Preston Pysh (03:01):

Here’s the first one, Dan, but it has no intrinsic value. Cover this one.

Dan Held (03:08):

Well, the first thing to say to that is, oh, you mean like the US dollar would be a nice retort. Going in further, if they believe in the existing monetary system, they usually trust in the federal reserve, they may not even know what the federal reserve is, but the federal reserve states, the St. Louis Federal Reserve put together a research report and they stated, “Bitcoin, like the dollar, Swiss Franc, Euro has no intrinsic value.”

Dan Held (03:32):

If the family member doesn’t trust you saying it, you’re like, “Well, certainly you would trust the federal reserve saying it, right?” I think that’s probably the most succinct answer to that question of intrinsic value. Bitcoin’s value is being money. It doesn’t need to have an alternative use case. I think this confusion stems from kind of like a lack of understanding of basic monetary theory, where a lot of people think about money from the older form of like gold, a commodity money where it has an alternative use outside of having monetary properties. Bitcoin’s already extremely useful as a money and it needs no other intrinsic sort of value.

Preston Pysh (04:08):

One of the things that I was listening to The Saylor Series that Robert Breedlove did, and Michael Saylor does an incredible job talking about money as energy. One of the points that he made that I just, I thought was really profound is, if you buy into this idea that money is actually energy and you look at a system that uses energy in order to minute and also to mine each one of these block where all the transactions sit, you can see how Bitcoin is an amazing representation of energy and how it’s being stored but without any type of loss associated with that.

Preston Pysh (04:47):

So, if we were going to send energy to a battery, the battery then has a loss component to it, anytime you try to send it to another domain over space and time, it has a loss associated with it. So, when we talk this intrinsic value, like you were saying, I find it interesting that we could maybe make the argument that it’s backed by energy because that’s the other thing that you hear it. What’s it backed by?

Dan Held (05:11):

I’ve gone down this rabbit hole before. It’s a tough one, because then you start to get down the proof of work rabbit hole. Maybe that’s what we go do next of, I’m wondering if that much energy is required to make it all work, if that’s useful or wasteful. So, it depends on the narrative path. I like to think about conversations in this way, where you go down this conversation, whether you’re talking to a millennial, a baby boomer, or the silent generation, or a zoomer, you have to think about what sort of narratives will fit in their mental models.

Dan Held (05:41):

With the baby boomers and older, you’re like, “Hey, it’s gold 2.0.” Boom, got a really sticky messaging there. With like the zoomers and those folks, you have to address like, why just Bitcoin? Why not other digital currencies? Because they’re already open to the digital world because they grew up with that. So, yeah, these narrative paths are super interesting and it’s always kind of tricky and it depends on who you’re talking to, to either open up more doors in the conversation or keep the doors somewhat refined.

Dan Held (06:06):

In the intrinsic value audit, you could certainly go down the pathway of saying, “Well, it is backed by energy and that, that proof of work, the representation of energy is a fundamental reason why it’s worth something, is because it took work to create it, which makes it stand out against Fiat currency, which requires no work, and that’s a good reason why Bitcoin’s valuable.” But if you open up that pathway, you better be ready to defend Bitcoin’s proof of work.

Preston Pysh (06:32):

I think that, that’s where a lot of people that are maybe trying to explain it to their family and they get themselves in trouble is they’ll say something like that. Then maybe they don’t really understand the nuances of proof of work versus proof of stake. Then a conversation goes off the rail because their understanding of the breadth of everything that this goes into, I mean, can go miles or miles deep. If you’re not well-versed on all those different argument, then it just kind of falls apart and it looks like you really don’t know what you’re talking about.

Preston Pysh (07:01):

Let’s just pull the thread. Let’s keep going down the path, this energy path that we were talking about. So, a person might say, “Well, it’s using too much energy.” Don’t you find that concerning, Dan?

Dan Held (07:13):

There’s a couple different ways you can play this one. One is that all money requires energy. We live in a world that is built of energy based on the laws of thermodynamics. Everything requires energy, breathing, walking, running. Gold, Fiat currency, and Bitcoin all require energy. Energy is fundamental to money being useful and money moving around. When we talk about Bitcoin’s use of energy, what Bitcoin does is it harnesses real world energy to protect something in the digital world, and that’s what’s so special about it, is before you could copy paste different currencies or add a zero in the digital world, there was no way to fundamentally create costliness or to create unforgeable costliness.

Dan Held (07:51):

Basically what that means is you can’t fake it. With Bitcoin, you use real world energy to tie Bitcoin to something real, but something tangible, physical in the real world. That energy is both in the production of Bitcoin, so the creation of new Bitcoin currency, and also in the protection of the ledger. That’s what the … You can think about it like a big iron branding in these Bitcoin blocks and sort of anchoring them in time sequentially.

Dan Held (08:16):

Real world energy root the Bitcoin digital world into the physical one. I think that’s like a really … It really ties well for a lot of people when they want some more tangibility to Bitcoin. With Bitcoin’s proof of work, is it useful? Is it wasteful? What’s funny is a lot of people, and I love Nick’s, Nick Carter’s enthusiasm where he digs into this. For those who may not know who Nick is, Nick is a, I would call him a researcher, philosopher in the Bitcoin space, and he’s done a great job of comparing Bitcoin’s energy consumption to other types of money and also really, really granularly defining Bitcoin’s energy consumption.

Dan Held (08:48):

But the core root of the argument is about usefulness. People don’t like Bitcoin’s energy consumption because they perceive it being totally useless. But that’s what’s so funny is that everything in this world using energy is subjective. So, is watching the Kardashians wasteful? Some people might think so. Some might not.

Preston Pysh (09:05):

Clearly, the last question, yes, it is. Yes, it is.

Dan Held (09:09):

Okay, well, maybe 99% of us. Yes. Probably not super useful. But I’m not going to sit here around a pulpit and say I watch PBS NOVA, like I watch space and science shows, and that’s a better use of my time. If someone said that at a dinner party, it would be ridiculous, right? People would be like, “What are you talking about?” Same with Bitcoin. When people worry about Bitcoin’s energy consumption, you could easily say, “Well, are you worried about the dollar’s consumption of energy? It requires all the physical buildings. It requires the military. It has giant ships that are powered by nuclear reactors. You have all sorts of other issues as well of like you have huge banks and central banks that are required to keep it all running, and printing presses, and you have to print the dollars.”

