Lesson 1: How Can Bitcoin Be Worth Anything?

[0:00] So, welcome to episode 131, the first
[0:04] segment of Bitcoin 101. How can Bitcoin
[0:08] be worth anything? An honest first
[0:10] principles exploration into value, why
[0:15] anything has value, and how Bitcoin has
[0:18] value. The skeptics around Bitcoin have
[0:21] every right to ask this question. It's a
[0:23] good question because Bitcoin has no
[0:26] cash flow. Bitcoin has no company.
[0:29] Bitcoin has no government guarantee.
[0:32] Bitcoin has no redemption. It's not an
[0:34] IOU that has physical backing of metal
[0:38] in a vault. Bitcoin is information on
[0:41] computers. So a skeptic saying, "How can
[0:44] this thing have any value? Why is it not
[0:46] worthless?" It's a fine and fair
[0:48] question. So to understand why and how
[0:53] Bitcoin could have any value above zero,
[0:56] we have to ask why is anything worth
[0:59] anything. Okay, so this is chapter one.
[1:02] Why economics exists in the first place?
[1:05] What does it mean for water or for oil
[1:08] or for shoes or diamonds or bread or
[1:11] dollars or a house to be worth anything?
[1:14] So
[1:16] listener, whether you're a Bitcoiner or
[1:18] whether you are totally uneducated and
[1:21] your buddy sent you this video and said,
[1:23] "Please just give it 30 minutes to
[1:25] understand." Let's put Bitcoin away.
[1:28] Let's put it down completely and we're
[1:30] going to do plain 101 fundamental
[1:34] economics. Why is anything worth
[1:36] anything? The first thing we need to
[1:38] understand is that value itself is not
[1:41] embedded inside of said thing. Okay?
[1:45] Meaning this, if you cut a thing open,
[1:47] if you cut a house open, if you cut open
[1:49] a Dior bag, if you cut open a Ferrari,
[1:52] you won't find value inside of it. Okay?
[1:55] A Ferrari is not actually worth more
[1:58] than a Honda because of some formula
[2:02] that's been embedded into the seat
[2:04] cushion or that's hidden inside of the
[2:06] trunk or the fact that it may have a
[2:09] more powerful engine. That's actually
[2:11] not what is deriving its value. Value
[2:15] lives in a relationship between the
[2:18] thing and a person.
[2:22] It lives between an object.
[2:25] In economics, the technical definition
[2:28] is a good. So, it lives between a good
[2:32] and a human need. Okay? The relationship
[2:37] between these two is solely based on the
[2:40] human desire, the human need and the
[2:43] human's opinion on how well the good or
[2:45] service can serve that need. Now, it
[2:50] also is important to know that this
[2:51] relationship can change. Therefore, the
[2:54] value of things changes as well.
[2:56] Sometimes a human really, really, really
[2:58] needs something at any given second. And
[3:01] sometimes they actually have plenty of
[3:02] it and don't need to buy another one
[3:04] anymore, but it's not embedded inside of
[3:08] the thing. And you open a car, when you
[3:10] open a house, when you open, you know,
[3:12] why is one stake $1,000 and another
[3:15] stake $100? It's actually not once you
[3:18] cut open the steak, you find the value
[3:20] inside of it. That's actually not the
[3:22] case. Okay, so [sighs]
[3:25] more specifically,
[3:28] value period is all about satisfying a
[3:31] human need. And I know that sounds
[3:34] obvious, but embedded in economics in my
[3:38] opinion is the human condition itself,
[3:41] which we'll get into in a second. But it
[3:43] has to satisfy a need. If there is no
[3:47] need, there is no value. It's a very
[3:50] important thing to understand obviously
[3:52] when we are understanding the basic
[3:54] first principles aspects of value. Set
[3:58] another way, it actually doesn't matter
[3:59] how rare the thing is. Often times
[4:02] people will say, well, Bitcoin is
[4:03] valuable because it's scarce.
[4:06] That's so oversimplified that it's
[4:08] technically incorrect. You know, uh your
[4:11] child's painting that they made in
[4:13] kindergarten could be scarce. That does
[4:15] not make it valuable. A rock in my
[4:18] backyard, if I were to put on eBay, a
[4:20] rock found uniquely in my yard, there's
[4:24] no guarantee it would have any value.
[4:27] The reason for that is because it's not
[4:29] satisfying anyone's need. Just because
[4:33] it is rare, just because it is scarce,
[4:36] just because any property it could have,
[4:38] it is worthless unless it satisfies a
[4:41] need. Okay. Now more on to the human
[4:45] condition.
[4:47] The reason we economize and the entire
[4:51] reason for economics in the first place
[4:54] like you must understand this economics
[4:56] would not need to exist if it were not
[4:59] for the very simple idea that we can't
[5:02] have everything that we want. I'm gonna
[5:06] say that again. There is a difference
[5:09] between wanting something and having
[5:11] something. If we could have everything
[5:16] we want, we would not need money, we
[5:19] would not need to economize. Okay. Now
[5:23] the human condition is to want better
[5:27] future. We imag as human beings we
[5:29] imagine better futures.
[5:31] However, we cannot pursue them all.
[5:34] There are limitations in what we call
[5:36] scarcity to living out our hopes, our
[5:40] dreams, our desires and the futures that
[5:42] we imagine. So we as humans end up
[5:45] having to make choices. And this is the
[5:49] starting condition of being human. So on
[5:52] the screen I have one life and there are
[5:56] four arrows breaching away from this one
[5:58] life. This one life could decide to go
[6:00] study for four years at university. They
[6:03] could decide to start the business now
[6:05] that they have in mind. They could
[6:06] decide to take a steady job and start
[6:08] producing new income. Or they could
[6:10] decide to move somewhere new and chase
[6:12] the girl they have a crush on. Now,
[6:15] unfortunately, they can't do all of them
[6:18] at once. Now, this is not even a lesson
[6:21] about economics cuz this person may or
[6:24] may not even be making an economic based
[6:27] decision. The point is it's embedded in
[6:30] the human condition. Scarcity is a human
[6:33] construct. We will always want.
[6:39] So, you know, let me let me say
[6:41] different. Have you you guys have
[6:42] probably heard guys like Elon Musk say,
[6:45] well, AI is going to AI and robots are
[6:48] going to have so much production that we
[6:51] won't even need
[6:54] money.
[6:55] And
[6:57] I he's probably half true in that he's
[7:01] right to highlight that there will be an
[7:04] abundance of new stuff, right? Like if
[7:06] you think about the kings and queens of
[7:09] the world hundreds of years ago, they
[7:11] did not have the abundance that you and
[7:13] I have today. Even though we're not
[7:15] kings and queens, we have more of an
[7:17] abundance of water, of medical care, of
[7:19] medicine, of travel. Right? I get cars.
