This is a transcribed version of a special edition “Bitcoin Magazine” podcast with Aleks Svetski and Michael Saylor having a long-form conversation about the implications of Bitcoin and its effects on the world.
Listen To The Episode Here:
[00:00:05] Aleks Svetski: Ladies and gentlemen, welcome to the latest episode of the wake up podcast. And I have finally managed to wrangle the one and only Michael sailor to come join me for what I think is gonna be a deep and multifaceted conversation. So, Mike, thank you for taking the time to come and jump on, man.
You're very generous with your time.
[00:00:26] Michael Saylor: Yeah, thanks for having me, Alex.
[00:00:27] Aleks Svetski: Absolutely, man. Look, there's so many places where when I open this up and so many threads we can pull on but I wanted to just start off with some basics and just reiterate forever on why we're here, why Bitcoin is important, what money is. And then we can kind of explore, you know, I don't wanna spend too much time on the noise and what's happening in the world today because you know, Bitcoin's up, down and around in circles and who really gives a shit like, you know, your timeframe really matters here, but I'd love to start with How you've in the past separated money and currency.
And cuz I think people conflate those two all the time and I'd like to discuss what is different about the two
[00:01:10] Michael Saylor: Yeah I think oftentimes we use concepts like money in a very sloppy fashion and people use money. And currency as though they're synonymous. And I don't really think there's been a lot of deep thinking about this. I mean, I could honestly say before Bitcoin, I didn't really think that deeply about it.
I was prompted to think deeply about it when Robert Breedlove invited me onto his show, what is money?
And I thought, wow, we're gonna talk about what is money. So I guess I'd better figure it out. And so then I started to think, and now I think it's helpful. If you adopt these kind of definitions, N noting that we're so early in this.
Journey that 95% of the world hasn't thought deeply about it. And probably you'd have a, they would probably use these words or terms differently. And many people even economists and business people don't really know what money is or they just define it slop in the context. So here's what I think are the useful definitions.
And then we can have a discussion. I think money is economic energy. If you have a certain amount of economic energy, let's say you have a hundred thousand dollars of economic energy in the year 2022, that will that can be exchanged for products or services or property. Right? I can fly somewhere.
I can buy something. I can, you know, throw a party in the year 20, 22, clearly a hundred thousand dollars worth of money in 2022. Doesn't buy you the same good services. Or products in the year 1900, they'll buy you a lot more. And in the year 2200, won't buy you the same thing either. So, so you have a certain amount of money at a certain time that you can measure in a currency.
The currency, in this case, the us dollar is the medium of exchange in that political frame of reference. At the time you have the money. So if money is economic energy, what happens as you change political frames of reference, a hundred thousand dollars buys you a certain amount in the us. And if you go to Japan well, it doesn't buy you anything because they don't accept dollars for.
You know, restaurants, you can't buy a house in dollars, you have to convert it to yen. So you would convert that amount of money from the dollar currency, into the yen currency. If you trip through 180 countries, you would have to convert it generally into the currency. That's the medium of exchange and the legal tender in the country, since most countries have a different legal currency.
Some countries like in Europe share a similar one to Euro. So money is, economic energy. The currency is the medium of exchange or it's an asset legally designated by a nation state as an acceptable medium of exchange. And it's given a legal advantage, a political advantage because you can transfer it tax.
So if I have a hundred thousand dollars and I want to buy an expensive car with it, right, I can exchange the a hundred thousand of money via the currency, into the car without paying a capital gains tax. And without incurring a capital gain loss on the transaction. If I had a bunch of apple stock, a hundred thousand dollars worth of apple stock, I would have an asset.
Actually. You could, you know, in fact a batch of securities worth a hundred thousand dollars, but if I bought the car with a hundred thousand dollars of apple stock and I had acquired the apple stock for $50,000, I would actually. get the car and I get a tax bill for the capital gains on $50,000. Right.
That's what the nation state says. So for that reason, apple stock or a bunch of securities don't make a good medium of exchange, right. It would even if it was liquid, right, it's not a good medium of exchange because my credit card, you know, doesn't work so well with apple stock. And cuz I can't transfer apple stock on a Saturday afternoon.
And those are reasons why I wouldn't use it in order to buy a car. But the most important reason that securities will never be currency is because it's deemed, as you know, we'll call it property by the IRS and subject to a capital gains tax. So the currency in the modern world is whatever the government says it is.
If you're in a state of Anarchy right. Or chaos. Let's say you're in a war zone. You're in Afghanistan after the government fell right. While the Americans were pulling out all the banks failed. Right? Clearly it's not, there's no effective government to designate a local Afghan, Fiat currency.
There's no government to impose taxes, right? That's anarchy in that particular case, if you happen to be an Afghan citizen and you're trans and you're doing a trade with another Afghan citizen, you wanna buy whatever they've got their car, right? Their food, you could use Bitcoin as a currency and it would be a currency because there's no government to tell you that you can't use it as a currency.
[00:06:57] Aleks Svetski: In that case you could use goats, right? You could use basically anything.
[00:07:01] Michael Saylor: Yeah, you could use gold. You could use bullets.
[00:07:04] Aleks Svetski: I was saying
[00:07:04] Michael Saylor: You could. Yeah, I gotta, I got you could barter whatever you wanted, right? Because, but the reason that anything is currency is because there's not an effective nation state. So the reason that we end up with a dichotomy, right?
What money is economic energy. There's one aspect of money. We'll call property. Another aspect of money, we'll call currency.
And both of those sum up into money. The property would be a long duration asset. If I wanna own a house, am I buy house a car, a Bitcoin, a bar of gold, even a share of stock, I suppose, or a corporation.
We could all think of them as. Property forms of money, right? They all have economic value. But generally they all have a tax treatment, not always the same, but oftentimes there's a tax a taxable event when you transfer property from one person to another person. Right? Like for example, if I if I traded you my house for a car, and if there's a tax on disposition of real estate, oftentimes there's a real estate tax on transfer of title, right?
Not only are you going to get the capital gains tax, you're also going to get the real estate tax. So that's even worse than transferring, say the apple shares cuz you get hit twice, right? Sometimes, you could get all sorts of random taxes depending upon the legal definition of the property. So, the best way to think of it is if there is an effective nation state. It can choose to designate one or more assets as currency, generally one asset, the Euro, the Y the one, the C and Y the U S D. Right. Those would be designated as currencies or legal tender. You transfer them tax free. There's two reasons why you've got an advantage of your designated currency.