Dan Held (09:52):

Most people never think about how much energy is required to keep their current money around. They just see Bitcoin’s energy consumption. Usually, it’s given without context, and they’re like, “Whoa, that’s a lot.” At the core root of it, it’s like, hey, Bitcoin uses energy so does everything else. You could defend how it sources energy, which technically Bitcoin’s energy consumption isn’t competing with our dishwashers or anything else.

Dan Held (10:14):

Bitcoin miners consume the excess or waste energy across the world. Bitcoin miners are willing to bid for the low … They want to bid for the lowest cost energy and they don’t care where that energy is. It could be in the middle of Alaska, Antarctica, down in the bottom of the ocean. Doesn’t matter where the energy is, as long as the Bitcoin miners can tap into it. That’s the more nuanced answer of like, is Bitcoin wasteful? No, it uses energy to protect the Bitcoin network and ensure the unforgeable costliness of newly minted Bitcoin, basically that it requires work and ensures fairness.

Dan Held (10:43):

You could also talk about it, well, Bitcoin’s actually a green technology because it harnesses all this wasted electricity that would’ve gone nowhere. But ultimately, the core root of the argument is that people just think Bitcoin’s wasteful because they don’t like it. So, if you can easily frame it as like, “Hey, I don’t criticize how you use energy, why would you criticize my usage? I paid for it. If I want to pay for my Bitcoin miner to use energy, who are you to say?” Especially if your family member drives like an SUV, it’d be a pretty hilarious comparison where you’re like, “Aren’t you driving like an expedition outside? Some people would consider that wasteful.”

Dan Held (11:17):

But yeah, going to on that rabbit hole, you typically, the easiest way is just to kind of poke fun at the core root of the argument itself, which is around the subjectivity of the usefulness. If you just kind of poke holes in that, it kind of unravels that pretty easily.

Preston Pysh (11:29):

I think you got the best question you’ve ever brought up there, Dan. Do you watch the Kardashians? Because if they say yes, there you go. End of argument.

Dan Held (11:37):

Exactly. Well, so I’ve also done it this way, where you ask, “What’s your favorite TV show? And they’re like, they’ll say something. And you’re like, “Oh man, I consider that to be a huge waste of energy.” Then they kind of realize how silly it is because like, who would ever criticize your TV consumption? Then they start to realize, “Oh, well, yeah, I guess I’m being critical of someone’s use of energy, and who am I to say like … TV things are always so personal, right? Because we all like our own favorite shows for our own reason. Yeah, I found that to be particularly useful.

Preston Pysh (12:08):

It goes back to this piece that Saylor was talking about, which is, you can now tap into energy that would’ve been stranded. You look at what like Marty Bent’s doing with taking a real life mine that has methane that’s being flared. They hooked it up to a mining rig, which they, before, would’ve just flared it off and it would’ve actually caused impacts to the environment. But now, they’re actually harnessing that energy and mining it with the methane gas, because they convert it into energy, and it was often a remote location.

Preston Pysh (12:39):

They can tap into the block stream satellite where it’s broadcasting the blockchain, and boom, there you are. You’re creating monetary energy and putting it onto the network and transporting it anywhere on the planet. It’s mind blowing. How about the trend? When you’re thinking about the trend of renewable energy in the future, everything that I’ve studied is suggesting that it’s going to create a trend that incentivizes more renewable energy like we’re seeing in El Salvador, for example, using the geothermal energy down there. Talk to us a little bit about that.

Dan Held (13:11):

I’ll touch on that and I’ll touch on a few other components of how, in Bitcoin mining, particularly here, is a critical grid stabilizer. Bitcoin miners act as a load balancer in the system where they’re able to provide consistent demand, even when demand may not be there to take all of the supply. For example, Bitcoin miners are willing to be there right When a power plant is built and maybe they haven’t hooked up all the sources of demand yet, but they need to start recouping some of their upfront costs.

Dan Held (13:38):

So, Bitcoin miners are the consistent demand that will be there. Bitcoin miners, because they’re transportable anywhere in the world and can connect via a satellite, they can be plugged into rigs in the middle of nowhere, where transporting the electricity, the excess capacity may have been prohibitively expensive, for example, like Antarctica. Then finally, Bitcoin miners act as a load balancer because in certain states and certain countries, they have different arrangements with the power grid where they will turn off all of their energy consumption if needed. A good example would be in Texas.

Dan Held (14:09):

There was a freak snowstorm last year and the grid became, there’s a lot more demand on the grid than supply. So, with these agreements, Bitcoin miners are willing to turn off their miners, and for that inconvenience, they are paid ahead of time by the state so they can act as an immediate decrease in demand on the grid, which is awesome for grid stability. Bitcoin miners harness all of that wasted electricity or that wasted energy.

Dan Held (14:32):

They also act as the constant demand for different grid infrastructure to keep grid infrastructure humming in the right sort of way. I think this was kind of like a newer thing that I learned over the last six months around Bitcoin miners are being paid by the grids to be able to be turned off for a select amount of time. That was kind of mind blowing because then I realized like, oh, it’s sort of this … The Bitcoin network sort of absorbs all this excess energy and they can sort of be this balancer on the grid.

Dan Held (14:59):

That, to me, kind of blew my mind just thinking about Bitcoin. A lot of people refer to Bitcoin as like a battery in a way. It’s a little bit of an incomplete comparison because it’s only a one way function. There’s energy in the Bitcoin. Can’t take a Bitcoin and take energy back out. For me, I think it’s an incredibly useful resource as renewables come online. As we look at like building out more and more energy infrastructure across the world, I think Bitcoin miners play a critical role in the development of green, renewable energy by being that consistent demand, it being an immediate ROI on these facilities while also providing stability to the grid.

Preston Pysh (15:33):

This is one that I actually heard over Thanksgiving. But who created it? If nobody created it, how can I trust it?

