robert-breedlove-lex-fridman-crypto-bitcoin

Robert Breedlove: Philosophy of Bitcoin from First Principles | Artificial Intelligence Podcast with Lex Fridman

Check out Artificial Intelligence Episode Page and Show Notes

Key Takeaways

  • Money is a direct derivation of action and speech, which are modes of self-sovereign expression. Sovereignty always starts with the individual, not with nations.
  • Property is information, it’s not the actual asset. It’s the socially acknowledged relationship between the human and an asset
  • Driven by the profit motive, entrepreneurs courageously confront the entropy of nature and convert it into useful layers of order that form civilization
    • To grow this bubble of order, we have to embrace the volatility at the edge
  • A free market is an anti-fragile system where an individual failure contributes to the growth of the ensemble.
  • Humans are ideas and strategies competing with each other. Said differently, life is information propagating through flesh.
  • Markets generate 3 forms of pragmatic truth:
    • Price: subjective demands of humans against the objective supply of resources
    • Tools and innovations: Entrepreneurs experiment to profitably satisfy demands, and consumers are sovereign in their demands
    • Virtue: Lying is energy inefficient, akin to creating and maintaining a fork of reality
  • Inflation is theft, “You can just print more money that everyone else is forced to sacrifice their time and energy to obtain”
    • Inflationary money amplifies the perception of scarcity and results in increased fear, combativeness, and violence in a society
      • Additionally, it has a corrosive effect on social morality, encouraging short term thinking and selfish behavior
    • By contrast, prices decline under a stable money supply, signaling more abundance and security
  • Money is the universal medium of exchange, a technology for moving value across space and time, an extension of your mind to think about value, and a form of energy that represents a claim on all other forms of energy
  •  “Bitcoin is the most superior monetary technology that has ever existed” – Robert Breedlove
    • It’s divisible, durable, infinitely portable, verifiable, and scarce
    • Unlike any other money in history, Bitcoin is absolutely scarce, and a user can audit its entire supply
    • Gold’s portability shortcoming is the reason banks exist, Bitcoin disrupts gold
  • New entrants value money based on its liquidity and network effects. Thus, money tends to be a winner take all market
    • Other blockchains promising more transaction throughput do so with less transaction finality. Bitcoin base layer is about the settlement assurances.
  • Bitcoin’s decentralization is enforced by the nodes, who choose which rule-set is to be applied. Miners just enforce the chosen rule-set
  • Bitcoin is code, and code is speech, it’s protected under the first amendment
  • Civilization advances in the tools we make and the way we treat each other. Under a Bitcoin standard, dominance becomes paired with competence, not coercion. You can only earn and keep value by serving your fellow man
  • Advice for young people:
    • First, invest in and arm yourself with knowledge
    • Explore different sides of yourself and embrace your mistakes, this is the way to advance yourself
    • It’s important to always question your ideas and be open-minded, learn from first principles

Book Recommendations

Intro

Sovereignty, Property, and Money

  • Sovereignty is the authority to act in the world as you see fit, and it has been gradually decentralizing over history.
    • One Pharaoh had supreme power in ancient Egypt. Today, people vote for their representatives
    • That said, sovereignty always starts with the individual, not with nations and governments
  • Action and speech are modes of self-sovereign expression, and money gives one the authority to act as they see fit.
    • Thus, “money is a direct derivation of action and speech” – Robert Breedlove
    • In other words, money is a technology layer that enables sovereignty
  • All life is seeking to expand its dominion over space and time. Mankind expresses territoriality in property rights
    • Property is information, it’s not the actual asset. It’s the socially acknowledged relationship between the human and an asset
      • This relationship accepts that one has exclusive rights and responsibilities to a particular asset
  • In the hunter-gatherer days, property was whatever you could hold and defend. As humans settled in the agricultural age, they created an economic surplus, aka savings.
    • This invited looters and governments were born as a protection producing enterprise

Organizing a Society

  • Ideally, people’s contributions to society are commensurate with the value they receive
  • Humans increase their productivity through the division of labor. They use a trade network, the economy, to generate wealth, innovation, and luxury.
    • Government is the network security. Namely, people pay a vendor to preserve life, liberty, and property, and to have nonviolent dispute resolution in the rule of law
    • However, a government ends up abusing its monopoly position, starting with the control over money.
  • Technology devours our organization models, chief of which is the nation-state. The economics of violence are declining because of the declining cost of protecting property
    • For instance, Bitcoin allows you to protect your monetary property with a fraction of the cost required to run a banking network
  • By providing a check on money printing, gold was the original governor of governments and is the reason they went off the gold standard.
    • Now, Bitcoin makes possible a limited government that doesn’t evolve into an overarching power monopoly.

