Bitcoin

0:00 This is this is the Q line. This is a quote from CoinDaddy. Right now, all our entertainers come from outside crypto culture. Not inside crypto. We've got to change that, he said. Oh my God. What a mission to be on. What a mission. Welcome to Season 8, Episode 1 of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I'm the co-founder of Pioneer Square Labs, a startup studio and venture capital firm in Seattle. And I'm David Rosenthal, and I am an angel investor and advisor to startups based in San Francisco.

0:51 And we are your hosts. After close to a hundred and fifty episodes over the last five and a half years This will be the first one covering something that is not a company. And while today's topic is nowhere near a corporation and is often thought of as quite the opposite. it has had a better investment return over the last decade than any

1:13 Including including Apple. Including Domino's Pizza and even including Tesla. Oh so great. We're gonna have to talk about a little bit of a little bit of pizza as we go along here.

1:28 We are. But not from Domino's. No. Today we are talking about the single greatest ten year investment return in human history. Bitcoin. And in just over a decade, it has gone from less than one cent per Bitcoin to over thirty thousand dollars, a three million X investment return.

1:49 It's just mind blowing. I was gonna say, David, I don't know totally for sure that it's the single greatest d you know, decade investment return in human history, but it kinda has to be. Both of those were like between twenty to thirty million. That turned into like one hundred to two hundred billion. So even that's like What up.

2:19 Thousand X ish. Like it doesn't even come close. Yep. Yep. Pretty crazy. I have not competed the IRR, but I bet that's pretty good too. Yeah. So whether you are hodling on for deer life and riding it to the moon, or whether you think this whole thing is a crazy bubble that's about to pop, there is no denying the unbelievable cleverness of invention of all the math and mechanisms behind the Bitcoin protocol itself.

2:43 It is truly a beautiful and ingenious system. But by who? We don't even really know who invented it. Today, David and I will dive into the complete history behind the creation of Bitcoin by the pseudonymous Satoshi Nakamoto, the different factions that pushed it to evolve through its several chapters since 2009 into the mainstream today. And we'll evaluate its position today with the same strategic lens we use on every episode here at Acquired. Is Bitcoin a new form of money? An investment opportunity.

3:13 the start of a new global economy. Or just completely a scam. Today We dive in. Well

3:20 If you love acquired and you want to be a deeper part of what David and I do here, you should become an acquired limited partner. You'll get access to our library of over fifty interviews and deep dives on company building topics, our monthly Zoom calls, and this is new, live access to listen in while we record big events like emergency pods, like the Slack one we did uh c last month, couple months ago. So great. And uh years ago. That was back when Bitcoin was under twenty thousand. Yes. And also uh listen live uh into our book club discussions with the authors.

3:56 Most importantly though, and this is what's so cool about what the show has become You'll be a part of the acquired community. We've been amazed at the caliber of people and insights that have showed up to our LP calls. It is so clear to David and I that we truly do have the greatest audience in the world, from young people just starting out their careers to CEOs and top executives, some of which who are running hundred billion dollar companies and generers at venture and investment firms of every size around the world. People have made friendships, gotten jobs, raised capital, launched new careers, and even met their co-founders through the acquired community. So if you aren't already an LP, click the link in the show notes or go to acquire.fm slash LP.

4:38 And we can't wait to see you there. All right listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

5:10 So the founders did exactly what great founders do. operate with obsessive customer focus. They embedded inside a massive law firm. For months. They sat with the lawyers just watching how the work really gets done.

5:25 And that's how you get features that customers love, like tabular review where you Drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legor's Bet Here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time. And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And Ligora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Ligora numbers essentially speak for themselves. When they have a head to head pilot with their top competitor, they win seventy percent of the time.

6:23 Lagora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million In about Eighteen months.

6:37 Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at Lagora.com/slash acquired. And just tell him that Ben and David sent you.

7:03 Well David I think it is uh time to dive in and listeners do know that uh you know, at various points in our lives, past and present, David and I have bought Bitcoin, sold Bitcoin, hold Bitcoin None of this. Hoddled Bitcoin. None of this as usual is investment advice. Don't take this as a recommendation to buy or not buy. In fact, I have learned way more researching in the last two weeks and really preparing for this episode than I ever knew when I held more Bitcoin than I currently hold now. So certainly not investment advice, but definitely a fascinating deep dive and hopefully Hopefully we'll both turn up some new stones that you didn't know, even if you're a bitcoin enthusiast, and also help see the forest through the trees a little bit if you are someone that's deep on all this stuff.

7:47 I uh when we were planning this season and thinking about the stories we wanted to tell like There was no better story that I could think of to start the season than than this. Yeah. I in fact, uh, I fought you on it. So I'm glad you uh glad you pushed it through. All right. We are gonna set a new record.

8:04 on where we start on history and facts. Today. But it's not gonna be a record in the direction you think. We're gonna start. Two days ago on Monday.

8:15 January eleventh. Twenty twenty one. When I paid my taxes to the US government. And I never really thought about it. It was, you know, it's what I do. I go on the IRS website, I go on the California franchise tax board website and enter my bank account info and you know pay the

8:30 Taxes. I found it very very concerning. Like I was I was I mean I'm dramatizing for effect here, but like I actually woke up in the middle of the night Monday night. And it was like

8:42 I'm really worried about what I just Did you get it? Why is that? Why's that? Well, I'm not worried that I paid my taxes. I certainly believe in paying taxes. It's important. You should do it. I'm concerned how I paid my taxes. So when I logged on to these websites

8:59 The IRS website the California franchise tax board website. They kind of feel like they were designed in nineteen ninety five. And they probably were. Then I you know, went on. I was going through the flow. I entered my bank routing number and I entered my account number. And I told them to You know, take out many thousand dollars from

9:20 My account. And they just kinda did. They just sort of reached in to my account. And they T.

9:27 The money. Which, you know, I I wanted them to. I I I wanted to pay my taxes, but like that's insane. I didn't log on to my Bank. And tell them this was gonna happen. I just gave out my account number.

9:40 And they came and they took the money. Now, like I trust the government and I think that's okay. But like I started thinking about all the times I do this. Right. Like if if they could do that, I mean The routing number is just the branch. So like you and I could foreseeably have the same routing number, so all I need to do is either find or guess your account number, which is not very secret. No. Like I actually give it to a lot of people in the more time. We spend on the internet and transact and we build acquired, like we have our bank account at acquired. We have

10:11 vendors, we have people who pay us, we're giving out our account number All the time. There's really nothing to stop anybody once they have the number from Sharing it. Using it, taking money, doing kinda whatever

10:24 That's kinda frightening, isn't it? Totally. Like Once you start pulling on that thread, it's almost scary to see where it goes and what the layers of our financial system are. I I imagine that's where you're going with this. Yeah, that's exact well, yeah. So then I was like, Well How else could I transfer mine? I mean, I could write a check, but you write a check then

10:42 Then that's a piece of paper that has The routing number. You're just making the problem worse. It has your it has your name on it. It has your address on it. So literally everything you need to steal somebody's identity and and their money is just right there printed on a piece of paper. What do we also use? We use Debit cards and credit cards to pay for anything. How many times have you had your credit card stolen, Ben?'Cause I've had my credit card stolen like probably three or four times over the past ten years. Yeah, something like that. Some of that I'm sure everybody listening. is probably

11:12 in the same bucket. Like once if somebody knows your credit card number, and you don't even have to like even if you're really careful with it, you could be paying at a gas station, there could be a skimmer. installed an e commerce website you use could get hacked. It's out there. Uh, there's no way to stop anybody then from

11:29 putting fraudulent charges on your account. But David, fortunately these systems account for this. Like take a credit card company, for example. We did the Venmo episode. We talked about the credit system. Those companies make a ton of money building in transaction fees to account for all the fraud that they have to deal with because these systems are Silly, you know, much like our social security number where uh everybody's secure identity is uh what is it, a nine digit integer. Like yep, call it good. No one will guess that. No one will guess that. Well, and they are hard to guess. And of course, you know, we're we're dramatizing here and there are these financial institutions that are banks, our credit card companies, et cetera, that are in the middle of all this, and they're monitoring our accounts and they're looking for

12:07 fraudulent transactions that show up and There. canceling them, they're not allowing them through. But like this is a huge tax on the system. So there was in 2018, there was twenty eight billion dollars of credit card fraud in the US Plus there are estimates there are another fifty to sixty

12:26 billion dollars in Financial bank fraud, wire fraud, kinda generally more broadly. Not to mention chargebacks, which you know, when merchants try and put a charge through on a credit card and the credit card company denies them, their charge offs. There's there's everything. There's all the work that all of these institutions are doing to prevent fraud, all the technology they're buying, all the people they employ. This is kind of a lot, right? Like it's kind of crazy. So so like why does this happen?

12:53 It happens because The account number is everything. There's only one address. It would be like Once that address is out there, you can access the account. It'd be like with our email. If I knew your email address and I email your your email address, well I could also just send Email is you, right? Like it doesn't kind of make any sense for the internet. Okay, so what if I told you

13:14 There was another system out there. Something that was natively designed for the internet. That works just like email. You can give me your address. I can send you money but not take yours.

13:26 Nobody can charge back their transaction or invalidate it or claim that there's any fraud, any of that. Does that sound interesting? Does it sound like it might be valuable? Tell me more, David. Indeed we will. All right. Well, that was fun. We're gonna get we're getting ahead of ourselves. For sure. Of course we're talking about Bitcoin and of course we're

13:46 Talking about. The limitations of The traditional Financial system. Which to be clear is amazing and is one of the

13:53 most incredible developments of human history, but it wasn't built for the internet. It was built for an age when, you know, the way that most people live their financial lives is Once a week or more, maybe even once a day. They went to a building with somebody who called a bank with somebody who knew them there, that they took out money out of their accounts and that person was like, Yes, I know who you are. I can verify your identity. I'll give you the money that building those people were processing checks that you were sending. They knew what was happening. It wasn't built for

14:25 The internet. Right. And the most important thing for this system, the number one goal Is Then it keeps working. So you can see why

14:35 It just keeps happening this way because It works. It is the foundational underpinning of our economy, democracy, you know, the the system must keep working and Sure, we've layered on all kinds of crazy hacks over the years to make it work the way it does, but I'm a fan of it continuing to operate the way that it does without breaking, so

14:55 I see why it just keeps on keeping on. Yeah, exactly. So so how do we get here? So modern banks started now we'll go back to the history. Started back in the fourteenth century during the Italian Renaissance. Many great things happened. Here we go. I think it was the Renaissance when double entry bookkeeping was uh Was created.

15:16 I don't know for sure but I think that was I think that was one of the main Innovations of the financial system. Here I am shocked that you're not taking us to seashells for currency. But all right, let's let's just start with banks. That feels a reasonable enough place to start in this story. So that was when banks started. And they would take deposits, they would put out loans, they would do other services like money changing between regional currencies, transferring large sums of money, et cetera.

15:41 Then in England in the sort of late sixteen hundreds, that's when banks started issuing paper Bank notes. banknotes so that people didn't have to carry around, you know, whatever metal the currency was denominated in silver or gold or

15:59 Seashells or whatever. That was a pretty good idea. And and when you say so that they don't have to carry around the gold or silver or whatever, the the bank notes basically just say like I I have this much gold, but it's at the bank. And here I'm just giving you a piece of paper that lets you know that I've got I'm good for this gold. You can use this piece of paper. Now you're good for that gold. Yep, at the bank. And then and pretty quickly governments got involved and they were like, Oh well Why don't we just keep the gold? At our central bank.

16:25 And then all these other banks in our jurisdiction, they can Put out. paper bank notes, but it'll ultimately come back to us. Then we don't have all this metal going around.

16:36 Allowed them to then inject money into the system and help finance their own spending as governments, but we'll get to all that later. So then from banknotes, it wasn't a big leap to Checks, which The banks would. Create on special. Tamper proof templates and paper that would then come back to the banks for verification. Tamper resistant paper. Yeah. Tamper resistant. And of course there was fraud throughout all this, but it but again, like this is like you know, a local town, a local city. Everybody knows each other.

17:04 All these pieces of paper are coming back to the bank. They're verifying The the system works pretty. Well. And then that grew up into clearing departments. It was clearing departments of banks that would clear these checks, and that got aggregated up into sort of local geographies and then ultimately countries of clearing houses and then

17:24 With the advent of computing in the twentieth century in nineteen fifty nine in America, the Automated clearing house or A CH system gets implemented and that was a national system, is a national system that all of these payment wires and checks come to and they take batches of them every couple of days. They process them automatically using computers. Also imagine what a crazy cool system that would have been in nineteen fifty nine that Just because I have your bank information.

17:56 I can send you money via the automated clearing house and it will just show up three to five days later in your account like magic. I mean that three to five days without me doing, you know, writing a check at like That's freaking awesome. It's amazing. It leads to things like direct deposit for employees from their employers. Transferring money between business to business enterprise applications.

18:18 This is all. Great. But as you say, Ben, it still takes a three to five days. This is a batch processing system that's grabbing a lot of transaction data and pieces of paper and

18:30 Pushing it out every few Twenty five years before the Macintosh, I will take it. thirty five years after the Macintosh, maybe it's weird that it's still the system. Yeah, indeed. Well, so then, you know, for consumer use cases like that, like that's not gonna work. You want to go out and eat at a restaurant. You're probably still carrying around your banknotes, your green Bucks in America or other paper currency in other countries. Well, so then people come up with the idea of like, well, how can we make that faster?

18:59 Credit cards. Credit cards started with uh diners club was one of the first. Yeah. And then I didn't realize this till till doing the research. Do you know Where Visa started. So Visa was the first big Credit card network. Uh is this the one there was a department store one. Was it Macy's or Sears? No, no. Maybe that was discover. So Visa was actually Bank of America. Oh. They started it in Fresno, California. They picked one town.

19:27 And they just mailed all of their Bank of America customers in Fresno, California. This Credit cards. Wow. And people liked them. It started to work. And then other banks wanted to

19:39 get in on this action. They ultimately started a consortium of other banks with They called it master charge. That became a Master card. And does he have visa and

19:50 MasterCard. But credit cards, as we all know. Have A couple Problems with them. One it's

19:57 debt. So the way that you can make payments happen really fast out in the wild is is not actually due the payment. It's just on credit. So that leads to consumers that start using them. Many of them start racking up a lot of Consumer debt. Also an an enormous consumer like CFPB problem in our country today, the Consumer Financial Protection Bureau, that this has been wildly abused and many, many, many Americans are in credit card debt because, frankly, the system has taken advantage of them. I do think, as you're pointing out, David, It is very counterintuitive to me, but

20:30 It's crazy that it evolved this way that credit cards came before debit cards, cause we had ACH to literally move money around. But when we wanted instant payment, basically these stores or banks would just extend you the credit and then they didn't have to move the money around right away. They could sort of do it later, which sort of explains before the debit rails were laid, which I'm sure you're about to get to, like how you could have these instant payments even before we had a debit system. Yep. Well there was there's one other problem though with the credit system. Which is

21:02 For merchants, you know, it's Good in that they get to accept easy payments from lost of lots of customers. They can probably do higher dollar value transactions without checks. Yeah, they can they can get more volume coming through whatever they're doing, whether they're a restaurant or a retailer or whatever. But the problem is they don't get the money right away. So like if you're a merchant, you're taking credit cards, not only do you have to pay a fee to the credit card companies that are. Plus thirty cents, right. But also you just don't get the money right away'cause it's all on on credit. You gotta wait a month. So that's not great for your cash flows if you're struggling.

21:41 restaurant or retailer or or the like. In fact, it's it it's a little bit of a hostage situation. Like i if if the consumers weren't demanding I must be able to pay in this way because every other store is letting me, if you came to me, David, and you're the credit card company and I've never heard of you before and you're saying, By the way, you should start accepting the the payments through me I'll get it to you a month later and I'll take a nice spiff along the way. I'd be like Uh, get the hell out of here. Yeah. And that's why I mean that's I think one of the reasons why it took fifty plus years to build up the network of credit card merchants and consumers in America, whether that's Visa or MasterCard or American Express and the like.'Cause

22:22 Yeah, there's some good things here, but they're like there's some really bad things to this system. Two. So then you mentioned debit. Once the rails started getting laid for credit card transactions, and the early ones I think were super cluey, I think Merchants like had to call up the

22:38 Issuing banks of the cards. Like there wasn't the automatic, you know, swipe and automatic phone system that checked everything. Right. But as that started to get built up, Then the debit rails got laid and banks said, Oh, okay, we can create check cards that they were call initially. They came out in nineteen sixty nine, I think, in America, and use some of these same technology rails, but have it be a debit system. So that's a little better. But I think it's still is pretty slow. I think it's basically Auto I could be wrong on this, but I think it's basically just an automated version of

23:13 uh or a card version of of A C H in the check system. Okay. So all of this works Fine. Sure. a long time. But then the internet really starts taking off and uh as we chronicle so much on this show. And once the internet starts taking off, people start

23:30 spending and doing having financial relationships and financial transactions in so many more places than they used to. Mm-hmm. It's just there's a lot more volume in the system than there used to be. And famously, you know, Paul Graham uh even put out a request

23:48 For startups. Was this in two thousand eight, maybe two thousand seven, two thousand eight, about hey, accepting payments online is Really hard. Somebody should do that. And of course two brothers from MIT, the Stripe kids, found that and they started Stripe and made it easy for businesses to take payments Online. Which of course is our m modern infrastructure companies Stripe and companies like Stripe, you just have a t as a the merchant, you just have a token, which is the notion of that customer's card where if you pass that token to Stripe, Stripe says, Yeah, I've got their card stored, so you never have to take on that

24:21 risk of getting hacked or knowing the the person's number and the consumers are better off'cause only Stripe actually knows your credit card number. But that certainly was not the case in the first fifteen years of the internet. Totally. So What happens is like always, you've got these entrepreneurial attempts Two make the system better and build on top of it. Stripe being a great example, Square being another great example, Venmo being another one, as the internet is proliferating, people are building out Essentially new layers of infrastructure on top of this old

24:53 you know, traditional financial and banking. System. At the same time You also had over the first twenty years or so of the internet.

25:02 A couple attempts to start to Design some new protocols from scratch. for digital money. So these were companies and projects like that you've probably never heard of, like DigiCash, which was a company I think started in like nineteen ninety six. Egold was one of them. Bitgold was one, which got pretty close.

25:23 And then actually in China, this this is really interesting. Tencent had Q Q coins which were part of the Q Q network, the the pre WeChat part of Tencent, and they became so valuable that people started transacting lots of things in Q Q coins in uh in China. Uh the C C P didn't really like that, so they started regulating that pretty heavily because it was becoming too popular. But of course the other big attempt.

25:49 to solve all this this financial and money problem. On the internet, of course, was Paypal. And PayPal was really interesting and they they kinda almost did it. So with The whole vision of PayPal, you know, Elon's vision, Peter Thiel's vision.

