Michael Saylor

What’s an asset? What’s asset hyperinflation? You mentioned bottom market swap rate and asset is where the majority of the hyperinflation happen. What’s inflation? What’s hyperinflation? What’s an asset? What’s an asset market? I’m going to ask so many dumb questions.

In the conventional economic world, you would treat inflation as the rate of increase in price of a market, basket of consumer products, defined by a government agency.

So they have traditional things that a regular consumer would be buying. The government selects like toilet paper, food toaster, refrigerated electronics, all that kind of stuff. And it’s like a representative basket of goods that lead to a content existence on this earth for a regular consumer.

They define a synthetic metric. I mean, I’m going to say you should have a thousand square foot apartment and you should have a used car, and you should eat three hamburgers a week. Now, 10 years go by and the apartment costs more. I could adjust the market basket via, they call them hedonic adjustments. I could decide that it used to be a 1970 needed a thousand square feet, but in the year 2020, you only need 700 square feet because we’ve miniaturized televisions and we’ve got more efficient electric appliances. And because things have collapsed into the iPhone, you just don’t need as much space. So now it may be that the apartment costs 50% more, but after the hedonic adjustment, there is no inflation because I just downgraded the expectation of what a normal person should have.

So the synthetic nature of the metric allows for manipulation by people in power.

Pretty much. I guess, my criticism of economists is rather than embracing inflation based upon its fundamental idea, which is the rate at which the price of things go up. They’ve been captured by mainstream conventional thinking to immediately equate inflation to the government issued CPI or government issued PCE or government issued PPI measure, which was never the rate at which things go up. It’s simply the rate at which a synthetic basket of products and services the government wishes to track, go up. Now, the problem with that is two big things. One thing is the government gets to create the market basket, and so they keep changing what’s in the basket over time.

So I mean, if I said three years ago, you should go see 10 concerts a year, and the concert tickets now cost $200 each. Now it’s $2,000 a year to go see concerts. Now I’m in charge of calculating inflation. So I redefine your entertainment quota for the year to be eight Netflix streaming concerts, and now they don’t cost $2,000. They cost nothing, and there is no inflation, but you don’t get your concerts right? So the problem starts with continually changing the definition of the market basket, but in my opinion, that’s not the biggest problem. The more egregious problem is the fundamental idea that assets aren’t products or services. Assets can’t be inflated.

What’s an asset?

A house, a share of Apple stock, a bond, a Bitcoin is an asset or a Picasso painting.

Not a consumable good, not an apple that you can eat.

Right. If I throw away an asset, then I’m not on the hook to track the inflation rate for it. So what happens if I change the policy such that, let’s take the class example. A million dollar bond at a 5% interest rate gives you $50,000 a year in risk-free income. You might retire on $50,000 a year in a low cost jurisdiction. So the cost of social security or early retirement is $1 million when the interest rate is 5%. During the crisis of March of 2020, the interest rate went on a 10-year bond went to 50 basis points. So now the cost of that bond is $10 million. The cost of social security went from a million dollars to $10 million. So if you wanted to work your entire life, save money and then retire risk-free and live happily ever after on a $50,000 salary, living on a beach in Mexico, wherever you wanted to go, you had hyperinflation, the cost of your aspiration increased by a factor of 10 over the course of some amount of time.

In fact, in that case, that was over the course of about 12 years. As the inflation rate ground down, the asset traded up. But the conventional view is, “Oh, that’s not a problem because it’s good that the bond is highly priced because we own the bond.” Or what’s the problem with the inflation rate in housing being 19%? It’s an awful problem for a 22-year-old that’s starting their first job, that’s saving money to buy a house. But it would be characterized as a benefit to society by a conventional economist who would say, “Well, housing asset values are higher because of interest rate fluctuation, and now the economy’s got more wealth.” And so that’s viewed as a benefit.

So what’s being missed here? The suffering of the average person or the struggle, the suffering, the pain of the average person, like metrics that captured that within the economic system. When you’re talking about-

One way to say it is, a conventional view of inflation as CPI understates the human misery that’s inflicted upon the working class and on mainstream companies, by the political class. And so it’s a massive shift of wealth from the working class to the property class. It’s a massive shift to power from the free market to the centrally governed or the controlled market. It’s a massive shift to power from the people to the government. And maybe one more illustrative point here, Lex is, what do you think the inflation rate’s been for the past a 100 years?

Oh, we talking about the scalar again?

If you took a survey of everybody on the street and you asked them what do they think inflation was, what is it? You remember when Jerome Powell said, our target’s 2%, but we’re not there. If you go around the corner, I have posted the deed to this house sold in 1930, okay. And the number on that deed is $100,000, 1930. And if you go on Zillow and you get the Z estimate-

Is it higher than that? No?

$30,500,000. So that’s 92 years, 1930 or 2022, and in 92 years, we’ve had 305X increase in price of the house. Now if you actually calculate, you come to a conclusion that the inflation rate was approximately 6.5% a year every year for 92 years. And there’s nobody in government, no conventional economists who would ever admit to an inflation rate of 7% a year in the US dollar over the last century. Now, if you dig deeper, I mean, one guy that’s done a great job working on this is Saifedean Ammous, who wrote the book, The Bitcoin Standard. And he notes that on average it looks like the inflation rate and the money supply is about 7% a year all the way up to the year 2020.

If you look at the S&P index, which is a market basket of scarce, desirable stocks, it returned about 10%. If you talk to 10% a year for a 100 years, the money supply is expanding at 7% a 100 years. If you actually talk to economists or you look at the economy and you ask the question, “How fast does the economy grow in its entirety year over year?” Generally about two to 3%, the sum total impact of all this technology and human ingenuity might get you a two and a half, 3% improvement a year.

As measured by GDP. Are you okay with that question?

I’m not sure I’d go that far yet, but I would just say that if you had the human race doing stuff, and if you ask the question, “How much more efficiently will we do the stuff next year than this year?” Or, “What’s the value of all of our innovations and inventions and investments in the past 12 months?” You’d be hard-pressed to say, we get 2% better. Typical investor thinks they’re 10% better every year. So if you look at what’s going on really, when you’re holding a million dollars of stocks and you’re getting a 10% gain a year, you’re really get a 7% expansion of the money supply. You’re getting a two or 3% gain under best circumstances. And another way to say that is, if the money supply stopped expanding at 7% a year, the S&P yield might be 3% and not 10%. It probably should be.

Now, that gets you to start to ask a bunch of other fundamental questions. Like, if I borrow a billion dollars and pay 3% interest and the money supply expands at seven to 10% a year, and I ended up making a 10% return on a billion dollars investment, paying 3% interest, is that fair? And who suffered so that I could do that? Because in an environment where you’re just inflating the money supply and you’re holding the assets constant, it stands the reason that the price of all the assets is going to appreciate somewhat proportional to the money supply, and the difference in asset appreciation is going to be a function of the scarce, desirable quality of the assets, and to what extent can I make more of them, and to what extent are they truly limited in supply?

Yeah. So we will get to a lot of the words you said there, the scarcity and so connected to how limited they are and the value of those assets. But you also said, so the expansion of the money supply, which is put in other ways, is printing money. And so is that always bad? The expansion of the money supply, just to put some terms on the table so we understand them. You nonchalantly say it’s always on average expanding every year. The money supply is expanding every year by 7%. That’s a bad thing. That’s a universally bad thing.

It’s awful. I guess to be precise, it’s the currency. I would say money is monetary energy or economic energy, and the economic energy has to find its way into a medium. So if you want to move it rapidly as a medium of exchange, it has to find its way into currency, but the money can also flow into property like a house or gold. If the money flows into property, it’ll probably hold its value much better. If the money flows into currency… If you had put a $100,000 in this house, you would have 305X return over 92 years. But if you had put the money a $100,000 into safe deposit box and buried it in the basement, you would’ve lost 99.7% of your wealth over the same time period. So the expansion of the currency creates a massive inefficiency in the society, what I’ll call an adiabatic lapse. What we’re doing is we’re bleeding the civilization to death.

What’s the adiabatic… What’s that word?

Adiabatic lapse.

Adiabatic.

In aerospace engineering, you want to solve any problem. They start with the phrase assume an adiabatic system. And what that means is a closed system.

Okay.

So-

I’ve got it.

… I’ve got a container. And in that container, no air leaves and no air enters. No energy exits or enters. So it’s a closed system.

So you got the closed system lapse.

Okay, I’m going to use a-

There’s a leak in the ship.

… physical metaphor for you, because you’re into jujitsu. You got 10 pints of blood in your body, and so before your next workout, I’m going to take one pint from you. Now you’re going to go exercise, but you’ve lost 10% of your blood. You’re not going to perform as well. It takes about one month for your body to replace the red blood platelets. So what if I tell you every month you got to show up and I’m going to bleed you? Okay, so if I’m draining the energy, I’m draining the blood from your body. You can’t perform. Adiabatic lapse is when you go up an altitude. Every thousand feet, you lose three degrees.

