Vijay Boyapati

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

Intro

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

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

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
  • 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
  • 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
  • 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
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Notes By Mostafa Khaled

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