26:04 going back to the beginning was to create Internet native. Digital money. And they did and they found the killer use case on eBay with beanie babies uh and uh and other things happening. But the problem with PayPal was they did it as a centralized system. So they

26:22 And of course it's still denominated in US dollars. Like it sure I can pay through it. And and that really is the the the problem you're describing here that you're trying to solve. How do you take payments on the internet? But certainly you know, when we compare to something like Bitcoin that is a completely different complete monetary system. What PayPal was doing was a much thinner slice. Yeah. Much thinner slice. Well and also

26:46 They ran into the problem of they were like a Bank. Taking care of all of these transactions happening, there was so much fraud. Like one of the biggest challenges for PayPal was managing the fraud. And actually Palantir. uh, as lots of listeners may know, grew out of the fraud prevention technologies that they developed.

27:08 PayPal. But it was up to them, you know, whenever there were The equivalent of chargebacks or accusations of fraud, they had to mediate all of these transactions and decide what was what and reverse some of them and make sure everything was operating okay. So like it was The rails were better for the internet. But they still had this

27:27 Problem that it wasn't very efficient. monetary system where fraud can exist because that our current means of securing accounts and transmitting money and You know, even the money itself, like it's not it it doesn't lend itself to security, it lends itself to vulnerability, and then we've built up all these ways that it can be secured, which of course uh are expensive to maintain. Yep. Totally. And it was it was the ultimately it was a just a digital version of the same

28:00 model of the traditional. Finance and banking system. Okay. So then we get to two thousand eight. And for so many reasons that we talk about a So many episodes on this show.

28:13 That was The seminal year. And and really in this case I think it's two things. It is, of course, the financial crisis, it's Lehman going bankrupt and massive not only loss of trust in traditional banking systems, but also just Financial

28:30 hardship and ruin for so many people that cause them to go want to seek other opportunities. In addition to just this massive exponentially growing complexity of payments on the internet that is like a whack-a-mole that people are trying to stay. Ahead of. It's so funny when you say payments on the internet. It's like

28:47 Two completely different archaic stacks that now need to interact. Like for all the credit we give the modernity of the internet, it's an insane system. The protocols that are used to underpin the internet. They've evolved a lot over the years and especially the fact that a couple of years ago we sort of wholesale switched to HTTPS from HTTP, but like you've got UDP and you've got SMTP to send email and you've got all these protocols that like people have sort of stitched together. And then of course you've a browser that sits on top of it all. And there's the World Wide Web that sits on top of HTTP. So there's like all these different

29:21 kind of cluey, kind of archaic technologies, now including JavaScript, which for some reason runs everything, that by some miracle Duct tape together. Correctly created. the internet, which is amazing. And that's this entire separate other stack on top of the problematic

29:39 monetary stack that we've already talked about. So like when you say payments on the internet, it's like I hear Like complex ball of yarn with a different complex ball of yarn that need to somehow fit together And Obviously we're making it work, but boy is it nasty on either side.

29:55 Totally. And this is why something like stripe, you know, people didn't think it could be done. Like it was so hard. to make all of this work. Okay. So two thousand eight.

30:07 On august eighteenth, two thousand eight. A domain name is registered under the name Satoshi. Nakamoto. For Bitcoin.org. Okay.

30:18 Nobody. really notices this happening. Mm-hmm. Then on September fifteenth, two thousand eight, of course, Lehman Brothers goes bankrupt. Remember that day. Well, it will never forget that day, working on Wall Street at the time.

30:32 And then on October thirty first on Halloween. So like six weeks after Lehman going bankrupt. a account with the name of Satoshi Nakamoto. publishes a paper on the cryptography mailing list Met'sdow dot org.

30:47 Describing a new Digital cryptocurrency. titled Bitcoin. A peer to peer electronic cash system. And this is why I started where I did with history and facts.

31:00 I think so many people when they start explaining Bitcoin or trying to understand Bitcoin They immediately talk about like, well, this is a alternative currency and the Federal Reserve and fractional reserve system is broken and inflation and this is better. And yeah, that may be true. We'll get into all of that. But the actual original intent of this was To design a native

31:22 payment and currency system for the internet that didn't have all these problems. Yeah, it's so interesting. Like literally a couple hours before we record to put the icing on the cake of my research, I I reread the the Satoshi paper. And it is amazing how in the several introductory paragraphs, which by the way, the whole paper's crazy succinct, nine pages including its uh references and sources cited, it's mostly talking about Hey, because the system for transmitting money is relatively insecure.

31:53 and requires central authorities to verify everything, you know, either the Federal Reserve Bank or banks in general or whatever it is, we basically have this big tax on the system that you could have fraud, that you could need to reverse charges because they, you know, were were made by someone who didn't actually have the money or they weren't who they said they were. So the whole system carries this big tax. And what I'm proposing here is a way to pay for things that basically is a system that c exists completely outside that system and is Fundamentally better because it doesn't require those taxes. Everything is is uh verifiable and authentic. So here's how the white paper starts. Commerce on the internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments.

32:41 While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions are not really possible. think about chargebac on credit cards all the time. Like this is a huge issue that so many internet companies deal with. completely non reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise. Need.

33:17 And a certain percentage of fraud is accepted as unavoidable. This is what they're talking about. You can see why An alternative System.

33:28 Would be really interesting and important. Yeah, and it's so interesting that it's not this paper isn't about we need a uh different asset class that is immune from inflation or at least more resilient to inflation, or we need decentralization because governments putting too much faith in governments. Like none of that is actually in the paper. All of that is sort of um derivative byproduct and lore that has sort of developed around this initial problem of a peer to peer, no centralized third party trustless system for transactions at low cost.

34:02 Yep. And to be clear. Whoever Satoshi Nakamoto was is people think it probably isn't just one person, it was a group of people and the early people who start getting involved in Bitcoin. They they believe everything you just said. They tend to be really libertarian minded folks. But that wasn't the purpose of why they came together. So I mentioned digicash, e gold, bit gold, previous kind of attempts at this

34:25 kinda half of the problem was solved. So this idea the crazy underpinning of the traditional financial system that like there's one account number and if you know that account number which you have to give out to people to transact, you're compromised. Uh that that have been fixed through email and other technologies on the internet. Encryption was a thing like username password combinations, the idea that you could have a public address like an email address.

34:52 that anyone can transact with, but you retain a private key effectively to access that That was already baked. That was trivial by the time. Nakamoto came along and published the Bitcoin white paper. Totally, totally. And and this notion of public key encryption that you're talking about, David, absolutely one of the greatest inventions in human history. I mean, if you think about

35:15 like ciphers from, you know, pre-World War One era in war, like you would have the same key to encrypt and decrypt and You know, that that notion. is great if you can securely transmit that key to another person and trust that they're gonna keep it secret. But the brilliant idea behind I have a uh key that only I can use to send email as me, but y there's a a way that you can send email to me or apply it in another context. You can send me money, or you can encrypt a message that only my private key can decrypt, so you can sort of publish it in the whole world and say, Here's an encrypted message that anyone could read if they had the private key means that only the person who the message is really intended for, even if the message is intercepted, is the person who can read it.

36:03 Yep. So okay, so what's the problem? Well the problem is think back to email, if I send you an email You can copy that email, you can forward that email. I can copy other people on that email. Great for email. bad for money. I don't wanna be I don't want you to be able to send me Uh a hundred dollars.

36:24 But then also copy someone else on that hundred dollars and essentially Double spend. the money or triple spend or a thousand times spend. And this was the problem that nobody had a good way. To solve. And this is what was just so revolutionary about

36:40 Bitcoin and Nakamoto's solution. Yeah, I mean it zooming out for a second, the big idea in software, you know, think back Windows ninety five was creating infinite replic, creating abundance. You know, Microsoft prints a copy of Windows 95 for basically zero marginal costs. They put it in the box. There's of course distribution costs, but you know, cloning the bits over and over and over again made this incredible business model. Then the internet rolls around and then suddenly you've got zero cost distribution, which compounds the abundance from the zero cost replication of software. So now you have it doesn't cost you anything to make a copy and it doesn't cost you anything to deliver it. So Think about that. Like

37:21 everything that we sort of know to be true up to this point is that If something's digital. It can basically be copied and everywhere quickly. And the big idea which is completely genius and previously thought to be impossible before Bitcoin is is creating scarcity.

37:38 with software on the internet. Absent the fact that now we know Bitcoin is a thing, it would have sounded ludicrous but If not then elegantly laid out in this nine page paper of here's how we're gonna do it. Yeah. Okay.

37:51 So how do you Do that. Well The solution. that Satoshi proposes is a quote.

37:58 Pier to peer. Distributed timestamp server. To generate computational proof. Well why is chronological order important. go back to the I'm emailing you a hundred dollars and I'm copying somebody else on that transaction example.

38:16 Whoever gets the hundred dollars first. Then it's spent. The next transaction is void. Like if I were trying to give somebody a paper hundred dollar bill. Well, the first person who gets it, they've got it. Yep. And of course the way that this actually works, we talked about public key encryption is when I'm sending it to you, I sign it with my private key. Like I I take that bitcoin, which is a hash that has, you know, all the other signatures that came before it sort of in there. And I know that's not technically exactly right, but it's that's the reasonable way to think about it. And I sign it with my private key. I send it and so anybody else out there, uh, you know, if they wanted to sign something from my wallet or that I sort of owned. They couldn't. They only have my public key. I'm the only one who can sign it and send it to someone else. Now, of course, that someone else can verify that I sent it to them'cause, you know, they have my public key. So they can quickly do some work and see and and sort of check the work and say, Yep, that did come from you and

39:09 Now it's but they don't need to know my private key in order to do that check. Yep. Okay. So if this system were to exist, All these transactions, thousands of them, millions of them, billions of them, would be going out into the network. How do you keep track of which ones are the Valid, correct, unique

39:28 Scarce ones. The way that Satoshi proposes you do this is you have a distributed system So Everybody can see

39:38 the entire chain of transactions of every transaction that has ever happened within the system. Yeah, David, I think that's a really interesting concept and uh a little counterintuitive where he's basically saying, well, in a third party system like where you kinda have a mint or a uh you know the Federal Reserve, like You send that information to them and they keep track of it. Like that that's the only way to to make sure that money's not getting double spent. And he's saying, Well, what if we flip that on his head and he, they, she, whoever it is, and saying Well What if everybody has a copy of the ledger and everybody just has the complete transaction history of every single bitcoin? right there on their computer. That's my proposed solution. Yep.

40:16 And so if you're doing that Then he proposes That people who would choose to, who are part of the network. They could grab

40:25 These transactions that are being broadcast out. And they could generate computational proof of which ones Came first. Which ones were the the right ones if somebody's trying to send a bitcoin multiple times. Which ones of those happen first and are the

40:41 correct transactions that should be added to this ledger. Right. He's basically saying there there's a there's a whole set of people out there who, you know, have decided they want to host you know the uh on their computer the entire transaction history um and they're gonna do some work to verify. They're gonna go back through and they're gonna say I'm gonna do some math to do some checks and basically say, hey, are all these transactions valid? And they're you know, they're gonna run their computers to kinda do that and make sure, basically verify the integrity of all these transactions. And you know, if if they verify it and say, yep, this is good, they're gonna propagate it out to more computers. um and more people who are on the network so that essentially there's like one canonical version around there that everybody's sort of copying off of that has a bunch of thumb up on it saying, Yep, I've checked this, it's good. Yep. Okay. So how do you design this system so it's not just total chaos of everyone doing this?

41:30 You make it computationally. actually pretty hard to prove That you have the correct Order of transactions. Okay, cool. That means that once one of these

41:42 Super users, one of these nodes. broadcast out a set of transactions, everybody can be Pretty reasonably assured that it's correct. Two though. Because you chain these transactions together into one ledger that goes all the way back to the beginning, if you make it hard to compute each

42:00 Block. You make it impossible. For anybody else. To then change That ledger.

42:07 Because The block is cryptographically Change to the previous block. That's hard to do. It takes and the system adapts so that it always takes on average about Ten minutes.

42:19 for everybody, all the miners out there that are working on these transactions, which is more computing power than you can imagine right now, it still takes 10 minutes to create one of these blocks. Now to go back and change and fake some of the previous transactions, you would have to recompute the entire chain all the way back to the beginning. It becomes an exponential problem not only if you could do this, not only would you have to broadcast it out to a material part of the network and like not just have it on your own machine, but tell it your friends and have them tell their friends and all that, it's exponentially difficult to take the hard thing to do in the first place, which is go through a block and, you know, basically find the new block, but then it's also exponentially hard to go and rewrite every

43:04 block that then is stacked on top of that one. Right. So when you set up the system, say for the first week or month or depending on how many people are using it, even a year or two. It's not so hard. Like if somebody wanted to come in with a lot more computing power than other miners on the system, they could recreate all the transaction hash back to the beginning, insert their own fake transactions, give themselves, you know, a hundred thousand bitcoin. And then pass it off as the new one. If you had an M one MacBook Pro and uh the old back to twenty

43:38 In twenty ten tw right, and and there was like only a handful of other crappy laptops doing this, you know, in the early days, then sure, your compute power would out muscle a lot of these early ones. But that's not gonna happen as soon as it reaches sufficient scale. Well, this is what's so cool. It becomes a network effect. Economy. Because the more transactions that are happening

44:01 And the more blocks get created and the more computing power that's working on that block the harder and harder and harder it becomes to forge it. Till you get to a point. You know, where we are now, where like the total you would need the total amount of computing power that has gone into Bitcoin since the beginning. Plus some more.

44:22 To break it. And that that's just not possible. Like there's no way at this point because it's been operating for so long with so many nodes on the network, so many transactions happening, so many miners mining. It it's impossible. And so now you can guarantee this is what Satoshi saw, if you could get to this kind of network with this density and scale and operating history. It would be impossible to crack it.

44:46 And then all of the fraud. All of the double counting. all of the costs on the system that we just talked about with the traditional financial system. wouldn't apply anymore. Yeah, it's interesting. So what we're kinda talking about here is laying the groundwork for Basically a system of accounts where you can be super sure that if you're sent money that it's legit.

45:09 that there's not a risk that they didn't actually have that money and you're gonna have to do some kind of chargeback. And you know it's legit because, you know, you've got all this sp everything we just described going into saying that hey if I if I receive you know, this bitcoin to my address, it's not gonna get undone. Or it's at least extremely unlikely that it's gonna get undone. because of all this work that's going into it. We did we jumped to use the word minor, and I wanna explain how that fits into the context of what we were talking about about five minutes ago. So we were saying that there's these people who have a whole copy of the

45:43 blockchain of basically the entire transaction ledger leading up to now sitting on their computer and they're doing work. They're they're going through and and running cryptographic algorithms to basically ensure the authenticity of all those transactions and check and make sure that yep, these are all correct. Well Of course they need to be compensated for that. Because they're taking electricity, they're, you know, running their machines, the fans are on real high, uh, in all likelihood they're GPUs and now even more specialized uh mining hardware that exists in a data center somewhere close to a river so they can have easy access to cheap renewable energy. Yeah, maybe back in two thousand nine, researchers Like Nakamoto and the people that he shared this with originally. Would have done this out of the goodness of their hearts because it's cool.

46:25 But that's not gonna scale. Yeah. So What was initially sort of a byproduct and is now sort of the incentive of mining one of these blocks is the first coin on the block gets given to you as a thank you for doing the work to verify the integrity here. And without getting too far into the specifics of how that actually works, what it basically means is you're getting paid for your labor, or you're getting paid at least for the energy that you're putting into helping the system remain verifiable and authentic. And it's not just the first coin. It's

46:55 the first several coins on a block. So it started with fifty. Yeah. So if you mined a block, which again happened every ten minutes You got fifty bitcoins in the beginning. Now I think it's down to six and a quarter. Six and a quarter, yeah,'cause it halves every time. Which of course, uh we will talk about how Bitcoin is not an inflationary currency, but it has a finite number. Slightly under twenty one million will ever get mined, um, and it uses sort of a uh a a having function, so that um Every four years I think the reward gets cut in half. So there is only a certain amount of Bitcoin that will ever be mine. So you can ca count on the sort of uh system not getting watered down by injecting more and more Bitcoin into it, um, above this very predictable regular declining schedule that that we have sort of observed. What you were saying, Ben, is so important. Like we just described the super cool system, it'd be awesome, it'd make money on the internet, work much better. It's gonna require so much compute power. Why would anybody do that? Why would these coins have any value? They're not dollars. They're not backed by a government. The reason is what you were just saying, the coins get created

48:01 By doing the work to make the system What it is Which is really, really Good. So the value

48:09 is in the work itself. It's a recursive system. Right. What you have from the work being done is a system of integrity. And the network effect may be small to start, but you can count on the fact that you can be very certain that all of those transactions have been combed through. And while technically there's no chart of accounts, you sort of figure out everyone who has what in every account by running through the whole transaction history and figuring out where all the chips fall down when you sort of run through line by line by line by line. But effectively what you have is a big chart of accounts where you know for damn sure that those are right. Those accounts actually contain those bitcoin. So if you own a bitcoin and the first people who own that bitcoin are when it's created are the people who mined it. And then it gets transacted and You own some, I own some, you know, people who buy and invest.

48:55 What you actually own. Is you own a piece of the computing power that has gone into Making This system. robust and secure and viable and good for everyone.

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50:36 We're huge fans of Vanta over here, and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get$1000 off Vanta at vanta.com slash acquired. That's V-A-N-T-A.com slash acquired for a thousand dollars off. And just tell them. That Ben and David sent you. Well, before we move on the story here, I think there's a there's a couple of little rabbit holes I wanna go down. So we've talked about this like cryptographic work a few times. I wanna talk a little bit about the idea of one way functions in computer science.

51:08 There are certain types of math that are very easy to do in one direction, but very difficult to undo in the other direction. And a classic example of this is the product of two prime numbers. So if you multiply prime number A by prime number B, it's fairly easy to do that math. You know, you could imagine like literally doing it on paper, you can imagine writing a computer program to do it, you know, bringing those numbers into the registers and in assembly code, you know, multiplying them together. But if you're given the product of those two numbers, especially when all the numbers you were dealing with are very large, you can imagine that it gets extremely difficult and would be very inefficient to try and figure out what the initial two prime numbers were that created that product. So that the magic that kind of makes This one way function work is the fact that it's easy to multiply two prime numbers together, but very difficult to factor large primes. And of course, it's gotten much more complex since this initial insight, but

52:06 I do wanna sort of pause on that for a minute and say the implication here is that it's very easy to check someone's work when they tell you they have the answer, the this product, and they provide you one of the factors or one of those initial prime numbers, you can very quickly do that math and say, Yep, checks out, but it's super hard for you to stumble onto the exact So this system Totally ingenious. I want to David Rosenthal style here rewind back to eighteen seventy four

52:40 William Stanley Jevons wrote in The Principles of Science, keep in mind this is a little under a hundred years before the personal computer was created. Can the reader say what two numbers multiplied together will produce the number eight trillion six hundred and sixteen billion four hundred and sixty thousand seven hundred ninety nine? I think it will be quite unlikely that anyone but myself will ever know. So he sort of came on to this I the the very first idea of the one way function. And obviously now a computer can very quickly, uh, through brute force sort of figure out what the two you know, guess and check, guess and check, guess and check, figure out what the two um factors of that number are. But you can imagine if that number were extremely large, then it would take

53:21 modern computers a very long time, or frankly, if you make'em large enough it makes it impossible, to our knowledge, for computers today to undo that problem. It requires just way, way, way too much work. And if you make them even bigger than that, then you can say, assuming computers get better at a certain rate, like this problem is never undoable. There's a scary thing that exists here, which is At some point, like we have not proven for sure that one way functions exist. We've tried to undo them a bunch of different ways, and mathematicians everywhere have tried to sort of prove this problem.

