14 years ago, a mysterious individual or group of people known only by the pseudonym “Satoshi Nakamoto” published the Bitcoin Whitepaper. It introduced Bitcoin as the world’s first and most valuable entrant in the emerging class of digital assets known as cryptocurrencies and outlined the original plan and protocol for Bitcoin.
In part two of this four-part series on cryptocurrency, Dylan discusses Bitcoin and the technological fundamentals outlined in the Bitcoin Whitepaper.
- [01:14] The foundations of Bitcoin
- [03:42] Why Bitcoin’s foundations play into the idea that money is emotional
- [06:41] Possible relevance of the name “Satoshi Nakamoto”
- [07:34] What was happening when the Bitcoin Whitepaper was released
- [12:46] Why people didn’t have faith in anything financial prior to Bitcoin’s creation
- [14:14] The Bitcoin Whitepaper explained
- [17:23] Why Bitcoin doesn’t function as a medium of exchange
- [19:53] Why Bitcoin doesn’t serve as a store of value
- [20:59] Why Bitcoin doesn’t act as a unit of account
- [22:44] The possible intent of the Bitcoin Whitepaper
[00:00:00] Intro: Forget the civilized path. It’s time to break the chains of debt and dependency, take control of our financial lives, and live free. This is the Fiscally Savage Podcast.
[00:00:15] Dylan Bain: Hello and welcome to Fiscally Savage. I’m your host, Dylan Bain. And today in these Friday shows, as always, we try to take something that’s in the news and go a few steps lower. Today, ladies and gentlemen, is part two of what will likely be a four-part series on cryptocurrency. I talked last week about what money is and why am I gonna talk about cryptocurrency now. Well, because of the collapse of the crypto exchange FTX, the crypto collapse generally across the entire market, and the fact that cryptocurrency has become the talk of the town in certain circles. This is a primer on cryptocurrency. And you really should go back and listen to the last week’s episode. It’ll make a lot more of the discussion today relevant and accessible. But this is a primer. This is not a PhD dissertation, so I’m inherently going to gloss over and oversimplify a number of different things. If somebody is listening to this and thinks to themselves, “Man, I really wish you would’ve gone deeper on X, Y, or, Z,” head on over to Instagram and send me a message.
[00:01:14] So, today, we’re gonna talk about the OG in the cryptocurrency world and that’s Bitcoin. And this is gonna relate to the FTX collapse because, again, to be able to talk about that, we really need to be able to talk about cryptocurrency in general and a lot of the promises that were in this. Last week, we talked about money because cryptocurrency is claiming that it can function as a currency, which is a form of money. And so, we talked about money needing to consume three attributes: medium of exchange, a unit of account, and a store of value. Now, today we’re gonna talk about Bitcoin because it’s the foundation of this entire crypto craze that we see going on. Foundationally, Bitcoin came from a whitepaper. What a whitepaper is is that it is a scholarly or academic paper that is not peer-reviewed. And it came out and it was published by the mythical figure of Satoshi Nakamoto. This is a pseudonym for a person or a group of people who first posited this idea of a peer-to-peer transactional system. They also not only published the paper talking about what Bitcoin was and what it could be and what they wanted it to function as, but they also set up the very first server for Bitcoin, which then started to work on what is called the blockchain. And they — this person or people — were active in the development of Bitcoin until the end of 2010. So, they had two years in which they were very active in the community in making modifications to Bitcoin and working on it.
[00:02:41] One of the things that’s gonna be notable here, though, is that how the blockchain works is that you have this open ledger, okay? And what a ledger is is just a listing of all the transactions. And computers then will compete for the privilege of writing to that ledger. And the reward for writing to the ledger and helping keep the records — thus creating the blocks which have been chained together, thus the name “blockchain” — is Bitcoin. Bitcoin is a reward for work. And so, when Satoshi Nakamoto created the first Bitcoin server, also known as a reference server, they also were then able to mine a fuck ton of Bitcoin. Their crypto wallet is worth billions and no crypto has ever flown out of it, which is part of this mystique. You have this person or group of people who are potentially billionaires who decided to forgo all of that economic value for a variety of different reasons.