You go at 50,000 feet, you’re 150 degrees colder than sea level. That’s why you look at your instruments and instead of 80 degrees, you’re minus 70 degrees. Why is the temperature falling? Temperature’s falling because it’s not a closed system, it’s an open system. As the air expands, the density falls, the energy per cubic, whatever falls, and therefore the temperature falls. The heat’s falling out of the solution. So when you’re inflating, let’s say you’re inflating the money, the currency supply by 6%, you’re sucking 6% of the energy out of the fluid that the economy is using to function.

So the currency, this ocean of currency, that’s a nice way for the economy to function. It’s being inefficient when you expand the money supply, but it’s the liquid. I’m trying to find the right adjective here. It’s how you do transactions at a scale of billions.

Currency is the asset we use to move monetary energy around, and you could use the dollar or you could use the peso or you could use the boulevard.

Selling houses and buying houses is much more inefficient, or you can’t transact between billions of people with houses.

Yeah. Properties don’t make such good mediums of exchange. They make better stores of value and they have utility value if it’s a ship or a house or a plane or a bushel of corn.

Can we zoom out, keep zooming out into, we reach the origin of human civilization, but on the way ask, you gave economists a D minus. I’m not even going to ask you what you give to governments. Do you think their failure, economists and government failure is malevolence or incompetence?

I think policy makers are well-intentioned, but generally all government policy is inflationary and it’s inflammatory and inflationary. So what I-

… and all government, it’s inflammatory and inflationary. So what I mean by that is when you have a policy pursuing supply chain independence, if you have an energy policy, if you have a labor policy, if you have a trade policy, if you have any kind of foreign policy, a domestic policy, a manufacturing policy, every one of these, a medical policy, every one of these policies interferes with the free market and generally prevents some rational actor from doing it in a cheaper, more efficient way. So when you layer them on top of each other, they all have to be paid for. If you want to shut down the entire economy for a year, you have to pay for it, right? If you want to fight a war, you have to pay for it, right? If you don’t want to use oil or natural gas, you have to pay for it. If you don’t want to manufacture semiconductors in China and you want to manufacture them in the U.S., you got to pay for it.

If I rebuild the entire supply chain in Pennsylvania and I hire a bunch of employees and then I unionize the employees, then not only am I… I idle the factory in the Far East, it goes to 50% capacity. So whatever it sells, it has to raise the price on, and then I drive up the cost of labor for every other manufacturer in the U.S. because I’m competing against them, right? I’m changing that condition. So everything gets less efficient, everything gets more expensive, and of course, the government couldn’t really pay for its policies and its wars with taxes. We didn’t pay for World War I with tax. We didn’t pay for World War II with tax. We didn’t pay for Vietnam with tax. In fact, when you trace this, what you realize is the government never pays for all of its policies with taxes. It pays for-

Because it’s super painful to ask to raise the taxes to truly transparently pay for the things you’re doing with taxes, with taxpayer money because they feel the pain.

That’s one interpretation or it’s just too transparent. If people understood the true cost-

Of war, they wouldn’t want to go to war.

If you were told that you would lose 95% of your assets and 90% of everything you will be ever will be taken from you, you might re-prioritize your thought about a given policy and you might not vote for that politician.

But you’re still saying incompetence not malevolence. So fundamentally, government creates a bureaucracy of incompetence is how you look at it.

I think a lack of humility, if people had more humility than they would realize-

Humility about how little they know, how little they understand about the function of complex systems.

It’s a phrase from Clint Eastwood’s movie Unforgiven where he says, “A man’s got to know his limitations.” I think that a lot of people overestimate what they can accomplish and experience in life causes you to reevaluate that. So I’ve done a lot of things in my life and generally, my mistakes were always my good ideas that I enthusiastically pursued to the detriment of my great ideas that required 150% of my attention to prosper. So I think people pursue too many good ideas, and they all sound good, but there’s just a limit to what you can accomplish. And everybody underestimates the challenges of implementing an idea, and they always overestimate the benefits of the pursuit of that.

And so I think it’s an overconfidence that causes an over-exuberance in pursuit of policies. As the ambition of the government expands, so must the currency supply. I could say the money supply, but let’s say the currency supply. You can triple the number of pesos in the economy, but it doesn’t triple the amount of manufacturing capacity in the set economy, and it doesn’t triple the amount of assets in the economy. It just triples the pesos. So as you increase the currency supply, then the price of all those scarce desirable things will tend to go up rapidly. And the confidence of all of the institutions, the corporations and the individual actors and trading partners will collapse.

If we take a tangent on a tangent, and we will return soon to the big human civilization question. So if government naturally wants to buy stuff it can’t afford, what’s the best form of government? Anarchism. Libertarianism. So there’s not even armies. There’s no borders that’s anarchism-

The least.

The smallest possible, the less the-

The best government would be the least, and the debate will be over that.

When you think about this stuff, do you think about, “Okay, government is the way it is, I, as a person that can generate great ideas, how do I operate in this world?” Or do you also think about the big picture? If we start a new civilization somewhere on Mars, do you think about what’s the ultimate form of government? What’s at least a promising thing to try?

I have laser eyes on my profile on-

Yes-

… Twitter, Lex.

… we’ve noticed. What does that mean?

And the significance of laser eyes is to focus on the thing that can make a difference.

Yes.

And if I look at the civilization, I would say half the problems in the civilization are due to the fact that our understanding of economics and money is defective. Half, 50%, I don’t know, it’s worth $500 trillion worth of problems? Money represents all the economic energy and the civilization and it equates to all the products, all the services and all the assets that we have and whatever we’re going to have. So that’s half. The other half of the problems in the civilization are medical and military and political and philosophical and natural. And I think that there are a lot of different solutions to all those problems, and they are all honorable professions and they all merit a lifetime of consideration for the specialists in all those areas. I think that what I could offer its constructive is inflation is completely misunderstood. It’s a much bigger problem than we understand it to be.

We need to introduce engineering and science techniques into economics if we want to further the human condition. All government policy is inflationary. And another pernicious myth is inflation is always and everywhere a monetary phenomena. A famous quote by Milton Friedman, I believe, it’s like, it’s a monetary phenomena that is inflation comes from expanding the currency supply. It’s a nice phrase and it’s oftentimes quoted by people that are anti-inflation. But again, it just signifies a lack of appreciation of what the issue is. If I had a currency which was completely non-inflationary, if I never printed another dollar and if I eliminated fractional reserve banking from the face of the earth, we’d still have inflation, and we’d have inflation as long as we have government that is capable of pursuing any kind of policies that are in themself inflationary, and generally, they all are.

So in general, inflationary is the big characteristic of human nature that’s government collection of groups that have power over others and allocate other people’s resources will try to intentionally or not hide the costs of those allocations in some tricky ways. Whatever the options ever are available.

Hiding the cost is like the tertiary thing. The primary goal is the government will attempt to do good, right? And-

That’s the primary problem?

They will attempt to do good and they will do good imperfectly, and they will create oftentimes as much damage… more damage than the good they do. Most government policy will be iatrogenic. It will create more harm than good in the pursuit of it, but it is what it is. The secondary issue is they will unintentionally pay for it by expanding the currency supply without realizing that they’re actually paying for it in a suboptimal fashion. They’ll collapse their own currencies while they attempt to do good. The tertiary issue is they will mismeasure how badly they’re collapsing the currency. So for example, if you go to the Bureau of Labor Statistics and look at the numbers printed by the Fed, they’ll say, “Oh, it looks like the dollar’s lost 95% of its purchasing power over 100 years.” They sort of fess up that there’s a problem, but they make it 95% loss over 100 years. What they don’t do is realize it’s a 99.7% loss over 80 years.

So they will mismeasure just the horrific extent of the monetary policy in pursuit of the foreign policy and the domestic policy, which they overestimate their budget and their means to accomplish their ends, and they underestimate the cost. And they’re oblivious to the horrific damage that they do to the civilization because the mental models that they use that are conventionally taught are wrong. The mental model that it’s okay, we can print all this money because the velocity of the money is low because money velocity is a scalar and inflation is the scalar, and we don’t see 2% inflation yet, and the money velocity is low, and so it’s okay if we print trillions of dollars. Well, the money velocity was immediate. The velocity of money through the crypto economy is 10,000 times faster than the velocity of money through the consumer economy. I think Nic pointed out when you spoke to him, he said it takes two months for a credit card transaction to settle, right? So you spend a million dollars in the consumer economy, you can move it six times a year.

You put the million dollars into gold, gold will sit in a vault for a decade. Okay? So the velocity of money through gold is 0.1. You put the money in the stock market and you can trade it once a week. The settlement is T+2. Maybe you get to 2:1 leverage, you might get to a money velocity of 100 a year. In the stock market, you put your money into the crypto economy and these people are settling every four hours. And if you’re offshore, they’re trading with 20x leverage. So if you settle every day and you trade the 20x leverage, you just went to 7,000. So the velocity of the money varies. I think the politicians, they don’t really understand inflation and they don’t understand economics, but you can’t blame them because the economists don’t understand economics. Because if they did, they would be creating multivariate computer simulations where they actually put in the price of every piece of housing and every city in the world the full array of foods and the full array of products and the full array of assets.