[7:24] I get to fly United. I get an abundance
[7:26] of water. I get to go to the doctor and
[7:29] get cured. My life expectancy is longer.
[7:33] So yes, there has been commercial
[7:35] abundance, but we still need money. And
[7:38] we still need money because humans will
[7:40] always imagine and want. I want to fly
[7:44] private. I want to own the Chicago
[7:46] Bulls. I want I want I want. But not all
[7:50] of my wants can I have. And the delta,
[7:52] the difference, the gap between wanting
[7:55] and having results in the need to make
[7:58] choices. And the need to make choices
[8:00] and decide what is more valuable to me
[8:03] and my needs and my wants. Who gets
[8:05] what?
[8:07] That is the phenomena of economizing of
[8:11] deriving subjective value. Make sense?
[8:16] So
[8:18] said simply, wanting is not enough. If
[8:23] we could get everything we wanted, we
[8:25] would not need economics. Economics is
[8:28] how we choose when we can't have
[8:31] everything.
[8:32] Okay?
[8:34] So with that being said, scarcity is in
[8:39] my opinion an embedded property of the
[8:42] human condition and it does not mean
[8:44] suffering because another thing people
[8:45] will say is because something is scarce
[8:48] it means there's not enough for everyone
[8:50] and therefore it implies suffering. Not
[8:53] not the case. Scarcity and and maybe I
[8:56] can delve into that in a separate
[8:58] episode but for this episode I keep it
[9:00] simple. Scarcity simply means the
[9:03] necessity to choose. You cannot afford
[9:07] not to make a choice. You have options
[9:10] A, B, C, D, E, F, so on and so forth.
[9:14] And you have to make a subjective choice
[9:18] as to which one is the most valuable to
[9:21] you in any given situation.
[9:24] Said another way that I think is
[9:26] interesting, for every yes, you are also
[9:28] saying no.
[9:30] If the person decided to go to a new
[9:33] city and chase the girl, they were
[9:35] saying no to university, to the job, and
[9:37] to starting a business. Right? For every
[9:39] yes, it is a no. That is the entire
[9:42] point. Okay? So, back to what is an
[9:47] economic good. Okay? This sounds simple,
[9:50] but the more you think about it, it's an
[9:52] incredibly important distinction to
[9:54] make. An economic good has to be both
[9:57] useful and scarce. Let me explain. Air.
[10:02] Air is incredibly useful. Without air,
[10:05] we would all die. Okay? You need oxygen.
[10:08] However, air is so abundant that nobody
[10:12] trades for it. You don't have to pay for
[10:14] air. Said another way,
[10:17] the supply of air exceeds the demand for
[10:21] air. Therefore, air is not an economic
[10:26] good. We do not need to economize for
[10:29] air because we have a plentiful amount
[10:32] of air. We have more air than the demand
[10:35] for air.
[10:37] Fair enough. So air is free. We do not
[10:40] need to economize for it. We do not need
[10:42] to apply subjective value for it. And we
[10:44] do not need to exchange with each other
[10:46] for air. Now let's take the counter
[10:48] opinion. A rock. A rock in my yard may
[10:52] be one of a kind. I could say, "Listen,
[10:55] you all have rocks, but you don't have a
[10:57] rock that was found in my yard." Sure,
[11:00] but that rock is useless. So therefore,
[11:04] it is also not an economic good. And
[11:06] that if you walk in my yard and pick up
[11:09] a rock, you could do it for free and I
[11:11] honestly won't really care because it's
[11:13] pointless. It's useless. I have no use
[11:14] for it. So, it's the opposite of air.
[11:18] It's one of a kind, theoretically
[11:20] scarce. That's when people say, "Oh,
[11:21] Bitcoin's scarce." Like, isn't my
[11:23] daughter's painting scarce? Yeah, you're
[11:24] right. But the problem with your
[11:26] daughter's painting is it's useless.
[11:28] Okay, now let's pick an example of an
[11:32] economic good. This weekend is one of my
[11:35] hometown buddies bachelor party. For
[11:37] this bachelor party, we're going to a
[11:39] lakehouse. A lakehouse is both useful
[11:42] and scarce. There can only be so many
[11:45] lakeous because there's only so much
[11:49] land that surrounds the lake.
[11:54] The lakehouse is al also incredibly
[11:56] useful. It can house us. It can sleep
[11:59] us. It can host us. So it is therefore
[12:02] an economic good and people apply
[12:05] subjective value to the lakehouse. There
[12:07] is a price to it. So an economic good is
[12:10] a good that is both useful and scarce.
[12:14] Air is useful, but it's everywhere, not
[12:17] scarce. A rock in my yard is technically
[12:20] one of a kind, but it's not useful. A
[12:23] lakehouse, a Bitcoin,
[12:26] you can think of countless things. A
[12:28] cheeseburger. These are all things that
[12:31] are useful and scarce. And it doesn't
[12:34] mean literally scarce like
[12:35] cheeseburgers, eggs. These aren't as
[12:37] scarce as gold. So, I don't mean finite
[12:41] like you should invest in them. I mean,
[12:44] there is more demand than there is
[12:47] supply. I cannot just snap my finger and
[12:49] print it out of thin air like I can air.
[12:52] Air I just [snorts]
[12:54] just inhale and I got me some air. I
[12:56] cannot just inhale a burger when I'm
[12:58] hungry.
[13:00] We can make lots of burgers,
[13:04] but there's more demand to eat than
[13:07] there is food at any given time.
[13:09] Therefore, we must economize. Fair. We
[13:13] move on. Now you guys have to understand
[13:16] I mentioned earlier subjective value
[13:18] changes because it is a relationship
[13:22] between a thing and a human's wants and
[13:26] those change all the time. One of the
[13:29] greatest historical examples is oil. In
[13:32] the 1800s, oil was a nuisance. It was
[13:35] disgusting. It was for peasantry. It was
[13:37] get this industrial sludge off my land.
[13:41] And then the combustion engine came
[13:42] around and oil became fuel and now oil
[13:47] and fossil fuels power the world
[13:49] economy. It is the most valuable
[13:52] consumption commodity that we have
[13:54] today. And it literally is like
[13:57] determining war uh geopolitical context.
[14:01] You know it obviously I don't need to
[14:03] sell you guys on the value of oil.
[14:07] The point is value again was not
[14:10] embedded inside oil itself. It was the
[14:13] same molecules in the 1800s. It's the
[14:16] same molecules today. Oil itself hadn't
[14:19] changed. What changed?
[14:22] How oil could solve a human's need.
[14:28] It it became useful. And going back to
[14:31] being an economic good, the demand for
[14:34] oil versus the supply of oil, there's
[14:36] more demand than there is available
[14:38] supply.
[14:39] If we lived in an abundance of oil like
[14:42] we do air, we would not need to
[14:44] economize oil. We would not need to
[14:46] apply subjective value. But you have to
[14:49] understand that subjective value is
[14:51] subject to change.
