's great for the people who managed to effectuate that transfer, great for them. It's not good, of course, for the rest whose own money has lost the same pool on time that that represents.

But from a societal perspective as a whole, money itself is zero game, zero sum, right? So the existence of money is very important because it allows these time trades but it's not in itself of societal value. It's just the unit of accounting.

And the unit of accounting can be moved up and down between people in the institutions, but that doesn't mean that is where the ultimate value is created. And I happened to be a wellbeing guy, so I do talk about ultimate value and as well, being a society. That has to do with how long people live and how happy their lives are. And money in [01:19:00] that sense is a means of increasing that and increasing that over time.

But it's not itself the unit via which to keep ultimate score. So the $1.2 trillion in that sense, it's basically just a transfer as calling rights on time happen.

Saifedean Ammous: Okay, can I just comment on this point on the idea that it is a transfer? I don't think that is the case because this is a better technology.

We had a very wasteful technology for money, which is government money, which is constantly leaking value, which is constantly destroying economic value in two ways. One way in which it is allowing parasites, which is governments and their attendant paraphernalia to take the value that is produced by productive human beings on the one hand.

And then on the second hand, it's disincentivizing people from being productive human beings and incentivizing them to be parasites because being productive has a very high tax on it. Whereas being a parasite allows you to benefit from that [01:20:00] tax. So Bitcoin is changing that in that it's allowing many people to exit the parasitic arrangement and allowing many people to hold their value in wealth that is a parasite proof basically.

And therefore encouraging a lot more people to become more productive. And you see this, if you look at the Bitcoin community and if you go on Twitter and you look at Bitcoiners, I think that the stories that you hear once people have this idea where, oh look, I can now save my money for the future and I can with very good certainty expect that in five years time my money's going to be worth more than today. It's amazing how a lot of things in your life fall into place. Because now, you can see yourself in five years from now, and you can provide for yourself five years from now.

You, five years later is something that matters. And so your time preference drops and you start working more and you start being productive more. And I think we see this very commonly, [01:21:00] so I don't agree that it is a pure transfer. I think this is just a far more efficient technology because it's taking money away from essentially the parasitic institution of fiat money, which has been massively draining of society's wealth.

We've had countless hyperinflations, we've had very high inflation in many countries, most of the world. And then on the issue of whether we count things in terms of dollars, I think this is transitory, to use a favorite phrase of the fiaters.

This is transitory while we talk to fiat people where we need to express things in dollar terms. But in Bitcoin terms, Bitcoin is the ultimate unit of measurement of everything. Because there's only going to be 21 million Bitcoin, and one Bitcoin is always going to be one over 21 million Bitcoin of the total supply of Bitcoin.

So everything is going to be measured against Bitcoin because Bitcoin is the first constant in economics. It's the first time that we have something whose supply is completely [01:22:00] fixed, it can't be changed. We only have 21 million. And in reality the way that we start to think after a few years into Bitcoin, is you start measuring everything in Satoshi's or SATs.

So currently one us dollar is worth around 1,500 Satoshis. So the dollar has gone from being worth 100 billion Satoshis to being worth 1,500 Satoshis and effectively in this discussion, you're taking the side that the asset that has gone from 100 billion to 1,500 has bottomed at 1,500, and it's not going to decline further.

This trend is going to stop right here, from 100 billion to 1,500, and then this is the line in the sand that we're going to draw, Bitcoin's not going to grow any further. I think when you think about it this way, Bitcoin is a superior monetary system in any kind of theoretical way because it's supply is fixed, it can't be expanded and its value keeps going up, so it attracts more and more people.

And it's all of its [01:23:00] competitors, the people in charge of their competitors, aren't even aware of the kind of competition. Most economists, as you were saying, that they think that value of money going up is a bad thing, so they're trying to win the competition by devaluing their currencies further. Central banks are up, they're up against an enemy and they're shooting themselves.

They're pointing their guns at their own money because they think money is something that they can just keep locked in. Because we have a country and we get to put the pictures of dead people on paper so people will always have to use our money. But people don't always have to use your money.

People are gonna snap out of it and they're going to move to the better, harder money. And the harder money is going to appreciate, and the easier money is going to devalue.

Paul Frijters: I would like to say some things about that because I think the first part of your answer is the discussion we should have, which is is Bitcoin proving a more efficient unit of trade over [01:24:00] time for people, even if that is just within themselves, which is hence the asset notion of Bitcoin. And I think that empirical evidence in that direction, if it is true that there are many people in this world in all kinds of countries who cannot well trade with themselves for long periods of time, and Bitcoin allows them to do that.

Whereas whatever local circumstances are that don't allow them to do that, then allows them to make better choices because they then suddenly can for instance save, and that means that they suddenly get an incentive to save and they suddenly get an incentive to be more productive.