And then on a monthly basis they would publish all those results. And that’s a high bandwidth requirement, and I think that people don’t really want to embrace it. There’s that phrase, you can’t tell people what to think, but you can tell them what to think about. The most pernicious thing is I get you to misunderstand the phenomena so that even when it’s happening to you, you don’t appreciate that it’s a bad thing and you think it’s a good thing. So if housing prices are going up 20% year over year, and I say this is great for the American public ’cause most of them are homeowners, then I have misrepresented a phenomena. Inflation is 20%, not 7%, and then I have misrepresented it as being a positive rather than a negative, and people will stare at it. And you could even show them their house on fire and they would perceive it as being great because it’s warming them up and they’re going to save on their heat cost.

It does seem that the cruder of the model, whether it’s economics, whether it’s psychology, the easier it is to weave whatever the heck narrative you want. And not in a malicious way, but just like it’s some kind of emergent phenomena, this narrative thing that we tell ourselves. So you can tell any kind of story about inflation. Inflation is good. Inflation is bad. Like the cruder the model, the easier it is to tell a narrative about it. So if you take an engineering approach, I feel like it becomes more and more difficult to run away from a true deep understanding of the dynamics of the system.

Honestly, if you went to 100 people on the street and you ask them to define inflation, how many would say it’s a vector tracking the change in price of every product service asset in the world over time?

No.

Not many.

Not many.

If you went to them and you said, “Do you think 2% inflation a year is good or bad?” The majority would probably say, “Well, I heat it’s good.” The majority of economists would say 2% inflation a year is good, and of course, look at the ship next to us. What if I told you that the ship leaked 2% of its volume every something? The ship is rotting 2% a year. That means the useful life of the ship is 50 years. Now, ironically, that’s true. Like a wooden ship had a 50-year to 100- year life. 100 would be long, 50 years, not unlikely. So when we built ships out of wood, they had a useful life of about 50 years, and then they sunk and they rotted. There’s nothing good about it. You build a ship out of steel and it’s 0 as opposed to 2% degradation, and how much better is 0% versus 2%?

Well, 2% means you have a useful life of it’s half life of 35 years. 2% is a half life of 35 years. That’s basically the half life of money in gold. If I store your life force in gold, under perfect circumstances, you have a useful life of 35 years. 0% is a useful life of forever. So 0% is immortal, 2% is 35 years average life expectancy. So the idea that you would think the life expectancy of the currency and the civilization should be 35 years instead of forever is a silly notion. But the tragic notion is it was 7 into 70 or 10 years.

The money has had a half life of 10 years except for the fact that in weak societies and Argentina or the like, the half-life of the money is three to four years; in Venezuela, one year. So the United States dollar and the United States economic system was the most successful economic system in the last 100 years in the world. We won every war. We were the world’s superpower. Our currency lost 99.7% of its value, and that means horrifically every other currency lost, right? In essence, the other ones were 99.9, except for most that were 100% because they all completely failed. And you’ve got a mainstream economic community that thinks that inflation is a number and 2% is desirable. It’s like, remember George Washington? You know how he died?

No.

Well-meaning physicians bled him to death. Okay? The last thing in the world you would want to do to a sick person is bleed them in the modern world. I think we understand that oxygen is carried by the blood cells, and if… There’s that phrase, triage phrase, what’s the first thing you do in an injury? Stop the bleeding. Single first thing, right? You show up after any accident, I look at you, stop the bleeding because you’re going to be dead in a matter of minutes if you bleed out. So it strikes me as being ironic that orthodox conventional wisdom was bleed the patient to death. And this was the most important patient in the country, maybe in the history of the country, and we bled him to death trying to help him.

So when you’re actually inflating the money supply at 7% but you’re calling it 2% because you want to help the economy, you’re literally bleeding the free market to death. But the sad fact is George Washington went along with it ’cause he thought that they were going to do him good. And the majority of the society, most companies, most conventional thinkers, the working class, they go along with this because they think that someone has their best interest in mind. And the people that are bleeding them to death, they believe that prescription because their mental models are just so defective and they’re understanding of energy and engineering and the economics that are at play is crippled by these mental models.

But that’s both the bug in the future of human civilization that ideas take hold, that unite us. We believe in them, and we make a lot of cool stuff happen by, as an average, just the fact of the matter, a lot of people believe the same thing. They get together and they get some shit done because they believe that thing. And then some ideas can be really bad and really destructive. But on average, the ideas seem to be progressing in a direction of good. Let me just step back. What the hell are we doing here, us humans on this earth? How do you think of humans? How special are humans? How did human civilization originate on this earth, and what is this human project they’re all taking on? You mentioned fire and water, and apparently bleeding you to death is not a good idea. I always thought you can get the demons out in that way, but that was a recent invention. So what’s this thing we’re doing here? War and power

I think what distinguishes human beings from all the other creatures on the earth is our ability to engineer. We’re engineers, right?

To solve problems or just build incredible cool things?

Engineering, harnessing energy and technique to make the world a better place than you found it. From the point that we actually started to play with fire, that was a big leap forward. Harnessing the power of kinetic energy and missiles, another step forward, every city built on water. Why water? Well, water’s bringing energy, right? If you actually put a turbine on a river or you capture a change in elevation of water, you’ve literally harnessed gravitational energy, but water’s also bringing you food. It’s also giving you a cheap form of getting rid of your waste. It’s also giving you free transportation. You want to move one ton blocks around, you want to move them in water. So I think the human story is really the story of engineering a better world. And the rise in the human condition is determined by those groups of people, those civilizations that were best at harnessing energy, right?

If you look the Greek civilization, they built it around ports and seaports and water and created a trading network. The Romans were really good at harnessing all sorts of engineering. The aqueducts are a great example. If you go to any big city, you travel through cities in the Med, you find that the carrying capacity of the city or the island is 5,000 people without running water. And then if you can find a way to bring water to it it increases by a factor of 10. And so human flourishing is really only possible through that channeling of energy that eventually takes the form of air power. That ship, look at the intricacy of those sails. Just the model is intricate. Now, think about all of the experimentation that took place to figure out how many sails to put on that ship and how to rig them and how to repair them and how to operate them.

It’s thousands of lives spent thinking through all the tiny little details all to increase the effectiveness, the efficiency of this ship as it sails thru water. And we should also note there’s a bunch of cannons on the side. So obviously-

Another form of engineering, energy harnessing with explosives.

To achieve what end? That’s another discussion. Exactly.

Suppose we’re trying to get off the planet, right?

Well, there’s a selection mechanism going on, so natural selection it’s’… However evolution works, it seems that one of the interesting inventions on earth was the predator/prey dynamic, that you want to be the bigger fish, that violence seems to serve a useful purpose if you look at earth as a whole. We as humans now like to think of violence as really a bad thing. It seems to be one of the amazing things about humans is we’re ultimately tend towards cooperation. We like peace. If you just look at history, we want things to be nice and calm. But just wars break out every once in a while and lead to immense suffering and destruction and so on, and they have a resetting the palette effect. It’s one that’s full of just immeasurable human suffering, but it’s like a way to start over.

We’re clearly apex predator on the planet. And I Googled something the other day, “What’s the most common form of mammal life on the earth?”

By number of organisms?

Count.

By count?

And the answer that came back was human beings.

Really?

I was shocked. I couldn’t believe it, right? It says apparently if we’re just looking at mammals, the answer was human beings are the most common, which was very interesting to me. I almost didn’t believe it, but I was trying to figure out, 8 billion or so human beings-

Yeah, It’s a lot.

… there’s no other mammal that’s got more than 8 billion. If you walk through downtown Edinburgh and Scotland and you look up on this hill and this castle up on the hill and you talk to people and the story is, “Oh, yeah, well, that was a British castle. Before, it was a Scottish castle. Before, it was a pick castle. Before, it was a Roman castle. Before, it was some other Celtic castle. Before, it was…” Then they found 13 prehistoric castles buried one under the other, under the other. And you get the conclusion that 100,000 years ago, somebody showed up and grabbed the high point, the apex of the city, and they built a stronghold there and they flourished and their family flourished and their tribe flourished until someone came along and knocked them off the hill. And it’s been a nonstop never-ending fight by the aggressive, most powerful entity, family, organization, municipality, tribe, whatever-

All for the hill.

For that one hill, going back since time immemorial. And you scratch your head and you think, it seems like it’s just this never-ending-

But doesn’t that lead-

… wheel.

… if you just… all kinds of metrics that seems to improve the quality of our cannons and ships as a result. It seems that war, just like your laser eyes, focuses the mind on the engineering tasks.

It is that, and it does remind you that the winner is always the most powerful. And we throw that phrase out, but no one thinks about what that phrase means. Like who’s the most powerful or the most powerful side one, but they don’t think about it. And they think about power, energy delivered in a period of time. And then you think a guy with a spear is more powerful than someone with their fist and someone with a bow and arrow is more powerful than the person with the spear. And then you realize that somebody with bronze is more powerful than without, and steel is more powerful than bronze.

And if you look at the Romans, they persevered with artillery and they could stand off from 800 meters and blast you smithereens. You study the history of the Balearic slingers and you think we invented bullets, but they invented bullets to put in slings thousands of years ago that could have stood off 500 meters and put a hole in your head. And so there was never a time when humanity wasn’t vying to come up with an asymmetric form of projecting their own power via technology.