Dan Held (15:40):

I think Saifedean, or I forget who came up with this originally, but well, who created the wheel? I don’t think there’s any written record of who created the wheel or fire or anything like that. When a tool is useful and you can transparently see how it is utilized, I mean Bitcoin’s source code is perfectly transparent. Anyone can go parse through it, analyze it, take a look at it. You don’t need to know. You don’t need to understand who made it.

Dan Held (16:03):

I think a lot of people also worry about, so one is like the architecture and design of it. They worry that, oh, there’s been a back door put in there. Well, it’s transparent. We can all parse through the code if we’d like to. And we haven’t found like a backdoor. We haven’t found something that would give the creator an uncertain, a different degree of control over the protocol.

Dan Held (16:22):

I think that leads to the second part of it. A lot of people worry that a creator of something can control it. Satoshi, and this is what’s so beautiful about Bitcoins origin versus many other coins, is that Satoshi took very careful steps to remove himself as a source of power in the Bitcoin network. Decided to kind of disappear to let the Bitcoin network and its leaders and those who build on it to build their own community and develop their own set of social contracts and their ability to deconflict different problems.

Dan Held (16:50):

Satoshi wanted to ensure that he would never have an overly big influence on the protocol. Now, in the beginning, and he had to, to get it up and running, but he made the decision in Bitcoin’s early days to gradually step away and then finally step away completely to allow the protocol and the community to survive on its own. It doesn’t matter how early Satoshi was, it doesn’t matter who Satoshi is because Satoshi has no control over the protocol.

Dan Held (17:15):

I think a lot of people think about Bitcoin like a startup or something, like if the founder came back like a Steve Jobs, could they take control over it again? But they don’t realize that Satoshi doesn’t have any more power than any one of us. We’re all participants in the network. If he came back then no, he wouldn’t have any ability to make changes. He could suggest changes, but he has no force control. He can’t force his control over how the protocols run.

Preston Pysh (17:41):

I think so many people have been conditioned throughout their lifetime that when there’s an economic shock or the economy’s tanking, the central banks are the only reason that it comes back, and so if we don’t have them, we’re going to be in destitute of the economy for years to come, and we need them. They’ve been conditioned to need central bankers because they’re the ones that step in and recapitalize the economy so that we can go through another boom cycle.

Preston Pysh (18:11):

When I heard this question, I was just kind of laughing, I was thinking to myself, yes, this is the strength, this is why you want to own Bitcoin. This isn’t why you want to be concerned about it. I understand why they’re concerned. I understand why somebody who’s never seen anything like this, it makes sense why they’d be like, “What? How can I trust nobody’s on the controls?” Or be like, “How can this plane fly if no one’s on the controls?”

Dan Held (18:35):

Right. It’s a scary proposition to have no one control … We’re animals after all. You take away food and water and clothing for a couple days and you’ll see exactly what humanity is. We’re still very, very primitive. At our core, we’re very fearful and that’s where we give up power to the state to oversee various aspects of our lives. Whether it be regulations on what we eat or how we fly, and when it comes to the economy, same thing.

Dan Held (19:00):

We want to believe that someone’s in control. It’s scary to think that no one’s in control, or that they don’t know what they’re doing. In fact, most people would rather believe in a lie than know the truth because the lie is more comforting than the truth. I see this a lot, especially in the early days when I was talking about Bitcoin, where people, they don’t want to wake up and challenge their assumptions over money in the government, right?

Dan Held (19:23):

They want to believe everything’s running and under control. It’s pretty scary to be like, “Yeah, no, they have no idea what they’re doing. And they’re kind of running amuck.” I mean, that takes … It’s sort of akin to like, if you challenged your assumptions over religion or something. For someone’s individual personal beliefs, challenging that is a very big thing for someone. I think people challenging their relationship with money and governments is pretty intense.

Preston Pysh (19:47):

Going into this having event that happened, what was it? May of 2020, this last one, prior to that, this was probably the biggest fear, uncertainty, doubt that plagued Bitcoin. It was, governments can kill Bitcoin. It’s funny because now I look at that argument and it’s kind of become laughable, but I would say, two and a half years back, you couldn’t get anybody past that point. What do you got? Let’s hear it.

Dan Held (20:18):

Well, yeah, it’s people trying to rationalize why Bitcoin can’t work. They’ve missed out on some of the games and they’re just going through a typical NPC pattern, an NPC pattern of excuses. One of those is, well, okay, I get why Bitcoin’s valuable because I can’t trust my government, but if it’s that successful, then governments will try to kill it. They’re already rationalizing because they’re like, “Oh, okay, well, I get why it’s useful. I just don’t believe it could happen.”

Dan Held (20:43):

They’re looking for excuses, but at the core root of that argument, you go, “Okay, so the government’s been effective in the wars in Afghanistan and Iraq,” if we’re talking US-centric. The most powerful military in the world can’t defeat a bunch of people in a jungle or a desert with AK-47s? You’ve got that combined with the war on drugs being a complete failure, which are two great examples of the most powerful government in the world ever to exist. Not having the ability to crack down on these sort of things given …

Dan Held (21:10):

I mean, think about the technological advantage that the US government has now versus the Romans or previous governments. They have huge advantage. Then also you look at, so they’re like, “Oh, okay, well, okay, well, yeah, maybe they can’t defeat those things. And you’re like, “Okay, cool. So we agree upon that.” And they’re like, “Well, but what if all the governments came together to defeat it?” I also say, I’m like, “So like climate change?” Let’s say you believe that, and I’m not saying, I’m not going to go down a climate change conversation here.

Dan Held (21:38):

But let’s say you’re a big believer that climate change is happening very rapidly and there needs to be change that happens now and all the governments need to agree. Most governments feel that way right now, but they don’t come together to make all these changes happen. It’s sort of piecemeal approach. Then, with all these governments coming together, it’s rare to find all of the incentives aligned. China and Russia will always have an incentive to go a different direction than the United States and Europe.

