Bitcoin

this is this is the key line this is a quote from coin daddy right now all our entertainers come from outside crypto culture not inside crypto we've got to change that he said oh my god what a mission to be on what a mission welcome to season eight episode one of acquired the podcast about great technology companies and the stories and playbooks behind them i'm ben gilbert and i'm the co-founder of pioneer square labs a startup studio and venture capital firm in seattle and i'm david rosenthal and i am an angel investor and advisor to startups based in san francisco and we are your hosts after close to 150 episodes over the last five and a half years this will be the first one covering something

that is not a company and while today's topic is nowhere near a corporation and is often thought of as quite the opposite it has had a better investment return over the last decade than any company in the world including amazon including apple including domino's pizza and even including tesla oh so great we're gonna have to talk about a little bit a little bit of pizza as we get along here we are but not from domino's no today we are talking about the single greatest 10-year investment return in human history bitcoin and in just over a decade it has gone from less than one cent per bitcoin to over thirty thousand dollars a three million x investment return it's just mind-blowing

yeah i was gonna say david i don't know totally for sure that it's the single greatest you know decade investment return in human history but it kind of has to be i just can't i was even thinking i was looking at so there's the naspers investment in tencent and the softbank and yahoo investment in alibaba both of those were like between 20 to 30 million that turned into like 100 to 200 billion so even that's like what a thousand x ish like it doesn't even come close yep yep pretty crazy i have not computed the irr but i bet that's pretty good too yeah so whether you are hodling on for dear life and riding it to the moon or whether you think this whole thing is a crazy bubble that's about to pop

there is no denying the unbelievable cleverness of invention of all the math and mechanisms behind the bitcoin protocol itself it is truly a beautiful and ingenious system but by who we don't even really know who invented it today david and i will dive into the complete history behind the creation of bitcoin by the pseudonymous satoshi nakamoto the different factions that pushed it to evolve through its several chapters since 2009 into the mainstream today and we'll evaluate its position today with the same strategic lens we use on every episode here at acquired is bitcoin a new form of money an investment opportunity the start of a new global economy or just completely a scam today we dive in well if you

love acquired and you want to be a deeper part of what david and i do here you should become an acquired limited partner you'll get access to our library of over 50 interviews and deep dives on company building topics our monthly zoom calls and this is new live access to listen in while we record big events like emergency pods like the slack one we did uh last month a couple months ago so great and uh feels like 10 years ago that was back when bitcoin was under 20 000 yes and also uh listen live uh into our book club discussions with the authors most importantly though and this is what's so cool about what the show has become you'll be a part of the acquired community we've been amazed at the caliber of people and

insights that have showed up to our lp calls it is so clear to david and i that we truly do have the greatest audience in the world from young people just starting out their careers to ceos and top executives some of which who are running 100 billion dollar companies and general partners at venture and investment firms of every size around the world people have made friendships gotten jobs raised capital launched new careers and even met their co-founders through the acquired community so if you aren't already an lp click the link in the show notes or go to acquired.fm slash lp and we can't wait to see you there all right listeners now is a great time to talk about a new partner of ours here on acquired

lagora the agentic operating system that is redefining how the world's best legal teams work yep it's sort of obvious that ai is going to completely change the legal industry i bet most of you listening have dropped a contract into some sort of ai chat bot out there lagora took that insight and asked the question what if you really built something with that power from the ground up for the legal industry so the founders did exactly what great founders do operate with obsessive customer focus they embedded inside a massive law firm for months they sat with the lawyers just watching how the work really gets done and that's how you get features that customers love like tabular review where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer

can actually work with lagora's bet here is interesting since it lets each lawyer handle more complexity any given person can increase the quality of their work and do higher value work and this means that the pie can grow even as each individual task takes less time and they recently launched lagora agent offering greater intelligence and performance the agent lets lawyers set an objective then it can handle the planning and the execution and delivery of the final product legal teams get to maintain full control and transparency since they're still involved where judgment is required and lagora works where you already work you can use it within microsoft word while redlining or drafting the early lagora numbers essentially speak for themselves when they have a head-to-head pilot with their top

competitor they win 70 percent of the time lagora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries and crazily they went from 1 million to 100 million in arr in about 18 months truly insane numbers and that is the real test plenty of things demo well but the question is whether a busy associate actually reaches for it during crunch time or whether a partner trusts it before going into a conversation with a major client if your legal team wants to check it out whether you're a law firm or you're in-house at a company you can learn more at lagora.com acquired and just tell them that ben and david sent you well david i think it is a time to dive in and listeners do know that uh

you know at various points in our lives past and present david and i have bought bitcoin sold bitcoin hold bitcoin none of this hodled bitcoin none of this as usual is investment advice don't take this as a recommendation to buy or not buy in fact i have learned way more researching in the last two weeks and really preparing for this episode than i ever knew when i held more bitcoin than i currently hold now so certainly not investment advice but definitely a fascinating deep dive and hopefully we'll both turn up some new stones that you didn't know even if you're a bitcoin enthusiast and also help see the forest through the trees a little bit if you are someone that's deep on all this stuff i mean i when

we were planning this season and thinking about the stories we wanted to tell like there was no better story that i could think of to start the season then than this so in fact i fought you on it so i'm glad you uh glad you pushed it through all right we are going to set a new record on where we start on history and facts today but it's not going to be a record in the direction you think we're going to start two days ago on monday january 11th 2021 when i paid my taxes to the u.s government you know i never really thought about it as you know it's what i do go on the irs website i go on the california

franchise tax board website and enter my bank account info and you know pay the taxes but this time i found it very very concerning like i was i was i mean i'm dramatizing for effect here but like i actually woke up in the middle of the night monday night thinking about this and i was like i'm really worried about what i just did why is that why is that well i'm not worried that i paid my taxes i certainly believe in paying taxes it's important you should do it i'm concerned how i paid my taxes so when i logged on to these websites the irs website the california franchise tax board website they kind of feel like they were designed in 1995 and they probably were and i you know went on i was going through the flow

i entered my bank routing number and i entered my account number and i told them to you know take out many thousand dollars from my account and they just kind of did they just sort of reached into my account and they took the money which you know i wanted them to i wanted to pay my taxes but like that's insane i didn't log on to my bank i didn't tell them this was going to happen i just gave out my account number and they came and they took the money now like i trust the government and i think that's okay but like i started thinking about all the times i do this right like if if they could do that i mean

the routing number is just the branch so like you and i could foreseeably have the same routing number so all i need to do is either find or guess your account number which is not very secret no like i actually give it to a lot of people and the more time we spend on the internet and transact and we build acquired like we have our bank account at acquired we have vendors we have people who pay us we're giving out our account number all the time there's really nothing to stop anybody once they have the number from sharing it using it taking money doing kind of whatever they want with it that's kind of frightening isn't it totally like once you start pulling on that thread it's almost scary to

see where it goes and what the layers of our financial system are i i imagine that's where you're going with this yeah that's exactly well yeah so then i was like well how else could i transfer money i mean i could write a check but you write a check then then that's a piece of paper that has the routing number you're just making the problem worse it has your it has your name on it it has your address on it so literally everything you need to steal somebody's identity and and their money is just right there printed on a piece of paper what do we also use we use debit cards and credit cards to pay for anything how many times have you had your credit card stolen been because i've had

my credit card stolen like probably three or four times over the past 10 years yeah something like that some of that i'm sure everybody listening is probably in the same bucket like once if somebody knows your credit card number and you don't even have to like even if you're really careful with it you could be paying at a gas station there could be a skimmer installed an e-commerce website you use could get hacked it's out there there's no way to stop anybody then from putting fraudulent charges on your account but david fortunately these systems account for this like take a credit card company for example we did the venmo episode we talked about the credit system those companies make a ton of money

building in transaction fees to account for all the fraud that they have to deal with because these systems are silly you know much like our social security number where everybody's secure identity is what is it a nine digit integer like yep call it good no one will guess that no one will guess that well they are hard to guess and of course you know we're we're dramatizing here and there are these financial institutions that our banks our credit card companies etc that are in the middle of all this and they're monitoring our accounts and they're looking for fraudulent transactions that show up and they're canceling them they're not allowing them through but like this is a huge tax on the system so there was in 2018 there was 28 billion dollars of credit card fraud

in the u.s plus their estimates there are another 50 to 60 billion dollars in financial bank fraud wire fraud kind of generally more broadly not to mention chargebacks which you know when merchants try and put a charge through on a credit card and the credit card company denies them their charge offs there's everything there's all the work that all of these institutions are doing to prevent fraud all the technology they're buying all the people they employ this is kind of a lot right like it's kind of crazy so so like why does this happen it happens because the account number is everything there's only one address it would be like once that address is out there you can access the account it'd be like

with our email if i knew your email address and i email your your email address well i could also just send email as you right like it doesn't kind of make any sense for the internet okay so what if i told you there was another system out there something that was natively designed for the internet that works just like email you can give me your address i can send you money but not take yours nobody can charge back that transaction or invalidate it or claim that there's any fraud any of that does that sound interesting does it sound like it might be valuable tell me more david indeed we will all right well that was fun we're gonna get we're getting ahead of ourselves

for sure of course we're talking about bitcoin and of course we're talking about the limitations of the traditional financial system which to be clear is amazing and is one of the most incredible developments of human history but it wasn't built for the internet it was built for an age when you know the way that most people live their financial lives is once a week or more maybe even once a day they went to a building with somebody who called a bank with somebody who knew them there that they took out money out of their accounts and that person was like yes i know who you are i can verify your identity i'll give you the money that building those people were processing checks that you were sending

they knew what was happening it wasn't built for the internet right and the most important thing for this system the number one goal is that it keeps working so you can see why it just keeps happening this way because it works it is the foundational underpinning of our economy democracy you know the the system must keep working and sure we've layered on all kinds of crazy hacks over the years to make it work the way it does but i'm a fan of it continuing to operate the way that it does without breaking so i see why it just keeps on keeping on yeah exactly so so how do we get here so modern banks started now we'll go back to the history started back in the 14th century during

the italian renaissance here we go great things happened here we go i think it was the renaissance when double entry bookkeeping was uh was created i don't know for sure but i think that was i think that was one of the main innovations of the financial system here i am shocked that you're not taking us to seashells for currency but all right let's let's just start with banks that feels a reasonable enough place to start in this story so that was when banks started and they would take deposits they would put out loans they would do other services like money changing between regional currencies transferring large sums of money etc then in england in the sort of late 1600s that's when banks

started issuing paper bank notes bank notes so that people didn't have to carry around you know whatever metal the currency was denominated in you know silver gold or seashells or whatever turned out that was a pretty good idea and when you say so that they don't have to carry around the gold or silver or whatever that the bank notes basically just say like i i have this much gold but it's at the bank and here i'm just giving you a piece of paper that lets you know that i've got i'm good for this gold you can use this piece of paper now you're good for that gold yep at the bank and then and pretty quickly governments got involved and they were like oh well why don't we just keep

the gold at our central bank and then all these other banks in our jurisdiction they can put out paper bank notes but it'll ultimately come back to us then we don't have all this metal going around great by the way that also allowed them to then inject money into the system and help finance their own spending as governments but we'll get to all that later so then from bank notes it wasn't a big leap to checks which the banks would create on special tamper proof templates and paper that would then come back to the banks for verification tamper resistant paper yeah tamper resistant and of course there was fraud throughout all this but but again like this is like you know a local town a local city

everybody knows each other all these pieces of paper are coming back to the bank they're verifying the system works pretty well and then that grew up into clearing departments it was clearing departments of banks that would clear these checks and that got aggregated up into sort of local geographies and ultimately countries of clearing houses and then with the admin of computing in the 20th century in 1959 in america the automated clearing house or ach system gets implemented and that was a national system is a national system that all of these payment wires and checks come to and they take batches of them every couple days they process them automatically using computers also imagine what a crazy cool system that would have been in 1959 that just because i have your bank information i can send you

money via the automated clearing house and it will just show up three to five days later in your account like magic i mean that three to five days without me doing you know writing a check like that's freaking awesome it's amazing it leads to things like direct deposit for employees from their employers transferring money between business to business enterprise applications this is all great but as you say ben it still takes three to five days this is a batch processing system that's grabbing a lot of transaction data and pieces of paper and pushing it out every few days 25 years before the macintosh i will take it 35 years after the macintosh maybe it's weird that it's still the system yeah indeed well so then

you know for consumer use cases like that like that's not going to work you want to go out and eat at a restaurant you're probably still carrying around your bank notes your green bucks in america or other paper currency in other countries well so then people come up with the idea of like well how can we make that faster credit cards credit cards started with uh diners club was one of the first yeah and then i didn't realize this till till doing the research do you know where visa started so visa was the first big credit card network uh is this the one there was a department store one was it macy's or sears no no maybe that was discover so visa was actually bank of america oh they started it in fresno california

they picked one town and they just mailed all of their bank of america customers in fresno california these credit cards whoa and people liked them it started to work and then other banks wanted to get in on this action they ultimately started a consortium of other banks with they called it master charge that became master card and thus you have visa and master card but credit cards as we all know have a couple problems with them one it's debt so the way that you can make payments happen really fast out in the wild is not actually do the payment it's just on credit so that leads to consumers that start using them many of them start racking up a lot of consumer debt also an enormous

consumer like cfpb problem in our country today the consumer financial protection bureau that this has been wildly abused and many many many americans are in credit card debt because frankly the system has taken advantage of them i do think as you're pointing out david it is very counterintuitive to me but it's crazy that it evolved this way that credit cards came before debit cards because we had ach to literally move money around but when we wanted instant payment basically these stores or banks would just extend you the credit and then they didn't have to move the money around right away they could sort of do it later which sort of explains before the debit rails were laid which i'm sure you're

about to get to like how you could have these instant payments even before we had a debit system yep well there was there's one other problem though with the credit system which is for merchants you know it's good in that they get to accept easy payments from lots of lots of customers they can probably do higher dollar value transactions without checks you know they can they can get more volume coming through whatever they're doing whether they're a restaurant or a retailer or whatever but the problem is they don't get the money right away so like if you're a merchant you're taking credit cards not only do you have to pay a fee to the credit card companies 2.9 percent plus 30 cents plus 30

cents right but also you just don't get the money right away because it's all on on credit you got to wait a month so that's not great for your cash flows if you're struggling restaurant or retailer or or the like in fact it's it's a little bit of a hostage situation like if if the consumers weren't demanding i must be able to pay in this way because every other store is letting me if you came to me david and you're the credit card company and i've never heard of you before and you're saying by the way you should start accepting the payments through me i'll get it to you a month later and i'll take a nice spiff along the way i'd be like uh get the hell out of here yeah and that's why i mean that's

i think one of the reasons why it took 50 plus years to build up the network of credit card merchants and consumers in america whether that's visa or mastercard or american express and the like because yeah there's some good things here but they're like there's some really bad things to this system too so then you mentioned debit once the rails started getting laid for credit card transactions and the early ones i think were super kludgy i think merchants like had to call up the issuing banks of the cards like there wasn't the automatic you know swipe and automatic phone system that checked everything right but as that started to get built up then the debit rails got laid and banks

said oh okay we can create check cards that they were called initially they came out in 1969 i think in america and use some of these same technology rails but have it be a debit system so that's a little better but i think it still is pretty slow i think it's basically auto i could be wrong on this but i think it's basically just an automated version of uh or a card version of of ach in the check system okay so all of this works fine for a long time but then the internet really starts taking off and uh as we chronicle so much on this show and once the internet starts taking off people start spending and doing having financial relationships and financial transactions in so many more places

than they used to it's just there's a lot more volume in the system than there used to be and famously you know paul graham uh even put out a request for startups was this in 2008 maybe 2007 2008 about hey accepting payments online is really hard somebody should do that and of course two brothers from mit the stripe kids found that and they started stripe and made it easy for businesses to take payments online which of course is our modern infrastructure companies stripe and companies like stripe you just have a as a merchant you just have a token which is the notion of that customer's card where if you pass that token to stripe stripe says yeah i've got their card stored so you never have to

