June 24, 2020

Bitcoin: A Guide for the Perplexed | Vijay Boyapati on The Tom Woods Show

Bitcoin is “A nascent store of value, it’s the best store of value that ever existed”
- “It’s gold, except it has teleportation built-in” – Vijay Boyapati
One can use Bitcoin without understanding how it works
- Most important skill: Learn how to securely hold your bitcoins and control your private keys
“You can’t go from having a value of nothing to being worth trillions of dollars, […] you can’t make that jump without volatility” – Vijay Boyapati
Bitcoin is valuable because it’s a non-sovereign store of value that’s immutable and can’t be controlled by governments
Bitcoin improves on Gold – here is how:
- Bitcoins can be subdivided and used for small payments
- Ownership can be verified with mathematical certainty using a phone
- You can store large amounts of bitcoin compactly

Vijay’s article: The Bullish Case for Bitcoin
The Satoshi Nakamoto Institute
Square Cash or Kraken for buying bitcoin
- Keep in mind: you can buy a fraction of a bitcoin then go down the rabbit hole

Vijay Boyapati and Tom Woods first met while working on the Ron Paul campaign for the presidential elections
- Vijay quit his job at Google and travelled to New Hampshire to support Ron Paul
It’s not hard to maintain libertarian principles in everyday life
- But it’s a different story for a congressman who is running for president

“A nascent store of value, it’s the best store of value that ever existed”
- “It’s gold, except it has teleportation built in” – Vijay Boyapati
Moreover, Bitcoin represents absolute scarcity, there will only ever be 21 million bitcoins
- Buying bitcoins now is like “buying Manhattan for a quarter”
Bitcoin is sound money, the norm of human history
- The century between the Gold standard and the Bitcoin standard is the “fiat money interregnum”, an anomaly of history that won’t last forever
“I think this is the most important innovation to money in a thousand years”– Vijay Boyapati

Satoshi Nakamoto solved a computer science problem and in the process invented digital scarcity
- “I think it [the solution] deserves the Turing award, which is the highest award in computer science, and probably a Nobel prize in economics as well” – Vijay Boyapati
There are over 5000 cryptocurrencies and tokens but none are worth a fraction of Bitcoin
- One reason is the network effect and desire to use the dominant product
  - For instance, creating a clone of Facebook doesn’t mean people will use it

The Internet had a lot of promise in the late 90s, but people didn’t foresee exactly how it will be important (uses like Google Maps, Netflix, or Amazon)
- Apart from Paul Krugman predicting it’s no more significant than a fax machine
Most people use the dollar without understanding how the Fed interacts with US treasury, or how new reserves are created
- Similarly, one can use Bitcoin without understanding how it works
- That said, Bitcoin innovations are always being developed
Bitcoin is a truly free market and banks fail in a free market with no government support
- That said, Bitcoin has the potential for people to become their own banks
  - Learning to securely hold your bitcoins comes with the potential reward of being early on something big

Put simply: The process of monetization isn’t linear
- “You can’t go from having a value of nothing to being worth trillions of dollars, […] you can’t make that jump without volatility” – Vijay Boyapati
William Stanley Jevons explains how money evolves along stages
- Starts out as a collectable
- Becomes a store of value and individuals start to use it for exchange
- Eventually, people then price everything in terms of it
“All monetary goods are constantly competing with each other to gain usage or gain savings from the population”
- Modern economics focuses on money as a medium of exchange, but where savings are held is more important that what’s used for exchange
  - For instance, in Argentina, the Argentine Pesos was used for exchange while USD was used for savings
Additionally, there is an opportunity cost of using bitcoin as a medium of exchange now
- For example: Buying a pizza for 10,000 bitcoins back in 2010, currently worth over $10MM (Celebrated as Bitcoin Pizza Day)

Bitcoin Cash mistakenly considers the medium of exchange as the first role of money
- It increases the block size in an attempt to keep transaction fees low at the expense of immutability – Here is an analogy:
  - Imagine an un-censorable Twitter, where no tweet get censored, it can’t be changed or tinkered with
  - Imagine sacrificing this immutability to increase the character limit
End result: The market values Bitcoin much more than Bitcoin cash
- To sum up: Bitcoin is valuable because it’s a non-sovereign store of value that’s immutable and can’t be controlled by governments

“I don’t think there is necessarily going to be a breakthrough moment, I think it’s going to be a slow, steady, burn”
- That said, “People will realize Bitcoin is a permanent institution in the world once it has been around for 20 or so years” – Vijay Boyapati
Bitcoin use case example: A wealthy Chinese citizen unable to leave the country with their wealth stored in Gold, Yuan, or Dollars
- Slowly other people recognize the use case and might want to own it just because other people demand it
The ultimate problem is the ease of how liquidity comes into Bitcoin
- One can buy GLD even if they don’t know how to buy physical gold

Gold’s physicality is a major disadvantage, it has centralizing tendencies in securing and using it
- On May 1^st, 1933, President Roosevelt issued an executive order that outlawed the ownership of physical gold
  - Centralized gold storage is a honeypot for governments who can confiscate it and issue promissory notes
  - Eventually, the promissory notes get corrupted and used as a basis for fractional reserve banking
Bitcoin fixes these problems – here is how:
- Bitcoins can be subdivided and used for small payments
- Ownership can be verified with mathematical certainty using a phone
- You can store large amount of bitcoin compactly