The one obvious reason is because I can transfer the asset to someone else in a trade tax free. Okay. That's the obvious reason, right? Because if I move the money 10 times in a year, and if there happens to be a, you know, a 10% tax, each time I move it, there's no money left at the end of the year.
Right. So if you're trading a property with high velocity over the course of a few years, the property disappears. In a decade, the property certainly disappears sometimes. Like if you're designated a property, if I had a hundred thousand dollars of property in Florida, I wouldn't even have to trade it, just holding it, subjects it to a 2% a year fee.
So that over the course of 50 years, the property goes away. Right? So that's a nation state basically taking your property away, but it's worse than that, right? Because they could reassess the property every year. And if they reassess the property up 7% a year, you don't even get it for 50 years.
You get it for about 25 years before the property goes away. So when you look at your assets the nation has the ability to classify them, however they want. And the best classification is currency. Cuz I could hold the currency. From a tax point of view, that is I can hold the currency for a hundred years and I'm not getting a 2% property tax a year and I'm not getting the capital gains when I transferred.
So that's why currency tends to separate from property as monetary assets. And when you think about when you think about the world, right, 8 billion people in the world, if you're, if you want liquid assets, you'd like a liquid property asset, like Bitcoin that you can hold for a hundred years, it's a store of value.
And then if you wanna move through nation states, if you wanna do business in rent a house or buy something in the UK or in Europe or in the us, you're gonna have to have a currency asset. And you can decide how much of your wealth you wanna store in the currency. Right? If you store 100% of your wealth in the currency, Then the pro is your taxable situation is simple. The con is, of course you're getting diluted very rapidly, but there's one more point I was gonna make. So the first benefit of an asset being designated a currency is the fact that you can transfer it without tax or hold it without taxable consequences. But the secondary benefit, which is it's kind of derivative benefit is the accounting for the transactions becomes orders of magnitude easier. So the world is run by a hundred million companies and those a hundred million companies, they provide your pizza and they wash your clothes and they operate the airplanes and they operate the ships and they operate the railroads and they give you your job. And they're apple and Google and Amazon, and they have the electricity and they pump the water.
We can't really reasonably do without the companies. The companies all have accounting systems. The big accounting companies are SAP and Oracle and Microsoft. They're wired into those a hundred million companies. They are the nervous system of the companies and the companies can't legally do business.
They can't comply with local law without the accounting systems. So the companies become non-compliant when they don't have the right accounting systems to operate, especially as a public company, but even as a private company, you end up making really large investments in accounting systems.
You're talking about hundreds of finance professionals in most midsize companies. And 10, 20, 30, 50 million in the accounting systems and those things, it would be if you wanted to rip it out or change it and do it fast, fast would be in a decade. And and likely would be 15 to 20 years.
And so generally the average life span of that customer relationship with those accounting firms is 25, 30 years. So, so it's a very long duration investment. So if if you wanna introduce a new currency, you can't do it without the support of the nation state. And then and if you go against that nation state guidance, The companies will just immediately reject it because they would be deemed non-compliant and they would lose their license to do business in the country.
And it would be worse than that, right? Like the CEO's going to jail and the CFO's going to jail if they're not compliant, so they're not going to do it. They will reject any kind of currency that, that doesn't doesn't meet nation, state acceptance. But even if they wanted to their systems, like let's say they were going to to accept it, they end up having to modify all their accounting systems to immediately trans translate the property into the currency.
And now now you're talking about generating hundreds of thousands or millions and millions of taxable events every month, every week. So imagine if I did 87 million transactions selling 87 million pizza. But I was doing it in a non currency, like a Bitcoin. You would literally have to keep track of the price of Bitcoin 87 million times.
And you'd have to have a different price for every transaction in the system. And then you would have to calculate when you paid your bills. Every single bill would be a different mixture of Bitcoin going out the other side. And so you're talking about accounting systems that become orders of magnitude more complicated.
And no nobody would willingly take on that headache. I mean, if you went to SAP and Oracle and said, build this for us, they would laugh at you. And they've, they're kind of a duopoly, like there's only three companies in the world that do this, so, so they don't have to do anything. So the currency is a very deep seated, strong network effect.
And this accrues it accrues to the United States because if you have the world's reserve currency, then your reserve currency is built into the accounting systems and into the exchanges in the marketplaces of every country on earth. And it's built into all of the property assets, right?
Because the currency is built into the bonds. It's built into commercial real estate leases. They're 30 year leases, right. That are indexed to the United States CPI. And so if you were to calculate the total amount of investment in all of these things, you realize it's it's extraordinary. So, ultimately money is energy.
You have a lot of flexibility about about how you store your economic energy and you have to decide what your goal is. Do you wanna hold it for a thousand years? Do you want to it to be portable? Do you want it to be programmable? Do you want it to be high frequency? Do you want to want high velocity money?
Do you wanna move it? Every day, every week, every month. And if and so, depending upon what your uses of the money you would probably and also your political nexus and your geographic nexus, for example it's a different circumstance for an American citizen in Argentina than it is for an Argentine citizen in Argentina.
And so there's a different calculus. If you are an American trading with an American in Brazil than if you're Brazilian trading with a Brazilian in Brazil. And so you have to consider what is what's the citizenship of the person of the company. What's the, and companies are even more complicated, right?
Because a company can have 200 subsidiaries in different locals and they can all be licensed differently. So now the question becomes, what's the entity doing business at what frequency, with what counterparty, to what effect. And now if you can parse your way through all the tax codes, right? There's a tax code.
That's different by state, by municipality, by country, by counterparty a and counterparty B changing over time. If you can parse through all that, you can actually figure out the right financial strategy. If it sounds daunting, it is. And so you can imagine why a typical CFO or treasurer would say, screw it.
We're just gonna use the currency, the local currency, or we're gonna use the dollar. right, because that's the path of least resistance and their thinking is all of this is too complicated for me. I sell pizzas. Right? So the norm for corporation is they focus upon the operating business, operating jets or planes or trains or automobiles or making food.