I think that would make a very strong case for Bitcoin. So in that sense, the empirics in that would be something that I'd encourage you on. And please let me know how solid that kind of research is. But I wanted to disagree on one thing, the fundamental value of life. I think there is a good test for seeing whether or not you really think something is the fundamental value of life.[01:25:00]

Imagine yourself at the end of your life talking to your grandchildren. And I imagine this, has your life been good? And I think one bad answer is oh yes, I published great papers. I think that's a very bad answer, and nobody believes that's what life is about.

Is it oh yes, I handled many Satoshi's, I'm worth so many Bitcoin. I think that's a pretty lousy answer as well. But if you said I've led happy life, a long and happy life. Yeah, that would be an answer that I believe. And the same goes for what you'd want for your grandchildren.

You want for your grandchildren lots of Satoshi's or Bitcoins, or do you want for them to have a happy long life? And I think the realistic answer is the second one. And so no, Bitcoin is not the ultimate value of life. It doesn't matter there's a fixed amount of them. It is a lubricant. It is a means to something else. And the something else in my book [01:26:00] is the wellbeing of a population as individuals, that is the ultimate battle.

And in that sense, Bitcoin is just a means to an end, as all money in that sense is means to an end. And in that sense, it is just a transfer from one type of money to another that allows you to say that Bitcoin at the moment, as it were, has a dollar market value of 1.2 trillion.

But I do think that one of the interesting discussions that came out of your book is whether or not we should think of governments as good or bad, and Bitcoin as a kind of a disruptive technology in whether it's good or bad. I find your book in that sense, it goes in two directions, right?

You make the argument, which I sort of have some sympathy with definitely in the last couple of years, that governments have become too unaccountable and that there are influences on governments which would come [01:27:00] unaccountable, and that is a serious problem. And that I would like to see breakups of part of that power.

And you see Bitcoin as having a role in that, but nevertheless, in your book, you end up saying I'd like to see Bitcoin to be the unit of value to make final settlements between major financial institutions, between these central banks, which is then seeing Bitcoin as helping the central banks. Being as it were the unit that they accept.

So you both reject the authority of central governments and then sort of say well, Bitcoin's ultimate aim is to help it. To become a part of that. So I wanted to have a discussion as to whether or not in the long arm of history government should be seen as bad or good. And I think in the long arm of history is good, but in the short arm of history, we're now going through a period in which it has bad elements.

But there is a schizophrenic [01:28:00] element I've found in your book as to whether or not you think of governments really as bad or good, because Bitcoin is both disruptor and enabler of governments and financial institutions in your books. Did I misread that or do you have different central and financial authorities in mind when you talk about a future in which Bitcoin starts to play a major supportive role in their interactions?

Saifedean Ammous: Okay. First let me get back to your first point on the empirical aspect. As you can see the screen, I posted this poll on my Twitter. Two part poll for anyone who has held Bitcoin for more than a year. The question one is before first buying Bitcoin, the total percentage of my income that went to saving or investment was, and then the four options are under 10%, 10% to 25%, 25% to 50% and over 50%.

And then question two is after at least a year of holding Bitcoin, the total [01:29:00] percentage of my income that goes to saving or investment is again, the same options. So what do we see here? We see that before Bitcoin 47.9% of people saved or invested under 10% of their income after Bitcoin, that went down to 11.3%.

But for 10% to 25%, it was 24.5 and it stayed exactly at 24.5. So we didn't witness a change in that a fraction of the population. But then in the third segment, which is 25 to 50%, 12.6% went up to 23.6%. And then in the final section, which is over 50%, we had 15% of people saving over 50% before Bitcoin.

And then after Bitcoin 40.6% of people started saving. So we witnessed a drop of 36% in the under 10% and an increase of 25% in the over [01:30:00] 50% and an increase of about 10% in the 25% to 50%. It's a sample of about 4,000 voters, which I think is not nothing.

And you know my kind of audience on Bitcoin Twitter is arguably representative of Bitcoiners, but arguably slightly biased by the fact that they've probably read my book and thought about the questions of savings and time preference and all of that stuff. And so they've been influenced by my kind of propaganda on this perhaps, which has skewed the results, but I still don't think it's just entirely that these people follow me on Twitter.

I think this is something that you see and you hear about many Bitcoiners, and it's something that I've written about in my forthcoming textbook of economics, Principles of Economics. There's a chapter on time preference, and I argue in that chapter that I think the hardness of money is very instrumental in the time preference of individuals.

Because I think an individual's [01:31:00] best way of providing for the future is money. Money is your best way of saving for the future. All other kinds of saving in other assets involve large friction because they don't hold onto their value as well. And they're not as liquid, but money is the most liquid thing. And so if you're able to save for the future and you're able to save very well, and you start prioritizing the future, that lowers your time preference, that makes you think more about the future.

