Lesson 4: Where Does Money Come From?

[0:00] Yo, welcome back to another episode of
[0:03] The Jack Mallers Show. I am your host
[0:07] Jack, and today we've got another
[0:09] Bitcoin 101 episode. Where does money
[0:13] come from?
[0:14] I think when people hear money, they
[0:16] say, "Oh yeah, the dollar or the euro or
[0:18] the yen."
[0:19] And while that's true, those are all
[0:21] forms of money.
[0:23] Did you know that fiat currencies as we
[0:25] know them today are younger than the
[0:27] internet themselves?
[0:28] Money actually has a very deep history,
[0:31] and it was not invented by the
[0:33] government or by banks. It was invented
[0:36] by the people to solve a very particular
[0:38] problem. So, today's episode is to
[0:41] understand the origins of money, the
[0:43] history of money, when and how and why
[0:46] was it invented, and where are we today
[0:50] when it comes to money and the options
[0:52] that we the people have to monetize and
[0:55] economize. So, without further ado,
[0:57] let's get started.
[1:01] First, to understand the problem and why
[1:04] money was invented, I think we need to
[1:06] start on what humans did before there
[1:09] was money at all. Because the problem is
[1:12] two people inevitably want to trade,
[1:15] okay? Before there was money, how did
[1:17] they solve that? Which will then lead us
[1:20] to why money was invented in the first
[1:22] place.
[1:24] So, let's take Alice and Bob here on the
[1:27] screen.
[1:28] Alice has pecans. She grows pecans, and
[1:31] she happens to want apples.
[1:34] Okay, Bob is the opposite. He happens to
[1:37] have apples and happens to want pecans.
[1:40] This is what we call the coincidence of
[1:43] wants, where both parties trading happen
[1:47] to have what each other wants and want
[1:50] what each other has, okay? So, this is
[1:53] very simple. Alice hands over the
[1:55] pecans, Bob hands over the apples, and
[1:57] everybody is happy. Now, obviously, what
[2:02] if it's not that easy? What if Alice,
[2:06] she still grows pecans, and she really
[2:08] loves those apples. She still wants
[2:09] apples.
[2:11] What if this time Bob,
[2:13] he still grows apples, and he's happy to
[2:14] give Alice the apples, but he doesn't
[2:16] want pecans anymore. Bob wants salt.
[2:19] Well, Bob has a problem.
[2:21] Yes, he has what Alice wants, but Alice
[2:23] doesn't have what he wants. Alice only
[2:25] has pecans, and Bob wants salt.
[2:27] So, now in order for Bob to solve this,
[2:29] he needs to find somebody
[2:32] that wants pecans, wants Alice's pecans,
[2:35] cuz he doesn't want them,
[2:36] and is willing to exchange the salt that
[2:39] he's looking for.
[2:41] And so, he goes around town. The pecans
[2:43] are no good for Bob, but he happens to
[2:44] find Carol.
[2:46] Carol has salt and wants pecans. And I
[2:48] know that this is confusing, which is
[2:49] part of the problem. But, Alice has
[2:52] pecans and wants apples. Bob has the
[2:54] apples, but wants salt. Carol has salt
[2:57] and wants the pecans. So, what does Bob
[2:59] do? Well, Bob first trades his apples
[3:02] for Alice's pecans. And then he takes
[3:04] the pecans and exchanges with Carol for
[3:07] the salt. So, now everyone's happy.
[3:09] Alice gets the apples, Bob has salt,
[3:12] Carol has pecans. Perfect. Now, if we
[3:15] analyze these transactions, what
[3:17] actually happened is Bob monetized the
[3:21] pecans. You're like, "What does that
[3:24] mean, Jack? How What do you mean, he
[3:26] monetized the pecans?" What it means is
[3:29] that money is very simply a market good
[3:32] that you are acquiring not to consume.
[3:36] So, Bob did not buy the pecans to
[3:39] consume the pecans.
[3:41] Bob acquired the pecans to actually
[3:44] later exchange for the things that he
[3:47] actually wanted, which happened to be
[3:50] salt. So, if I go back a slide, you can
[3:53] see that pecans in this particular
[3:55] instance was the medium was the medium
[3:59] of exchange. You've probably heard this
[4:01] term.
[4:02] So, now I know you don't consider Oh,
[4:04] well, pecans aren't money, Jack. That
[4:06] would be silly. I understand, but you
[4:09] you have to know that money by
[4:10] definition is a market good that you are
[4:13] acquiring
[4:15] not to consume,
[4:17] but actually to either save
[4:19] or later exchange for the things that
[4:21] you are looking to consume. So,
[4:24] therefore, anything can be a money.
[4:27] Bob happened to monetize pecans in this
[4:30] instance. Now, obviously, pecans aren't
[4:32] great money, and we'll get into that in
[4:34] a second, but there are three types of
[4:37] goods in any marketplace. There are
[4:39] consumption goods, which is a
[4:42] cheeseburger or an apple, right? And I'm
[4:44] using those examples because I've never
[4:46] monetized a cheeseburger. I've never
[4:47] monetized an apple, and I've never
[4:49] acquired those things to save them and
[4:52] then later exchange them for the things
[4:53] that I want. These are consumption
[4:55] goods. By the way, it's not only food.
[4:57] What about a car? What about an
[4:59] airplane? What about a house? My house,
[5:01] I don't actually I didn't acquire it to
[5:04] later sell it. I acquired it to live in
[5:06] it. So, it's actually consumption good
[5:08] for me. I buy an airplane ticket not as
[5:11] an investment to later sell my ticket on
[5:13] United. I buy it to get on the plane,
[5:16] and that makes it a consumption good
[5:18] because I'm acquiring the good in the
[5:19] marketplace to consume it.
