September 13, 2022

Preston Pysh interviews top Bitcoin expert, Pierre Rochard. They talk about how Bitcoin is a decentralized time stamping system and why the Proof of Work consensus mechanism is so important relative to Proof of Stake.

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  • What is time stamping?
  • Is Bitcoin a decentralized clock?
  • Why is time keeping so important to Bitcoin?
  • What does Pierre think about the big SEC announcement about exchanges regulating coins?
  • Correlation to traditional markets.
  • When will all retirement accounts start offering Bitcoin?
  • Why is Bitcoin not performing like an inflation hedge against CPI?
  • Transaction fees.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Preston Pysh (00:00:03):

Hey, everyone. Welcome to this Wednesday’s release of the Bitcoin Fundamentals podcast. On today’s show, I bring back my good friend and Bitcoin expert, Pierre Rochard. I’ve been talking to Pierre about Bitcoin for many years now, and he’s probably one of the most trusted technical and financial advisors I can think of. You’ll be hard-pressed to find someone that understands not only the financial implications of Bitcoin, but also the engineering ramifications as well.

Preston Pysh (00:00:27):

During the show, we talk about this idea that Bitcoin is the ultimate decentralized time stamping mechanism for ensuring that money can’t be double spent while also having a finite amount. He talks about the ways in which he thinks Proof of Stake protocols potentially centralize over time among many other interesting and important topics. This definitely isn’t an episode you’ll want to miss. With that, I bring you the thoughtful, Pierre Rochard.

Intro (00:00:54):

You’re listening to Bitcoin Fundamentals by The Investor’s Podcast Network. Now, for your host, Preston Pysh.

Preston Pysh (00:01:13):

Hey, everyone. Welcome to the Bitcoin Fundamentals podcast. I’m here back by popular demand, Pierre Rochard. Welcome back to the show.

Pierre Rochard (00:01:21):

Thanks for having me back on, Preston. Happy to be here.

Preston Pysh (00:01:24):

We’ve been doing this for years. We’ve been talking about this subject for years.

Pierre Rochard (00:01:28):

Five years.

Preston Pysh (00:01:29):

It’s been a while. I want to start off the conversation. There was a thread that you were a part of about time stamping. I know Gigi has written about this particular topic and laid this out for folks, and I think for people that aren’t intimately familiar with Bitcoin, they would hear that and just say, “I don’t even know what they’re talking about.”

Preston Pysh (00:01:54):

First, define why this is so important. I think you got to get into time servers and things like that, but explain to people why this is so important and why it relates back to decentralization.

Pierre Rochard (00:02:07):

Well, I could first answer why it’s important to me.

Preston Pysh (00:02:12):

Do that.

Pierre Rochard (00:02:13):

I just started a new role at Riot Blockchain, which is one of the biggest publicly traded Bitcoin miners here in the U.S. and I joined about them a month ago as their VP of research after working at Kraken for almost three years as a product manager for Bitcoin and Lightning. Big change of subject area for me from the exchange trading/Lightning payment side to the mining/electricity side.

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Pierre Rochard (00:02:46):

What I’ve gathered from talking to a lot of folks in the mining industry over the past month, and if anyone listening to this is in the mining industry, I’m happy to chat. My DMs are open. We can hop on a call, happy to talk to anyone really, and learn from everyone. One thing that I’ve learned is that there is widespread misunderstanding that part of it is actually just related to the word that we’re using mining to describe what the industry does.

Pierre Rochard (00:03:17):

For example, I was on a panel in Biarritz at Surfin’Bitcoin and the moderator mentioned that they were on a tropical island and they met the prime minister, I believe. They had lots of geothermal power, the chief electricity on this island. He suggested, “Well, you guys could mind Bitcoin here.” The prime minister’s reaction was, “How do you know we have Bitcoin here? How do you know there’s Bitcoin on this island?”

Preston Pysh (00:03:50):

I was like, “What?”

Pierre Rochard (00:03:52):

People take it because the word mining has always referred to physical mineral extraction from the earth. It’s never referred to [inaudible 00:04:04] or payment processing or monetary systems except for literally gold mining. On top of that, just lots of different calls with policy related folks where the connotation of mining is one of environmental devastation and also terrible working conditions. People think about coal miners going deep underground.

Pierre Rochard (00:04:30):

Huge respect to coal miners, by the way. I don’t have any negative connotations towards actual physical mining. I think that it’s a fantastic industry and I don’t have any animosity towards it, but it is very different from what Bitcoin minors do. I was thinking about, “Well, okay, what would be a better word?” I’ve heard phrases like digital mining to try to move things in the right direction securing the network, which I find to also be misleading. Verifying transactions, which I also think is extremely misleading.

Pierre Rochard (00:05:07):

I went back to the white paper, of course, let’s see what Satoshi Nakamoto said and he said two things. One, it’s an example of a distributed time stamping server or it’s an implementation of one. It’s a decentralized distributed. The second is that he does use gold mining as an analogy, but the specific context in which he’s using it is about the subsidy. The subsidy is the part of the block reward from the miners get that goes and adds Bitcoin into circulation.

Pierre Rochard (00:05:44):

That’s what gets cut in half every four years is the subsidy and that’s what Satoshi was analogizing to gold mining, which is here’s how you add the units to the ledger such that you don’t have any seigniorage. Seigniorage comes from having a monopoly on the issuance of the monetary asset and thus allowing you to have monopoly profit on the difference between the cost of production and the revenue you get. With gold mining and with Bitcoin mining it’s decentralized and permissionless.

Pierre Rochard (00:06:18):

Anybody, anywhere in the world that there’s gold, they can go mine gold. In practice, the gold mining industry does not have monopoly profits. It’s a competitive industry and same thing with Bitcoin adding bitcoins to the ledger. It’s hypercompetitive. It’s actually hard to make money from doing that, hard to make a profit. Contrast it with, for example, like the Federal Reserve, when they go into their SQL database, they have a cost of production of basically zero.

Pierre Rochard (00:06:52):

They can just create trillions of dollars instantly and they have done that. That was Satoshi’s analogy was here is a costly way of adding this asset to the ledger such that nobody’s in a privileged position of inflating the supply. I think that analogy makes sense except it quickly breaks down if you try to expand it to describing all the activities that a miner is performing. That is one the subsidy that is the new Bitcoin being added to the ledger that’s not their only source of revenue.

Pierre Rochard (00:07:28):

They also are earning transaction fees, which are not new Bitcoin being added to the ledger. They are from transactions that are being included in a block by that quote unquote, “miner.” Gold miners don’t do that. Gold miners don’t include gold transactions in their extracting gold from the earth. The analogy breaks down at that point and it also breaks down on the service that they are providing to the Bitcoin network.

