
June 24, 2020
Bitcoin: A Guide for the Perplexed | Vijay Boyapati on The Tom Woods Show
Check out The Tom Woods Episode page and show notes
Key Takeaways
- 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
Resources Mentioned
- 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
Intro
- Vijay Boyapati (@real_vijay) is a software engineer and an Austrian Economist
- Host – Tom Woods (@ThomasEWoods)
Ron Paul is a Principled Libertarian
- 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
What is Bitcoin?
- “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
Inventing Digital Scarcity
- 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
- One reason is the network effect and desire to use the dominant product
Bitcoin is a New Technology
- 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
- That said, Bitcoin has the potential for people to become their own banks
Why is Bitcoin Volatile?
- 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
- Modern economics focuses on money as a medium of exchange, but where savings are held is more important that what’s used for exchange
- 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
- 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
- It increases the block size in an attempt to keep transaction fees low at the expense of immutability – Here is an analogy:
- 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
Bitcoin Growth Happens at the Margin
- “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
Where Gold Fails
- Gold’s physicality is a major disadvantage, it has centralizing tendencies in securing and using it
- On May 1st, 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
- On May 1st, 1933, President Roosevelt issued an executive order that outlawed the ownership of physical gold
- 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