And they don't really focus upon the treasury operations or the balance sheet, because it's just, it would just make the business too complicated.
[00:18:34] Aleks Svetski: Okay. So I wanna, I just wanna come back to cuz we've gone on a number of tangents there. What I wanna kind of separate just as a model in people's minds. As I was listening to you talking in the beginning, you were saying money is kind of the. the total economic energy of a system. So the kind of, I'm kind of thinking almost of a, of an electrical system.
Like the money is the power in the system. And then the currency is, I mean, it's meant to represent the power in the system and it's kind of like a, it's like a map or an attempt that enables us to move that economic energy around the system. So it's almost like current flowing through a circuit.
Whereas the total economic energy is the money itself. I've
heard you call it
[00:19:24] Michael Saylor: money is the energy.
[00:19:25] Aleks Svetski: yeah, I've heard you call it a ledger in the sky. I've heard you call it that in the past, which I
[00:19:30] Michael Saylor: there are lots of metaphors, but. But why don't we start with energy? So money is the energy in the system. So, so how do I store energy? If I had a million dollars, I could pump water uphill with the million dollars, I could convert the million dollars into electricity, put it in a pump and I can pump water uphill into a reservoir. And now all the water behind the dam represents potential energy. By the way, if I'm lucky, right? The force of nature just dropped the rainwater in, into the reservoir, behind the dam. And I don't have to pump it up. So now I've got a million dollars worth of water. Now why is the water energy?
It wouldn't be energy at sea level. It's energy at altitude,
Right? The higher you are, the more energy you have. If you're a thousand feet up with a million pounds of water or a million gallons of water, a thousand feet up, that's more energy than a hundred feet up. Right. The effect, you know, the energy is the difference between where the water's going to flow versus where it is.
That's potential energy is gonna be given off and it's and ultimately what you're doing is you're channeling gravitational energy, right? The real energy came from gravity and we, and the water is the fluid. If I'm flying an airplane at 50,000 feet, I have more energy than at 5,000 feet. Right. How do you know?
I just point the nose down and the plane starts to accelerate. Right. And I pick up velocity. So I'm converting potential energy into kinetic energy. Okay. So, if I wanted to move energy via another medium, or I can move it through air pressure sound is acoustic energy.
that was more energy, right?
If I yell, I'm putting more energy into the system, right. Less energy, more energy, right. Singing. Right. What are we doing? We're listening to someone perform music. We're watching them do an ex, an extraordinary performance art on energy.
Look at a guitar. Right. And think about Tesla said you wanna understand the universe?
Think of terms of of vibration, right, and frequency and energy. So a guitar has got a FRT board. And when you're when you're playing the guitar, you're actually changing the frequency with which the strings vibrate, you know, one hand is actually putting a bit of energy into the system. But the but the real trick is change the length of the string so that the strings vibrated different resonating frequencies.
And then you get the cord, you get the music. So, any, you can use many mediums to move. When sound is moving through the air, right? The air is the current currency. Is it a good currency or bad currency? The sound moves through the water faster than through the air. Water's a better currency than air.
But the sound moves through piece of wood or solid faster than the water and the stiffer, the solid, the faster, the sound moves and the more efficiently it moves. So you can pick any kind of medium to move energy. Electricity is a way to move. It sound is a way to move it. Water is a way to move energy.
You have a certain amount of energy, you know, in your body and your blood, right. Is the currency. That's moving the energy through your body. Right. And it works to a certain level. So, so Fiat currencies are a method of moving energy. All of these mediums have dissipation, like they dissipate energy.
Right? That's why that's why. If I shine a light through a vacuum, it will travel further. Then if I shine a light through a wet blanket, right? Why same energy dissipated faster, right. Through a solid than through the air. But you know, it, you can figure out that we can see stars that are light years away, but you can't see candles that are 10 miles away
Because the air doesn't it dissipates energy faster.
So all of these all of these things, dissipate energy at a certain rate the us dollar right now, dissipating energy, maybe at the rate of 15% a year. About but in, in in Argentina or in Turkey, they're dissipating energy at the rate of 70% a year. And the best managed us, you know, currency, the best managed any given year maybe is dissipating energy at 7% a year.
And right now in Japan, the Japanese currency has lost 19%. Let's say the us dollar strengthened 19% against the yin in the last six months. Okay. So if the us dollar is weakened eight and half percent against consumer goods, and if it's weakened 20% against property, like single family homes, and if it's weakened 33% against oil, but it's strengthened 19% against the end. You could see that the yen is losing 60%, 50 to 60% of its energy in six months against against a commodity like oil. Now, there are all sorts of you know, individual effects. So oil is probably going up in price because the scarcity of oil's been increased because of the war.
But if we took us single family homes and said, it looks like the inflation rate of the us dollar against scarce desirable assets, it's about 20%. Then you can see that that the effective inflation rate of the Japanese yen against scarce desirable assets is 35%. Maybe 40% becomes tricky to measure but that's what happens.
So the reason that I don't wanna hold the currency forever is because it's bleeding off energy over time. But the reason that I wanna hold it for a day. Is because there are massive network effects. When I walk into a pizzeria, they don't price the pizza in apple stock and they don't price it in Bitcoin.
They don't price it in bar ounces of gold. They price it in dollars. When I go to Europe, when the EU formed, one of the interesting things that happened is in the 10 years after the EU formed most menus in the European union, started listing products in the local language and English became the second language on all menus of most nice restaurants all throughout Europe.
And then of course they started listing prices in euros before that they listed the menu in French. And Frank's so you, you know, you had a standardization on a common currency and a standardization on a common language. And that that facilitates the medium of the process of exchange and the near term. But the price you pay is you know, the loss of your local culture, the loss of your local language and the loss of control over your local currency. And and the increase in the power of the centralized bureaucracy.
[00:26:47] Aleks Svetski: So, okay. So moral of the story here is that we, in some way by necessity, from a particularly how we've emerged as civilizations, you know, we have territory to contend with and the latest incarnation of contending with the territory is the nation state. And within the nation state, we've had to, in some way, create a medium for people to move monetary energy.