Pierre Rochard (00:07:57):

That is that when they are hashing in order to find a winning hash that has enough leading zeros in it to meet the difficulty that’s set by the Bitcoin nodes and the peer-to-peer network, they are essentially creating a decentralized order of transactions. Some have analogized this to a clock or time keeping, which is subject to controversy here, we’re going to get into it with Peter Todd.

Pierre Rochard (00:08:29):

Basically, the idea is that in order to have a decentralized electronic cash system that is a ledger, you have to have an order of the transactions being added to the ledgers so that you don’t accidentally or intentionally spend the same Bitcoin twice. That’s the famous double spending problem that is solved by Proof of Work and the difficulty adjustment. It really is about ordering transactions, which again, if you look at what gold miners do it’s completely unrelated.

Pierre Rochard (00:09:04):

Gold transactions are ordered by physical time and space that is the gold can only be in one place at a time and I guess moved around. Now, of course, the paper Bitcoin conspiracy, or sorry, the paper gold conspiracy theory stuff about fractional reserve, et cetera, we’ll get into that. In my view, I like the word time stamping. I like distributed time stamping. Maybe part of it is just an argument from authority of well that’s what Satoshi said.

Pierre Rochard (00:09:38):

I was putting out some content of, “Let’s consider this word time stamping as being more relevant and more accurate than the analogy of mining. I think that the mining analogy we should continue using it when we’re referring to the subsidy and to the lack of seigniorage revenue from minors. In terms of the service that’s being provided to the network it’s more of ordering of transactions temporally through time as it happens.

Pierre Rochard (00:10:10):

Although, that’s when Peter Todd through some sand in the gears of my thinking here, which is that Satoshi made a mistake. Satoshi was a genius, but he didn’t get everything perfectly right. He actually did make a mistake of talking about the longest chain being the chain that you build on top of, but as it turns out it’s the most work chain, the heaviest chain as they say. Basically, which chain has received kind of the most hashing power rather than which one has the most blocks, which can be different.

Pierre Rochard (00:10:51):

That was actually a bug that Satoshi had in the white paper that if I recall correctly in his implementation, he might not have actually had that bug. I think that there was a disconnect between the white paper and the code, and that the code was correct, which is interesting because nobody reads the code. Everyone reads the original white paper that has sense essentially been superseded and that we should probably be amending as a living document if people are going to take it as canonical. This is like the U.S. constitution.

Preston Pysh (00:11:24):

I love this. When you talk about the weight versus the longest chain, get into the nuance and explain to people how the code was different than what was written there. You’re just basically saying that the hashrate, the provable work, and the energy that was expended is really signaling to minors that are trying to find the next block where they need to be spending their resources and time to build on top of, correct?

Pierre Rochard (00:11:50):

Yeah. For example, you could imagine a chain fork where one side of the chain has a lower difficulty adjustment than the other side of the chain. They might be further ahead in terms of the number of blocks, but they’re behind in terms of the work, the hashrate. In a way, it’s an edge case so that’s one thing. The other thing though that is perhaps more relevant to the time chain conversation is that the time on the chain can diverge from what we might call your wall clock time.

Pierre Rochard (00:12:34):

Now, then we get into really metaphysical things of like, “Well, your wall clock is also not accurate take that into account. Even an atomic clock, the most accurate these things drift. Time is relative. Then, we get into Einstein and some more advanced physics that I’m not an expert in. Basically, in terms of Bitcoin time, it drifts a lot more than that. The reason it drifts, so there’s a number of reasons, but one of the major ones has been that hashrate has increased parabolically at times.

Pierre Rochard (00:13:10):

The difficulty adjustment only happens every two weeks’ worth of blocks, you could have two weeks where the average block interval would be eight minutes for example instead of 10 minutes, and so that means that on average you’re like compressing time by 20%. It’s like interstellar. There’s different periods of accelerated time in Bitcoin, which is why things like Bitcoin, we don’t know exactly what day it’s going to fall on in the future.

Pierre Rochard (00:13:41):

We know what block height it’s going to fall on. To the extent that the block height is different than the real time, then we can’t claim that Bitcoin is a timekeeper or a clock because from Peter Todd’s point of view would mislead people into thinking that they can use block height as a substitute for their system clock for real time. I don’t know that anybody has made that mistake of saying, “Let’s meet up for our steak dinner at this block height.”

Pierre Rochard (00:14:21):

Then because blocks came in a little bit slowly or too quickly that they missed their reservation. It is an interesting point and if we’re trying to be as precise as possible, it’s not so much that the Proof of Work hashers and I think it turns out hashers is the only sane word we can use here because they’re just generating hashes. They are contributing work and the time element of it, the time stamping element of it is actually secondary.

Pierre Rochard (00:14:58):

They are ordering transactions based on accumulated work and that is loosely correlated with clock time. Now, the difficulty adjustment does directly use time, but with a lot of averaging going on and a lot of plus or minus.

Preston Pysh (00:15:19):

When you say that Pierre, I think it’s really important that people understand it’s not like the difficulty adjustment is pulling a GPS time from some server, you’re saying that it’s looking at the speed at which blocks are being found in order to adjust the difficulty. It’s not referencing anything to get a time hack, correct?

Pierre Rochard (00:15:41):

Well, each individual node is using its system time to check the past two weeks worth of blocks into, well, okay, you make a good point here, actually I’m being inaccurate because the system time input is in fact you’re right by the hashers or probably the mining pools rather than the hashers. In any case, let’s conflate the two. What the nodes are doing is that they’re taking each one of those timestamps from the past 2016 blocks and figuring out what’s the average interval between those.

Pierre Rochard (00:16:23):

You’re right that they’re not looking at their own clock except to that just layers of nuance, except that when a note is accepting a block, they do make sure that the blocks timestamp is not too far in the future or too far in the past. Now, there are blocks where it looks like there’s negative time between them. One had a timestamp that was a little bit in the future, but it was within the parameters that are deemed okay.

Pierre Rochard (00:16:56):

It is important for your bitcoin node to have the correct time when it is accepting blocks and verifying blocks so that it can make sure that it rejects a block that’s violating the rules and to make sure that it does not reject a block that is not violating the roles. That part of verifying a block does the nodes do refer to their system time and that’s decentralized, right? Each node is looking at it from their point of view.

Pierre Rochard (00:17:25):

That’s true of all the consensus rules that they are verifying in a block. You’re right that on the difficulty adjustment the nodes are just looking at the timestamps that they previously verified in averaging the intervals on those.

Preston Pysh (00:17:42):

To mess with that, you would have to mess with it for two weeks straight, and you’d have to mess with it on a global scale of everybody’s individually unique local time for all the nodes, all the versions of people running nodes keeping track. Is that accurately described? Then also, the minors, and whatever time they’re referencing as well would have to be completely out of whack.