[5:22] You then have capital goods, which are
[5:25] like consumption goods, except they're
[5:27] used to build more consumption goods.
[5:30] For example,
[5:31] let's say Apple uh the company buys a
[5:34] lot of silver. Well, Apple may not be
[5:37] consuming the silver themselves, but
[5:39] they're using it to build an iPhone,
[5:41] which they're then selling as a
[5:43] consumption good for the buyer, right?
[5:45] Like I'm buying my iPhone not to leave
[5:47] it in the box and later sell it as a
[5:49] collectible. I'm buying it to use it as
[5:51] my cellular device and my smartphone.
[5:53] Now, the capital good would be Apple,
[5:56] which is acquiring the silver, which
[5:58] builds more consumption goods. And then
[6:00] the third type of market good is money.
[6:03] And this is it. There's three types of
[6:06] goods in any given marketplace. You have
[6:08] a consumption good, which you're
[6:10] actually consuming, capital good, which
[6:12] is used to produce more consumption
[6:14] goods, and then you have money. And
[6:16] money again is very unique. So you say
[6:18] like, "What is money? There's this is so
[6:21] confusing. I don't get it." It's
[6:23] actually very simple. Money is a market
[6:25] good that you're acquiring not to
[6:28] consume and not to produce more
[6:30] consumption goods. You're acquiring it
[6:32] to save it and then later exchange it
[6:35] for the things that you do need, that
[6:37] you do want to consume. Now,
[6:40] going back to Alice, Bob, and Carol.
[6:43] This all works when there's only three
[6:45] people.
[6:46] These monetizing pecans, or we can
[6:49] monetize cheeseburgers, or we can
[6:50] monetize salt. Alice, Bob, and Carol can
[6:53] hold all of these things in their head.
[6:55] Okay, Alice seems to like apples, Carol
[6:58] seems to like pecans, so I can get the
[7:00] salt. That's fine. But now try that with
[7:04] a village, or try that with the city of
[7:06] Chicago, or try that with 8 billion
[7:08] strangers. It gets really complicated
[7:10] really fast, and there's actually some
[7:12] science behind this. So this is what's
[7:13] known as Dunbar's number.
[7:16] What is the human brain capable of when
[7:18] it comes to building a social network?
[7:20] Because one thing that we're actually
[7:22] very good at is recognizing faces and
[7:25] having relationships. So let's say this
[7:27] is you, and you have five close friends.
[7:30] Sure. Well, can you have six? Yeah, you
[7:33] can grow those relationships up to 15,
[7:35] and and maybe that's family. And can you
[7:37] grow from there? Sure. And this is
[7:39] what's known as a clan. You can have 50
[7:42] folks that you're familiar with and you
[7:44] recognize their face and you can
[7:45] remember their name.
[7:47] The human brain actually scientifically
[7:49] tra- taps out at 150.
[7:52] And at 151, like when you see someone
[7:55] that has a Facebook friends list and and
[7:57] they're on Facebook, they're friends
[7:59] with 170 people. Well, according to
[8:02] Dunbar's number and the science behind
[8:04] that, they can't actually be friends
[8:08] with 170 people. Now, they may be
[8:10] vaguely recognizable. Oh, right, you're
[8:11] Jane's sister. Oh, okay, got it. But
[8:14] when push comes to shove, when literally
[8:16] building a social network with the
[8:18] neurons in your brain, you tap out at
[8:21] about 150, okay?
[8:23] Now, add on top of that that what money
[8:26] is is not simply recognizing a face and
[8:29] building a social network, but it's all
[8:31] about remembering who owes what to whom.
[8:34] Okay, right. Carol
[8:37] I owe Carol pecans, I owe Alice apples.
[8:40] Okay, so it's not just having friends
[8:42] and remembering, right, that's Alice,
[8:44] that's Jane, that's Sally. It's who owes
[8:46] what to whom. Okay, Alice owes Bob, Dan
[8:49] owes Eve, Gail owes Bob, and what do
[8:51] they owe each other, and when is it due,
[8:53] and what is each one worth? So, sure,
[8:55] you can track 150, but what about the
[8:57] ledgering between all of these people?
[9:00] Then it gets really, really, really
[9:02] complicated, really, really, really
[9:04] fast, right? Now, it's just too much.
[9:07] And the math behind this is actually
[9:09] very simple.
[9:11] However many goods are any given market,
[9:13] let's say there's five. To understand
[9:15] the amount of prices that you have to
[9:17] keep track of, you just square the goods
[9:20] number. So, if there's five goods in a
[9:22] market, the amount of prices you have to
[9:24] keep track of is 25. Because let's say
[9:26] you're you have honey. Well, what's
[9:29] honey's price against chicken? What's
[9:31] honey's price against blueberries?
[9:32] What's honey's price against salt?
[9:34] What's honey's price against wool? And
[9:35] then you got to do the same thing for
[9:36] wool. Wool to honey, wool to chicken, so
[9:39] on and so forth, so on and so forth. So,
[9:40] when you're doing direct barter
[9:42] exchange, it's very explosive. As you
[9:45] add goods to the marketplace, the amount
[9:47] of prices that people have to keep track
[9:49] of. So, if I were to take the goods and
[9:51] go from five to 500 goods in the market,
[9:54] as you walk in a Whole Foods, there's
[9:56] way more than
[9:57] uh 500 goods that you could technically
[9:59] buy in Whole Foods. You would have to
[10:02] keep track of a quarter million unique
[10:05] prices if you were to barter just by
[10:08] growing from five goods to 500 goods.