And absolute power is when a leader is able to control large amount of humans, they’re facing the same direction, working in the same direction to leverage energy.

The most organized society wins. When the Romans were dominating everybody, they were the most organized civilization in Europe. As long as they stayed organized, they dominated. And at some point, they over-expanded and got disorganized and they collapsed. And I guess you could say the struggle of human condition. It catalyzes the development of new technologies one after the other. Anybody that rejects ocean power gets penalized. You reject artillery, you get penalized. You reject atomic power, you get penalized. If you reject digital power, cyber power, you get penalized. And the underlying control of the property keeps shifting hands from one institution or one government to another based upon how rationally they’re able to channel that energy and how well organized or coordinated they are.

Well, that’s a really interesting thing about both the human mind and governments and companies, once they get a few good ideas, they seem to stick with them. They reject new ideas. It’s almost whether that’s emergent or however that evolved, it seems to have a really interesting effect, ’cause when you’re young, you fight for the new ideas. You push them through, then a few of us humans find success, then we get complacent. We take over the world using that new idea, and then the new young person with a better new idea challenges you. As opposed to pivoting, you stick with the old and lose because of it, and that’s how empires collapse. And it’s just both at the individual level that happens with two academics fighting about ideas or something like that. And at the human civilization level, governments. They hold on to the ideas of old. It’s fascinating.

An ever-persistent theme in the history of science is the paradigm shifts, and the paradigms shift when the old guard dies and a new generation arrives. Or the paradigm shifts when there’s a war, and everyone that disagrees with the idea of aviation finds bombs dropping on their head or everyone that disagrees with whatever your technology is has a rude awakening. And if they totally disagree, their society collapses and they’re replaced by that new thing. Dematerializing information

A lot of the engineering you talked about had to do with ships and cannons and leveraging water. What about this whole digital thing that’s happening, been happening over the past century? Is that still engineering in your mind? You’re starting to operate in these bits of information?

I think there’s two big ideas. The first wave of ideas were digital information, and that was the internet wave been running since 1990 or so for 30 years. And the second wave is digital energy. So if I look at digital information, this idea that we want to digitally transform a book, I’m going to dematerialize every book in this room into bits and then I’m going to deliver a copy of the entire library to a billion people, and I’m going to do it for pretty much de minimis electricity, if I can dematerialize music, books, education, entertainment, maps, that is an incredibly exothermic transaction.

It’s a crystallization when we collapse into a lower energy state as a civilization and we give off massive amounts of energy. If you look at what Carnegie did, the richest man in the world created libraries everywhere at the time, and he gave away his entire fortune. And now we can give a better library to every six-year-old for nothing, and so what’s the value of giving a million books to 8 billion people? That’s the explosion in prosperity that comes from digital transformation. And when we do it with maps, I transform the map. I put it into a car. You get in the car and the car drives you where you want to go with the map. And how much better is that than a Rand McNally Atlas right here? It’s like a million times better.

Yeah.

Atlas right here, it’s like a million times better.

Yeah.

So the first wave of digital transformation was the dematerialization of all of these informational things, which were non-conservative. That is, I could take Beethoven’s 5th Symphony played for by the best orchestra in Germany and I could give it to a billion people and they could play it 1000 times each at less than the cost of the one performance, right? So I deliver culture and education and erudition and intelligence and insight to the entire civilization over digital rails. And the consequences of the human race are first order generally good, right? The world is a better place. It drives growth and you create these trillion dollar entities like Apple, and Amazon, and Facebook, and Google, and Microsoft, right? That is the first wave. The second wave,-

Do you mind? Sorry to interrupt, but that first wave, it feels like the impact that’s positive. You said the first order impact is generally positive. It feels like it’s positive in a way that nothing else in history has been positive, and then we may not actually truly be able to understand the orders and magnitude of increase in productivity and just progress and human civilization until we look back centuries from now. Or maybe, like just looking at the impact of Wikipedia.

Right.

Giving access to basic wisdom or basic knowledge and then perhaps wisdom to billions of people. If you can just linger on that for a second, what’s your sense of the impact of that?

I would say if you’re a technologist philosopher, the impact of a technology is so much greater on the civilization and the human condition than a non-technology, that it’s almost not worth your trouble to bother trying to fix things a conventional way. So let’s take example. I have a foundation, the Saylor Academy and the Saylor Academy gives away free education, free college education to anybody on earth that wants it. And we’ve had more than a million students. And if you go and you take the physics class, the lectures were by the same physics lecturer that taught me physics at MIT, except when I was at MIT, the cost of the first four weeks of MIT would’ve drained my family’s life, collective life savings for the first last 100 years.

Yeah.

100 years worth of my father, my grandfather, my great-grandfather, they saved every penny they had after 100 years, they could have paid for one week or two weeks of MIT. That’s how fiendishly expensive and inefficient it was. So I went on scholarship. I was lucky to have a scholarship, but on the other hand, I sat in the back of the 801 lecture hall and I was right up in the rafters. It’s an awful experience on these uncomfortable wooden benches and you can barely see the blackboard and you got to be there synchronously. And the stuff we upload, you can start it and stop it and watch it on your iPad or watch it on your computer and rewind it multiple times and sit in a comfortable chair and you can do it from anywhere on earth and it’s absolutely free.

So I think about this and I think you want to improve the human condition? You need people with postgraduate level education. You need PhDs, and I know this sounds kind of elitist, but you want to cure cancer and you want to go to the Stars fusion drive. We need new propulsion, right? We need extraordinary breakthroughs in every area of basic science, be it biology, or propulsion, or material science, or computer science. You’re not doing that with an undergraduate degree. You’re certainly not doing it with a high school education, but the cost of a PhD is like a million bucks. There’s like 10 million PhDs in the world. If you check it out. There’s 8 billion people in the world. How many people could get a PhD or would want to? Maybe not 8 billion, but a billion, 500 million. Let’s just say 500 million to a billion. How do you go from 10 million to a billion highly educated people, all of them specializing in, and I don’t have to tell you how many different fields of human endeavor there are. I mean, your life is interviewing these experts and there’s so many, right? It’s amazing. So how do I give a multimillion dollar education to a billion people? And there’s two choices. You can either endow a scholarship, in which case you pay $75,000 a year. Okay. 75, let’s pay a million dollars and a million dollars a person. I can do it that way. And you’re never, even if you had a trillion dollars, if you had $10 trillion to throw at the problem and we’ve just thrown $10 trillion at certain problems, you don’t solve the problem, right? If I put $10 trillion on the table and I said, educate everybody, give them all a PhD, you still wouldn’t solve the problem. Harvard University can’t educate 18,000 people simultaneously or 87,000 or 800,000 or 8 million. So you have to dematerialize the professor and dematerialize the experience. So you put it all as streaming on demand, computer generated education, and you create simulations where you need to create simulations and you upload it.

It’s like the human condition is being held back by 500,000 well-meaning average algebra teachers. I love them. I mean, please don’t take of offense if you’re an algebra teacher, but instead of 500,000 algebra teachers going through the same motion over and over again, what you need is one or five or 10 really good algebra teachers and they need to do it a billion times a day or a billion times a year for free. And if we do that, there’s no reason why you can’t give infinite education, certainly in science, technology, engineering, and math, right, infinite education to everybody with no constraint. And I think the same is true, right, with just about every other thing. If you want to bring joy to the world, you need digital music. If you want to bring enlightenment to the world, you need digital education. If you want to bring anything of consequence in the world, you got to digitally transform it and then you got to manufacture it, something like 100 times more efficiently as a start, but a million times more efficiently is probably optimal. That’s hopeful. Maybe you have a chance.

If you look at all of these space endeavors and everything, we’re thinking about getting to Mars, getting off the planet, getting to other worlds. Number one thing you got to do is you got to make a fundamental breakthrough in an engine. People dreamed about flying for thousands of years, but until the internal combustion engine, you didn’t have enough energy, enough power in a light enough package in order to solve the problem. And the human race has all sorts of those fundamental engines and materials and techniques that we need to master. And each one of them is a lifetime of experimentation, of someone capable of making a seminal contribution to the body of human knowledge.

There are certain problems like education that could be solved through this process of dematerialization. And by the way, to give props to the 500K algebra teachers, when I look at YouTube for example, one possible approach is each one of those 500,000 teachers probably had days and moments of brilliance. And if they had ability to contribute to in the natural selection process, like the market of education where the best ones rise up, that’s a really interesting way, which is the best day of your life, the best lesson you’ve ever taught could be found and sort of broadcast to billions of people. So all of those kinds of ideas can be made real in the digital world. Now, traveling across planets, you still can’t solve that problem with dematerialization. What you could solve potentially is dematerializing the human brain where you can transfer, like you don’t need to have astronauts on the ship. You can have a floppy disk carrying a human brain

Touching on those points. You’d love for the 500,000 algebra teachers to become 500,000 math specialists, and maybe they clump into 50,000 specialties as teams and they all pursue 50,000 new problems and they put their algebra teaching on autopilot.

Yeah. Yes.