take on that risk of getting hacked or knowing that the person's number and the consumers are better off because only stripe actually knows your credit card number but that certainly was not the case in the first 15 years of the internet totally so what happens is like always you've got these entrepreneurial attempts to make the system better and build on top of it stripe being a great example square being another great example venmo being another one as the internet is proliferating people are building out essentially new layers of infrastructure on top of this old you know traditional financial and banking system at the same time you also had over the first 20 years or so of the internet a couple attempts to start to design some new protocols from scratch for digital money so these

were companies and projects like that you've probably never heard of like digi cash which was a company i think started in like 1996 e gold was one of them bit gold was one which got pretty close and then actually in china this this is really interesting tencent had qq coins which were part of the qq network the the pre wechat part of tencent and they became so valuable that people started transacting lots of things in qq coins in uh in china huh uh the ccp didn't really like that so they started regulating that pretty heavily because it was becoming too popular but of course the other big attempt to solve all this this financial and money problem on the internet of course was paypal and paypal was really

interesting and they they kind of almost did it so with the whole vision of paypal you know elon's vision peter teal's vision going back to the beginning was to create internet native digital money and they did and they found the killer use case on ebay with beanie babies uh and uh and other things happening but the problem with paypal was they did it as a centralized system so they and of course it's still denominated in u.s dollars like it sure i can pay through it and and that really is the the the problem you're describing here that you're trying to solve how do you take payments on the internet but certainly you know when we compare to something like bitcoin that is a completely different complete

monetary system what paypal was doing was a much thinner slice yeah much thinner slice well and also they ran into the problem of they were like a bank taking care of all of these transactions happening there was so much fraud like one of the biggest challenges for paypal was managing the fraud and actually palantir uh as lots of listeners may know grew out of the fraud prevention technologies that they developed at paypal but it was up to them you know whenever there were the equivalent of chargebacks or accusations of fraud they had to mediate all of these transactions and decide what was what and reverse some of them and make sure everything was operating okay so like it was the

rails were better for the internet but they still had this problem that it wasn't very efficient because it's built on all the previous layers of this monetary system where fraud can exist because our current means of securing accounts and transmitting money and you know even the money itself like it's not it doesn't lend itself to security it lends itself to vulnerability and then we've built up all these ways that it can be secured which of course are expensive to maintain yep totally and it was it was the ultimately it was just a digital version of the same model of the traditional finance and banking system okay so then we get to 2008 and for so many reasons that we talk about on so many episodes on this show

that was the seminal year and and really in this case i think it's two things it is of course the financial crisis it's lehman going bankrupt and massive not only loss of trust in traditional banking systems but also just financial hardship and ruin for so many people that cause them to go want to seek other opportunities in addition to just this massive exponentially growing complexity of payments on the internet that is like a whack-a-mole that people are trying to stay ahead of it's so funny when you say payments on the internet it's like two completely different archaic stacks that now need to interact like for all the credit we give the modernity of the internet it's an insane system the protocols that are used to underpin the internet they've evolved a lot over the years and

especially the fact that a couple years ago we sort of wholesale switched to https from http but like you've got udp and you've got smtp to send email and you've got all these protocols that like people have sort of stitched together and then of course you have a browser that sits on top of it all and there's the world wide web that sits on top of http so there's like all these different kind of kludgy kind of archaic technologies now including javascript which for some reason runs everything that by some miracle duct tape together correctly created the internet which is amazing and that's this entire separate other stack on top of the problematic monetary stack that we've already talked about so like when you say payments on the internet it's like i hear like complex ball of yarn

with a different complex ball of yarn that need to somehow fit together and obviously we're making it work but boy is it nasty on either side totally and this is why something like stripe you know people didn't think it could be done like it was so hard to make all this work okay so 2008 on august 18th 2008 a domain name is registered under the name satoshi nakamoto for bitcoin.org okay nobody really notices this happening then on september 15th 2008 of course lehman brothers goes bankrupt remember that day well i will never forget that day working on wall street at the time and then on october 31st on halloween so like six weeks after lehman going bankrupt a account with the name of satoshi nakamoto

publishes a paper on the cryptography mailing list metsdow.org describing a new digital cryptocurrency titled bitcoin a peer-to-peer electronic cash system and this is why i started where i did with history and facts i think so many people when they start explaining bitcoin or trying to understand bitcoin they immediately talk about like well this is a alternative currency and the federal reserve system and fractional reserve system is broken and inflation and this is better and yeah that may be true we'll get into all of that but the actual original intent of this was to design a native payment and currency system for the internet that didn't have all these problems yeah it's so interesting like literally a couple hours before we record to put the icing on the cake

of my research i i reread the the satoshi paper and it is amazing how in the several introductory paragraphs which by the way the whole paper is crazy succinct nine pages including its references and sources cited it's mostly talking about hey because the system for transmitting money is relatively insecure and requires central authorities to verify everything you know either the federal reserve bank or banks in general or whatever it is we basically have this big tax on the system that you could have fraud that you could need to reverse charges because they you know were were made by someone who didn't actually have the money or they weren't who they said they were so the whole system carries this big tax and what i'm proposing here is a way to pay for things that basically is a system

that exists completely outside that system and is fundamentally better because it doesn't require those taxes everything is is verifiable and authentic so here's how the white paper starts commerce on the internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments while the system works well enough for most transactions it still suffers from the inherent weaknesses of the trust-based model completely non-reversible transactions are not really possible think about chargebacks on credit cards all the time like this is a huge issue that so many internet companies deal with completely non-reversible transactions are not really possible since financial institutions cannot avoid mediating disputes the cost of mediation increases transaction costs with the possibility of reversal the need for trust

spreads merchants must be wary of their customers hassling them for more information than they would otherwise need and a certain percentage of fraud is accepted as unavoidable this is what they're talking about right okay so hopefully you can see why an alternative system would be really interesting and important yeah and it's so interesting that it's not this paper isn't about we need a different asset class that is immune from inflation or at least more resilient to inflation or we need decentralization because governments putting too much faith in governments like none of that is actually in the paper all of that is sort of derivative byproduct and lore that has sort of developed around this initial problem of a peer-to-peer no centralized third-party trustless system for transactions at low

cost yep and to be clear whoever satoshi nakamoto was is people think it probably isn't just one person it was a group of people and the early people who start getting involved in bitcoin they believe everything you just said they tend to be pretty libertarian-minded folks but that wasn't the purpose of why they came together so i mentioned digicash e-gold bitgold previous kind of attempts at this kind of half of the problem was solved so this idea the crazy underpinning of the traditional financial system that like there's one account number and if you know that account number which you have to give out to people to transact you're compromised uh that that had been fixed through email and other technologies

on the internet encryption was a thing like username password combinations the idea that you could have a public address like an email address that anyone can transact with but you retain a private key effectively to access that that was already baked that was trivial by the time nakamoto came along and published the bitcoin white paper totally totally and and this notion of public key encryption that you're talking about david absolutely one of the greatest inventions in human history i mean if you think about like ciphers from you know pre-world war one era in war like you would have the same key to encrypt and decrypt and you know that that notion is great if you can securely transmit that key to another person

and trust that they're going to keep it secret but the brilliant idea behind i have a key that only i can use to send email as me but there's a way that you can send email to me or apply to another context you can send me money or you can encrypt a message that only my private key can decrypt so you can sort of publish it in the whole world and say here's an encrypted message that anyone could read if they had the private key it means that only the person who the message is really intended for even if the message is intercepted is the person who can read it yep so okay so what's the problem well the problem is

think back to email if i send you an email you can copy that email you can forward that email i can copy other people on that email great for email bad for money i don't want to be i don't want you to be able to send me a hundred dollars but then also copy someone else on that hundred dollars and essentially double spend the money or triple spend or a thousand times spend and this was the problem that nobody had a good way to solve and this is what was just so revolutionary about bitcoin and nakamoto's solution yeah i mean zooming out for a second the big idea in software you know think back windows 95 was creating infinite replication creating abundance you know microsoft prints a copy of windows

95 for basically zero marginal costs they put it in the box there's of course distribution costs but you know cloning the bits over and over and over again made this incredible business model then the internet rolls around and then suddenly you've got zero cost distribution which compounds the abundance from the zero cost replication of software so now you have it doesn't cost you anything to make a copy and it doesn't cost you anything to deliver it so think about that like everything that we sort of know to be true up to this point is that if something's digital it can basically be copied and everywhere quickly and the big idea which is completely genius and previously thought to be impossible before bitcoin is creating

scarcity with software on the internet absent the fact that now we know bitcoin is a thing it would have sounded ludicrous if not then elegantly laid out in this nine-page paper of here's how we're going to do it yep okay so how do you do that well the solution that satoshi proposes is a quote peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions well why is chronological order important go back to the i'm emailing you a hundred dollars and i'm copying somebody else on that transaction example whoever gets the hundred dollars first then it's spent the next transaction is void like if i were trying to give somebody a paper hundred dollar bill well the first

person who gets it they've got it yep and of course the way that this actually works we talked about public key encryption is when i'm sending it to you i sign it with my private key like i i take that bitcoin which is a hash that has you know all the other signatures that came before it sort of in there and i know that's not technically exactly right but that's that's the reasonable way to think about it and i sign it with my private key i send it and so anybody else out there uh you know if they wanted to sign something from my wallet or that i sort of owned they couldn't they only have my public key i'm

the only one who can sign it and send it to someone else now of course that someone else can verify that i sent it to them because you know they have my public key so they can quickly do some work and see and sort of check the work and say yep that did come from you and now it's but they don't need to know my private key in order to do that check yep okay so if this system were to exist all these transactions thousands of them millions of them billions of them would be going out into the network how do you keep track of which ones are the valid correct unique scarce ones the way that satoshi proposes you do this

is you have a distributed system of the ledger so everybody can see the entire chain of transactions of every transaction that has ever happened within the system yeah david i think that's a really interesting concept and a little counterintuitive where he's basically saying well in a third party system like where you kind of have a mint or uh you know the federal reserve like you send that information to them and they keep track of it like that that's the only way to to make sure that he's not getting double spent and he's saying well what if you flip that on his head and he they she whoever it is and saying well what if everybody has a copy of the ledger and everybody just has the

complete transaction history of every single bitcoin right there on their computer that's my proposed solution yep and so if you're doing that then he proposes that people who would choose to who are part of the network they could grab these transactions that are being broadcast out and they could generate computational proof of which ones came first which ones were the the right ones if somebody's trying to send a bitcoin multiple times which ones of those happen first and are the correct transactions that should be added to this ledger right he's basically saying there's a there's a whole set of people out there who you know have decided they want to host you know uh on their computer the entire transaction history um and they're going to do some work to verify they're going to go back through and

they're going to say i'm going to do some math to do some checks and basically say hey are all these transactions valid and then you know they're going to run their computers to kind of do that and make sure basically verify the integrity of all these transactions and you know if they verify and say yep this is good they're going to propagate it out to more computers and more people who are on the network so that essentially there's like one canonical version around there that everybody's sort of copying off of that has a bunch of thumbs up on it saying yep i've checked this it's good yep okay so how do you design this system so it's not just total chaos of everyone doing this

you make it computationally actually pretty hard to prove that you have the correct order of transactions okay cool that means that once one of these super users one of these nodes broadcasts out a set of transactions everybody can be pretty reasonably assured that it's correct two though because you chain these transactions together into one ledger that goes all the way back to the beginning if you make it hard to compute each block you make it impossible for anybody else to then change that ledger because the block is cryptographically changed to the previous block that's hard to do it takes and the system adapts so that it always takes on average about 10 minutes for everybody all the miners out there that are

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

but then it's also exponentially hard to go and rewrite every block that then is stacked on top of that one right so when you set up the system say for the first week or month or depending on how many people are using it even a year or two it's not so hard like if somebody wanted to come in with a lot more computing power than other miners on the system they could recreate all the transaction hashes back to the beginning insert their own fake transactions give themselves you know a hundred thousand bitcoin and then pass it off as the new one if you had an m1 macbook pro and uh the only other right and and there was like only a handful of other crappy laptops doing this you know in the early

days then sure your compute power would out muscle a lot of these early ones but that's not going to happen as soon as it reaches sufficient scale well this is what's so cool it becomes a network effect economy because the more transactions that are happening and the more blocks that get created and the more computing power that's working on that block the harder and harder and harder it becomes to forge it till you get to a point you know where we are now where like the total you would need the total amount of computing power that has gone into bitcoin since the beginning plus some more to break it and that's just not possible like there's no way at this point because it's been operating for so long with so many nodes on the

network so many transactions happening so many miners mining it's impossible and so now you can guarantee this is what satoshi saw if you could get to this kind of network with this density and scale and operating history it would be impossible to crack it and then all of the fraud all of the double counting all of the costs on the system that we just talked about with the traditional financial system wouldn't apply anymore yeah it's interesting so what we're kind of talking about here is laying the groundwork for basically a system of accounts where you can be super sure that if you're sent money that it's legit that there's not a risk that they didn't actually have that money and you're going to have to do some kind of chargeback and you know it's legit

because you know you've got all this everything we just described going into saying that hey if i if i receive you know this bitcoin to my address it's not going to get undone or it's at least extremely unlikely that it's going to get undone because of all this work that's going into it we did we jumped to use the word minor and i want to explain how that fits into the context of what we were talking about about five minutes ago so we were saying that there's these people who have a whole copy of the blockchain of basically the entire transaction ledger leading up to now sitting on their computer and they're doing work they're going through and running cryptographic algorithms to basically ensure

the authenticity of all those transactions and check and make sure that yep these are all correct well of course they need to be compensated for that because they're taking electricity they're you know running their machines the fans are on real high in all likelihood their gpus and now even more specialized mining hardware that exists in a data center somewhere close to a river so they can have easy access to cheap renewable energy yeah maybe back in 2009 researchers like nakamoto and the people that shared this with originally would have done this out of the goodness of their hearts because it's cool but that's not going to scale yeah so what was initially sort of a byproduct and is now sort of

the incentive of mining one of these blocks is the first coin on the block gets given to you as a thank you for doing the work to verify the integrity here and without getting too far into the specifics of how that actually works what it basically means is you're getting paid for your labor or you're getting paid at least for the energy that you're putting into helping the system remain verifiable and authentic and it's not just the first coin it's the first several coins on a block so it started with 50 yeah so if you mind a block which again happened every 10 minutes you got 50 bitcoins in the beginning now i think it's down to six and a quarter six and a quarter yeah because it halves every time which of course we will talk

about how bitcoin is not an inflationary currency but it has a finite number slightly under 21 million will ever get mined and it uses sort of a uh a halving function so that um every four years i think the reward gets cut in half so there is only a certain amount of bitcoin that will ever be mined so you can count on the sort of uh system not getting watered down by injecting more and more bitcoin into it um above this very predictable regular declining schedule that that we have sort of observed what you were saying ben is so important like we just described the super cool system it'd be awesome it'd make money on the internet work much better it's going to require so much compute power why

would anybody do that why would these coins have any value they're not dollars they're not backed by a government the reason is what you were just saying the coins get created by doing the work to make the system what it is which is really really good so the value is in the work itself it's a recursive system right what you have from the work being done is a system of integrity and the network effect may be small to start but you can count on the fact that you can be very certain that all of those transactions have been combed through and while technically there's no chart of accounts you sort of figure out who has what in every account by running through the whole transaction history and figuring out where

all the chips fall down when you sort of run through line by line by line by line but effectively what you have is a big chart of accounts where you know for damn sure that those are right those accounts actually contain those bitcoin so if you own a bitcoin and the first people who own that bitcoin are when it's created are the people who mined it and then it gets transacted and you own some i own some you know people who buy and invest what you actually own is you own a piece of the computing power that has gone into making this system robust and secure and viable and good for everyone all right listeners now is a great time to tell you about a longtime friend of the show vanta ai has

