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What is Bitcoin? With Parker Lewis, Robert Breedlove, Vijay Boyapati | What Bitcoin Did Podcast

Check out the What Bitcoin Did Episode Page & Show Notes

Key Takeaways

  • Bitcoin is “gold with teleportation built-in” – Vijay Boyapati.
    • It’s an insurance policy on the legacy financial system. The more dollars printed, the more this policy increases in value
  • Adopting a Bitcoin standard is a voluntary process driven by someone’s curiosity
  • The game theory of Bitcoin operates at all scales. Individuals, corporate treasuries, and central banks are all incentivized to adopt it as a reserve asset
  • Bitcoin is a bearer instrument, and it’s purchasing power will stabilize when it’s widely adopted
  • Money is the language of value, Bitcoin allows more people to speak the same language without the distortion of government intervention
    • This lowers trade barriers and increases wealth generation
  • The size of fiat onramps is the biggest impediment to more money coming into bitcoin
    • Privacy and scalability are grounds for improving bitcoin

Resources Mentioned

Intro

Bitcoin is Different Things to Different People

  • “It’s gold with teleportation built-in” – Vijay Boyapati.
    • In other words, it’s a digital scarce asset that can be transported anywhere
  • Bitcoin is money, and as it grows, it will increasingly exhibit the behavior people associate with money
  • Bitcoin is an insurance policy on the legacy financial system. The more dollars printed, the more this policy increases in value
    • Keep in mind, historically, all fiat currencies ended in hyper-inflation or some sort of default

Bitcoin as Digital Cash

  • Cash is a bearer instrument before it’s a medium of exchange. That is, it’s valuable in and of itself and doesn’t represent an obligation or debt
    • Gold, not gold certificates, is the most known bearer instrument,
  • Bitcoin is a bearer instrument, and it’s purchasing power will stabilize when it’s widely adopted
    • Most people don’t own bitcoin yet. Thus, merchants gain little benefit from accepting it and incur the cost of setting up new payment processes
      • The exception is when bitcoin is the only option, such as for dark markets. This earned bitcoin its early reputation of drug money

The Path of Monetization

  • Bitcoin makes people question what money is, and that’s the start of the rabbit hole
    • “it’s a tool that man invented to help facilitate exchange and intermediation of trade” – Parker Lewis
  • A monetary good starts off as a collectible, then becomes a store of value
    • After it accrues enough value, it becomes a medium of exchange.
    • Finally, when it’s widely adopted, people use it to denominate trade and prices and it becomes a unit of account
  • “Someone will not accept the form of payment in a currency if they don’t consider it to be of value” – Parker Lewis
  • The unit of account you use defines your reality, it’s almost like the software of money is integrated with the software of our mental machinery, our UOA defines reality for us in many ways

Austrian Economics and Money

  • Gold remains prime money today, evident in central banks’ heavy accumulation. Everything built on top of it is abstractions and debt, not money
    • “Bitcoin is a first-principles disruption of money” – Robert Breedlove
  • The free market chose gold as money, but gold’s shortcomings in divisibility and portability lead to the introduction of paper currency, once redeemable for gold
    • Governments gradually increased money supply relative to gold, till we finally adopted a zero reserve standard (fiat currency)
      • It’s a long con-game by governments
  • The state is closely intertwined with the university system, this is behind the lack of Austrian economics education
    • That said, people will compare their education with real-world consequences and only care which one is correct

Bitcoin Game Theory

  • The game theory of Bitcoin operates at all scales. Individuals, corporate treasuries, and central banks are all incentivized to adopt it as a reserve asset
  • MicroStrategy adopting bitcoin as a reserve asset is an escalation of the game theory, and it de-risks this action for other corporate treasuries
    • Less than 1% of globally listed companies could buy that much bitcoin just based on supply constraints
    • Additionally, it indirectly creates a bitcoin ETF, now hedge funds can get bitcoin exposure by owning MicroStrategy stock
      • This creates a legal moat around Bitcoin and makes it harder to ban

Inflation vs Taxation

  • Similar to gold in the 19th century, Bitcoin will be the foundation for a new financial system with infrastructure built on top of it
    • It solves the fundamental problem of having a non-inflatable, censorship-resistant monetary base
      • This limits governments’ ability to fund themselves through insidious inflation

Bitcoin is a Voluntary Standard

  • Adopting Bitcoin is a voluntary process driven by one’s curiosity
  • Money has network effects, people want to keep savings in the monetary good that everyone else uses
    • Bitcoin is a disruption to the biggest market on earth, money
  • Moreover, humans underestimate exponential functions
    • Current bitcoin daily production is 300K, this will drop to 0.3 by the year 2100

The Price Mechanism

  • The pricing mechanism is a channel of communication that filters relevant information
    • For example, if an earthquake in Chile disrupts the copper supply chain, a producer in another continent gets all the information he needs in the price rise
      • He can then adjust his prices and priorities
  • Reliable comforts are possible because of the coordination function of money (E.g. running water, gas supply, food in the supermarket)

The International Language of Cooperation

  • Money allows us to think about and express value, an inherently subjective concept
    • Bitcoin allows more people to speak the same language without the distortion of government intervention
  • Bitcoin provides us with universal language of value, which lowers trade barriers and increases wealth generations
    • In addition, it reduces wealth destruction by defunding the war machine, the most anti-economic activity
  • Greed drives the game theory for Bitcoin, its market value, and secures the network
    • “I look at Bitcoin as this system that converts the individual sin of greed into our collective salvation” – Robert Breedlove

Rise of the Sovereign Individual

  • We are transitioning to a Knowledge base economy, where individuals and knowledge is key to acquire value
    • As opposed to violence based economy, with mafias, gangs, and wars to acquire value
  • Innovations like multi-sig and collaborative custody weren’t possible with any previous monetary technology

Hurdles to Adoption

  • The size of fiat onramps is the biggest impediment to more money coming into bitcoin
    • Bitcoin ETF will help with this
    • Additionally, Bitcoin payment processors like Square are massively profitable, and this will lure in bigger players
    • Keep in mind, the process of opening on-ramps and financialization of bitcoin will take time
  • “A free society will actively and ruthlessly compete to come up with the best ways to not just buy bitcoins but to secure it for different use cases” – Parker Lewis
    • It’s diverting brain-power away from the legacy financial system

Threats to Bitcoin

  • Privacy and scalability are grounds for improving bitcoin
    • The lightning network is a potential solution, but it’s still very early
  • Bitcoin has been substantially de-risked over the last few years, but is yet to survive a state attack
    • As a non-sovereign currency, states will eventually realize it threatens their monetary policy
    • However, powerful people can own bitcoin and lobby on its behalf
  • Future advances like quantum computing or cryptography discoveries could represent a protocol risk
    • That said, Satoshi’s built Bitcoin on well understood and tested cryptography
  • If Bitcoin was to become widely adopted with its current distribution, it could exacerbate wealth disparity because it’s in so few hands right now
    • That said, it’s becoming more widely distributed with each cycle
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Notes By Mostafa Khaled

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