That’s the same as when I give you 11 cents worth of electricity. And you don’t have to row a boat eight hours a day before you can eat. Right.

Yes.

It would be a lot better. That you would pay for your food in the first eight seconds of your day and then you could start thinking about other things. Right. With regard to technology, one thing that I learned studying technology, when you look at S-curves, is until you start the S-curve, you don’t know whether you’re 100 from viability, 1000 years from viability or a few months from viability. So,-

Isn’t that fun? That’s so fun. The early part of the S-curve is so fun because you don’t know.

In 1900 you could have got any number of learned academics to give you 10,000 reasons why humans will never fly.

Yeah.

Right. And in 1903, the Wright brothers flew, and by 1969 we’re walking on the moon. So the advance that we made in that field was extraordinary. But for the 100 years and 200 years before, they were just back and forth and nobody was close. And that’s the happy part. The happy part is we went from flying 20 miles an hour or whatever to flying 25,000 miles an hour in 66 years. The unhappy part is I studied aeronautical engineering at MIT in the 80s. And in the 80s we had Gulfstream aircraft, we had Boeing 737s, we had the space shuttle. And you fast-forward 40 years and we pretty much had the same exact aircraft. The efficiency of the engines was 20, 30% more.

Yeah.

Right. We slammed into a brick wall around 69 to 75. In fact, the Global Express, the Gulfstream, these were all engineered in the 70s, some in the 60s. The fuselage silhouette of a Gulfstream of a G5 was the same shape as a G4 is the same shape as a G3, is the same shape as a G2. And that’s because they were afraid to change the shape for 40 years because they worked it out in a wind tunnel. They knew it worked. And when they finally decided to change the shape, it was like a $10 billion exercise with modern supercomputers and computational fluid dynamics.

Why was it so hard? What is that wall made of that you slammed into?

The right question is, so why does the guy that went to MIT that got an aeronautical engineering degree, spent his career in software? Why is it that I never a day in my life with the exception of some Air Force Reserve work, I never got paid to be an aeronautical engineer, and I worked in software engineering my entire career.

Well, maybe software engineering is the new aeronautical engineering in some way. Maybe you hit fundamental walls until you have to return to it centuries later, or no.

The National Gallery of Art was endowed by a very rich man, Andrew Mellon, and you know how he made his money? Aluminum. Okay. And you know what kind of airplanes you can create without aluminum? Nothing. Nothing, right?

So it’s a materialist problem.

Okay. So 1900, we made massive advances in metallurgy, right? I mean, that was US Steel, that was iron to steel, aluminum, massive fortunes were created because this was a massive technical advance. And then we also had the internal combustion engine and the story of Ford and General Motors and DaimlerChrysler and the like is informed by that. So you have no jet engines, no rocket motors, no internal combustion engines, you have no aviation. But even if you had those engines, if you were trying to build those things with steel, no chance. You had to have aluminum. So there’s two pretty basic technologies, and once you have those two technologies, stuff happens very fast. So tell me the last big advance in jet engines. There hasn’t been one there. The last big advance in rocket engines. Hasn’t been one. The big advances in spaceship design, from what I can see are in the control systems, the gyros and the ability to land, right, in a stable fashion. That’s pretty amazing, landing a rocket.

Also in the, at least according to the Elon and so on, the manufacture of more efficient and less expensive manufacturer of rockets. So it’s a production, whatever that you call that discipline of at scale manufacture, at scale production. So factory work, but it’s not 10X. I mean maybe it’s 10X over a period of a few decades.

When we figure out how to operate a spaceship on the water in your water bottle for a year.

Yeah.

Right. Now, then you’ve got a breakthrough. So the bottom line is propulsion technology, propellants, and the materials technology, they were critical to getting on that aviation S-curve. And then we slammed into a wall in the 70s and the Boeing 747, the Global Express, the Gulfstream, these things were, the space shuttle, they were all pretty much reflective of that. And then we stopped. And at that point, you have to switch to a new S-curve. So the next equivalent to the internal combustion engine was the CPU, and the next aluminum equivalent was silicon.

So when we actually started developing CPUs, transistor gave way to CPUs. And if you look at the power, right, the bandwidth that we had on computers and Moore’s law, right? What if the efficiency of jet engines had doubled every three years, right, in the last 40 years where we be right now? Right. So I think that if you’re a business person, if you’re looking for a commercially viable application of your mind, then you have to find that S-curve. And ideally you have to find it in the first five, six, 10 years. But people always miss this. Let’s take Google Glass, right? Google Glass was an idea 2013. The year is 2022. And people were quite sure this was going to be a big thing but,-

And it could have been at the beginning of the S-curve.

But fundamentally, we didn’t really have an effective mechanism. I mean, people getting vertigo and their,-

But you didn’t know that at the beginning of the S-curve, right? I mean, maybe some people had a deep intuition about the fundamentals of augmented reality, but you don’t know that. You don’t have those, you’re looking through the fog. You don’t know.

So the point is, we’re year zero in 2013, and we’re still year zero in 2022 on that augmented reality. And when somebody puts out a set of glasses that you can wear comfortably without getting vertigo, right, without any disorientation that managed to have the stability and the bandwidth necessary to sync with the real world, you’ll be in year one. And from that point, you’ll have a 70 year or some interesting future until you slam into a limit to growth.

Yeah.

And then it’ll slow down. And this is the story of a lot of things, right? I mean, John D. Rockefeller got in the oil business in the 1860s, and the oil business as we understood it became fairly mature by the 1920s to 30s. And then it actually stayed that way until we got to fracking, which was like seven years later, and then it burst forward, so.

The interesting story about Moore’s law though is that you get this constant burst of S-curves, on top of S-curves, on top of S-curves. It’s like the moment you start slowing down or almost ahead of you slowing down, you come up with another innovation, another innovation. So Moore’s law doesn’t seem to happen in every technological advancement. It seems like you only get a couple of S-curves and then you’re done for a bit. So I wonder what the pressures there are that resulted in such success over several decades and still going.

Humility dictates that nobody knows when the S-curve kicks off, and you could be 20 years early or 100 years early. Leonardo da Vinci, Michelangelo, they were designing flying machines hundreds and hundreds of years ago. So humility says you’re not quite sure when you really hit that commercial viability. And it also dictates you don’t know when it ends. When will the party stop? When will Moore’s law stop and we’ll get to the point where they’re exponentially diminishing returns on silicon performance and just like we got exponentially diminishing returns on jet engines, and it just takes an exponential increase in effort to make it 10% better, but while you’re in the middle of it, then you know can do things.

So the reason that the digital revolution is so important is because the underlying platforms, the bandwidth and the performance of the components, and I say the components are the radio protocols, mobile protocols, the batteries, the CPUs, and the displays. Right. Those four components are pretty critical. They’re all critical in the creation of an iPhone. I wrote about it in the book, The Mobile Wave, and they catalyzed this entire mobile revolution. Because they have advanced and continue to advance, they created the very fertile environment for all these transformations. And the digital transformations themselves, right, they call for creativity in their own. Right.

I think the interesting thing about let’s take digital maps. Right. When you conceptualize something as a dematerialized map, right, it becomes a map because I can put it on a display like an iPad or I can put it in a car like a Tesla. But if you really want to figure it out, you can’t think like an engineer. You need to think like a fantasy writer. This is where it’s useful if you played Dungeons and Dragons and you read Lord of the Rings and you studied all the fantasy literature, because when I dematerialize the map, first I put 10 million pages of satellite imagery into the map. Right.

That’s a simple physical transform. But then I start to put telemetry into the map, and I keep track of the traffic rates on the roads, and I tell you whether you’ll be in a traffic jam if you drive that way, and I tell you which way to drive. And then I start to get feedback on where you’re going. And I tell you, the restaurant’s closed and people don’t like it anyway. And then I put an AI on top of it and I have it drive your car for you. And eventually the implication of digital transformation of maps is I get into a self-driving car and I say, take me someplace cool where I can eat.

Yeah.

Right. And how did you get to that last step? Right. It wasn’t simple engineering. There’s a bit of fantasy in there, a bit of magic.

Design, art, whatever the heck you call it, it’s whatever. Yeah. Fantasy injects magic into the engineering process. Imagination precedes great revolutions in engineering. It’s like imagining a world, like of what you can do with the display. How will the interaction be? That’s where Google Glass actually came in, augmented reality, virtual reality, people are playing in the space of sci-fi, imagination.

They called it a moonshot. They tried, it didn’t work, but to their credit, they stopped trying.

And then there’s new people. They keep dreaming. Dreamers all around us. I love those dreamers. And most of them fail and suffer because of it, but some of them win Nobel Prizes or become billionaires.

Well, what I would say is if half the civilization dropped what they were doing tomorrow and eagerly started working on launching a rocket to Alpha Centauri, it might not be the best use of our resources because it’s kind of like if half of Athens in the year 500 BC eagerly started working on flying machines. If you went back and you said, what advice would you give them, you would say, it’s not going to work until you get to aluminum. And you’re not going to get to aluminum until you work out the steel and certain other things. And you’re not going to get to that until you work out the calculus of variations and some metallurgy. And there’s a dude Newton that won’t come along for quite a while and he’s going to give you the calculus to do it. And until then, it’s hopeless.