Pierre Rochard (00:18:15):

That’s right. I don’t know what would be gained from such an attack other than just trying to disrupt the network. The interesting point Peter Todd made was that these references to system time could be replaced with other things. [inaudible 00:18:40]

Preston Pysh (00:18:39):

Give us an example.

Pierre Rochard (00:18:41):

Well, the example he gave was an altcoin Chia that does this proof of space with the hard drives and [inaudible 00:18:52]. Sometimes Peter Todd does make statements where I’m like, “This is probably a little bit speculative.” His point still stands that the time aspect of it is an implementation detail arguably. Now, Gigi does not agree and I’m flip-flopping on whether it is an implementation detail or not.

Pierre Rochard (00:19:22):

I think that to the extent that nobody has come up with a superior thing other than system time in order to regulate the blocks and the time or the ordering and how are we ordering 10 minutes is what we’re using. I haven’t heard of a better substitute than that notion of time. Arguably, this goes back to the metaphysics of it there is no better thing than time because as many commentators have pointed out time is the scarcest resource there is.

Pierre Rochard (00:20:06):

More scarce than energy and certainly more scarce than hard drives or other things that we could try to come up with. I do think that time chain still has legs. I think that though there is tremendous nuance in terms of the fact that, “Look, this is not a substitute for your atomic clock. This is Bitcoin time like dog years.” This is from the perspective of this system, which is going to not really be relatable to other external systems that you might be familiar with.

Preston Pysh (00:20:50):

Pierre, a person who just heard all of that they’re saying, “I just don’t get why this is important.” Why is this so vital? Then, talk about everything else outside of Bitcoin that is referencing a time server that’s put out by Amazon Web Services or whatever.

Pierre Rochard (00:21:12):

I think that from the user’s perspective it’s somewhat irrelevant. As long as the correlation between the work, and the hashing and the time is close enough that really the impact on the average user is that they’ll think that for example, a Bitcoin transaction, three confirmations on average 30 minutes. Maybe for their transaction it turns out to be an hour even though it was included in the first block.

Pierre Rochard (00:21:47):

It’s just because of the variance in terms of block time. I think that brings it home for folks of, well, this is not a process that is as controlled as you might have in other contexts, but that it is necessary for decentralization. That ultimately, if we did depend on a centralized timekeeper, for example, there’s NTP servers that are time servers essentially that are centralized, then the people who maintain those servers could reorder transactions on the ledger.

Pierre Rochard (00:22:30):

Now, arguably this is what’s going on with the whole Proof of Stake stuff that they’re using centralized surveys as Oracles. This, I think that it’s true in a sense, but it’s really about the fact that they’re trying to maximize throughput and they’re trying to minimize latency. I think the reason that Bitcoin’s relationship to time is decentralized is because it is so loose that is that if we were trying to have a block every second our clocks would have to be that much more precise.

Pierre Rochard (00:23:14):

Whereas, if we’re saying every 10 minutes plus or minus half an hour and really even further out than that, if you look at the distribution of hashes, we’re making a trade off, we’re saying, “Look, we’re going to have less precision in time in order to have greater decentralization, greater robustness, and ultimately a more reliable system ironically.” Some might say that having to wait an hour for a transaction makes it unreliable, but guess what? Your network being down like Solana has been for example or others.

Pierre Rochard (00:23:52):

I don’t want to throw them under the bus, but look, that’s a greater problem than what we’re talking about with having to wait a little bit longer for a transaction. I think that Bitcoin ultimately still is dependent on an external time oracle in the sense that the nodes and the hashers are relying on their own system clocks, but to a much lesser extent than any of the competitors out there. Then especially, with regards to stakers because the fundamental problem with staking is that the stakers do not have to commit themselves to any particular timeline or to any particular history of the sequencing of transactions.

Pierre Rochard (00:24:47):

They can create many different sequences in parallel and then opportunistically reveal one in order to extract value somehow. Whereas with hashing, the hashers are always dedicating themselves to whatever the latest version of the ordering of transactions is. Unless they’re trying to do a 51% attack, but that seems to have been more theoretical than actual something people are doing now.

Pierre Rochard (00:25:18):

That’s a whole other debate of why is nobody 51% attacking Bitcoin, et cetera. I think that’s the practical impact for users trade off between decentralization.

Preston Pysh (00:25:32):

When you’re thinking about base money and you just look at the world today and you look at reserves for countries, massive trillion dollar figures that is base money around the globe right now, look at the frequency at which it moves from these large centralized banks and government coffers. It doesn’t move very often and when it does it’s a one time move and then it sits in the next vault.

Preston Pysh (00:26:07):

I’m saying vaults, but we all know it’s digital units, but it is based money it’s not credit or based fiat units and not credit. When you look at this trade off that Bitcoin’s making for deep security and decentralization, but at a slower frequency of settlement, the 10-minute per block, I think you can see why so many Bitcoiners are hell bent on why we’re not willing to move on any of these parameters is because the whole goal of Bitcoin is to replace that base money that nobody can screw with it. Nobody can change how many units there are.

Preston Pysh (00:26:52):

Nobody can go back in time and reverse which transactions are included in which ones aren’t. In order to have those qualities, it’s rooted around this idea of time and the mining these blocks and expending energy that you so eloquently described in nitty-gritty detail there. I just want to throw that out there so people really understand what the mission is and why what you just described is so important.

Pierre Rochard (00:27:23):

I think that when we talk and think about Bitcoin sometimes we slip into thinking about it as an experiment or as a hypothetical, but when we look at the actual data, we’re in this terrible bear market, even last month the Bitcoin network, the hashers finalized more than $2 trillion worth of Bitcoin transactions. Over the past 12 months, it’s north of $50 trillion worth of Bitcoin transactions. These are extremely material amounts of money even in the traditional financial system.

Pierre Rochard (00:28:13):

This is not an experiment. This is a live, global settlement network that is working. When people propose to fix it I scratch my head as to what they’re talking about because if it was broken it wouldn’t be settling trillions of dollars worth of BTC, period. Nobody would use it for that. It’s incomprehensible to me that these folks still think that it’s like an experiment that needs to be fixed. Second of all, that they have the solution.

Pierre Rochard (00:28:56):

When I look at the problem of settlement times, there are great solutions out there. I think my favorite solution is Lightning and this idea of anchoring channels inside of, and forgive me, Peter Todd, but inside the time chain that this is the way to get instant settlement in a game, theoretically secure manner, not to tinker with the base layer, but to build layers on top of it. That’s the direction that reasonable people are going in.