But by virtue of the fact that the, these nation states have become quite bureaucratic, there is an increased dissipation of energy in that process. And. Would you agree with the fact that we're coming to a point? I know your position on Bitcoin and I mean, you made it clear for the last half an hour in terms of it being property and its designation as property, making it difficult to be used as a currency, but what you said about the Euro there, they moved over to the Euro, they slept English on all the menus. Can Bitcoin, in a sense, bootstrap its way in a similar sort of fashion where it's menus have euros and Bitcoin on them in terms of a way for people to make payments. Because Bitcoin seems to be again, let's assume that the nation state and this territorial necessity doesn't exist for a moment. Bitcoin in cyberspace is not only a better money, but it's money, currency, relationship.
Doesn't have any leakage, I guess. And you know, the pathway there is obviously messy,
[00:28:31] Michael Saylor: in the extreme what is the word? The extreme ideal model. If there was, you have to imagine, I don't know what you think about government a worldwide benevolent go government. And the government decided to adopt Austrian economics and eliminated all the Fiat currencies. And so we went to 100% Bitcoin everywhere in the world. No war. We'll leave that off for a second.
And then. You just went to a complete hard money standard, then you would have the Austrian ideal and you'd have a deflationary economy. And then the price of everything would get cheaper every year. It would get cheaper at the rate that the economy grew. If if we added 2% more productivity a year, then everything would gets 2% cheaper a year.
And so you just have to imagine that that it's a, there's a nation. I haven't really thought through whether you can do it for one out of a hundred nations, right? Because the other 99 nations would also have access to Bitcoin, but they'd have other currencies and there'd be political dynamics and military and war dynamics that you have to work through.
So I haven't quite worked that out, but it seems to me that if you have the support of the nation state to adopt a single currency and that's Bitcoin. Then you could make it work. I mean, it's not gonna happen in the next 30 years. Not that I could see a hundred years out, 200 years out, sometime in the distant future, you would have to rebuild.
First of all, you have to answer the question. What do we do with all the countries
And then after you figured out that, what do we do all the currencies and then how do we persuade everybody? And then after that, you have to rebuild the accounting systems and rebuild all the software systems. But in theory, right, there's that future?
I just don't think it's practical anytime in the next few decades, if we take the re a more realistic situation, look at Argentina right now, you have the local peso, and then you have the dollar and then you have Bitcoin, and then you also have the real. And and so if you're a Argentine you can't, there's no company in Argentina that can react, reject the peso. and still stay in business. Right. So unless you're, unless you've got an idea to peacefully change out the government, I don't know how that happens. Right. It's just, there's no one can operate there and stay in business. Right. So what you end up with is the Dyna, the same thing you're suggesting for Bitcoin replacing the dollar is the thing that the dollar needs to do to replace the Argentine peso, right?
The dollar is a much better currency in Argentina than the peso. So if you wanted to watch how hyper ization happens, watch how dollarization happens. And does it happen with bloodshed or without bloodshed? Right? Like the El Salvador dollarized, but it was after a civil war. Right. I mean, and so go look at all the different countries in the world and ask the question, how do they change currencies and how do they adopt a stronger currency. Right. And it's a slow process. And like the Argentine peso's been collapsing for 20 years, actually. Technically
[00:31:51] Aleks Svetski: for a
[00:31:52] Michael Saylor: you study history. Yeah. I think in in the house of Morgan, right? The guy that ran the bank before the first JP Morgan, he got into the business by, you know, by bailing out, busted Argentine, bonds and the li I mean, they Argentina's had sovereign debt collapses since the late 18 hundreds that, you know, that we can measure every 20 years for the last 150 years.
Right. So. 1920s. There's another south American round of collapses in the 1950s. I did another round in 1970s, another round, 1990s, another round. And now we're in another round. So this has been going on for a while. Normally what happens is the country's currency collapses. Look the Russian currency collapsed in the late nineties.
What'd they do. They installed the new Rubal, the Mexican currency collapse. What they do, they install the new Mexican Payson, right? What happens when you collapse the currency? Generally, the question is, does the government stay or go? So if the government collapses so badly that you become a province of the United States, right?
If you were a, if you were Hawaiian and you actually ran your own Hawaiian empire, and then your nation collapsed, then you might become a state in the United States and adopt a dollar. Generally, you have to have a political union to have a monetary union. So this is really, this is why if you if your goal is to make a lot of progress in the next decade, then the best way to think about that is Bitcoin is a hundred times better than gold, which means Bitcoin's gonna get a hundred times bigger than it is right now.
And we should spend our time explaining to people why Bitcoin is better than gold, better than owning a, an equity index fund better than owning a second investment property, better than owning a bunch of heavy metals, right? Better than owning farmland. And you could do that. And Bitcoin could become a 250 trillion ecosystem without threatening anybody. Right? There's there, it's not, there is no nation of gold doesn't have a place force has no army. There's no NSA, CIA protecting gold, right? There's no one that's gonna fight and die for gold. There's no president of gold. No, one's getting elected to defend gold. Right? So if what you wanna do is improve the human condition as fast as you can, with the least amount of confusion and friction and unintended consequences, then you simply attack the nation of gold and you swap out
[00:34:45] Aleks Svetski: and.
[00:34:45] Michael Saylor: everyone that wants sound money in the form of gold for Bitcoin.
And after you finish that, you swap out a hundred trillion dollars of real estate and property investments for Bitcoin. And after that, you swap out, you know, corporate bonds and equity and you demonetize equity and you demonetize corporate bonds and by time, you've done that you probably will have changed the politics in a hundred countries, and you'll probably have very favorable politicians.
And and Bitcoin probably will have built itself into the political apparatus of those countries. And either their currency will become Bitcoin back derivative. Like they will back their currency to Bitcoin, or they will adopt Bitcoin. And in any event, your cur your currency gets stronger.
If you do intelligent things and your currency gets weaker when you do irrational things, right? So if you loved the country, you would want the leadership to do intelligent things. So what's intelligent generate a lot of power, like nuclear power, that's cheap and easy good road systems.
Good technology. Efficient efficient language, efficient currency, good illegal systems, you know, not too much.
[00:36:01] Aleks Svetski: less than you make.