[00:03:42] And there’s a couple things to note about this foundational thing around crypto because one thing that if you ever spend time talking to a crypto bro about, it’s they will, that they will tell you, “Oh, bro. Bro, you don’t understand. You just don’t understand the technology. You just don’t get it, bro. You just don’t get it.” Which brings me to a couple things to note about this. Okay. So, let’s just go back and actually like start to pick apart some of these things. You have this thing that’s difficult to understand, that’s extremely technical — the, you know, Bitcoin and the blockchain that was put out by a mythical person shrouded in mystery, this Satoshi Nakamoto. And this plays into this idea that money is emotional. And I have done episodes on this in the past. I will be doing tons of episodes on this in the future because the unique thing that I work on in Fiscally Savage is the idea and the understanding that money is emotional. We’ve talked about it. It is the dirt on which Maslow’s hierarchy of needs sits.
[00:04:45] Poorly understood emotions though lead to people trying to be sneaky. Now, if you’ve ever been in relationships with people who do not understand themselves or are emotionally immature — and that’s said without any judgment — we will know that these people are all sorts of sneaky. They have covert contracts. This is the whole “No more Mr. Nice Guy” type of thing. Because money’s emotional, if we have something that’s poorly understood, like our relationship with money or something that we think could really make us wealthy but we don’t fully understand it, we then start to get sneaky and start looking for shortcuts. We love money shortcuts. We believe it’s all a conspiracy; that somehow if we could just find the right thing with just the right smart people to be able to find the way through the market; if I can just find the right person to tell me the secret to it all; well, then, all my money problems would be over. This is why money scams are so prevalent, and this is why they work so well. This is why we have entire legions of YouTubers selling nothing more than hope streams and snake oil, and people give tons of money to these people and make them fantastically wealthy.
[00:05:48] It’s worth noting, ladies and gentlemen, that one of the things that I promised myself when I started this whole Fiscally Savage thing was that I was never gonna be that type of person. I was only gonna work to add value, never to try to sell a shortcut that didn’t exist. Because the truth of how money works is not actually that fun. It’s not sexy. It’s not glamorous. There is no massive conspiracy. There’s just a lot of people making short-term decisions, a lot of people trying to work a system. And at the end of the day, the fundamentals are about as fun as watching paint dry. And people hate that. They hate it. They want to believe that there’s something amazing, sexy. It is exactly what you can read in the book Wild at Heart: Deep in his heart, every man longs for an adventure to live, a beauty to rescue, and a dragon to slay. This is the adventure. People do this all the time.
[00:06:41] And I also think that it’s not a mistake that the name for the person who released this or I guess group of people who released the whitepaper on Bitcoin was Satoshi Nakamoto, who was Japanese. Because Japanese makes us think, particularly here in the West, of anime and the future. We had this concept in the nineties, particularly for my generation, that Japan was the technological future; that they were gonna have gigantic, stomping robots. This was something that we all thought of. They were the innovators, the masters of this technology. So, I think it’s entirely possible that Satoshi Nakamoto is either my age or older, and they chose a Japanese-sounding name simply because it evokes this idea and this mystique that a lot of people who grew up on anime have around Japanese and Japanese culture. Regardless of whether or not that’s true is irrelevant to how you manipulate people’s emotions in any type of market.
[00:07:34] The third thing that I think is worth noting here though is that the whitepaper was released in the beginning of 2009. And if you know anything about that period of time, it was a period of time of a lot of fear and outrage, particularly at all the bailouts of the automotive industries and the banks. And I bring this up because if you remember, I just said that not only did Satoshi Nakamoto put out the whitepaper positing Bitcoin as a peer-to-peer transactional service, they also started the very first block. And the rewards for that block was 50 Bitcoins, which at the time was worthless but now maybe is worth a lot more money. What’s interesting about that first block, though, is that embedded in it — and remember this is blockchain technology, which means it’s a general ledger that’s open for public view to see all the transactions on the Bitcoin. That’s how the blockchain works — and it states, and I’m gonna quote directly here, The Times 03/Jan/2009 Chancellor on the brink of second bailout of the banks. This is directly referencing the headline of The Times of London, a newspaper, as they were talking about bailing out more of the banks.