So you might be better off to work on the aqueduct or to focus upon sales or something. So if I look at this today, I say there’s massive profound civilization advances to be made through digital transformation of information. And you can see them. This is not the story of today, right? It’s 10 years old, what we’ve been seeing.

We’re living through different manifestations of that story today too though, like social media, the effects of that is very interesting because ideas spread even, you talk about velocity of money, the velocity of ideas keeps increasing.

Yeah.

So Wikipedia is a passive store. It’s a store of knowledge. Twitter is like a water hose or something. It’s like spraying you with knowledge whether you want it or not. It’s like social media is just like this explosion of ideas. And then we pick them up and then we try to understand ourselves because the drama of it also plays with our human psyche. So sometimes there’s more ability for misinformation, for propaganda to take hold. So we get to learn about ourselves, we get to learn about the technology that can decelerate the propaganda, for example, all that kind of stuff. But the reality is we’re living, I feel like we’re living through a singularity in the digital information space, and we don’t have a great understanding of exactly how it’s transforming our lives.

And this is where money is useful as a metaphor for significance. Because if money is the economic energy of the civilization, then something that’s extraordinarily lucrative that’s going to generate a monetary or a wealth increase is a way to increase the net energy and the civilization. And ultimately, if we had 10 times as much of everything, we’d have a lot more free resources to pursue all of our advanced scientific and mathematical and theoretical endeavors. So let’s take Twitter. Right. Twitter’s something that could be 10 times more valuable than it is. Right. Twitter could be made 10 times better.

Oh, by the way, I should say that people should follow you on Twitter. Your Twitter account is awesome.

Thank you. Thank you.

It could be made 10 times better. Yeah.

Yeah, Twitter can be made 10 times better. If we take YouTube or take education, we could generate a billion PhDs. And the question is, do you need any profound breakthrough in materials or technology to do that? The answer is not really. Right. So if you want to, you could make Apple, Amazon, Facebook, Google, Twitter, all these things better. The United States government, if they took 1% of the money they spend on the Department of Education and they simply poured it into digital education and they gave degrees to people that actually met those requirements, they could provide 100X as much education for one 100th of the cost, and they could do it with no new technology. That’s a marketing and political challenge.

So I don’t think every objective is equally practical. And I think the benefit of being an engineer or thinking about practical achievements is when the government pursues an impractical objective or when anybody, an entrepreneur, not so bad with an entrepreneur because they don’t have that much money to waste. When a government pursues an impractical objective, they squander trillions and trillions of dollars and achieve nothing. Whereas if they pursue a practical objective or if they simply get out of the way and do nothing and they allow the free market to pursue the practical objectives, then I think you can have profound impact on the human civilization.

And if I look at the world we’re in today, I think that there are multi- trillion 10, 20, $50 trillion worth of opportunities in the digital information realm yet to be obtained. But there’s hundreds of trillions of dollars of opportunities in the digital energy realm that not only are they not obtained, the majority of people don’t even know what digital energy is. Most of them would reject the concept. They’re not looking for it. They’re not expecting to find it. It’s inconceivable because it is a paradigm shift, but in fact, it’s completely practical. Right under our nose. It’s staring at us, and it could make the entire civilization work dramatically better in every respect. Digital energy and assets

So you mentioned in the digital world, digital information is one, digital energy is two, and the possible impact on the world and the set of opportunities available in the digital energy space is much greater. So how do you think about digital energy? What is it?

So I’ll start with Tesla. He had a very famous quote. He said, “If you want to understand the universe, think in terms of energy, vibration< and frequency." And it gets you thinking about what is the universe? And of course, the universe is just all energy. And then what is matter? Matter is low frequency energy. And what are we? We're vibrating, ashes to ashes, dust to dust. I can turn a tree into light. I can turn light back into a tree. If I consider the entire universe, and it's very important because we don't really think this way. Let's take the New York disco model. If I walk into a nightclub and there's loud music blaring in New York City, what's really going on there? Right. If you blast out 14 billion years ago, the universe is formed. Okay, that's a low frequency thing. The universe. Four and a half billion years ago, the sun, maybe the earth are formed. The continents are 400 million years old. The shift that New York City is on is some hundreds of millions of years, but the Hudson River is only 20,000 years.

There’s a building that’s probably 50 years old. There’s a company operating that disco or that club, which is five to 10 years old. There’s a person, a customer walking in there for an experience for a few hours. There’s music that’s oscillating at some kilohertz, and then there’s light.

Right.

And you have all forms of energy, all frequencies, right, all layered, all moving through different medium. And how you perceive the world is the question of at what frequency do you want to perceive the world? And I think that once you start to think that way, you’re catalyzed to think about what would digital energy look like and why would I want it? And what is it? So why don’t we just start right there. What is it? The most famous manifestation of digital energy is Bitcoin. Bitcoin’s a crypto asset. It’s a crypto asset that has monetary value.

Can we just linger on that? Bitcoin is digital asset that has monetary value. What is a digital asset? What is monetary? Why use those terms versus the words of money and currency? Is there something interesting in that disambiguation of different terms?

I’d call it a crypto asset network. The goal is to create a billion dollar block of pure energy in cyberspace, one that I could then move with no friction at the speed of light. Right. It’s the equivalent to putting a million pounds in orbit. How do I actually launch something into orbit? Right. How do I launch something into cyberspace such that it moves friction free? And the solution is a decentralized proof-of-work network. Right. Satoshi’s solution was, I’m going to establish protocol running on a distributed set of computers that will maintain a constant supply of never more than 21 million Bitcoins subdividable by 100 million Satoshis each transferable via transferring private keys. Now, the innovation is to create that in a ethical, durable fashion. Right. The ethical innovation is I want it to be property and not a security. A bushel of corn, an acre of land, a stack of lumber, and a bar of gold and a Bitcoin are all property. And that means they’re all commonly occurring elements in the world.

… they’re all commonly occurring elements in the world. You could call them commodities, but commodity is a little bit misleading, and I’ll tell you why in a second. But they’re all distinguished by the fact that no one entity or person or government controls them. If you have a barrel of oil and you’re in Ukraine versus Russia versus Saudi, Arabia versus the US, you have a barrel of oil, right? And it doesn’t matter what the premier in Japan or the mayor of Miami Beach thinks about your barrel of oil, they cannot wave their hand and make it not a barrel of oil or a cord of wood. And so property is just a naturally occurring element in the universe.

Why use the word ethical? And sorry, I may interrupt occasionally. Why ethical assigned to property?

Because if it’s a security, a security would be an example of a share of a stock or a crypto token controlled by a small team. And in the event that something is a security because some small group or some identifiable group can control its nature, character, supply, then it really only becomes ethical to promote it or sell it pursuant to fair disclosures. So, I’ll give you maybe practical example. I’m the mayor of Chicago. I give a speech. In my speech, I’ll say, “I think everybody in Chicago should own their own farm and have a chicken in the backyard and their own horse and an automobile.” That’s ethical. I give the same speech and I say, “I think everybody in Chicago should buy Twitter stock. Sell their house or sell their cash and buy Twitter stock.” Is that ethical? Not really. But at that point you’ve entered into a conflict of interest because what you’re doing is you’re promoting an asset which is substantially controlled by a small group of people, the board of directors or the CEO of the company.

So, how would you feel if the president of the United States said, “I really think Americans should all buy Apple stock,” especially if you worked at Google. But if you worked anywhere, you’d be like, “Why isn’t he saying buy mine?” Right? A security is a proprietary asset in some way, shape or form. And the whole nature of securities law, it starts from this ancient idea, thou shalt not lie, cheat or steal. Okay? If I’m going to sell you securities or I’m going to promote securities as a public figure or as an influencer or anybody else. If I create my own Yo-Yo coin or Mikey coin, and then there’s a million of them, and I tell you that I think that it’s a really good thing, and Mikey coin will go up forever and everybody buys Mikey coin and then I give 10 million to you and don’t tell the public, I’ve cheated them.

Maybe if I have Mikey coin and I think there’s only 2 million Mikey coin, and I swear to you there’s only 2 million, and then I get married and I have three kids and my third kid is in the hospital and my kid’s going to die and I have this ethical reason to print 500,000 more Mikey coin or else people are going to die, and everybody tells me it’s fine, I’ve still abused the investor, right? It’s an ethical challenge. If you look at ethics laws everywhere in the world, they all boil down to having a clause which says that if you’re a public figure, you can’t endorse a security. You can’t endorse something that would cause you to have a conflict of interest.

So, if you’re a mayor, a governor, a country, a public figure, an influencer, and you want to promote or promulgate or support something using any public influence or funds or resources you may have, it needs to be property. It can’t be security. So, it goes beyond that, right? I mean, would the Chinese want to support an American company? As soon as you look at what’s in the best interest of the human race, the civilization, you realize that if you want an ethical path forward, it needs to be based on common property, which is fair. And the way you get to a common property is through an open permissionless protocol. If it’s not open, if it’s proprietary and I know what the code says and you don’t know what the code says, that makes it a security.