[10:11] And this is this n squared. It's the
[10:13] math behind how explosive it is as you
[10:16] grow the number of goods in a market,
[10:17] how complicated it is. And so, if we go
[10:20] back to Dunbar's number of, well, what's
[10:22] the maximum social network a human could
[10:24] memorize and actually keep track of in
[10:26] their brain, and then you add the
[10:28] complexity of you're going to have to
[10:30] square these things because you're not
[10:32] just keeping track of the humans, you're
[10:34] keeping track of
[10:36] which humans owe what to each other, and
[10:38] when is that due, and what's the value
[10:40] of each of those transactions. It
[10:42] clearly doesn't scale. And so, what
[10:45] money is intended to do is solve this
[10:47] exact problem. Is Sure, if you want to
[10:51] exchange with only two people in your
[10:52] life, fine. You don't Maybe you don't
[10:54] need money. Maybe you can monetize
[10:56] pecans. Maybe you can use barter. But if
[10:59] you wanted to then be a part of a
[11:00] village, and then that village becomes a
[11:02] town, and then that town becomes a city,
[11:04] and then that city becomes a country,
[11:06] and then that country becomes a region,
[11:08] and then all of a sudden we have the
[11:09] internet, and we want to economize 8
[11:12] billion people. We want all of us to be
[11:14] able to buy and sell goods with each
[11:16] other. Money is the technology we
[11:19] invented to solve for these exact
[11:21] problems. So, problem one is money needs
[11:23] to do solve for who owes what to whom.
[11:26] Favors can just be remembered by
[11:28] everybody, right? And especially not to
[11:32] keep track of both sides and for years
[11:34] and and without writing them down. Okay?
[11:36] We also need to keep track of what is it
[11:38] worth? So this concept of a price.
[11:41] Okay, it's very difficult to say okay,
[11:43] half jar of honey is worth one full
[11:45] chuck chicken, but how much is a half
[11:47] jar of money worth in wool? Is totally
[11:50] different. You're like, well, I mean, am
[11:52] I supposed to memorize this? Am I
[11:53] supposed to write this down? So it's
[11:54] also keeping track of what it's worth
[11:56] and it's solving for the scale problem,
[11:59] which is if I only have 500 goods, I
[12:01] need to remember and memorize 250,000
[12:04] barter prices. It's ridiculous.
[12:06] With money, we can drastically reduce
[12:09] that. So if I go back to the 250,000
[12:12] uh prices here that we have for 500
[12:14] goods, now if we introduce money here in
[12:16] the center,
[12:18] we're back to 500. Where if you have 500
[12:20] goods, there's only 500 prices and you
[12:23] can put those on a price tag and it's
[12:25] very simple and money acts as like a
[12:27] pivot language. It acts as a unifier is
[12:31] you can create a good, exchange it for
[12:33] money and then take the money and then
[12:35] go acquire the goods that you need and
[12:37] you don't have to monetize other
[12:39] consumption goods like a pecan.
[12:43] Now, the result of all of this also it
[12:46] makes society better because for
[12:48] example,
[12:50] if we were still bartering and let's say
[12:52] my profession was I'm a professional
[12:55] uh repairer of broken windshields, which
[12:58] is a valuable service. If anyone's ever
[12:59] broken their windshield, you're like,
[13:00] well, crap, now I can't see the road.
[13:02] There's a crack in my windshield. I
[13:04] really need to be able to fix this in
[13:06] order to drive. Thankfully, there are
[13:08] experts that you can drive in same day
[13:10] and within 30 minutes, your windshield
[13:11] is fixed. That's amazing. However, if I
[13:14] was a professional windshield fixer and
[13:16] I fixed a few windshields today and then
[13:18] I went into Whole Foods and I said, I
[13:20] would like a ribeye
[13:22] and they would say, okay, cool. What do
[13:24] I get in exchange? And I said, well, I
[13:25] fixed a few windshields today. They
[13:27] would say, "Well, I don't care that you
[13:29] fixed other people's windshields. My
[13:30] windshield wasn't broken, so why would I
[13:32] give you food in exchange for you fixing
[13:35] other people's windshields?"
[13:36] And that's a very valid point. And so,
[13:39] the problem is that maybe everyone's
[13:42] value they're creating isn't directly
[13:44] exchangeable for the things they want,
[13:45] which again, money solves this problem.
[13:48] Is that I can fix windshields and charge
[13:51] money for it. Charge for a good that I'm
[13:53] not intending to consume. I'm charging,
[13:56] as I fix your windshield, I'm collecting
[13:58] something that I'm not going to eat, I'm
[13:59] not going to drive, I'm not going to
[14:01] fly, I'm not going to live in. I'm going
[14:03] to save it, and then I'm going to put it
[14:05] in my pocket and walk to the grocery
[14:07] store, and then exchange it for the
[14:09] things that I actually need. And that is
[14:11] economizing and using money to scale
[14:14] barter and scale exchange and trade
[14:17] between humans. And now, obviously, if
[14:19] you scale that, and you say, "Wow, that
[14:22] means anybody can do anything of value
[14:24] to someone else. You can fix
[14:26] windshields, you can be a surgeon, you
[14:27] can be a welder, you can be a chip
[14:29] designer, you can be an artist, a
[14:30] rapper, an airplane pilot. You could do
[14:33] anything you want as long as someone
[14:35] else in the marketplace is values values
[14:38] it enough to give you money for it. And
[14:40] then you can take that money, and you
[14:42] can go acquire the things you need, like
[14:43] steak or rent or coffee or a phone or
[14:45] medicine or school or flights or power.