Pierre Rochard (00:29:33):

In particular, I’d point to folks like Jack Dorsey or Michael Saylor, who’ve identified that the Lightning Network is the best layer to solution for a lot of the issues that people have with regards to Bitcoin as day-to-day payments. I think that this idea of day-to-day payments is very distinct from international settlements or trillions of dollars. The part of the disconnect is that we’re normal folks. We’re not moving billions of dollars worth of Bitcoin to my knowledge. I don’t know if Preston’s [inaudible 00:30:18]

Preston Pysh (00:30:18):

Billions of sats.

Pierre Rochard (00:30:22):

I do find it hard to relate to it. I’m like, “What are these people doing?” I get anxiety moving $1,000 worth of Bitcoin. The idea of moving billions of dollars worth is incomprehensible to me, but clearly, that’s going on. We see that from the network activity and from the data analysis. Now, with Lightning, we’re talking about much smaller dollar amounts or value of a BTC. When I think about when I go to Home Depot, now this number keeps going up, but usually I spend like $100 to $200 when I go to Home Depot.

Pierre Rochard (00:31:02):

That is easily accessible to Lightning. Sending a $100 to $200 payment over Lightning is not challenging at all in terms of the liquidity or anything like that. We’re purely at that stage of end to one, or sorry, one to end of distribution. With Strike doing with Jack Mallers with getting all these point of sales systems upgraded, et cetera. There’s also tremendous education still needed.

Pierre Rochard (00:31:34):

Also, undoing a lot of misinformation that is being spread by folks who are competitors to Bitcoin and Lightning or just politically opposed to it.

Preston Pysh (00:31:48):

For people who are maybe just listening to this for the first time, Lightning will settle immediately for the two parties that are conducting the transaction and the fees are literally to them there’s no fees. The fees are that minuscule as a 10th of a penny or whatever it might be in buying power terms. I want to go back to something you had said earlier on Proof of Stake and exchanges.

Preston Pysh (00:32:17):

You have lots of experience as an engineer working at exchanges. I think you more so than most people I’ve talked to really understand the perverted incentive structure on centralization that has already started to manifest itself, but I suspect the trend is only accelerating in a centralized way with exchanges. Explain to people why that’s happening and whether you agree with the idea that it’s accelerating the centralization.

Pierre Rochard (00:32:56):

Going into Ethereum 2 and this wave of staking over the past few years, I did think that decentralization issue would come from exchanges. Then, we saw the development of liquid staking of basically that you can stake your token and have it too. Defeating this idea of you’re going to lock it up and it’s inaccessible, and so that means that you earn this yield because you’re foregoing using it for other purposes. Obviously, all the participants in these systems are trying to profit maximize.

Pierre Rochard (00:33:43):

They were like, “Well, how do we create a smart contract where you put your Ethereum into it, your Ether, your ETH, and you’re also able to then use that stake to ETH for other purposes. Whether it’s selling it or leveraging up with it, or doing any kind of DeFi Ponzi type stuff. In that way, you’re double dipping because you could be earning the staking yield and then you go out and you lend your stakes ETH to somebody else, and then you’re earning the yield from just lending out the asset.

Pierre Rochard (00:34:23):

There are massive, massive network effects with liquidity. This is why the exchanges that have survived and were very early in the game, have built up such a moat relative to their competitors is because they have this liquidity network effect where liquidity begets liquidity. You’re not going to go trade at a trading venue that has very thin order books. You’re going to go find a trading venue that has thick order books.

Pierre Rochard (00:34:56):

By doing so, you’re increasing the thickness of that order book and you’re reducing liquidity on other venues and it’s very much a snowball effect. Same goes with regards to liquid staking, that is that because the staked ETH becomes its own ticker symbol, then ticker symbol accrues liquidity in other parts of the system, whether it’s DeFi or trading, DEXs, and whatnot. If you’re trying to minimize your transaction costs, your slippage, you’re going to want to stake your ETH with the most liquid contract.

Pierre Rochard (00:35:36):

We’ve seen that Lido has become the biggest one on Ethereum. It poses an interesting question of, “Well, if you’re not actually tying up capital to stake, then what is actually going on? What stake do you have?” Furthermore, if there are centralization points here, what are their incentives? We heard a lot of noise about OFAC and Tornado Cash. When Ethereum does the merge, these large exchanges who have to comply with FinCEN and regulations, they’re going to have to censor sanction transactions and that’s going to cause them to get slashed.

Pierre Rochard (00:36:27):

There’s going to be lots of problems. I don’t think that’s going to happen. I think that OFAC and whatnot, they realize that it’s going down that path would just cause it to become more decentralized. I think that’s what would happen, whether it’s with staking or with Bitcoin mining that they would actually just be driving decentralization and also driving activity away from regulated platforms, which is not what they want to do.

Pierre Rochard (00:36:56):

I think that the bigger issue is going to be the pressure to increase staking yields. That is why earn 4% when you could earn 5% and you want to be lobbying for increasing the staking yields. The Ethereum folks will say, “Well, look, our monetary policy, which is very flexible, is to have as little issuance as possible in order to still have transaction finality. They’re looking for minimum viable issuance, which is reasonable, but the problem is that there’s no way to measure that and it can be manipulated.

Pierre Rochard (00:37:44):

You could see stakers decide to carry out false flag attacks and claim that they got double spent or that somebody else got double spent, and that therefore the yield needs to be increased. Furthermore, if the value of the token is going down, then LL SQL shouldn’t you increase the staking yield because your security has gone down as well with the value of the token. Also, that in terms of the pumponomics, if there’s still in this mindset that increasing the yield will cause more capital to come in and increase the capital value of the token.

Pierre Rochard (00:38:29):

Then suddenly, the staking yield stops being about security and it goes back to being about monetary policy, which is what the Fed does is setting interest rates. I’ve even heard proponents of staking explicitly start talking about, “This is now the risk free rate of this staking, which I don’t know if they’re correct or not, but to me it’s like you’ve succeeded in recreating the financial, the fiat system. That’s not something that I would be advertising.

Pierre Rochard (00:38:58):

Anyway, I think that the pressure to increase yields is going to cause more dilution and in the long run have the same effect it has on the fiat system, which is just inflation and a reduced purchasing power. Because Bitcoin is not subjected to those pressures that there will not be a consortium of minors saying, I remember during the first halving, there was some talk of, “Let’s not do this. Let’s not have a halving.”

Pierre Rochard (00:39:32):

They were ignored because the Bitcoin ethos does not have this idea of having a flexible monetary policy that is trying to target security. There’s not the social level flexibility instead you have the opposite of intense toxicity.

Preston Pysh (00:39:57):

When I’m hearing all that, I think for a person, an outsider that would hear this, it would be the biggest eye roll Ponzi scheme, which I think is what you are describing. I don’t understand how the farce blows up for some of this stuff in the long run. How do you see that playing out? Clearly, this is such a disaster.