53:56 It's this kind of scary thing where like We rely on this for public private key encryption, encryption of all kinds, uh hashing, the everything in Bitcoin is based on it. Anything with any password that you log into anywhere is based on this, your email is based on it. And we're like pretty sure. that you can't do them the other direction in a computationally efficient way. But like We're not. Provably sure.

54:17 Yeah, right. When we were saying a minute ago that You would have to put all the computing power that's gone into Bitcoin back into Bitcoin, back into trying to forge it. That would not be the case. If you had a way to break this incredible thing. If you stumbled onto yeah, like a different i if you uh basically invented a novel algorithm that

54:37 mathematically could undo that work just as efficiently as it was done, instead of the horribly inefficient way that we know how to do it now, which is basically brute force. But the point is like, yeah, that would break Bitcoin. That would also break everything all security. You could log into any account anywhere. So it would break the traditional system. Two. Absolutely. Absolutely. One other little aside, which I think is a a fun place to put it here, is this notion of public key encryption, which is advancing further on this idea of using one way functions, which is the thing we were talking about earlier, where I can broadcast my public key so anybody can send something to me, but only I have the private key, so I I am the only person who can either decrypt the message or send it to someone else, or however you decide to to sort of leverage that. This

55:21 concept is actually born out of that eighteen seventy four Discovery of uh of prime factorization. Pretty amazingly. Two different groups of people took this idea and turned it into this public private key um discovery. Uh right around the same time, 1973 in Britain, but they kept it a secret because they wanted to use it for defense, because it's frickin' brilliant that you have, you know, the notion of of transmitting messages in a more secure way on the battlefield. The very same idea was discovered.

55:53 kind of within the same time and ultimately was publicly announced in nineteen seventy seven, now known as RSA encryption. And it's crazy to me that like it's kind of like physics or calculus where private public key encryption was sort of dual discovered in the same decade by different people who had no notion of each other. And in fact the first set of people was desperately trying to keep it a a national security secret. And it's like the world was just ready for the discovery, the you know technology and and um modern math had advanced to the point where based on the same foundation, two different groups could independently make the same invention simultaneously. Which is really interesting.

56:31 Totally. Okay. So now we're we've got our math lessons done. We know how encryption works. We know private and public key. We know why that's better than the traditional financial system. Now we also know with blockchain why and how mining creates this scarcity and makes sure that transactions that Are the legitimate transactions of the only ones that can happen. What's cool here is this basically turns into a regular acquired episode now. Because

56:59 Remember how I was saying that as the system of mining grows the more mining power that goes in and the more transactions that happen It becomes a network economy. And then the overall value grows. It's just like Facebook. So, you know, the think back to the social network, which is gonna come up in a second. You know, that line of like if you created Facebook, you'd have created Facebook. Anybody can create Facebook. Anybody can create Twitter. Look at

57:27 Parlor, right? Like The question isn't creating it. It's Getting critical mass. And then the value, it's valued based on network economies.

57:37 We know how to value them. Metcalf's law, which is the value of the economy is the square of the participating nodes. Within it. So now it becomes a race because Anybody could take the white paper.

57:50 And start their own. coins, their own cryptocurrencies, their own blockchains. JP Morgan could just go take this and implement it for all of their fact many people tried, right? Like all these altcoins were, you know, forks of the Bitcoin source code. My favorite little tweak on this and Dogecoin and You know, thousands and thousands of people have tried to create alternate cryptocurrencies with varying levels of success. Yep.

58:16 Totally. Uh and some of them are quite valuable. Um having that early lead and then growing the network and getting use cases for it. Just like Facebook on college campuses.

58:26 That's what starts the snowball rolling and then the bigger it gets the less and less likely it is that anybody's Gonna catch up. So In January two thousand nine

58:37 Satoshi Boots up the system, essentially. He codes it up. He creates Version zero point one. Which is amazing, by the way. Y you've got not only this like researchy looking white paper that was published, which several other people published

58:50 competing ideas up uh uh up to this point. I think ha hash cache was one of them that weren't maybe quite as elegant, but had some of the same component parts. But Satoshi Nakamoto, pseudonymous or not, not only publishes the paper, but then of course writes the first actual working implementation in code. Hash cache is interesting. This is an aside, but um It was

59:12 It's probably the thing that was closest to Bitcoin before Bitcoin. But it wasn't designed As money. It was designed as an anti spam system for email. This is frickin' brilliant. So this proof of work concept that we talked about earlier, where it's extremely difficult to do the math in one direction, but very easy to check that the math was done. was basically applied as a spam filter. You said, hey, you kinda have to do this much computing work in order to be able to email me. I can quickly check if you did that work, but it's gonna be real expensive if you want to DDoS my email and spam the crap out of me, because I'll just kinda reject it if the math is wrong on the check.

59:50 Okay, so beginning of January Two thousand nine. Satoshi boots up the system, literally bootstraps it. He mines uh the first block, the Genesis block. He gets his reward, he, they, she

1:00:04 gets their reward of Fifty bitcoins. And then he starts recruiting an open source community of researchers to work on the product. Work on the code, build the system. Create mining nodes.

1:00:15 This all starts happening a couple days later. Nakamoto sends. the first bitcoin transaction. to Hal Finney, who was a researcher who he had recruited, a crypto researcher. into working on is this on that Cypher Funks email list?

1:00:30 I Yes. So how was a cypher funk tragically, I think he died of Luke Eric's disease a few years ago. I think it was all on the same email list that he sent the white paper out to. Uh so he sends the first actual transaction out there. It gets mined on Satoshi's mining rig. And for the next year, that's kind of how things go. Until May twenty second

1:00:53 twenty ten. The infamous. Pizza Day. When One of the researchers working on the project.

1:01:00 A Florida programmer named Laszlo Heinch. I think that's how he You pronounce it. Not sure if that's a hundred percent right. He offers up an idea to see if these transactions can actually have value in the real world.

1:01:15 He says He will transfer ten thousand bitcoins In exchange for anybody out there on the mailing list who wants to buy him. A pizza. I like this.

1:01:25 So programmery. So great. So somebody in England of all places, all the way across the Atlantic Ocean. sees this and is like, I'll do that. I'll take 10,000 bitcoins. So this person couldn't get their name. They call up the local Papa John's in uh near Laszlo. They order two pizzas using a credit card, have them sent and delivered to Laszlo, and Laszlo then sends ten thousand bitcoins over in exchange for this. And this is the first real world

1:01:55 transaction. I think this with Bitcoin approximately values Bitcoin at Point two five cents. per bitcoin. Yeah. I think that's if you assume like twenty bucks for the pizza. Yeah. It's also funny to think about like Sure, yeah, I'll I'll order you a pizza. That saves me

1:02:11 twenty blocks that I don't have to mine. Like if if if you're like yeah, yeah, this is valuable. It's taking me forever to mine these blocks, great. Yeah. Amazing. I just also look like Papa John's. That's the first Shaq is on their board of directors. He should be proud. There you go. Shortly After that. Is when

1:02:31 Nakamoto. Disappears. Off the internet. uh stops contributing to the projects, he transfers control of the open source repositories to some of the other developers on the project.

1:02:43 Uh he basically washes his hands and says I'm done. Except at this point he has somewhere between six hundred thousand and a million. Bitcoins that he's mined as the first miner on the system. Like he has a million of the, you know, whatever four or five million that that existed at that point, twenty one million that will exist total, like This is a huge amount of the bitcoin in the world.

1:03:07 Yeah. Which nobody thinks twice about at the moment. They're like, Oh, okay, I guess he like moved on. He actually communicates with somebody asks him what's going on, and he says, uh in a email message, I think, I've moved on to other projects. But there was never any personally. identifiable information out there about This

1:03:24 And what Satoshi did is quite remarkable in being untraceable. Like most of the time these people slip up in some capacity. Like their personal account is the first one to follow their account. If uh, you know, their emails are ever leaked, like they made a communication with or their backup email is their personal email, or they did a two factor auth from their phone number, or you know, there's all kinds of ways that like you sort of discover later, yep. Turns out this really was this person. Oh, the the first time they registered the domain name, they did it with their email address. Like Satoshi did none of these things, and to this day, it could be one of ten people who people think it is, or it could be none of those people. We have no idea. Well, and I think this is also one of the Reasons why people

1:04:08 really believe it was a group of people. Because then if it's a group of people, then there's obviously no way that They would slip up and I don't know. Right. Expose. personal information. The paper is also written we. Whether that's the royal we, I don't know, but they keep saying we propose this following solution. So

1:04:26 He disappears. Interest keeps growing though and some transactions happen mostly between the people that are mining the currency in uh early twenty ten. A forum user on BitcoinTalk.org named Smoke Too Much. That's smoke T O O S.

1:04:46 M U C H offers to auction 10,000 bitcoins for fifty dollars. So it's like twenty-five dollars for the Papa John. So he wants, you know, sort of twice. the amount of money uh wants a two X return. Nobody takes him up on it though. So in April he declares the auction over. He keeps the ten thousand bitcoins, I guess. Nobody nobody gets them. Probably pretty good for him.

1:05:09 Interest does keep growing though. People do start tracking roughly the exchange rate between the US dollar and and Bitcoin. It rises Up by the beginning of twenty eleven. to thirty cents.

1:05:22 Per Bitcoin. By whatever metrics people are sort of using to expect to do it. Do twenty X return on the Papa John's deal. Uh no, even more than that, because the Papa John's was a fraction of a cent, right? And and this is what now? Thirty cents? Thirty cents. Yeah, so a hundred and twenty X.

1:05:43 Like it's kinda crazy to think about when I said earlier there was this was a three thousand X, it's crazy to think about what a gigantic multiple of that was so early. It's kinda like if you buy a penny stock that actually makes it into dollar territory, you had this unbelievable return. It's that. Yep. It's that. And then It keeps

1:06:01 Going. End of twenty eleven. there's a pretty robust market for exchanging dollars into Bitcoin, which we're gonna talk about in one sec, and Bitcoins are going for five dollars and twenty seven cents. For Bitcoin. Which is crazy. Like who out there is gonna be who's gonna be using who wants to be exchanging

1:06:22 Dollars in Bitcoin all the time. That's a fifty two thousand dollar pizza at that point. Yeah, that's a lot that's a lot of dough. So it turns out that in February of this year in twenty eleven a little service

1:06:34 Calling itself the Silk Road. Launched. And this was the first Killer app. For Bitcoin. Yeah, it's worth pointing out here that if

1:06:46 One of the primary value propositions of your product is it's like money, but you don't have to put your name on the account. you're gonna attract some people who are using it who don't wanna put their name on an account and otherwise would have to in any other system. Yeah. So this is just amazing the story. And this is actually when I first started hearing about Bitcoin was I started reading the headlines about about the Silk Road and what was going on. I was like, Whoa.

1:07:11 That's like crazy. But this bitcoin thing is kinda interesting underneath it. So in february twenty eleven. Somebody calling themselves the Dread Pirate Roberts. named after the character in the Princess Bride movie, which is just amazing, launches an online black market.

1:07:28 And the first modern darknet market On tour. Which is encrypted internet that you need an encrypted browser. Yeah. And this thing is basically eBay for illegal stuff. Well, it's eBay for anything. The biggest items that are transacted on it are not beanie babies, it's

1:07:47 Drugs. Right. It's I mean you're using a browser where the web history is not saved, where it bounces through a bunch of proxy servers, all the traffic is encrypted and now finally you have a way that you can pay for stuff that doesn't ever get linked back to a financial institution that is associated with your name. Like it couldn't be the more perfect cocktail for uh selling drugs on the internet. Totally. And what's kind of amazing is like it's it's exactly like eBay. So the way this worked

1:08:16 Would be. pay for the goods, the drugs that they were buying with Bitcoin, just like PayPal. And then the sellers would just put the drugs in the mail, like the US post office. Because you can't search mail. Uh it's illegal. It would it's mail fraud.

1:08:33 And uh and so it's literally just like eBay. This is exactly how this is working. It's eBay for drugs. Uh I guess I always assumed they had to mail I just never really thought about like how would you get it mailed to you. Or how would you get the goods? Yeah. Most of these people aren't in the same city. It's happening all over the world. Right. And um Yeah, so th it was actually kinda crazy. So this this character, Dread Pirate Roberts, he wrote that he wanted Silk Road, quote Grow into a force to be reckoned with. That can challenge the powers that be.

1:09:05 And at last give people the option to choose freedom. Over tyranny. It's kind of amazing. There was a club section on the website. And the book club still exists? It's like part of a a message board now. No way. So the business model that they had, I think eventually they did shift to an eBay style business model, like a traditional marketplace taking a cut of

1:09:27 Every transaction. But at the beginning I think they didn't want to get involved In the transactions themselves. So Oh yeah, that that'll that'll legally protect you as long as you're not taking a vintage. Yeah, yeah, for sure. For sure. It's all good. We we're just the platform. Like we don't we don't know what happens on the platform, we're just a platform. So the first business model was you actually had to pay To create a seller account.

1:09:50 Uh so you paid in Bitcoin. To Create an account that you could then sell Whatever it is you wanted to sell on Silk Road. Amazing.

1:09:59 So this operates for two and a half years starting in February twenty eleven. And by the way, there was a federal case opened almost immediately. Like like I think I know the the the feds were following for two years putting the case together. So like observing everything that's going on. Well and there was um I think it was Chuck Schumer. There's a great story that like he was shown this on a computer. It was like totally flipped out. It's like the the government needs to like we need the FBI to crack down like of course. Uh and um so during this time, this amazing Over one point two million transactions.

1:10:34 happen on Silk Road. So if you're trying to bootstrap up the Bitcoin network of the killer use case. Like this is like Looking at you know Attractive. freshmen of the opposite sex on campus for for Facebook. Like this is the way

1:10:49 to get people. Right. It's like the the pseudo nefarious catnip. Here's an amazing use case that appeals to people's vices for this new medium that has been invented. Yep. Just like any new medium technology There's no regulation yet. So over a million transactions. Almost a hundred and fifty thousand unique buyers. And almost four thousand unique stars.

1:11:15 use the platform over this period of time. They transact almost ten million. Bitcoins. Which I don't know how many bitcoins were in circulation at that time, but let's estimate like

1:11:28 I don't know. Two to three, four million, maybe. So like several times over the total Number Transacted. In the Silk Road. Knowing what we now know about how the Bitcoin network works, like the Silk Road can be largely credited with getting it over the hump to the level of transactions and the level of participants in the network, where it's now a self fulfilling prophecy of

1:11:57 integrity and certainty of the network. A hundred percent. This is what's so ironic. It's funny that I use the word integrity. It's like Th the the acts of the le potentially the least, depending on who who what moral authority you want to claim, the acts of least integrity guaranteed the future integrity of this financial system. Incredible. Like you can't make this stuff up. So finally In October twenty thirteen. FBI agents. This is amazing. Conduct a sting raid, and

1:12:27 They Arrest a man named Ross. Ulbricht. at the Glen Park Library in San Francisco. This is like half a mile from my house. It's like right down the street. I've go I drive by it all the time. Uh it's this little like Glen Park is this beautiful little neighborhood in San Francisco, total hidden gem. Nobody knows about it's very sleepy, very like neighborhoody feel and the library is this like small little branch right next to the grocery store there. So Ross is hanging out, working out of the library in Glenn Park.

1:12:59 And Three FBI agents conduct a sting raid. Two of them pretend to be a couple, a romantic couple that are having an argument and they have like a loud argument to distract him in the library and then so that he looks up away from his computer. And then the other one comes in grabs the computer so that he can't lock it while they're arguing. Of course it was suspected And then Proved to be true that Ross was Dred.

1:13:24 Pirate. Roberts. Wow. And when he was convicted, like he He tried to have someone killed, right? Yeah, so that's the allegation. He was never convicted of this, but part of the allegation is that the government brought against him were that

1:13:38 You know he He's a care an interesting character. He was he grew up in Austin, Texas. And this dude was an Eagle Scout. No way.

1:13:50 Yeah, so quite the reversal from Eagle Scout to uh I don't wanna say drug lord because you know, he was just operating the platform, but uh Yeah, quite the journey, let's say. So He had kinda Supposedly and he wasn't convicted on attempted murder charges, but gotten more and more paranoid as he was operating this site with the pseudonym and thought that people were out to get him, which

1:14:15 Obviously they were, the FBI agents at least. And uh so the accusation was that he uh had tried to pay I don't know if it was through Silk Road or through other Darknet sites. Um, he tried to pay to have people killed who he thought were Or after him. Nobody was actually killed. None of this

1:14:34 actually happened and he wasn't convicted. But he was convicted of seven charges related to money laundering, computer hacking, conspiracy to traffic narcotics. Et cetera, et cetera. And he's in jail for life, right? Yep. He was sentenced by the federal court, US Federal Court in Manhattan to life in prison without the possibility of parole. I think maybe like multiple life sentences. Kind of crazy. There's actually there's Talk of like Trump wanted to pardon him or like I don't know some crazy But like he's uh he's in jail. He's in there. Yeah. I know he he doesn't give interviews either. He's he's very tight lipped. Like a lot of journalists, obviously, have tried to sort of reach out and get his side of the story, but

1:15:16 It's not happening. Yeah. So this is where like again, this is all just you know Silk road itself. was creating more interest in Bitcoin. This crazy media story is creating more interest in Bitcoin. The FBI as part of this raid. Remember they got his computer

1:15:33 They seized All of his bitcoins So the US government now has 144,000 bitcoins that they've seized. From Ross and from the Silk Road, which at the time wasn't worth that much money. It was worth that. Now it's four point three billion. It's a lot of money. Uh so the next year. I had forgotten about this, still doing the research. This is amazing.

1:16:02 They hold an auction, an online auction. Like this is, you know, US Marshals, they do a raid. They they hold, you know, they get drug dealers like, you know, Lamborghinis and stuff and they auction them off. Uh that do the same thing with the Bitcoin online. Uh so they auction about thirty thousand. Uh the hundred and forty four thousand Bitcoin online and Tim Draper, the venture capitalist, you know, founder of DFJ, he buys Bitcoin Tie Guy. He Bitcoin Tie guy. He buys the Bitcoin. And it's all like a publicity stunt. But he paid seventeen million for thirty thousand.