[00:36:03] Michael Saylor: All of these rational things, right. Adopt a Bitcoin standard. All of these would be rational things. It would strengthen the currency and and it would lessen the inflation rate of the currency. If I wanna create massive inflation, I just do the opposite. I, you know, declare war and a hundred different things. And I spend a hundred X more than I take in, and I regulate everything and everyone everywhere. Right. And and that causes the currency to weaken and in the extreme, completely collapses.
So, it seems reasonable that as Bitcoin grows and it gets better, understood rational nations will embrace Bitcoin. Holders and Bitcoin minors and Bitcoin companies. And as they embrace them, the politics will become more favorably, disposed to Bitcoin. And as that happens, their companies will start to hold Bitcoin and their families, and then eventually their institutions and then their agencies.
Right. And as that happens, their currency becomes a Bitcoin derivative. Do you know how like, like a stock is a derivative, like micro strategy is a Bitcoin derivative. So is G BTC. So is Beto, right? So is a Bitcoin minor. They're all securities, but they're derivatives of Bitcoin. Are they better than Bitcoin?
Not over the long run over the long run. Bitcoin is the best thing. Are they different? Yes. But are they better as Bitcoin derivatives than if they were gold derivatives? See if micro strategy bought 500 million in gold instead of 500 million in Bitcoin, we'd be a goal. Deriv. Gold has been flat to down in the past two years. So you see if a nation adopts the gold standard, its currency becomes gold derivative. If it adopts at Bitcoin, it becomes a Bitcoin derivative, the more Bitcoin technology and Bitcoin asset value in the citizens and the corporations domiciled in the nation state, the stronger the nation is the more rational it gets, the stronger its currency gets.
So the problem the stark problem is when the currency is inflating at 50% a year, like, like let's say Argentina, right? That's the obvious problem a collapse of the currency or in Turkey when the currency is collapsing and when you have Bitcoin or the peso, that's an extreme proposition.
And that sets up a confrontation. An UN an unhealthy confrontation, right? Because now you're a citizen and you have to choose to support your nation, state currency, or you have to choose the global currency against your nation state's wishes. Okay. That's hard. And so what do you do if you're smart, right?
You have like 5% Fiat currency, 95% Bitcoin. Right? And you kind of take the hit on the 5%. That's your checking account. And the 95%, you kind of preserve your store of value. That's what you do it. But what if you had a Fiat currency, which was only inflating at 2%, a year or 3% a year, right? I mean, the common narrative is that the dollar is only gonna inflate at 2% a year.
We know that's not true. The number's more like 7% in a good year, but when the number gets to be less than 7%. At 7% that you've got 10 years to have your money cut in half. Okay. So you can rely on it reasonably for a year, two, three years at a time below 7%, when it gets to 21%, you can rely on it for 24 to 36 months.
And when it gets to 40%, right, you've got one year that you can rely on it. And when it gets to 80 to 90%, right, you've got weeks to months. So, so my point here really is there's easily 500 trillion worth of monetary energy divided between probably a lot more than that divided between bonds and equity and property and collectibles in real estate and currencies.
And and Bitcoin's only right. It's you know, not 1% it's 10 basis points.
[00:40:21] Aleks Svetski: Yeah.
[00:40:22] Michael Saylor: We're 10 we're one 10th of a percent of all of that right now. So given a choice, you can either take to position that all nation state governments must topple and fail today. I'm an enemy of all nation states.
So that Bitcoin is the sole currency. Or you can take the position that Bitcoin is simply going to be para pursuit to gold and be 10 times bigger, or Bitcoin is much better than gold. It'll be a hundred times bigger and you can partner with every nation state if you use common sense, right? Like walk down the street and tell everybody you have a good idea and say, I've got a really good idea.
It's gonna be good for America. Good for your family. Good for your company. Good for your city. Good for your state and good for you. And it's gonna be fun and think about how many people will want to embrace that idea. And it'll make you rich. That's one proposition Bitcoin, better than gold. The other proposition is I need you to abandon your company, quit your job, leave your city, you know, go to war with your state, go to war with your country, tell your family they're all stupid in order to do the right thing. And if I and if they all agree with you, then maybe we'll make progress. And that's the Bitcoin is the only currency you see. So one of them is just so difficult as it's unin, unin, unnecessarily painful, and it doesn't get you anywhere.
[00:41:57] Aleks Svetski: Yeah but
[00:41:57] Michael Saylor: not gonna get a hundred people to buy into that crusade.
95 or 99 out of a hundred will just disagree with you. And you'll like accomplish nothing. if you flip it and say, I've just got a better technical idea. And it's just a better asset than gold. You'll persuade lots of them. And you will build up support exponentially over time. And at some point 30 years out, 40 years out, 50 years out, maybe there'll be a nation that has a currency, which is inflating at 3% of the year and Bitcoin.
And then you'll have this interesting political discussion. Do we get rid of our Fiat currency and just go to all Bitcoin? And if we do, it'll be a peaceful transition, but there's no way there's gonna be any peaceful transition in Argentina to Bitcoin. Right now, that's not happening.
[00:42:48] Aleks Svetski: Yeah. So reading between the lines. What you're advocating for is a process. I wanna read a quote here, which is a quote from sun Sue, which actually funny enough, came up to date, says to secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.
And I guess it's a, it's an app quote for what we're discussing here is that why pick a fight with the big boss when there are steps along the way, and by the time you actually get there, that big boss may just be the what's the guy behind the curtain in the wizard of Oz. I forgot the name.
[00:43:26] Michael Saylor: so, how about this metaphor? Maybe you're not fighting against a person it's just a, it's just the future fighting against the past. For example sound money in the 19th century was gold sound money in the 21st century is Bitcoin, right? We're just here to evolve from the best idea we had in the past to the best idea we have in the future. Right? If if you're looking for someone to lose so that you can win, it becomes a zero sum game, but you know, who's the loser. If I teach you a mathematics, introduce electricity and I give you an automobile, right. To maybe your grandfather. Was afraid of automobiles and afraid of electricity. And didn't get a chance to go learn calculus or higher level math, but you know, your grandfather's not the enemy. It was like he did as good as he could do. We're just introducing technology. I think a much more constructive way to look at this is we're introducing a better technology. It's not it's the world is not out to get you. Right. All those people that you think are out to get you, they think that they're trying to save you. They think they're doing the right thing, right. That everybody's the hero in their own story. So you may, you have a disagreement with them about their strategy, but they don't think they're villains.