[14:54] Understand?
[14:57] And again we let's let's just revisit
[15:00] one more thing. I have to remind you
[15:02] guys scarcity is a permanent human
[15:04] condition no matter what. Unless human
[15:07] beings stop being future oriented
[15:10] species stop imagining a better future
[15:13] for themselves and so much so that they
[15:16] can't immediately want or excuse me
[15:18] immediately have what they want and
[15:20] desire. So scarcity is permanent. So
[15:22] we're constantly and always choosing
[15:25] between courses of action. You always
[15:28] have multiple courses of action to
[15:30] service your needs. And by the way, your
[15:32] needs may be different than any other
[15:34] given person's needs. So to choose, you
[15:37] have to hold two utilities side by side,
[15:41] oil or
[15:43] something else, and you have to compare
[15:45] them. And that act of comparing is
[15:49] valuation.
[15:51] That's it right there. or how does
[15:52] anything get value? Well, you want a
[15:55] future and you are subject to different
[15:57] opportunities to service that need of
[16:00] the future that you want. And just by
[16:03] having an opinion, you are subjectively
[16:06] valuing a thing. So value is your
[16:08] subjective assessment of the
[16:10] satisfaction that you expect from that
[16:13] good. That's all value is.
[16:17] So comparing two options is the act of
[16:20] valuing them. So what I have on the
[16:23] screen for those podcast listeners, what
[16:25] I have on the screen is on the far left,
[16:27] we start in this permanence of scarcity
[16:30] where the human condition is to always
[16:32] want, always desire, always dream,
[16:35] always be future oriented, right?
[16:39] And then we make choices
[16:44] and after that we have to juxtapose
[16:47] between those choices. And that
[16:49] juxtiposition is the value itself. Value
[16:52] is your own assessment.
[16:55] It is the assessment of the satisfaction
[16:57] that you expect from the good. It
[16:59] happens in your head, not in the thing
[17:02] itself. It doesn't happen in the car, in
[17:04] the plane, in the food, in the oil. It
[17:07] happens in your head.
[17:11] Understand?
[17:14] Okay.
[17:19] So, who decides what is useful? Who
[17:22] decides what is valuable?
[17:25] Hopefully, this is a self-explanatory
[17:28] question, but
[17:30] nobody and everybody.
[17:34] And this is what we call an economy.
[17:37] This is what we call a market of people
[17:40] a free market of people willingly
[17:43] exchanging with each other.
[17:47] So the point is and just to remind
[17:49] everybody there's no committee who sets
[17:51] value. Importantly people say well the
[17:54] US government tells me the dollar's
[17:56] value. Yeah but that doesn't matter.
[17:57] There's no government that sets value
[17:59] either. There's no committee. There's no
[18:01] company. There's no government.
[18:04] You have to understand that every single
[18:06] person decides against their own life
[18:08] and their own situation and their own
[18:11] desire what is valuable and what isn't
[18:14] valuable.
[18:15] You can give one guy a billion dollars
[18:18] and another guy a billion dollars and
[18:21] they could spend that money on entirely
[18:23] different things. And that's because
[18:26] they derive value differently based on
[18:29] their own desires, their own wants.
[18:33] Someone might want a Ferrari and a yacht
[18:35] and a this and a that. And someone might
[18:37] want to solve world hunger in a region
[18:39] of Africa.
[18:41] Nobody's right and nobody's wrong.
[18:47] Each person judges against their own
[18:49] life and their own wants.
[18:52] Okay.
[18:54] Now this leads us into a very very very
[18:58] important economic theory called the
[19:00] paradox of value. Okay, another term for
[19:03] it is the water diamond paradox.
[19:06] The question is why is water cheap and
[19:09] diamonds are expensive? Even though you
[19:11] cannot live without water and you can
[19:14] absolutely live without diamonds.
[19:18] We need water to live.
[19:22] We do not need diamonds. In fact,
[19:24] diamonds are arguably a scam. You know,
[19:27] diamonds came about when gold was
[19:30] banned. You used to give gold to your
[19:33] fiance and then wife because you were
[19:35] pledging them a scarce monetary unit
[19:38] that they could use to build your family
[19:41] if anything happened to you. It was like
[19:43] pledging savings to the future of your
[19:45] family on the mother of your child
[19:48] basically like putting up putting hard
[19:51] money on her finger.
[19:53] But when gold was banned, diamonds kind
[19:56] of stepped in as like, "Hey, we could be
[19:57] this like scarce, desirable thing."
[20:00] Like, but diamonds are not nearly as
[20:02] scarce and not nearly as desirable. It's
[20:04] kind of a scam. I digress. The point is,
[20:07] we don't need diamonds. We can live
[20:10] without diamonds. We need water. We
[20:12] cannot live without water. So, why is
[20:16] water cheaper than diamonds?
[20:20] Water is plenty more useful than
[20:22] diamonds.
[20:24] So,
[20:26] the answer is pretty obvious once you
[20:29] think about it for a second. Um, let's
[20:31] imagine that you're in a desert. Okay, a
[20:35] bottle of water in your kitchen is maybe
[20:38] a dollar if it's expensive, but it
[20:40] depends. If you have one of those like
[20:41] uh purified reverse osmosis things, then
[20:45] you you made one one giant reverse
[20:47] osmosis uh purifier in your kitchen and
[20:50] your water from that point on is free,
[20:53] totally clean water and you don't have
[20:55] to pay anything for it from that initial
[20:57] installation.
[20:58] So maybe your bottle of water is a
[21:01] dollar if it's expensive, but it's
[21:03] probably trending towards
[21:06] the marginal cost of zero.
[21:08] Now, let's imagine that you were in the
[21:10] desert for three straight days and you
[21:13] hadn't had water in 72 hours and you're
[21:16] starting to reach the point where if you
[21:18] don't get water in the next 24 hours,
[21:21] you're at risk of death. How much would
[21:23] you pay for a bottle of water? Now, I
[21:27] have on the screen everything you have.
[21:29] If I charged you your net worth, you
[21:32] would probably pay it because you would
[21:35] rather have a significantly lessened net
[21:38] worth than die. But you have it's the
[21:42] same bottle of water.
[21:44] It's still H2O.
[21:46] Nothing about the water changed.
[21:49] Your needs changed. Your circumstances
[21:52] changed. Your desires changed. What you
[21:54] want changed. And so you made a
[21:56] subjective value on the bottle of water
[21:59] in the desert versus in your kitchen.
[22:04] And this point and the whole paradox of
[22:08] value and the water diamond paradox is
[22:10] to really hammer the point home that
[22:12] prices emerge at what we call the
[22:15] margin.