But if you take away people's money, if you take away good money from people, which is what we see in inflation, and then what we see more starkly in hyperinflation. If you read books about hyperinflation, say for instance When Money Dies by Adam Fergusson, that's the one. The one on Zimbabwe is When Money Destroys Nations, it's another one by [01:32:00] Russell Lamberti and Philip Haslam. And you know, you hear stories from Venezuela or Lebanon today, time preference is rising massively. People's time preferences are increasing all the time because they have no way of providing for the future.

So the concern becomes about the present. You are willing to risk getting into trouble because you need to put food on your table today. And so crime increases and all kinds of other high time preference behavior will also increase. And I think Bitcoin is, and this is where really I think Bitcoin is far more than just people being able to get rich, I think the implications of people being able to keep their money, after a century of central bank pillaging of humanity, is going to be enormous.

I think we've normalized the fact that everybody lives in this world where you're a central bank is constantly pillaging you every year. And we just think that this is what's normal, but we have no idea what the world's going to look [01:33:00] like once everybody can keep the fruits of their labor.

Which I think really is going to be massively different. So when you talk about, what makes a good life, it's not about the ability to hold on to a lot of Bitcoin, it's about the ability to keep the fruits of your labor. And that's what Bitcoin allows you.

So it's not that, I scored a high score and the game of Bitcoin by being able to hold a lot of Satoshi's. It's about the fact that by holding Satoshis, I was free from this bloodsucking parasite that is modern central banking and the modern nation state, which brings me to your next question on whether the state is good or bad.

I mean, I think the way that I understand good and bad is around the question of consent versus coercion. So for me, anything that is voluntary, anybody participating in something voluntary is good for them. If you choose to take part in a football game, then football is good for you.

Otherwise you wouldn't be playing football. If you choose to do something [01:34:00] voluntarily, you value your investment of time or resources into it better. So in this regard for me, and this is why I view myself as an anarchist, government is an institution that relies on coercion, not consent. Government is financed by coercion, everything that it has is stolen by taxes at gunpoint.

If you don't want to pay taxes, you go to jail. It forces you to use its money by coercion, by preventing alternatives and by monopolizing the banking system. And therefore I don't see anything, any redeeming qualities in those institutions. If you ask me about my personal opinion on them, I don't see any redeeming qualities in the state.

I think the world would be better without coercion. And I think it's very difficult to argue this. For me, it's similar to rape or murder. If it was good, you wouldn't need to rob people for it. If a government was doing something good, people would voluntarily pay for it.

And this is what I [01:35:00] think that would happen in a free market, in a society in which people were able to have free money. And in which government couldn't just rape and pillage everybody's resources in order to finance its own operations and its educational and brainwashing system. I think people would keep their wealth and whatever emerges like a government, there will be collective groups and institutions, but they would all be voluntary.

They don't have to all be for profit. It's not that everything has to be for profit. It's that everything has to be voluntary. So maybe people will have neighborhood associations for security and nightwatching, but they'll be voluntary. And if you want to take part, you pay or you volunteer your time or you get paid to take part in them, everybody involved is voluntary.

And this is what I would see as being a good part. Now to say in terms of the schizophrenia in my book, I think that the issue is not that whether I'd like to see Bitcoin do this or that, when I described Bitcoin as being used as a [01:36:00] settlement layer, I think of it more as just, this is just the economic reality that we see today.

If you look at the number of transactions that take place on the Bitcoin network itself, there's somewhere around 300,000 to 500,000 transactions per day. That's all that Bitcoin does on chain. So those are the number of transactions that are taking place on the Bitcoin network. But then you look at transactions that are taking place on secondary layers, between financial institutions that use Bitcoin, or within financial institutions that use Bitcoin, we see a far larger number, which is very difficult to calculate.

Probably tenfold is a low bound of that. On Bitcoin exchanges, people buy and sell Bitcoin without having to be registered on the Bitcoin blockchain. So that's what is happening.

And I think that's how Bitcoin is evolving. And you know, it's not about whether I like it or not. It's just the basic engineering realities of how Bitcoin works is that you are not going to [01:37:00] be able to fit too many more transactions than half a million. Maybe we could get it up to a million, 5 million, maybe 10 million perhaps, but it's not going to be ever enough to fit everybody's coffee transactions on it.

So what's going to happen is I argue, similar to how gold scaled when gold was being used as the gold standard, it wasn't that physical particles of gold were being moved from everybody's pocket to somebody else's pocket every time they made a purchase, you are going to have pieces of paper that were backed by gold, or you had checkbooks backed by gold, or you had you know, payments through banks backed by gold.