Capitalism vs Communism

  • The first-ever capitalist was a caveman who dug a hole to protect himself from the elements. The first communist then decided he has a claim over the fruits of this man’s labor, and violently took over the plot for his own use
    • In capitalism, an individual has exclusive rights to the fruits of his labor, and they can trade it with other individuals
    • Whereas in communism or socialism, other people, represented in the state, has some right to the value an individual creates
  • With all the government interventions, we have never seen an actually pure free market. That said, the US is the closest implementation of a capitalist society
    • The 1848 manifesto of the communist party mandates exclusive state control over cash and credit. In other words, central banks are Marxist institutions
    • Our limited experience of a true free market makes it hard to predict its potential shortcomings
  • The ideal of “from each according to their ability to each according to their need” seems great on the surface. However, communism fails at scale
    • Replacing the profit motive with nationalistic ideas destroys all price signals, and results in shortages, famines, and corruption
  • The more knowledge a socioeconomic structure can contain, the more wealthy it is
    • In that sense, communism is an inferior resource strategy because decision making is limited to the data throughput of a few officials
    • As a result, capitalism outcompetes, generates more wealth, and exerts financial pressure on a communist economy, until eventual bankruptcy

Volatility is Truth

  • The universe is pervaded by entropy, life itself is the anti-entropic force that converts chaos into order.
    • Driven by the profit motive, entrepreneurs courageously confront the entropy of nature and convert it into useful layers of order that form civilization
    • Modern society is an order that has been established over many thousands of years. To grow this bubble of order, we have to embrace the volatility at the edge
  • Growth is an inherently volatile and unstable process. Humans match their ideas to reality, constantly under or overshooting.
    • A bad business idea represents capital misallocation. In a capitalist environment, the market clears such malinvestments during recessions.
      • To paper over the losses of a business is to delay and exacerbate the volatility of that failed idea in the pursuit of an imaginary “stability mandate”
  • A free market is an anti-fragile system where an individual failure contributes to the growth of the ensemble.
    • Society benefits from the success of entrepreneurs and learns from their failures
    • Additionally, accumulated capital mitigates risk and allows entrepreneurs to get back on their feet and explore more new ideas
  • As Nassim Taleb describes it: Human intervention moves us from medicrostan to extremistan
    • For instance, managing forest fires in the wildfires of Baja California leads to devastating fires. Whereas letting small fires burn in Mexico keeps things in check
      • The intention to create less destruction is divergent from the outcome
    • In a similar sense, you can’t double your net worth in a day in medicrostan. But you can send your net worth to zero in a single trade in extremistan

What is Reality?

  • David Hoffman argues that space and time are not an objective reality. Rather, it’s a rendering specific to human beings that allows effective navigation
    • Every animal has its own interface, humans only see a tiny fraction of the light spectrum
  • Humans are ideas and strategies competing with each other. Said differently, life is information propagating through flesh.
    • Value is inseparable from human action. It’s not about matter, it’s about what matters, the relevance of something in the course of goal direction action
    • In that sense, intelligence is error correction towards something a human wants, and information is the resolution of entropy
      • Creating artificial intelligence faces the issue of “Who is doing the wanting?”
  • Austrian economics is concerned with human action. It explores praxeology from first principles.
    • However, Austrian economics is deliberately missing from all economics and business curriculums
      • Instead, its replaced by Keynesian worldview that assumes central banks control the money supply with no opportunity cost

Pragmatic Truth

  • Absolute truth is at the bottom of reality, it’s the end of the inquiry. Competition is a discovery process that helps us get to that truth.
  • Markets generate 3 forms of pragmatic truth:
    • Price: subjective demands of humans against the objective supply of resources
      • Price compresses all market realities into a single actionable number and represents the economic nerve signal that coordinates human action
    • Tools and innovations: Entrepreneurs experiment to profitably satisfy demands and consumers are sovereign in their demands
      • The result is knowledge on how to satisfy a human want. Viewed this way, a shovel is a knowledge structure that solves a problem
    • Virtue: Lying is energy inefficient, akin to creating and maintaining a fork of reality.
  • Everything is a service, humans value the service that a good provides (e.g. the ability of a pen to lay ink to paper)
    • Our value systems create the future. Thus, value is fundamental and needs a reliable communication medium

