July 10, 2021
Vijay Boyapati on How Bitcoin Could Replace the U.S. Dollar | The Reason
Watch the full interview here
Key Takeaways
- A form of money that can’t be debased allows people to better plan for the future and increase their time horizon, in other words, lowering their time preference
- A deflationary currency allows people to save money and to focus on their craft and advance society, instead of gambling on stocks
- Nation-states fund their operations through insidious inflation. Bitcoin allows people to hold their government accountable
- Money evolves in stages. Bitcoin is still moving from a collectible to a store of value. Its volatility will decrease as its size increases
- The US currently has the exorbitant privilege of having the world reserve currency. However, other nation -states want a global and neutral form of money.
- Bitcoin allows the transfer of value without intermediaries and friction, which facilitates world trade and increases global cooperation
- Concentration of power in a few big tech companies that can censor at will is dangerous, decentralization is the answer.
Intro
- Vijay Boyapati (@real_vijay) is a software engineer, an Austrian Economist, and author of The Bullish Case for Bitcoin
- Read the Podcast Notes on Bitcoin: A Guide for the Perplexed
- Host – Nick Gillespie (@nickgillespie)
The Bullish Case for Bitcoin
- “I think Bitcoin is the most important innovation to money in a thousand years” – Vijay Boyapati
- A form of money that can’t be debased allows people to better plan for the future and increase their time horizon, in other words, lowering their time preference
- Understanding bitcoin requires exploring various fields including economics, politics, law, and computer science. Thus, there is a lot of misunderstanding surrounding Bitcoin
- All inquiries attempt to answer the question: Why does this digital good have value?
Money Evolves in Stages
- A monetary good starts as a collectible and, as people desire it, it can then be used to store value
- A good’s purchasing power will significantly increase as it transitions into a store of value and will only stabilize once it’s widely adopted. It can then become a medium of exchange
- Finally, people price things in terms of it, and it becomes a unit of account
- Note that this process of monetization usually takes a millennia
- A good’s purchasing power will significantly increase as it transitions into a store of value and will only stabilize once it’s widely adopted. It can then become a medium of exchange
- Bitcoin is still moving from a collectible to a store of value. Its volatility will decrease as its size increases
- The opportunity cost of spending bitcoin is to miss out on the increase of purchasing power. Case in point is the incident of buying 2 pizzas for 10K bitcoins in 2010, now worth $350MM
Steps Towards a Reserve Currency
- Cypherpunks worked on digital money for a decade before Bitcoin. Ideology came first, then early investors joined, followed by corporations having bitcoin on their balance sheet.
- Next, larger financial institutions like sovereign wealth funds, and eventually nation-states will have bitcoin on their balance sheets
- The US currently has the exorbitant privilege of having the world reserve currency. However, nation-states want a global and neutral form of money
- Unfortunately, even though the US stands to lose the most, fast-moving dictatorships will likely adopt bitcoin while democracies dither.
How Bitcoin Changes Geo Politics
- Nation-states fund their operations through insidious inflation rather than transparent taxation. Bitcoin fixes this and allows people to hold their government accountable
- Historically, central banks were created to fund warfare, people resist being taxed to fund wars
- Where the world stores value is important. Monetary policy is a way of moving the world savings, bitcoin denies central bankers that ability
- Satoshi’s invention allows transferring value around the world without an intermediary, which facilitates world trade and increases global cooperation
Inflation in 2008 vs Now
- Contrary to popular thought, quantitative easing is inflationary only if banks lend out the money.
- Bank system losses prevented the lending of injected capital in 2008, which curbed inflation.
- By contrast, the current environment is akin to helicopter money and is far more inflationary, evident in rising commodity prices
- People will soon realize that their savings are losing purchasing power, and will act accordingly
Bitcoin is Deflationary
- The price of goods in terms of bitcoin will continue to go down as adoption increases. That said, it’s a volatile path while price discovery takes place
- Whereas gold is hard to produce, Bitcoin has a fixed supply and is absolutely scarce
- Technology is deflationary, either prices decrease or quality increases for the same price. Yet, people continue to spend and buy new devices.
- This debunks the argument of a deflationary death spiral, people will spend when they see value in spending
- Under a deflationary currency, people will be able to save their money, instead of being forced to invest which fuels speculative manias
- The ability to save allows people to focus on their craft and advance society, instead of gambling on stocks
- Annual income raises won’t be a given, but people will have increasing purchasing power
On Austrian Economics
- Austrian method recognizes that human action and economic motives are the cause of price formation in an economy.
- For instance, increasing the minimum wage beyond business profitability causes unemployment
- By contrast, Keynesian economics looks at statistics to formulate laws
- Money shouldn’t be defined as a medium of exchange because that is one of the functions of money, along with a store of value and a unit of account
- The Regression Theorem of Money states that money starts as a commodity, and it has value today because it had value yesterday.
- Murray Rothbard went further by saying that money must originate as a commodity
- However, Bitcoin wasn’t a commodity, and yet a market price was established and the process of monetization begun.
- The Regression Theorem of Money states that money starts as a commodity, and it has value today because it had value yesterday.
Bitcoin Criticisms and Risks
- Numbers show that far more illicit activity happens using the US dollar than bitcoin. Bitcoin got an early reputation for drug use because of Silk Road.
- Bitcoin blockchain is immutable and transparent, which creates permanent evidence against illicit activities
- Energy consumption is strongly correlated with human civilization and prosperity. That being said, bitcoin’s energy consumption mostly comes from green energy sources
- Bitcoin miners gravitate towards cheap, excess energy, regardless of location
- Protocol risks were warranted in the earlier days of Bitcoin, it has since diminished.
- Bitcoin may be young, but when something has been around for 20 years, people assume it’s a permanent institution
- Bitcoin is yet to face a clear nation state attack, more so as they recognize bitcoin as an emergent store of value outside of their control
- To prevent people from transferring their savings into Bitcoin, states can attack onramps such as exchanges.
- That said, bitcoin is quickly forming a large political support group that makes banning politically impossible (e.g., US senators advocating for bitcoin)
- Keep in mind, a country banning an emerging global monetary network stands to lose
On Social Media Censorship
- Big tech changed sometime around the Obama administration, and political correctness become the dominant culture.
- Concentration of power in a few corporations that share the same ideological beliefs is dangerous, they can censor as they see fit, even censoring the speech of a sitting US president
- Even worse, speech censorship invites government regulation
- Concentration of power in a few corporations that share the same ideological beliefs is dangerous, they can censor as they see fit, even censoring the speech of a sitting US president
- CEOs of large big tech companies have multiple constituents to please, including employees who can exert pressure to adopt policies that may not reflect the desires of a CEO
- For instance, Jack Dorsey is the CEO of a major platform, and he is also pushing for decentralized platforms
- The answer to censorship is decentralized systems. For example, Jack frequently argues that Twitter should be an app built on top of a decentralized network