And then at the end of the day or week or month, the banks would settle with one another. For every ounce of gold that moves once, you had a thousand movements of gold take place between those intermediaries and trusted parties. And I think with Bitcoin, we're going to see something similar.

And then if you think about the lightning network, which is an enormously important development on Bitcoin, which I discuss in detail in my next book The Fiat Standard, [01:38:00] I think that's really primarily where we're going to be seeing most of the growth in Bitcoin transactions, which is a trustless way, almost entirely trustless way of carrying out transactions, that's what I arrive at.

Now, whether it's going to empower central banks or not. For me, it doesn't really matter if central banks use them and then continue to exist because if they are using Bitcoin, instead of using their own national currencies, then they don't have seigniorage. And if you take away their seigniorage, then they just need to become responsible as financial institutions like any other adult where you have to pay your bills from your income and you can't spend more than you earn.

So if we can get governments and central banks to grow from being spoiled teenage brat parasites, living off of everybody else into becoming responsible adults fiscally, who have to have money [01:39:00] first before they spend it, I think that's going to be an enormous win for humanity.

Now whether we eliminate governments completely or not I think is, I don't have a crystal ball, I don't care. I'd like to see governments eliminated completely and replaced entirely by voluntary organizations. But I would settle for just simply declawing the government and making it a friendly little domesticated animal.

Paul Frijters: Okay. That's a lot of stuff to comment on. Thank you very much for all of that. A couple of things, when you said that Bitcoin was indeed a means to an end in that sense to lead better lives, you basically agreed with me. You are also not going to measure your life in this coins, but more, I hope in terms of happiness and life.

That is the way to then judge Bitcoin as is it increasing the stock of that for humanity as a whole. And in that sense talk of value in terms of [01:40:00] bomber assets is neither here nor there. That is there, more a transfer of means. Now I was interested to see the Twitter thing and that was definitely indicative, but of course a Twitter survey has its problems.

As you indicated itself, there's also a double reading. You could see the increase as it were savings ratio is saying these people before Bitcoin were not spending their incomes on this you might say speculative assets and they've now become addicted to Bitcoin. Perhaps the fact that they're in Bitcoin is the measure of their additional savings, whether that's a good thing is unknowable, unless we know whether they spend their time differently.

So that's the point about this. The notion that money ultimately is just a means of time exchange, do they now spend their time better? Are they now more productive? And that's not what the survey asked. But I was wondering about what kind [01:41:00] of research would help with that? I mean, I can imagine them in places which are as it were, have very parasiteable governance, and I can think of a few countries at the moment. Whether the people who are Bitcoin adopters there managed to radically change and improve their time allocation during the day as a result of that Bitcoin activity, maybe something like that exists.

I wouldn't be surprised. Cause I do think that would be, as it were the strongest argument one could have for saying, look this thing is doing good. And it is allowing people to bypass their governments. Just as for instance, mobile phone technology has allowed a lot of bypassing of sort of parasitic arrangements in Africa, parts of Asia, and hence was allowed improvements in trade.

That's been one of the successes of mobile phone technology and that's one of the arguments for digitization. And so Bitcoin could have similar evidence behind it of sort of on the ground changes in behavior, that would be [01:42:00] great. Particularly if it has large scale. So in that sense, I'm willing to be convinced, but I'm saying that would be convincing to a mainstream economic audience, that would match. Then on the sort of the voluntary governments bit, I have as it were a totally different mindset on that if you like. I am in the current day more for liberties, but coercion is a fact of any social group, every social group has social norms and enforces it.

There's also always norms such as, you don't steal, you don't kill, to a limited degree should one use commons, which are everywhere, such as the environment. There's always externalities, and so coercion is a fact of human life. And of course also governments have sort come from a brutal evolutionary struggle.

So what proceeded the relatively nice governments that [01:43:00] were used to in the west, were much more brutal warlord systems in which rape, pillage and taxation by the sword are just killing you for your land was rather normal. And so one has to look at the question of whether governments in their current form are good or bad in a much longer run perspective.

The last 20 years, one has to look at that in a timeframe of 10,000 years. And what will the alternative be? And what happens to a country when central government stopped functioning? The first thing that happens when central government stops functioning is a return of warlordism, right?

You see an up flare in violence, you see an up flare in bitter conflicts which involve a lot of rape, pillage, and the breakdown of lots of sort of trade systems. And governments are certainly not perfect and there's a lot of parasitism about governments, but one should not have rose tinted glasses that as it were there is an easy alternative [01:44:00] available, which is a voluntary society. There's no such thing.

There's never been such a thing. The history of humanity is not one of fluffy bunnies which come together and agree on a whole set of rules. No, we are a rather brutal species in which violence is always a little bit underneath the surface. And also, in which patient have lots of long run investments have to be made of which you and I have both benefited.