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talk a little bit about the idea of one-way functions in computer science there are certain types of math that are very easy to do in one direction but very difficult to undo in the other direction and a classic example of this is the product of two prime numbers so if you multiply prime number a by prime number b it's fairly easy to do that math you know you could imagine like literally doing it on paper you could imagine writing a computer program to do it you know bringing those numbers into the registers and in assembly code you know multiplying them together but if you're given the product of those two numbers especially when all the numbers you were dealing with are very large you can imagine that it gets

extremely difficult and would be very inefficient to try and figure out what the initial two prime numbers were that created that product so that the magic that kind of makes this one-way function work is the fact that it's easy to multiply two prime numbers together but very difficult to factor large primes and of course it's gotten much more complex since this initial insight but i do want to sort of pause on that for a minute and say the implication here is that it's very easy to check someone's work when they tell you they have the answer this product and they provide you one of the factors or one of those initial prime numbers you can very quickly do that math and say yep checks

out but it's super hard for you to stumble on to the exact two initial numbers without knowing any other piece of information so this system totally ingenious i want to david rosenthal style here rewind back to 1874 william stanley jevons wrote in the principles of science keep in mind this is a little under a hundred years before the personal computer was created can the reader say what two numbers multiplied together will produce the number eight trillion six hundred and sixteen billion four hundred and sixty thousand seven hundred ninety nine i think it will be quite unlikely that anyone but myself will ever know so he sort of came on to this the very first idea of the one-way function and obviously now a computer can very quickly

through brute force sort of figure out what the two you know guess and check guess and check guess and check figure out what the two factors of that number are but you can imagine if that number were extremely large then it would take modern computers a very long time or frankly if you make them large enough it makes it impossible to our knowledge for computers today to undo that problem it requires just way way way too much work and if you make them even bigger than that then you can say assuming computers get better at a certain rate like this problem is never undoable there's a scary thing that exists here which is at some point like we have not proven for sure that one-way functions exist we've tried to undo them a bunch of

different ways and mathematicians everywhere have tried to sort of prove this problem it's this kind of scary thing where like we rely on this for public private key encryption encryption of all kinds hashing everything in bitcoin is based on it anything with any password that you log into anywhere is based on this your email is based on it and we're like pretty sure that you can't do that in the other direction in a computationally efficient way but like we're not provably sure yeah right when we were saying a minute ago that you would have to put all the computing power that's gone into bitcoin back into bitcoin back into trying to forge it that would not be the case if you had a way to break this

encryption if you stumbled onto yeah like a different if you basically invented a novel algorithm that mathematically could undo that work just as efficiently as it was done instead of the horribly inefficient way that we know how to do it now which is basically brute force but the point is like yeah that would break bitcoin that would also break everything all security you could log into any account anywhere so it would break the traditional system too absolutely absolutely yeah one other little aside which i think is a fun place to put it here is this notion of public key encryption which is advancing further on this idea of using one-way functions which is the thing we were talking about earlier where

i can broadcast my public key so anybody can send something to me but only i have the private key so i i am the only person who can either decrypt the message or send it to someone else or however you decide to sort of leverage that this concept is actually born out of that 1874 discovery of of prime factorization pretty amazingly two different groups of people took this idea and turned it into this public private key discovery uh right around the same time 1973 in britain but they kept it a secret because they wanted to use it for defense because it's freaking brilliant that you have you know the notion of of transmitting messages in a more secure way on the battlefield the very same idea was discovered kind of within the

same time and ultimately was publicly announced in 1977 now known as rsa encryption and it's crazy to me that like it's kind of like physics or calculus where private public key encryption was sort of dual discovered in the same decade by different people who had no notion of each other and in fact the first set of people was desperately trying to keep it a national security secret and it's like the world was just ready for the discovery you know technology and and modern math had advanced to the point where based on the same foundation two different groups could independently make the same invention simultaneously which is really interesting totally okay so now we're we've got our math lessons done we know how

encryption works we know private and public key we know why that's better than the traditional financial system now we also know with blockchain why and how mining creates this scarcity and makes sure that transactions that are the legitimate transactions are the only ones that can happen what's cool here is this basically turns into a regular acquired episode now because remember how i was saying that as the system of mining grows the more mining power that goes in and the more transactions that happen it becomes a network economy and then the overall value grows it's just like facebook so you know the think back to the social network which is going to come up in a second you know that line of like if you created facebook you'd have created facebook anybody can create

facebook anybody can create twitter look at parlor right like the question isn't creating it it's getting critical mass usage and then the value it's valued based on network economies we know how to value them metcalfe's law which is the value of the economy is the square of the participating nodes within it so now it becomes a race because anybody could take the white paper and start their own coins their own cryptocurrencies their own blockchains jp morgan could just go take this and implement it for all of their in fact many people tried right like all these altcoins were you know forks of the bitcoin source code to my favorite little tweak on this and dogecoin and you know thousands and thousands of people have tried to create alternate cryptocurrencies with varying

levels of success yep totally uh and some of them are quite valuable um but having that early lead and then growing the network and getting use cases for it just like facebook on college campuses that's what starts the snowball rolling and then the bigger it gets the less and less likely it is that anybody's going to catch up so in january 2009 satoshi boots up the system essentially he codes it up he creates version 0.1 which is amazing by the way you've got not only this like researchy looking white paper that was published which several other people published competing ideas up up to this point i think hash cache was one of them that weren't maybe quite as elegant but had some of the same component parts

but satoshi nakamoto pseudonymous or not not only publishes the paper but then of course writes the first actual working implementation in code hash cache is interesting this is an aside but um it was it's probably the thing that was closest to bitcoin before bitcoin but it wasn't designed as money it was designed as an anti-spam system for email this is freaking brilliant so this proof of work concept that we talked about earlier where it's extremely difficult to do the math in one direction but very easy to check that the math was done was basically applied as a spam filter you said hey you kind of have to do this much computing work in order to be able to email me i can quickly check if you did

that work but it can be real expensive if you want to ddos my email and spam the crap out of me because i'll just kind of reject it if the math is wrong on the check okay so beginning of january 2009 satoshi boots up the system literally bootstraps it he mines uh the first block the genesis block he gets his reward he they she gets their reward of 50 bitcoins and then he starts recruiting an open source community of researchers to work on the product work on the code build the system create mining nodes this all starts happening a couple days later nakamoto sends the first bitcoin transaction to hal finney who was a researcher who he had recruited a crypto researcher into working on and is this on

that cypher funks email list uh yes so how was a cypher funk tragically i think he died of luke eric's disease a few years ago i think it was all on the same email list that he sent the white paper out to uh so he sends the first actual transaction out there it gets mined on satoshi's mining rig and for the next year that's kind of how things go until may 22nd 2010 the infamous pizza day when one of the researchers working on the project a florida programmer named laszlo heinich i think that's how you pronounce it not sure if that's 100 right he offers up an idea to see if these transactions can actually have value in the real world he says he will transfer 10 000 bitcoins in exchange for anybody

out there on the mailing list who wants to buy him a pizza i love this so programmory so great so somebody in england of all places all the way across the atlantic ocean sees this and is like i'll do that i'll take 10 000 bitcoins so this person couldn't get their name they call up the local papa johns near laszlo they ordered two pizzas using a credit card have them sent and delivered to laszlo and laszlo then sends 10 000 bitcoins over in exchange for this and this is the first real world transaction i think this with bitcoin approximately values bitcoin at 0.25 cents per bitcoin yeah i think that's if you assume like 20 bucks for the pizza 25 yeah it's also funny to think about like sure yeah

i'll order you pizza that saves me 20 blocks that i don't have to mine like if you're like yeah yeah this is valuable it's taking me forever to mine these blocks great yeah amazing i just also look like papa john's that's the first you know shack is on their board of directors he should be proud there you go shortly after that is when nakamoto disappears off the internet uh stops contributing to the projects he transfers control of the open source repositories to some of the other developers on the project uh he basically washes his hands and says i'm done except at this point he has somewhere between 600 000 and a million bitcoins that he's mined as the first miner on the system like he has a

million of the you know whatever four or five million that existed at that point 21 million that will exist total like this is a huge amount of the bitcoin in the world yeah which nobody thinks twice about at the moment they're like oh okay i guess he like moved on he actually communicates with somebody asks him what's going on and he says uh in a email message i think i've moved on to other projects but there was never any personally identifiable information out there about this guy or group or girl or people and what satoshi did is quite remarkable in being untraceable like most of the time these people slip up in some capacity like their personal account is the first one to follow

their account or they if uh you know their emails are ever leaked like they made a communication with or their backup email is their personal email or they did a two-factor auth from their phone number or there's all kinds of ways that like you sort of discover later yep turns out this really was this person oh the the first time they registered the domain name they did it with their email address like satoshi did none of these things and to this day it could be one of 10 people who people think it is or it could be none of those people we have no idea well and i think this is also one of the reasons why people really believe it was a group of people because then if it's a group of people then

there's obviously no way that they would slip up and identify right expose personal information the paper is also written we whether that's the royal we i don't know but they keep saying we propose this following solution so he disappears interest keeps growing though and some transactions happen mostly between the people that are mining the currency in early 2010 a forum user on bitcointalk.org named smoke too much that's smoke t-o-o-m-u-c-h offers to auction 10,000 bitcoins for 50 so it's like 25 for the papa johns he wants you know sort of twice the amount of money uh wants a 2x return nobody takes him up on it though so in april he declares the auction over he keeps the 10,000 bitcoins i guess nobody nobody gets them probably pretty good for him interest does keep growing

though people do start tracking roughly the exchange rate between the u.s dollar and bitcoin it rises up by the beginning of 2011 to 30 cents per bitcoin by whatever metrics people are sort of using which is already a point in time 120x return on the papa johns deal uh no even more than that because the papa johns was a fraction of a cent right and and this is what now 30 cents 30 cents yeah so 120x like it's kind of crazy to think about when i said earlier there was this was a 3,000x it's crazy to think about what a gigantic multiple of that was so early it's kind of like if you buy a penny stock that actually makes it into dollar territory you had this unbelievable return

it's that yep it's that and then it keeps going so by the end of 2011 there's a pretty robust market for exchanging dollars into bitcoin which we're going to talk about in one sec and bitcoins are going for five dollars and 27 cents per bitcoin which is crazy like who out there is going to be who's going to be using who wants to be exchanging dollars in bitcoin all the time that's a 52 000 pizza at that point yeah that's a lot that's a lot of dough so it turns out that in february of this year in 2011 a little service calling itself the silk road launched and this was the first killer app for bitcoin yeah it's worth pointing out here that if one of the primary value propositions

of your product is it's like money but you don't have to put your name on the account you're gonna attract some people who are using it who don't want to put their name on an account and otherwise would have to in any other system yeah so this is just amazing the story and this is actually when i first started hearing about bitcoin was i started reading the headlines about about the silk road and what was going on and i was like whoa that's like crazy but this bitcoin thing is kind of interesting underneath it so in february 2011 somebody calling themselves the dread pirate roberts named after the character in the princess bride movie which is just amazing launches an online black market and the

first modern darknet market on tour which is encrypted internet that you need an encrypted browser to browse and this thing is basically ebay for illegal stuff well it's ebay for anything the biggest items that are transacted on it are not beanie babies it's drugs right it's i mean you're using a browser where the web history is not saved where it bounces through a bunch of proxy servers all the traffic is encrypted and now finally you have a way that you can pay for stuff that doesn't ever get linked back to a financial institution that is associated with your name like it couldn't be the more perfect cocktail for uh selling drugs on the internet totally and what's kind of amazing is like it's it's exactly like

ebay so the way this worked was people would pay for the goods the drugs that they were buying with bitcoin just like paypal and then the sellers would put the drugs in the mail like the u.s post office because you can't search mail uh it's illegal it would it's mail fraud and uh and so it's literally just like ebay this is exactly how this is working it's ebay for drugs uh i guess i always assumed they had to i just never really thought about like how would you get it mailed to you or how would you right yeah most of these people aren't in the same city it's happening all over the world right and um yeah so it was actually kind of crazy so this this character dread pirate roberts

he wrote that he wanted silk road quote grow into a force to be reckoned with that can challenge the powers that be and at last give people the option to choose freedom over tyranny it's kind of amazing there was a book club section on the website and the book club still exists it's like part of a message board now no way so the business model that they had i think eventually they did shift to an ebay style business model like a traditional marketplace taking a cut of every transaction but at the beginning i think they didn't want to get involved in the transactions themselves so oh yeah that that'll that'll legally protect you as long as you're not taking a vid yeah yeah for sure for sure

it's all good we're just a platform like we don't we don't know what happens on the platform we're just a platform so the first business model was you actually had to pay to create a seller account uh so you paid in bitcoin to create an account that you could then sell whatever it is you wanted to sell on silk road amazing so this operates for two and a half years starting in february 2011 and by the way there was a federal case opened almost immediately like like i think i know that the feds were following for two years putting the case together so like observing everything that's going on well and there was um i think it was chuck schumer there's a great story that like he was showing this on a computer it

was like totally flipped out was like the government needs to like we need the fbi to crack down like of course uh and uh so during this time this amazing over 1.2 million transactions happen on silk road so if you're trying to bootstrap up the bitcoin network of the killer use case like this is like looking at you know attractive freshmen of the opposite sex on campus for for facebook like this is the way to get people right it's like the the pseudo nefarious catnip here's an amazing use case that appeals to people's vices for this new medium that has been invented yep just like any new medium technology there's no regulation yet so over a million transactions almost 150 000 unique buyers

and almost 4 000 unique sellers use the platform over this period of time they transact almost 10 million bitcoins which i don't know how many bitcoins were in circulation at that time but let's estimate like i don't know two to three four million maybe so like several times over the total number of bitcoins in circulation get transacted in the silk road knowing what we now know about how the bitcoin network works like the silk road can be largely credited with getting it over the hump to the level of transactions and the level of participants in the network where it's now a self-fulfilling prophecy of integrity and certainty of the network a hundred percent this is what's so ironic it's funny that i use the word

integrity it's like the the acts of the potentially the least depending on who what moral authority you want to claim the acts of least integrity guaranteed the future integrity of this financial system incredible like you can't make this stuff up so finally in october 2013 fbi agents this is amazing conduct a sting raid they arrest a man named ross ulbricht at the glenn park library in san francisco this is like half a mile from my house it's like right down the street i've go i drive by it all the time uh it's this little like glenn park is this beautiful little neighborhood in san francisco total hidden gem nobody knows about it's very sleepy very like neighborhoody feel and the library is this like

small little branch right next to the grocery store there so ross is hanging out working out of the library in glenn park and three fbi agents conduct a sting raid two of them pretend to be a couple a romantic couple that are having an argument and they have like a loud argument to distract him in the library and then so that he looks up away from his computer and then the other one comes and grabs the computer so that he can't lock it while they're arguing of course it was suspected and then proved to be true that ross was dread pirate roberts wow and when he was convicted like he he tried to have someone killed right yeah so that's the allegation he was never convicted of this but part of the

allegations that the government brought against him were that you know he he's a an interesting character he was he grew up in austin texas and this dude was an eagle scout in high school yeah so quite the reversal from eagle scout to uh i don't want to say drug lord because you know he was just operating the platform but uh he had quite the journey let's say so he had kind of supposed and he wasn't convicted on attempted murder charges but gotten more and more paranoid as he was operating this site with the pseudonym and thought that people were out to get him which obviously they were the fbi agents at least and uh so the accusation was that he uh had tried to pay i don't know if it

was through silk road or through other dark net sites um he tried to pay to have people killed who he thought were were after him nobody was actually killed none of this actually happened and he wasn't convicted but he was convicted of seven charges related to money laundering computer hacking conspiracy to traffic narcotics etc etc and he's in jail for life right yeah he was sentenced by the federal court u.s federal court in manhattan to life in prison without the possibility of parole i think maybe like multiple life sentences kind of crazy there was actually there's talk of like trump wanted to pardon him or like god that's some crazy but like he's uh he's in jail he's in there yeah i know he