Pierre Rochard (00:40:26):

Inflation, that’s how it plays out is just with inflation now. The pace of which that’s up for debate, right? The fiat system started in earnest in 1971, and here we are more than 50 years later still going. Then, in the context of a cryptocurrency maybe they can survive even longer than that because maybe they are more restrained than the Federal Reserve is.

Preston Pysh (00:41:04):

How about this Pierre, when we’re looking at this merge that’s getting ready to take place with Ethereum right now it’s very clear. Samson Mou had an awesome tweet this morning talking about how there’s a couple dudes in a room that are basically flipping the switch on the change in the hard fork that’s about to take place. Do you find regulators somehow?

Preston Pysh (00:41:30):

I’m not trying to promote anything here because I know some people get upset I’m trying to kill whatever their favorite coin. Do you find that regulators are potentially going to play also? Is that a risk of instead of the inflation argument, is there a risk that regulators can step in and say, “Listen, we know it’s these 10 entities over here that are totally controlling the direction of this they’re a security and now it has to be a registered security.” Then they go from there. Do you see that risk playing out?

Pierre Rochard (00:42:02):

It very well could, but I still think that any kind of regulatory intervention would be met with further decentralization or at least appearance of decentralization on the part of the recipients of this regulatory attack or pressure or whatever you want to call it intervention. I think that what I took away from Samson’s thread is that these are the same people that are going to be increasing staking yields so that they’re increasing their income.

Pierre Rochard (00:42:38):

The external regulatory intervention is hostile towards the system, the cryptocurrency. It gets rejected. The ponzinomics or seigniorage revenues are beneficial to the stakeholders in this cryptocurrency system, and so that form of intervention is more internal. Thus, you can use a difficulty bomb to nuke all of the nodes on the network and force them to upgrade to your more inflationary version.

Pierre Rochard (00:43:19):

Maybe there’s a minority fork that tries to like Ethereum Classic, but ultimately because the stablecoin issuers are still on your preferred fork that you go on your merry way. I think that’s where the centralization element leads to inflation rather than the centralization element leading to regulatory intervention and being shut down.

Preston Pysh (00:43:45):

They get more and more desperate to pull more people in and the cost to do that is the higher and higher inflation rate. Wow, that is an interesting take. Well, let’s go to here’s a question that relates a lot to this. The big news tonight is that the SEC has publicly proclaimed that they have purview over Coinbase, FTX, and Kraken, all the big exchanges. What’s your take on that?

Pierre Rochard (00:44:16):

I think that there is a power struggle currently going on between different parts of the federal government. It seems as though the legislature, the house and the Senate, the people who are smart on crypto don’t like what the SEC and Gary Gensler is doing. To them, token issuance as long as it’s far enough away from a security that it’s innovative and that we should have more of it.

Pierre Rochard (00:44:47):

Well, we can get into what I think, but the other part of it’s that they want the CFTC to be regulating this because the CFTC, the commodities’ regulator, they don’t ask for all these crazy disclosures or not crazy I mean they’re somewhat reasonable. I speak as a former public accountant. I think that the fundamental problem is that you have on one hand people are saying, “These are securities.” Then on the other hand, people are saying, “These are commodities.”

Pierre Rochard (00:45:22):

I don’t think they’re either one. I think that they are currencies. They’re privately issued currencies [inaudible 00:45:29] except for Bitcoin. I’d say Bitcoin is a publicly issued currency because it again, only uses Proof of Work, only has ever used Proof of Work in order to distribute the coins. There’s never been the seigniorage, the pre-mine, the pre-sale, that kind of stuff. I think Bitcoin is arguably the only publicly issued currency, public currency dollars.

Pierre Rochard (00:45:59):

I would argue are privately issued currency and on the same level as Ethereum. On the same level as many of the other tokens that Gary Gensler is arguing our securities. Now, Gary would probably reply that actually private currency issuance is a subset of security issuance, securities issuance, and that if you look at the securities laws, they explicitly exclude the dollar for example.

Pierre Rochard (00:46:30):

It would be interesting that if Jeremy Powell had to provide SEC disclosures for his secondary market sales of dollars. In any case, there is this policy debate that’s happening within Congress about crypto. Then in parallel, Gary is seeing that there is this gridlock in Congress and that they’re not able to pass any legislation that he has his view on the market. His view is paradoxically a progressive view that we have to protect consumers and we have to regulate the market.

Pierre Rochard (00:47:13):

Otherwise, just raw capitalism will exploit people. Also, the Bitcoin maxi view that Bitcoin is the only one that’s actually decentralized. It’s the only one that’s a commodity and all these others are securities. I agree, maybe 30% of Gary Gensler of Bitcoin’s different, but I disagree that there should actually be government action against even just well, I think the SEC shouldn’t exist as a libertarian.

Pierre Rochard (00:47:50):

Obviously, these are my views, not the view of my employer, but it’s a very nuanced debate when we get into it as Bitcoiners of do we agree with Gary that these are securities, but do we also agree with him that there needs to be a crackdown that they need to be prosecuted and put to jail like fined. With regards to the exchanges they are in a very complicated situation because their clients want those tokens to be listed on those exchanges.

Pierre Rochard (00:48:30):

If an exchange does not list that token that client goes somewhere else. Might be offshore, might be another domestic exchange, but they will switch. They have this incentive to list as much as they can. Then, on the regulatory side, there’s tremendous uncertainty as to whether the SEC will come after you or not on a particular token, because the SEC has been doing this the people describe it as regulation through enforcement rather than putting out some clarifying document of, “Look, if these are the bright-line rules, if you violate them, then you’re security.”

Pierre Rochard (00:49:16):

The reason the SEC hasn’t done that is because from their point of view, there’s the Howey test and whether you flunk the Howie test or pass it will be determined in court. Tell it to the judge if you disagree. I don’t know how this plays out because the reason Congress is a lot more crypto-friendly, you might say friendly to securities or however you want to put it, is because their constituents just like the clients of the exchanges, their constituents are saying, “Look, I love XRP, and Gary is persecuting XRP.”

Pierre Rochard (00:50:00):

Who’s to say that XRP is not the future? Obviously, in their words, innovative and the future of money, and digital, blah, blah, blah. Those are voters. The Congress people ar like, “Well, I want votes.” Maybe they even agree with that person that, “Look, this is different enough from a security that Gary Gensler is going on his own.” Then, it goes into a bigger debate about the administrative state and how much power has been delegated to the executive branch cetera.

Pierre Rochard (00:50:39):

There’s a lot going on there. I think that if Gary Gensler overplay his hand he could destroy the SEC in court, and that the SEC would end up getting into a self-sabotaging thing of the court would just side against them, and because the court size against them on an unregistered security, well then why would the court ever side with the SEC on anything else?

Pierre Rochard (00:51:16):

It completely removes all statutory authority of the SEC would just be this entirely powerless agency that just screams at people, but that doesn’t actually have any [inaudible 00:51:29]

Preston Pysh (00:51:28):


Pierre Rochard (00:51:29):

Gunfire behind it.