1:16:38 Bitcoin. I hope he held on to those'cause he would be doing Probably better than his entire venture career on that at this point. Amazing. So fun little coda on that. Actually In November of twenty twenty, so like two months ago. Part of I don't think it was part of the hundred and forty four thousand Bitcoin, but there was another about seventy thousand

1:16:59 Bitcoin that were known to have been Associated with Silk Road, like part of Silk Road's Bitcoin that People didn't know where they were. They transacted on the blockchain. And so people saw this transaction happen. They're like, Whoa. What happened? And um it was about a billion dollars at the prices a couple months ago with these seventy thousand bitcoin. And um

1:17:23 It turns out what the transaction was. that the FB they haven't identified who or the circumstances, but the FBI had found They call it individual X in when they Uh. Came forward and explained what happened.

1:17:36 This person had hacked Ross and the Silk Road before all this went down and stolen s these seventy thousand bitcoins from Ross. Uh, and then the FBI tracked him down and then the transfer was They were transferring those bitcoins to federal custody. Oh interesting. So Isn't that amazing? So the person committed a different crime hacking Ross and the FBI was busting the crime of hacking. Yes. The crime against the criminal. Yeah. It's worth contextualizing a little bit sort of what's happening here when someone gets hacked or when Bitcoin get lost,'cause those are sort of two different things. There's the situation. It's not the fault of Bitcoin when that happens. Uh sort of. It's the fault of Bitcoin for having a wildly obscure system that makes this whole thing tick, but you know, is it is it the pilot's fault when it's hard to find a complicated airplane? That's like the

1:18:27 That's the question here. So uh of course you can sort of hack and into Ross's computer, you can get his private key, and then you can use his private key to authorize um sending that twenty twenty billion dollars uh worth of Bitcoin over to your account. That is a very different thing than uh what has happened for I something like twenty percent of the entire Bitcoin supply, which when you look through the ledger through the entire blockchain, has not transac in a really long time, presumed to be lost. And what lost means is the owner of the the the person who was most recently transferred to has lost access to the private key, which is of course an unguessable, crazy long, you know, number letter combination that no one's ever gonna be able to sort of guess. It's not like a you can click a forgot your password button. For those people Like if you lose your private key

1:19:18 Uh you're never gonna be able to I I suppose you sort of still own the bitcoin, but who cares because you can't ever do anything with it. Right. When you lose your email password or whatnot. there is a centralized provider, you know, Gmail or whoever your Using the

1:19:35 They know your email password, so you can go through some hoops with them to get it, but there is no centralized, as we talked about. So You you better not lose your password. Yeah, decentralization is a double edged sword, for sure. For sure. There's one other number that's interesting to know here. The Satoshi, um it is currently believed that he ended up mining about one and a half million Bitcoin, which uh you know, of the eventual twenty one million, so a a huge amount are owned by whoever this Satoshi person or group of people are. That's about fifty billion dollars.

1:20:07 worth of bitcoin. So the you've got twenty percent of bitcoin are lost. You've got what are um maybe f seven, eight percent that Satoshi whoever Satoshi is owns there's all these um bitcoin that are sort of like in areas that aren't transacting, people holding the for the long term. So there's only like f even today, like three or four million Bitcoin that are actually trading hands and and available in the supply demand equation to set the price. I mean, even just all of these bitcoins associated with Silk road that we're talking about. That's like one to two percent of

1:20:40 Bitcoins out there. Right there. Right. Just that we're This wasn't transactions on Silk Road, this was like Silk Roads. Bitcoins. Right, right. So the takeaway here is like A lot of the

1:20:51 big chunks of Bitcoin are owned by people who were using Bitcoin very early when, you know, you could mine huge blocks and it didn't take that much compute to do so. Yep. Okay. So Silk Road by twenty thirteen is it's the end of it. But while all this was going on from call it twenty eleven to twenty thirteen as Silk Road was growing. All these people who are using it. Have a way to Get Bitcoin. They weren't just gonna like email the uh the listservs on BitcoinTalk.org and be like, hey, I wanna buy some Bitcoin so I can buy some drugs. Uh there's gotta be a

1:21:26 An easier way for them to buy in to the system, so to speak. And the way to do that is through exchanges. And so this is how, you know, just like any kind of currency exchange Like we said, this has been part of financial institutions. You need somebody to stand up the store that's gonna accept your dollars and hand you bitcoin in exchange. That store is gonna be on the internet, but someone's gotta operate it.

1:21:46 Exactly. And so for almost all of this period of time There was really only one viable. exchange on the internet. And it was an organization called Mount Gox. That sounds right, you know, like a mountain lake sounds like Fort Knox, you know, like Mount Gox. It's a a trustworthy, secure organization that's gonna

1:22:08 Story Bitcoin and uh you're gonna be able to exchange and and buy it, right? Well Had an interesting history of its own, shall we say. So what is Mt Gox?

1:22:21 We go all the way back to two thousand six. when a developer named Jeb McCaleb Who is a big fan. Uh no, no, no, no. In the US. Okay. Was a big fan. Uh as am I, as are many people.

1:22:36 Of the Then going online, but Physical. Card. Trading game.

1:22:42 Magic. The gathering. He thought, you know, gosh like these magic cards. They're super cool. Lots of people love playing. You can buy them on eBay and whatnot, but there should be like a there should be just like, you know, later there would be GOAT and Reverb and what they should be a vertical, like specific website on the internet.

1:22:58 For going and buying and selling. Magic cards. Great, I'm just gonna code that up. Why don't we call it Magic the Gathering Online Exchange. M T G O So this was created by Jeb in two thousand six.

1:23:14 I don't know if he was not very good at distribution or whatnot, like Clearly, like there's demand for this. Like the this lots of people are trying to build this now for magic cards and Pokemon cards and other cards. Um but uh for whatever reason, Mount Gox in its initial iteration didn't quite take off. Uh, he had it up for about three months. Nobody really used it. He abandoned The site.

1:23:34 Now we mentioned his name is is Jed McCaleb, he's a programmer. He's not just like any programmer. This is nuts. So d do you know who he is, Ben? No, I don't. So today He is the co founder and CTO of Stellar. Which is a really interesting crypto

1:23:51 project organization out there. I think it's actually a nonprofit. Doing cross border remittences. Uh it's backed by Stripe. Stripe is invested in it. Prior to Stellar But well after Mt's. He founded Ripple. And he was the founder and the CTO of of Ripple. Uh obviously of course another cryptocurrency with its own story behind it. Incredible tragedy that we're about to get into of Mt. Gox. Was he credible enough to then

1:24:17 lead to other cryptocurrency startups. Really crypto really credible big cryptocurrency startups. Yeah. Because he wasn't actually involved in Mt. Gox through everything we're about to talk about. So here's what happened. He abandoned the magic thing. But he still had the website. And then in like super early in cryptoland, remember like

1:24:38 He I don't know if he was on the original email list. He hears about it. And in July twenty ten, so like right after pizza day. He gets involved and And and he realizes the need for for this exchange for people to come in and and be able to buy

1:24:57 Bitcoin and he says, Oh, cool, I can code that up. I know how to do this. And he's got the Mountgox dot com M T G O X website lying around. He just says, Ah great, like rather than I don't know why, rather than registering a new domain name I'm gonna use

1:25:14 That. Oh okay. In my head I I had this like notion that people were like listing Bitcoin in the same way that they should have been listing magic. Oh it's like oh you could you could buy a dual land or you could buy a b uh like a Satoshi. Amazing. Amazing. No, it was it was repurposed into just a bitcoin exchange. And so help me understand, at this point in history, like if you're gonna be doling out bitcoin in exchange for dollars, you gotta get your bitcoin from somewhere. So are they mining in order to create the supply that they're selling out to people? That's a good question, but I assume so, but I don't really know. I bet that is.

1:25:53 Jeb. quickly realizes like This is gonna be a major undertaking to do this, probably for that very reason, let alone operating the exchange, making sure all these transactions happen, taking custody, doing them well. He after just a few months, he runs it for about eight months himself. And then in March of twenty eleven This is where

1:26:15 Japan comes in, he sells it. He so he's just running it. He decides, you know what? I'm gonna sell the whole thing. Uh he has an interested buyer. A guy named Marc Carpelez, who is a French Programmer.

1:26:28 Who was living in Japan at the time. Super interesting character. Uh, and he makes an offer to buy Mt Gox. From Michael. uh which he does in March of twenty eleven. And The statement at the time Michael makes a statement, he says, to really make Mt Gox what it has the potential to be

1:26:46 Which is huge. Like this is Coinbase and Square Crypto and Robinhood, everything before that, uh really Take it. to what it has the potential to be would require more time than I have right now. So I've decided to pass the torch to someone better able to take the site to the next level. Unfortunately, that was not Mark. So um pr right after a couple months afterwards in June twenty eleven, uh after Mark takes over the site, the first security breach happens at Mtx. Uh bitcoins are stolen and lost.

1:27:18 October twenty eleven th they send twenty five hundred bitcoins to the wrong addresses. And again to the point of like if it ends up in the wrong place and you don't have the private keys They're gone forever. So Specter unfortunately have things to come here with Mtx. twenty five hundred bitcoins lost forever.

1:27:37 But there's still there's no other exchanges out there. So like anybody who wants to come in, anybody who wants to transact on Silk Road, just be involved in any way as part of the ecosystem, they gotta go to Mt. Gox. And they handle for the next year and a half, about seventy percent. of all transactions in and out of Bitcoin that happened on the internet. That's right. It was so dominant.

1:27:58 I mean that was like I think that even held me back from buying Bitcoin in those days'cause I've hearing people talk about it. I had friends texting me about it, and I remember g going to Mtgox and being like, Ah, I just don't know. Yeah, this is like super shady. Not to mention you know the Silk Road and all this out there, like definitely held Bitcoin back from becoming mainstream for Uh for at least a year. It's so funny in the whole like crossing the chasm framework. Like in some ways I uh am an early adopter, but I'm not like gonna adopt something that is

1:28:30 only being used in my perception for like illicit drug use on the dark web. Right. Like it it took until like Coinbase came around I think twenty fourteen is when I started s getting more interested in it. But it like it it had to be at least that mainstream. Yep. Same here. That was Uh I started hearing about it with Silk Road and Mtx and everything going on, but yeah, Coinbase was when I f did my first transactions. So

1:28:53 By April of twenty thirteen, so a few months before Silk Road uh gets uh the sting operation happens at Silk Road's goes down. Mt. Ox finally Starts its death spiral. So They crash

1:29:10 At a certain point, because of the volume that is happening on the system in April, it's completely overwhelmed. They suspend trading. the price of Bitcoin crashes fifty percent just by virtue of'cause you know, they're doing seventy percent of the market, all of a sudden it'd be like if the New York Stock Exchange just went offline. So the price crashes, bunch of lawsuits. uh start that they get hit with. Uh then in

1:29:35 June of twenty thirteen, Mtx. Stops the ability to withdraw. in US dollars. So you can still withdraw in other currencies, but like clearly things are not well here. Uh not looking good. And then in February of twenty fourteen, they suspend withdrawals altogether. So you can't take money out of the system. at all from Mtx and they file for bankruptcy. And could you transfer to like a if you have your own like hardware wallet or something, like if you knew an address of another bit if you knew another Bitcoin address, could you transfer I mean it gets at various points along the way, but eventually you can't even do that. And ultimately

1:30:12 Seven hundred and fifty three. thousand client. Bitcoins. Uh like bitcoins that people were holding in Mtx. get lost, like permanently lost. Private keys are lost.

1:30:23 They're gone. I mean almost a million and then another hundred thousand that was owned by Mt. Gox itself. So that's seven percent at the time of all the bitcoins in circulation. Just blown out of the sky when Mtx goes under. And just in client dollars, that's twenty two and a half billion dollars of Bitcoin today that are are just c they exist.

1:30:47 But Uh assuming that those people didn't download their private keys. Like and and they just trusted Mt Gox to say, You keep my private key and I or maybe they couldn't even download the private keys, but basically like if you don't have the private key, you're not sending it anywhere. Yep, gone. So

1:31:03 Fortunately though, by the time this starts to happen and Mount Gox enters its sort of mid twenty thirteen to beginning of twenty fourteen death spiral. uh enough other people and other business minded people had gotten turned on to Bitcoin and interested in the system that they were like, Holy crap, we need better exchanges here. Let's go build them. So in many ways, now the most well known one of these is is of course Coinbase that we talked about. So in June of twenty twelve, two co founders, former Airbnb engineer Brian Armstrong and Goldman Sachs trader Fred Ursum. They're like We need to build an exchange and not just an exchange to compete with Mt. Gox, we need to build like a legitimate exchange that people are gonna trust to use, that we're gonna work with regulators, uh, that we're gonna, you know, make sure that when people

1:31:53 Cash out of Bitcoin, they pay their taxes, you know, do all these things to build This into a real functioning. System. Not Just an exchange. It's an exchange

1:32:04 and cloud wallet. Exactly. This is the innovation that it will make some people who are sort of true believers in Bitcoin who were sort of part of the initial movement, it makes their skin crawl because it is ruining the decentralization. But what they're basically doing with a cloud wallet is saying, look, you're gonna buy your Bitcoin from us. You're not gonna take your own custody of it. Because like you don't wanna be in the business of having Bitcoin on your hard drive secured by your own public private key pair that you manage, be responsible for backing up that drive somewhere, but making sure you don't make too many copies of your private key to expose like you don't wanna be responsible for all that. What you should do is just The same way you manage any other username and password. You let us maintain your public private key pair. The eff effectively it lives in our cloud on our servers, and you log in with a a username and password and you do two uh two FA and all the stuff that you trust. But like we have custody of of your money. It's kinda like a bank.

1:33:03 Or maybe more accurate like a bank or like a brokerage firm, like Charles Schwab. Like you don't hold your stock certificates that you have in Schwab or Vanguard or whatever. They do, but then you don't have to deal with the complexity. It's a little compromise, but it makes it way more accessible to way more people. And obviously just like, you know, if you're a hedge fund You're not gonna use Schwab, you're gonna do all that yourself. If you're uh

1:33:28 big player in crypto, whether you're an institution or otherwise You're gonna have your own wallets, you're gonna do it yourself, you're gonna cut up your you know, print out your private keys, you're gonna cut them up and they store pieces of those keys in safe deposit boxes all over the world, you know, that kind of stuff. But the average user, you and me Well, we're not gonna do that. Not to mention it's a bearer asset, so you don't wanna keep it on you. Like if if you know, I don't hold a lot of bitcoin, but I could imagine like if I did I wouldn't want to be broadcasting like, yep, but I've got it right here on my computer with me. You know, it's a it's something where you want you want the asset to live

1:34:01 kind of at an arm's length from you personally. This is how the Feds seized all the bitcoin from D P R when they rated. Till. It was just There on his computer. It's it's it's effectively like walking around with uh uh you know, millions of dollars in cash lining your jacket pockets. Like you wanna keep that somewhere else. Yeah, totally. And not just under your mattress.

1:34:26 So Coinbase as Y C, summer of twenty twelve. They raise a seed from Initialized and Angels right afterwards. Then they raise an A from Union Square Ventures. Then they raise a B from Andreessen. They start building all this infrastructure, making it secure. Now they're huge. This is great for the ecosystem. The

1:34:46 Other really interesting story. So Coinbase is is Basically like, you know. They have Coinbase Pro now and institutions use it too, but like It makes it retail accessible to uh you know, like just like Schwab, just like Vanguard, et cetera, or a bank. Robinhoodification of crypto.

1:35:03 Exactly. And of course now you can do trade crypto in Robinhood itself, too, and in Square and like. All right, so Coinbase is sort of attacking the retail side, if you will, of people interested in crypto. There's an even bigger prize out there, though, that people start to realize, which is You know, getting the retail customers that's great. But what if you can get Instant.

1:35:23 you're gonna start to have hedge funds, endowments company balance sheets themselves, large pools of capital are gonna be Interested. in also playing in this ecosystem. Well what what kind of infrastructure do we need to make

1:35:42 Yeah. And that looks actually pretty different than just retail infrastructure. So Here is where The story takes another Just incredible turn. I don't know where you're going with this. Remember I said the social network would come

1:35:57 back into play here. The Winkel Voss twins. It's been so fun to like read about this and I've gone and watched a few videos with them. My opinion has completely changed from doing this research. So of course people probably know the story of the Winkle Bosses as part of the origin of Facebook and the social network and that they're two twins who were a few years ahead of Mark Zuckerberg at Harvard, and they had had the idea for what became Facebook and hired Mark. to be a developer for them to help build it.

1:36:30 And then allegedly Mark had said Hey, this is actually a really good idea. I'm just gonna go do it. Myself. There was a big lawsuit about this. They sued Mark in two thousand four. It was eventually settled in two thousand eight.

1:36:42 for sixty five million dollar settlement payment from Mark That's a nice down payment on some Bitcoin. Well, here's where the story gets really interesting. So at the time everybody thought this is crazy. Like, you know, it's the line from the social network. If you'd invented Facebook, you would have invented Facebook. Ideas are cheap, execution is everything. These guys are crazy. They don't know what they're talking about. Maybe that's true. But these guys are also really smart. So when The settlement happened.

1:37:10 Twenty million dollars of the settlement went to legal fees. So they got forty five million dollars before taxes. And Everybody's like, This is great, you're gonna be set up for life, et cetera. They were rowers, they actually participated in the twenty twelve Olympics. You guys can just go be athletes. They said no, we don't want the money in cash.

1:37:30 We're gonna take the money in Facebook stock. Oh I didn't know. So they took all forty five million dollars. In Two thousand eight. Facebook stock. There's a great quote on this Cameron says in a in a New York Times article. The lawyers thought we were crazy. For taking the money in Facebook stock.

1:37:47 We thought they were crazy for taking their twenty million in cash. The stock that they get by the time Facebook goes public in twenty twelve was worth around three hundred million dollars. And in the interim in the previous four years, they moved to the UK because the two thousand twelve Olympics were in London. So they come back. In twenty twelve. Facebook's gone public. They're worth three hundred million dollars.

1:38:13 And the story is that That they're on vacation in Spain after the Olympics. And they meet a guy there from the US. Who starts telling them about Bit still really early. Coinbase was just going through YC at this point in time.

1:38:29 And Cameron and Tyler. As they start to learn about it and think about it, they realize like Holy crap. This is money with network effects. So they go

1:38:40 all in on Bitcoin. They don't put the whole three hundred million dollars in. That would have been like the whole market cap of Bitcoin itself at the time. But they start buying Bitcoin in summer twenty twelve at about ten dollars a bitcoin. They end up accumulating well over a hundred thousand Bitcoins that cost them under ten million dollars. And it was one percent of all Bitcoin outstanding at the time. Wow.