[00:08:45] And if you lived through this period of time, you know that one of the biggest things that people were really concerned about other than the Great Recession and the collapse of the financial markets, was that quantitative easing was becoming the antidote to the problem. That is to say that central banks fired up their money printers and started printing money like it was going out of style. Does that sound familiar to you? It should because they’re still doing it, and they did it a lot during the COVID pandemic. But this is where quantitative easing kind of had like its coming out party was in 2008, 2009 with Ben Bernanke at the helm of the US Fed. And so, the concern in the news media at the time was that we’re gonna print all this money. We’re gonna have hyperinflation. We’re gonna be Weimar Germany. And if you remember from last week’s episode, one of the things that I said that was so lethal to the idea of money is when money or currency loses its ability to function as a store of value. This happens under inflationary environments. When money loses its ability to store value, the people in charge of that currency, that being the government, collapse. And there was a lot of fear and a non-zero possibility that all this money printing was gonna drive us directly right out of control and collapse a lot of the Western governments.
[00:10:03] And so, it’s not lost on me that this idea of Bitcoin enters the market at just this moment in time. Which, of course, for anybody who was alive during that time and was paying attention to it or shortly thereafter learned of it, it became so alluring. Not only does this seem like this sneaky way to get around the system, but it’s got this elusive and beautiful mystical backstory with this technological Japanese-sounding name, and it’s just giving a middle finger to all the governments and their fiat currency and bank bailouts. And so, it’s not lost on me that a lot of this is really good marketing because if you live through the Great Recession and you were paying attention to what was going on at that time, then you know that the Great Recession was not the only headline that was out there. And just bear with me here for a second because one of the things that is notable about me, particularly about my training, is that if you go all the way back to my undergraduate degrees, they are, I was double major in college. My majors were computer science and history. And this is important because one of the things drilled into my head when I was working on my history degree is that history is current events; that we are living each and every single one of us in a point in time in which somebody in the future will look back on and write their entire doctoral dissertation and make their entire career on. The Great Recession is exactly one of those moments.
[00:11:32] And so, for me, particularly having lost my job, going back to school to become a teacher, and that, of course, in 2009 is when I would do my student teaching and I would leave the United States to go to Taiwan because my options were stay in my hometown and be unemployed or go overseas and have a job and I obviously chose a job, I paid a lot of attention to international headlines. And so, while the Great Recession was, at least technically and on paper, ending in 2009, I watched as all the people who were part of the movie The Big Short, who had seen the collapse of the housing market coming and had used that to short those markets to make themselves fantastically rich, I watched every single one of ’em pivot to the next crisis on the horizon, which was the European sovereign debt crisis. And if you’ve ever paid attention to a lot of the movies that talk about like capitalism love story whatever that firm was, all the people that made themselves fantastically wealthy by betting against the market and profiting off the collapse of the US housing market immediately then moved to the European sovereign debt crisis. And there’s a movie called Laboratory Greece where they talk about how they got themselves out of this entire thing. It turns out, a lot of the people who got the housing collapse right got the European sovereign debt crisis wrong.
[00:12:46] But the point being is that we had compounding things. We first had the Great Recession, which cost a ton of financial turmoil, which then, of course, kicked off the European Sovereign debt crisis, which then kicked off the Cypriot financial crisis, which was on the island of Cyprus. This one flew under the radar but it’s noticeable because you see when certain parts of the system start to dysregulate and start to get a little bit wonky or start violating from baseline, like, I don’t know, the Feds just suddenly raising interest rates, which would then, you know, cause the collapse of large crypto firms or perhaps, you know, a large publicly traded used car sales company to suddenly start running into all sorts of problems. Well, yeah, those types of things happen. The point being is that we started to see a cascade of different things all at the same time across multiple different systems of financial flow. And so, there was not a lot of faith in anything financial at the time. And a lot of people were reaching out for something that was just not part of the shit show. And so those four things together really, and I think are fundamentally part of Bitcoin’s mystique because money is an agreed-upon fiction in a society. Go back to the previous podcast on last Friday where I talked about money and you’ll see that. It’s agreed-upon fiction. And when every story seems to be a tragedy, you kind of wanna start writing your own.