Preston Pysh (00:51:31):

What are your thoughts on this bear market? We’ve been through this before and I’m curious just your thoughts on what this go around is like compared to previous rounds. For a lot of people listening to this might be the first bear market they’ve ever experienced and had to endure. Talk to us about how you view it optically compared to other ones.

Pierre Rochard (00:52:00):

I think that the other ones were in a sense easier to understand because they did not have a big macro volatility backdrop to them. What I mean by that is the 2018 bear market was we had this euphoric mania where Bitcoin went from $200 to $20,000. Now, it’s sliding down to $3,000. That was comprehensible because we could look back at 2013, 2014, 2015, and see the same pattern, and that there was not anything else going on in the world.

Preston Pysh (00:52:42):

It was really symmetrical.

Pierre Rochard (00:52:46):

There wasn’t lots of geopolitical risk or corona hysteria, or money printing going on. The last money printing session had been when Satoshi really launched Bitcoin 2008, 2009. It was just this Goldilocks period of Bitcoin growing. In this cycle, there’s a lot of other factors going on. One is obviously that it seems as though this cycle really kicked off with the very loose monetary policy after March 12th, 2020.

Pierre Rochard (00:53:30):

Bitcoin did flash crash like $4,000 on March 12th and then it went from $4,000 to $70,000. Now, we’re sitting at $18,000. I still do think that there has been baseline value accrual because the liquidation low was $4,000 in 2020 and here we are two years later. I don’t know if we’re at the low yet, but it seems like we have liquidated a lot of people and we’re at $18,000, so that’s more than 4X multiple.

Pierre Rochard (00:54:12):

Now, on top of the monetary policy aspect of it, there’s the geopolitical one of Russia’s invasion of Ukraine. The energy consequences of that driving up electricity prices, and then having an impact on Bitcoin miners. On top of that, this inflation that started before even the invasion of Ukraine, I think this inflation was well underway before that. Joe Biden’s mistaken and blaming Putin for it.

Pierre Rochard (00:54:52):

Certainly, the invasion and the sanctions subsequent to it have dramatically amplified the inflation specifically in the energy industry and that has a lesser effect here in Texas because we can’t export all of this natural gas. U.S. natural gas is much less expensive than European natural gas. Nevertheless, I do think that it has an impact in terms of capital flows that could be going to Bitcoin. I think there’s a lot of capital flows that instead of going to Bitcoin are going into financing.

Pierre Rochard (00:55:34):

When you have inflation that increases the financing needs for companies. Now, they’ve got bigger working capital requirements. Everything’s inflating, right? It’s not just your grocery store prices. It’s sucking capital away from Bitcoin on top of this classic withdrawal that we had. I think that because the bears are on Twitter gloating that we seem to be very close to the bottom, so that makes me bullish and start gloating.

Preston Pysh (00:56:07):

So true.

Pierre Rochard (00:56:09):

I get it. I was gloating when we were at [inaudible 00:56:13]

Preston Pysh (00:56:13):

Yeah, we were tap dancing.

Pierre Rochard (00:56:15):

Everyone plays their role. I’m just observing that they are gloating right now, and so that we might be due for reversal. Now, the problem I think is that the inflation it seems like it’s going to accelerate further and that going into the winter here, and the way things are working out in Europe-

Preston Pysh (00:56:37):

It’s ugly.

Pierre Rochard (00:56:38):

It’s really ugly and it’s made far worse by severe policy mistakes on the energy side, of listening to Greta Thunberg, and other ill-informed quote unquote “environmentalist.”

Preston Pysh (00:56:53):

It’s basic math. I’m sorry to interrupt you. This is such basic math. How is it possible for people to be this lost on something that’s such an easy calculation, and all this neutral by 2050 stuff. People, can they not see the basic trends and the increasing demand requirements that are coming and just not do the basic math? I just can’t understand how so many people can be duped. How is that even possible?

Pierre Rochard (00:57:35):

I would argue the public school system has indoctrinated folks. When I was I think it was kindergarten, I remember hearing about global warming and they’re cutting down the rainforest. We’ve got to write a letter to our senator. I remember typing up a letter to our senator maybe not kindergarten maybe it was second grade, it was certainly an elementary school.

Preston Pysh (00:58:02):

It’s your fault.

Pierre Rochard (00:58:04):

Yeah, it’s my fault. I shouldn’t have done that. I was told to by my teachers. It’s only in high school that I deprogrammed myself and realized actually. I came to the same conclusions that Alex Epstein did with regards to fossil fuels and the moral case for them. Now, I did it with far less data and thought that than he did. He did a much better job-

Preston Pysh (00:58:31):

That book is unbelievable because he’s one of the few people that talks about the opportunity cost of not using it, which I don’t know, that’s another thing I can’t understand. How can’t people say, “Well, if we’re going to cut back on this and these things are so evil what’s your other opportunity that you’re going to replace it with?” Well, you’re going to get out there with a shovel and you’re going to dig because you can’t use a tractor.

Preston Pysh (00:59:01):

It’s just one example of many where he’s outlining, “Well, let’s go down that path. What is the opportunity cost of not using it? What does that world look like?” Then as deduction, that it’s basically anti-human policies was the eye-opening moment for me when I was reading that book. I was like, “Hold on a second, he’s exactly right. He’s exactly right. How can anybody refute it in a different way?” I just don’t understand how anyone could… It is insane, dude.

Pierre Rochard (00:59:39):

In 2005, I read George Reisman’s book Capitalism and I specifically remember a paragraph where he talks about how socialism, communism, Marxism, they were very popular because they promised people a higher standard of living. That environmentalism would never be politically popular because it promises a lower standard of living. At the time, I thought to myself, “Yeah, that’s correct. He’s right. This will never become a thing.”

Pierre Rochard (01:00:11):

This was back in 2005, and here we are 17 years later not only did it become a thing, but the outcome. It’s just very clear. Then, I see people on Twitter who are like, “Oh, no, this actually confirms our hypothesis that we need to move away from fossil fuels because Russia couldn’t offer natural gas.” No, you don’t understand you could have had fracking domestically. There’s no reason for you to be a client on Russian natural gas. On top of that, you could have just not shut down the nuclear power plants that are already built.

Pierre Rochard (01:00:49):

That’s all you had to do is just not shut them down. They’re already built. The whole thing about nuclear waste and all this in Chernobyl, history is just so ironic that you have Chernobyl, which is now in Ukraine, but at the time was in Soviet Russia created this wave of anti-nuclear in Europe that now is the reason for the utter distraction of their economies and the continued success of Russia. It’s absolutely astonishing.

