Jeff Booth on Finding Bitcoin

Jeff Booth On Finding Bitcoin’s Signal In A Noisy World | Bitcoin Fundamentals with Preston Pysh #100

Check out Bitcoin Fundamentals’ Episode Page & Show Notes

Key Takeaways

  • The creation of new and better technology is the result of trying to solve our problems in a better way 
  • Your brain by itself is a small computer with a limited amount of computing power; linking more and more brains together forms a supercomputer with much more computing power than any single computer, and creates society as we know it
    • However, linking together requires trust, and a breakdown in that trust corrupts the output of the supercomputer 
  • When a new idea emerges in the free market, the incumbent companies tend to try and defend their monopoly over the old idea instead of trying to adopt the new idea
  • “Abundance in money creates scarcity in everything else. Scarcity in money creates abundance in everything else.” – Jeff Booth 
  • Money is just information; you don’t actually want more money, you want more of what you believe money buys you
  • A system using an inflationary monetary policy is based on the lie that inflation is required for a productive society
  • If 1) money is just information, and 2) money is being manipulated by central banks at an unprecedented rate to avoid a credit collapse of the system, then 3) misinformation must be growing through the system
  • The productivity gains from technologies competing on the free market should result in humans getting more value, but the value cannot transfer to society in a system that has an inflationary monetary policy 
  • If it’s hard to grasp the changes that the iPhone would elicit, imagine how difficult it is to grasp the changes that a software protocol like Bitcoin will elicit 
  • It’s useless to try and measure the new system with an error code from the old system 
  • DARPA created the internet’s base-layer protocol (TCP/IP) in the 1960s, but it wasn’t until HTTP was created on layer four that connected the stack that created the internet as we know it today
  • Bitcoin is a base-layer protocol for money the same way TCP/IP is the base-layer protocol for the internet 

Intro 

  • Jeff Booth (@JeffBooth) is an entrepreneur, tech leader, and author of Price of Tomorrow. He is a General Partner at Ego Death Capital, a new Bitcoin-only venture capital fund, and also a proud family man. 
  • In this conversation, Jeff Booth and Preston Pysh discuss money and energy from first principles, why Bitcoin adoption is grassroots, how misinformation in money creates misinformation everywhere else, open protocols, the Blockchain Trilemma, why decentralization and security together are such a big deal, why energy must be inserted into money, the most important Bitcoin fundamentals to understand today, and Jeff’s recommendation to the G20  
  • Check out these Podcast Notes on Jason Lowery’s conversation with Preston 
  • Host – Preston Pysh (@PrestonPysh

Energy and Money from First Principles 

  • From sunlight to technology: plants borrow energy from the sun; animals eat plants; humans eat those plants and animals; one of the things humans do with this energy has thoughts; thoughts turn into ideas and those ideas compete for how we organize the world; technology is just one of those thoughts 
  • Technology creates the world that we see; humans compete to constantly improve the  various technologies around us 
  • Our entire world is about solving problems 
    • How do we utilize more energy to solve this problem better?
  • The creation of new and better technology is the result of trying to solve our problems in a better way 
  • Humans essentially slow entropy by borrowing energy from another system to create life as we know it in our system
  • Your brain by itself is a small computer with a limited amount of computing power; linking more and more brains together forms a supercomputer with much more computing power than any single computer, and creates society as we know it
  • More ideas, energy, and computing power result in the more that brains are connected
  • The abstract world that we live in is the result of the connected supercomputer making more and better ideas that outcompete antiquated ideas on the free market 
  • Before the internet, people raced into cities to connect to their network of brains; bigger cities had more output and more opportunity because they had more dense and better social coordination than smaller towns, cities, and regions 
    • Cities thrived when there was sufficient trust because they produced more of the ideas that the world built upon 
  • Humans linking together to form a supercomputer requires trust, and the breakdown of that trust will severely limit the output of the supercomputer 
  • Unproductive and inefficient energy can be coordinated through coercion and control, but coercion and control removes the possibility of better ideas emerging from brains in the network 
  • Coercion and control from a centralized authority creates a network of automatons that have fewer ideas, which results in fewer new ideas competing against old ideas 