Dan Held (22:04):

They’re always going to want to zig when they zag. With Bitcoin, there’s a huge incentive for Confederate states, let’s say if all these countries came together to try to defeat Bitcoin, there’s a huge incentive for the Confederate states to break away and adopt Bitcoin as their standard while the rest of the countries try to ban it because the first country to be the first mover will have the greatest advantage because they will have bought before everyone else.

Dan Held (22:28):

Then finally, structurally, how do you defeat Bitcoin? That’s pretty tough. To destroy Bitcoin, you really have to destroy the idea of Bitcoin in all of our heads and our belief, that my UTXO said that my Bitcoin on the Bitcoin blockchain, that, that Bitcoin is … You have to crush my belief in that, and that’s never going to happen with all of us individually. To defeat that, you have to crush all the exchanges, you have to crush all the minors, you have to crush all our beliefs in it.

Dan Held (22:53):

That’s such a huge, huge amount of effort. I think we’re past that tipping point where we were a small minority community where something like that might be able to happen. Then finally, as Bitcoin grows in adoption, I think Bitcoin ownership in the US, what was it? At like 10% of the adult population? Is it even higher than that? I forget. We saw in the infrastructure bill, when they tried to attack Bitcoin, the Bitcoin community rose up and all of Congress and in Washington heard our voice and they go, whoa, this is a big community.

Dan Held (23:25):

Well, what happens when Bitcoin ownership is 40% of the population? You can’t ban it then. You’re going to lose the vote as a politician, or you might have a rebellion on your hands. I think that Bitcoin has a lot of defense mechanisms. The Bitcoin community really heavily focuses on being decentralized to survive a state level attack. But more importantly, I don’t think it’s possible with how far Bitcoin has survived for it really to be taken out and isolated and crushed. It’s very improbable given all the reasons that I gave earlier.

Preston Pysh (23:56):

The one big reason we would hear for years was just the mining concentration in China. Then recently, for people that aren’t familiar with this, just this past year, China banned it, like truly banned it. It was a real ban this time, I think, because they banned for years. But this last one, they banned it and all the hardware, all the mining that was taking place, which was nearly 50% of the network was completely, the plug was pulled. The network just kept chugging along, those mining rigs went to other geographic locations all over the world.

Preston Pysh (24:29):

I want to say the hash rate is nearly back to where it was before the ban on the hardware. As far as like a state level attack, you really couldn’t get probably more of a state level attack on Bitcoin than what we saw this past year with them banning all the hardware rigs. I mean, it’d be like Google pulling the plug on half of Google’s data centers and saying, “Hey, let’s watch how it does now without any downtime.” That’s how Bitcoin performed, which was just miraculous in my opinion.

Dan Held (25:01):

Well, we would’ve covered China FUD here, but there’s not any China FUD anymore because Bitcoin miners don’t exist in China. Literally 100% of the hash rate from China left, which is incredible to see. It knocked out two big pieces of FUD. One was China, China controlling Bitcoin, and the other one was around Bitcoin’s energy mix. So, Bitcoin’s energy mix, people criticize, “Oh, Bitcoin is using too much coal or dirty China coal,” is how they would phrase it. With Bitcoin miners leaving China, that worry is now gone.

Dan Held (25:31):

Versus other nations where their energy mix is more transparent. Nick really defends this point eloquently, try to defend Bitcoin’s energy mix. I don’t think any way you defend it will matter because the people that are detractors of Bitcoin’s energy consumption don’t actually care about Bitcoin’s energy mix. They just don’t think Bitcoin’s useful. So, Nick does fight a valiant fight in defending the exact energy mix. But I think he’s not going to convince anyone, even being as honest and objective as he can be.

Preston Pysh (25:59):

I totally agree with you. I think that they’re focused on, they don’t see it as being valuable. They’re a not using it. They’re not increasing their buying power by owning it and participating in a network that’s trustworthy and that can’t be reversed or undone or add more units added to it, so they just look at it from a distance and say, “That’s worthless and you’re just burning a bunch of energy.” Yeah, I’m with you.

Dan Held (26:21):

Totally. I think Chinese minors moving out of China was a huge, huge boom for Bitcoin. I think …

Preston Pysh (26:28):

It’s unreal.

Dan Held (26:28):

It’ll be looked at as one of the biggest strategic blunders in human history. I think they’re going to look back on this and … I believe there’s another moment where the Chinese military, like one of the emperors burned their fleets or something, and that was a huge turning point in China’s power in the world. I think that this moment also will be looked at as that, of like, this was a strategic, huge strategic error on their part.

Preston Pysh (26:50):

Totally agree with you. All right. This one here is probably one of my favorite FUDs to see online because I love posting the subsequent chart after seeing this one. And it is Bitcoin is a bubble, Dan.

Dan Held (27:06):

It’s the bubble that never pops.

Preston Pysh (27:07):

It’s tulips. I think that’s the phrase I enjoy the most.

Dan Held (27:11):

I think we still see that on Twitter. Do you still see those guys? They pop into your … The reply guys who talk about tulips and like, whoa, what is this? 2013 all over again? I mean, that was a popular scene in 2013. Like, oh, well it’s a bubble because Bitcoin hadn’t been around that long. So, people didn’t really know if it was going to come up again. It was sort of like, we hypothesized it would, but yeah, to see that now is just so crazy. If you look at Bitcoin versus other popular bubbles, the dotcom bubble and the tulip bubble, and was it like the Dutch East Indies bubble? I forget if Dutch East Indies or another big company.

Dan Held (27:46):

If you look at these very famous bubbles, Bitcoin’s duration over its entire existence is far greater than most of these bubbles. Bitcoin will have been the longest bubble ever in human history if it’s truly a bubble. But also, it’s kind of funny too, because people don’t realize that like all money is subjective and it’s a belief system. The only reason why the US dollar has any value is that we all believe it has value. That’s a bubble. The bubble terminology is usually just used as a derogatory term. But when you turn that terminology and use it on normal assets, like real estate, stocks, bonds, money, they find that they’re like, “No, those aren’t bubbles.”