Inflation is Theft

  • Inflation is a way to get something for nothing. Put simply, “You can just print more money that everyone else is forced to sacrifice their time and energy to obtain”
    • Inflation is legalized counterfeiting, central banks counterfeit currency.
  • Higher prices mean something is scarce. Artificially increasing inflation amplifies the perception of the scarcity, and has de-civilizing effects
    • Morality is subject to the capital stock of society. Conditions of scarcity lead to increasing fear, combativeness, and violence.
  • By contrast, prices decline under a stable money supply, thus signaling more abundance and security
    • Free trade increases knowledge and cooperation and is reflected in decreased prices
    • Hence the old bastion, “If goods don’t cross borders, soldiers will”
  • Modern economics considers inflation to be a normal part of a healthy economy. In reality, it’s a technology backdoor, theft integrated into the money
    • Inflation builds up slowly, then rapidly, eventually collapsing the monetary system

How Inflation Destroys Morality

  • “To be moral, an act must be free” – Murray Rothbard
  • While most tools are considered amoral, meaning morality lies with its holder, money is different.
    • Monopolized money is a weapon only useful for theft from the poorer to the richer
    • Money is a paper claim on the savings of society, those closer to the money printer benefit at the expense of the last recipients
  • Inflationary money has a corrosive effect on social morality, encouraging short term thinking and selfish behavior
    • Moreover, Money is an insurance policy against uncertainty and its declining value handicaps your ability to plan for the future.
  • The wine parable: A central bank tripling the money supply leaves a winemaker with 3 choices:
    • To keep selling his bottle at the same price, and thus losing his profit margin
    • Increase his prices to maintain the profit margin, and thus risk losing customers
    • Or to water down his wine or use inferior ingredients to maintain the same price
  • Inflation is an infectious moral cancer that encourages deception, and forces producers to weigh their financial well-being against their moral integrity.
    • Bitcoin is the antidote. One can only earn bitcoins through work or by sacrificing resources to obtain it

What is Money?

  • Austrian economics defines money as a universal medium of exchange
    • Beyond its intrinsic utility value, money is the most marketable good, it can be traded for any other good, service, or knowledge
  • Money is a social device for moving value across space and time
    • Gold moves value across time and paper currency moves value across space
  • Money is an extension of your mind to think about value, you think in your currency.
    • Thus, a central mechanism that manipulates the money has an impact on your mind
  • Money is a tool that lets us calculate, negotiate, and execute trades more quickly.
  • Money is energy, it represents a claim on all other forms of energy
    • Humans continuously figure out better ways to harness and channel energy. The energy that couldn’t be channeled went into gold mining, and the gold token could be redeemed for anything.

Evolution of Money

  • Money is and always been a technology that satisfies 5 properties: Divisible, durable, recognizable, portable, and scarce
    • Contrary to popular thought, scarcity is about demand, not just supply. The demand for money always exceeds its supply, making it scarce
  • Historically, Gold best satisfied the properties of money and thus remained the current holder of the status
    • Gold price tracks its cost of production. Thus, miners can’t dilute peoples’ savings over time
    • By contrast, fiat currency costs nothing to produce. That’s why its market value historically always converges to zero.
  • Gold portability limitation lead to centralized custody with paper receipts. Eventually, custodians issued more paper receipts than they had gold, and fiat currency was born
    • Gold’s portability is the reason banks exist. Said differently, the whole financial system is rooted in a technological shortcoming of gold
  • Bitcoin disrupts gold, the base layer for analog society

What is Bitcoin?

  • “Bitcoin is the most superior monetary technology that has ever existed” – Robert Breedlove
    • Divisible: to 100MM Satoshis, and even more if required in the future. This allows it to transact across scales
    • Durable: Bitcoin is pure information stored in a distributed fashion, this tends to be infinitely durable (e.g. The Bible)
      • Additionally, the computing infrastructure behind bitcoin is a dynamic competitive process. Taking a miner down incentives others to mine
    • Portable: It’s pure information that can move at the speed of light, infinite portability
    • Verifiable: A Bitcoin full node can verify the authenticity of the currency.
      • Even more, unlike any other currency in history, it can audit the entire supply of bitcoins
      • Fun fact: the term sound money originated because a pure gold coin makes a certain sound when dropped, helping identify fake gold coins.
    • Scarce: Bitcoin is the discovery of absolute scarcity, akin to discovering the number 0
  • Bitcoin will pull the world closer towards perfect competition and wealth generation to an extent never seen before

Bitcoin vs Crypto

  • Money is valued based on its liquidity, Any new entrant is incentivized to choose the money with the deepest liquidity and most network effects
    • Thus, money tends to be a winner take all market (There is one analog gold)
  • While other blockchains pose more transaction throughput, they do so with less transaction finality. Bitcoin base layer is about the settlement assurances.
  • Money starts out as a collectible, then is used as a store of value, later a medium of exchange, and finally a unit of account
    • To be an effective store of value, Bitcoin only needs to optimize for the supply cap. In other words, what it has been doing flawlessly for the past decade
    • Similar to the internet, Bitcoin evolves in layers. It moves scalability features to higher layers (e.g. Lightning Network)

Proof of Stake

  • Proof of Stake is inherently centralizing, think of the old Mathew principle:
    • “For to everyone who has, more shall be given, and he will have an abundance; but from the one who does not have, even what he does have shall be taken away”
    • Proof of work is necessary to embody skin in the game in the marketplace
  • Bitcoin’s decentralization is enforced by the nodes, who choose which rule set to be applied. Miners just enforce the chosen ruleset
    • Maintaining the block size at a manageable level is key to maintain node decentralization
  • The mining network is inherently decentralized, anyone with access to cheaper energy is incentivized to enter the market

Can Governments ban Bitcoin?