And half the people in the world don't think they're villains either. And in the best case, right. We could pick almost any. Any issue and the world divides 50, 50 more often than not on most of those issues. So if you wanna make progress, you'll be a lot more effective. If you introduce a new, better way to achieve a good thing that everyone can benefit from.
So for example, instead of saying down with the banks, the bankers are the bad guys and we're the good guys. What if we just said the bankers are trying to do their best to provide financial services, but they've had to do it with gold and with sovereign debt and with defective securities and and monetize precious metals.
And if they could do it with Bitcoin, they'd be much better at providing financial services. There, there are plenty of products that people might like to have. Let's take insurance, right. Would you like life insurance? Yeah. Are they life insurance companies? Sure. They are they the enemy? No, what's the problem they're using sovereign debt in order to generate yield to pay off the life insurance policy.
Okay. So what would you like 'em to do use Bitcoin? What would happen if they did? The life insurance policy would pay 10 times as much and cost one 10th as much. Okay. Are you gonna say death or down with life insurance companies? no, like there's nothing, you know, we probably need car insurance companies too.
You know, corporations do things useful, banks do things useful. We just gotta if we look at it that way, like, it's important to be able to hold your own keys and take personal custody. And that, that point is made often in the Bitcoin community. But what about a 75 year old in a coma in the hospital?
Do they have to take personal custody of their keys? And what about your unborn child or your unborn grandchild? And you want to give them Bitcoin, do they have to take custody of their keys? Like, like, is there a place for a bank or an institution, a custodian to transfer your Bitcoin from you to your unborn child?
Because right. This is that, you know, that libertarian debate, which is everyone should be responsible for their own actions. Yeah. Three year olds. How about three months old? Right? Where do you draw the line? How about not born for three months? Are they responsible for their actions? If they're not responsible for their actions is it possible for a private company to do you a benefit? I think so. I think a private company can give you insurance. I think a private company can give you a loan. I think a private company can be a custodian for for your unborn child. What if you you know, we're back to what, if you get in a car wreck and you suffer brain damage. Okay. And you've been saving all your life to give money to your family.
What happens? You were stupid. You got in a car wreck, you deserve to lose it. All right. Not really. not really. Right. So it comes down to the question. Is there a place for nonprofit organizations? Is there a place for institutions? Is there a place for companies and is there a place for governmental agencies and for countries?
And there probably is there's a massive debate. That'll go on forever. About how big or small that role should be. Right? Some people want very small government. Some people want lots of government. Some people don't like corporations, but. Ultimately we'd all suffer and live a much lower standard of living if we didn't have companies.
I mean, a simple example is electric power. I mean, you obviously wanna have centralized generators of electricity because they will give you one day supply of electricity for, you know, for a few pennies, like the amount of electricity you can generate yourself. It would take you eight hours to generate 2 cents worth of power eight hours.
So it's pretty obvious you want a company, you know, to create a generating facility and you would rather, you know, work for about 15 seconds for that electricity and then spend the rest of your day doing something else. And I think that that once you embrace this idea that we need to allow for a continuum of adoption, right?
A, an economy. There's a place for for people to hold their own keys. There's a place for people to custody keys for a small period of time. Like I go into the hospital for heart surgery and I might not live. And so I custody my keys with someone for a week, a day. It's a place for that. There's a place for people I just got diagnosed with Alzheimer's okay I'm gonna transfer my keys to someone for the rest of my life, cuz I got an Alzheimer's diagnosis.
Right? So it's a different thing.
[00:50:07] Aleks Svetski: brain will
[00:50:08] Michael Saylor: of a city. If you know, if you're a, if you run a school right. A private school and you've got Bitcoin in the treasury, maybe all the parents don't want the principal to walk around with the Bitcoin keys. They want it with some kind of institutional custodian for a lot of other reasons, especially what happens when the principal quits and you hire a new principal. Let me tell you, I hire a lot of people in my life. And if you have any experience trusting people, I could interview you for 20 hours and think you're God's gift and the perfect person, and I'll still be right 75% of the time and wrong 25% of the time. And so if you, and if you're wrong, 25% of the time, right.
And that's pretty devastating, you know, to you know, what, if the country loses all of its assets, 25% of the time, right? like EV every four years instead of every one year, right? So you can't afford human fallibility. Sometimes you need something to be 99.9 9, 9, 9, 9% reliable. Like, as you know, DMing would say, or some manufacturing scientists.
So, so I think if you're going to build a higher level civilization, you have to be open minded. To a lot of different ways to work with the asset and different timeframes. And when you go to the extreme, you undermine adoption, but you also undermine utility because you know, the real economy is gonna be, you know, you need Bitcoin at layer one, you've got lightning you know, a non-custodial open layer two, and then you've got layer threes, like cash app and PayPal and you know, the exchanges.
And then you've got layer fours, you know, securities like micro strategy or G BTC, where we've literally got the thing embedded in what we are. And then you've got products. You could build it into products and services. You could build a Bitcoin into a Tesla. What if I had a Tesla and I bought the Tesla and the Tesla basically was self-maintaining forever.
Right because I had enough Bitcoin in it to pay for all the electricity and also pay for the maintenance upkeep on the car. So all of these are different aspects of a digital economy, and they'll all be subject to different rules and different laws, and some things will fail and some will succeed. And if you just take an open mind and allow it all all to evolve, I think people will start to see this is as economically good for everybody technically good for everyone and morally, politically good as well.
There, there don't have to be any losers here. Everybody can be a winner. And if you go into the marketplace and your position is Bitcoin fixes this well, how about just Bitcoin improves this? What if you went to every company, every product, every family, every country, every politician.
Everybody and just said, I'm here from Bitcoin and we can improve whatever you're doing. It doesn't even matter what you're doing. It'll be better if you build some type of Bitcoin into whatever you're doing, there are no enemies there. The world just divides into people that don't understand how we can help them yet.
People that do understand how they can, how we can help them. Right. And then people we haven't talked to yet.