Dan Held (28:22):

And I’m like, “Well, they’re only worth something because someone else is willing to pay for it. If no one’s willing to pay for it, then it goes to zero.” That’s sort of like their definition of a bubble. Like, “Oh, well, there’s rapid price appreciation and there’ll be a collapse, and then all buyers will leave.” I’m like, “Okay, well, disagree.” Bitcoin’s history has shown that there is a floor. There’s a floor of hodlers who came in. A lot of them came in via speculation and many of them stayed for sound money.

Dan Held (28:48):

That’s what provides the floor for Bitcoin, is because we’re the ones who are willing to buy at the bottom. We keep it from going to zero because Bitcoin, as other money, is a belief system and we all believe in Bitcoin and that’s how Bitcoin has price stability is there are hodlers that eventually buy.

Preston Pysh (29:04):

That’s provable. I think that’s what makes Bitcoin a little bit different is all the on chain metrics, we can see the addresses of people that are long-term holders because their coins don’t move once they go to their public address. We can see these are the addresses that are accumulating in the dips. So, it’s like all verifiable. You can see that these people are getting more entrenched in into their ownership and their trust in the network. Good luck shaking them out of their coins as they’re up 10000% from when they first created that public address.

Dan Held (29:37):

Totally. If Bitcoin was a bubble, then it would’ve gone to zero, and it hasn’t done that. People mistake Bitcoin’s adoption curve, which are these rapid price appreciation moments with a corresponding bust as bubbly activity. But how else was Bitcoin going to go from zero to a world reserve currency? It wasn’t going to go in a linear fashion, a nice clean line upwards. Bitcoin acts like humans do. Bitcoin is part of humanity. We’re raw emotional beings and we FOMO in and we pay in XL. That’s where the term hodl really comes from is like this trader on the Bitcoin talk forums, realizing that he’s feeling these raw emotions with the market.

Dan Held (30:14):

And what he should do is just hold onto his Bitcoin. Hodl is his misspelling of that, because he’s drunk when he is writing this. I think that hodl philosophy is perfect for this. It’s Bitcoin in terms of its price discovery of people realizing why Bitcoin’s valuable comes in ebbs and flows and in wild rushes, and wasn’t going to happen in this nice smooth fashion where Bitcoin goes up $100 a day for a year. It has fits and starts.

Preston Pysh (30:41):

Hey, talk to us about volatility. So, somebody who’s listening to this, they might say, “Okay, well, maybe I just buy some of this, but it’s all over the place. I saw the price at 65, then it went to 30. Then it went back to 65.” They’re just kind of looking at it and saying, “I just don’t know that I could hold on to something that has that much volatility to it.” Talk to us about what the volatility represents. How do you think of that as an investor, especially somebody who maybe is getting into it for the first time, just walk us through some of those ideas.

Dan Held (31:12):

Yeah. Volatility isn’t necessarily a bad thing. I think that this word volatility has become this sort of like, ooh, evil word of like, oh man, volatility. It’s volatile. That’s scary. Well, you know what’s volatile? Apple and Google when they were first starting out. They were some of the best performing equities in human history, and yeah, they’re going to be volatile. They’re not going to be super smooth. When people think about volatility, I think volatility is both a … Volatility works both ways, not just going down. It could also go up.

Dan Held (31:40):

I think volatility, when looked at from like a portfolio perspective, if you’re someone who’s really focused on volatility and you’re really into very like classic portfolio construction, you can think of Bitcoin as, and being value creative to … In a modern portfolio theory mindset of adding Bitcoin to your portfolio increases its sharp ratio, which means your return per unit of risks, Bitcoin’s return per unit of risk is a nice addition to your portfolio.

Dan Held (32:06):

I think that if you’re in the more classic portfolio mindset, that’s a great way to think about it, but also, nothing ventured, nothing gained. I mean, that’s where these 10X or 100X returns come from with Bitcoin is because of the intense volatility. Yeah, it drops 50%, but it also goes up 10 X. And so those who can hodl onto it, those hodlers are the only ones deserving of the value of Bitcoin because they’re the only ones who believed in it strong enough to weather those storms, price swings up and down.

Dan Held (32:33):

But yeah, I mean, lots of stocks have been volatile. Again, in venture capital, the valuation of these startups fluctuate wildly. Bitcoin, in its earliest years, it was more volatile, it’s still quite volatile, but not as volatile as it used to be. Bitcoin’s not going to have these really, it’s not going to have this smooth price appreciation. You don’t want it to either. Stable price, stable purchasing power actually signals manipulation. For example, with the US dollar, it has a very stable decay rate of about 2% to 5% depending on inflation rate annually.

Dan Held (33:07):

It has that because the US government and central bank, the Fed have absolute control over the money. If something has a stable purchasing power usually, it means that’s heavily manipulated versus something free floating like Bitcoin, that is actually more stable longer term because it has no centralized control mechanism, but the price discovery path is a little bit choppier as it makes its way to becoming gold 2.0 or the new world reserve currency.

Preston Pysh (33:38):

All right. So, we covered a bunch of FUD there. I want to talk to you just about more of the current events. For people that are maybe listening to this, they’re they’re beginners, we’re going to get into a little bit more of an advanced conversation or something that’s for people that are into the community a little bit heavily, they’re probably wanting to hear us talk about some of these other ideas. Let’s talk a little bit about regulation. In the coming 12 months, how do you kind of see Gary Gensler, people at the SEC, what’s their cards that they’re going to play probably in the next 12 months, in particular to like alt coins?

Dan Held (34:11):

Great question. So what’s interesting about Gary Gensler is that he really understands the space well. He’s very knowledgeable. I don’t know if you’ve seen some of his courses that he taught on Bitcoin and blockchain tech, but he’s very knowledgeable for a regulator. In fact, that I would say he is one of the most knowledgeable in this space. Recently, he’s taken a path of, I think, really coming down hard on stablecoins and potentially some coins that have like proof of stake or pre-mine, where he classifies, he’s potentially classifying them as security.