[14:48] And that greatly improves society.
[14:51] Because we all can be hyper specialist
[14:54] and hyper experts in very niche things.
[14:56] Like in a tribe of five, there's no
[14:59] windshield wiper. There is no chip
[15:01] designer. But if you have money, and
[15:03] you're able to scale human
[15:05] collaboration, then people can become
[15:08] hyper experts in very niche yet valuable
[15:11] things. And then they can use that value
[15:14] that they're driving
[15:15] to get the things that they want and
[15:17] need in their life using money as the
[15:20] technology to escrow and proxy all of
[15:23] this value exchange. So, I love this
[15:25] quote from Richard Dawkins. If you
[15:26] understand money deeply in this way,
[15:28] money is a formal token of delayed
[15:30] reciprocal altruism.
[15:33] Right? It's I did something valuable for
[15:35] someone else.
[15:36] But, I don't want to directly exchange
[15:39] that value right this second. If I fix
[15:41] your windshield, and I'm not hungry, and
[15:43] you don't have the food that I want,
[15:45] just give me a formal token of delayed
[15:48] reciprocal altruism.
[15:50] Just give me a token so that later on,
[15:52] when I want to, I can exchange the the
[15:55] value, the altruism I gave to you by
[15:57] fixing your windshield, for something
[15:59] that I would like in return, that I
[16:01] would like to consume. Right? That's a
[16:03] very high-level way of thinking about
[16:06] money. I think it's a very fascinating
[16:07] way to think about it. So,
[16:10] now, understanding all of this,
[16:13] now we must understand that money and
[16:16] trade,
[16:17] it arrives naturally.
[16:19] See, once you understand this,
[16:22] money was not invented by government,
[16:23] money was not invented by banks, money
[16:25] was not invented by corporations, money
[16:28] was invented by all of us. It was
[16:29] invented by the market. It emerges
[16:32] naturally. So, what I have on the screen
[16:35] here is you have a town or a city or a
[16:37] country or any market. Like, the market
[16:40] exists naturally. People naturally want
[16:43] to trade and exchange value because
[16:46] every trade is beneficial, or else the
[16:48] trade would not happen.
[16:50] I would not give someone $50 for a steak
[16:54] if I thought the steak wasn't worth $50.
[16:57] Every single voluntary exchange,
[17:00] voluntary, right? Like, no one's putting
[17:02] a gun to your head, is by definition
[17:05] mutually beneficial, or else one party
[17:07] wouldn't have done it. You could be
[17:09] like, "Ugh, I can't believe steak is
[17:10] $50." But, if you didn't think it was
[17:12] worth $50, then you wouldn't have swiped
[17:13] the card.
[17:14] And so, trade happens naturally. It's
[17:16] mutually beneficial between the parties,
[17:19] and then as the money scales and becomes
[17:22] more popularly adopted, this is like
[17:24] Bitcoin's story, more and more people
[17:26] are like, "Huh, this is a pretty good
[17:28] money. I could use lots of things for
[17:30] money. I could use pecans, I could use
[17:31] silver, I could use dollars, I could use
[17:33] Bitcoins." And slowly but surely, within
[17:36] the marketplace, people start adopting
[17:38] the money that benefit them.
[17:41] So, now we have to understand and think
[17:42] about what makes a thing money. What
[17:45] makes it good?
[17:46] And this is from Nick Szabo.
[17:49] One, hard to lose or steal.
[17:53] Obviously,
[17:54] if the money was trivial to take, like a
[17:58] or easy to lose,
[18:00] that would be pretty bad because you can
[18:02] work and fix all the windshields or work
[18:03] and do your job, and then you lose it,
[18:06] or then someone else takes it from you,
[18:08] and then what value is that? Now I can't
[18:10] eat dinner.
[18:11] The next is unforgably costly. This
[18:14] means expensive to produce and
[18:16] impossible to fake.
[18:18] Right? So, obviously, if the money that
[18:20] I'm getting in return for fixing the
[18:22] windshields and doing all this valuable
[18:23] work was easy for someone else to just
[18:26] make out of thin air,
[18:28] well, that's a problem, and that's one
[18:30] of the main problems I have with fiat
[18:31] currency, and that's why I say no man
[18:33] should work for what another man can
[18:35] print.
[18:36] Because what am I doing sacrificing my
[18:39] life and pouring my blood, sweat, and
[18:41] tears into something only for someone
[18:44] else, some other dude, who's either an
[18:46] elected or unelected official to be able
[18:48] to print what I earned through hard work
[18:50] out of thin air. Well, that makes the
[18:52] money not nearly as appealing.
[18:55] And then the last is very easy to
[18:57] verify.
[18:58] So, when I go exchange it,
[19:01] it's very important that a merchant or
[19:03] anyone receiving the money in exchange
[19:05] for the good that I want to consume,
[19:07] right? So, okay, I've fixed a bunch of
[19:09] windshields, and now I have this money
[19:11] thing. And it doesn't matter what money
[19:13] I'm electing to use, I could use any
[19:15] money I want.
[19:17] Now, the merchant is going to one have
[19:19] to want to receive that money and value
[19:21] that money as well, but they're also
[19:22] going to make sure that it's not fool's
[19:23] money. It's not fool's gold.