I've been to state run schools. I've been saved by Western medicine several times, which has stayed organized. The institutions have managed to put up ports, roads all kinds of safeguards and production into my safety and my wellbeing. So, if you look at wellbeing over time and it's corollary, how long people live, that's been on a steady march.

And a lot of that has to do with simple health structures, has to do with improvements in how people handle each other. [01:45:00] Very organized campaigns and you know, centuries of institutional development. One cannot judge governments as a phenomenon by saying, look, they're doing something bad here now because yes, I've written a whole book on corruption.

I with the COVID stuff, I see abuse on a grand scale, but do not mistake as it were the awful things that will happen if we'd have no governments at all. I'm under no illusion as to what a brutal species we are underneath. And also, the evolution of how governments came to be. They came to replace much nastier systems.

And so, to a certain extent, I feel that's the wrong way to look at the question, right? Whether or not there's something I now don't agree with and haven't agreed to. I think that one of these German philosophers nicely said about the notion of coercion, that it was a crime that he was born because [01:46:00] his opinion was never asked about the question.

And there are two ways we can read that sort of thing. But I do think hence that these questions should not be written as absolutes, I don't think it basically makes sense to talk about governments ultimately bad, and we want to totally get rid of them. It has to be at the margin. Can Bitcoin improve the operation of our society as a whole? Kind of be a private, voluntary led system, which has a loss.

The mining is a pure loss. Does it, nevertheless give enough gain in terms of these improvements of time investments to be worth its while? And at the moment, my answer remains, I don't know. But maybe. If it's true that there are millions of people, particularly in poor countries who are now spending their time better.

Then 30 billion doesn't sound so much to pay for that improvement. And the transfer from other [01:47:00] people to Bitcoin on as well, that's bad luck for the people who lost out, good luck for the people who are winning. So that's you know, neither here nor there, and not obviously a huge wellbeing loss either.

But I think it's important to get away from this notion of it, from an absolutist notion, there's no such thing as a coercion free society. I don't know of one that's ever been. Only in the fancy land of certain philosophers has that ever existed, but it certainly not descriptive of evolution of humanity or descriptive of what happens when central authorities breakdown.

Things get way worse and they're then replaced by something that looks like central authority again. Not a Valhalla of voluntariness. Do you know of that kind of research in developing countries?

Is that something in the purview pf some of the listeners, is that kind of thing something that there would be [01:48:00] evidence on?

Saifedean Ammous: Well I think really we've gone a surprisingly long time before, you know almost four hours we've now been debating both these topics and we've not really gotten into the kind of the meat of the disagreement between my approach to economics, which is the subjectivist Austrian approach and your empirical approach.

And I think this kind of brings us to it, which is, you're looking for a kind of study that would look at say 5,000 people in developing countries and see what difference Bitcoin has made to their lives. For me, I think the proof is in the pudding of the market decisions, of the things that they actually do.

We don't need to have academics study those things. We know that there's $1.2 trillion that are parked in Bitcoin right now. We know that people are currently holding Bitcoin that is worth about $1.2 trillion. We know millions of those [01:49:00] people are in poor developing countries. We know many of them are in Venezuela, in Lebanon, in Turkey and Brazil, and in places that are suffering from inflation.

So we know those people are doing that not because they're playing a game, they're doing that because it matters to them. Because it helps them do better. So for me, the subjective decision on the market speak much louder than any kind of empirical tests that you could perform.

And I'll say this on your point on whether we can have a coercion free society. There's a kind of logical slight of hand here that happens, which is there's never been a coercion free society, therefore coercion is good. And that's similar to saying there's never been a theft free society or a murder free society or a rape free society and therefore, excuse me while I go rape and steal and murder.

[01:50:00] So these things are coercive actions. These things are done where there's, whenever you have any course of action, you have a victim who is being stolen from or being aggressed against, against their will.

So you're raping someone or you're murdering or you're stealing someone or you're governing someone, all of those things involve somebody being forced to do things that they don't want to do. Yes, we've never had a purely anarchic society where all interactions are peaceful, just because, we've also never had a society that has no murder and no theft and no rape and all of these kinds of other aggressions on people.

So yes, those things will always exist just because humans aren't angels and we'll always have those things. But there's a big difference between accepting the fact that these things will exist because humans are flawed and supporting those things. And this is the problem that in my mind, non-anarchists make [01:51:00] when they jump from ha well, we've never seen anarchist society, therefore let's go support the government or the government is necessary.

No, in fact, first of all, we've seen some examples and I'd urge you to check out Murray Rothbard's book The Ethics of Liberty. I think this is really the best treatment of anarchist political philosophy that you could find. And it's well worth examining because it has a much more, it gets into this issue with a lot of detail.