Preston Pysh (01:01:19):

It’s unreal. Boy, it’s amazing how people have replaced qualitative feeling with quantitative analysis backed by data and mathematics. I just shake my head. As an engineer at heart, I’m looking at just basic calculations and I just can’t even wrap my head around how this movement and how decisions weren’t strategic decisions were made on such a grand scale and supported by so many people. It’s just mind-bending.

Pierre Rochard (01:01:55):

Now, I hear European politicians talking about how they need to tax the super profits of these energy companies that are taking advantage of the situation. I’m like, “You guys are just not going to stop digging your hole.”

Preston Pysh (01:02:09):

No business sense. Now, you’re leading to having literally no business sense on capital infrastructure investments that need to take place through the retained earnings of the companies from these boom times. Then, you’re also seeing the energy companies they don’t trust the policies being put in place, and so then they don’t even want to make the capital investments.

Preston Pysh (01:02:34):

Oh my God, the intellectual density is unbound. I’m using density in a sense that it’s not compact with lots of thoughtful… Let me go here in a different direction. What are your thoughts on the correlation that you’re seeing between the price of Bitcoin and equity markets?

Pierre Rochard (01:02:58):

I think that Bitcoin and equity markets have always been correlated when they are not correlating because of Bitcoin going parabolic. I just see it as the fact that Bitcoin is not in an adoption wave right now, and it just correlates when there’s an adoption wave. I don’t see it as a permanent state of affairs, and it certainly hasn’t been in the past. Time, when is the next adoption wave? I have no idea.

Pierre Rochard (01:03:30):

Maybe some of these energy companies will put some of their profits into Bitcoin because that way they don’t get ceased by governments, but that might be wishful thinking. Bitcoin is in many regards, it’s just walking, marching to the beat of its own drum. It’s the hardest thing to time. One of the questions was what did you think when Preston said that he had sold his Bitcoin in 2017?

Pierre Rochard (01:04:01):

My thought was that I’ve never been able to time the market and so I don’t have any intuitions as to when the next big riff is going to be. Now, I can acknowledge my own sentiment. What I thought when I heard that you sold was that you were right because I was euphoric. Clearly, we were at a local top, but euphoria is what prevents me from trying to make a trade. How can you do that when you’re thinking that it’s going to the moon?

Pierre Rochard (01:04:39):

Right now, I do feel like my own internal sentiment is like, “Boy, are we going to $10,000? Is this going to grind large?” Once, I’m feeling bearish again, might be an indicator for those traders out there who are trying to time the market that things are about to turn around.

Preston Pysh (01:04:58):

I did a different this cycle. I guess from the very beginning and you had talked about this where I always thought during this four-year cycle that it always had the potential for the global bond market to literally break. I thought there was more risk being out of the market because of some type of major event that could happen while you’re sleeping and you wake up in the morning, and it’s up some ungodly amount that made it a bad decision to be out of the market.

Preston Pysh (01:05:33):

One of the things that I guess I have done different on this cycle was pretty much at the start of this year 2022, all the free cash flows that I personally make have just been kept in fiat. I never sold any Bitcoin, but all of my free cash flows I just keep stacking in cash in U.S. dollars in particular. I’m just waiting for the Fed to pivot. I’m waiting to wake up and read in the Wall Street Journal that central banks have collectively decided to add $5 trillion worth, $10, $15 trillion of stimulus into the economy.

Preston Pysh (01:06:16):

Wherever Bitcoin’s at that point, that’s when I take the cash I’ve been stacking since the start of the year. I just pretty much buy all, take all of it and buy Bitcoin, and add it to the Bitcoin that I didn’t sell from this previous bull market. I don’t know. The top on this last one was really different very, very different. I know Caitlin Long was talking about how she thought it was the derivatives market that basically cut the head off of the moves we saw had that we had seen previously.

Preston Pysh (01:06:49):

I guess I agree with that. Don’t too hard for me able to analyze why or whether that would even been a scenario, assuming there wasn’t [inaudible 01:07:02]. I’m curious what you think on that idea?

Pierre Rochard (01:07:05):

It reminds me of the question from one of our audience members was on volatility. One of the debate has been over time as Bitcoin adoption increases, what happens to its exchange rate volatility? Obviously, its volatility has been a source of tremendous criticism from people saying, “Look, this is utterly unusable as a currency because you’re in the supermarket and it goes down 50%, and you don’t have enough money to buy groceries.”

Pierre Rochard (01:07:42):

I see two schools of thought. One is when we get to 100% adoption, we won’t have any volatility it’ll just be a steady increase in purchasing power due to increases in productivity. If you look at the ratio of goods and services to the money supply because Bitcoin’s money supply is not increasing and the goods and services are increasing, you just have steady deflation like you did in the 19th century under gold. I think that’s one possible outcome.

Pierre Rochard (01:08:16):

The other outcome, which is that if we do look at the history of the gold standard, we do actually see tremendous volatility in the purchasing power of gold. Anytime you have an asset increasing in value that you inevitably get momentum traders and people who leverage up until it unwinds. You always have an oscillation around fundamental value. I see that as just inevitable.

Pierre Rochard (01:08:50):

It’s one from a monetary economics perspective, it’s one of the arguments for fiat currency is they’ll say, “Well, we need an elastic supply so that the value of money is not bouncing around so much.” Bitcoin’s an elastic supply makes it unsuitable and it’ll never be suitable even at 100% adoption because it’ll continue to be volatile. I actually agree with them. I agree with them that at 100% adoption Bitcoin will continue to be volatile.

Pierre Rochard (01:09:22):

I disagree with them that disqualifies it from being money or from being a usable currency. With regards to long-term obligations, you can always just hedge using derivatives. People do that all the time with agricultural products or whatever it is.

Preston Pysh (01:09:44):

Pierre, it’ll be volatile relative to what? Another currency?

Pierre Rochard (01:09:49):

Well, to goods and services. For example, to wheat or to commodities-

Preston Pysh (01:09:57):

If you were going to go and buy a car, you think that the price swing would be what if you’re in a hyper-bitconized world with a fixed supply?

Pierre Rochard (01:10:07):

I think that you would have situations where there’s a lot of supply of money, which would cause the Bitcoin price of cars to go up, and then you would have a deflationary contraction where the price of cars in Bitcoin would go down a lot and so that might be like 30%, 50%. The parallel I would draw is look like when we have a financial crisis like ’08 or with COVID, you do see tremendous volatility in the purchasing power of the dollar with regards to specific goods and services.

Pierre Rochard (01:10:53):

If it was just with regards to a basket of goods like CPI, that I don’t see that as being inherently more problematic than with regards to the price of an airplane ticket, which has bounced around significantly or the price of filling your tank of gas.

