IN THIS EPISODE, YOU’LL LEARN:

• Why the Bitcoin community is so focused on the distributed ledger.
• Why the bitcoin blockchain consumes so much energy and why it’s important for the security of the blockchain.
• How Cryptocurrencies in the future likely have different layers of centralization.
• If governments eventually will take over with their own cryptocurrencies.

TRANSCRIPT

Preston Pysh 0:00
In 2017, we saw Bitcoin grow by over 13 100%. Ever since the start of the new year, however, things have been pretty ugly with a year-to-date performance of negative 50%. So what in the world is happening? Is Bitcoin still the darling new asset class that so many people believe in or something more frightening on the horizon?

Well, on today’s show, we’re going to have a little discussion that covers both sides of the argument. In one corner, we have Tuur Demeester. Tuur has been an investor in Bitcoin since the early days when one coin was only $5. Since his initial position, Bitcoin has grown by 132,000%. Tuur has a huge following with over 159,000 people online because of his in depth ideas and comments about cryptocurrencies.

Then on the other side of the argument, the bear side of the argument, we have the talented Erik Townsend. Erik is the host of the very popular investing podcast called Macro Voices. Erik got his start as a computer programmer. By the age of 17, he was already an independent software development and design consultant. Erik is an entrepreneur that has built successful tech companies and he’s also the founder of his own global macro hedge fund.

This is part one of a two part episode so whether you’re a bull or a bear on the future of Bitcoin and cryptocurrencies, we hope you enjoy this thoughtful discussion from two very intelligent individuals.

Intro 0:00
You are listening to The Investor’s Podcast where we study the financial markets and read the books that influenced self-made billionaires the most. We keep you informed and prepared for the unexpected.

Preston Pysh 0:44
I am really pumped to have Erik and Tuur on the show. Before we start, guys, I want to embarrass you a little bit. Erik, I’m a huge fan of your show. I haven’t had an opportunity to tell you this, but I listen to your show all the time. You guys have such a quality product. This is really exciting for me to have you on The Investor’s Podcast and be talking to you. I really appreciate you taking time out of your day to be here.

Tuur, I stalk you on Twitter. I’m just going to say it like it is. I follow your Twitter very closely, probably closer than almost anybody else that I follow.

It’s an honor to have you back on the show. I’m a huge fan. You’re obviously brilliant in the crypto space. We are very excited to have you here.

Let’s go ahead and dive right into this. Cryptocurrencies are built on top of an enabling technology. That’s called a distributed ledger. Let’s start there.

Erik, in your opinion, how do you understand distributed ledger? Why do you think it’s so important?

Stig Brodersen 2:33
I think it is super important, Preston. The reason is, and this is no exaggeration, since the beginning of time, a limitation that we’ve had in all information systems, when I say the beginning of time, I mean, before computers going back 1000s of years, any information that you had…

Erik Townsend 2:47
Let’s use the ledger for a bank account, as the example, had to be controlled by somebody. There was somebody in charge of that. That meant that whoever that somebody was could be a bad guy. They could commit fraud and they could steal money and do all sorts of bad things.

Now, in the beginning, it was actually a ledger. It was written on a piece of paper and it was kept in a locked room somewhere in a bank. When we got mainframe computer systems in the 1960s, now it was on a transaction processing system on a mainframe. Eventually, it found its way on to distributed database technologies, more 80s to 90s kind of technology.

That would solve a few problems in the sense that it would solve redundancy issues. If one computer failed, it would save a copy of it on another computer. There would also be a lot of enhancements to security in the 80s and 90s, that protect us against outside bad guys, hackers and so forth.

However, if you’ve got an inside job, if the management of the bank is corrupt, they can control that data and the idea that there’s data somewhere in a network that no one person has authority over, that nobody can hack and that never existed, really until Bitcoin’s blockchain invented this idea of a distributed ledger.

The idea is basically that information is stored in a distributed network in a way where there is no one party that can control it. It is based on a system that uses consensus of a number of different actors in the network.

If it is properly implemented, it can truly be hack proof. Even the management of the bank can’t hack its own system. That really is a huge improvement so I think it is going to change the world in a big way.

However, the big huge caveat that I put on this, and I likened blockchain which is the distributed ledger underpinnings of the Bitcoin cryptocurrency… I think of it like the Wright flyer, the first airplane that ever flew a huge history making thing. It was super duper important. It’ll never be forgotten.

Though, when you go to the airport today, you don’t see a lot of Wright flyers parked out on the tarmac. We’ve come a long way since then. The technology has gotten better. There’s no smart reason to go fly one of those things anymore.

My contention is that because of some specific design limitations, particularly something called proof of work, which we should come back to later.

Blockchain is designed in a very limited way that makes it not super duper scalable, not at all scalable, I would argue.

I liken it to the Wright flyer, simply because it’s super important in history. I think that the invention of the airplane was obviously important. The invention of the distributed ledger was important. The first airplane had some serious limitations and so does bitcoins blockchain.

I think that’s where Tuur and I probably disagree. Certainly blockchain is the only thing going that has achieved what blockchain has achieved.

I think that other things are going to be soon supplanted and that’s going to cause real problems for the Bitcoin cryptocurrency. This idea of mining, particularly, you don’t need that. There are better ways to do it.

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BOOKS AND RESOURCES

• Tuur Demeester on Medium.
• The ultimate resource on everything relating to Bitcoin and Crypto information.
• Listen to Erik Townsend’s podcast, Macro Voices.
• Join Preston, Stig, and Richard Smith for the Berkshire Hathway Meeting.

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