If it’s permissioned, you’re not allowed on my network. Or if you can be censored or booted off my network, that also makes it a security. When I talk about property, I mean the challenge here is how do I create something that’s equivalent to a barrel of oil in cyberspace? And that means it has to be a non-sovereign bearer instrument, open, permissionless, not censorable, right? If I could do that, then I could deliver you 10,000 dematerialized barrels of oil and you would take settlement of them and you would know that you have possession of that property, irregardless of the opinion of any politician or any company or anybody else in the world.

That’s a really critical characteristic. And it actually is, it’s probably one of the fundamental things that makes Bitcoin special. Bitcoin isn’t just a crypto-asset network. It’s easy to create a crypto-asset network. It’s very hard to create an ethical crypto-asset network because you have to create one without any government or corporation or investor exercising into influence to make it successful. Oil barrel vs Bitcoin

So open, permissionless, noncensorable. So basically no way for you without explicitly saying so, outsourcing control to somebody else. So it’s a kind of, you have full control. Even with a barrel of oil, what’s the difference between a barrel of oil and a Bitcoin to you? Because you kind of mentioned that both are property. You mentioned Russia and China and so on. Is it the ability of the government to confiscate? In the end, governments can probably confiscate no matter what the asset is, but you want to lessen the effort involved.

And barrel oil is a bucket of physical property. Liquid property.

That’s very [inaudible 01:49:27].

And Bitcoin is a digital property.

But it’s easier to confiscate a barrel of oil.

It’s easier to confiscate things in the real world than things in cyberspace, much easier.

So, that’s not universally true. Some things in the digital space are actually easier to confiscate because just the nature of how things move easily with information, right?

I think in the Bitcoin world, what we would say is that Bitcoin is the most difficult property that the human race possesses or has yet invented to confiscate. And that’s by virtue of the fact that you could take possession of it via your private keys. So, if you’ve got your 12 seed phrases in your head, then that would be the highest form of property, right? Because I literally have to crack your head open and read your mind to take it. It doesn’t mean I couldn’t extract it from you under duress, but it means that it’s harder than every other thing you might own. In fact, it’s exponentially harder.

If you consider every other thing you might own. A car, a house, a share of stock, gold, diamonds, property rights, intellectual property rights, movie rights, music rights. Anything imaginable, they would all be easier by orders and orders of magnitude to seize. So, digital property in the form of a set of private keys is by far the apex property of the human race. In terms of ethics, I want to make one more point. It’s like I might say to you, “Lex, I think Bitcoin is the best, most secure, most durable crypto asset network in the world, it’s going to go up forever and there’s nothing better in the world.

I might be right, I might be wrong, but the point is because it’s property, it’s ethical for me to say that. If I were to turn around and say, “Lex, I think the same about MicroStrategy stock, MSTR, that’s a security. Okay? If I’m wrong about that, I have civil liability or other liability because I could go to a board meeting tomorrow and I could actually propose we issue a million more shares of MicroStrategy stock. Whereas the thing that makes Bitcoin ethical for me to even promote is the knowledge that I can’t change it. If I knew that I could make it 42 million instead of 21 million and I had the button back here, then I have a different degree of ethical responsibility.

Now, I could tell you your life will be better if you buy Bitcoin, and it might not. You might go buy Bitcoin, you might lose the keys and be bankrupt and your life ends and your life is not better because you bought Bitcoin. But it wouldn’t be my ethical liability any more than if I were to say, “Lex, I think you ought to get a farm. I think you should be a farmer. I think a chicken in every pot, you should get a horse. I think you’d be better.” I mean, they’re all opinions expressed about property, which may or may not be right that you may or may not agree with. But in a legal sense, if we read the law, if we understand securities law… And I would say most people in the crypto industry, they didn’t take companies public and so they’re not really focused on the securities law. They don’t even know the securities law.

If you focus on the securities law, that would say you just can’t legally sell this stuff to the general public or promote it without a full set of continuing disclosures signed off on by a regulator. So, there’s a fairly bright line there with regard to securities, but when you get to the secondary issue, it’s how do you actually build a world based on digital property if public figures can’t embrace it or endorse it? You see? So, you’re not going to build a better world based upon Twitter stock, if that’s your idea of property, because Twitter stock is a security, and Twitter stock is never going to be a non-sovereign bearer instrument in Russia, right? Or in China, it’s not even legal in China.

It’s not a global permissionless, open thing. It will never be trusted by the rest of the world, and legally it’s impractical. But would you really want to put a hundred trillion dollars worth of economic value on Twitter stock if there’s a board of directors and a CEO that could just get up and take half of it tomorrow? The answer is no. So, if you want to build a better world based on digital energy, you need to start with constructing a digital property, and I’m using property here-

Open, permissionless, [inaudible 01:54:30]-

In the legal sense, but I would also go to the next step and say property is low frequency money. So, if I give you a million dollars and you want to hold it for a decade, you might go buy a house with it and the house is low frequency money. You converted the million dollars of economic energy into a structure called a house. Maybe after a decade you might convert it back into energy. You might sell the house for currency and it’ll be worth more or less depending upon the monetary climate you sell in.

The frequency means what here? How quickly it changes state>

How quickly does something vibrate? If I transfer $10 from me to you for a drink, and then you turn around and you buy another, right? We’re vibrating on a frequency of every few hours. The energy is changing hands, but it’s not likely that you sell and buy houses every few hours. The frequency of a transaction in real estate is every 10 years, every five years. It’s much lower frequency transaction. And so when you think about what’s going on here, you have extremely low frequency things, which we’ll call property. Then you have mid-frequency things. I’m going to call them money or currency. And then you have high frequency, and that’s energy.

And that’s why I use the illustration of you got the building, you got the light and you got the sound, and they’re all just energy moving at different frequencies. Now, Bitcoin is magical and it is truly the innovation. It’s like a singularity because it represents the first time in the history of the human race that we managed to create a digital property, properly understood. It’s easy to create something digital, right? Every coupon and every scan on Fortnite and Roblox and Apple TV credits and all these things, they’re all digital something, but they’re securities, right?

Shares of stock are securities. Whenever anybody transfers, when you transfer money on PayPal or Apple Pay, you’re transferring in essence, a security or an IOU. So, transferring a bearer instrument with final settlement in the internet domain or in cyberspace, that’s a critical thing. And anybody in the crypto world can do that. All the cryptos can do that. But what they can’t do, what 99% of them fail to do is be property. They’re securities.

Well, there’s a line there I’d like to explore a little further. For example, what about when you… Like Coinbase or something like that, when there’s an exchange that you buy Bitcoin in, you start to move away from this kind of, some of the aspects that you said makes up a property, which is this noncensorable and permissionless and open. So, in order to achieve the convenience, the effectiveness of the transfer of energy, you have to leverage some of these [inaudible 01:58:10] that remove the aspects of property. So, maybe you can comment on that. Layers of Bitcoin

Let me give you a good model for that. If you think about the layer one of Bitcoin, the layer one is the property settlement layer, and we’re going to do 350,000 transactions or less a day, a hundred million transactions a year is the bandwidth on the layer one. And it would be an ideal layer of one to move a billion dollars from point A to point B with a massive security. The role of the layer one is two things. One thing is I want to move a large sum of money through space with security. I can move any amount of Bitcoin in a matter of minutes for dollars on layer one.

The second important feature of the layer one is I need the money to last forever. I need the money indestructible, immortal. So, the bigger trick is not to move a billion dollars from here to Tokyo. The big trick is to move a billion dollars from here to the year 2140. And that’s what we want to solve with layer one. And the best real metaphor in New York City would be the granite or the schist. What you want is a city block of a bedrock. And how long has it been there? Millions of years it’s been there. And how fast do you want it to move? You don’t. In fact, the single thing that’s most important is that it not deflect. If it deflects a foot in a hundred years, it’s too much. If it deflects an inch in a hundred years, you might not want that.

So, the layer one of Bitcoin is a foundation upon which you put weight. How much weight can you put on it? You put a trillion, 10 trillion, a hundred trillion, a quadrillion. How much weight’s on the bedrock in Manhattan, right? Think about hundred story buildings. So, the real key there is the foundational asset needs to be there at all. The fact that you can create a hundred trillion dollars layer one that would stand for a hundred years, that is the revolutionary breakthrough first time.

And the fact that it’s ethical, right? It’s ethical and it’s common property, global, permissionless. Extremely unlikely that would happen. People tried 50 times before and they all failed. They tried 15,000 times after, and they’ve all been… They’ve all generally failed. 98% have failed and a couple have been less successful. But for the most part, that’s an extraordinary thing. Now-

Just really quickly pause, just to define some terms. If maybe people don’t know, layer one that Michael’s referring to is in general what people know of as the Bitcoin technology originally defined. Which is there’s blockchain, there’s a consensus mechanism of proof of work, low number of transactions, but you can move a very large amount of money.

The reason he’s using the term layer one is now that there’s a lot of ideas of layer two technologies that built on top of this bedrock that allow you to move a much larger number of transactions, sort of higher frequency, I don’t know how would terminology want to use, but basically be able to use now something that is based on Bitcoin to then buy stuff, be a consumer, to transfer money, to use it as currency. Just to define some terms.