[19:25] And it has to be very easy. Like imagine
[19:27] I walk in with gold and they're like,
[19:28] well, I'm going to have to melt this
[19:29] gold down in order to verify it. Well,
[19:32] that's not a very usable money either.
[19:35] So, hard to lose or steal, easy to
[19:38] transport,
[19:40] impossible or very difficult to produce
[19:42] more of or fake, easy to verify what's
[19:44] real or not. These are, throughout the
[19:46] history of people monetizing things. So,
[19:49] right, we've used throughout human
[19:50] history we used shells, shark teeth,
[19:53] flint, silver coins, gold coins.
[19:56] The The thing is, which of these things
[19:59] carries all of these properties, right?
[20:02] So, let's talk about saleability, for
[20:04] example. And I give a little scorecard
[20:06] here across fresh fish, firewood, wool,
[20:08] salt, cattle, and silver. These were all
[20:10] money once upon a time back in the day
[20:12] and you're like, really, salt was money,
[20:14] Jack? Yeah. Hundreds and hundreds or
[20:17] thousands of years ago, yeah. Salt was
[20:19] relatively scarce, easy to transport,
[20:22] easy to tell whether
[20:24] I was holding sugar or salt. It's very
[20:26] easy, just put a little bit on your
[20:28] tongue. So, yeah, 100%. Now, over time,
[20:31] it becomes actually not very scarce,
[20:34] actually not very durable, actually not
[20:35] very sellable. So, sellable in this
[20:37] example is which of these goods are
[20:40] people willing to accept, right? Fresh
[20:43] fish?
[20:45] I
[20:46] That's a hard That's a hard sell for for
[20:48] for me to be like, hey, you know, I I'd
[20:50] like this house. I'll give you a bunch
[20:51] of fresh fish. Or what about wool? Or
[20:53] what about cattle? And over time,
[20:55] precious metals like silver and gold
[20:58] ended up winning out and becoming the
[21:00] most sellable hardest money over time.
[21:03] Let's talk about storing value across
[21:05] time. Let's say a cart of apples. Well,
[21:08] the problem with the cart of apples is
[21:09] they go bad over time. They go rotten.
[21:12] So, whilst they might be valuable while
[21:14] they're in season and fresh off the
[21:15] tree, just give an apple a week or two
[21:18] and they're rotten and you can't consume
[21:20] them. And so, maybe I worked and had my
[21:22] life savings in a fresh batch of apples,
[21:25] but then in 2 weeks I'm poor and
[21:26] homeless. So, that's not very good
[21:28] money.
[21:29] Now, what about money that I call leaks
[21:32] like the dollar? Well, sure. The
[21:35] dollar's not going to go rotten like an
[21:36] apple, but the more they print of it,
[21:39] then the more they're diluting the value
[21:41] of me being able to exchange it for
[21:43] other goods in the marketplace. And so,
[21:45] that's also not very good. So, not only
[21:46] does the good need to be sellable and
[21:48] acceptable and people want it and value
[21:51] it as money, but it also needs to store
[21:53] money across time. So, sellability is
[21:55] about transacting across space, right?
[21:58] Like is someone if I walk into a store,
[21:59] is someone going to want to receive this
[22:01] and have the ability to receive it? And
[22:03] then across time is, you know, are
[22:05] people
[22:06] can I store this you know, money has two
[22:10] jobs. One, can I send it like from here
[22:13] to London? And then the second is like,
[22:15] can I send it from here to 10 years from
[22:17] now? And you're like, wait, what are you
[22:19] talking about? I'm saying, can I create
[22:21] value for myself that in theory allows
[22:25] me to buy a house and in 10 years from
[22:26] now I could still buy a house. Cuz what
[22:28] happens with a lot of fiat currencies is
[22:30] people earn enough money to get a dinner
[22:33] or get a house or get a flight. And then
[22:36] 10 years from now due to inflation, it's
[22:37] only half a house and you know, only one
[22:40] flight instead of four and only dinner
[22:43] at McDonald's instead of dinners at
[22:44] steakhouses. And that's because that
[22:46] money is leaking value over time. So,
[22:48] money needs to be able to travel across
[22:50] space and across time. And so, I think
[22:52] this slide is a very fun visual to
[22:54] understand.
[22:56] Think about it this way. This is a
[22:59] known as stock-to-flow as a way to
[23:01] measure a money's scarcity so that your
[23:04] value isn't getting inflated away.
[23:06] So, on the screen, you have the white
[23:08] dots of the existing stockpile that
[23:11] exists. So, right now I have the
[23:13] Venezuelan bolivar.