1:39:04 Totally incredible. They say What if we build an exchange specifically for institutions like Coinbase have retail. So They start and fund.

1:39:16 An exchange called Gemini. Which still exists today. With the whole target of being certified by regulators for institutions, they end up getting a license from New York State regulators.

1:39:27 that allows them to be a custodian for regulated asset managers and banks that no other Exchange at the time had to be a little bit more. And then a few years later in twenty seventeen, when the Chicago Board of Exchange launched Bitcoin futures on the CBOE, which was A huge moment, a big part of the run up.

1:39:46 of bitcoin in twenty seventeen, it was actually Gemini that was settling all the features on the exchange. Crazy. So super interesting. I mean, thank God that like Coinbase, Gemini, there were others out there as well who saw like, hey The future is bright for Bitcoin

1:40:03 If we can start to build Some real institutions. that work with regulators that people can trust and are gonna be legal. Otherwise everything's gonna go down in flames with Mount Gox. So through all this

1:40:18 Bitcoin as a asset keeps growing, with an insane amount of volatility, of course, which still continues to this day. Bubble after bubble after bubble and you know pop, pop, pop. Yep, but with each bubble it keeps going higher and then the new floor price resets higher. Two thousand twelve, the price started at five dollars and twenty seven cents per bitcoin. By the end of the year it's at thirteen dollars and Thirty cents.

1:40:43 And then two thousand thirteen This was the huge breakout year, so even despite Mt's. And Silk Road and everything going down the tubes. Started the year at just over thirteen dollars, as we said. By the

1:40:56 End of twenty thirteen, january first, twenty fourteen. Bitcoin is at seven hundred and seventy dollars. Purple coin exchange, right? That is Some serious appreciation in just one year. Yep. And then I think even after that then fell down to like two hundred or something. Like that was the next few.

1:41:16 Three quarters of a million plus Bitcoins disappeared. That was a huge hit to the system. Price fell down to about three hundred dollars. And then twenty fifteen. mostly stayed in that sort of three, four, or five hundred dollar range.

1:41:30 By twenty sixteen, though. All this infrastructure is starting to come online. Coinbase has raised a lot of money, lots of accounts being created. They're seeing very high trading and exchange volumes. Same with Gemini, same with other exchanges. By the end of twenty sixteen The price hits nine hundred and ninety eight.

1:41:48 Dollars per Bitcoin. So just a hair under a thousand Dollars of Bitcoin, I mean. This is Now the beginning of twenty seventeen, what was this, six years earlier, you Could barely buy a pizza for ten thousand Bitcoin. Yeah, it's it's totally fascinating to think about uh you know, I I I keep referencing this three million X the number that we've talked about. The initial thirty five thousand X

1:42:10 was in the first five years. making it to three hundred and fifty bucks in twenty fifteen. And in the five years since it's actually only only, only been an eighty five X. So it's like compounding math is funny that way, where the if you if you can buy in at that incredibly low cost basis where they, you know, started at one cent or sub one cent, a lot of that sort of multiple happens in those early years well before it even hits a thousand dollars a bitcoin. Well, what's so cool is that like This is exactly how the venture capital markets work, right? Like

1:42:41 It's the early stage investments that you can generate those. huge, huge multiple returns. But you can't put that many dollars to work in the early stage investment. So like you'll generate, you know uh Sequoia's figured this out and to you know so many other of the big firms You put dollars to work early.

1:42:58 You get huge multiples on those dollars. But then you keep putting Dollars to work. in subsequent rounds as companies grow, get proven more, and the TAM expands and the market. for you be to be able to put those dollars to work expands. And so like

1:43:15 It's not just that you want to get the three million X on your first dollars. You also want to get the eighty five X on a lot bigger base that you're putting in. Later. Yeah, it's interesting. I mean it's also it's it's just especially interesting. It's it's a little bit of like as we'll get into the analysis later, I think we'll we'll see how crazy this is, but it's strange comparing all these companies, all these corporate assets to a monetary asset. Because it's not

1:43:41 apples to apples in the way that we normally think about these types of investments. Like This is a currency. The the idea is that it's eventually going to be just a way that we store and transfer value. So it's it's just funny that like Everything we've talked about so far is about growing the value of each fraction of the Bitcoin network a bitcoin. Yep. But This is the moment where uh things kinda tip. Bitcoin meaning. In twenty seventeen. Holy crap. January one, twenty seventeen, we're at nine hundred and ninety eight dollars a share.

1:44:13 People are like thousand dollars Bitcoin. There's some real money here. And what does that attract? That attracts Grifters. So

1:44:23 People had already launched other crypto projects over the previous, you know, six, seven years. Ethereum launched in twenty fifteen. There were other there were of course We referenced all the altcoins and parity coins, like so much to say about Ethereum here, about DeFi, about a lot of the more modern takes using the the blockchain, using cryptocurrency outside the scope of this episode, but you know, obviously those things are interesting. Yep, we will Definitely talk about those in the future. But in twenty seventeen people realize like

1:44:54 Man, this is a money machine. So in May Folks may know, folks may use it's a real Company, real project. The brave

1:45:04 web browser. Uh which is a Privacy by default, you know, non tracking web browser. They Launch instead of raising. Venture capital and a normal route.

1:45:16 They do this thing that they call an initial coin offering, which is the same thing that Ethereum did. You know, anytime you're starting a new Blockchain based. Project. You have a A launch just like Satoshi.

1:45:28 mine the first fifty bitcoins to bootstrap up the bitcoin network. Well Brave Cells. The initial tokens. And they market it and they have white paper and all this stuff.

1:45:42 And people go nuts. They raised thirty five million dollars from this ICO. In thirty seconds. In fully non dilutive capital. Fully non dilutive capital. Uh people start talking about like This is the new way to raise money. This is the new way to start companies. VCs themselves go. They're like, Oh wow, we're just gonna invest in ICOs from now on. It's like crowdfunding, you're raising money from your users, so all the incentives are aligned,'cause as it increases, it it's gonna increase with the value of the product.

1:46:14 Blah blah blah. It's totally unregulated. So Everybody and their mother. Literally everybody and their mother has ICO in twenty seventeen. It's like the SPAC of twenty seventeen. DJ Khaled has an ICO. Paris Hilton has an ICO. Floyd Mayweather has an ICO. Like Uh unclear what any of these projects are. I was gonna say what's yeah, because the the rationale for creating your own coin is that I'm creating I think it were the dApps, right? Distributed applications. um or R adapts, but I I'm creating a a distributed application and it's gonna have a network effect and there's gonna be a bunch of people that use it. So like literally the value of the pseudo virtual currency that you use on the platform will increase in value with more people using the platform. Like

1:47:02 In the abstract it makes sense, in the same way that in the abstract Bitcoin made sense. The difference is largely just in what actually then happened. Yeah, totally. So and who was Pumping up these things. So you know, Bitcoin starts the year at a thousand dollars. There are a lot of people out there Who made a lot of money just holding or hodling uh which we should uh hottle H it a misspelling of hold or is it hold on for dear in your life? People have said both, but I think the original it was a guy on a forum who

1:47:33 During one of the bubble crashes for Bitcoin price was encouraging everybody to hold and not sell. And so just type too fast and said hodl. It just just becomes an internet meme like uh boom goes the dynamite or any other Oh, haven't heard that in so long. So good. So like there are a lot of people that have just made all this money. seemingly overnight to themselves in Bitcoin.

1:47:55 They're like, Okay, cool, these ICOs, great, we'll pump the money into the ICOs. Yeah. So by May when the brave ICO happens. Price of Bitcoin has doubled to two thousand dollars by the prevailing exchange rates, USD. By September It's four thousand dollars.

1:48:16 By the next month in October, it's six thousand dollars. By November it's ten thousand dollars. And by December eighteenth. twenty seventeen. We hit. What many then later over the coming two years would believe would be the all time high.

1:48:31 Nineteen thousand seven hundred and eighty three dollars and six. Sense. Per Bitcoin. Uh Real.

1:48:38 Twenty thousand dollars. For Bitcoin. Yeah. And so this is like I I for for the record, I I was very much in the camp at that point. There's all time I COs, there's all these scammers, altcoins, who knows what's going on. So many scammers. And I definitely was like, This is Totally inflated and the highest it will ever go. I I definitively remember thinking that. I mean it was uh

1:49:05 I remember I Don't think I had taken a little money off the table during the run up, uh, from not that I had or have many bitcoins, but from my experimentations buying a few in the early days.

1:49:19 So I'd taken some money off the table in the run up, but then after the crash, which happens in the beginning of twenty eighteen, I was like, Yeah. I don't know. I don't need the money. Whatever. It's an option. Let's see what happens. Oh, you let it ride. I let it ride. I let I hottled. I hottled. All right, so catch us up. This January twenty eighteen, you know, we see this this run up to near twenty K. It falls. Clearly it has risen again. What's happened in the last couple of years? Okay, so over the course of twenty eighteen it falls from twenty K.

1:49:47 All the way down to under four K. So at the end of twenty eighteen by January twenty nineteen, Bitcoin is trading at just over thirty seven hundred dollars, down seventy two percent for all of twenty eighteen, and down eighty one percent from the high in December. Twenty seventeen. But underneath all of that, and I think this is what as the hype as the tide went out and the hype cycle disappeared and all of these scammers, thank God, disappeared, and ICOs became, thank God, a thing of the past. And many of them prosecuted for fraud. Yeah, many of them. And the regulators got involved, of course. And V C firms regained their sanity and started investing in normal companies as well as normal companies doing things with crypto and on and Bitcoin and blockchain. And some and ac actually into cryptocurrencies themselves. Um

1:50:35 But often a little bit more mainstream than than into the ICO than these altcoins. So in the background, all this you know, the groundwork The Gemini and Coinbase and others started laying that kept getting built over 2018, 2019. So in 2018. eighteen

1:50:54 Square added the ability to Bye. sell, trade, and hold as a custodian crypto natively within the Square Cash app.

1:51:05 Robin Hood did the same within Robin Hood in twenty eighteen and then rolled that out, I think by twenty nineteen to their entire User base. And so you get to the summer of twenty nineteen. And Bitcoin

1:51:18 Which again had financed a lot of this ICO boom, but uh from profits that people had made in Bitcoin. But was totally unrelated. The price has recovered to about thirteen thousand dollars per Bitcoin by summer twenty nineteen. And things continue roughly in that trajectory. And then We get to March twenty twenty. And uh

1:51:40 The world changes. All the people who have been screaming for the last five plus years that this is an uncorrelated asset and Boy oh boy, would it be nice to own some currency that's not fiat, that's not connected to a single government, if we head into a uh uh You know, if we have a black swan event that happens and the world is falling apart, you don't want to be associated with any specific government and you wanna have currency that is uncontrol blah blah blah Like Boy is there an opportunity to prove you are right.

1:52:08 Yes. Now so here's what's crazy. So obviously COVID hits. the broader world in in March twenty twenty. And When there's that initial dip in the markets and panic selling and everybody thinks the crash is happening and equity markets sell off.

1:52:23 Actually crypto. And Bitcoin sells off too. So The price of Bitcoin crashes. And on March thirteenth, twenty twenty. Remember it had been trading around thirteen, fourteen thousand dollars per Bitcoin.

1:52:36 It crashes down below four thousand. Which is crazy. So it's the exact opposite of Ben what you were saying, what you would think. Like, hey, I wanna own Bitcoin when the world's falling apart. Dude, I remember watching that and like oh looking at uh the S P five hundred overlaid with the price of Bitcoin and I was like Huh. It's a pretty correlated asset class. And of course.

1:52:57 Now we know with hindsight, what was actually going on was there was a l a liquidity run and people who were holding Bitcoin were also holding other things. They had obligations, and then as all the markets crashed, They needed liquidity to be able to pay off other things. And so I think that's what triggered a lot of Selling. At that moment. But since just like the equity markets, it recovers quickly.

1:53:18 Um Just starts. taking off. And then Ben, like you were saying, so the Fed and the US government in response to Covid just starts Printing money, like crazy like has never been done in our country ever before, like World War Two, any other time. So during twenty twenty

1:53:36 literally twenty two percent of all of the US dollars in circulation all around the world. are created in twenty twenty. Uh the debt to GDP ratio of the US goes from I think it was I don't remember exactly, somewhere like sixty, seventy percent. to a hundred and thirty five percent. Over the course of twenty twenty.

1:53:57 This is of course financing. All the stimulus packages and all the spending that the government is doing uh without the revenue to back it up. And of course we're meanwhile we're in a zero interest rate environment. Yeah. So there's sort of two things that are happening in order to do the economic stimulus. One, the government is using tax dollars to pump money back into the economy, you know, paying people and and implementing programs. They're creating dollars to do but they're doing both. It's it's tax dollar allocations and the Fed is printing more money. And so they're putting more dramatically more money into circulation, which uh one way to think about this for uh I spend a bunch of time trying to figure out like what's the best way for me to understand this, because I always feel like if I can understand it, then it's a pretty good proxy for everyone listening. And My sort of notion of it.

1:54:45 And I'm sure this is not exactly right, is if you're a shareholder in a private company and you go raise more money Well, you take a bunch of dilution, usually fifteen to thirty percent dilution. because you're creating new shares for the shareholders. We were effectively saying, hey, everyone with dollars, you're gonna go take 20% dilution in 2020. Your your dollar is gonna buy you just gonna have less purchasing power because there's more dollars in circulation right now. Just so that so that there's more dollars to go around. Which of course is it takes a while for that to percolate through the system that you actually see twenty percent higher prices, but eventually that will come home to roost. Yeah. So I don't think either David Or I are

1:55:23 uh smart enough macro economist type people to be able to interpret we're in a zero interest rate environment, the government printed a bunch of money into the money supply. Uh we did away with the requirement that banks hold ten percent of of capital in reserve that they're They're loaning out. Yeah, like the there's a lot of s but I don't think you or I should be Here's the thing. But I think what we are maybe not smart enough, but what we're enough to feel that We feel certainly influence my actions. Actions of

1:55:52 many investors and people all around the world, probably yours too, is the effects of this, which is interest rates go to zero. So all the money that I was holding in my bank account, that anyone was holding in their bank account earning interest on it was already really low and had been since two thousand eight. Now it's zero. Like I was getting emails every two weeks from my bank being like your interest rate again. Exactly. And so then what incentive does that create? That creates an incentive to just not hold cash. Like if you want Or and not hold bonds either. Like anything that's traditionally

1:56:25 relatively conservative investments that as an individual or an institution You would Hold.

1:56:35 And expect to get three, four, or five percent return on You're just you're not getting you're getting zero. And inflation's happening so you're getting less than zero. Well, so what does that mean? That put it's like a balloon. You're squeezing one end, you're just gonna push

1:56:49 people to go invest in places where they can get return. And where's that gonna be? That's gonna be equities and Bitcoin. And specifically tech equities and specifically, specifically early stage tech equities that people hope are going to look one day like Amazon. So that that's like what's happening in the equity markets, and of course alternative assets like Bitcoin. And so you sort of have the coupling of people you know, capital desperately seeking returns, so it's it's there's m more capital ever that's looking into and taking things like cryptocurrencies seriously, and also people really buying the story of Wait, tell me about the fundamentals of how the Bitcoin system works again? Huh, that actually does seem more and more reasonable and huh, all these other people are

1:57:33 Are into it. Okay. Oh, and and a lot of legit people have have parked a lot of cap. Okay. And so there's more and more legitimization of the asset class happening. more infrastructure being built up and in the environment that we're in, which one could argue is starting to show the cracks of what happens in quantitative easing, what happens in zero interest rate environments, what happens in you know not having hard requirements about fractional reserve banking. Like you actually start to see the way that the Bitcoin system was designed to fix all of that.

1:58:06 Like, hey, we can't increase the money supply. It it is what it's gonna be at twenty one million. And you know, hey, there there is no Fed. Like there is no centralized you know, place that you have to have trust in that they're gonna effectively manage it. A lot of these ideas just become more appealing at the same time as there's more capital seeking more returns. So it's this like perfect storm of uh the conditions created people rushing into cryptocurrencies. And specifically Bitcoin. Well specifically Bitcoin, but also specifically institutions this time. So like all the bubbles in the past It was individuals, it was retail, maybe it was some venture firms, maybe it was the Winklevi who were

1:58:46 Buying Bitcoin. But Now. Enough infrastructure's been laid Through

1:58:53 exchange traded funds which now exist like Grayscale, through Bitcoin futures, through custodians like Gemini. And Coinbase Pro. That if you're a hedge fund or if you're a bank or if you're an endowment or if you're a company treasury you actually maybe can access Bitcoin. So In May of twenty twenty.

1:59:12 Paul Tudor Jones, the famous investor. runs a I think a twenty two, twenty three billion dollar hedge fund. He goes on C N P C and he says Hey, I actually have uh between one and two percent of my funds. Assets in

1:59:26 Bitcoin. And at a twenty two billion dollar fund, that's two to four hundred million dollars. Worth of Bitcoin that it just come into investor money. Yeah, not his money. It's Fund money.

1:59:38 that has just come into Bitcoin. Then in August of twenty twenty, MicroStrategy, which is publicly traded, uh investment firm. Uh, they reveal that they have two hundred and fifty million dollars in Bitcoin. Uh, not just that they've invested in Bitcoin, but they're classifying it as a treasury reserve asset on their balance sheet. So not like an equity speculative investor. This is like no, like we're trying to cash like a cash, yeah, like a in our treasury. Then in August, Square, which of course has been part of the crypto and Bitcoin.

2:00:11 Yeah. They put about one percent of their Cash and cash equivalents on their balance sheet, on their treasury. into Bitcoin. about fifty million. So they're the first like operating

2:00:24 That is now saying we're gonna have part of our cash in our treasury. That we're gonna hold in. Bitcoin. Also, their rationale for why they did that and how they executed the trade is really well documented. They wrote it up, we'll link to it in our sources. Um it's worth reading that uh that post. I think it's a PDF if um if anyone's interested. And then the last big announcement.

2:00:45 in November Guggenheim, which is a very large Asset manager. I think they have about two, three hundred billion in total across all of their Vehicles. one of their funds, which is a five billion dollar fund.

2:00:59 They register with the SEC. to be able to invest up to ten percent of the fund, so up to five hundred million dollars. in Bitcoin Via exchange traded funds. By doing that.

2:01:11 So what's the net of this? So you've got even just Across those those transactions which we mentioned, which are ones that are public, there's plenty more, I'm sure, that we don't even know about, where managers haven't disclosed Yeah. You've got close to a billion dollars.