[00:53:38] Aleks Svetski: Yeah. I mean, I wanna clarify one thing about, I guess the anus libertarian position is is I've always been a big proponent of the idea that companies are one of the most incredible inventions of human society, like, or civilization in general is the ability for a group of people to come together and separate management from operations and from, you know, legally liable directors and shareholders like separating each of those layers, being able to operate towards the, so the solving of a problem or some sort of solution is is a magnificent thing.
And in my mind, how things progress whatever pathway we take. What happens is groups of people will come and they'll form these companies in whatever shape or size they are, and they will solve a problem. But I think where Bitcoin changes it is that I've kind of called it responsibility, go up technology in the sense that right now, I think the problem with corporations and institutions and large scale companies and nation states, et cetera, is the masking of responsibility and the socialization of costs.
So basically these days, there's nothing wrong with a company. For example, you've got a coma or Alzheimer's you placing custody in their hands and them taking care of it for you, but there is certainly a problem if they go and squander your Bitcoin by playing some sort of shenanigan or moral hazard, and then.
After doing so they go and try and cover it up by getting a bailout or something like that, which then socializes that bad mistake on everyone else. And this is where I think Bitcoin, I guess, in a sense, fixes this or improves this is that it kind of brings responsibility closer to the actor who is making a choice.
Now, if I wanna have a company look after something for me I pay them to take on that responsibility. At the moment, I think we've got a bit of a strange world in which everyone is giving responsibility or agency away to an institution or a nation state or corporation or whatever, thinking that there's no cost in doing so.
And then the cost somehow filters through in the back end through socialization of losses through inflation, through bailouts, through whatever other shenanigans and stupidities going on in the background. And I guess, you know, the. The nice argument there is that it's not some, you know, evil cabal of people trying to do it actively to destroy the world.
It's just, you know, when you're offered a set of solu options in front of you and you've been operating in a particular paradigm all your life and as you said, the past versus the future, you generally pick an option from a really bad menu. Even though your intent is good, but you know, the road to hell is often paved with these good intentions, right?
So anyway where I'm kind of getting at there is that the responsibility element of Bitcoin and, you know, companies or nation, I think nation states is probably pushing it too far, but companies, I the corporate model of solving a problem and taking the responsibility for a fee makes perfect sense on a Bitcoin standard.
[00:56:53] Michael Saylor: Yeah, AGA again, I think my my point here really is Bitcoin is a magic technology that offers benefits to any individual or entity that adopts it.
And on the other hand, the simplest way in which to adopt it right now, Is as a long term store value asset, if you're a private entity and you're not subject to gap based accounting and the other ways you can adopt it, they have more friction, accounting, friction, tax friction, for example, like we can agree that it would be good at banks.
If banks banked Bitcoin, that would be good. But many banks are afraid to do this due to F D I C guidance. think today there was just a story coming out that ctigroup announced that they will probably start the custody Bitcoin. So,
[00:57:51] Aleks Svetski: So
[00:57:52] Michael Saylor: what we need is we need to educate the regulators, educate the politicians.
And then as the F D I C and FAS B and the S E C and the CFT C and the OCC, and every other agency starts to understand and provide useful guidance. Then all those companies will start to take much larger positions and then the investment community will support that. And and Bitcoin will spread as technology and the best way to get them to provide that constructive guidance is just avoid taking unnecessarily Avi adversarial positions in the evangelism or the advocacy, right.
We don't need to end the dollar or end the fed in order to spread the good she, of Bitcoin . We can make everybody's E every everybody in the United States could be better off, right. Without. Dramatic changes to the government. If there was a hundred X as much, Bitcoin, it'd all be better off right now without changing anything in the government.
So the world's full of challenges. There are a lot of, I mean, there are a lot of things that are inefficient in the world. We could talk about them for a hundred hours, but I think the whole point of laser eyes is focus your energy. So if I'm gonna, what is a laser? A laser is I have a certain amount of energy and I narrow my focus to a pen head, a pen prick, the narrowest focus possible.
And why do I do that? So I can go the longest distance without dissipation. So every time you broaden your focus, you dissipate your energy and you lose your reach. And so the question really is what can you accomplish and how are you gonna accomplish it? And. Not going to fix every company, every bank and every government in the near future with the Bitcoin message.
Right. I tend to look at it a different way, which is there are some entities that can adopt it now and we should go find them and help them do it. There are some places where it's just gonna be a very difficult or impossible that don't waste your energy. Don't waste your energy, fighting with them.
Don't you're not gonna change their mind. Don't squander your energy. You don't have time and you don't have the energy to pick fights with people, you know, along the road of life. Right. You should just move on. Let me, I mean, let me offer another possible metaphor here. Let's say I had I invented a fusion reactor and it generated infinite. For a dollar I can give you enough energy to run your family for the rest of your life for a dollar. Okay. So I'm gonna go travel around the world and where am I gonna be happiest with that fusion reactor? I go to North Korea and they find out I have it and I'm not allowed to own things and they take it away from me and they kill me.
Okay. That didn't work so well, but I have a future reactor. No, you know, I, maybe I take it to a place where there's no rule of loss. So the government just seizes it. Right. Maybe I take it to a I take it to a country where there's a hundred different tribes and they're all warring with each other.
And so I set up and I'm living HAPPI ever after. And one tribe hears about me with another tribe dancing and they come and they kill me. Okay. No rule of law. No peace. I go to another country and their taxes are excessive, you know, and they find out that I have a nuclear reactor or a fusion reactor.
So they just tax me to death and I lose it. that the short of it is you want, you have a great technology. It's magical. You wanna live in a country where they speak your language where there's a rule of law, where there's peace, where there's a place force. Like what if your neighbor just comes over with a gun and shoots you in the head and takes your fusion reactor, right?
The fusion reactor doesn't solve all your problems, right? The fusion reactor doesn't make Afghanistan a peaceful place to live for an American. You know, that practices Christianity either, right? like there, there are simple, common sense observations, which is you have a technology, you go to a a politically supportive place, you know, and, you know, you don't take.
You wouldn't go to a country and say, I have a fusion reactor, and I'm giving away power for free to everybody in the country. And I'm putting the nation's electric power provider out of business because they're evil people cuz they sell the electricity, right. That's not the best way to do it.