[22:17] So if I were to ask you what is more
[22:19] valuable to humanity as a whole, water
[22:22] or diamonds? Obviously water. If we all
[22:28] we had was just bunch of cardier but no
[22:30] water then we would go extinct in less
[22:33] than a week
[22:35] or a week. I actually don't know the
[22:36] math on how much you can survive without
[22:38] water. Dry fasting. I have no idea but
[22:40] whatever. We would die. We would all die
[22:42] soon. Can't drink Cardier. Okay. But the
[22:48] point is nobody is faced with that
[22:50] choice when you walk into Whole Foods.
[22:53] When I walk into Whole Foods and I'm
[22:56] getting a pack of Mountain Valley Spring
[22:58] Water, I'm not checking out saying, "You
[23:02] know what? I think water is far more
[23:05] valuable than diamonds and then NFL
[23:07] football uh red zone subscriptions.
[23:10] That's why I'm buying this water." No,
[23:13] I'm choosing whether I want the next
[23:15] bottle of water
[23:17] that averages out at about $2 per glass
[23:21] bottle of 33.7
[23:24] milliliters of Spring Valley Mountain
[23:27] Water. That's what I'm deciding. And
[23:29] that's what we call at the margin
[23:32] because I already have access to plenty
[23:35] of water. The next bottle satisfies a
[23:38] relatively unimportant need for me. Now,
[23:42] if I were dying in the desert and all of
[23:44] a sudden water became a lot more scarce
[23:47] and my need and my want for water was
[23:50] heightened and greatened a lot, then
[23:53] suddenly the next bottle of water is
[23:54] extraordinarily more valuable to me. It
[23:56] might be more valuable to me than all
[23:58] the bitcoins that I have in cold
[24:00] storage.
[24:01] So the point is we value marginal units.
[24:05] We do not value abstract totals.
[24:09] Market prices emerge from marginal
[24:12] people actually choosing to trade at the
[24:14] margins themselves.
[24:16] There is somebody out there that just
[24:19] bought a Bitcoin for for reasons that we
[24:22] don't totally understand. Maybe they're
[24:24] evading an authoritarian regime. Maybe
[24:26] they're looking to buy drugs that they
[24:28] can't buy with fiat currency. Maybe
[24:31] they're looking to save in an ETF. We
[24:33] don't know. But they made that decision
[24:34] at the margin. They did not go, you know
[24:36] what? I think Bitcoin is worth at least
[24:41] $1.3 trillion and the fact that its
[24:43] market cap is $1.29 trillion, I must
[24:46] purchase it. That's not the decision
[24:48] they're making. They're making decision
[24:49] at the margin, which we'll get into in a
[24:51] second. But you have to understand
[24:53] that's why water is far more important
[24:55] to society than diamonds, but far less
[24:58] expensive.
[25:00] It's all subjective value and these
[25:03] prices emerge at the margin. So let's
[25:07] say you have 10 grand. Okay? I say this
[25:10] on this podcast all the time and I'm
[25:12] happy now that we get to actually talk
[25:14] about it and I get to walk through it in
[25:16] detail. I say because people will say,
[25:18] "Wow, I can't believe that in 2013 you
[25:22] decided to hold Bitcoin and you know you
[25:26] knew then that you would be holding it
[25:28] for 14 years."
[25:30] That's not true. What I say is every
[25:34] single day I decide to hold Bitcoin.
[25:37] What do I mean by that? Well, every
[25:39] single day I could hold whatever I want.
[25:42] I could sell all my Bitcoin and buy real
[25:45] estate. I could sell all my Bitcoin and
[25:47] buy the S&P 500. I can sell all my
[25:48] Bitcoin and buy Nvidia. I could sell all
[25:50] my Bitcoin and buy Ferraris.
[25:53] But I don't. So therefore at the margin
[25:56] I am making the decision to continue to
[25:59] hold Bitcoin. So set another way let's
[26:02] say you have 10 grand where does it go?
[26:05] You have to make a decision at the
[26:06] margin. Now on the screen I have you can
[26:08] pay down debt. You could buy a used car.
[26:11] You could buy tools to enhance your
[26:14] profession and your work. You could just
[26:16] leave it alone and not touch it. You
[26:18] could put it in an index fund. What I
[26:20] have highlighted is you can save it,
[26:22] which is a whole different question of
[26:24] what does it mean to save it and how do
[26:25] I save it? But nobody asks what is
[26:28] objectively valuable. Everybody asks
[26:31] where their next dollar goes. We make
[26:32] these decisions at the margin. Another
[26:35] really important economic point that
[26:37] goes over everyone's head and that
[26:39] everyone seems to have a tough time
[26:41] grasping is that every single trade has
[26:44] two winners. Both parties are winning.
[26:47] So the buyer, the person that is
[26:50] purchasing the thing for currency thinks
[26:53] that the thing is worth more than the
[26:55] money. Meaning this, I go to the store
[26:58] and I buy a $2 bottle of water. I think
[27:01] that the water is more valuable than the
[27:04] $2. Or else I wouldn't buy it. If I
[27:08] didn't believe that, if the $2 was just
[27:11] as valuable to me or more valuable to me
[27:13] than the water, then I would not have
[27:16] acquired the water for the $2. So
[27:18] implicit in my purchase of the water, I
[27:21] am saying in economic expression that
[27:24] the water is more valuable than whatever
[27:27] I am trading for it. Now, the seller is
[27:30] saying saying the opposite. if they did
[27:32] not believe that the currency, the $2
[27:36] that they're getting in exchange for the
[27:37] water was worth more to them to them.
[27:40] Um, again, because value is subjective,
[27:43] it's not I don't get to decide how much
[27:46] the water is worth to them. I'm only
[27:48] making a subjective decision on how much
[27:50] the water is worth to me. They have no
[27:53] idea how thirsty I am, how scarce water
[27:56] is to me. What if I'm actually the CEO
[27:58] of Mountain Valley and I have a Mountain
[28:00] Valley water fountain in my house? They
[28:02] would have no idea.
[28:06] So to them, they are making the economic
[28:09] claim that the $2 they are charging is
[28:11] worth more to them as a business than
[28:14] the water they are selling because maybe
[28:16] they create so much water they're making
[28:18] wholesale purchases. They have
[28:20] relationships with vendors where they're
[28:22] able to produce and acquire the water
[28:23] cheaper than the $2. Meanwhile, the $2
[28:26] is as cheap as I can find a water bottle
[28:28] because I'm not Whole Foods.
[28:32] But you have to understand that the e
[28:34] each side of the trade is winning.
[28:37] Economizing and creating a free market
[28:40] produces value for everybody. Nobody
[28:43] loses. That's another thing that these
[28:46] like either socialists or these cra
[28:49] people that can't wrap their head around
[28:51] basic economics in any given free trade.
[28:55] Free trade. Obviously, if you're putting
[28:58] guns to people's heads and you're saying
[29:00] you have to do this, if you don't do
[29:02] this, then I'm going to put you in jail.
[29:04] I'm going to lock you up. I'm going to
[29:06] arrest you. I'm going to abuse you.
