David Rosenthal: belief

Transcript context

…Yes, so listeners, what would’ve happened otherwise is our next section. A lot of times we like to look at a specific event and wonder if it had gone a different direction. We may do that here, but we want to adapt this section to basically say let's compare all the weird ways that Bitcoin works to the normal fiat currency system, to USD, and compare and contrast some of the elements. The way that I want to start is what is money? What is the purpose of money? Now, we're getting a little bit (I suppose) academic, but it is three things. It's a unit of accounts. It's the way that we basically say this thing is worth that much. When you look at a gallon of milk, in your head it 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. I made some money, I put it in a savings account that's denominated in cash. I'm going to come back and use that in the future. It's a medium of exchange. It's the way that I buy apples at the market. Of course, then the currency is in some ways a subset of that. It is literally like money in the form of however you pay for it. In the form of paper or coins, generally issued by a government, things like that. I bring this up because I want to talk about this phrase that people throw around in the Bitcoin bubble and that we’ve talked about on this show. If someone were to say Bitcoin is a bubble, for sure. No doubt it's a bubble. Also, so is USD. It's just a really long bubble. How would you define bubbles? Again, I'm going to quote Matt Huang here from his memo because I think it's super good. His comment is, “We can think of money as a bubble that never pops or at least hasn't popped yet. The value of fiat currency gold or Bitcoin is relying on collective beliefs. Other factors like a government’s power, the industrial utility of gold, or the robustness of Bitcoin’s codebase can help reinforce this belief, but belief is critical.” I think there's something really interesting as we think about money or currency here. It's not like a stock where you can say, sure Tesla is a bubble because it's relative to its current positive cash flows or any reasonable future positive cash flows that it could have. You could argue that it's trading way too high above the utility or intrinsic value of what you're entitled to as a shareholder of that company. You're entitled to the future profits of it. Currency definitionally has no intrinsic value. The only thing that gives it value is the collective belief that other people will continue to value it in the future. We’re going to exceed our macro-economic, academic, and history depth here quickly, but this is the argument. Before 1971, there was some argument about the US dollar that it was pegged to gold. You couldn’t get as much gold as you could buy for $1 if you turned in $1, but you can get some gold. There was something, but then after 1971 when Nixon sent that away and the US went off the gold standard, it’s no different than Bitcoin. There is no tangible thing underneath it all other than your belief in the robustness of the US government as a system. Hopefully, I think what we've laid out on this episode is that with Bitcoin, it is the same. You are believing in the robustness of Bitcoin as a system. It's really interesting. Currency is anything that we're comfortable using as this way of—again, the three points are a unit of account, a store of value, and a medium of exchange. Like most things are a pretty crappy form of currency if you can rip $1.50 too easily or if anybody could copy it and they didn't have serial numbers. I'm going to keep quoting Matt here because he’s just so good. He says, “As with any monetary asset, Bitcoin must be scarce, portable, fungible, divisible, durable, and broadly accepted in order for it to be useful. Bitcoin rates strongly across most of these dimensions except for broad acceptability,” which of course we talked about with the network effect. The dollar is that. If I had to score it, it's reasonably scarce. The issue is the monetary policies—portable, certainly, again. Not as portable as Bitcoin because if you want to carry a suitcase of $1 million, it's kind of hard. Fungible, it certainly is that. Any dollar is the same thing as any other dollar. I don't think Bitcoin wins at all on fungibility. Divisible, they both have the tiny little units. Their cents which represent the smallest amount that anything could really be worth or there is Satoshi, which is 1/1000 of a Bitcoin?…

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