  • Bitcoin is an idea, and government coercion tactics don’t work against ideas
    • Case in point: when US courts attempted to classify PGP encryption as ammunitions to prohibit exporting, lawyers printed out PGP code on paper and presented it as evidence.
    • Code is speech, it’s protected under the first amendment
  • A government ban is largely unenforceable and only results in a move to other jurisdictions.
    • Even more, it incentives other jurisdiction to act favorably to capture the value and innovation occurring around bitcoin
    • Bans draw a lot of attention towards Bitcoin and increase its adoption
  • Governments are more likely to attempt regulating it, identify the users, and tax it.
    • That said, Government isn’t a single entity, it’s a collection of people with various interests. Some will be interested in its monetization
      • Bitcoin dissolves the power structure arrayed against it from the inside
  • Closed source networks incur costs to impose their rules and protect them against competitors. By contrast, open networks are voluntarily adopted and have no enforcement cost or turf protection
    • As a result, Open source networks outcompete closed source networks (e.g. Internet vs Intranets)
    • Bitcoin is the ultimate open source monetary network devouring central banks closed networks
  • Bitcoin is exposing the greatest scam in human history: political authority. People should be free to adopt the rules, systems, and tools that best suit their needs.

Bitcoin Toxicity is Tough love

  • It’s trivial to issue coins in the crypto space and to post a white paper, website, and raise funds. This has attracted scam artistry.
    • Bitcoin toxicity is an immune system against scams. It protects new entrants from getting lost in a sea of altcoins and missing the real innovation, Bitcoin.
    • That said, any immune system can over-respond and attack anyone asking questions
  • Bitcoiners are by nature adversarial thinkers, attempting to minimize trust and maximize verification
  • Reducing people to a label discounts their sovereignty to zero, reducing a human to a word.
    • Social media platforms facilitate labeling at scale

Satoshi Nakamoto

  • Satoshi’s disappearance solidifies bitcoin’s decentralization, he never cashed out and remains anonymous
    • While power corrupts, a small selection of humans who are not corrupted by power are enough to change the world
  • With a million bitcoins, Satoshi is the richest person in the world on a liquid asset basis, the ultimate holder.

Incentives Shape Systems

  • “Evil is the force which believes its knowledge is complete” – Jordan Peterson
    • ‘Elites’ believe they have the course of action that will save the world. One such example is Bill Gates saving humanity from a climate crisis
    • As such, they implement policies that result in an outcome almost always diverging perfectly from the intention
  • Currency debasement allows central banking unlimited budgets to fund wars. It’s no coincidence that the 20th century of total war was also the century of central banking
    • It’s an analog institution with a flawed incentive structure that is quickly losing relevance in the digital age
  • Civilization advances in the tools we make and the way we treat each other, corrupting the money divides us. This is vividly illustrated on WTFhappenedin1971.com
    • In a Bitcoin-denominated world, dominance becomes paired with competence, not coercion. You can only earn and keep value by serving your fellow man
      • This is behind bitcoiners sayings like “Bitcoin fixes this” and “Fix the money, fix the world”

Advice for young people

  • First, invest in and arm yourself with knowledge
    • The world is changing faster than any institution can keep up with, don’t follow the crowd
  • Explore different sides of yourself and embrace your mistakes, this is the way to advance yourself
  • It’s important to always question your ideas and be open-minded
  • Love is a morally superior action, it’s hard to love in a world where fear rules

Additional Notes

  • “God is found in the truthful speech that rectifies pathological hierarchies” – Jordan Peterson
  • “We are the universe experiencing itself” – Robert Breedlove
  • Only time and Bitcoin are absolutely scarce
  • Ideas and information are the most fundamental substrate of reality
  • “Anti-fragility is beyond resilience or robustness. The resilient resist shocks and stay the same, the anti-fragile gets better” – Nassim Taleb
  • Religion helps humans organize around stories to best coordinate their action over space and time
    • Many religions point towards common moral values, even if not perfectly aligned. This speaks to the historical importance of morality and subjectivity
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Notes By Mostafa Khaled

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