[29:08] Well, then all bets are off. That that
[29:10] is now coercive. That is not free trade.
[29:12] People aren't acting out of their own
[29:15] desires and their own wants. This is why
[29:18] we must must allow for free markets and
[29:22] free trade. It is the only way society
[29:25] can and should be governed. But if you
[29:27] act out of the assumption that you're in
[29:29] a free market and two people are freely
[29:32] and willingly trading with each other,
[29:35] both parties win. Even someone that's
[29:37] selling Bitcoin, you could say you
[29:38] should never sell Bitcoin.
[29:41] Yeah, but if someone's selling Bitcoin,
[29:43] for whatever reason, they are valuing
[29:45] the cash more than the Bitcoin because
[29:48] let's say they're dying and they need to
[29:49] finance a medical bill. Their kid just
[29:51] got into Harvard, their dream school,
[29:53] and they need to pay tuition. They
[29:55] finally can pay off their mother's
[29:58] mortgage. Who knows? But they're valuing
[30:00] the cash more than the bitcoins. And the
[30:02] person buying the bitcoins is valuing
[30:04] the sats more than they're valuing the
[30:06] fiat. It is a free and equal exchange.
[30:09] Every trade has two winners in a free
[30:12] market economy. Understood?
[30:16] So
[30:17] after all of that, you understand prices
[30:20] emerge, value emerges from many
[30:23] individual comparisons. So nobody
[30:26] uniquely sets them. They are what is
[30:28] left over when everyone in the market
[30:31] has chosen. So everyone in the market is
[30:34] constantly wanting things. They're
[30:35] constantly having to make choices.
[30:38] And the price emerges from everyone in
[30:42] the market comparing and ultimately
[30:45] making choices amongst each other.
[30:47] It is the residue of millions of people
[30:50] and nowadays in the internet economy,
[30:52] billions of people potentially comparing
[30:54] what they have to what they want. That's
[30:57] all a price is.
[30:59] So now what is money? You can think of
[31:03] money as having these three jobs. It
[31:06] holds work you've done for later. So if
[31:11] you've worked and produced value, but
[31:13] you don't want to turn all that
[31:14] production into consumption, you're not
[31:17] hungry yet, you don't want to choose
[31:19] where to live for the next 20 years yet,
[31:22] you don't want to buy your vacation
[31:23] flight yet cuz you haven't talked about
[31:25] it with your fiance, then you you need
[31:27] to hold the value over for a time being
[31:30] before you later exchange and consume
[31:33] from the market.
[31:34] Money also helps you move it across to
[31:37] someone. So holding it for later moves
[31:39] it across time. How do I take value that
[31:42] I created today and move it across a
[31:44] year, 2 years, a decade, 100 years? How
[31:47] do I store value today till the year
[31:51] 2126?
[31:53] Okay, you also need to move value across
[31:55] what we call space distance. So how do I
[31:58] move value that I'm creating in Chicago
[32:00] to New York? How do I move it to London?
[32:03] And then the third, which is relevant to
[32:05] this episode, is money is used to
[32:07] compare unlike things. So, how do I
[32:11] compare the value I'm creating at Strike
[32:13] to the sold at Whole Foods? The butcher
[32:18] that I'm buying my steak from has no
[32:20] [ __ ] idea what Bitcoin elliptic curve
[32:23] cryptography is, and I have no idea what
[32:25] it's like to raise cows. So, how do we
[32:30] create a marketplace that allows us to
[32:33] exchange this subjective value that
[32:36] different people are applying to the
[32:38] goods and services that we're creating
[32:40] for the market? And so, again, you hear
[32:44] a lot of Bitcoiners talk about, well,
[32:45] money is about moving value across time
[32:48] or across space because that's what
[32:49] saving and exchanging is. But you also
[32:52] have to now when it comes down to value,
[32:55] subjective value, you have to understand
[32:57] that money has a third job which is
[33:00] moving value across choices is what I
[33:02] have written here across these
[33:04] decisions. How do we subjectively value?
[33:07] I want all these things for myself and
[33:10] we all want all these things. That is
[33:12] the human condition. That is what it
[33:13] means to be human.
[33:15] And you then have to make choices as to
[33:18] what things available to you in the
[33:20] market because not everything is
[33:22] available to everybody. Some people can
[33:24] get planes and professional sports teams
[33:26] and hire all sorts of engineers
[33:29] and some people can barely afford ramen
[33:31] noodles. So you could want all all the
[33:34] things that you want and then you have
[33:36] to look at the market and see what
[33:37] options are available to you and start
[33:39] making choices and that is economizing.
[33:42] So now we get into Bitcoin. So hopefully
[33:45] that was very digestible, easy to
[33:48] understand. What is value? How does
[33:50] value emerge in an economy? Value is
[33:53] entirely subjective. It's not baked into
[33:55] the thing. Gold has no value inside of
[33:58] it that Bitcoin does or does not. Value
[34:00] is subjective.
[34:02] Okay.
[34:04] So what does Bitcoin serve? Okay.
[34:08] Bitcoin theoretically competes in the
[34:11] marketplace for money. So it serves this
[34:15] idea of you're you do work and you spend
[34:17] your time doing stuff and then you want
[34:20] money in return for that so that you can
[34:22] later consume and you need purchasing
[34:25] power. Uh and so
[34:31] let's take a look at this idea of a
[34:35] market for money. So again, value is all
[34:38] about us wanting something and then
[34:41] having to make a choice as to how to
[34:44] acquire what we want or how to work
[34:46] toward what we want. So let's take a
[34:49] look at what can go wrong with money.
[34:51] And this is a short list. I could have
[34:53] made this list a 100 items long, but
[34:56] some of the things that can go wrong.
[34:58] Someone can make more of the money that
[35:01] I save in, which would inflate. That's
[35:04] highly inflationary. it would debase my
[35:06] savings. So that could that's a problem.
[35:09] Someone can seize my money. So if I have
[35:11] to store my money in the possession and
[35:13] in the hands of someone else, they could
[35:15] just decide that my money is their
[35:16] money. That's a problem. It can be
[35:19] expensive for me to use my own money. So
[35:21] if it's on inefficient rails, if it's
[35:23] sitting in between a lot of
[35:24] intermediaries, then there's a lot of
[35:26] economic friction for me to use my
[35:28] money. Like it costs 2 3 4 5 10% just
[35:32] for me to use my own money. That's a
[35:34] problem. the rules of the money can
[35:36] change without my consent. So again, if
[35:38] it is with someone else or if it's in a
[35:40] system that I don't control or that
[35:41] doesn't respect me, then the rules can
[35:44] change. And then another one is that I
[35:46] can't verify any of it myself. That's a
[35:49] problem. Now again, this list could have
[35:51] gone over and over and over and over
[35:53] again. But you start at a place where a
[35:56] human has wants. And I'll speak for
[35:58] myself now. I would assume that many
[36:01] humans share the same wants that I have
[36:03] when it comes to money. But I don't know
[36:06] that for certain because I'm not them.