And he does mention the examples of Irish society and Icelandic society that were very close to anarchist. But putting that aside, the other kind of logical fallacy here is the idea that life is improving therefore the state is good. Life is improving because of capital accumulation, because of technological advancement and because of the industrial revolution.

And because of the utilization of these [01:52:00] energy sources that have changed our life. The last few hundred years with the industrial revolution have allowed every human being to move from being able to consume something like the energy of one human body to meet their need, which is what historically most people had access to.

And then over the last few hundred years, some of us had access to the energy of a cow or a horse or these other kinds of animals that could help us with those things, and some of us had access to slaves. And if you were king, you had a hundred slaves or maybe a thousand slaves that you could control and use them to make your life better.

But once we've moved to hydrocarbon energy, once we started using coal and gas and oil, now today the average person in the U. S. for instance, has the services of around 200 humans [01:53:00] at their disposal every day. Imagine thinking about the services that you're able to get today just by flicking switches.

Imagine if you needed human labor to do that. Human labor to heat the water in your bath. Human labor to get candles and light them and to make the food and prepare it for you. So this massive increase in the quality of life has been the result of capitalism and capital accumulation and technological innovation.

And that is a result of economic freedom. It's the result of people being able to act freely. And that has come, as people have moved away from political systems that were highly exploitative and highly coercive toward economic and political systems that are highly conducive toward liberty.

So people have become freer over the past hundreds of years, predominantly I think in the west. You compare the average westerner in say 1400 living [01:54:00] as a serf versus the average westerner in 2018 let's say, let's not say 2020 since Covid really takes us back to the 14th century.

But you know, for the average westerner, life has gotten much freer and the government has gotten much weaker and by government, it could be the modern government, or it could be the local surf owner that used to own them. The ability of others to control people and to coerce them has declined in a sense leading. And this isn't millennialism that history necessarily always marches in the direction of things being better.

But in the last few hundred years, I think you can see that trend in the west happening. And as a result of that, as a result of the limiting of the power of government and the increase in the sovereignty and the freedom of the individual, we see all of these amazing innovations come along that change people's lives and improve people's lives and make people's lives [01:55:00] better.

And of course the government, you yourself said you are the beneficiary of government education. So clearly you may consider the hypothesis that you're slightly biased here into thinking that the government was instrumental in this when in fact it's the other way around.

And when we talk about the examples of society collapsing when the government collapses, I think what we're missing here is that what happens when governments collapses or governments only really collapse when their money collapses. When they establish a monopoly on the money and then they collapse and their money collapses, society is taken back to a state of no division of labor, and without the division of labor society falls apart.

They take society hostage by forcing society to use their money. And then they use that money as a way of exploiting society, and then when that scam falls apart, you can't really [01:56:00] take that as an evidence. See, without government, things won't work so well, well without government, if people have the freedom to have their money, then things would've worked arguably better.

And I think it's very difficult to look at the 20th century and say that having more coercion, more government leads to more freedom and more productivity and more any good thing that you want to think of. Think about China versus Hong Kong to think about east Germany versus west Germany.

I think about North Korea versus South Korea. Yes, Hong Kong, South Korea and west Germany are not anarchist utopias, but they're far closer to the anarchist utopia than east Germany and North Korea and communist China. And the difference is, this is very clear. Communist will tell you what communism has never been tried, and that's true and pure capitalism and pure anarchism has also never been tried, but we've come close to both.

We've come close in Cambodia to real communism. And the [01:57:00] result was an eighth of the population died. More than an eighth of the population, about a seventh or sixth of the population died and starved when they banned money and banned cities and forced everybody to go out and work in the field.

That was the closest we got to real communism. And the closest we got to real capitalism is Hong Kong and Switzerland. That was real capitalism, that was close to real capitalism and real anarchism and it worked really well. So it's a very difficult sell to try and convince me that you know, what was making Switzerland prosperous was the fact that they had a little bit of you know, the parts that were not anarchist about them were what made them well off.

Paul Frijters: Well we're approaching more and more empirics as we come along, that is my territory. I hope you do agree. On Cambodia, of course, they were bombed by the U. S. causing a million people to die. You know, if that is the result of U.S. capitalism [01:58:00] oh, whoa. But I want to pick up a couple of things there.

I think that when you, I hate to use the word but I'll use it, when you admitted that Bitcoin is basically a means to an end for people to make better choices with that life, so that indeed money is a lubricant when it comes to time trades, that is hence saying that okay, money serves a social function at the end of the day.