[23:15] How many of Venezuelan bolivars
[23:17] currently exist versus how many are
[23:20] actively being produced? And that gives
[23:22] you this what we call a stock to flow
[23:24] ratio of okay,
[23:27] what's the relative scarcity? For
[23:29] example, if I had 10 Jack bucks and one
[23:32] was being created every single day,
[23:34] that's highly inflationary because we're
[23:36] going from 10 to 11 and 11 to 12. That's
[23:39] really, really inflationary. You're
[23:40] talking about double-digit inflating the
[23:43] core supply versus if I have a billion
[23:46] Jack bucks and I'm creating 0.00001
[23:49] a day, that's far less inflationary. So,
[23:52] Venezuelan bolivars highly, highly
[23:54] inflationary. They create more each each
[23:57] year than actually exists in total. Gold
[24:01] is much better. However, gold is still
[24:05] inflationary. People need to understand
[24:06] this. Gold still inflates about 2% a
[24:08] year. And what I mean by that is 2% new
[24:12] gold is created each year relative to
[24:14] the amount of gold that already exists
[24:16] today. And so, if you run 2% inflation
[24:19] forward, you're actually losing like
[24:20] half of your wealth due to inflation
[24:23] like every 30-40 years, believe it or
[24:25] not. Um
[24:26] so, anyways, the dollar, okay, dollar is
[24:30] better than the Venezuelan bolivar, but
[24:32] much, much worse than gold. And where is
[24:34] Bitcoin? Bitcoin today, because the 21
[24:37] million hasn't been fully issued, is
[24:38] technically inflating at less than 1%
[24:40] cuz there's still a block reward with
[24:42] each Bitcoin block. But if you consider
[24:44] Bitcoin as just the fixed 21 million as
[24:46] if they've all been issued, then
[24:48] Bitcoin's actually the only money with
[24:50] an infinite stock to flow, believe it or
[24:52] not.
[24:53] So, it's interesting to think of like,
[24:54] okay, wow, there's different forms of
[24:56] money and you can measure them different
[24:58] ways. Which one has Which one is more
[25:00] scarce? Which one carries more value
[25:02] across time? Which one's easier to
[25:04] transport across what I'm call space,
[25:06] like from here to London or from here to
[25:08] my grocer, right? Which one is more
[25:10] sellable? And so, throughout human
[25:13] history, there's been two core forms of
[25:16] money or approaches to money. There's
[25:17] been a list, and then what I call a
[25:19] thing. Let me break this down.
[25:22] Really, at the end of the day, as I
[25:23] mentioned, money solves for human
[25:25] memory. Like, if we could just memorize
[25:27] who owes what to whom, we wouldn't need
[25:29] money. But, as I mentioned,
[25:31] we physically and scientifically cannot
[25:34] create social networks and lists in our
[25:37] brains this complex. And so, one
[25:39] approach is to just write it down. I'll
[25:41] say, "Okay,
[25:42] I, Jack, am the king of the town, and I
[25:44] will keep the list
[25:46] that keeps track of who owes what to
[25:48] whom. So, whenever there's a trade, you
[25:50] have to report it to me, and I will
[25:51] enter a new ledger entry, and I'll say,
[25:54] "Okay,
[25:55] Dylan owes Sally this, and Jane owes
[25:58] Jack this, and I will keep track of the
[26:01] list."
[26:02] And then the other option is to have an
[26:03] actual thing. And a thing is like a gold
[26:06] token, or like a seashell.
[26:09] Now, the problem with lists over time
[26:12] is that both sides have to agree that
[26:14] it's right, and you end up needing
[26:16] trust. What if Jack says, "Yeah, you
[26:20] know, I actually don't like Jane that
[26:22] much, and so I know Jane is technically
[26:24] owed a bunch of apples, but I'm going to
[26:26] cross that out out of spite towards
[26:28] Jane." Right? And
[26:30] that is what we live in today, guys.
[26:32] Like, the Federal Reserve and the US
[26:34] government and whoever you believe is
[26:36] ultimately now we're in fiscal
[26:38] dominance, whoever you believe is
[26:39] ultimately controlling the money supply,
[26:41] they're really, at the end of the day,
[26:43] keeping track of who owes what to whom
[26:45] and how much money should exist, uh and
[26:48] that's accounts, like these banks have
[26:49] accounts at the Fed. And that's really
[26:52] how money works today. The other option,
[26:55] if you're like, well, trust has not
[26:57] worked and not scaled throughout human
[26:59] history,
[27:00] you can use a bearer token. You can use
[27:02] a thing like gold. And when you use
[27:04] something like gold, you don't need a
[27:06] list of who owes what to whom, because
[27:08] if I have 10 oz of gold, then it is
[27:11] implied that the world owes me 10 oz of
[27:14] gold worth of stuff.
[27:16] The actual keeping track of who owes
[27:18] what to whom is embedded in the token
[27:20] itself. Hey, I have this amount of gold,
[27:23] so the world owes me this amount of
[27:25] stuff. It's implicit and it's implied.
[27:27] The problem with the thing is that
[27:31] it doesn't scale.
[27:33] Because I cannot Right now, it's very
[27:36] easy to update a list at the Fed or a
[27:38] list at Cash App or a list at JP Morgan
[27:41] Chase. You could do it on your phone via
[27:43] apps. I cannot send gold over the
[27:46] internet. I don't want to carry gold on
[27:50] uh my dinner date this evening. Gold or
[27:53] physical tokens have had a tough time to
[27:55] scale. And what's interesting, I have an
[27:57] arrow here on the slide, is as we've
[27:59] used things to monetize and economize,
[28:02] we've actually ended up needing to
[28:03] create a list of the things, which is
[28:05] what the system we're in today. We were
[28:08] on the gold standard, but gold didn't
[28:10] scale on the internet into 8 billion
[28:12] people. And so then everyone deposited
[28:14] their gold to banks and governments, and
[28:16] governments kept a list of who has what
[28:18] gold, and then they divorced from the
[28:19] gold standard because we trusted them,
[28:21] and they were like, ah, screw this, you
[28:23] know, we're in so much debt, we don't
[28:25] want to do this anymore. And now we just
[28:26] have a trusted list with the US
[28:28] government and the Federal Reserve.
[28:31] And so, each have unique problems. A
[28:33] list has plenty scale,
[28:35] and it can work globally, and you can
[28:37] update a list digitally instantaneously.