[36:07] It's all subjective. But I'll just talk
[36:09] about myself. What do I want? I want a
[36:11] money that is fixed in supply. I want a
[36:14] money that is fairly reasonable for me
[36:17] to own myself so that I do not have to
[36:19] if I don't want to trust someone else to
[36:22] hold it for me without the threat of
[36:24] seizure. Even if it isn't the company
[36:26] that's going to seize it from me. Maybe
[36:28] the government makes the company sees it
[36:29] from me. I want to be able to hold it
[36:31] myself. Okay? I want it to be fairly
[36:34] cheap and sometimes free for me to use,
[36:36] especially free for me to receive. I do
[36:38] not want to pay 2 3 4% to have to
[36:41] receive money and value to myself. I
[36:44] want to ensure with real credibility
[36:47] that nobody can change the rules. I want
[36:49] to be able to verify with math that
[36:52] every day I wake up, the rules in fact
[36:54] have not changed. Right? These are all
[36:57] things that I want. I want these things.
[37:01] So now I have to go about making a
[37:03] choice to acquire what I want in the
[37:05] marketplace. I can choose dollars. I can
[37:08] choose gold. I can choose pounds. I can
[37:10] choose real estate based on the
[37:12] properties that I want. This is what
[37:14] Bitcoin actually does. You can hold it
[37:17] yourself fairly reasonably. It costs you
[37:20] nothing. You do not need to pay a vault.
[37:21] You do not need to pay auditors. You can
[37:24] literally hold it yourself on your
[37:26] phone. It can move anywhere. Nobody can
[37:29] make more of it. Anyone can verify it.
[37:32] Nobody can control it. The rules in fact
[37:34] are fixed. So the point is if that is
[37:38] useful to someone, then demand does
[37:41] exist. This is the same as oil. This is
[37:44] the same as water. Importantly, nobody
[37:48] has to authorize demand and for someone
[37:51] to apply subjective value to it. The US
[37:55] government or Facebook or Google does
[37:58] not have to approve someone subjectively
[38:00] applying value to Bitcoin. Someone is
[38:02] saying, "Hey, I want something." Let me
[38:05] tell you guys another thing. Silk Road
[38:07] was an incredibly valuable chapter in
[38:09] Bitcoin's journey. And the reason for
[38:11] that is Bitcoin provided utility value
[38:16] when it came to money that other monies
[38:18] could not provide. So there was a market
[38:21] of people that said I want to put
[38:24] substances in my body. I want to put
[38:26] whatever I want in my body. Now I am not
[38:29] promoting drugs necessarily. In fact,
[38:31] uniquely the only drug I've ever tried
[38:33] is marijuana and I I don't like it. So
[38:36] I'm actually not a consumer of drugs. I
[38:38] totally support the notion that people
[38:41] should do what they want with their own
[38:43] body. I do not think that we need both
[38:45] elected and unelected officials telling
[38:47] people how to how to be um but I I I
[38:52] personally just don't like drugs. But it
[38:54] is Silk Road was an incredibly important
[38:56] chapter because there were people that
[38:58] say I want to participate in the
[39:01] exploration of substances in my body. I
[39:04] want to see what it feels like. I want
[39:05] to see if it helps, if it hurts. I want
[39:07] to experience that myself. Now, there
[39:09] were no monies that allowed people to
[39:12] freely exchange substances and currency
[39:15] except for one, and that one was
[39:16] Bitcoin. And so, people started to apply
[39:20] subjective value to Bitcoin. Nobody had
[39:23] to authorize that. Nobody had to accept
[39:26] an application. The the value wasn't
[39:28] inside of the bitcoins. It's not like
[39:30] you mailed the bitcoins and you unpacked
[39:32] the mail and inside of the mail, ah,
[39:34] yes, here's the value. The value was
[39:37] subjectively applied when people
[39:39] realized that bitcoins were useful to
[39:42] them. And this was before bitcoin was
[39:45] liquid enough to be the digital gold or
[39:48] before bitcoin was liquid enough and big
[39:50] enough to have an ETF approved or to
[39:53] have liquid exchange. The point was it
[39:56] was useful to someone and because it was
[39:58] useful to someone demand existed and
[40:01] that is how subjective value is applied.
[40:04] Why was Bitcoin worth something? Because
[40:07] it was useful to someone. Why was it
[40:09] useful to to someone? Because it does a
[40:11] thing.
[40:13] If I go back, Bitcoin does stuff. How
[40:17] many things can you have where the rules
[40:20] are fixed? And not the rules are fixed
[40:21] like, yo, trust me, bro, the rules are
[40:22] fixed. No, credibly enforcable fixed
[40:25] rules. Meaning, you can run the math and
[40:28] it doesn't matter what a government
[40:30] says, what a supercomput says, what Elon
[40:32] Musk says. The rules are fixed. And I
[40:34] can credibly prove that with 2 plus 2
[40:36] equals 4. Nobody can control it. Anyone
[40:39] can verify it. I can move it anywhere in
[40:41] the world for effectively free. Nobody
[40:43] can make any more of it. I can hold it
[40:44] myself for free.
[40:47] So, Bitcoin does stuff. It has
[40:50] properties that are unique. And if
[40:53] people find those properties useful,
[40:56] then they apply subjective value to it.
[40:58] Go back to the whole water at Whole
[41:01] Foods versus water in the desert. You
[41:03] may not find Bitcoin useful, but someone
[41:07] else might be in the desert parched and
[41:09] about to die. So, they're actually
[41:11] willing to pay $10 million for a
[41:13] Bitcoin. How much would you pay for a
[41:15] Bitcoin if you were living under an
[41:17] authoritarian regime and you needed to
[41:19] evade your hometown and take with you as
[41:21] much wealth as humanly possible? What
[41:23] are your options? What are you going to
[41:26] lug around a bunch of gold? What are you
[41:28] going to try and uproot the house out of
[41:30] the ground and carry with you your real
[41:32] estate?
[41:33] No, buy a bunch of Bitcoin, write the
[41:37] seed down, and get the [ __ ] out of
[41:38] there.
[41:40] But that is it was useful to someone.
[41:43] Now, it might not be $60,000
[41:46] useful to you. I disagree with that. I
[41:48] think no matter what the Bitcoin price
[41:50] is, when it comes to needing to save
[41:52] money, I look at my options and I'm
[41:54] making a subjective valuation that this
[41:56] is the best option I have.
[41:58] But you see, it was useful to someone.