Dan Held (34:42):

It’s really interesting to see him kind of flex into that. I’m not really sure what his game plan is, and of course, I’m not an attorney, I’m not on the regulatory side, so it’s hard to really guess what’s going on over there. By the way, of course, speaking right now is 100% of my own personal beliefs, not associated with Kraken, the company I work at, just as a clear caveat. It’s interesting. I think Gary’s trying to really take the SEC’s governance and power and really start to exercise that over the space.

Dan Held (35:10):

It depends on how it all plays out. What he wants is I think a lot more regulation and that could have a negative effect on some coins. Bitcoin, I don’t think is really affected by this at all due to Bitcoin’s origin and fair proof of work mining from the beginning. There is no pre-mine. There is no there’s no staking mechanism.

Preston Pysh (35:29):

He’s come out and point blank said this, right?

Dan Held (35:32):

I think so. I don’t want to paraphrase him because I forget exactly what he said, but basically I don’t think they have any issue with Bitcoin, which is really interesting. We’ve also seen this in the ETF applications where they, I think they asked the Ethereum ETFs to withdraw. I don’t know if you heard that, but the Ethereum BTFs were withdrawn when the Bitcoin futures ETF was about to be approved. Some of that was super interesting to see positioning-wise.

Dan Held (35:57):

We’ll see how this all plays out. I don’t have enough clarity and understanding of how the hill works, Washington combined with these agencies, to understand how this will all kind of shake out. But I would say this summer, that was a really big, really tumultuous time period of the infrastructure bill combined with the SEC becoming louder and more vocal about their ownership. Then also, what’s interesting too, is that the CFTC is also jumping into the mix.

Dan Held (36:22):

It’s kind of a wild government battle here. What’s kind of funny is I think Bitcoin’s already very highly regulated. CFTC, FinCEN, IRS, this is just in the US alone, regulate Bitcoin. It is interesting to see these other agencies and that’s where my understanding of the regulatory and environments isn’t like a full picture, like someone else who is experienced in this would, they would have that perspective.

Dan Held (36:44):

For me, I’m just kind of like, wow, I thought Bitcoin was already highly regulated. Didn’t know it needed more regulation, but I think they’re definitely clashing a little bit more over other types of coins, I think, than just Bitcoin. So, they’re wanting to pursue different angles there.

Preston Pysh (36:58):

I know I’ve been in a couple spaces and Clubhouse rooms with very high ranking people from the SEC that have been participating in community conversations. I mean, there’s just absolutely no discussion about shutting any of this down. It’s all about, what’s in the best interest of the entire investment community as to how to protect investor interests and to make sure that people aren’t being taken advantage of, and that we don’t regulate ourselves? This is a really important point, that we’re not regulating ourselves so much that we’re not going to be able to remain competitive in the global marketplace with respect to FinTech.

Preston Pysh (37:39):

I mean, this is coming from like Hester and some others there at the SEC that are number two at the SEC. I don’t know, it’s been kind of refreshing. I don’t know if that’s the right word to use, but surprising, I think I’ve been surprised at how they do understand that, if they overregulate, I think they know they’re going to make a major policy blunder and regulatory blunder.

Dan Held (38:05):

Yeah. I think that there’s a lot of folks like Hester Peirce at the SEC that’s very supportive of this, if you want to broadly bucket everything together as part of this blockchain or crypto sort of tech. I personally, am just a fan of Bitcoin. But if you were to broadly bucket it all together, Hester Peirce, I think has very much demonstrated she’s knowledgeable and really, really into the space and actively fighting for innovation. If you want to broadly bucket all of that as innovation, I think Hester Peirce is a big champion for it.

Dan Held (38:36):

Yeah, the SEC isn’t a singular voice. It’s a lot of different voices, but overall, I totally agree. I don’t think they’re going to shut down things. In fact, over on the lending side, so the SEC and Coinbase had a bit of a clash, where Coinbase had a lend product, and the SEC said, “Hey, this is a security and there was a bit of a clash there.” As I’ve kind of like it into it, talk to a couple companies in the space, definitely seems like, I don’t think the SEC’s going to come down and shut down, block fire, or something, because that would hurt investors.

Dan Held (39:05):

If there was a big freeze or they seized assets, that’s going to hurt investors. So, from my understanding from what I’ve heard from folks in the space, in terms of the whole legal pathway that they’ve gone down is that the SEC wants to see compliance, not necessarily, let’s shut these companies down and have a hundred thousand or a million investors lose their money. They more of want to come down, make sure that everyone’s adhering to the regulations that they oversee, but they’re not here to like shut down things and cause massive loss. That definitely does not seem at all the vibe I’m hearing from the different legal councils.

Preston Pysh (39:40):

When you look at the stablecoin market, we clearly understand why it exists and why you need it in order to immediately clear, especially when you start getting into lending and you’re doing over collateralized lending that’s getting to market by the second, 24/7. 365, do you need something that immediately clears? You can’t wait for a four day, three day ACH when you’re dealing with these types of products and this type of volatility.

Preston Pysh (40:05):

We’ve seen this emergence of the demand for stablecoins. We’ve seen, what are we at? Over a hundred billion in stablecoins, like in the last year.

Dan Held (40:16):

Last six months.

Preston Pysh (40:18):

I think where maybe they’re getting concerned is they’re looking at this and saying, all right, this is growing so fast and it’s obviously an integral part to where this is all going that you have some type of Fiat stablecoin peg because everything’s still denominated in Fiat bills for almost everything, so there’s a need for it, at least in the transition period to maybe a Bitcoin standard.

Preston Pysh (40:45):

I think that when they’re figuring out, how do we regulate this and make sure that it’s actually backed, and that the treasury still has control of the units in circuit, I think that’s where they’re really getting antsy and a little concerned. I don’t think it has to do with Bitcoin the protocol in particular.

Dan Held (41:07):

Yeah, definitely don’t think the worries over stablecoins are about Bitcoin. It’s about, it’s a lot of capital to move. That’s a lot of capital to move around. With stablecoins, I think that everyone’s kind of waking up to like, whoa, these are way more useful than the existing ACH wire system. I’m like, man, I’m moving around money in old institutions, and I’m like, “Oh, this is such a pain and takes forever. There’s all sorts of paperwork and then they might freeze it.