[28:40] But the level of trust has failed us. A
[28:42] thing, you don't need to trust. You
[28:44] either have the gold or you don't. But
[28:46] gold hasn't scaled, especially modern
[28:49] day 2026. We've got the internet, an
[28:51] economy of billions of people.
[28:53] So, I close all this out and bring it
[28:55] back to you have to understand money is
[28:58] technology.
[29:00] Okay?
[29:00] There are many of them.
[29:02] Right? There's not one singular way to
[29:04] fly. There's not one singular way uh to
[29:08] go online, right? So,
[29:11] let me make this point.
[29:13] Flight.
[29:15] Technically, I could try and fly with a
[29:18] banana.
[29:19] I could go on my roof right now and jump
[29:21] off
[29:23] and try and fly
[29:25] with a banana. Now,
[29:28] I would have a really poor time. I'd
[29:30] probably hurt myself greatly or die.
[29:32] Because bananas are not good
[29:35] technologies to use for flight.
[29:38] Now, hot air balloons are better than
[29:41] bananas. I would probably not die,
[29:44] hopefully if the hot air balloon worked,
[29:46] but I also would not necessarily get to
[29:49] where I needed to go, at least in a
[29:50] timely manner. Biplanes are better than
[29:53] hot air balloons, and the best way to
[29:56] achieve flight is a jet.
[29:59] Guys, money is the same way, and people
[30:01] don't think of money this way. They
[30:02] don't think of it as a technology where
[30:05] there's many different options, and
[30:07] depending on what they're trying to
[30:08] solve for and what they want to do, they
[30:09] can elect whichever money techno-
[30:11] technology is better for them. So, for
[30:14] example, seashells. I would say
[30:15] seashells today are more like a banana.
[30:18] If you want to store your savings in
[30:19] seashells, you can. Think you're going
[30:21] to have a really bad time and you're
[30:23] going to be poor really, really fast. I
[30:25] would say paper money is more like hot
[30:26] air balloon. Yeah, sure, technically
[30:29] possible, but are you going to get to
[30:31] where you want to go? Are you going to
[30:32] end up being able to build savings, own
[30:34] a home, beat inflation? No, definitely
[30:38] not.
[30:39] Gold is probably like a biplane. It's
[30:41] the analog version. Like, okay, at one
[30:44] point in time, this was the bee's knees,
[30:46] but we're in 2026, and gold doesn't
[30:49] really scale. The biplane's not going to
[30:51] get me to
[30:53] California to visit my parents anytime
[30:55] soon. And Bitcoin is like the jet. It's
[30:59] the modern-day engineered version to
[31:01] scale to society as we know it today, at
[31:04] least in my opinion. But, you have to
[31:06] understand that money is a technology,
[31:07] and you can choose whatever money you
[31:09] want. Yes,
[31:10] governments make you pay taxes in their
[31:12] currency, and so they are forcing you in
[31:15] some way to adopt their money literally
[31:17] by force, literally via violence. Like,
[31:20] if you don't pay your taxes, and you
[31:22] don't use our money, we will lock you in
[31:23] a box for the rest of your life, which
[31:25] is very unfortunate, and I disagree
[31:27] with. But, nonetheless, you don't have
[31:29] to use their money all the time. You
[31:30] could use seashells if you want. You
[31:32] could use gold if you want. You could
[31:33] use Bitcoin to save money if you want.
[31:36] And just some fun history, um in New
[31:39] England in the mid-1600s, did you guys
[31:41] know that clams were actually legal
[31:44] tender?
[31:46] So, believe it or not, and and I I'm
[31:49] just giving you this context because
[31:50] people are like, "Wait, the dollar
[31:53] hasn't been money forever?" It's like,
[31:55] no, the dollar's actually younger than
[31:56] the internet. Money is an ancient
[31:59] technology to scale human cooperation.
[32:04] I'm going to say that again. Money is a
[32:06] technology as old as everything else
[32:09] that you use in your life, at least,
[32:12] to ensure that we cooperate at scale.
[32:16] So, yes, in the 1600s, clams were legal
[32:20] tender. By the way, issuing money from a
[32:23] central party actually started before
[32:25] there was government as we know it
[32:26] today. It started from kings.
[32:28] So, kings did it as a way to better
[32:31] collect taxes, and it's actually from
[32:33] that point in Lydia that
[32:36] it it it built this idea that one party,
[32:39] the dominant party, the kings of of the
[32:41] town, and now the government, the the
[32:44] the you know, US government, uh decided
[32:47] how much currency there should be.
[32:50] But this is thousands and thousands and
[32:53] thousands and thousands of years old.
[32:55] And there's many many many many moneys,
[32:57] and money solves a very particular
[33:00] problem. Very specific properties. And
[33:03] you get to choose which one you want to
[33:06] use. And so then I pose the question
[33:08] back to you guys, and this is how I live
[33:09] my life, of well, which money do you
[33:11] want?
[33:12] Based on the problem it's supposed to
[33:15] solve, it well, it needs to be able to
[33:16] travel through space. I need to be able
[33:18] to send it from point A to point B. It
[33:19] needs to be saleable. It needs to be
[33:21] liquid. It also needs to travel through
[33:23] time. I don't want my value being
[33:25] inflated away. I don't want to have a
[33:28] money that anybody can print. I want my
[33:29] money to be scarce. It needs to be easy
[33:31] for me to accept. I need to be able to
[33:33] really easily know the difference
[33:35] between fake gold and real gold, fake
[33:37] Bitcoin and real Bitcoin. And then you
[33:39] choose which technology suits your
[33:41] needs. So if I pull up gold, fiat, and
[33:44] Bitcoin here on the screen,
[33:45] and these are the properties of money
[33:47] that has have historically solved
[33:50] society's problems and made it good.