[42:01] Therefore, it has demand. Therefore, it
[42:03] has value. Now, the other really
[42:06] important point that we mentioned in the
[42:07] beginning that I have to just bring back
[42:09] and and complete the loop here is that
[42:11] it's also because Bitcoin has a scarcity
[42:14] component to it. So, if Bitcoin was as
[42:17] abundant as air, then it would have no
[42:20] value because although it's useful, it's
[42:24] abundant. And so, we don't need to
[42:27] economize and apply subjective value to
[42:29] it. It doesn't need to be part of our
[42:31] lexicon of choice. We could always have
[42:33] as many bitcoins as we want. Oh, I want
[42:35] as much bitcoins as satoshi. Sure, you
[42:37] take a million. You take 21 million. You
[42:40] take 42 million. No supply cap. Everyone
[42:42] gets as many bitcoins as they want. But
[42:44] it's because bitcoin is both useful and
[42:47] scarce. We economize around it and we
[42:50] have to apply value toward it. And so
[42:52] supply cannot follow the demand. So
[42:55] there's only 21 million. Nobody can
[42:58] print the difference.
[42:59] So importantly, and this is really
[43:01] important, scarcity itself does not
[43:04] create the demand for Bitcoin. People
[43:07] demand Bitcoin because of its usefulness
[43:09] to them. Maybe Bitcoin is useful to them
[43:12] because it's scarce, but the scarcity
[43:14] does not create the useful. Bitcoin can
[43:16] be useful for a lot of different reasons
[43:18] to somebody.
[43:20] Scarcity makes the demand consequential
[43:22] though, for sure, because demand itself
[43:25] is not enough. I demand air to live like
[43:28] we've talked about. But the air I I
[43:31] don't live in in an environment where
[43:33] air is scarce. So the demand for air
[43:36] around me is not consequential. We do
[43:39] not have to economize around it. We do
[43:40] not have to make choices. I don't have
[43:41] to choose between buying diamonds or
[43:44] breathing. I can breathe and buy
[43:46] diamonds and drink water.
[43:49] I live in in that abundance. If I I
[43:52] lived in a scarcity of water and a
[43:54] scarcity of air, then my fiance would
[43:57] not have a ring on her finger. We would
[43:59] be spending all of our excess capital on
[44:02] the ability to breathe and hydrate,
[44:05] right?
[44:07] And so it is the mere fact that Bitcoin
[44:10] is useful to people in solving problems
[44:14] problems. It's all subjective. Maybe
[44:16] somebody wants to do a certain
[44:18] transaction. Maybe it's a remittance
[44:19] transaction. Maybe someone's trying to
[44:20] save and persist money through space and
[44:23] time
[44:24] and it's scarce.
[44:28] So, I mean the other thing that
[44:30] hopefully is obvious but should be said
[44:33] is you can copy the software. So, people
[44:35] say, "Isn't Bitcoin just open source
[44:37] code or isn't it just information on a
[44:39] computer? Can't I just copy and paste
[44:40] it?" Sure, I can create Jackcoin, but
[44:44] Jackcoin doesn't come with it. all of
[44:46] the existing holders of Bitcoin, all of
[44:48] the liquidity, all of the security, all
[44:50] of the infrastructure, all of the
[44:52] transactional history, all of the proof
[44:53] of work, all of the miners, all of the
[44:55] social consensus. It's the equivalent of
[44:57] like, can't I just create my own
[44:59] Twitter? Yeah, but when I register to my
[45:01] new Twitter, I'm the only user and I
[45:04] have zero followers. So, when I post,
[45:06] who am I even talking to? Like, yes, you
[45:09] can copy the software, but you can
[45:11] cannot copy the network itself. So
[45:13] anyone can fork the code but again this
[45:18] goes down to why Bitcoin is useful to
[45:20] people. Bit remember it all starts for
[45:24] is the good useful and is there more
[45:28] demand than there is supply. If so if it
[45:31] is both useful and scarce then we must
[45:35] economize because we can want it all we
[45:37] want but we might not necessarily be
[45:40] able to have it.
[45:42] So when we take it a step deeper, we
[45:45] say, "Okay, Bitcoin's competing for this
[45:46] money thing." So what's it competing
[45:48] against? Cash, stocks, bonds, gold, real
[45:51] estate. So when someone says, "How could
[45:53] Bitcoin possibly have any value?" Well,
[45:56] you have to understand, people are
[45:58] making these decisions at the margins,
[46:00] like we said, someone is waking up and
[46:03] saying, "Okay, I paid my phone bill. I
[46:05] bought my groceries. I paid my rent. I
[46:08] have leftover money whether it's a
[46:10] dollar, $10, $1,000, a million dollars,
[46:13] and I want to save that money. Here are
[46:16] the deci, here are the choices I have
[46:18] again because we want to have more
[46:20] purchasing power in the future. Let's go
[46:22] back. All of this starts from the human
[46:24] condition that we all want. We want a
[46:28] future, a better life. We have desires.
[46:32] And that is the amazing part about being
[46:34] human is we're so future oriented. We
[46:36] have an ability to lower our time
[46:38] preference. We have ability to
[46:39] prioritize the future.
[46:42] So what do I want? I want purchasing
[46:44] power in the future. Okay. What are my
[46:47] options to achieve that? Well, I can
[46:49] keep cash. I can invest in stocks. I
[46:52] could buy bonds. I could buy gold. I
[46:54] could buy real estate. Let's walk
[46:55] through each. Cash? No thanks. Because
[46:58] the amount that they're debasing it by
[46:59] printing more, my purchasing power is
[47:01] going to get entirely eroded. Inflation
[47:03] is a modern-day like crisis everywhere
[47:06] you go. Okay, stocks. I'm taking
[47:08] counterparty risk on given companies.
[47:11] And by the way, stocks have not
[47:13] outperformed gold since the year 2000.
[47:17] So, I would much mean I do not want to
[47:19] take counterparty risk against
[47:22] leadership teams and products that I
[47:24] don't understand. And I also don't want
[47:26] to invest in an asset class that can't
[47:28] outperform, you know, a a metal bonds.
[47:32] I'm not even gonna get into that. No,
[47:34] absolutely no thanks. Similar to cash.