doesn't give interviews either he's he's very tight-lipped like a lot of journalists obviously have tried to sort of reach out and get his side of the story but it's not happening yeah so this is where like again this is all just you know silk road itself was creating more interest in bitcoin this crazy media story is creating more interest in bitcoin the fbi as part of this raid remember they got his computer they seized all of his bitcoins so the u.s government now has 144 000 bitcoins that they've seized from ross and from the silk road which at the time wasn't worth that much money no but now it's 4.3 billion it's a lot of money uh so the next year i had forgotten about this still

doing the research this is amazing they hold an auction an online auction like this you know u.s marshals they do a raid they hold you know they get drug dealers like you know lamborghinis and stuff and they auction them off uh they do the same thing with the bitcoin online uh so they auction about 30 000 of the 144 000 bitcoin online and tim draper the venture capitalist you know founder of doj he buys the bitcoin tie guy he bitcoin tie guy he buys the bitcoin and it's all like a publicity stunt but he paid 17 million for 30 000 bitcoin wow i hope he held on to those because he would be doing probably better than his entire venture career on that at this point amazing so fun little coda on

that actually in november of 2020 so like two months ago part of i don't think it was part of the 144 000 bitcoin but there was another about 70 000 bitcoin that were known to have been associated with silk road like part of silk roads bitcoin that people didn't know where they were they transacted on the blockchain and so people saw this transaction happen they're like whoa what happened and um it was about a billion dollars at the prices a couple months ago with these 70 000 bitcoin and um it turns out what the transaction was that the fb they haven't identified who or the circumstances but the fbi had found they call it individual x in when they uh came forward and explained what happened this person had hacked

ross and the silk road before all this went down and stolen these 70 000 bitcoins from ross uh and then the fbi tracked him down and then the transfer was they were transferring those bitcoins to federal custody oh interesting so isn't that amazing so the person committed a different crime hacking ross and the fbi was busting the crime of hacking yes the crime against the criminal yeah it's worth contextualizing a little bit sort of what's happening here when someone gets hacked or when bitcoin get lost because those are sort of two different things there's the situation it's not the fault of bitcoin when that happens uh sort of it's the fault of bitcoin for having a wildly obscure system that makes this whole thing tick

but you know is it is it the pilot's fault when it's hard to fly in a complicated airplane that's like the that's the question here so of course you can sort of hack and into ross's computer you can get his private key and then you can use his private key to authorize um sending that 20 20 billion dollars uh worth of bitcoin over to your account that is a very different thing than uh what has happened for something like 20 of the entire bitcoin supply which when you look through the ledger through the entire blockchain has not transacted in a really long time presumed to be lost and what lost means is the owner of the the person who was most recently transferred to has lost access to the

private key which is of course an unguessable crazy long you know number letter combination that no one's ever going to be able to sort of guess it's not like a you can click a forgot your password button for those people like if you lose your private key you're never going to be able to i suppose you sort of still own the bitcoin but who cares because you can't ever do anything with it right when you lose your email password or whatnot there is a centralized provider you know gmail or whoever you're using they know your email password so you can go through some hoops with them to get it but there is no centralized as we talked about right bitcoin provider so you better not lose your password

yeah decentralization is a double-edged sword for sure for sure there's one other number that's interesting to know here the satoshi um it is currently believed that he ended up mining about one and a half million bitcoin which uh you know of the eventual 21 million so a huge amount are owned by whoever this satoshi person or group of people are that's about 50 billion dollars worth of bitcoin so you've got 20 of bitcoin are lost you've got what are uh maybe seven eight percent that satoshi whoever satoshi is owns there's all these um bitcoin that are sort of like in areas that aren't transacting people holding the for the long term so there's only like even today like three or four

million bitcoin that are actually trading hands and and available in the supply demand equation to set the price i mean even just all of these bitcoins associated with silk road that we're talking about that's like one to two percent of bitcoins out there right there right just that were this wasn't transactions on silk road this was like silk roads bitcoins right right so the takeaway here is like a lot of the big chunks of bitcoin are owned by people who were using bitcoin very early when you know you could mine huge blocks and it didn't take that much compute to do so yep okay so silk road by 2013 is it's the end of it but while all this was going on from call it 2011 to 2013 as silk road was

growing all these people who are using it they had to find have a way to get bitcoin they weren't just going to like email the uh the list serves on bitcoin talk.org and be like hey i want to buy some bitcoin so i can buy some drugs uh there's got to be a an easier way for them to buy in to the system so to speak and the way to do that is through exchanges and so this is how you know just like any kind of currency exchange like you said this has been part of financial institutions you need somebody to stand up the store that's going to accept your dollars and hand you bitcoin in exchange that store is going to be on the internet but someone's got to operate it exactly and so for

almost all of this period of time there was really only one viable exchange on the internet and it was an organization called mount gox that sounds right you know like a mountain like sounds like fort knox you know like mount gox it's a trustworthy secure organization that's gonna store your bitcoin and uh you're gonna be able to exchange and buy it right well had an interesting history of its own shall we say so what is mount gox we go all the way back to 2006 when a developer named jeb mccaleb who was a big fan uh no no no no in the u.s okay was a big fan uh as am i as are many people of the then going online but physical card trading game magic the gathering he thought you know gosh

like these magic cards they're super cool lots of people love playing you can buy them on ebay and whatnot but there should be like a there should be just like you know later there would be goat and reverb and what they should be a vertical like specific website on the internet for going and buying and selling magic cards great i'm just going to code that up why don't we call it magic the gathering online exchange mtgo x mount gox so this was created by jeb in 2006 i don't know if he was not very good at distribution or whatnot like clearly like there's demand for this like that this lots of people are trying to build this now for magic cards and pokemon cards and other cards um but uh for

whatever reason mount gox in its initial iteration didn't quite take off uh he had it up for about three months nobody really used it he abandoned the site now we mentioned his name is is jed mckaleb he's a programmer he's not just like any programmer this is nuts so do you know who he is ben no i don't so today he is the co-founder and cto of stellar which is a really interesting crypto project organization out there i think it's actually a non-profit doing cross-border remittances uh it's backed by stripe stripe is invested in it prior to stellar but well after mount gox he founded ripple and he was the founder and the cto of of ripple uh obviously of course another cryptocurrency with its own story

how after the incredible tragedy that we're about to get into of mount gox was he credible enough to then lead to other cryptocurrency start really crypto really credible big cryptocurrency start because he wasn't actually involved in mount gox through everything we're about to talk about so here's what happened he abandoned the magic thing but he still had the website and then in like super early in crypto land remember like he does all these crypto projects he i don't know if he was on the original email list he hears about it and in july 2010 so like right after pizza day he gets involved and and he realizes the need for for this exchange for people to come in and and be able to buy

bitcoin and he says oh cool i can code that up i know how to do this and he's got the mount gox.com mtgox website lying around he just says not great like rather than i don't know why rather than registering a new domain name i'm gonna use that oh okay in my head i had this like notion that people were like listing bitcoin in the same way that they should have been listing magic alongside magic he just repurposed the domain oh it's like oh you could you could buy a dual land or you could buy a like a satoshi like amazing amazing no it was it was repurposed into just a bitcoin exchange and so help me understand at this point in history like if you're going to be doling out bitcoin and

exchange for dollars you got to get your bitcoin from somewhere so are they mining in order to create the supply that they're selling out to people who are that's a good question i assume so but i don't really know i bet that is jeb quickly realizes like this is going to be a major undertaking to do this probably for that very reason let alone operating the exchange making sure all these transactions happen taking custody doing them well he after just a few months he runs it for about eight months himself and then in march of 2011 this is where japan comes in he sells it he so he's just running it he decides you know what i'm gonna sell the whole thing uh he has an interested buyer

a guy named mark carpelez who is a french programmer who was living in japan at the time super interesting character uh and he makes an offer to buy mount gox from mccaleb uh which he does in march of 2011 and the statement at the time mccaleb makes a statement he says to really make mount gox what it has the potential to be which is huge like this is coinbase and square crypto and robin hood everything before that uh to really take it to what it has the potential to be would require more time than i have right now so i've decided to pass the torch to someone better able to take the site to the next level unfortunately that was not mark so um right after a couple months afterwards

in june 2011 uh after mark takes over the site the first security breach happens at mount gox uh bitcoins are stolen and lost october 2011 they send 2500 bitcoins to the wrong addresses and again to the point of like if it ends up in the wrong place and you don't have the private keys they're gone forever so specter unfortunately have things to come here with mount gox 2500 bitcoins lost forever but there's still there's no other exchanges out there so like anybody who wants to come in anybody who wants to transact on silk road just be involved in any way as part of the ecosystem they got to go to mount gox and they handle for the next year and a half about 70 percent of all transactions in and out of

bitcoin that happened on the internet that's right it was so dominant i mean that was like i think that even held me back from buying bitcoin in those days because i was hearing people talk about it i had friends texting me about it and i remember going to mount gox and being like ah i just don't know yeah this is like super shady not to mention you know the silk road and all this out there like definitely held bitcoin back from becoming mainstream for uh for at least a year it's so funny in the whole like crossing the chasm framework like in some ways i i'm an early adopter but i'm not like gonna adopt something that is only being used in my perception for like illicit drug use on the dark web

right like it took until like coinbase came around i think 2014 is when i started getting more interested in it but like it had to be at least that mainstream yep same here that was i started hearing about it with silk road and mount gox and everything going on but yeah coinbase was when i did my first transactions so by april of 2013 so a few months before silk road uh gets uh the sting operation happens at silk roads goes down mount gox finally starts its death spiral so they crash at a certain point because of the volume that is happening on the system in april it's completely overwhelmed they suspend trading the price of bitcoin crashes 50 percent just by virtue of because you know they're doing 70 percent of the

market all of a sudden it'd be like if the new york stock exchange just went offline so the price crashes bunch of lawsuits uh start that they get hit with uh then in june of 2013 mount gox stops the ability to withdraw in u.s dollars so you can still withdraw in other currencies but like clearly things are not well here uh not looking good and then in february of 2014 they suspend withdrawals altogether so you can't take money out of the system at all from mount gox and they file for bankruptcy and could you transfer to like if you have your own like hardware wallet or something like if you knew an address of another bit if you knew another bitcoin address could you transfer

i mean it gets at various points along the way but eventually you can't even do that and ultimately 750 000 client bitcoins uh like bitcoins that people were holding in mount gox get lost like permanently lost private keys are lost they're gone i mean almost a million and then another hundred thousand that was owned by mount gox itself so that's seven percent at the time of all the bitcoins in circulation just blown out of the sky when mount gox goes under and just in client dollars that's 22 and a half billion dollars of bitcoin today that are are just they exist but assuming that those people didn't download their private keys like and they just trusted mount gox to say you keep my private key

and i or maybe they couldn't even download the private keys but basically like if you don't have the private key you're not sending it anywhere yep gone so fortunately though by the time this starts to happen and mount gox enters its sort of mid 2013 to beginning of 2014 death spiral enough other people and other business-minded people had gotten turned on to bitcoin and interested in the system that they were like holy crap we need better exchanges here let's go build them so in many ways now the most well-known one of these is is of course coinbase that we talked about so in june of 2012 two co-founders former airbnb engineer brian armstrong and goldman sachs trader fred ursom they're like we need to build an exchange and not just an exchange to compete with mount gox we need

to build like a legitimate exchange that people are going to trust to use that we're going to work with regulators uh that we're going to you know make sure that when people cash out of bitcoin they pay their taxes you know do all these things to build this into a real functioning system and importantly not just an exchange it's an exchange and cloud wallet exactly this is the innovation that it will make some people who are sort of true believers in bitcoin who are sort of part of the initial movement it makes their skin crawl because it is ruining the decentralization but what they're basically doing with the cloud wallet is saying look you're going to buy your bitcoin from us you're not going to take

your own custody of it because like you don't want to be in the business of having bitcoin on your hard drive secured by your own public private key pair that you manage be responsible for backing up that drive somewhere but making sure you don't make too many copies of your private key to explain like you don't want to be responsible for all that what you should do is just the same way you manage any other username and password you let us maintain your public private key pair the effectively it lives in our cloud on our servers and you log in with a username and password and you do to fa and all the stuff that you trust but like we have custody of of your money it's kind of like a bank or maybe more

like a bank or like a brokerage firm like charles schwab like you don't hold your stock certificates that you have in schwab or vanguard or whatever they do but then you don't have to deal with the complexity it's a little compromise but it makes it way more accessible to way more people and obviously just like you know if you're a hedge fund you're not going to use schwab you're going to do all that yourself if you're a big player in crypto whether you're an institution or otherwise you're going to have your own wallets you're going to do it yourself you're going to cut up your you know print out your private keys you're going to cut them up and they store pieces of those keys in safe deposit boxes

all over the world you know that kind of stuff but the average user you and me well we're not going to do that not to mention it's a bearer asset so you don't want to keep it on you like if if you know i don't hold a lot of bitcoin but i could imagine like if i did i wouldn't want to be broadcasting like yep but i've got it right here on my computer with me you know it's a it's something where you want you want the asset to live kind of at an arm's length from you personally this is how the feds seized all the bitcoin from dpr when they raided silk road it was just there on his computer

makes sense it's it's effectively like walking around with a you know millions of dollars in cash lining your jacket pockets like you want to keep that somewhere else yeah totally and not just under your mattress so coinbase does yc summer of 2012 they raise a seed from initialized and angels right afterwards then they raise an a from union square ventures then they raise a b from andresen they start building all this infrastructure making it secure now they're huge this is great for the ecosystem the other really interesting story so coinbase is is basically like you know they have coinbase pro now and institutions use it too but like it makes it retail accessible to uh you know just like schwab just like vanguard etc or a bank robin hoodification of crypto exactly and of course

now you can do trade crypto in robin hood itself too and in square and i'm like all right so coinbase is sort of attacking the retail side if you will of people interested in crypto there's an even bigger prize out there though that people start to realize which is you know getting the retail customers that's great but what if you can get institutions as this becomes an asset class you're going to start to have hedge funds endowments company balance sheets themselves large pools of capital are going to be interested in also playing in this ecosystem well what what kind of infrastructure do we need to make that happen and that looks actually pretty different than just retail infrastructure so here is where

the story takes another just incredible turn i don't know where you're going with this remember i said the social network would come back oh yes i do into play here the winklevoss twins it's been so fun to like read about this and i've gone and watched a few videos with them my opinion has completely changed from doing this research so of course people probably know the story of the winklevosses as part of the origin of facebook and the social network and that they're two twins who were a few years ahead of mark zuckerberg at harvard and they had had the idea for what became facebook and hired mark to be a developer for them to help build it and then allegedly mark had said hey this is actually a really good

idea i'm just gonna go do it myself there was a big lawsuit about this they sued mark in 2004 it was eventually settled in 2008 for 65 million dollar settlement payment from mark that's a nice down payment on some bitcoin well here's where the story gets really interesting so at the time everybody thought this is crazy like you know it's the line from the social network if you'd invented facebook you would have invented facebook ideas are cheap execution is everything these guys are crazy they don't know what they're talking about maybe that's true but these guys are also really smart so when the settlement happened 20 million dollars of the settlement went to legal fees so they got 45 million dollars

before taxes and everybody's like this is great you're gonna be set up for life etc they were rowers they actually participated in the 2012 olympics you guys can just go be athletes they said no we don't want the money in cash we're gonna take the money in facebook stock oh i didn't so they took all 45 million dollars in 2008 facebook stock it was great quote on this cameron says in a new york times article the lawyers thought we were crazy for taking the money in facebook stock we thought they were crazy for taking their 20 million in cash the stock that they get by the time facebook goes public in 2012 was worth around 300 million dollars and in the interim in the previous four years they moved to the uk because the 2012

olympics were in london so they come back in 2012 facebook's gone public there worth 300 million dollars and the story is that they're on vacation in spain after the olympics and they meet a guy there from the u.s who starts telling them about bitcoin still really early coinbase was just going through yc at this point in time and cameron and tyler as they start to learn about it and think about it they realize like holy crap this is money with network effects so they go all in on bitcoin they don't put the whole 300 million dollars and that would have been like the whole market cap of bitcoin itself at the time but they start buying bitcoin in summer 2012 at about 10 a bitcoin they end up accumulating well