And that hence the $1.2 trillion is valuable for the people who have it, but at the end of the day, it's a transfer of that call on the time of others. And so in that sense, it's neither here nor there, it's a zero sum for society as a whole and that we should look at Bitcoin as costing that 30 billion of mining.

That's the investment of society as a whole, and the benefits are yet to be empirically established. And then I want to talk about a couple of points that you you talked about. One is, which is an important point to make, I've written an awful lot [01:59:00] in my life on how the nation state came about, I have a large book on this in 2013 called An Economic Theory of Greed, Love, Groups, and Networks, and that was very much on the history of how the nation state came to be, what it replaced, how it sort of works on a sociological, anthropological and psychological perspective. You know, how we relate to the state, how authority comes in that, but also I think we're at credence of it, the love that people have, the notion of a national people.

There's an awful lot to say about that, and I feel we can spend another two hours at least talking about some aspects of that, but I think it's important for me to disagree with some of the central points. And I think there are two most important points. One is this notion that coercion free is possible.

Even property needs coercion, respect for property. Which includes respect for Bitcoin property, right? It needs some notion of [02:00:00] coercion because property by itself has a coercive aspect to it. It is an illiberalism to me that I cannot touch the property of other people. So they may gain the freedom, they may gain the freedom of having as it were, monopoly rights for the uses of property, but by itself, it is a social construct.

Saifedean Ammous: That's just the state education.

Paul Frijters: That basically has that element to it, which is I'm forced to recognize the property of others by my social group. It is social groups which have invented property. And in fact, it is a social invention. Now there is a second point to say on this. So even at its very basic elements, coercion is baked into societies, but we discovered it as a means of organizing ourselves.

And you know, I was picking on property as one of the textbook examples. But capitalism is a very interesting beast. It is not what many people think it is. Capitalism is [02:01:00] not a libertarian or purely liberal thing. It is a strange hybrid which is made up full of rules, which have an ecosystem of private property, but also lack of property, right?

There is a dead man zone in the middle of capitalism, which allows it to work. And a great example of that is the modern limited liability corporation, which is a little bit like magic if you like. It is not truly owned by people, people can have stakes in it, but then there are possibilities of controlling it, taking out aspects of limited liability companies.

One can sue them, but then if they go bankrupt, nobody's really responsible for it. Which also means that the deals corporations do with others are not full deals in the sense that there's no ultimate liability for people over those deals. And [02:02:00] capitalism grew out of thousands of years of institutional development.

Capitalism is this very strange hybrid beast, which has elements of liberty in it, but also it has high elements of coercion in it. And it's totally mediated by groups, right? Adam Smith talked to this very nicely when he talked about good competition and bad competition and the role of the state as to weed out the bad and good, and capitalism in that sense comes in many shapes and sizes.

But all of it is pretty much only possible because of it's being held up by social institutions, which have been the outcome of hundreds of years. I'm not the type of person who says look, we need to do away with nation states and this and that. I'm a reformer.

I'm saying, look, this is now working badly, right? I'm not saying I hence support the country as it is at the moment, but I am saying we need to identify what's bad about our countries at the moment and try and [02:03:00] reform that, try and get rid of that. That's piecemeal, that is indeed empirical basis.

Okay, why is this not working? Why is that not working? How can we improve that? And so in that sense, I'm very much an institutional economist who is working on the mix of institution. That's also been my work in the UK. It's my work here in Saudi. It is basically helping countries figure out how to improve things, but of course that helping can be done by all kinds of groups.

Sometimes a country improves because there's a radical group which truly challenges, disrupts as it were part of the technology of society and that sort of pushes to improve things. Sometimes it's revolutionary as in the French revolution. Sometimes there's two steps back, three steps forward and that can take many decades.

But I do see it in such terms that we're looking at evolutionary change of institutions, but that you should see our society as a whole, as an enormous collections of [02:04:00] institutions together with the capital stock, the coal move and improve.

But since we're on the empirical topic, have states been good for what makes life worthwhile? There is masses of research on this. And if you look at the increase in life expectancy since the 1840s in which it was still about 40, 45, even in places like the UK. What have been the big things, all state labs, so sewage, that was state investment, right?

Clean water, huge state investment. That wasn't private, right? Clean fuel. That was enormously important to get rid of a lot of the respiratory disease aspects, but also just the sheer lung damage that was done from the previous ways of cooking. That required fantastic coordination or lots of coercion, but it saved millions of people.

Same too for some of the successes of modern medicine, like statins, which sort of increase life expectancy by years in Western countries. So you [02:05:00] know, the GP system, which is very much a government set up system and is much better functioning in places with a national health system, which is much cheaper than the private health system, which has all kinds of market failures and it's in a place like the U. S.

So just from an empirical point of view, government in the west had been hugely instrumental in the last 150 years in increasing the longevity and also the quality of life that people lead. Particularly in Western Europe, of course, until Covid it was near paradise.