Why Bitcoin Adoption is Bottom-Up, Not Top-Down 

  • Going down the proverbial Bitcoin rabbit hole can change your frame of reference for how you see the world 
  • In Jeff’s recent article “Finding Signal In A Noisy World”, he explains why Bitcoin adoption is from the bottom-up and not from the top-down
  • When a new idea emerges in the free market, the incumbent companies tend to try and defend their monopoly over the old idea instead of trying to adopt the new idea
    • Monopolies are resistant to change because it typically requires learning new skill sets and changing the input/output variables of their revenue streams  
  • Emerging technologies enable the people furthest away from the monopoly
  • New technologies only work when they produce better value for humans 
  • Humans are simultaneously the idea creators and the idea consumers 
  • Companies become more centralized as they grow, which results in fewer ideas emerging from them, which makes the company more likely to be replaced by the entrepreneurs that adopt and build on the emerging technology   

Misinformation in Money Results in Misinformation Everywhere Else

  • If 1) money is just information, and 2) money is being manipulated by central banks at an unprecedented rate to avoid a credit collapse of the system, then 3) misinformation must be growing through the system
  • “A second-order derivative of that misinformation is that trust must be declining throughout the system.” – Jeff Booth
  • The productivity gains from technologies competing on the free market should result in humans getting more value, but the value cannot transfer to society in a system that has an inflationary monetary policy 
  • Money is just information; you don’t actually want more money, you want more of what you believe money buys you  
  • If money wasn’t just information, then the Venezuelan bolivar would be equal to the US dollar 
  • Our actions are the chasing of the feeling that we want out of money
  • The trust holding together a free market of linked human brains gets destroyed when misinformation is applied to the money
    • People operating within a system of misinformed money think they have perfect information, so they act on it, and thus further contribute to the misinformation in the system 
  • A system using an inflationary monetary policy is based on the lie that inflation is required for a productive society 
  • If all other countries base their currency (information) on the US dollar (information) – a currency that requires massive debasement to remain solvent and bring the debt to manageable levels – then misinformation around the world must be growing at an exponential rate 
  • Countries may accept a trade-off of their labor being worth 2% less per year for a while, but they’ll have to reconsider the tradeoff when the debasement has to reach 10%, 12%, and 14%
    • You might not notice if someone came into your house and stole 2% of your stuff, but you’d probably notice if they took 14% 

Why Open Protocols Are Difficult to Understand 

  • “Open protocols provide the most value to society and are the hardest to understand.” – Jeff Booth 
  • Open protocols come in layers and there’s no way of knowing what is available on the next layer until the next layer is built
  • Jeff and Preston both thought they’d never use the iPhone when it first came out 
    • But they both switched from the old idea (BlackBerry) to the new idea (iPhone) because it added more value
    • However, they couldn’t see the value-add until the iPhone was in their hands
  • Entrepreneurs intuit the future and they intuit what people will do under different circumstances before those people have those circumstances 
  • People change their lives very quickly when they’re given new inputs that create a better life for them, but it’s hard to predict the change before it is built 
  • If it’s hard to grasp the changes that the iPhone would elicit, imagine how difficult it is to grasp the changes that a software protocol will elicit 
  • Protocols take a while to develop because they develop in layers, and the first layer must be rock-solid before the next layer is added or else it’s castles being built on sand
  • DARPA created the internet’s base-layer protocol (TCP/IP) in the 1960s, but it wasn’t until HTTP was created on layer four that connected the stack that created the internet as we know it today
  • You probably don’t think about the open, base-layer TCP/IP when you’re on a Zoom call because it is so far below you on the stack 
  • Zoom is a product that provides value and that is built many layers above the base protocol of the internet
  • Bitcoin is a base-layer protocol for money in the same way TCP/IP is the base-layer protocol for the internet 

The Blockchain Trilemma 

  • A given blockchain can only solve two of three of the following: decentralized, scalable, and secure 