[47:36] Gold. I guys, I don't want to store a
[47:39] bunch of gold in a vault in my house. I
[47:41] don't want to pay someone to store the
[47:43] gold for me. Gold has already been
[47:44] confiscated by the government. I don't
[47:45] know why it wouldn't be confiscated
[47:47] again. It's an analog metal. Uh, and I
[47:51] have no interest in trying to figure out
[47:53] how to sovereignly store a bunch of
[47:55] gold. Uh, in real estate, I do not want
[47:58] that counterparty risk. I don't want to
[47:59] have tenants. I don't want to have to
[48:00] pay property tax. I don't want to have
[48:02] to have risk of natural disaster. So, I
[48:05] work through, and this is just me
[48:07] personally. Everyone makes their own
[48:08] subjective valuation. But me personally,
[48:10] I look at all my options and I say,
[48:12] "Okay, I want purchasing power in the
[48:14] future because in the future, I might
[48:16] want a car. I might want a new house. I
[48:18] might want to buy the Chicago Bulls. I
[48:20] might want to fly private. I might want
[48:21] to have a nice dinner. I'm going to want
[48:23] a lot of things. And I need purchasing
[48:25] power in order to have the life that I I
[48:28] want or to protect myself from bad
[48:29] things happening. Inevitably, someone's
[48:31] going to get sick. Someone's going to
[48:33] have an accident. Someone's going to
[48:34] need something from me. I'm going to
[48:36] need purchasing power or at least I want
[48:37] purchasing power. And I look at all my
[48:39] options and I say, "Okay, hey, Bitcoin
[48:41] is the one I elect to choose." So at the
[48:44] margin I am assigning value and people
[48:49] because people sometimes will think what
[48:51] are you saying like Bitcoin's more
[48:53] valuable than water or Bitcoin's more
[48:56] valuable than No dude that's not what
[48:58] I'm saying in the same way that I'm not
[49:00] saying diamonds are more valuable than
[49:02] water. What I'm saying is I'm making a
[49:04] decision at the margins. I have money
[49:07] that I need to save. I created value. I
[49:09] have value left over. I paid the phone
[49:11] bill. paid uh I paid my YouTube TV bill.
[49:15] I I paid my credit card bill. I paid my
[49:17] rent. I did all the things that I need
[49:18] to do and I have some cash left over and
[49:20] I want purchasing power in the future.
[49:22] So I I have decision to make and this is
[49:25] the decision I'm making. That's it.
[49:27] That's how Bitcoin is valuable. And take
[49:30] take yourself back to Silk Road when
[49:31] someone says I want to buy drugs on the
[49:33] internet.
[49:35] How do I do that? Well, they made a
[49:38] decision at the margin to say, "Well, I
[49:40] couldn't have used Cash. I couldn't have
[49:42] used PayPal. I couldn't have used Venmo.
[49:43] I couldn't have used Cash App, so I used
[49:46] Bitcoin."
[49:48] Now, you could politically agree or
[49:50] disagree with the decisions they were
[49:52] making. But the point is, they found
[49:54] Bitcoin useful. Therefore, there was
[49:57] demand for it. Therefore, it had value
[50:00] because there's more demand than there
[50:02] is existing supply. It is not like air.
[50:05] It is not plentiful.
[50:08] So prices emerge from these marginal
[50:11] choices. Every possible buyer asks,
[50:14] "Would I rather hold this or something
[50:16] else?" Every single day I wake up and I
[50:20] I could sell all my Bitcoin and own
[50:23] other things, but I don't. I'm making
[50:26] the decision every day at the margin to
[50:28] own Bitcoin. So every possible buyer
[50:31] asks would I rather hold this or would I
[50:33] rather hold something else. Every
[50:35] current holder asks would I rather keep
[50:38] this or would I rather buy something
[50:42] else. So nobody uniquely alone sets
[50:44] Bitcoin Bitcoin's value. The price is
[50:47] what is left over after these decisions
[50:50] that emerge from the marginal choices
[50:52] that we all make.
[50:56] You understand? So, Bitcoin is only
[50:58] worth something because people value
[51:00] what it can do for them.
[51:03] Again, going back to the early slides in
[51:05] this deck, it is sat somehow satisfying
[51:08] a need that somebody has.
[51:11] And its scarcity is relevant and matters
[51:13] because the demand that people have for
[51:15] it cannot be satisfied just by making
[51:17] more bitcoins. We can't say like, "Hey,
[51:20] someone else found bitcoin useful to
[51:21] them. We we're going to need a bunch
[51:23] more bitcoins." You know, demand always
[51:26] finds supply, but when the supply can't
[51:29] come from a factory, can't come from a
[51:30] government, can't come from the ground,
[51:32] then it has to come from the market. And
[51:34] so, if you want more bitcoins because
[51:36] there's more demand, you're going to
[51:37] have to get them from a higher price.
[51:39] And again, if I wake up and bitcoins at
[51:41] 65,000, am I going to sell any bitcoins?
[51:43] No. If I wake up in bitcoins at 200,000,
[51:46] am I going to sell any bitcoins?
[51:48] Probably not. But I'll be closer. If I
[51:50] wake up and bitcoins at $2 million,
[51:53] okay, how much are the Chicago Bulls? I
[51:56] I might be interested in giving some
[51:58] bitcoins up and getting a professional
[52:00] sports team in my hometown, right? So,
[52:03] you understand we're all making these
[52:05] decisions at the margins
[52:07] all the time. All the time. If Bitcoin's
[52:11] price doubles, some people at the margin
[52:13] might say, you know what, I do need that
[52:16] house. You know what? I do want that
[52:17] car. And some people conversely are
[52:20] like, "Well, I need to save money. I
[52:23] don't really give a [ __ ] what the price
[52:24] of Bitcoin is. It's the best option I
[52:26] have."
[52:29] So, the last slide, the quotable
[52:32] takeaway. Read this one slowly.
[52:35] Scarcity does not make Bitcoin valuable
[52:37] on its own. Bitcoin's usefulness creates
[52:40] demand for it, and scarcity makes that
[52:43] demand matter, which results in a price.
[52:46] Again, an economic good is something
[52:50] that is both useful and scarce. And all
[52:54] scarce means in this context is there's
[52:57] more demand than there is supply. So
[52:59] something that is useful but not scarce
[53:01] is air. Just breathe. You just breathe
[53:05] and you got yourself some air. Okay.
[53:08] Something that may be scarce but not
[53:10] useful is uh your child's drawing in
[53:12] kindergarten or the rock in your
[53:14] backyard. technically one of a kind, but
[53:16] it it doesn't serve a purpose to
[53:18] anybody. Nobody finds it useful. And
[53:22] then there's plenty of useful things.
[53:23] And these are all the things that we
[53:24] economize. And these are economic goods.
[53:27] Food, housing, lakehouses, bitcoins,
[53:30] bonds,
[53:31] right?
[53:34] So, how does Bitcoin have value? Well,
[53:36] how does anything have value? Something
[53:38] has value when someone subjectively
[53:41] values it as useful to them. And we have
[53:45] to economize and economics exists period
[53:48] because what we want is not necessarily
[53:50] what we can have. And the difference
[53:52] between that results in choices that we
[53:54] have to make and those choices at the
[53:56] margin well given I want all this stuff
[53:59] but I don't get to have wanting a
[54:01] Ferrari isn't enough. Wanting a private
[54:02] plane isn't enough. Wanting the Chicago
[54:04] Bulls isn't isn't enough. Wanting more
[54:06] bitcoins isn't enough. Okay. Well then I
[54:08] have to start making choices to pursue
[54:10] my wants. And those choices, choosing X
[54:12] over Y, A over B, that you're applying
[54:16] value. You're making decisions at the
[54:17] margins.