2:01:28 Oh. Inflows flowing in to this asset class. It's not a super thickly traded asset class, right? Like the market cap for all of Bitcoin. as we're running up here is in the six hundred and fifty billion. Right. That's at today's prices. But as these transactions are happening, you know, it was probably ranging from

2:01:50 one to three hundred billion. Right. And keep in mind only three ish billion of the twenty one billion coins that of ever will be Yeah, so there's twenty one million total. There's something like sixteen million have been mined so far, maybe a little bit more. But only three million of those are actually ones that are traded. The rest are held long term, lost, whatever. The Silk Road coins, the Mt. Gox coins, the Satoshi coins. You know, there's a whole swath of millions of coins that are just gone. They can't trade. Then you've got all the coins like That people don't want to trade, you know, that they're holding like, Yeah, I'm not gonna sell those. Why would you use this thing as currency right now when it's inflating so much? Like when it's when it's appreciating so much. It's like you'd have to be out of your the you s you understand the hodler mindset.

2:02:38 Which of course also which we haven't talked about yet, and I think we'll get into an analysis, like you can't really spend your bitcoin at any retailers, but of course you can't, because who is gonna spend these things right now? Right. Because so as You know, what is price? It's the intersection of supply and demand. You've got these huge new chunks of demand, like of blocks of demand sizes. that have never been seen before in the asset class, you know, a hundred million, two hundred million dollars at a time. That wanna come in and buy You've got not a lot of supply willing to sell. Of course the price is gonna go through the roof. So

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2:04:50 Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale. Go check out service now.com slash acquired and tell'em that Ben and David sent you. Well David, as we catch up today, I want to point out there's one institutional firm, Paradigm, uh that uh that is co-founded by I think it's Fred Ursham and uh and Matt Huang. Uh Matt, of course, is former Sequoia partner, Fred of uh uh uh Coinbase co founder, definitely the president. He was Brian's co-founder, the two of them co founded it. And so um Matt ha had made this really great point. If I could tell you to do things to follow up. One is obviously the Bitcoin white paper remarkably cogent. The other is actually reading Matt's

2:05:32 piece about sort of his summary of Bitcoin. It's a it's at paradigm.xyz um and sort of like why we're doing what we're doing, why we think it's interesting, what the trade offs are, what the f the where it could go wrong, where it could go right. Really cogent analysis. But one of the things he points out is of course Bitcoin has these bubbles, but as David mentioned, every time they pop, it sort of plateaus at a higher level than the previous bubble. And Because Bitcoin requires this network effect.

2:05:58 to be valuable for it it is uh a self-fulfilling prophecy in a lot of ways, it actually uses bubbles as a go to market strategy, where every time there's a run up, there's more and more legitimate players and more and more institutional capital that sort of pile in, more infrastructure gets built up. And then when the bubble pops and you sort of have a lot of the the sort of late coming speculators uh that of course lose money. What is left there is all that infrastructure and all that advancement that was made from the mania and the hype. And it's just really interesting to see that really is a go to market strategy. Well, and what's so interesting about This time. And

2:06:40 unique and we're we're already seeing this play out in how the price has risen, fallen, and then stabilized over the past couple weeks. is In previous bubbles it was mostly individuals. We're doing this.

2:06:53 who are subject, of course, to individual psychological behaviors and like price crashes, like lots of people are gonna sell. Lots of people will hodl, but lots of people will sell too. This time the demand the big chunks of demand that's driving up the price. Like this is Square's balance sheet. This is uh MicroStrategy holding this as a treasury reserve. They're not gonna sell. Like they're investing

2:07:19 purposefully as treasury and as diversification, the price crashes fifty percent, seventy percent. Like what they're not gonna sell. They're institutions. And um so Part of the thinking here is that as we now move and shift into this new phase of Bitcoin where institutions are playing within it. There's gonna be a lot more stability. So what's happened with the price over the last month or so? So we went from we went from thirty seven hundred in March during the COVID liquidity crash.

2:07:51 to by the end of November Bitcoin surpasses that all time high of December 2017, hits nineteen thousand eight hundred and sixty dollars in November. And Then by the end of December, by the end of twenty twenty, on on New Year's Eve, We're sitting at twenty nine thousand dollars.

2:08:11 For a bitcoin, which is Insane, another ten thousand dollars in a month. It doesn't stop the first week in January, which was last week, even though it feels like last month. It hits forty. Forty K for zero. Ultimately the price goes all the way up to forty two thousand dollars.

2:08:30 per Bitcoin before coming back down. Again, several days ago over the last weekend, even though it feels like a month ago, coming back down. to a low of about thirty thousand dollars. So the crash, quote unquote. We could have another crash, like I we don't know. But this crash It's still

2:08:48 ten thousand dollars above the previous high And is now trading right around thirty five thousand. Right, which it has for the last several days. So by by crypto timelines at least, by Bitcoin timelines, it's stabilized super quickly at this sort of thirty four, thirty five thousand dollar Price.

2:09:07 This is very different than the way these Bubbles and Craig. By the time we release this episode. Could be at three K, could be at a hundred K. You know, we don't know. We may look stupid. But I do think it's really interesting. That You have different motivations this time of large blocks of capital that are coming in. Yep, for sure. Okay, before we we transition to uh uh to analysis, there's like a couple of like today's stats that I think are just sort of interesting because I I continue to

2:09:37 be interested in comparing Bitcoin to a company, to a currency. to uh like uh assets under management. So th this Thirty five thousand dollar uh a coin price. implies a market cap of six hundred and fifty billion dollars.

2:09:54 Well So The total consolidated assets of JP Morgan Chase, the largest bank in the United States is three trillion. So that's about five times

2:10:10 All the bitcoin out there. is like at JP Morgan alone from people who have who bank with them is five times bigger. Sort of an interesting number to keep in mind. Um, I think Bitcoin, if you were to if you it's actually pretty interesting, you can go to the Federal Reserve's website and just look at like what's what are all the settled accounts? Like not

2:10:29 within each bank, but at each bank how much money do each does each bank in the US with a bank charter have on hand or or um in under their custodian interesting actually not on hand specifically like how much do they are they a custodian for so I think Bitcoin would be like the fifth or sixth largest. institution on that list, if it were A bank that was regulated by the Fed, which is kind of interesting.

2:10:55 Um, it's also interesting just to compare it to like the market cap of Apple is two point two trillion. Uh, so four ish times uh as as big as Bitcoin is, if you want to think about it sort of like How valuable is it versus the most valuable company in the world? another sort of interesting number to think about it, especially as later we will start thinking about what is what is the TAM for for Bitcoin? What's its total addressable opportunity? not necessarily for a coin individually, but like for w what could all of Bitcoin represent to the world at some point in total. And then because we know it caps out at twenty one million, you actually can kind of do the math and be like, all right, what would the coin value be at that point?

2:11:35 So the total money supply of US dollars is about twenty trillion. David, as you mentioned, it was about 15 trillion in January of twenty twenty, so it's it's gone up quite a bit recently. But uh but again, like Bitcoin about halfway to one trillion compare it to the US money supply over twenty trillion. Another interesting number to know is that the total money supply of all global currency um is about seventy trillion So there's this interesting or was, I think it's gone up a little bit. So it it's sort of interesting to think about like You know, if you're someone who believes that it's going to overtake all currencies, then you can sort of look at that 70 billion number. If you think it's just gonna be a uh a sort of asset that gets held

2:12:15 uh in compare like like it's it's a part of a portfolio. You know, a lot of people are likening it to gold. It's interesting. About nine trillion. Nine trillion. About about half of it actually is in jewelry. So uh you're not gonna replace like no one's gonna have actually there is something that's not a little bit more. Tell that to CoinDaddy. Yeah. But it is interesting to look at like okay, there's about four and a half trillion dollars of gold out there not used in jewelry. It could sort of usurp that. It's kind of digital gold. Um, which you know, we'll get into all this uh as as we transition to analysis here, but sort of interesting to understand the scale of it in today's world. Yeah. I mean, It's come a long way from

2:12:55 The white paper like this is such an improbable journey, you know? White paper to Papa John's. To Silk Road. To Magic the Gathering to the Winklevoss twins to You know, to um

2:13:11 Guggenheim investing in it, right? Like Uh this is uh Yeah. Twelve years. Yeah, I mean it's an improbable story, but you sort of needed all these different

2:13:23 factions and all these different vested interests and all these different true believers versus opportunists to sort of Push it forward to where it is today. Alright, power. Yeah, let's do it. And listeners, for anyone new to the show, this is a section that we put in based on one of our favorite books called Seven Powers, which is a study of how businesses can achieve persistent differential returns, or put another way, to be more profitable than their closest competitor on a sustainable basis. And so what we mean by power here is what what is the thing normally of a business in this case of a

2:13:54 currency or a or a new new money money system um that that basically allows them to out compete their closest competitors and gives the business, for lack of a better word, power. Yep. And this is gonna be so fun'cause I think they're A bunch. That Bitcoin has.

2:14:10 Uh like a whole bunch. Um the obvious one that we've been Banging the drum on through the whole episode. And it's probably the most powerful is is network economies, uh, I think. In in particular versus other cryptocurrencies. Like nothing uh Ethereum is the only one that stands a chance and it just kind of has a different use case that that's really more around um the the smart contracts and compute that's sort of built into it. But for for sure, like you can't start anything that looks like Bitcoin now and have any chance of beating it. Like it's in the same way that Facebook just outran any other consumer social network, consumer social entertainment type app, and then vis

2:14:47 obviously very smart in acquiring those who who did get scale. Like Uh Bitcoin just leapt ahead at the beginning of this paradigm. And I think what's cool is It even applies at the technical level too. With this idea of like the amount of computing power going into that has gone into

2:15:05 maintaining And making robust the Bitcoin network over time. is itself a compounding asset, right? Like because The more power that goes in over time, the harder it is to crack. Undo Yeah, you can't

2:15:20 There is no supercomputer that could conceivably ever be created that is going to As long as the the bitcoin economy like and miners keep working, that is going to be able to go back and like redo everything and that w that lead just keeps getting wider and wider and wider. Certainly not really old things in the in the blockchain, but you know, there there's always the risk on the newer ones. Um thing things that are only two or three blocks behind. And and unless there's a paradigm change, like unless quantum computing arrives and suddenly you have, you know, ten million X more compute uh um than than we did in the past on a a single core or something like that. Well, this is also where network economies come into play. And Satoshi actually makes this point in the original white paper. Like, let's say that happens.

2:16:06 As long though as the network is big enough and robust enough at that point. The value of legitimate Keeping the the system legitimate. Like say you already own Bitcoin. It's a great point. If you already own Bitcoin

2:16:18 then your incentivized interest is not to break the system because if if you hack it, Then People lose trust. And then the value of the bitcoins that you already hold.

2:16:30 Which presumably if you're a miner, you've already been mining, uh they go Down. And so even if you could create more fake bitcoins for yourself, you have this massive disincentive to do that. Yeah. As more people join the system. Yeah, it's a great point. And if the other thing that the system is designed to do is to provide enough incentive, and of course they they rebalance this over time, um, but it provide enough incentive to the miners that if they were to make a call between being a malicious actor and mining, they should make it worth your time to to mine to be White Hat. And so if you had access to a quantum computer, the they would adjust the software such that it would make more sense for you to mine than it would to attack.

2:17:11 Of course, caveats are bound here that David and I don't know jack about quantum computing, except that maybe it'll be a big leap forward in the amount of compute per square inch or per square watt or whatever. Square watts not a thing, obviously, but you know, per unit. So network economies, absolutely. One that I wanted to bring up that I think is interesting is it's counter positioned, but not against other cryptocurrencies. It's counter positioned versus the US dollar. where uh the definition of counter positioning, um, you know, of course with my editorial here is doing something that your um that incumbents basically can't because they would break the break their system. Yes. And like there is no better example than than the US dollar. Like if

2:17:53 uh the Fed was like, Bitcoin's a really good idea. And they uh they felt like actually that's the future. They cannot uh the Feds centralized infrastructure and the US banking system, like the notion of the central federal bank or the Federal Reserve, like it it is completely antithetical to everything that Bitcoin stands for. Like our monetary supply and our entire banking system exists in a coupled, it very intentionally coupled manner with our government. And so it's not like it would ever be in the US government's interest to be like, you're right, a decentralized th thing would be the way to go because it removes so much of the

2:18:32 power of the the US government. Frankly, the US as a nation. Yep. Well and just like network economies, I think there's another level that that counter positioning applies at too, which isn't just the US dollar. It's at the financial system itself. Like we started the episode with you know, the way banks work and the way credit card companies work, the way traditional financial institutions work.

2:18:56 is based on This Yeah. Number bank account number, credit card number system. They can't go back and

2:19:05 Change that and make it into a public private key. thing like the best that they can do. Well, I I think they could. Well they could, but all those like Uh. A C H exit like are you gonna have how are you gonna coordinate every bank out there?

2:19:21 in that talks to every other bank. Federal mandate. In the same way that we can move to chip and pin. That's your big They could adopt a superior and more secure technology if there was enough of an incentive to do so, but they could not change their centralization versus decentralization strategy because like

2:19:40 I th to bring in another sort of mental model. The US government has And all governments who have fiat currency have bundled The sort of like safety, security and

2:19:53 Like amount of normalcy or normality of the nation with Money. And like when people say the US dollar is backed with the full faith of the US government, like

2:20:05 that that is literally true. It is legal tender. Like at some point if you're like conducting business on a large scale and the government's like, Can you accept US dollars, please? And you're like, no, like they do have an army. So the the they're they're they are intertwined intentionally and it is strategic to be able to to m make it so that our economy runs on our government's currency. And That's been a strategy that's worked really well for a long time. And I I don't think an existing

2:20:34 government who is the the strongest nation in the world Can Like they're it's literally a definition of counterpositioning. They would cannibalize everything they've built by switching to it. What I'm talking about is more like i this would be hard for the traditional banking system to do, but it's not against their interest to do it. Whereas it's actually against Totally. The US dollar's interest to refashion itself like this.

2:20:58 Yep. Uh it's funny. Um in this vein, uh one thing that dilution idea I was talking about earlier where I was comparing uh adding new money to the money supply to the sort of dilution of your shares in a company. I'm pretty sure that the vast majority of US dollars are actually held by None but like held outside the US by people that are using it as hey, this is like this is the way that the world denominates value. It is the I can't remember what the phrase is, but like the reserve currency, I think. Yeah, yeah.

2:21:27 uh and I it's something like seventy percent. I don't quote me on that, but it's it's it's more than half is held outside the US. And so when we do things like print more money, it actually hurts everyone else more than it hurts us. And you can kind of do that to a certain extent Obviously if you do it too much. you create a huge problem and that then you create this sort of hyperinflationary thing and people don't trust it as the global reserve currency anymore. But like if you're like, you know what? I'm gonna basically dilute everyone by ten percent and they're gonna take the hit a lot more than we are. Right. Like that's actually what we're doing. That's actually a really good point where Yes, you're hurting your own citizens with inflation.

2:22:03 But You're all you're also hurting these other countries that are whole whose central banks are holding Sure. Paper, your dollars.

2:22:11 That's something that like your own citizen there's there's kind of nothing you can do short of like moving to another country if you're a citizen and you don't like this. But if you're a another country's central bank at a certain point You're gonna be like Screw it. I'm gonna use a different asset as my reserve currency. Like you can make that choice. Yeah.

2:22:30 And uh And unlike what to to roll back to that early Facebook example when Zuckerberg did the Eduardo Savarin Dilution move where he issued a crap ton of new shares to everyone except for Eduardo, they don't you can't do that where like Yeah you create a whole bunch of new money. I guess actually that's sort of what we're doing with the federal stimulus. Like we create a bunch of new money and then we only give it to US citizens. Yeah. You can only trot that pony out so many times. Yep. Okay, I think there's some more in here. It is a thousand percent a cornered resource. Like there's a finite number of these things available. So uh like it is written into the software and that it's ever that you're never gonna increase the money supply. So like it's it is quite literally a cornered resource. Well, it's a cornered resource for people who Own it.

2:23:19 For the system itself. Oh, that's a good point. It depends who the actor is that you're considering here. Certainly though for anybody who holds Bitcoin. Like Absolutely. This is uh the fact that there is programmed in

2:23:33 You know m minimal to you know, no inflation in the long term. Is An incredible uh source of value.

2:23:40 Not to mention it's like the most secure system to ever exist. This public private key pair thing. Think about Satoshi. You got a million and a half of these things and it's so secure that like people can't even log in to view their own. You know'cause they're losing it. Like it's yeah, you got super cornered. It's not fleeing anywhere. So I w let's talk about I wanna explore scale economies. So I think there's scale economies here, but let's talk about it. Yeah. So scale economies, of course, being like Netflix, like because Netflix has so many subscribers. that they make so much monthly revenue from

2:24:12 they can go pay a hundred million dollars for a piece of content and amortize over it it over all those subscribers. That a smaller service, say like Peacock or whatever. Can't afford to pay the same amount for that content profitably. In this case, I think it might apply to both The mining pool resources.

2:24:29 So like if people are Gonna mine. You could mine any cryptocurrency. Right. Uh But yeah, gravity to Bitcoin, right? People are gonna mine yours if they think it has the most potential future upside and staying power. Right. And because

2:24:47 Lots and lots of Are People are Mining. And transacting that's creating well, maybe this is back to just network economies instead of scale economies.

2:24:58 Certainly there is uh for let's look at the mining industry itself. Certainly that is a scale economies industry. Now that's Separate from the Bitcoin system, but if you want to be a miner. Right. Like the only way of doing it at this point is with dedicated hardware and a data center in a very special location. Exactly like You you're not doing it with a laptop. Right. And and it's because like so many people have like a lot of the value has gotten arbitraged out of doing it by lots of other people trying to do it and it's a race once you find a block, so you have to have the lowest cost structure.

2:25:29 In order to be a minor. Which is exactly like Netflix and and the like. Okay. Uh switching costs. What do we think about switching costs? You can exchange in and out of other currencies. So I think switching costs are actually pretty low.

2:25:44 Yeah. Even as a miner, you can you can probably repurpose your mining Th there's transaction cost to switching in and out of other currencies, but like A as compared to like ripping out an enterprise SaaS solution in sort of the Hamiltonian definition of it. It's pretty low switching costs. I don't think there's process power in any sense here.

2:26:04 Uh. I think the last question is branding. Would you rather say you had a thousand dollars to invest. Would you rather Do you put that in Bitcoin because you know and trust Bitcoin?

2:26:16 versus something else. I mean I would, but it's because it's it's it's re it's more because of the network economies. It's because like I I I feel like it if there's gonna be a dominant cryptocurrency that is a huge part of our global economy twenty years from now, it's going to be Bitcoin. And it's not because of the brand.

2:26:35 Like it's not because it's in Yeah. If something else had the same properties And dynamics and sys network behind its system and it were call something else. Yeah, I don't think uh I don't think there's any brand power there.

2:26:47 Yeah. I think the last thing the last thing to talk about in in power that that I I should have talked about when you were talking about network economies is Again, going back to this comparison to the US dollar. Government backed currency has an absolutely enormous head start on their network economy's power versus anything else.