Source: Finding Bitcoin in a Noisy World

  • The Bitcoin blockchain solved for decentralization and security, which created a natural pre-market opening for entrepreneurs to solve scalability   
  • The Bitcoin blockchain can only process 5-7 transactions per second on layer one, which leaves scalability to be solved on layers built on top of the base-layer 
  • Other protocols that choose to solve scalability on layer one choose to sacrifice either decentralization or security on layer one, which results in castles being built on sand 
  • DeFi is built on centralized protocols that must become more centralized as they grow
    • If they’re “decentralized” in name only, why not just build the protocol on Amazon Web Services and dramatically improve the protocol’s efficiency, which was prioritized from the start when scalability was prioritized on layer one? 
  • Protocols that sacrifice decentralization or security for something that must be centralized (scalability) have to lose in the free market over time 
  • It’s impossible for Ethereum to win in the free market because, by design, it can’t be as efficient as a centralized AWS database that produces the same function
  • DeFi being built on top of Ethereum are castles being built on top of sand 
  • The network effect: Every new user that joins the system makes the system better for all existing users in the system
    • This is the exact opposite for the Ethereum network because every new user makes the system less valuable for all other users because the system itself cannot be stable   
  • Instability in the traditional financial system allows for critically unstable ecosystems like DeFi to grow in the short-term because number-go-up-technology can cloud the instability of the base-layer 

Why the Combination of Decentralization & Security Is Such a Big Deal 

  • Before Bitcoin, decentralization, and security had never existed in a system together 
  • A free market tends to create better-living standards than a state-controlled market
  • One of the reasons why the United States became such a superpower was because it had more ideas in the free market competing against other countries that didn’t  
  • People living in countries where ideas weren’t allowed to compete raced to the United States 
    • Many of the top companies in the US were started by immigrants 
  • Creating laws enshrined to humans acts as a firewall to protect the state from getting too big so people’s ideas can freely compete in open markets 
    • But throughout time, firewalls break down because of money, which is superordinate to laws in creating a market of ideas 
    • The people with the money can change the laws 
  • Everything achieved in history has required some coordination of a trusted entity to protect humans from the state getting too big 
    • Example: The Bill of Rights
  • As the firewalls break down, the laws stop protecting the people, and instead only protect the people with money
  • Over time, all central banks that were once independent eventually become co-opted by the state  

Why Energy Must Be Inserted Into Money

  • Establishing trust between humans linking together to create a supercomputer requires more energy, not less 
  • Every developed nation in the world uses more energy for living standards 
  • The misallocation of resources enabled by money printing hinders the free market discovery of better ways to use energy 
    • The misallocation of money drives energy scarcity, confusion, and polarization
  • Productivity gains that we experience today often are net negative to GDP 
    • Examples: photos taken and stored on a phone, music consumption, free calculator app, etc. 
  • Credit must grow forever to sustain the system, but the planet is finite; these two are naturally at odds with each other  
  • Credit must expand at a faster rate than productivity can bring prices down, which is why productivity gains are not reflected in modern prices
  • Jeff Booth: Fossil Future by Alex Epstein is fantastic, which is a book that claims humans should be using more energy, not less
  • Stopping the use of energy in an effort to reduce CO2 emissions would send humans back to the Middle Ages; despite their words, even the environmentalists would never choose something so regressive to their living standards  
  • “What we choose for ourselves is very different from what we would choose for other people.” – Jeff Booth 
    • People preach about environmentalism and then get on their private jets to go to climate conferences 
  • Today, there are many more coal plants racing onto the market due to decades of disastrous energy policy that have made energy artificially scarce in the most advanced economies in human history
  • Zoom is an example of a higher use of energy that saves people time and creates a higher living standard 
    • Imagine the difference in energy expenditure if Jeff and Preston had to physically travel to have this conversation, and then the energy required to physically  distribute the conversation to thousands of listeners instead of clicking a button and publishing it instantly 