Preston Pysh (01:11:13):

See, from my point of view Pierre, I see so much of the volatility in the price in today’s fiats is just based on the fractional reserve system itself and the fact that you have credit blowing up and you have credit expanding. I mean that’s putting the waves in the broader macro context. I think a lot of people have pontificated on what a hyper-bitcoinized world would be and how much less credit would be in the system.

Preston Pysh (01:11:49):

When you’re looking at those waves and those volatility that are naturally going to happen anytime there’s credit induced into a system with a much smaller pool of credit, I just don’t know that you’re going to get that much volatility in the price. Now, between now and then when you’re still living in this world of fiat currency with abundant obscene levels of credit, I think that you’re going to continue to see these 70%, 80% annual volatility in Bitcoin.

Pierre Rochard (01:12:18):

For credit and also adoption if you’ve got lots of new entrance into the monetary system, that even if we assumed there was no credit and there was a hard money policy, the waves of adoption would still cause Bitcoin’s value to go up too quickly and then crash. That’s where if at 100% adoption with a lot less credit with in my view no fractional reserve banking, then that would be a counterargument to my view of continued volatility.

Pierre Rochard (01:12:53):

We could have a steady and contrary to the gold standard. Where under the gold standard they did have a tremendous amount of fractional reserve banking because it was just so inconvenient to actually transact in gold that you would leave your gold at the bank. I see lots of arguments for and against the long-term volatility. It plays into the argument of medium term volatility that is with each wave of adoption should we expect the next wave to have a lower amplitude?

Pierre Rochard (01:13:29):

People will say, “All of Bitcoin’s big gains are behind us and that going forward, it’s diminishing marginal returns, smaller and smaller gains.” As you know because we’re essentially hitting a ceiling on adoption. I think we’re pretty far from the ceiling on adoption. One, because I think the ceiling is everyone in the world having 80% of their balance sheet in Bitcoin.

Pierre Rochard (01:13:56):

Even if you were to take a less aggressive stance, we’re in single digit percentages of adoption at this stage, less than 5%, arguably less than 1% if you dollar weigh it by value. There’s the adoption side, as you mentioned, the derivatives as well could be playing a role, but also that it might just be the case that this particular cycle was different than past cycles and future cycles, and that the next cycle might be-

Preston Pysh (01:14:31):

Blow the lid off of it.

Pierre Rochard (01:14:33):

Yeah, just far greater than 2017 or 2013 because we’re always trying to pattern match against the previous cycle that we’re bound to be surprised by the next one.

Preston Pysh (01:14:47):

When it comes to retirement accounts, when do you see people having a 1% to 5% position across the board? When does that become commonplace? Do we see that soon?

Pierre Rochard (01:15:02):

This actually turned into a policy debate because retirement accounts are semi-regulated by the Department of Labor here in the U.S. and I’m sure there’s similar situations abroad. They were saying, “Look, you can’t put retirement accounts into Bitcoin.” Specifically with regards to fidelity that had floated this product. I think that it’s actually going to cause the political debate of is Bitcoin a good investment?

Pierre Rochard (01:15:37):

We’ll see politicians taking sides on that, which is bizarre because that’s usually not something that politicians debate is investments, but they’re being put into this position because from the point of view of a lot of folks in government, Bitcoin is a tool of anarchist libertarians and its adoption should be dissuaded, should be slowed down by whatever mechanisms possible. I think that this will be fine in the courts as well and that regardless, people who are well off don’t just have tax advantage retirement accounts.

Pierre Rochard (01:16:24):

They also just have standard taxable accounts. I think that the broader question of retirement just even outside of the 401(k) IRA situation, I think that I haven’t seen any good numbers on where we’re at with that in any case of what percentage of people’s what they see as their retirement assets versus what they see as a lottery ticket. You’ll hear people say, “People buy Bitcoin as a gamble.” It’s going to go up 10X, so they have these unreasonable expectations about returns, whereas their investment account they think about it as like 8%, 9% on average over the next 30 years.

Pierre Rochard (01:17:12):

I haven’t seen any credible surveys on what people’s time horizon is for holding Bitcoin and what their expected returns are and what percentage of their portfolio is it is. Just seeing that since 2015 and seeing how that evolves. Hopefully, one of our listeners will go employ Gallup or something to do that, but we could look on chain at HODL waves, but that doesn’t tell us about the rest of their portfolio.

Preston Pysh (01:17:39):

Any closing thoughts or things that you want to make sure we cover?

Pierre Rochard (01:17:44):

No, we covered a tremendous amount. Maybe next time we’ll talk about transaction fees. [inaudible 01:17:52]

Preston Pysh (01:17:54):

In short, give us the one-minute version of why you think the transaction fees are so low and how do you see that persisting here in the coming five years? Real fast.

Pierre Rochard (01:18:07):

Interestingly, they’re not low due to a lack of demand. Demand has been very robust for Bitcoin transactions. They’re low because, the biggest noncustodial transactional wallet adopted SegWit, and so it dramatically reduced its on chain footprint. We also saw people instead of using Tethers USDT on this Bitcoin omni network, they’ve been moving to Ethereum and Tron.

Pierre Rochard (01:18:39):

Which I think is good actually because I see that as parasitical or negative externality that they’re foisting onto Bitcoin node operators. Those two are the big factors and then I’d say a minor factor at this point is still Lightning. It has raised this debate about our transaction fees too low. Are they not paying for the security system? I’m writing a piece on it with Joe from Blockware.

Pierre Rochard (01:19:11):

Maybe I’ll come back on with Joe and we’ll discuss our research piece on it because it’s a constant source of debate on Twitter.

Preston Pysh (01:19:21):

Boy, are you saying that you want to bring back smaller blocks?

Pierre Rochard (01:19:24):

No, no. I think low fees are great for users and that they show that we’re scaling well. I don’t think that there’s a security problem here.

Preston Pysh (01:19:35):

Pierre’s here to help and he has solved Bitcoin.

Pierre Rochard (01:19:40):

No, it’s really Peter [inaudible 01:19:42], the other Peter.

Preston Pysh (01:19:45):

Pierre, always a pleasure, my lord, I love having you on the show and I love our chats. I don’t know, do you have anything that you want to highlight other than your Twitter account for people to follow you and anything else? Just highlight it right now, let them know.

Pierre Rochard (01:20:00):

Follow me on Twitter @BitcoinPierre and I’m now in the mining industry or the hashing industry or time stamping industry, or whatever we end up settling on. Feel free to reach out. Always happy to learn from others and to share my knowledge as well.

Preston Pysh (01:20:20):

Thank you, Pierre for making time and coming on the show.

Pierre Rochard (01:20:22):

Thank you, Preston. Looking forward to the next one.

Preston Pysh (01:20:25):

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 learn something new or you found it valuable, if you can leave a review, we would really appreciate that.

Preston Pysh (01:20:46):

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 (01:20:58):

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