[00:14:14] So, let’s get a little more technical on this and start talking about what Bitcoin was. What did the whitepaper said? And this is totally out of the files of Dylan goes and reads something so you don’t have to because I went and read the whitepaper. And if you’re having trouble sleeping, by all means, please go do so. The whole idea is to create a peer-to-peer transaction system. And if peer-to-peer sounds familiar, we started the 2000s with this with peer-to-peer music sharing. Peer-to-peer became a huge thing. But a big part of the conversation around that peer-to-peer platforms for sharing music and sharing files, you know, I’m thinking about things like Napster and Limewire, eDonkey was another one. Anything with the torrents was a big part of this peer-to-peer transfer system. And at the time, a lot of the things that people were saying about what we say about cryptocurrency now, we were saying about these things. They can’t stop it. It’s peer-to-peer. It’s free of government interference and regulations. But Bitcoin, at least the whitepaper, posit this peer-to-peer transaction system that could be transacted in something that is free of governmental fiat. And when they say governmental fiat, they mean both the fiat currency itself and also the fiat of regulations. The transactions would be recorded on blocks that were available publicly for transparency’s sake. Those blocks would then be chained together, so you could see the transactions over time, thus the term “the blockchain.” The privilege of writing those blocks would be one, by solving really complex math problems, and then the computer that solved that would then be allowed to write out the next block with all the transactions, link it to the entire blockchain, and then they would be issued Bitcoin as a reward for that work. This is a proof-of-work system for those of you who actually know something about how the blockchain works.
[00:16:01] The thing that was kind of interesting though about this blockchain system is that the math problems would become increasingly more difficult as time went on and the total number of Bitcoin the system would ever produce was set at a finite amount of 21 million Bitcoins. This is a structural and architectural thing that is foundational to so many of these cryptocurrency systems that came after Bitcoin; the idea that you could never have a central bank. Just fire up the money printer and print out a bunch of money and therefore, threaten our stores of value, our accumulated wealth, by overprinting money causing hyperinflation, particularly in 2009, and then, again, even particular today, was hugely attractive that no government could be tempted to put their finger on the scale because the number of Bitcoin was set structurally and could not be changed. And this, ladies and gentlemen, is the point in which, for the purposes of our story, we’re gonna separate out the idea of cryptocurrency from the blockchain and divide it here into separate topics because the blockchain as a technology is a completely different story. But the cryptocurrency, in terms of our podcast and what we’re trying to talk about, that is what we’re gonna focus on.
[00:17:23] Now, it’s important to note that Bitcoin was not designed specifically with the idea of being money in mind. It was designed to be a peer-to-peer transaction system free of government fiat. It was not designed to function as an actual medium of exchange. This is an architectural feature of blockchain, or at least of the Bitcoin blockchain. And I can’t say that for other ones because it’s a matter of engineering rather than opinion, which means if I change the engineer, this becomes a slightly different game. But Bitcoin itself architecturally can’t function as a medium of exchange, and I’ll explain more in just a second. But understand that when we have scientific problems in the world, those mean that we do not have the theoretical understanding in which to solve them, so we first must be able to develop the theory before we can actually develop the engineering. If you have an engineering problem, the solution is just a matter of effort, money, and time. And so, in order to make a cryptocurrency an actual medium of exchange, it’s an engineering problem.
[00:18:23] Bitcoin, from an engineering perspective, cannot function as a medium of exchange. Other cryptocurrencies have figured this out and that doesn’t apply to them. And I wanna make that very clear because Bitcoin in its current state is currently running 100 million monthly transactions. And to actually run those transactions on the Bitcoin blockchain requires 150 terawatts of electricity annually. That is more than is consumed by the entire state of Ohio. Scaling that to just credit card transactions, there are 325 times more transactions a month than are in the current Bitcoin per monthly transactions amount. That would also, if we scale that, require 25 times the current total electricity production of the United States in its totality. So, if you stop and think about this, all this is to say specifically that if we just scaled Bitcoin to handle credit card transactions in the United States and that’s what we use the Bitcoin blockchain for, we would require 25 times more electricity production in the United States exclusively dedicated to solely handling Bitcoin transactions. This is a huge problem. This is Bitcoin-specific. And it’s an engineering issue that is being worked out by other foundations in the cryptocurrency space. But Bitcoin was not designed as a medium of exchange. On that alone, Bitcoin is not money. I just wanna point that out.