[33:53] We've got durability, divisibility,
[33:55] fungibility, portability,
[33:57] verify-ability, scarcity, and its track
[34:00] rec- record, which implies some version
[34:02] of trust.
[34:03] Gold historically has been very durable,
[34:05] but not divisible. It's been very
[34:07] fungible, but not portable. Not easy to
[34:10] verify. But it is scarce and has a track
[34:12] record of a very long time.
[34:15] Fiat currency,
[34:16] now fiat exists in large part to solve
[34:19] for where gold failed us.
[34:21] Fiat is not durable.
[34:23] It is very divisible, though. It is not
[34:26] fungible. But it is very portable.
[34:28] It is verify- or is is verifiable, it is
[34:31] not scarce, and it does not have nearly
[34:34] as long a track record.
[34:36] But, where gold failed predominantly in
[34:39] divisibility and uh portability, fiat is
[34:44] very divisible and very easy to move,
[34:46] right? You You just make an API call, or
[34:49] you get on your phone, you click a
[34:50] button, and people can update lists, but
[34:53] you got to trust them, and they can
[34:55] issue more currency and inflate your
[34:57] world away. Now, you go to Bitcoin, and
[34:59] Bitcoin actually achieves everything,
[35:01] except you can make an argument that it
[35:02] doesn't have the track record that gold
[35:04] has, right? Cuz Bitcoin hasn't been
[35:05] around as long as gold has. So, you can
[35:07] make the argument that Bitcoin is still
[35:08] the new kid on the block. But,
[35:10] everything else, Bitcoin is durable,
[35:11] divisible, fungible, portable,
[35:13] verifiable, and scarce. And these are
[35:15] actually the reasons that I choose
[35:17] Bitcoin for my money. Like, where are my
[35:19] life savings? My life savings are in
[35:21] Bitcoin, and people say, "Yeah, but when
[35:22] you go to Whole Foods, you don't use
[35:23] Bitcoin to exchange."
[35:25] Who cares? Sure. Okay, fine. You're
[35:27] right. Like, I use a credit card. So, I
[35:30] actually am able to use fiat without
[35:32] having to own it. And then, I either
[35:34] sell a little bit of Bitcoin to pay off
[35:36] my credit card bill, or I borrow against
[35:37] my Bitcoin. But, the money I elect to
[35:40] use for all of these properties, and in
[35:43] order for me to exchange and live my
[35:44] life and grow value and collaborate with
[35:46] society, Bitcoin's the best money for
[35:48] me. It It solves all the problems that
[35:50] money is supposed to solve. I don't just
[35:52] do what a bank tells me to do. I don't
[35:54] just do what the government says.
[35:56] And so, actually, if I go back to this
[35:57] idea of historically, we've had lists,
[36:00] or we've had objects, things, right? A
[36:03] list could be thought of as like the
[36:04] ledger at the Fed, and an object could
[36:06] be thought of as gold. Fascinatingly,
[36:09] Bitcoin, and what Satoshi invented, is
[36:11] actually both at the same time.
[36:14] And it's because
[36:16] the blockchain, so if you guys think,
[36:17] "Oh, yeah, the Bitcoin blockchain." The
[36:19] blockchain is just a giant list, right?
[36:21] It's a giant list of who owes what to
[36:23] whom. So, we we can all transparently
[36:26] see
[36:27] which public keys can spend which
[36:29] Bitcoins by providing a signature with
[36:31] their private keys. This is at the time
[36:33] for me, this was like a huge aha moment.
[36:35] I was like, "Oh, I totally get it now."
[36:38] Bitcoin's a giant list, but it's also an
[36:40] object in that the information itself,
[36:43] the list itself, like having a private
[36:45] key itself, behaves like a bearer
[36:48] instrument. Like I can literally hand
[36:51] someone Bitcoins by handing them my
[36:54] hardware wallet or my keys.
[36:56] So, it's actually both. What Satoshi
[36:58] solved for is turning information
[37:02] into a bearer instrument. So, it behaves
[37:05] like both. It's fascinating. And Bitcoin
[37:08] is the first money that has made a
[37:11] physical object out of a list
[37:13] or created a physical object that is a
[37:16] list. It depends how you want to think
[37:18] about it, but they're both true.
[37:19] And that's what actually allows Bitcoin
[37:22] to achieve monetary properties that no
[37:26] other money has. This is the core
[37:28] innovation, and this is why it's this
[37:30] public, auditable, transparent ledger.
[37:34] And because it's a ledger, I mean, you
[37:35] can update the ledger from anywhere in
[37:37] the world. Doesn't matter who you are,
[37:39] where you are, you can do it. And and
[37:41] obviously with things like lightning,
[37:42] instantaneously, it's easy to receive
[37:44] and verify, and
[37:46] it's free to store. Like if I needed to
[37:48] store a lot of gold, that sounds very
[37:50] expensive.
[37:52] Bitcoin's very easy, 12 words in your
[37:54] brain. Um so, fascinating.
[37:57] So, anyway, I hope this was very
[37:58] valuable. Thank you guys for tuning in
[38:00] and listening. Let me know what other
[38:01] Bitcoin 101, either direct or adjacent
[38:04] topics, you'd want to hear next. And
[38:06] with that, I'll catch you guys in the
[38:08] comments. Peace and love. Take care.