Dan Held (41:35):

Stablecoins work really well. It’s a great way to settle between counterparties if you want a centralized stablecoin asset. I think they’re probably worried about a couple things. One would be systemic risk to the system, like if things were under collateralized, let’s say with tether. I don’t want to go down the whole tether foot rabbit hole, unless we want to cover that later. But for those folks who were worried about tether, there would be a concern that, oh, they’re totally unbacked or something. By the way, don’t think that’s true at all. It’s not because they’re open to audits now.

Preston Pysh (42:03):

Dan, think of it like this, let’s say that, let’s say the Swiss come out and they have a token that’s pegged to the Swiss dollar and let that there’s a company that stood up a peg to the Swiss dollar that’s tokenized. And then the government just says, “You know what? We like your model. Just make sure you do your deposits of your treasury with us, the government. And we’re just going to audit the number of tokens that you have in circulation.” It becomes extremely popular and it starts to be used in place of the dollar, in place of the Euro, or in place of, you name it currency. If governments aren’t looking at it that way, that they could be compromised, especially as all these exchanges and all these interest rate products are then being stood up inside of these exchanges, like they’re out of their minds. They need to be in the game or they get outcompeted in that space as well.

Dan Held (42:57):

Totally. I think stablecoins are a big innovation for Fiat currency. Again, I don’t think they compete with Bitcoin in the long-term, but in the short-term, governments would be remiss not to embrace stablecoins. I think it’s a huge innovation. Now, the dangerous path here, I think goes down to the CBDC side.

Preston Pysh (43:12):

No doubt. I’m sure people were cringing as I was saying that, because you’re right. Let’s go down this path of why this is really important from a privacy standpoint, because this is vital what you’re about to [crosstalk 00:43:20]

Dan Held (43:21):

Yeah. Governments look at the viability of stablecoins, and they’re like, whoa, this is like a burgeoning need innovative ecosystem. Let’s take it a step further and create CBDCs. CBDCs are central bank digital currencies, where essentially you could bank with the federal reserve. There are a huge number of issues with this. One, that means that the government completely controls one money ledger. This money ledger would control everyone’s transactions. So, every single transaction you do would be seen by the central government.

Dan Held (43:48):

It would mean that they could censor, tax, or reroute any transaction you send, and they would’ve full control over the entire economy done to every gum packet purchase. I think CBDCs are somewhat of an abomination in terms of privacy, control over the economy, basically cutting out commercial banks potentially. Then finally, heavily censorship. Because if you’re on the wrong political party, or the wrong race, or the wrong business, all of a sudden, the central bank start to censor your transactions.

Dan Held (44:17):

I think CBDCs are not an innovation at all. Stablecoins are a great innovation and they work well. They work well in the field in terms of like it’s being actively used today. CBDCs are an excuse to exert more control over the economy under the disguise of innovation, but they’re not innovative at all. It’s 1984 on steroids.

Preston Pysh (44:36):

Let’s talk about Lightning a little bit. When we talk about the Lightning Network, we’re talking about node to node, I have Bitcoin in a channel. Let’s say you have a node, I’ve got a node. I’ve opened a channel to you for one Bitcoin worth of capacity, and then we can use that channel back and forth in order to spend Bitcoin immediately. Then it gets into the whole network effect of, if you’re connected to another node and have a channel open, and I have one, well, then we can basically spend to anywhere within that network of channels. How do you think that this is progressing to date?

Preston Pysh (45:10):

From a privacy standpoint, it has unique implications where I think it’s way more private than we’re at on the layer one of using Bitcoin. So, it is a bit of a solution to the quandary that you just mentioned there with the central bag digital currencies, but talk to us about some of this from your point of view.

Dan Held (45:32):

Yeah. So, like how Lightning can kind of replace the medium of exchange function or what do you want to dig on?

Preston Pysh (45:37):

Yeah, that in particular, and if you want to talk about El Salvador and maybe how you see that playing out, and maybe what that means just as these things continue to progress and what it might mean down the road.

Dan Held (45:49):

Yeah. Money serves three functions, sorry Bitcoiners, I know you’ve heard this one before, but for the folks who haven’t delved as deeply into this, money serves three functions, medium of exchange, unit of account, and store value. The money first has to be a store value. People have to store value in it, believe in it as a money before it can progress to the other two stages, medium of exchange and unit of account. Those two stages are predicated on a couple different factors, low cost of transfer, price stability is one of those, which means that the price has to …

Dan Held (46:17):

For a unit of account, you can’t swap out the pricing on loaves of bread every single minute if the price is fluctuating a lot. The price needs to be somewhat stable. Then medium exchange, it has to be integrated with a lot of the payment processing terminals. It has to be in demand by the merchants and wanted to be sold by the consumer. With the medium exchange transaction, it’s always a two way street. The consumer and the merchant must both want to exchange in that currency.

Dan Held (46:43):

So, that requires a level of network effect. So, Lightning is a technology that has built on top of Bitcoin that enables Bitcoin to be moved in a very fast, so instantaneous and very low cost manner. There are also additional benefits like privacy and some other functions too, with Bitcoin Lightning, that does unlock the medium of exchange use case on one level, the costliness and the speed. So, usability, basically the usability function of it.

Dan Held (47:09):

What it does not unlock though, is the unit of accounts and other properties of medium of exchange, which would require network effects and price stability. In El Salvador, we’ve seen the network effects start to occur on a localized basis. That’s really interesting, where merchants now have to accept Bitcoin, and some individuals are choosing to pay for items with Bitcoin and they use this over with the Lightning Network.

Dan Held (47:33):

For the newbies here, and you may not understand Lightning, Lightning’s kind of like … You’ve got like ACH wire and different ways to send US dollars, and you’ve got like Venmo, Lightning’s kind of like a Venmo. It’s semi-trusted in a way, but it’s also a way to move to transactions basically for free or very, very low cost. When it comes to Lightning adoption, what that means for medium of exchange, we’re starting to see that in El Salvador in a very small localized level, because that network effect of merchants and consumers has been achieved. I don’t think we would probably see that there on a unit of account level because the price instability of Bitcoin is still very high.