Right. You'd probably better off to go to the country's monopoly energy provider and offer to set up the fusion reactor for them so that they can harness it. You know? And part of you would say they really should give away the energy for zero, but they're gonna charge a penny a kilowat hour. But if they were charging 10 cents a kilowat hour, then getting them to lower the price to a penny, a kilowat hour is a benefit to everybody and they get a piece of the action and you're not a revolutionary, you're an evolution. You're a technologist. Right. And we move forward. So I think that's the case with any great technology.
The technology is not enough for you to go, you know, anywhere and write any wrong. And you don't really need to make it a political fight in order to spread the technology. Most people, you know, if they see an automobile and it'll get them from point a to point B in an hour, instead of walking for two days, they could be persuaded regardless of political conviction and religious conviction, that the automobile's a good idea, right?
They have automobiles in a lot of countries that don't agree with American politics and vice versa. So, and likewise, right? Crude oil, aluminum, steel, automobiles, airplanes, have all been, you know, enthusiastically adopted. In communist socialist, capitalist, you know, autocratic, theocratic states even enthusiastically adopted in countries with hyperinflation, right?
They may be hyper inflating, but they still appreciate steel in the building. Right? If you ever walk out on a, the 15th floor of a building without the steel and the floor collapses and you, and all your friends die, right, then you could be persuaded that steel is a valuable technology. And the key there is whoever sells the steel needs to make it an apolitical statement.
And I think with Bitcoin, Bitcoin can be spread everywhere on earth, you know, as digital energy, right. As as a technology, right? If Bitcoin is digital energy, then it's simply it's simply the next evolution of electricity or oil. Or atomic power or hydro power or solar power or the internet.
It's just the next thing. If Bitcoin's gotta be a digital currency, then you're gonna have to replace the government, right. Either peacefully or in a hostile fashion, you gotta replace the government. It's just like given if I were to try to calculate the difference in effort, one of the things is like a million times harder to do, plus a lot of bloodshed, right.
Castro replaced to government. But like, would you wanna do that? I mean, even if I told you, you could like, we had a civil war in the United States, right? like, you don't really want a civil war. There's no winners. And so, so I think that the Bitcoin community has an opportunity to embrace the technology, spread it to everywhere and be everybody's friend.
And I think that's something we ought to be spending more time thinking about. And I think we should spend a lot less time fighting over the currency because once you've made the point that the currency has inflation, I think you just gotta move on because the next debate is whether or not gold is better than Bitcoin for fighting inflation, right? Because you're not gonna actually eliminate the source of inflation, right. That will require regime change.
If we demonetize everything everywhere, maybe we cure half of the problem, which is good. I think that's enough. It might take a hundred years. I'm hard pressed to think it takes less than a hundred years.
Feels like it's like a multi-generational exercise if we're successful. And then at the end of it, you're still gonna have debates about whether to give four year old kids, pharmaceutical products to treat their a D right. You're still gonna have debates over, over religion. You're still gonna have debates over, you know, someone at age 87 is dying and someone wants to give them a million dollar treatment.
And someone else says that's too expensive. Right. And you're gonna have all those issues and you know, someone's born and they just have a view that they should beat you. It's gonna happen. We're not gonna some other science or technology breakthrough might address some of that problem. And we still got the problem of how do we go to Mars and should we stop there?
And should we go to alpha and Tori or beyond, these are all problems, you know, and some people wanna live forever and not the problem is we can't live forever and other people don't think we should live forever. And the problem is stopping the people that wanna live forever. Right? And those things are gonna go on.
We're not gonna address those. I don't think we need to. I think that the PR that the root problem that Bitcoin has put their fingers on is there's a lack of conservation of energy in the civilization. There's a, there's an energy imbalance and everything that we think of is money that we use is money. And right now we use gold and we use $90 trillion of currency derivatives and a hundred trillion dollars of bonds. And we use trillions of dollars of equity and we use collectibles. We use all sorts of other derivatives. There's a lot of things we use as money. All of those things we use as money are low velocity, inefficient, transmitters of energy that, that drain energy and the cost of that you could measure in the tens of trillions, 10 trillion, 20 trillion a year, some huge amount, right?
20 trillion is the GDP of the United States, right? Nominally measured. So the cost of the broken money or the lack of a proper monetary system is many trillions a year compounding for the next, for the last a hundred years for the next a hundred years. fixing that is it's no different than if you're an athlete.
And and you were bleeding a pint of blood an hour and I didn't stop the bleeding. Right? I mean, the number one rule of triage just stopped the bleeding first. First make sure you can breathe right. Three minutes without air and you're dead and then make sure your bleeding stops cuz you'll bleed out in a few minutes.
And then after that figure out what the rest of the problem is. So I think that we should think of ourself as trying to stop the bleeding the source of the bleeding as a lack of effective money. And the human race has never had an effective money. A mathematically sound thermodynamically sound money, right?
Goal was the closest thing, but it was it's way too inefficient. It bleeds energy too fast in time and in space. Right. You can't really use it. So. we now have a situation where 10 basis points of the civilization has a limited has a, has an effective store of value. And of course, nobody has an effective medium of exchange, right?
So you could probably say it's like two or three or four basis. Points of the entire economy is efficient 99.9, 5% of all the economic activity in time and in space is woefully inefficient.
[01:10:26] Aleks Svetski: Totally.
[01:10:27] Michael Saylor: And how inefficient, you know, you, it, we probably gotta assume we're losing 10 to 15% of energy. If you were writing a calculus equation, right?
The time variable was losing 15% of your energy with time. And then there's another dissipation coefficient, which is how much energy per transaction,
[01:10:49] Aleks Svetski: Oh, there's that then there's the cost of the institutions. There's the cost of the the misallocation of mal investment blind consumerism, you know, the gambling the distortion of of people's time preferences. So yeah, there's waste all over the place.
[01:11:06] Michael Saylor: If you just come back to this idea that we're like three basis points, 1, 2, 3 basis points permeated, you can see that a factor of 10, you know, gets you to 30 basis points. A factor of hundred gets you to 3% of potential. And so a hundred X from now were 3% of potential,
A thousand X from now.
We're 30% of potential. And so there's massive, tremendous opportunity here. And we can do this in a very cheerful, constructive way simply by focusing people on the technology and just showing them how much more efficient, how much higher the quality of living is for any entity any part of our civilization.
Should they adopt a better energy technology?