2:27:07 Like the government mandates that you pay your taxes in USD. So automatically it means that like Every single person in the country Must own some amount of USD in order to pay their taxes in it. Or at least they have to

2:27:20 Uh to use it. Or or maybe they're like ac accepting their wages in it. So Money is flowing from literally every person in in a in at least one direction. in that currency. So like that lights up a bunch of nodes on the network. On the other hand, the government pays its debts or its bills.

2:27:37 in that currency. So like it's getting paid out to every other country. It's getting paid out to every contractor. And like the government contractor industry is actually like a it's a large part of the US economy. I don't know totally so happy. Listen to such a government contractor lawyer. Government contracts lawyer. Oh nice. Yeah, like it is uh I don't know if I should think nice, but yeah, it's it is it is a huge segment of our economy, um the government is the customer. And so you like It's incredible anything can ever compete with government backed currency given how many nodes on the network are already

2:28:11 by default dealing in Government back currency. That might be a good transition. out of power into our next uh Our next section.

2:28:20 Yeah, so listeners, what would have happened otherwise is our our next section. Um A lot of times we like to look at a a specific event and wonder w you know, if it had gone in a different direction. We we may do that here, but w we want to adapt the section to basically say like Let's compare this Let's compare all the weird ways that Bitcoin works to the normal fiat currency system to USD um and and sort of compare and contrast some of the elements. And

2:28:49 the w the way that I sort of want to start is uh like w what what is money? Like what is the the purpose of money? And now we're getting a little bit um I suppose uh academic, but it is three things. It's a unit of accounts. So it's the way that we basically say this thing is worth that much. Like when you look at you know a gallon of milk and you in your head it sort of occurs to you how much it costs. That's the unit of account. It's the way that you account for the world. It's a store of value. So, you know, I made some money, I put it in a savings account, um, that's denominated in cash. I'm gonna come back and use that in the future. And it's a medium of exchange. It's the way that I buy apples at the market.

2:29:28 And Of course then currency is sort of uh in some ways a subset of that. It is literally like money in the form of however you pay for it. So in the form of paper or coins, generally issued by a government, things like that. And

2:29:42 I bring this up'cause I want to talk about this phrase that people throw around w in Bitcoin bubble. And that we've talked about on this show. So if someone were to say to me Bitcoin is a bubble, I would say for sure. Like no no doubt it's a bubble. Also, so is USD.

2:29:58 It's just a really long bubble. Like Uh how would you define bubble? And I I uh again I'm gonna I'm gonna quote Matt Huang here from his uh his memo because I think it's super good. Uh his his comment is we can think of money as a bubble that never pops or at least hasn't popped yet. And the value of fiat currency, gold, or bitcoin is relying on collective belief. Other factors like a government's power, the industrial utility of gold, or the robustness of Bitcoin's code base can help reinforce this belief, but this belief is critical.

2:30:29 And I I think there's something really interesting as we think about money or currency here. It's not like A stock. Where sure you could say like oh Tesla is a bubble'cause it's, you know, relative to uh its current

2:30:43 positive cash flows or uh any reasonable future positive cash flows that it could have, like you could argue like, uh, it's trading way, way too high above the sort of utility or intrinsic value of what you're entitled to as a shareholder of that company. You know, and you're entitled to the future profits of it. Currency. Definitionally. has no intrinsic value. Right. Like it it literally the there the the only thing that gives it value is the collective belief that other people will continue to value it in the future.

2:31:13 Right. Well this is you know, we're getting to uh exceed our macroeconomic, academic and history depth here quickly, but Yeah, this is the argument like Before nineteen seventy one there was some argument. About the US dollar. That it was pegged to gold.

2:31:30 And uh you you know You couldn't get as much gold as you could buy for a dollar if you turned in a dollar. But you could get some gold. Like there was something But then after nineteen seventy one, when Nixon uh signed that away and the US went off the gold standard

2:31:47 Yeah, it's just it's no different than Bitcoin. Like it's just the the there is no tangible thing underneath it all other than your belief in the robustness of The US government as a system. And hopefully I think what we've laid out On this episode is that

2:32:02 With Bitcoin It is the same. You are believing in the robustness of Bitcoin as a system. Mm-hmm. Yeah, it's a

2:32:11 It's really interesting. Like Uh money you know, ch currency is anything that we're comfortable sort of using as this way of uh again, the the three points are a unit of account, a store of value, and a medium of exchange. So like most things actually pr are a pretty crappy form of currency. If you can rip a dollar in half too easily, or you know, if anybody uh could copy it and they didn't have serial numbers, there's a I'm gonna I'm gonna keep quoting that here,'cause it's just so good. But he says, as with any monetary asset, Bitcoin must be

2:32:39 Scarce. Portable. Fungible. Divisible. Durable.

2:32:45 and broadly accepted in order for it to be useful. Bitcoin rates strongly across most of these dimension. dimensions except for broad acceptability, uh, which of course we've sort of talked about with the network effect. So like uh the dollar is that. If I had to sort of score it, scarce It's like it's reasonably scarce. Yeah. Uh portable, certainly. Uh again, not as portable as Bitcoin,'cause like if you want to carry a suitcase of a million dollars, it's it's kinda hard. Um fungible. Yeah I it it certainly is that. I mean any dollar is kind of the same thing as any other dollar. Bitcoin I don't think Bitcoin wins at all on fungibility. Divisible, they both have uh tiny little unit. Uh there's scents, which you know represent the smallest amount that anything could really be worth, or there's satoshis.

2:33:30 Which is one is it one one thousandth of a bitcoin? One ten thousand? It's one I think it's ten to the eighth, ten to the seventh or ten to the eighth. Uh negative negative seven or negative eight. So we may have to come up with something smaller than that if Bitcoin continues to sort of rise. Um durable. Totally. Durability, I mean the Bitcoin is like way, way more durable than US dollars. Like we we rotate dollars out of the system every once in a while because they just get too ratty and like that's the your bitcoins are not gonna degrade uh on a on a hard driver in cold storage somewhere. So there's this interesting, you know, it it basically in everything except for broadly accepted. Bitcoin sort of wins.

2:34:10 Now Again, that thing we talked about earlier with the US dollar having this overwhelming unbelievable head start on the network effect. Like TBD, if if if Bitcoin can actually Even though it's better in all these ways. Can it actually fight that. And I think an open question is does it need to, or can it sort of exist as a compliment alongside?

2:34:30 But there's There's three more features that Bitcoin has that the USD doesn't, which and and again, going back to Matt Hong here. It is digital. Programmable.

2:34:41 It's actually four. Decentralized and censorship resistant. And universal. And I think that's where you start to get into this like daydreaming about finally a currency for the internet. Things like smart contracts, which you can do on a very limited basis with with uh with Bitcoin, you know, that it's digital first, where you, you know, you're not you you're not saying like I'm transferring you some money but like

2:35:03 Wink wink, it's on credit, and I'll make good on it later. Like you're literally instantly or within thirty minutes moving money from one place, you know, from one account to another. The decentralized and censorship resistant. It's very interesting. I five, ten years ago I would not have been a person that's like, Oh, that's super important in money, but like I think uh everyone's confidence has been a little bit shaken by recent events and like, wow, it actually maybe I do want a hedge. Like maybe I do want some amount of hedge um in case And to be clear, certainly recent events in the US Uh like the capital happening not uh but also recent events in China and all over the world, like It's hard to think of, maybe except New Zealand. I think New Zealand's doing on the rise. But it's hard to think of other governments where like trust isn't going down around the world right now. And if you're from Argentina or Greece or anywhere that's had sort of a currency crisis in the last few decades, you're probably jumping out of your seat right now going, You stupid Americans, like get this through your head, like this stuff happens. Like just'cause you guys haven't had it happen yet, like it doesn't mean it's not gonna happen. That's just I skipped over it in history and facts, but

2:36:06 A huge moment for Bitcoin was in two thousand thirteen when Cyprus Went bankrupt and defaulted. and nationalized parts of like bank accounts of citizens. So like

2:36:19 Let's get this clear. Here's what happened in Cyprus. If you held over the equivalent of like a hundred thousand dollars, you In a bank account in Cyprus. When the Cyprus government Defaulted.

2:36:30 They reached into your bank accounts like I was saying in my nightmare scenario when paying my taxes and they just took all your money. Over a hundred thousand dollars. They just nationalized it. Holy crap. And That happens in the world. And so like a bunch of those people like and around the world were like holy crap, like I I see now why I want Bitcoin.

2:36:49 Yeah, that's wild. So that that's sort of how I wanted to go about, you know, in in this comparison that we often make and what would have happened otherwise. This is sort of my Bitcoin to USD uh comparison. And that might not be fair. Like I think as we as we m move forward here, and I think David you have a little bit more context here than I do, the right comparison may actually be to gold, not to USD and and uh at least in this point at this point in Bitcoin's development, it might be less about can I use it at at retail opportunities and more about

2:37:17 Hey, like, can I at least count on it being a good store of value? Yeah. I mean that's the thing I think Well, we'll get into this in grading and how it's performed across different dimensions. But I think most people, certainly all the institutions that are coming into Bitcoin right now, they're not thinking about it as versus USD. It's not an or it's an And like this is a good store of value. I'm worried about inflation in USD and and other

2:37:44 relatively secure assets. Now Bitcoin has tons of volatility, but it's got upside and it's not gonna experience inflation. Great. Like I'm gonna view it like I view gold. And and by the way, did you know gold's money supply increases? I think it's like from finding new gold every year, but like it's a one and a half percent. Like it's it's literally from mining, you know, they're adding to the gold money supply. Obviously not. at the whim and and in such great volume as as USD is, but Uh one one thing that Bitcoin proponents would espouse is that already

2:38:16 even with you know, we're only twelve years into this or ten, nine, uh, eleven years into this, already the money supply increases by less per year than gold does. Oh, interesting. I didn't see that. It's like one ish percent versus one point five or six percent. All right, what what else in what would have happened otherwise? I mean, we could talk about interesting things like what if what if Silkhood, uh what if DPR hadn't gotten arrested and it were still operating? You know, what if Coinbase and Gemini and the like hadn't been built and we were still all running on Mtcox?

2:38:50 I don't know that those are that interesting. Like I think those are, you know They're kinda like any company story we tell where like Takes a lot of luck along the way. You gotta get the lucky breaks to keep Going and Bitcoin certainly had that. Why don't we move on to onto Playbook,'cause I think I think actually a lot of those

2:39:06 for me feed into one of my big playbook themes. Cool. Well w my my biggest one was definitely this notion of bubbles as a go to market strategy. My second biggest one is again I'm just like so entranced by the beauty and simplicity of reading the white paper. Uh there's something rare that happened in Bitcoin that I don't think happens often, which is that just A small set of very clever, very simple inventions working together. unlocking a tremendous amount of new value. And they built on shoulders of giants' past like public key encryption and one-way functions. And uh and certainly the proof of work from Hashcash and other people that had come before. But

2:39:47 I I mean the notion of a blockchain. Incorporating elements of of uh of the things that came before in sort of a a a tight and near perfect system. Is

2:39:59 is really a marvel. Like no matter how you feel about Bitcoin and everything that's happened because of it, it is It is a beautiful system. It is. I mean, we were talking about this before we started recording. My first reaction in rereading the white paper for this.

2:40:15 Was like Th there's gotta be more. Like there's gotta it's only nine pages. Like I was like, Oh well th th there's gotta be a bunch of stuff that they're not describing that like other little like things and hacks and stuff you need to do to make this work, and like what about this case, what about that case? And then but then you think about it. Yeah, all this stuff. But like So small, like so relatively few things. Like you can probably count on one hand the number of like additional modifications to the system that have had to be made over the last Ten years.

2:40:48 that weren't captured in this nine page document. It's incredible. Yeah, it is. I think it it's it's a I think the biggest change That

2:40:58 Satoshi did not foresee that is that will need to happen is the one that's going on now and the one that hasn't really been implemented yet where Uh Bitcoin was initially kind of created to replace the payments layer on the internet. and and first and foremost and and create a low transaction cost payment system with no fraud. And As as you sort of dive deeper and deeper and deeper, it

2:41:20 You realize Yeah, it's actually not great at that. Right. Like what it Is in it in its current form. Because there's so many people who want to use it. It's it's kind of like it's kind of existing at a different level of the stack. Like if you s look at the like money stack, there's kind of like Well, like there is the US dollar, and then on top of that, there's like the Federal Reserve. And on top of that, there's like the the the central banking system. And then like there's your account at the bank and then there's like

2:41:45 you know, credit cards and stuff. Yep. And and like it's actually not a great credit card, but it is a pretty good Either bank account or like one level deeper where it's like the rails that like the the central banks all work on together. Yeah. And I think like what we're seeing is that then and this is where I think there's gonna be a lot of debate within the community and and I've only dipped my toe in to really understand this, but it's very clear that like

2:42:10 Th the the blockchain the Bitcoin blockchain as it exists today is gonna be for like s moving large amounts of secure value around. Infrequently. And

2:42:21 w what needs to be built is still sort of like Bitcoin's credit card. Exact that's so funny. I was thinking the exact same thing over the past couple of weeks researching, which Even though with how we started the episode. Like you said, the the original goal was like make native money for the internet and fix payment rails and whatnot, like

2:42:41 Yep. The realization to me was like Yeah, Bitcoin is like the bank. Uh it's like the central bank plus like your bank. It's not gonna be good as a credit card, and that's okay because Other

2:42:57 Internet native systems can be the credit card on top of it. Stuff based on, you know, DeFi projects based on Ether. And they'll like well we'll cover all this on a another time on Acquired. But like That's okay if the the credit card like the rapid transaction layer in internet native crypto. currencies is different than the bank account layer. Yeah.

2:43:19 One you don't need one ring to roll'em all here. Yeah. Yeah, it's a great point. As long as you can port in and out. Just like, you know, when I pay my taxes, I pay them out of my bank account. But when I buy something uh the you know, at the store I go hopefully someday again out to eat at a restaurant or I order on DoorDash, I pay with a credit card. That's totally fine. I'll do stuff with an Ethereum based

2:43:40 uh, you know, DeFi project for rapid transactions and I'll move money in and out of that as needed from A Bitcoin wallet. One thing that I've been increasingly thinking about as we've done these episodes, uh is is trying to factor in more my why now to our playbook. Like why did this happen when it is happening. And uh for Bitcoin I wanna talk about this idea that Nick Zabo brought up

2:44:05 Um, he and Naval were on an episode of the Tim Ferris podcast that that uh we'll include in the the sources here. And um This is i I haven't been able to shake this idea from my head. So we've been obsessed with making computing more efficient over the last several decades, and frankly, we've needed to, because uh the we could clearly come up with reasons why we needed more compute than we had. The use cases definitely outpaced what the hardware was capable of. And Bitcoin is one of the first times that we deliberately Want

2:44:36 to and have done something that is computationally extremely inefficient. And when you think about it, Bitcoin requires tons of computers to do the same slow actions, to check each other's work, to propagate this blockchain all over the globe over and over and over again by like It's the s the many computers doing the same work'cause they're sort of voting by doing the work. which will have environmental consequences that we're gonna talk about uh um just before greeting. So it's it's expensive from a computing resources perspective, but if it really does unlock new value for humanity, you can think of it as like a clever way to take advantage of the orders of magnitude more compute power that we have now to do something that is potentially a fundamental breakthrough for humanity.

2:45:20 And it's interesting to try and apply this lens and think Well, what else could you accomplish that was previously thought to be impossible from a system perspective by leveraging this incredible scale of computing in a very inefficient way? Where we're basically like I think the way that Naval put it was like our our brains haven't gotten haven't become any better computers, but we've developed way better computers. So how can we like take the like take things that our brain currently, you know, or or hasn't been able to do for all these millennia and figure out a different way for the computers to take on the work, not in a super efficient way, but in a system wide new use case way.

2:45:58 Uh so like It's a little out there, but I think that's a lot of like I think Yeah.

2:46:05 We'll talk about that when we do some day. Putting the pin in that. Put the pin in that for sure. David, I have one more, but you go first. Okay, cool. I had One big well, I uh two playbook themes that I want to highlight. One I want to be not careful here, but specific. I think this

2:46:22 whole story really illustrates for me. When you are pursuing a network effect A network economy based power business, you know, like this is like Facebook is like most social networks.

2:46:39 And the like like Airbnb, two sided network effect. In the beginning, what matters is getting nodes and usage on the network to start. And so it matters less. what they are doing.

2:46:52 And more just that people come on board. And that your value grows according to Metcalf's law. And then as it grows, more sets of users and use cases will come on board and it will evolve. And so like in Bitcoin's case, this is why I said I want to be Not careful but specific.

2:47:09 I am not in any way condoning what happened with Silk Road, or that that's okay, or that that should happen, or anything. But just from the perspective of value building of the network. The fact that it happened Like transactions needed to start happening. Nodes needed to come on the network for users and for miners. And

2:47:29 Silk Road provided that as the bootstrap, the the first use case. And then there were, you know, more after that and one thing led to another and now here we are. Here we are is so radically different than what Silk Road was, you know. Uh, but for the underlying like network and the protocol. It doesn't really matter. What matters is Increasing your velocity and growth of

2:47:50 Users and transactions. And so I then when I look at Facebook, when I look at Airbnb, it's actually the same story. Like what was Facebook in the early days, as we've alluded to, it was like undergraduates at colleges looking for attracti photos of, you know, other incoming undergraduates at their colleges, right? Like That is so different from Instagram and WhatsApp today. But That's okay. Like that's uh similarly with Airbnb. Like what was Airbnb in the early days? It was like people sleeping on air mattresses in each other's apartments. Yeah. What is it today? It's something wholly different. But the point is growing the network.

2:48:25 It's funny, like on the one hand, yes, you are totally right. On the other hand, I'm like sitting here thinking And this is not really advice, it's just an observation. I think like many of our playbook themes, If you were starting a startup, David, and you came to me and said, I'm gonna eventually do this thing. And before that, I'm just gonna do a bunch of random crap, but people are totally gonna use it a lot. And eventually, once they're all using it, then I'm gonna make them do this other thing. I'm gonna be like, no.

2:48:52 Like that's extremely unlikely. I do think there's some I think there's some applicability here of like Yeah, totally. It's not totally apples and oranges. You stare step up. I think I think uh Ben Thomson had an old article about this with with Snap and laddering. Like you ladder up from like oh disappearing text messages to like you know, a broader social network. And so I do think you can be very strategic about this. I think it also matters for investors.

2:49:20 Who when you see something like this, that's a network effect. Like it's so easy to write off Bitcoin because of Silk Road. But like If you step back for a minute and you're like, Wait a minute, is there a chance that this is just the first set of applications on this network. Is there a chance that

2:49:37 People sleeping on air mattresses in each other's apartment is just the first set of You know. Use cases on this network. And that that'll bring in and attract the next set. Yeah. Fascinating point.