More on Energy, Money, and Bitcoin Mining 

  • “Abundance in money creates scarcity in everything else. Scarcity in money creates abundance in everything else.”Jeff Booth
  • There is no solution to climate change through the system that actually creates the climate change that people believe there is 
  • Whether or not you believe in climate change is secondary to necessitated, perpetual expansion of credit that the current system requires  
  • Bitcoin mining is a free market incentive that enhances a transition to energy abundance
  • “All energy companies will be Bitcoin miners; energy and Bitcoin are going to merge.” – Jeff Booth   
  • Before bitcoin mining, there wasn’t an economic incentivize to capture standard sources of energy, for example, in a village in Kenya 
  • Places all around the world that have access to cheap energy can now benefit from their geographically isolated energy sources by mining bitcoin with it and selling it to the network 
    • This is another example of why Bitcoin adoption is bottom-up
  • Bitcoin mining revolutionizes the previously discussed city-supercomputer-model because it doesn’t require the centralization of human coordination for idea generation 

Proof-of-Work, Jason Lowery, and Michael Saylor

  • Jeff Booth was impressed with Jason Lowery’s reframing of his thesis on proof-of-work, strategically adjusting his word choice so his broader message would be better received 
  • Jeff found Michael Saylor’s discussion on entropy and the second law of thermodynamics to be interesting 
  • All of these ideas are just different ways into the same concept Bitcoin’s ability to change the world through decentralization and security 

The Important Bitcoin Fundamentals to Focus on in 2022

  • “I don’t think about price in Bitcoin in any of these fiat currencies that have to debase.” – Jeff Booth 
  • Preston and Jeff recommend Lyn Alden’s article “A Look at the Lightning Network”, which examines the relationship between a monetary asset being a store of value vs being a medium of exchange 
  • It’s useless to try and measure the new system with an error code from the old system
    • Example: Bitcoin’s exchange rate in US dollars 
  • Bitcoin operates outside of the error code of manipulation of the old system
  • Jeff and Preston started Ego Death Capital to build the world they want to see, instead of complaining about the world they currently see 
  • According to Jeff Booth, the “Bitcoin community” is not about price at all; it’s about imagining a world with truth, hope, and abundance, and building toward that 

Jeff Booth’s Recommendation to the G20 

  • Jeff wants members of the G20 to know that there is a way to transition from the old system to the new system 
  • The perpetual reinforcing of the existing system, which is based on manipulation and theft, will make the world a “really dangerous place” for our children 
  • Bitcoin changes all of the rules for how we design society
  • Members of the G20 struggle to see the new system for the same reasons a company like Kodak doesn’t create the digital camera
  • He recommends that G20 members be open to learning about the new system because that will likely result in their willingness to transition to it faster  

Closing Advice from Jeff

  • “Choose your frame. Once you’ve chosen your frame, spend more time in that frame. Your time matters more than you think it does.”Jeff Booth  
  • “Stay humble and stack sats.” – Matt ODell (@ODELL)
  • “Focus more of your time on the world you want to see and you won’t believe how much influence you have on the world that you’re creating.” – Jeff Booth 
  • View the world with an abundance mindset and you will identify opportunities to pursue
  • Expect the unexpected in the existing system: it’s going to get a lot worse 

Additional Notes 

  • Network effects contribute to 70% of technology’s value, according to Jeff Booth
  • “If a [politician] said ‘We’re going to stop printing tomorrow, forever. We’re never going to do that again and money’s going to be stable,’ then our credit-based system as we know it today, our way of life would collapse to the ground. Every single thing would fail because the entire thing is based on credit expanding.” – Jeff Booth  
    • If credit contracts, and there isn’t enough productivity to pay back the debt, then the debt has to fail 
  • Politicians trying to get elected are incentivized the keep kicking the can down the road, and society votes for them to do that (manipulate the money further), which causes more misinformation to proliferate throughout society
  • Jeff was paid $20 an hour as a lifeguard in 1986; adjusting for inflation, that would be a $70 an hour job in today’s economy
    • Today, Jeff’s kids make $16 an hour as lifeguards
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