over a hundred thousand bitcoins that cost them under 10 million dollars and it was one percent of all bitcoin outstanding at the time wow totally incredible they say what if we build an exchange specifically for institutions like coinbase have retail so they start and fund an exchange called gemini which still exists today with the whole target of being certified by regulators for institutions they end up getting a license from new york state regulators that allows them to be a custodian for regulated asset managers and banks that no other exchange at the time had and then a few years later in 2017 when the chicago board of exchange launched bitcoin futures on the cboe which was a huge moment a big part of the run-up of bitcoin in 2017 it was actually gemini that was settling all the futures on

the exchange crazy so super interesting i mean thank god that like coinbase gemini there were others out there as well who saw like hey the future is bright for bitcoin if we can start to build some real institutions with that work with regulators that people can trust and are gonna be legal otherwise everything's gonna go down in flames with mount gox so through all this bitcoin as a asset keeps growing with an insane amount of volatility of course which still continues to this day bubble after bubble after bubble and you know pop pop pop yep but with each bubble it keeps going higher and then the new floor price resets higher 2012 the price started at five dollars and 27 cents per bitcoin by the end of the year

it's at 13 dollars and 30 cents and then 2013 this was the huge breakout year so even despite mount gox and silk road and everything going down the tubes started the year at just over 13 dollars as we said by the end of 2013 january 1st 2014 bitcoin is at 770 dollars per bitcoin exchange rate that is some serious appreciation in just one year yep and then i think even after that then fell down to like 200 or something like that was the next so then when mount gox finally disappeared in those three quarters of a million plus bitcoins disappeared that was a huge hit to the system price fell down to about three hundred dollars and then 2015 mostly stayed in that sort of three four or five hundred dollar range

by 2016 though all this infrastructure is starting to come online coinbase has raised a lot of money lots of accounts being created they're seeing very high trading and exchange volumes same with gemini same with other exchanges by the end of 2016 the price hits 998 dollars per bitcoin so just a hair under a thousand dollars of bitcoin i mean this is now the beginning of 2017 what was the six years earlier you could barely buy a pizza for 10 000 bitcoin yeah it's it's totally fascinating to think about you know i i keep referencing this three million x the number that we've talked about the initial 35 000 x was in the first five years making it to 350 bucks in 2015 and in the five years since it's

actually only only only been in 85 x so it's like compounding math is funny that way where if you if you can buy in at that incredibly low cost basis where they you know started at one cent or sub one cent a lot of that sort of multiple happens in those early years well before it even hits a thousand dollars a bitcoin well what's so cool is it like this is exactly how the venture capital markets work right like it's the early stage investments that you can generate those huge huge multiple returns but you can't put that many dollars to work in the early stage investments so like you'll generate you know sequoia has figured this out and you know so many other the big firms you put dollars to work early

you get huge multiples on those dollars but then you keep putting dollars to work in subsequent rounds as companies grow get proven more and the tam expands and the market for you to be able to put those dollars to work expands and so like it's not just that you want to get the three million x on your first dollars you also want to get the 85 x on a lot bigger base that you're putting in later yeah it's interesting i mean it's also it's it's just especially interesting it's it's a little bit of like as we'll get into the analysis later i think we'll we'll see how crazy this is but it's strange comparing all these companies all these corporate assets to a monetary asset because it's not apples

to apples in the way that we normally think about these types of investments like this is a currency the idea is that it's eventually going to be just a way that we store and transfer value so it's it's just funny that like everything we've talked about so far is about growing the value of each fraction of the bitcoin network a bitcoin yep but this is the moment where uh things kind of tip bitcoin mania begins in 2017 holy crap january 1 2017 we're at 998 a share people are like a thousand dollars bitcoin there's some real money here and what does that attract that attracts grifters so people had already launched other crypto projects over the previous you know six seven years ethereum launched

in 2015 there were others there were of course we referenced all the alt coins and parody coins like so much to say about ethereum here about defy about a lot of the more modern takes using the the blockchain we're using cryptocurrency outside the scope of this episode but you know obviously those things are interesting yeah we will definitely talk about those in the future but in 2017 people realize like man this is a money machine so in may folks may know folks may use it's a real company real project the brave web browser which is a privacy by default you know non-tracking web browser they launch instead of raising venture capital in a normal route they do this thing that they call an

initial coin offering which is the same thing that ethereum did you know anytime you're starting a new blockchain based project you have a launch just like satoshi mined the first 50 bitcoins to bootstrap up the bitcoin network well brave sells the initial tokens and they market it and they have white paper and all this stuff and people go nuts they raised 35 million dollars from this ico in 30 seconds in fully non-dilutive capital fully non-dilutive capital uh people start talking about like this is the new way to raise money this is the new way to start companies vcs themselves go gaga they're like oh wow we're just going to invest in icos from now on it's like crowdfunding you're raising money from your users

so all the incentives are aligned because as it increases it's going to increase with the value of the product blah blah blah it's totally unregulated so everybody and their mother literally everybody and their mother has ico in 2017 it's like the spack of 2017 dj khaled has an ico paris hilton has an ico floyd mayweather has an ico like unclear what any of these projects i was gonna say what's yeah because the rationale for creating your own coin is that i'm creating i think they were daps right distributed applications um or are daps but i'm creating a distributed application and it's going to have a network effect and there's going to be a bunch of people that use it so like literally the value of

the pseudo virtual currency that you use on the platform will increase in value with more people using the platform like in the abstract it makes sense in the same way that in the abstract bitcoin made sense the difference is largely just in what actually then happened yeah totally so and who was pumping up these things so you know bitcoin starts the year at a thousand dollars there are a lot of people out there who made a lot of money just holding or hodling which we should hodl h is it is it a misspelling it's a misspelling or is it hold on for dear life people have said both but i think the original it was a guy on a forum who during one of the bubble crashes for bitcoin price was encouraging

everybody to hold and not sell and so yeah just type too fast and said hodl it just just becomes an internet meme like uh boom goes the dynamite or any other oh i haven't heard that in so long so good so like there are a lot of people that have just made all this money seemingly overnight to themselves in bitcoin they're like okay cool these icos great we'll pump the money into the icos yeah so by may when the brave icos happens price of bitcoin has doubled to two thousand dollars by the prevailing exchange rates usd by september it's four thousand dollars by the next month in october it's six thousand dollars by november it's ten thousand dollars and by december 18th 2017 we hit

what many then later over the coming two years would believe would be the all-time high nineteen thousand seven hundred eighty three dollars and six cents per bitcoin unreal twenty thousand dollars per bitcoin yeah and so this is like i for the record i i was very much in the camp at that point being at that point i was cashed out i was like i'm i'm done with this mania there's all the icos there's all these scammers altcoins who knows what's going on so many scammers and i definitely was like this is totally inflated and the highest it will ever go i i definitively remember thinking that i mean it was uh i remember i don't think i had taken a little money off the

table during the run-up uh from not that i had or have many bitcoins but from my experimentations buying a few in the early days so i'd taken some money off the table in the run-up but then after the crash which happens in the beginning of 2018 i was like yeah i don't know i don't need the money whatever it's an option let's see what happens i'll just let oh you let it ride i let it ride i hodled i hodled all right so catch us up this january 2018 you know we see this this run-up to near 20k it falls clearly it has risen again what's happened in the last couple years okay so over the course of 2018 it falls from 20k all the way down to under 4k so at the end of 2018 by january 2019 bitcoin is

trading at just over 3700 down 72 percent for all of 2018 and down 81 percent from the high in december 2017 but underneath all of that and i think this is what as the hype as the tide went out and the hype cycle disappeared and all of these scammers thank god disappeared and ico's became thank god a thing of the past and many of them prosecuted for fraud yeah many of them and the regulators got involved of course and vc firms regained their sanity and started investing in normal companies as well as normal companies doing things with crypto and on and bitcoin and blockchain and some and actually into cryptocurrencies themselves um but often a little bit more mainstream than than into the ico dj callet coins

yeah all coins so in the background all of this you know the groundwork that gemini and coinbase and others started laying that kept getting built over 2018 2019 so in 2018 square added the ability to buy sell trade and hold as a custodian crypto natively within the square cash app robin hood did the same within robin hood in 2018 and then rolled that out i think by 2019 to their entire user base and so you get to the summer of 2019 and bitcoin which again had financed a lot of this ico boom but uh from profits that people had made in bitcoin but was totally unrelated the price has recovered to about 13 000 per bitcoin by summer 2019 and things continue roughly in that trajectory and then we get to march 2020

and uh the world changes all the people who have been screaming for the last five plus years that this is an uncorrelated asset and boy oh boy would it be nice to own some currency that's not fiat that's not connected to a single government if we head into a you know if we have a black swan event that happens and the world is falling apart you don't want to be associated with any specific government and you want to have currency that is uncontrollable blah blah blah like boy is there an opportunity to prove you are right yes now so here's what's crazy so obviously covet hits the broader world in in march 2020 and when there's that initial dip in the markets and panic selling and everybody thinks

the crash is happening and equity markets sell off actually crypto and bitcoin sells off too so the price of bitcoin crashes and on march 13th 2020 remember it had been trading around 13 14 000 per bitcoin it crashes down below 4 000 which is crazy so it's the exact opposite of ben what you were saying what you would think like hey i want to own bitcoin when the world's falling apart dude i remember watching that and like looking at uh the s p 500 overlaid with the price of bitcoin and i was like huh it's a pretty correlated asset class and of course now we know with hindsight what was actually going on was there was a liquidity run and people who were holding bitcoin were also holding other

things they had obligations and then as all the markets crashed they needed liquidity to be able to pay off other things and so i think that's what triggered a lot of selling at that moment but since just like the equity markets it recovers quickly and just starts taking off and then ben like you were saying so the fed and the u.s government in response to covid just starts printing money like crazy like has never been done in our country ever before like world war ii any other time so during 2020 literally 22 percent of all of the u.s dollars in circulation all around the world are created in 2020 uh the debt to gdp ratio of the u.s goes from i think it was i don't remember exactly somewhere like 60 70 percent to 135 percent

over the course of 2020 and this is of course financing all the stimulus packages and all the spending that the government is doing uh without the revenue to back it up and of course we're meanwhile we're in a zero interest rate environment yeah so there's sort of two things that are happening in order to do the economic stimulus one the government is using tax dollars to pump money back into the economy you're paying people and implementing not tax dollars they're creating dollars well to do but they're doing both it's it's tax dollar allocations and the fed is printing more money and so they're putting more dramatically more money into circulation which one way to think about this for i spend a bunch

of time trying to figure out like what's the best way for me to understand this because i always feel like if i can understand it then it's a pretty good proxy for everyone listening and my sort of notion of it and i'm sure this is not exactly right is if you're a shareholder in a private company and you go raise more money well you take a bunch of dilution usually 15 to 30 percent dilution because you're creating new shares for the shareholders we were effectively saying hey everyone with dollars you're gonna go take 20 percent dilution in 2020 your your dollar is gonna buy you just gonna have less purchasing power because there's more dollars in circulation right now just so that so that there's

more dollars to go around which of course it takes a while for that to percolate through the system that you actually see 20 percent higher prices but eventually that will come home to roost yeah so i don't think either david or i are uh smart enough macro economist type people to be able to interpret we're in a zero interest rate environment the government printed a bunch of money into the money supply uh we did away with the requirement that banks hold 10 percent of of capital and reserve that they're they're loaning out yeah like there's a lot of side but i don't think you or i should be here no but i think what we are maybe not smart enough but what we're enough to feel that

we feel certainly influence my actions actions of many investors and people all around the world probably years too is the effects of this which is interest rates go to zero so all the money that i was holding in my bank account that anyone was holding in their bank account earning interest on it was already really low and had been since 2008 now it's zero like i was getting emails every two weeks from my bank being like hey we cut your interest rate again yep exactly and so what incentive does that create that creates an incentive to just not hold cash like if you want or and not hold bonds either like anything that's traditionally relatively conservative investments that as an

individual or an institution you would hold and expect to get three four or five percent return on you're just you're not getting you're getting zero and inflation's happening so you're getting less than zero well so what does that mean that put it's like a balloon you're squeezing one end you're just going to push people to go invest in places where they can get return and where's that going to be that's going to be equities and bitcoin and specifically tech equities and specifically specifically early stage tech equities that people hope are going to look one day like amazon so that that's like what's happening in the equity markets and of course alternative assets like bitcoin and so you sort of have the coupling of people you know capital desperately seeking returns so

it's it's there's more capital ever that's looking into and taking things like cryptocurrencies seriously and also people really buying the story of wait tell me about the fundamentals of how the bitcoin system works again huh that actually does seem more and more reasonable and huh all these other people are are into it okay oh and a lot of legit people have have parked a lot of cap okay and so there's more and more legitimization of the asset class happening more infrastructure being built up and in the environment that we're in which one could argue is starting to show the cracks of what happens in quantitative easing what happens in zero interest rate environments what happens in you know not having

hard requirements about fractional reserve banking like you actually start to see the way that the bitcoin system was designed to fix all of that like hey we can't increase the money supply it is what it's going to be at 21 million and you know hey there there is no fed like there is no centralized you know place that you have to have trust in that they're going to effectively manage it a lot of these ideas just become more appealing at the same time as there's more capital seeking more returns so it's this like perfect storm of uh the conditions created people rushing into cryptocurrencies and and specifically bitcoin well specifically bitcoin but also specifically institutions this time so like all the bubbles in the

past it was individuals it was retail maybe it was some venture firms maybe it was the winklevii who were buying bitcoin but now enough infrastructure has been laid through exchange traded funds which now exists like grayscale through bitcoin futures through custodians like gemini and coinbase pro that if you're a hedge fund or if you're a bank or if you're an endowment or if you're a company treasury you actually maybe can't access bitcoin so in may of 2020 paul tudor jones the famous investor who runs a i think a 22 23 billion dollar hedge fund he goes on cnbc and he says hey i actually have uh between one and two percent of my funds assets in bitcoin and at a 22 billion dollar fund that's two to four hundred million dollars

worth of bitcoin that investor money yeah not his money it's fund money that has just come into bitcoin then in august of 2020 micro strategy which is a publicly traded uh investment firm uh they reveal that they have 250 million dollars in bitcoin uh not just that they've invested in bitcoin but they're classifying it as a treasury reserve asset on their balance sheet so not like an equity speculative investor this is like no like we're trying to cash like a cash yeah like a in our treasury then in august square which of course has been part of the crypto and bitcoin community for a long time they put about one percent of their cash and cash equivalents on their balance sheet on their treasury into bitcoin

about 50 million so they're the first like operating company that is now saying we're going to have part of our cash in our treasury that we're going to hold yeah in bitcoin also their rationale for why they did that and how they executed the trade is really well documented they wrote it up we'll link to it in our sources um it's worth reading that uh that post i think it's a pdf if um if anyone's interested and then the last big announcement in november guggenheim which is a very large asset manager i think they have about two three hundred billion in total across all of their vehicles one of their funds which is a five billion dollar fund they register with the sec to be able to invest up to ten percent of the funds so up

to five hundred million dollars in bitcoin via exchange traded funds by doing that so what's the net of this so you've got even just across those those transactions which we mentioned which are ones that are public there's plenty more i'm sure that we don't even know about where managers haven't disclosed their holdings you've got close to a billion dollars of inflows flowing in to this asset class it's not a super thickly traded asset class right like the market cap for all of bitcoin as we're running up here is in the 650 billion right that's at today's prices but as these transactions are happening you know it was probably ranging from one to 300 billion right and keep in mind only only three ish billion

of the 21 billion coins that ever will be you know so there's 21 million total there's something like 16 million have been mined so far maybe a little bit more um i think but only three million of those are actually ones that are traded the rest are held long term lost whatever the silk road coins the mount gox coins the satoshi coins you know there's a whole swath of millions of coins that are just gone they can't trade then you've got all the coins like that people don't want to trade you know that they're holding like yeah i'm not going to sell those why would you use this thing as currency right now when it's inflating so much like when it's when it's appreciating so much it's like you'd have to be

out of your you understand the hodler mindset which of course also which we haven't talked about yet and i think we'll get into an analysis like you can't really spend your bitcoin at any retailers but of course you can't because who is going to spend these things right now right because so as you know what is price it's the intersection of supply and demand you've got these huge new chunks of demand like blocks of demand sizes that have never been seen before in the asset class you know 100 million 200 million dollars at a time that want to come in and buy you've got not a lot of supply willing to sell of course the price is going to go through the roof so that's what happens