[00:19:53] But it was also not designed as a store of value. A store of value requires a social consensus and a heavy dose of reality. So, a store of value ultimately is something we all agree on or a store of value is the thing that we all need to continue to live — water, land, food, shelter, etc. Those things will always have their value. This is why real estate typically is a really good investment. Now, Bitcoin has suffered a 65% drop in value since the beginning of 2021, which means it’s not a good store of value. It’s a volatile thing at best. Stores of value can change over time, and this is where we talked last week about gold as a store of value. Newsflash: it’s a very poor store of value. The currencies typically are the thing that we have as stores of value that are socially accepted as also mediums of exchange. And so, was Bitcoin designed as a store of value? Well, no. It was designed with other things in mind and it became a theoretical store of value, but we’ve since shown that theory to not really be all that great.
[00:20:59] Bitcoin was not designed as a unit of account. And all I have to do is ask you, how much is a gallon of gas in Bitcoin without actually looking it up and running the math calculation? Yeah, that’s what I thought. You don’t know and neither do I. A unit of account must be something stable in order to fulfill its role. If I were to ask you how many ounces of silver are required to buy a gallon of gas, you wouldn’t be able to answer me either, and that’s gonna fluctuate a lot. And you might be thinking, “Well, hold on a second, Dylan. The value of gas goes up and down.” Yeah, that’s because, not because the dollar is fluctuating, because the price of oil, which is a commodity, is fluctuating. So, when you end up tying two volatile things together, the unit of account doesn’t apply anymore. We want the currency to be stable in order to be able to function as a unit of account, a store of value, and immediate of exchange. That is the whole idea of trying to hold the value of the dollar steady. It’s the entire reason that people peg their currencies to the US dollar in order to hold it stable so it can function as a medium of exchange, a store of value, and a unit of account.
[00:22:03] Bitcoin does none of these things. Therefore, Bitcoin cannot serve as money. It’s not physically possible given the fact that I don’t think we’ve increased the electrical output of the United States by 25 times just solely to facilitate credit card transactions in the United States. As money, Bitcoin serves none of the roles money needs to serve. I can exchange things for services, but there’s still, I can exchange Bitcoin for services. I can exchange Bitcoin for, for example, pizza. But that doesn’t necessarily mean that it’s a medium of exchange, a store of value, or a unit of account because that requires a social consensus, and that’s what’s actually important here. Humans’ greatest power are agreed-upon fictions that we all treat as real.
[00:22:44] So what was Bitcoin or what is Bitcoin? And this is where we get into Dylan’s speculation because my best guess is that the original intent of the whitepaper was as a proof of concept. I personally think that the reason that Satoshi Nakamoto has never used their Bitcoin wallet is because they never thought it would be worth anything in the first place. I think that whoever wrote it or whoever wrote this whitepaper and created it never bothered to write down their keys. They don’t have access to it anymore and they probably are kicking themselves because this was a proof of concept and that was all it was ever intended to be. And that, of course, would make sense as to why so structurally Bitcoin has so many problems. But that said, if I were right and that the original whitepaper and the original reference server was meant to be nothing more than a proof of concept, it proved its concept hands down. There are a lot of advantages to the system and there’s a lot of downsides, but that’s true of every system. If Satoshi Nakamoto’s entire purpose was to prove this as a concept and a viable product, they won. And I don’t think it can be really disputed. Now, did Bitcoin actually deliver on the concept of a peer-to-peer transactional system free of government interference? Well, that’s complicated, and that’s why I’m doing what is I’m hoping only gonna be a four-part series on cryptocurrency.
[00:24:10] This is not going to go away, ladies and gentlemen. This is not going to be something that we just kind of look back on in 10 years and go, “Huh. That was weird.” I truly believe that cryptocurrency has a role going forward. I just think that it’s going to be a complicated one and I know it’s in the news because of the FTX collapse. And so, I’m bringing these viewpoints to you. I’m doing the reading and the research and, dare I say it, arguing with the crypto bros so you don’t have to. We’re gonna be talking next week, though, about decentralized finance, Canadian truckers, and the government control of the financial system. I highly, highly recommend that you tell your friends and your family, your cryptocurrency brothers, and anyone who would benefit from Fiscally Savage message to make sure they subscribe to the podcast, so next week we can talk about decentralized finance, Canadian truckers, and the government because all three of them get to play together next week. Until then, ladies and gentlemen, go out there, take control of your financial lives, and live free.
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