I mean, crime levels were in historical lows. we're almost never as low as they were in 2019. Universal reading and education, people could decide on their own sexuality. Basically, fantastic lives. Zero evidence that statins work, well I beg to differ.

Saifedean Ammous: No, actually a lot of evidence that statins are the biggest scam in modern medicine, which is saying a lot because modern medicine has a lot of [02:06:00] scams.

Paul Frijters: Modern medicine has a lot of scams, but I would not count statins.

Saifedean Ammous: Absolutely not as big as statins.

Paul Frijters: We can then have another long conversation about statins because that will take hours. Look, I've been a professor of health economics for 10 years so we can have a long go on statins.

Saifedean Ammous: I will say this. I think the examples that you mentioned, it's great that you mentioned statins because it saves me from having to go into all the other ones because you enormously discredited your argument by just mentioning that example.

It's very clear unfortunately, that this is you know, you come from government funded institutions that repeat the government talking points on those aspects. So I highly recommend the book called The Great Cholesterol Con and statins have been absolutely devastating for people's health.

There's no evidence they work. And they've only worked for one thing, which is pharmaceutical company profits. And they're absolutely devastating. And of course the science behind them, the idea that cholesterol is bad and you need to bring it down, it's [02:07:00] all pseudoscientific nonsense.

Of course the main problem I have with what you're saying, I think we need to start wrapping up, time is is running down. I think the main problem I would say is the first idea that property is needed for coercion. I think this is a fundamental misunderstanding and it lies at the heart of state propaganda. Because in state propaganda, you have to communicate to people the idea that actually a peaceful society is not possible and that violence is inevitable and therefore that's why we have to do violence, and that's why the state is violent.

But a peaceful society is possible and property is possible without violence. In fact, that's the only way that property is possible. And it's very simple, a legitimate property is property that people acquire either by homesteading or by acquiring it through a mutually agreeable trade with another person.

So either I get a piece of land that nobody claims and I claim it myself and then it becomes legitimately mine. Or I take a piece of land from somebody who has it by [02:08:00] giving them something that they accept as an exchange for it. So you can have an entire system of property that does not require violence.

And the only people who say that property requires violence, of course are governments because they rely on violence. They are born in coercion and theft and they need to manufacture this. And that's what they do in their statist indoctrination torture camps that is the modern education system.

But in fact, I think the key point to keep in mind is that everything good that we have comes from consensual activity. Comes from people doing good things for one another because they want to serve one another, because they benefit from it. And then the state comes in and basically takes credit for whatever is good and teaches rights in the books that this is what is a good and then forces people to, and then of course uses it to finance its own parasitic activities.

I think the examples that you mentioned about [02:09:00] public health are very far off the mark because in reality the states interventions in public health have been devastating in many, many ways. And the history books don't like to mention this, just look at the dietary recommendations of governments over the last 50 years, you could make a case for them being genocidal.

I don't think the intent was genocidal, but telling people to eat six to 10 rations of grain every day is just a recipe for diabetes. That's what the state has been doing. And of course, it's also a recipe for getting people to take statins, which is another aspect of it. So I think now we're getting into the point where there's a very large difference.

You now we're out of time, so I'm just going to go ahead and end on a positive note, which is that the good thing about Bitcoin is that it makes all these arguments mute. It doesn't really matter anymore because we're just going to defund the state, whether you like it or not. Your government money is [02:10:00] just not going to be good anymore.

It's just going to continue, it's gone from 100 billion to 1,500 Satoshis, we're more than 99.999% of the way to zero. So we're continuing down that path and governments are going to have to learn to start becoming more productive if they want to have the consent of people.

They need to be more and more productive because I think Bitcoin defangs the state in a very powerful way.

Paul Frijters: Okay. Let me then wrap up from my end as well if this is the end of it. So thank you very much for a very fruitful conversation. I think I certainly learned a lot more about Bitcoin and about our aspects of agreement and disagreement.

And indeed we can go on a long time about many topics, but I [02:11:00] will say from a mainstream economic perspective, I feel convinced that it is possible that Bitcoin is having large positive elements if it is indeed true that it has allowed people access to time trades with themselves over time in situations where otherwise that does not exist and is not available to them.

And when it comes to improving as it were the state and wanting the state to up its game, I'm all for that. So that is very much also how I see Bitcoin as a potential disruptive technology and whether or not it improves our institutions and is itself a jolt in the right direction, we will see. I don't see it as impossible, but at the moment it is still well, who knows? And thank you very much for your time.

Saifedean Ammous: Thank you. Thank you so much. I'm sure we're going to have you over again. This has been extremely [02:12:00] enjoyable with all the disagreement!