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thousands of ai agents working across every function of the company but the question is who's managing them all so if you're trying to turn ai ambition into real business outcomes and make it work safely securely at scale go check out service now.com slash acquired and tell them that ben and david sent you well david as we catch up today i want to point out there's one institutional firm paradigm uh that uh that is co-founded by i think it's fred ursham and uh and matt huang uh matt of course is former sequoia partner fred of uh uh coinbase co-founder definitely the president he was brian's co-founder the two of them co-founded it and so um matt had made this really great point if i could tell you to do things to

follow up one is obviously the bitcoin white paper remarkably cogent the other is actually reading matt's piece about sort of his summary of bitcoin it's it's at paradigm dot xyz um and sort of like why we're doing what we're doing why we think it's interesting what the trade-offs are what the where it could go wrong where it could go right really cogent analysis but one of the things he points out is of course bitcoin has these bubbles but as david mentioned every time they pop it sort of plateaus at a higher level than the previous bubble and because bitcoin requires this network effect to be valuable for it is a self-fulfilling prophecy in a lot of ways it actually uses bubbles as a go-to-market

strategy where every time there's a run-up there's more and more legitimate players and more and more institutional capital that sort of pile in more infrastructure gets built up and then when the bubble pops and you sort of have a lot of the the sort of late coming speculators uh that of course lose money what is left there is all that infrastructure and all that advancement that was made from the mania and the hype and it's just really interesting to see that really is a go-to-market strategy well and what's so interesting about this time and unique and we're already seeing this play out in how the price has risen fallen and then stabilized over the past couple weeks is in previous

bubbles it was mostly individuals who are doing this who are subject of course to individual psychological behaviors and like price crashes like lots of people are gonna sell lots of people will hodl but lots of people will sell too this time the demand the big chunks of demand that's driving up the price like this is square's balance this is a micro strategy holding this as a treasury reserve they're not gonna sell like they're investing purposefully as treasury and as diversification the price crashes 50 70 like what they're not gonna sell their institutions and um so part of the thinking here is that as we now move and shift into this new phase of bitcoin where institutions are playing within it there's going to be a lot more stability so what's happened with the price over the

last month or so so we went from we went from 3 700 in march during the covid liquidity crash to by the end of november bitcoin surpasses that all-time high of december 2017 hits 19,860 dollars in november and then by the end of december by the end of 2020 on on new year's eve we're sitting at 29 000 for a bitcoin which is insane another 10 000 in a month it doesn't stop the first week in january which was last week even though it feels like last month it hits 40 40k 4 0 ultimately the price goes all the way up to 42 000 per bitcoin before coming back down again several days ago over the last weekend even though it feels like a month ago coming back down to a low of about 30 000 so the crash

quote-unquote we could have another crash like we don't know but this crash is still ten thousand dollars above the previous high and is now trading right around 35 000 right which it has for the last several days so by by crypto timelines at least by bitcoin timelines it's stabilized super quickly at this sort of 34 35 000 price this is very different than the way these bubbles and crashes played out before by the time we release this episode who knows what it'll be at bitcoin 15k but right could be at 3k could be at 100k you know we don't know we may look stupid but i do think it's really interesting that you have different motivations this time of large blocks of capital

that are coming in yep for sure okay before we we transition to uh to analysis there's like a couple of like today's stats that i think are just sort of interesting because i continue to be interested in comparing bitcoin to a company to a currency to uh like a assets under management so this 35 000 dollar a coin price implies a market cap of 650 billion dollars well let's contextualize that 650 billion dollars so the total consolidated assets of jp morgan chase the largest bank in the united states is 3 trillion so that's about five times all the bitcoin out there is like at jp morgan alone from people who have who bank with them is five times bigger sort of an interesting number to keep

in mind um i think bitcoin if you were to if you it's actually pretty interesting you go to the federal reserves website and just look at like what's what are all the settled accounts like not within each bank but at each bank how much money do each does each bank in the u.s with a bank charter have on hand or or um in under their custodian interesting actually not on hand specifically like how much do they are they a custodian for so i think bitcoin would be like the fifth or sixth largest institution on that list if it were a bank that was regulated by the fed which is kind of interesting um it's also interesting just to compare it to like the market cap of apple is 2.2 trillion uh so four ish times uh

as as big as bitcoin is if you want to think about it sort of like how valuable is it versus the most valuable company in the world another sort of interesting number to think about it especially as later we will start thinking about what is what is the tam for for bitcoin what's its total addressable opportunity not necessarily for a coin individually but like for what could all of bitcoin represent to the world at some point in total and then because we know it caps out at 21 million you actually can kind of do the math and be like all right what would the coin value be at that point so the total money supply of u.s dollars is about 20 trillion david as you

mentioned it was about 15 trillion in january of 2020 so it's it's gone up quite a bit recently but but again like bitcoin about halfway to 1 trillion compare it to the u.s money supply over 20 trillion another interesting number to know is that the total money supply of all global currency is about 70 trillion so there's this interesting or was i think it's gone up a little bit so it's sort of interesting to think about like you know if you're someone who believes that it's going to overtake all currencies then you can sort of look at that 70 billion number if you think it's just going to be a a sort of asset that gets held uh in compare like like it's it's a part of a portfolio

you know a lot of people are likening it to gold it's interesting about nine trillion nine trillion about about half of it actually is in jewelry so you're not going to replace like no one's going to have actually there is some tell that to coin daddy yeah but it is interesting to look at like okay there's about four and a half trillion dollars of gold out there not used in jewelry it could sort of usurp that it's kind of digital gold um which you know we'll get into all this as we transition analysis here but sort of interesting to understand the scale of it in today's world yeah crazy i mean it's come a long way from the white paper like this is such an improbable journey you know white paper

to papa john's to silk road to magic the gathering to the winklevoss twins to you know to um guggenheim investing in it right like uh yeah this is uh all within 12 years yeah i mean it's an improbable story but you sort of needed all these different factions and all these different vested interests and all these different true believers versus opportunists to sort of push it forward to where it is today all right power yeah let's do it and listeners for anyone new to the show this is a section that we put in based on one of our favorite books called seven powers which is a study of how businesses can achieve persistent differential returns or put another way to be more profitable than their closest competitor

on a sustainable basis and so what we mean by power here is what what is the thing normally of a business in this case of a currency or a or a new system money system um that that basically allows them to out compete their closest competitors and gives the business for lack of a better word power yep and this is going to be so fun because i think they're a bunch that bitcoin has uh like a whole bunch um the obvious one that we've been banging the drum on through the whole episode and is probably the most powerful is is network economies uh i think in in particular versus other cryptocurrencies like nothing ethereum is the only one that stands a chance and it just kind of has a different use

case that that's really more around um the the smart contracts and compute that's sort of built into it but for for sure like you can't start anything that looks like bitcoin now and have any chance of beating it like it's in the same way that facebook just outran any other consumer social network consumer social entertainment type app and then obviously very smart and acquiring those who who did get like bitcoin just leapt ahead at the beginning of this paradigm and i think what's cool is it even applies at the technical level too with this idea of like the amount of computing power going into that has gone into maintaining and making robust the bitcoin network over time is itself a compounding asset

right like because the more power that goes in over time the harder it is to crack to undo yeah you can't there is no supercomputer that could conceivably ever be created that is going to as long as the bitcoin economy like a miners keep working that is going to be able to go back and like redo everything and that what that lead just keeps getting wider and wider and wider certainly not really old things in the in the blockchain but you know there's always the risk on the newer ones um things that are only two or three blocks behind and and unless there's a paradigm change like unless quantum computing arrives and suddenly you have you know 10 million x more compute um than than we did in the past on a single core

or something like that well this is also where network economies come into play and satoshi actually makes this point in the original white paper like let's say that happens as long though as the network is big enough and robust enough at that point the value of legitimate keeping the the system legitimate like say you already own bitcoin it's a great point if you already own bitcoin then your incentivized interest is not to break the system because if if you hack it then people lose trust and then the value of the bitcoins that you already hold which presumably if you're a miner you've already been mining uh they go down and so even if you could create more fake bitcoins for yourself you have this

massive disincentive to do that yeah as more people join the system yeah it's a great point and if the other thing that the system is designed to do is to provide enough incentive and of course they they rebalance this over time um but it provide enough incentive to the miners that if they were to make a call between being a malicious actor and mining they should make it worth your time to to mine to be white hat and so if you had access to a quantum computer the they would adjust the software such that it would make more sense for you to mine than it would to attack of course caveats abound here that david and i don't know jack about quantum computing except that maybe it'll be a big leap forward in the amount of

compute per square inch or per square watt or whatever square watts nothing obviously but you know per unit so network economies absolutely one that i wanted to bring up that i think is interesting is it's counter-positioned but not against other cryptocurrencies it's counter-positioned versus the u.s dollar where uh the definition of counter-positioning um you know of course with my editorial here is doing something that your uh that incumbents basically can't because they would break break their system yes and like there is no better example than than the u.s dollar like if uh the fed was like bitcoin's a really good idea and they they felt like actually that's the future they cannot uh the fed's centralized infrastructure and the u.s banking system like the notion of the central federal bank

or the federal reserve like it is completely antithetical to everything that bitcoin stands for like our monetary supply and our entire banking system exists in a coupled very intentionally coupled manner with our government and so it's not like it would ever be in the u.s government's interest to be like you're right a decentralized thing would be the way to go because it removes so much of the power of the the u.s government frankly the u.s as a nation yep well and just like network economies i think there's another level that that counter-positioning applies that too which isn't just the u.s dollar it's at the financial system itself like we started the episode with you know the way banks work and

the way credit card companies work the way traditional financial institutions work is based on this you know number bank account number credit card number system they can't go back and change that and make it into a public private key thing like the best that they can do i sort of i think they could i mean well they could but all those like ach exist like are you gonna have how are you gonna coordinate every bank out there in that talks to every other bank to now all of a federal mandate in the same way that we move to chip and pin that's true that's true they could they could adopt a superior and more secure technology if there was enough of an incentive to do so but they could not change

their centralization versus decentralization strategy because like i to bring in another sort of mental model the u.s government has and all governments who have fiat currency have bundled the sort of like safety security and like amount of normalcy or normality of the nation with money and like when people say the u.s dollar is backed with the full faith of the u.s government like that that is literally true it is legal tender like at some point if you're like conducting business on a large scale and the government's like can you accept u.s dollars please and you're like no like they do have an army so that they're they're they are intertwined intentionally and it is strategic to be able to to make it so that our economy runs on our government's currency and that's been a strategy

that's worked really well for a long time and i i don't think an existing government who is the the strongest nation in the world can like they're it's literally the definition of counter positioning they would cannibalize everything they've built by switching to it what i'm talking about is more like this would be hard for the traditional banking system to do but it's not against their interest to do it whereas it's actually against totally the u.s dollar's interest to refashion itself like this yep it's funny um in this vein one thing that dilution idea i was talking about earlier where i was comparing uh adding new money to the money supply to the sort of dilution of your shares in a company

i'm pretty sure that the vast majority of u.s dollars are actually held by non but like held outside the u.s by people that are using it as hey this is like this is the way that the world denominates value it is the i can't remember what the phrase is but like the reserve currency i think yeah yeah uh and i it's something like 70 i don't quote me on that but it's it's it's more than half is held outside the u.s and so when we do things like print more money it actually hurts everyone else more than it hurts us and you can kind of do that to a certain extent obviously if you do it too much you create a huge problem and then you create this sort of hyperinflationary thing and people

don't trust it as the global reserve currency anymore but like if you're like you know what i'm gonna basically dilute everyone by 10 and they're gonna take the hit a lot more than we are right like that's what we're doing that's actually a really good point where yes you're hurting your own citizens with inflation but you're you're also hurting these other countries that are whole whose central banks are holding your paper your dollars that's something that like your own citizen there's there's kind of nothing you can do short of like moving to another country if you're a citizen and you don't like this but if you're another country's central bank at a certain point you're gonna be like screw it i'm gonna use a different asset as my reserve currency like you can

make that choice yeah and uh and unlike what to roll back to that early facebook example when zuckerberg did the eduardo saverin dilution move where he issued a crap ton of new shares to everyone except for eduardo they don't you can't do that where like you you create a whole bunch of new money i guess actually that's sort of what we're doing with the federal stimulus like we create a bunch of new money and then we only give it to u.s citizens that actually is like you can only you can only trot that social network again yeah you can only trot that pony out so many times yep okay i think there's some more in here it is a thousand percent a cornered resource like there's

a finite number of these things available so like it is written into the software and that it's you're never going to increase the money supply so like it is quite literally a cornered resource well it's cornered resource for people who own it for the system itself oh that's a good point it depends who the actor is that you're considering here certainly though for anybody who holds bitcoin like absolutely this is uh the fact that there is programmed in you know minimal to you know no inflation in the long term is an incredible uh source of value not to mention it's like the most secure system to ever exist this public private key pair thing think about satoshi you got a million and a half

of these things and it's so secure that like people can't even log in to view their own you know because they're losing it like it's you got a super cornered it's not fleeing anywhere so let's talk about i want to explore scale economies so i think there's scale economies here but let's talk about it yeah so scale economies of course being like netflix like because netflix has so many subscribers that they make so much monthly revenue from they can go pay a hundred million dollars for a piece of content and amortize over it over all those subscribers that a smaller service say like peacock or whatever can't afford to pay the same amount for that content profitably in this case i think it might apply to

the mining pool resources so like if people are gonna mine you could mine any cryptocurrency right uh but yeah there's gravity to bitcoin right people are gonna mine yours if they think it has the most potential future upside and staying power right and because lots and lots of other people are mining and transacting that's creating well maybe this is back to just network economies instead of scale economies certainly there is uh for let's look at the mining industry itself certainly that is a scale economies industry now that's separate from the bitcoin system but if you want to be a miner right like the only way you're doing it at this point is with dedicated hardware and a data center in a very special location exactly like you're not doing it with a laptop right and and it's because

like so many people have like a lot of the value has gotten arbitraged out of doing it by lots of other people trying to do it and it's a race once you find a block so you have to have the lowest cost structure in order to be a miner which is exactly like netflix and and the like okay uh switching costs what do we think about switching costs you can exchange in and out of other currencies so i think switching costs are actually pretty low yeah even as a miner you can you can probably repurpose your mining gear to other currencies there's transaction costs to switching in and out of other currencies but like as compared to like ripping out an enterprise sass solution in sort of the hamiltonian definition of

it it's pretty low switching costs i don't think there's process power in any sense here um i think the last question is branding would you rather say you had a thousand dollars to invest would you rather do you put that in bitcoin because you know and trust bitcoin versus something else i mean i would but it's because it's it's it's it's more because of the network economies it's because like i i feel like it if there's going to be a dominant cryptocurrency that is a huge part of our global economy 20 years from now it's going to be bitcoin and it's not because of the brand like it's not because it's yeah if something else had the same properties and dynamics and network behind its system and it were

called something else yeah i don't think i don't think there's any brand power there yeah i think the last thing the last thing to talk about in in power that that i i should have talked about when you were talking about network economies is again going back to this comparison to the u.s dollar government-backed currency has an absolutely enormous head start on their network economies power versus anything else like the government mandates that you pay your taxes in usd so automatically it means that like every single person in the country must own some amount of usd in order to pay their taxes in it or at least they have to uh they have to use it or maybe they're like accepting their wages in it