2:49:49 And then the second theme I wanted to highlight, which is smaller and Also sort of tarnished just because of the ICO thing. Um but is, I think, brilliant and new about crypto and new crypto projects. is If you can reward

2:50:03 And incentivise usage of your system. buy value within the system itself. Like with the mining setup of like The rewards for mining are Bitcoin. Bitcoin is the work done by mining, but

2:50:15 Uh that's super, super powerful. Like now there's an incentive in and of itself for people to come in and use your network. All right listeners. Now is a great time to talk about one of our Favorite companies, Statsig. Yes, there is a reason why the best product teams rely on StatSig, whether they are iterating on their core product features or shipping AI powered experiences at scale.

2:50:39 Yeah. In the crazy speed of today's AI world. Shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers.

2:50:56 And how fast you can use that signal to guide what you ship next. This is where StatsIG comes in. It brings experimentation, feature flags and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to Statsig.com slash acquired to get started. All right. Well David, if there ever was an episode that we need to discuss the difference between value creation and value capture it is this one. This is normally a two part section. I'm gonna ignore the one about

2:51:32 Do they capture enough of the value that they create? Cause I think we'll leave that to sort of listeners to ponder on based on everything we've already talked about in this episode. I absolutely want to talk about the comparison between how does the value created for the world, not just shareholders or potentially coin holders, compare to any value destruction that they have created. by existing. And of course we've already talked about all the sort of illicit uses of Bitcoin. Again, I'll leave that to further ponderance by the listeners, but I want to talk about the scale of the environmental impact because I surveyed some friends, like what do you want to know about Bitcoin? And one friend texted me and said, Well, uh is it bad for the environment or no? And it's a good question. And the answer is kind of like well relative to what? Because sure, y does it use computing power? Absolutely. Like how much? And what do other things use? So here's at least some estimation of an answer.

2:52:23 In twenty nineteen, MIT tried to answer this question by commissioning a study and they basically said that Bitcoin mining specifically accounts for about Two tenths of a percent. uh point two percent of global electricity consumption And it produces about as much CO two into our atmosphere as Kansas City does. As just like a a a ballpark, like a whole city. per year. And some estimates actually put it even closer to point four percent, so almost half a percent of the uh of the world's energy production.

2:52:53 So on an absolute basis. For anybody who actually knows a lot of energy. Totally, who knows their climate. This means twenty three megatons of CO2. um are are put out into the atmosphere per year. Because of Bitcoin. Uh which

2:53:07 that another comparison is between it i if bitcoin were a country using energy, it would be right between Jordan and Sri Lanka in terms of their greenhouse greenhouse gas Pollution. If you include the other cryptocurrencies, um mostly Ethereum, that actually doubles uh help you estimate how much energy is being used. So I think the answer is a lot.

2:53:29 I think there there's a Uh uh there was other studies that have been done that shows that mostly their mining facilities are using renewable energy. So it's not like it's necessarily consuming coal, using oil, right. Uh like the central basin in Washington. That doesn't change I mean it's still like that's a lot of energy. Right. Energy is fungible, not as fungible as money, but as fungi fungible like money is. So if like these data centers are using that renewable energy, then it means that other places are likely to look toward Coal or to oil. And so

2:54:05 Yes, it's it's making an impact in our greenhouse emissions. And um that glorifying this system should not come without the discussion of is it worth it? And I think listeners, you make the call of whether you think that all this utility that that this new monetary system has brought, is it worth it if we, you know, race toward raising the global temperature by, you know, one or two degrees Celsius over the next ten or twenty years. I I don't know. And and and I think the the jury's out. I'm I'm not sure there's really much we can do about it. Again, it's a decentralized thing, so what are you gonna do? Tell people a question I certainly haven't done the work to know, I don't know if you have of

2:54:47 How much energy. Does and emissions does the traditional finance system produce? For sure it's also a lot. I bet it's a lot more. So here's an interesting stat on that. A single bitcoin transaction. Now remember we talked about these these are Really ideal for like Big secure transactions, not credit card transactions, but in some way th there's a lot of smaller transactions that are being used for today. A single bitcoin transaction consumes more energy than a hundred thousand Visa transactions. Oh, interesting.

2:55:18 I mean if you think about all the computers that then have to go and verify th that proof of work and stack it at the next level on the blockchain and propagate it out. Like it makes sense. Uh a centralized system is way more efficient from an energy consumption perspective. Yeah. Yeah, that's a good point. Then there's also like I think the other dimension to this question is Not that we're gonna uh be capable of or choose to Talk about a certain side here, but it's just the political side of this. Like This is

2:55:46 Uh there's a Probably a reason why Currencies and governments have been tied together for uh like four or five hundred years. This is separating that out. Like what's what's what are the consequences of that gonna be they're large? It's an unbundling of one of the major components of

2:56:03 the services that a government provides in order to ensure a stable society? And like, will societies that you currently think are stable stay as stable if they don't also have control over being the you know if they don't own the fiat currency. Yeah. Totally. So that's a question. Then there's stuff like uh the uh Cypriots and residents of Cyprus. Like they, you know, if they if those people had owned Bitcoin instead of had their deposits in a bank,

2:56:30 wouldn't have been able to be nationalized. Or if you Live in a country where certain things are illegal that may or may not be right to be illegal. You can now have a vehicle to transact with them. via Bitcoin that you couldn't otherwise. But yeah, there are also a lot of downsides too. So things. I will say the point there was right though, though like the cat is out of the bag here. Like the These are

2:56:53 philosophical questions, the real questions are gonna be just like what How will history play out in the coming years? Yeah. And this decoupling from government is interesting because for the average person, it is way, way, way, way better to live in a stable society versus an unstable society. Like government provides an enormous amount of value in our lives, ensuring you at least know what system you're operating within. So you generally don't have concerns about safety or about someone screwing you over in one way or another or

2:57:24 You know, just provides like reasonable guardrails so that you can do higher level functions in life. And like if you want to Uh the flip side of that is With stability. comes

2:57:34 Sameness. So if you're part of a group that's been oppressed by a government And maybe that's been the case for hundreds of years in your country, then like you're gonna keep being oppressed systemically. And it would be better if you lived in a more

2:57:49 Dynamic. nation where you could do more things to break the system and rise up and get power. But uh I think these are sort of two sides of the same coin and if you see government owning less and less of the sort of core components of a society, the first of them being money, you will both see

2:58:07 the destabilization which is worse for the person who benefits from the stability. But also you will see greater opportunity for those who are oppressed to be unoppressed. One last thing that actually is worth calling out here. On a separate topic.

2:58:21 This is we're gonna talk about this in grading in a minute. This is probably the best if you were to categorize Bitcoin look at it through the lens of like an acquired lens of like a venture investment. This is probably the best venture investment of all time. Like a three million X, like what d there's nothing that's even close. Like this is just Just like hands down. Okay. Every other investment like that, probably in history, has just solely been the realm of institutions. Right. Like you could found a company, you could be Mark Zuckerberg, or you could be Excel and founders fund that invested in the early rounds and as an institution, like you and I couldn't do that. Bitcoin. Yeah.

2:58:55 Totally can participate in this. Yeah. And in fact, the institutions have been locked out until now because the scale wasn't big enough for them to participate. Yeah, put another way. Asymmetric upside opportunities are typically only available to frankly wealthy people. Like

2:59:12 Venture capitalists, those who invest in venture capital funds, accredited investors, people who are able to get in early on these companies that could be the next Amazon. And very rarely is there a public company that has that kind of upside left in it. Uh of course Amazon is the example where there w actually was that much upside left in it. Um, you know, people are perceiving that to be the case with Tesla. So But I think the point you're making is that like, oh my gosh, look at this. This was a retail investment available to consumers at any scale. And approved to have. this type of asymmetric upside. Yep. And when I say asymmetric upside, I mean like sure, you're gonna invest in a stock and oh my God, if that stock ten Xs, that would be amazing. But almost never are you gonna buy a stock and it's gonna thousand X the way that Sequoia did with Airbnb. And I I don't know I have the number off the top of my head, but you know, in that sort of order of magnitude.

3:00:00 Yep. So I think that's like interesting. For sure. Value creative for those who uh Who did so in in the pre twenty thirteen era. Yeah. All right, grading. David, how on earth Are we gonna Great this one. Oh boy.

3:00:16 Okay. Unless you disagree, Ben. I I think we knocked out number one, which is like How would you grade? an investment in Bitcoin. Like this is it's by far the greatest investment opportunity of all time in in humanity. Over the past ten years, for sure. Okay. That's easy. That's not that interesting. There's How would you grade

3:00:37 Bitcoin in its sort of original purpose as laid out in the white paper of becoming a Uh native internet currency. medium for transaction for the internet. I think the grade is actually pretty poor here relative to the initial intentions. Now that said, it c it could prove with the twenty year lens, let's let's say here we're we're sitting here in what would that be twenty twenty eight.

3:01:03 from from the white paper's initial sort of initial beginning of the authoring. Then it It actually works really well if they can figure out this m other layers of Bitcoin and how they sort of interact and how you can do much more higher velocity, lower value transactions in a cheap way.

3:01:20 It it may be the case that it ends up. Great. But like so far no. It's been pretty poor for that. And Bitcoin itself. Now, I think very likely no if there's no Bitcoin there you know there wouldn't have been any Ethereum and Ethereum and it's

3:01:36 Derivatives probably in My view right now, stand the best chance of like Building that layer. So maybe it's responsible, but like Bitcoin itself No and probably never gonna be.

3:01:47 Right. I can check out on overstock dot com. But that's a like it's kind of about it. I yeah, interestingly, so Stripe supported Bitcoin for a while, but then once it became clear that like this it was too slow and too unwieldy and transaction costs were too high for high velocity transactions, they dropped it uh in twenty eighteen. They stopped supporting it. Interesting.

3:02:08 Well, tha that that's that's definitive. Like it's it's a D or an F for for its initial purpose so far. But it stimulate innovation in that area. Yep. Okay. Next Oh, I was gonna say we do store a value next. That's probably related to being an investment.

3:02:24 I mean it's been an amazing investment and a highly volatile store of value. So it's not a It just like anything here, like investing in value depends on your time frame. Like If you have a multi year time frame, amazing. Best investment of all time. If you are Need this to function as something like a US dollar where like

3:02:43 Hey, I need to pay my taxes next quarter. I want to make sure that I put this money away so that like I know I'm gonna have that money to pay my taxes next quarter. Not good. Yeah. Yeah, it's interesting. Like I to me, from a store of value perspective. Yeah. It's a great hedge. Like there still is the probability that it loses eighty there still is the the a reasonable possibility that it loses sixty, seventy, eighty percent of its value in a short period of time. So like am I calling my parents and telling them you should put your retirement in there? Like, absolutely not. Should you be building it into your portfolio, maybe. Like again, gold continues to probably be the best

3:03:20 It's like gold. With a bunch of upside. feels like uh higher volatility there though if you put money into gold, I'm probably gonna be able to pay my taxes next quarter with by converting that back out. That's a fair point. Yeah. It's it's super high volatility gold. And and and again has I don't know that it's like uh

3:03:40 I don't know that there's alpha there. Like there's just as much upside as there is downside. Yep. Yep. But I do think, you know, over the long There's a lot of upside. Very likely. And especially and it's we'll get into our last uh greeting lens here, especially compared to

3:03:58 Cash, which and zero interest rate in a zero interest rate environment plus an inflationary environment where you are losing money in the long term. Not to mention d delutive from the money supply increasing this much. Unless something drastically, drastically changes. you will assuredly lose purchasing power by keeping money in cash over any extended period, uh for the foreseeable future. Bitcoin knocks it out of the park relative to that. Yeah. That's a great point. high volatility relative to that cash, but yeah.

3:04:31 Yeah, it's it's a really good point that like the the you know, old aphorism of like I'm gonna keep cash around In case you know, there's a a recession and I have the opportunity to buy up like that cash is just losing value faster than it ever has. Like we're not in a hyperinflationary environment, but like

3:04:51 relative to where we normally are? It's not it's certain you certainly can't put it to work in a great way it w without taking meaningful risk. No, I will say, uh we don't have The lived context of the eighties in America where where interest rates were in the teens and like that talk about it. Inflation. That's insane. You're losing fifteen percent purchasing power every year. That's crazy. Um so we don't have that context of lived experience.

3:05:19 But It's just like There's just no rational way that I can think of to look at why in like long term holdings that I don't need this cash right now and I can afford to be long term focused with it.

3:05:32 I should have it in cash. That just seems Like there's no way to win there. Well the la last way I want to sort of analyze this is through the through the venture investment lens of is there still enormous upside uh in this investment. And I was kind of thinking about this like

3:05:49 So we saw thirty five thousand X in the first five years. And then we saw an eighty five X in the five years after that. And even to get a twenty X in the future, that means a single bitcoin would have to be valued at over half a million dollars. But Which the Winkelvast twins are on record saying that that's their essentially price target for Bitcoin is

3:06:08 Five hundred K. Which would be parity market cap with Yeah. above ground gold. Like if Bitcoin had the same market cap as Right. That's what I was gonna yeah. That's where I was gonna go here. It's like it's sort of silly to like think about like what could I imagine a Bitcoin being,'cause you can't it's arbitrary.

3:06:24 Th the interesting thing is if I owned the share that I would own of all the bitcoin in the world, which you can calculate, and And Bitcoin's market cap was like this is what I what I'm saying I'm analyzing like a venture investment. Do I think this thing has a chance of sort of being a 20x here? And

3:06:45 The answer is probably Like if if Like I I probably think that or the answer is yes, I do think that because I if it's got this half a half a trillion dollar market cap today And the market cap of of what people are doing with

3:07:00 similar products like the US dollar is, you know, there's there's twenty billion of those, there's seventy billion dollars worth of that globally. Um, you know, there's five ish billion dollars of gold, and that's its sort of closest comp. Like do I at least think it can G steal more of the gold market. Yeah, totally. And that gold market is, even without jewelry, ten ten times bigger than its current market cap. So do I think it has a twenty X in it? It could. It has the possibility of that. And an eventure return, you're never underwriting to uh uh yeah, I think this is going to happen. You're underwriting to If it happened, would it be sufficiently large enough? And am I willing to put together a a portfolio of those if it happens, um just make sure that all all of them clear the the hurdle of uh if if

3:07:46 if if the one or two that are enormously successful Will it be big enough in order to make the whole the whole portfolio worth it? And Yes, I I do think this has enough running room in front of it. All right, let's I'm gonna bring it full circle for acquired here. The pre-twenty eleven era for Bitcoin was science project phase. The twenty eleven two

3:08:07 twenty thirteen era. was like seed investment phase for Bitcoin. You invest in Bitcoin during that phase it's like being a seed investor in Google or Facebook or whatnot. The twenty Yeah.

3:08:21 was the series A, series B stage investment. You're like um You know, especially if you go later in that spectrum, you're like Greylock coming in and doing the series A of Airbnb at a sixty million dollar post. Super high at the time. That seems crazy. Well, yeah, they made a lot of money there. We are now in the Growth round phase of Bitcoin. Oh, you don't think we're in the post public?

3:08:46 No, no, no, IPM. No, because there's still all this upside. Like will they there's still rent like you're investing in a gross stage company, right? Like you're doing a series C And Yeah, th you're investing in Stripe right now. Like that's actually the reasonable comp is like twenty twenty stripe. Well I so so here's why I think you're in twenty seventeen stripe. Here's why I think you're in twenty twenty stripe. Because Bitcoin After it w in our little

3:09:12 It still has like the the because the TAM is so big, it's Amazon like in that way. Where like it still has a ton, a ton, a ton of growth potential in front of it after it's sort of like mainstream and accepted by you know all the people that would be interested in buying a a you know robust IPO. And also It's not a company. It's way bigger than that.

3:09:37 Yeah, yeah, yeah. I I guess that's that's sort of where I'm the where I would take your analogy is. Oh no, this is so good. I think we're gonna We're viewing it the same way, but we're gonna disagree on what stage. I think it's Stripe in twenty seventeen. Because

3:09:50 I think this is like a series C ish in a company. The path that you laid out. of the path to gold. High execution risk, whatnot, but like that's the That's the upside. Like it it accomplishes that great I think that's the IPO. It's gold with more utility. So like it's more hard to imagine why they would be able to pull that off.

3:10:10 But here's the Amazon what y the case you uh I think in my mind Uh and we can disagree about where we are in this. There's still upside to gold. Like the it may be low likelihood, but it's like Amazon went public, it was a bookseller. Amazon today is AWS and Amazon, right? Like the upside is it becomes more than gold. Uh and

3:10:31 starts to eat into reserve currency, you know, et cetera, et cetera. Uh so I think that's I think there's still another after booster stage on this. Uh whether it'll happen or not, I don't know, but I think you could view Two tiers of upside left here. One is Realize the Gold thesis. Two is expand beyond gold. Well'cause realizing the gold thesis is only another ten X.

3:10:55 Right. Yeah. Uh it's like a t fifteen X. Well, I'm not counting um I'm not counting the part of gold that's dedicated to jewelry. Oh god, yeah. People people holding gold as a store of value. Although jewellery is a store of value too. It's just uh inflated because it's prettier. Alright. Uh Iler I really like that analysis.

3:11:13 I think uh I think that's a great place to leave it. I haven't checked the time. I have to imagine this is gonna be the longest acquired episode in history, so Listeners, thank you for going on this journey with us. No, David I didn't expect uh frankly us to do as much as we did

3:11:29 looking both at the history And sort of this like strategy pull apart and some of the technical aspects. So uh I I hope listeners you enjoyed all three. Um we'd love feedback, particularly if you are um an economist or in this ecosystem. Or if you know about moves that have been made in this ecosystem that we don't know about yet, I think w we we like to continue learning in public. So please, uh Please.

3:11:54 Please reach out. Well, for folks who don't know, uh, we have started codifying the playbook from each episode in some written bullet points. And we did that for this episode as well. And we we email those out after posting each episode. So if this is something you want, you can sign up to receive the playbooks at acquired.fm. And if you join the acquired community Slack at acquire.fm slash Slack, you will automatically be signed up for them there as well. As always, if you love acquired and you want to be a deeper part of what we do here, you should become a limited partner. You'll get access to our library of over fifty interviews and deep dives on company building topics, monthly Zoom calls, and The new uh the new thing we've added, live access to listen in while we record big events like emergency pods and our book club discussions with authors. So if you are not already an acquired LP, click the link in the show notes or go to acquire.fm slash LP. And we can't wait to see you there. If this is your first time listening to an episode and you're not subscribed, you can do that from your favorite podcast player.

3:12:53 And if you have a friend that you think would enjoy this episode, maybe someone who's a crypto, a crypto bull, someone you like to talk about this with, um, you should definitely share it with them. Feel free to share it on social media. But again, we love that one to one touch when you share it with someone that you think would really like it. With that, listeners. Thank you, and we will see you next time. We'll see you next time.

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