Dan Held (48:08):

Bitcoin is still very volatile. So, when we look at Bitcoin’s trajectory from the store value era, which we’re very much in right now, to becoming increasingly store value, plus medium of exchange and unit of account, I think it’ll happen in pockets of consumer and merchant network effects occurring. So, let’s say 40% of the population owns the asset, well, then they might want to transact with it. It’s sort of something that doesn’t happen in a binary function of, one day everyone’s using it, one day and the day before, no one was. It’s sort of a network effect function that happens over time.

Dan Held (48:38):

As more and more people store value in Bitcoin, then all of a sudden, they’re like, “I only want to accept Bitcoin as payment.” Some people might be like, “I only want to pay for things with Bitcoin.” That happens over many decades. I don’t think that happens like at a snap of a finger. That takes a long time, because after all, money is belief system, and it’s going to take a while for people to believe in Bitcoin, because that includes generational change, right?

Dan Held (48:58):

With El Salvador, I’m super optimistic and super excited to see what’s happening there. I do think that there are still issues around network effect. First people want to have to store value in it and hold it before they want to transact with it. El Salvador is a little bit leapfrogging that and just kind of moving it more to medium of exchange. I’m excited to see how that experiment plays out, but across the world, I think that, that experiment takes many decades to occur.

Dan Held (49:22):

But we might see that happen sooner in countries with bad currency. So, like Argentina, Venezuela, El Salvador, these are countries where I think Bitcoin has a better use case immediately for that medium of exchange, unit of account use case than in countries like the US or in Europe where they have a more stable Fiat currency.

Preston Pysh (49:41):

All right. The last one I got for you, Dan, relates to somebody who would say, there’s so many coins, there’s all of these Alt Coins. How do I decide what I own? Why are you just talking about Bitcoin right now? Why aren’t we talking about all the other ones that have billions in market cap?

Dan Held (50:01):

Totally. This is a classic question and great question to answer. Okay. People who are listening to this who are newer, you’re probably thinking I’ve missed the boat. I’ve missed out on Bitcoin, I’ve missed out on these gains, I got to catch up. Well, if you pick the right alt you might do that. A big word of caution there, a big might. Bitcoin return per unit of risk is the best in the space. It’s really hard to pick the right Alt Coin that might go up or down. Bitcoin is the number one asset in the space, has been the number one asset, and still has tons of price appreciation. If Bitcoin achieves its purpose as a gold 2.0, or a world reserve currency, it should hit between a 20 trillion, 100 trillion market cap, which means it has tons of upside from here.

Dan Held (50:43):

While you might be excited to go buy something else, definitely you want to learn about Bitcoin, you want to read about Bitcoin. I would definitely recommend checking out Bitcoin first. Bitcoin still has a healthy amount of price appreciation. That’s what a lot of the newbies care about. They’re like, “Dan, I don’t care about sound money, I don’t care about all those characteristics. I’m just worried about return.” If you just care about return, that’s the way to think about it. Bitcoin is probably your best risk adjusted return in the space.

Dan Held (51:07):

Now, if you care about money and you care about what Bitcoin is about and its fundamental properties, Bitcoin is unlike any of these other cryptocurrencies. For example, we could all use a different type of metal to be a money, but why do we all use gold? Well, gold has certain properties as a metal that make it a better sound money. And there’s a network effect of more people believing that gold is worth money and there’s less people that’d be willing to switch to an alternative metal.

Dan Held (51:33):

Bitcoin operates in a similar fashion. Bitcoin’s network effect, its moat, is really hard to dislodge. We all believe in Bitcoin and store value in Bitcoin. We’re not just going to switch over to another cryptocurrency at a moment’s notice. These currencies, these cryptocurrencies are all governed by protocols, but those protocols could be changed by the community. That’s what a lot of people I think don’t realize, is that these aren’t necessarily immutable. Bitcoin has changed in a very small degree over time, and other currencies have changed a lot, for example, like Ethereum or other protocols out there.

Dan Held (52:03):

I think that Bitcoin’s preservation of its 21 million monetary policy, it’s preservation of the decentralized nature of it ensure that Bitcoin has the highest probability of success. Bitcoin has objectively the best characteristics of origin, monetary policy, decentralization, all characteristics that a money needs to have in the digital world. Bitcoin has the best characteristics for that, which make it probably your best investment choice. I think for those who are wondering, should I buy an alt versus Bitcoin? You got to check out Bitcoin first. It’s the whole reason for the space.

Dan Held (52:38):

If you’re worried about returns, Bitcoin’s still going to be a great return if things all work out. I don’t know what the future holds. Let’s put it this way, if I’m wrong, most of my net worth’s in Bitcoin, so it’ll go the other way. Then yeah, look, if you want to explore other stuff, sure, but make sure you understand Bitcoin fully, because I think when you understand Bitcoin fully, you’ll understand why it’s so unique and why you should look at that and really focus on that versus everything else.

Preston Pysh (53:03):

Love it. Dan, I know you have a newsletter, I know you’re active on Twitter. Give people a handoff where they can learn more about you if they found the conversation useful.

Dan Held (53:13):

Yeah. If you liked what I said, you want to hear more, you can YouTube, I’m Dan Held. Twitter. I’m @danheld. I write a newsletter on Thursdays called The Held Report. Basically, it’s a longer form version of just kind of my raw thoughts on different topics in Bitcoin. Yeah, follow me on those. Really appreciate it. Also, throw me a shout out on Twitter if you like the episode, if you have a comment, I’ll probably reply. So, would love to hear your feedback.

Preston Pysh (53:37):

Awesome. For people listening, we’ll have obviously a link to all that in the show notes. Dan, thanks so much for joining us.

Dan Held (53:44):

Preston, thanks for having me.

Preston Pysh (53:45):

If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for We Study Billionaires, the Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found a valuable, if you can leave a review, we would really app that, and it’s something that helps others find the interview in the search algorithm. Anything you can do to help out with a review, we would just greatly appreciate. With that, thanks for listening and I’ll catch you again next week.

Outro (54:18):

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