so money is flowing from literally every person in in at least one direction in that currency so like that lights up a bunch of nodes on the network on the other hand the government pays its debts or its bills in that currency so like it's getting paid out to every other country it's getting paid out to every contractor and like the government contractor industry is actually like a it's a large part of the u.s economy i don't know totally oh my mom's gonna be so happy listening to the government contractor lawyer government contracts lawyer oh nice yeah like it is uh i don't know if it's nice but yeah it's it is it is a huge segment of our economy um the government is the customer and so you like

it's incredible anything can ever compete with government-backed currency given how many nodes on the network are already by default dealing in government-backed currency that might be a good transition out of power into our next uh our next section yeah so listeners what would have happened otherwise is our our next section um a lot of times we like to look at a specific event and wonder you know if it had gone in a different direction we we may do that here but we want to adapt this section to basically say like let's compare this let's compare all the weird ways that bitcoin works to the normal fiat currency system to usd um and and sort of compare and contrast some of the elements

and the the way that i sort of want to start is uh like what what is money like what is the purpose of money and now we're getting a little bit um i suppose uh academic but it is three things it's a unit of accounts so it's the way that we basically say this thing is worth that much like when you look at you know a gallon of milk and you in your head it sort of occurs to you how much it costs that's the unit of account it's the way that you account for the world it's a store of value so you know i made some money i put it in a savings account uh that's denominated in cash i'm going to come back and use

that in the future and it's a medium of exchange it's the way that i buy apples at the market and of course then currency is sort of in some ways a subset of that it is literally like money in the form of however you pay for it so in the form of paper or coins generally issued by government things like that and i bring this up because i want to talk about this phrase that people throw around in bitcoin bubble and that we've talked about on this show so if someone were to say to me bitcoin is a bubble i would say for sure like no no doubt it's a bubble also so is usd it's just a really long

bubble like uh how would you define bubble and i i again i'm gonna i'm gonna quote matt huang here from his uh his memo because i think it's super good uh his his comment is we can think of money as a bubble that never pops or at least hasn't popped yet and the value of fiat currency gold or bitcoin is relying on collective belief other factors like a government's power the industrial utility of gold or the robustness of bitcoin's code base can help reinforce this belief but this belief is critical and i i think there's something really interesting as we think about money or currency here it's not like a stock where sure you could say like oh tesla is a bubble because it's you know relative to

uh its current positive cash flows or any reasonable future positive cash flows that it could have like you could argue like uh it's trading way way too high above the sort of utility or intrinsic value of what you're entitled to as a shareholder of that company you know and you're entitled to the future profits of it currency definitionally has no intrinsic value right like it literally the only thing that gives it value is the collective belief that other people will continue to value it in the future right well this is you know where you get into exceed our macroeconomic academic and history depth here quickly but yeah this is the argument like before 1971 there was some argument about the u.s dollar that it was pegged to gold and that you

you know you couldn't get as much gold as you could buy for a dollar if you turned in a dollar but you could get some gold like there was something but then after 1971 when nixon uh signed that away and u.s went off the gold standard yeah it's just it's no different than bitcoin like it's just there is no tangible thing underneath it all other than your belief in the robustness of the u.s government as a system and hopefully i think what we've laid out on this episode is that with bitcoin it is the same you are believing in the robustness of bitcoin as a system mm-hmm yeah it's a it's really interesting like money you know currency is anything that we're

comfortable sort of using as this way of again the the three points are a unit of account a store of value in a medium exchange so like most things actually are a pretty crappy form of currency if you can rip a dollar in half too easily or you know if anybody could copy it and they didn't have serial numbers there's a i'm gonna i'm gonna keep quoting matt here because it's just so good but he says as with any monetary asset bitcoin must be scarce portable fungible divisible durable and broadly accepted in order for it to be useful bitcoin rates strongly across most of these dimension dimensions except for broad acceptability uh which of course we've sort of talked about with the network

effect so like the dollar is that if i had to sort of score it scarce it's like it's reasonably scarce the the issue is monetary policy yeah portable certainly again not as portable as bitcoin because like if you want to carry a suitcase of a million dollars it's kind of hard um fungible it certainly is that i mean any dollar is kind of the same thing as any other dollar bitcoin i don't think bitcoin wins at all on fungibility divisible they both have a tiny little unit uh there's cents which you know represent the smallest amount that anything could really be worth or there's satoshis which is one so one one thousandth of a bitcoin one ten thousand no no it's less than it's one i think it's 10 to the

eighth 10 to the seventh or 10 to the eighth uh negative negative seven or negative eight so we may have to come up with something smaller than that if bitcoin continues to sort of rise um durable you'd have to go a long way from here totally durability i mean the bitcoin is like way way more durable than u.s dollars like we we rotate dollars out of the system every once in a while because they just get too ratty and like that's your bitcoins are not going to degrade on a hard driver and cold storage somewhere so there's this interesting you know it basically in everything except for broadly accepted bitcoin sort of wins now again that thing we talked about earlier with the u.s dollar having

this overwhelming unbelievable head start on the network effect like tbd if if if bitcoin can actually even though it's better in all these ways can it actually fight that and i think an open question is does it need to or can it sort of exist as a complement alongside but there's there's three more features that bitcoin has that usd doesn't which and again going back to matt hong here it is digital programmable it's actually four decentralized and censorship resistant and universal and i think that's where you start to get into this like daydreaming about finally a currency for the internet things like smart contracts which you can do on a very limited basis with with uh with bitcoin you know

that it's digital first where you you know you're not you're not saying like i'm transferring you some money but like wink wink it's on credit and i'll make good on it later like you're literally instantly or within 30 minutes moving money from one place you know from one one account to another the decentralized and censorship resistant it's very interesting i five ten years ago i would not have been a person that's like oh that's super important in money but like i think everyone's confidence has been a little bit shaken by recent events and like wow it actually maybe i do want to hedge like maybe i do want some amount of hedge um in case to be clear certainly recent events in the u.s uh like the capital

happening not uh but also recent events in china and all over the world like it's hard to think of maybe except new zealand i think new zealand's doing on the rise but it's hard to think of other governments where like trust isn't going down around the world right now and if you're from argentina or greece or anywhere that's had sort of a currency crisis in the last few decades you're probably jumping out of your seat right now going you stupid americans like get this through your head like this stuff happens like just because you guys haven't had it happen yet like it doesn't mean it's not going to happen that's true i skipped over it in history and facts but a huge moment for

bitcoin was in 2013 when cyprus went bankrupt and defaulted and nationalized parts of like bank accounts of citizens so like let's get this clear here's what happened in cyprus if you held over the equivalent of like a hundred thousand dollars in a bank account in cyprus when the cyprus government defaulted they reached into your bank accounts like i was saying in my nightmare scenario when paying my texts and they just took all your money over a hundred thousand dollars they just nationalized it holy crap and that happens in the world and so like a bunch of those people like and around the world like holy crap like i see now why i want bitcoin yeah that's wild so that that's sort of how i wanted

to go about you know in this comparison that we often make and what would have happened otherwise this is sort of my bitcoin to usd uh comparison and that might not be fair like i think as we as we move forward here and david you have a little bit more context here than i do the right comparison may actually be to gold not to usd and and uh at least in this point at this point in bitcoin's development it might be less about can i use it at at retail opportunities and more about hey like can i at least count on it being a good store of value yeah i mean that's the thing i think well we'll get into this in grading and how it's performed across different dimensions but i think most

people certainly all the institutions that are coming into bitcoin right now they're not thinking about it as versus usd it's not an or it's an and like this is a good store of value i'm worried about inflation in usd and and other relatively secure assets now bitcoin has tons of volatility but it's got upside and it's not going to experience inflation great like i'm going to view it like i view gold and and by the way did you know gold's money supply increases i think it's like from finding new gold every year but like it's a one and a half percent like it's it's literally from mining you know they're adding to the gold money supply obviously not at the whim and and in such great volume as as usd is but

uh one one thing that bitcoin proponents would espouse is that already even with you know we're only 12 years into this or 10 9 11 years into this already the money supply increases by less per year than gold does oh interesting i didn't see that it's like one ish percent versus 1.5 or 6 percent all right what else in what would have happened otherwise i mean we could talk about interesting things like what if what if silkwood uh what if dpr hadn't gotten arrested and it was still operating you know what if coinbase and gemini and the lake hadn't been built and we were still all running on mount gox i don't know that those are that interesting like i think those are you know they're kind of like any

company story we tell where like takes a lot of luck along the way you got to get the lucky breaks to keep going and bitcoin certainly had that why don't we move on to on to playbook because i think i think actually a lot of those for me feed into one of my big playbook themes cool well my my biggest one was definitely this notion of bubbles as a go-to-market strategy my second biggest one is again i'm just like so entranced by the beauty and simplicity of reading the white paper there's something rare that happened in bitcoin that i don't think happens often which is that just a small set of very clever very simple inventions working together unlocking a tremendous amount of new value

and they built on shoulders of giants past like public key encryption and one-way functions and uh and certainly the proof of work from hash cash and other people that had come before but i mean the notion of a blockchain incorporating elements of of uh of the things that came before in sort of a a tight and near perfect system is is really a marvel like no matter how you feel about bitcoin and everything that's happened because of it it is it is a beautiful system it is i mean we were talking about this before we started recording my first reaction in rereading the white paper for this was like there's got to be more like there's got it's only nine pages like i was like oh well

there's got to be a bunch of stuff that they're not describing that like other little like things and hacks and stuff you need to do to make this work and like what about this case what about that case and but then there is with like increasing the block size and like the these forks that have happened there was forks yeah all this stuff but like so small like so relatively few things like you can probably count on one hand the number of like additional modifications to the system that have had to be made over the last 10 years that weren't captured in this nine page document it's incredible yeah it is i think it's i think the biggest change that satoshi did not foresee that is that will need

to happen is the one that's going on now and the one that hasn't really been implemented yet where bitcoin was initially kind of created to replace the payments layer on the internet and and first and foremost and create a low transaction cost payment system with no fraud and as as you sort of dive deeper and deeper and deeper it you realize yeah it's actually not great at that right like what it is in it in its current form because there's so many people who want to use it it's it's kind of like it's kind of existing at a different level of the stack like if you look at the like money stack there's kind of like well like there is the u.s dollar and then on top of that there's like the

federal reserve and on top of that there's like the the central banking system and then like there's your account at the bank and then there's like you know credit cards and stuff yeah yeah and and like it's actually not a great credit card but it is a pretty good either bank account or like one level deeper where it's like the rails that like the the central banks all work on together yeah and i think like what we're seeing is that and and this is where i think there's going to be a lot of debate within the community and and i've only dipped my toe in to really understand this but it's very clear that like the blockchain the bitcoin blockchain as it exists today is going to be for like moving large amounts

of secure value around infrequently and what needs to be built is still sort of like bitcoin's credit card exactly that's so funny i was thinking the exact same thing over the past couple weeks researching which even though with how we started the episode like you said the original goal was like make native money for the internet and fix payment rails and whatnot like yep this this is not the realization to me was like yeah bitcoin is like the bank uh it's like the central bank plus like your bank it's not going to be good as a credit card and that's okay because other internet native systems can be the credit card on top of it stuff based on you know defy projects based on ether and the like well then we'll cover all

this on another time on acquired but like that's okay if the the credit card like the rapid transaction layer in internet native cryptocurrencies is different than the bank account layer yeah like one you don't need one ring to rule them all here yep that's a great point as long as you can port in and out just like you know when i pay my taxes i pay them out of my bank account but when i buy something at the you know at the store i go hopefully someday again out to eat at a restaurant or i order on doordash i pay with a credit card that's totally fine i'll do stuff with an ethereum based uh you know defy project for rapid transactions and i'll move money in and out of

that as needed from a bitcoin wallet one thing that i've been increasingly thinking about as we've done these episodes uh is is trying to factor in more of my why now to our playbook like why did this happen when it is happening and uh for bitcoin i want to talk about this idea that nick zabo brought up um he and naval were on an episode of the tim ferris podcast that that uh will include in the the sources here and um it's i haven't been able to shake this idea from my head so we've been obsessed with making computing more efficient over the last several decades and frankly we've needed to because uh we could clearly come up with reasons why we needed more compute than we had the use cases

definitely outpaced what the hardware was capable of and bitcoin is one of the first times that we deliberately want to and have done something that is computationally extremely inefficient and when you think about it bitcoin requires tons of computers to do the same slow actions to check each other's work to propagate this blockchain all over the globe over and over and over again by like it's the many computers doing the same work because they're sort of voting by doing the work which will have environmental consequences that we're going to talk about um just before grading so it's it's expensive from a computing resources perspective but if it really does unlock new value for humanity you can think of it as like a clever way to take advantage of the orders of magnitude more compute

power that we have now to do something that is potentially a fundamental breakthrough for humanity and it's interesting to try and apply this lens and think well what else could you accomplish that was previously thought to be impossible from a system perspective by leveraging this incredible scale of computing in a very inefficient way where we're basically like i think the way that naval put it was like our our brains haven't gotten haven't become any better computers but we've developed way better computers so how can we like take like take things that our brain currently you know or hasn't been able to do for all these millennia and figure out a different way for the computers to take on the work not in a super efficient way but in a system-wide new use case way uh so like it's a little out there

but i i think that's a lot of like ethereum we'll talk about that when we do ethereum someday put the pin in that put the pin in that for sure all right david i have one more but you go first okay cool i had one big well i had two playbook themes that i want to highlight one i want to be not careful here but specific i think this whole story really illustrates for me when you are pursuing a network effect a network economy based power business you know like this is like facebook is like most social networks and the like like airbnb two-sided network effect in the beginning what matters is getting nodes and usage on the network to start and so it matters less what they are doing and more just

that people come on board and that your value grows according to metcalf's law and then as it grows more sets of users and use cases will come on board and it will evolve and so like in bitcoin's case this is why i said i want to be not careful but specific i am not in any way condoning what happened with silk road or that that's okay or that that should happen or anything but just from the perspective of value building of the network the fact that it happened like transactions needed to start happening nodes needed to come on the network for users and for miners and silk road provided that as the bootstrap the first use case and then there were you know more after that and one thing led to

another and now here we are here we are is so radically different than what silk road was you know but for the underlying like network and the protocol it doesn't really matter what matters is increasing your velocity and growth of users and transactions and so then i look at facebook when i look at airbnb it's actually the same story like what was facebook in the early days as we've alluded to it was like undergraduates at colleges looking for attractive photos of you know other incoming undergraduates at their colleges right like that is so different from instagram and whatsapp today right but that's okay like that's uh similarly with airbnb like what was airbnb in the early days it was like

people sleeping on air mattresses in each other's apartments yeah what is it today it's something wholly different but the point is growing the network it's funny like on the one hand yes you are totally right on the other hand i'm like sitting here thinking and this is not really advice it's just an observation i think like many of our playbook themes if you were starting a startup david and you came to me and said i'm gonna eventually do this thing and before that i'm just gonna do a bunch of random crap but people are totally gonna use it a lot and eventually once they're all using it then i'm gonna make them do this other thing i'm gonna be like no like that's extremely unlikely so it's like i do

think there's some i think there's some applicability here of like yeah totally it's not totally apples and oranges there that you stare step up i think i think ben thompson had an article about this with with snap and laddering like you ladder up from like oh disappearing text messages to like you know a broader social network and so i do think you can be very strategic about this i think it also matters for investors who when you see something like this that's a network effect like it's so easy to write off bitcoin because of silk road but like if you step back for a minute you're like wait a minute is there a chance that this is just the first set of applications on this network is there a chance

that people sleeping on air mattresses in each other's apartments is just the first set of you know use cases on this network and that that'll bring in and attract the next set yeah fascinating point and then the second theme i wanted to highlight which is smaller and also sort of tarnished just because of the ico thing um but is i think brilliant and new about crypto and new crypto projects is if you can reward and incentivize usage of your system by value within the system itself like with the mining setup of like the rewards for mining are bitcoin bitcoin is the work done by mining uh that's super super powerful like now there's an incentive in and of itself for people to come in and use your

network all right listeners now is a great time to talk about one of our favorite companies statsig yes long time acquired partner there is a reason why the best product teams at companies like open ai and notion atlassian figma rippling bricks and more rely on statsig whether they are iterating on their core product features or shipping ai powered experiences at scale yep in the crazy speed of today's ai world shipping fast is just table stakes now it's basically trivial to build and deploy your app constantly the real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next whether it's a feature tweak a pricing change a performance improvement or an ai update like a model change

or prompt adjustment they're not relying on instinct they're measuring what actually moved engagement retention and ultimately revenue and as more teams build with ai that learning loop becomes even more important building with llms introduces non-determinism into your product experience the same input doesn't always produce the same output and behavior can shift in subtle ways in real world use so doing offline evals will give you part of the picture but you can really only understand the impact once your product is live with real users and then you can measure how their behavior actually changes it's very different than the way that you would ship features in a pre-ai world where you knew exactly what the software was going to do in production yeah exactly so this is where statsig comes in it brings

experimentation feature flags and product analytics into one unified system so teams can ship safely test rigorously and directly link what they changed to how users actually behaved the result is a tighter feedback loop and learning that compounds over time so you don't just ship more you ship better so if you want to make learning your competitive advantage whether you're building new ai experiences or just evolving your existing core product go to statsig.com slash acquired to get started all right well david if there ever was an episode that we need to discuss the difference between value creation and value capture it is this one this is normally a two-part section i'm going to ignore the one about do they capture enough of the value that they

create because i think we'll leave that to sort of listeners to ponder on based on everything we've already talked about in this episode i absolutely want to talk about the comparison between how does the value created for the world not just shareholders or potentially coin holders compare to any value destruction that they have created by existing and of course we've already talked about all the sort of illicit uses of bitcoin again i'll leave that to further ponderance by the listeners but i want to talk about the scale of the environmental impact because i surveyed some friends like what do you want to know about bitcoin and one friend texted me and said well uh is it bad for the environment or no and it's a

good question the answer is kind of like well relative to what because sure does it use computing power absolutely like how much and what do other things use so here's at least some estimation of an answer in 2019 mit tried to answer this question by commissioning a study and they basically said that bitcoin mining specifically accounts for about two tenths of a percent 0.2 percent of global electricity consumption and it produces about as much co2 into our atmosphere as kansas city does as just like a ballpark so like a whole city per year and some estimates actually put it even closer to 0.4 percent so almost half a percent of the of the world's energy production so on an absolute basis for anybody who

actually knows a lot of energy totally who knows their climate this means 23 megatons of co2 um are are put out into the atmosphere per year because of bitcoin uh which that another comparison is between if bitcoin were a country using energy it would be right between jordan and sri lanka in terms of their greenhouse gas pollution if you include the other cryptocurrencies and mostly ethereum that actually doubles help you estimate how much energy is being used so i think the answer is a lot i think there there's a uh there was other studies that have been done that shows that mostly their mining facilities are using renewable energy so it's not like it's necessarily consuming coal using hydro dam right uh like the central basin in washington that doesn't change i mean it's still

like that's a lot of energy right energy is fungible not as fungible as money but it's fun fungible like money is so if like these data centers are using that renewable energy then it means that other places are likely to look toward coal or to to oil and so yes it's it's making an impact in our greenhouse emissions and um that glorifying this system should not come without the discussion of is it worth it and i think listeners you make the call of whether you think that all this utility that that this new monetary system has brought is it worth it if we you know race toward raising the global temperature by you know one or two degrees celsius over the next 10 or 20 years i don't know and and and i

think that the jury's out i'm not sure there's really much we can do about it again it's a decentralized thing so what are you going to do tell people well there's also a question i certainly haven't done the work to know i don't know if you have of how much energy does and emissions does the traditional finance system produce for sure it's also a lot i bet it's a lot more yeah so here's an interesting stat on that a single bitcoin transaction now remember we talked about these these are really ideal for like big secure transactions not credit card transactions but in some way there's a lot of smaller transactions that are being used for today a single bitcoin transaction consumes more energy

than a hundred thousand visa transactions oh interesting i mean if you think about all the computers that then have to go and verify that proof of work and stack it at the next level on the blockchain and propagate it out it makes sense a centralized system is way more efficient from an energy consumption perspective yeah yeah that's a good point then there's also like i think the other dimension to this question is not that we're gonna be capable of or choose to talk about a certain side here but it's just the political side of this like this is uh there's a probably a reason why currencies and governments have been tied together for uh like four or five hundred years this is

separating that out like what's what's what are the consequences of that going to be they're large it's an unbundling of one of the major components of the services that a government provides in order to ensure a stable society and like will societies that you currently think are stable stay as stable if they don't also have control over being the you know if they don't own the fiat currency yep totally so that's a question then there's stuff like uh the uh cypriots in residents of cyprus like they you know if they if those people had owned bitcoin instead of had their deposits in a bank wouldn't have been able to be nationalized or if you live in a country where certain things are illegal that may

or may not be right to be illegal you can now have a vehicle to transact with them via bitcoin that you couldn't otherwise but yeah there are also a lot of downsides too so thorny thorny questions i will say the point that was right though like the cat is out of the bag here like yeah these are philosophical questions the real questions are going to be just like what how will history play out in the coming years yeah and this decoupling from government is interesting because for the average person it is way way way way better to live in a stable society versus an unstable society like government provides an enormous amount of value in our lives ensuring you at least know what system you're

operating within so you generally don't have concerns about safety or about someone screwing you over in one way or another or you know just provides like reasonable guardrails so that you can do higher level functions in life and like if you wanted the flip side of that is with stability comes sameness so if you're part of a group that's been oppressed by a government and maybe that's been the case for hundreds of years in your country then like you're going to keep being oppressed systemically and it would be better if you lived in a more dynamic nation where you could do more things to break the system and rise up and get power but i think these are sort of two sides of the same coin and if you see

government owning less and less of these sort of core components of a society the first of them being money you will both see the destabilization which is worse for the person who benefits from the stability but also you will see greater opportunity for those who are oppressed to be unoppressed one last thing that actually is worth calling out here on a separate topic this is we're going to talk about this in grading in a minute this is probably the best if you were to categorize bitcoin look at it through the lens of like an acquired lens of like a venture investment this is probably the best venture investment of all time like a three million x like what there's nothing that's even close like this is

just just like hands down okay every other investment like that probably in history has just solely been the realm of institutions right like you could found a company you could be mark zuckerberg or you could be excel and founders fund that invested in the early rounds and as an institution like you and i couldn't do that bitcoin yeah totally anybody can participate in this yeah and in fact the institutions have been locked out until now because the scale wasn't big enough for them to participate yeah put another way asymmetric upside opportunities are typically only available to frankly wealthy people like venture capitalists those who invest in venture capital funds accredited investors people who are able to get in early on

these companies that could be the next amazon and very rarely is there a public company that has that kind of upside left in it of course amazon is the example where there actually was that much upside left in it um you know people are perceiving that to be the case with tesla so but i think the point you're making is that like oh my gosh look at this this was a retail investment available to consumers at any scale and prove to have this type of asymmetric upside yeah and when i say asymmetric upside i mean like sure you're going to invest in a stock and oh my god if that stock 10x is that would be amazing but almost never are you going to buy a stock and it's going to thousand x the way that sequoia did

with airbnb and i don't know i have the number off the top of my head but you know in that sort of order of magnitude yeah so i think that's like interesting for sure value creative for those who uh who did so in the pre-2013 era yeah all right grading all right david how on earth are we gonna grade this one oh boy okay well i think we already unless you disagree ben i think we knocked out number one which is like how would you grade an investment in bitcoin like this is it's by far the greatest investment opportunity of all time in in humanity over the past 10 years for sure okay that's easy that's not that interesting there's how would you grade bitcoin in its sort of original purpose as laid out in the

white paper of becoming a uh native internet currency medium for transaction for the internet i think the grade is actually pretty poor here relative to the initial intentions now that said it it could prove with the 20 year lens let's let's say we're we're sitting here and what would that be 2028 from from the white paper's initial sort of initial beginning of the authoring that it it actually works really well if they can figure out this other layers of bitcoin and how they sort of interact and how you can do much more higher velocity lower value transactions in a cheap way like it may be the case that it ends up great but like so far no it's been pretty poor for that and bitcoin itself now i think very likely no

if there's no bitcoin there you know there wouldn't have been any ethereum and ethereum and its derivatives probably in my view right now stand the best chance of like building that layer so maybe it's responsible but like bitcoin itself no and probably never gonna be right i can check out on overstock.com but that's a like it's kind of about it yeah interestingly so stripe supported bitcoin for a while but then once it became clear that like this it was too slow and too unwieldy and transaction costs were too high for high velocity transactions they dropped it uh in 2018 they stopped supporting it interesting well that that's that's definitive like it's it's a d or an f for yeah for its initial

purpose so far but so we did it stimulate innovation in that area yep okay next oh i was gonna say we do store of value next that's probably related to being an investment i mean it's been an amazing investment in a highly volatile store of value right so it's not a it just like anything here like investing in value depends on your time frame like if you have a multi-year time frame amazing best investment of all time if you are need this to function as something like a u.s dollar where like hey i need to pay my taxes next quarter i want to make sure that i put this money away so that like i know i'm gonna have that money to pay my taxes next quarter not good yeah yeah it's interesting

like to me from a store of value perspective it's a great hedge like there still is the probability that it loses 80 there still is a reasonable possibility that it loses 60 70 80 percent of its value in a short period of time so like am i calling my parents and telling them you should put your retirement in there like absolutely not should you be building it into your portfolio maybe like again gold continues to probably be the best comp it's like gold with a bunch of upside feels like uh well and downside higher volatility there right if you put money into gold i'm probably going to be able to pay my taxes next quarter with by converting that back out that's a fair point yeah

it's it's super high volatility gold and and and again has i don't know that it's like uh i don't know that there's alpha there like there's just as much upside as there is downside yep yep but i do think you know over the long arc there's a lot of upside very likely and especially and as we'll get into our last grading lens here especially compared to cash which and zero interest rate in a zero interest rate environment plus an inflationary environment where you are losing money in the long term not to mention dilutive from the money supply increasing as much you will unless something drastically drastically changes you will assuredly lose purchasing power by keeping money in cash over any extended period uh for the foreseeable future bitcoin knocks it out of the park relative to that

yeah that's a great point high volatility relative to that that cash but yeah yeah it's it's a really good point that like the the you know old aphorism of like i'm going to keep cash around in case you know there's a recession and i have the opportunity to buy up like that cash is just losing value faster than it ever has like we're not in a hyperinflationary environment but like relative to where we normally are it's not it's certainly you certainly can't put it to work in a great way it without taking meaningful risk now i will say we don't have the lived context of the 80s in america where where interest rates were in the teens and like that talk about inflation that's insane you're losing

15 purchasing power every year that's crazy um so we don't have that context of lived experience but it's just like there's just no rational way that i can think of to look at why in like long-term holdings that i don't need this cash right now and i can afford to be long-term focused with it i should have it in cash that just seems like there's no way to win there well the last way i want to sort of analyze this is through the through the venture investment lens of is there still enormous upside uh in this investment and i was kind of thinking about this like so we saw 35 000x in the first five years then we saw an 85x in the five years after that and even to get a 20x in the

future that means a single bitcoin would have to be valued at over half a million dollars but which the winklevoss twins are on record saying that that's their essentially price target for bitcoin is 500k which would be parity market cap with the above ground gold like if bitcoin had the same market cap as right that's what i was gonna yeah that's where i was gonna go here is like it's sort of silly to like think about like what could i imagine a bitcoin being because you can't it's arbitrary the interesting thing is if i owned the share that i would own of all the bitcoin in the world which you can calculate and and bitcoin's market cap was like this is what i'm saying i'm analyzing

like a venture investment do i think this thing has a chance of sort of being a 20x here and the answer is probably like if if like i probably think that or the answer is yes i do think that because if it's got this half a half a trillion dollar market cap today and the market cap of of what people are doing with similar products like the u.s dollar is you know there's there's 20 billion of those there's 70 billion dollars worth of that globally um you know there's five-ish billion dollars of gold and that's its sort of closest comp like do i at least think it can get steal more of the gold market yeah totally and that gold market is even without jewelry 10 10 times bigger than its current market cap so

do i think it has a 20x in it it could it has the possibility of that and in a venture return you're never underwriting to uh yeah i think this is going to happen you're underwriting to if it happened would it be sufficiently large enough and and am i willing to put together a portfolio of those if it happens and just make sure that all of them clear the the hurdle of uh if if if if the one or two that are enormously successful are successful will it be big enough in order to make the whole the whole portfolio worth it and yes i i do think this has enough running room in front of it all right let's i'm gonna bring it full circle for acquired here the pre-2011 era for bitcoin was science project phase

the 2011 to 2013 era was like seed investment phase for bitcoin you invest in bitcoin during that phase it's like being a seed investor in google or facebook or whatnot the 2013 to 2017 period was the series a series b stage investment you're like um you know especially you go later in that spectrum you're like graylock coming in and doing the series a of airbnb at a 60 million dollar post super high at the time that seems crazy well yeah they made a lot of money there we are now in the growth round phase of bitcoin oh you don't think we're in the post public no no no no no no because there's still all this upside like will they they're still like you're investing in a growth stage company right like

you're doing a series c in yeah you're investing in stripe right now like that's actually the reasonable comp is like oh no i don't think we're there yet 2020 stripe well i so so here's why you're in 2017 stripe here's why i think you were in 2020 stripe because bitcoin after it in our little playground here would go public it still has like the because the tam is so big it's amazon like in that way where like it still has a ton a ton a ton of growth potential in front of it after it's sort of like mainstream and accepted by you know all the people that would be interested in buying a you know robust ipo and also it's not a company it's way bigger than that yep yeah yeah i guess that's that's

sort of where i'm where i would take your analogy this is so great i think we're gonna we're viewing it the same way but we're gonna disagree on what stage i think it's stripe in 2017 because i think this is like a series c ish in a company the path that you laid out of the path to gold high execution risk whatnot but like that's the that's the upside like it accomplishes that great i think that's the ipo it's gold with more utility so like it's not hard to imagine why they would be able to pull that off but here's the amazon what the case you i think in my mind uh and we can disagree about where we are in

this there's still upside to gold like it may be low likelihood but it's like amazon went public it was a bookseller amazon today is aws and amazon right like right the upside is it becomes more than gold uh and starts to eat into reserve currency you know etc etc uh so i think that's i think there's still another after booster stage on this uh whether it'll happen or not i don't know but i think you could view two tiers of upside left here one is realize the gold thesis two is expand beyond gold well because realizing the gold thesis is only another 10x right yeah it's like a 15x well i'm not counting um i'm not counting the part of gold that's dedicated to jewelry oh got it yeah people

people holding gold as a store of value although jewelry is a store of value too it's just inflated because it's prettier all right uh i literally i really like that analysis i think i think that's a great place to leave it i haven't checked the time i have to imagine this is going to be the longest acquired episode in history so listeners thank you for going on this journey with us you know david i didn't expect uh frankly us to do as much as we did looking both at the history and sort of this like strategy pull apart and some of the technical aspects so uh i hope listeners you enjoyed all three we'd love feedback particularly if you are um an economist or in this ecosystem or if you know about

moves that have been made in this ecosystem that we don't know about yet i think we we like to continue learning in public so please uh please please reach out well for folks who don't know we have started codifying the playbook from each episode in some written bullet points and we did that for this episode as well and we we email those out after posting each episode so if this is something you want you can sign up to receive the playbooks at acquired.fm and if you join the acquired community slack at acquired.fm slash slack you will automatically be signed up for them there as well as always if you love acquired and you want to be a deeper part of what we do here you should become a limited partner

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