Yeah. So, the layer one is the foundation for the entire cyber economy, and we don’t want it to move fast. What we want is immortality. Immortal, incorruptible, indestructible. That’s what you want, integrity from the layer one. Now there’s layer two and layer three and layer two I would define as an open, permissionless, non-custodial protocol that uses the underlying layer one token as its gas fee.

So, what’s custodial mean and how does the different markets… Like is Lightning network-

So, Lightning Network would be an example of a layer two, non-custodial. The Lightning Network will sit on top of layer one. It’ll sit on top of Bitcoin and it solves… What you want to do is solve the problem of, “It’s well and fine. I don’t want to move a billion dollars every day. What I want to move is $5 a billion times a day.” So, if I want to move $5 a billion times a day, I don’t really need to put the entire trillion dollars of assets at risk every time I move $5. All I really need to do is put a hundred thousand dollars in a channel or a million dollars in a channel, and then I do 10 million transactions where I have a million dollars at risk.

And of course, it’s kind of simple. If I lower my security requirement by a factor of a million, I can probably move the stuff a million times faster. And that’s how Lightning works. It’s non-custodial because there’s no corporation or custodian or counterparty you’re trusting, right? There’s the risk of moving through the channel. But Lightning is an example of how I go from 350,000 transactions a day to 350 million transactions a day. So, on that layer two, you could move the Bitcoin in seconds for fractions of pennies.

Now, that’s not the end all, be all because the truth is there are a lot of open protocols. Lightning probably won’t be the only one. There’s an open market competition of other permissionless, open source protocols to do this work. And in theory, any other crypto network that was deemed to be property, deemed to be non-security, you could also think of as potentially a layer two to Bitcoin. There’s a debate about are there any and what are they? And we could leave that for a later time.

But why do you think of them as layer two as opposed to contending for layer one?

Yeah, actually, if they’re using their own token, then they are a layer one. If you create an open protocol that uses the Bitcoin token as the fee, then it becomes a layer two. Bitcoin itself incentivizes its own transactions with its own token, and that’s what makes it layer one.

Okay, what’s layer three then?

Layer three is a custodial layer. So, if you want to move Bitcoin in milliseconds for free, you move it through Binance or Coinbase or Cash App. This is a very straightforward thing. I mean, it seems pretty obvious when you think about it that there are going to be hundreds of thousands of layer threes. There may be dozens of layer twos. I mean, Lightning is a one, but it’s not the only one, anybody can invent something. And we can have this debate about custodial, non-custodial.

Don’t you think there’s a monopolization possibilities at layer three. You mentioned Binance, Coinbase. What if they start to dominate and basically everybody’s using them practically speaking, and then it becomes too costly to memorize the private key in your brain or like a cold storage of layer one technology.

The idealists fear the layer threes because they think… And especially they detest, they would detest a bit… There’s almost like a layer four, by the way, if you want to. A layer four would be, I’ve got Bitcoin on an application, but I can’t withdraw it. So, I’ve got an application that’s backed by Bitcoin, but the Bitcoin is sealed. It’s a proprietary example, and I’ll give you an example of that. That would be like Grayscale. If I own a share of GBTC, so I own a security. Actually, you could own MSTR. If you own a security or you own a product that has Bitcoin embedded in it, you get the benefits of Bitcoin, but you don’t have the ability to withdraw the asset.

To get on the security market at layer four? Am I understanding this correctly?

I don’t know if I would say… Not all securities are layer four, but anything that’s a proprietary product with Bitcoin embedded in it where you can’t withdraw the Bitcoin is another application of Bitcoin. If you think about different ways you can use this, you can either stay completely on the layer one and use the base chain for your transactions, or you can limit yourself to layer one and layer two, Lightening. And the purist would say, “We stay there, get your Bitcoin off the exchange.” But you could also go to the layer three.

When Cash App supported Bitcoin, they made it very easy to buy it, and then they gave you the ability to withdraw. When PayPal or I think Robinhood let you buy it, they wouldn’t let you withdraw it and it was a big community uproar and people, they want these layer threes to make it possible to withdraw the Bitcoins. You can take it to your own private wallet and get it off the exchange. I think the answer to the question of, “Well, is corruption possible?” Is corruption is possible in all human institutions and all governments everywhere. The difference between digital property and physical property is when you own a building in Los Angeles and the city politics turn against you, you can’t move the building.

And when you own a share of a security that’s like a US traded security and you wish to move to some other country, you can’t take the security with you either. And when you own a bunch of gold and you try to get through the airport, they might not let you take it. So, Bitcoin is advantageous versus all those because you actually do have the option to withdraw your asset from the exchange. If you had Bitcoin with Fidelity and you had shares of stock with Fidelity, and if you had bonds and sovereign debt with Fidelity, and if you own some mutual funds and some other random limited partnerships with Fidelity, none of those things can be removed from the custodian. But the Bitcoin, you can take off the exchange, you can remove from the custodian.

It’s still possible though-

There’s a deterrent.

Yes.

There’s a deterrent. That’s an anti-corrupting element. And the phrase is, “An armed society is a polite society,” right? Because you have the optionality to withdraw all your assets from the crypto exchange, you can enforce fairness. And at the point where you disagree with their policies, you can within an hour move your assets to another counterparty or take personal custody of those assets and you don’t have that option with most other forms of property. You don’t have as much optionality with any other form of property on earth. And so what makes digital property distinct is the fact that it has the most optionality for custody.

Now, coming back to this digital energy issue, the real key point is the energy moves in milliseconds for free on layer threes. It moves in seconds or less than seconds on layer twos, it moves in minutes on the layer one. And I don’t think it makes any sense to even think about trying to solve all three problems on the layer one because it’s impossible to achieve the security and the incorruptibility and immortality if you try to build that much speed and that functionality and performance.

In fact, if you come back to the New York model, you really wanted a block of granite, a building and a company. That’s what makes the economy right? If I said to you, “You’re going to build a building, but you can only have one company in it for the life of the building,” it would be very fragile, very brittle. What company a hundred years ago is still relevant today? You want all three layers because they all oscillate at different frequencies. And there’s a tendency to think, “Well, it’s got to be this L1 or that L1.” Not really. And sometimes people think, “Well, I don’t really want any L3.”

But companies, it’s not an even/or. Companies are better than crypto asset networks at certain things. If you want complexity, you want to implement complexity or you want to implement compliance or customer service. Companies do these things well. We know you couldn’t decentralize Apple or Netflix or even YouTube. The performance wouldn’t be there and the subtlety wouldn’t be there. And you can’t really legally decentralize certain forms of banking and insurance because they would become illegal in the political jurisdiction they’re in.

So, unless you’re a crypto anarchist and you believe in no companies and no nation states, which is just not very practical, not anytime soon. Once you allow that nation states will continue and companies have a role, then the layered architecture follows, and the free market determines who wins. For example, there are layer threes that let you acquire Bitcoin and withdraw Bitcoin. There are other applications that let you acquire but not withdraw it, and they don’t get the same market share, but they might give you some other advantage. There are certain layer threes, like Jack Dorsey’s Cash App where they just incorporated Lightning, an implementation of it.

Into Cash App?

So, that makes it advantageous versus an application that doesn’t incorporate Lightning. If you think about the big picture, the big picture is 8 billion people with mobile phones served by a hundred million companies doing billions of transactions an hour. And the companies are settling with each other on the base layer in blocks of 80 million at a time. And then the companies are trading with the consumers in proprietary layers, like layer three. And then on occasion, people are shuffling assets across custodians with Lightning layer two, because you don’t want to pay $5 to move $50. You want to pay a 20th of a penny to move $50.

And so all of these things create efficiency in the economy. And Lex, if you want to consider how much efficiency. If you gave me a billion dollars in 20 years, I couldn’t find a way to trade with another company or a counterparty in Nigeria. No amount of money. Give me %10 billion, I couldn’t do it because you get shut down at the banking level. You can’t link up a bank in Nigeria with a bank in the US. You get shut down at this credit card level because they don’t have the credit card, so they won’t clear. You get shut down at the compliance FCPA level because you wouldn’t be able to implement a system that interfaced with somebody else’s system if it’s not in the right political jurisdiction.

On the other hand, three entrepreneurs in Nigeria on the weekend could create a website that would trade in this Lightning economy using open protocols without asking anybody’s permission. So, you’re talking about something that’s like a million times cheaper, less friction, and faster to do it if you want to get money to move. Bitcoin’s role during wartime

What do you think that looks like? So, now there’s a war going on in Ukraine. There’s other wars, Yemen, going on throughout the world. In this most difficult of states that a nation can be in, which is at war, civil war, or war with other nations, what’s the role of Bitcoin in this context?

I mean, Bitcoin is a universal trust protocol. A universal energy protocol, if you will. English is one. What I see is a bunch of fragmentation of applications-

Okay. What I see is a bunch of fragmentation of applications. For example, the Russian payment app is not going to work in Ukraine.

Right.

The Ukraine payment app is not going to work in Russia. The US payment apps won’t work either of those places as far as I know. So in Argentina, their payment app may not work in certain parts of Africa. So what you have is different local economies where people spin up their own applications compliant with their own local laws or in war zones, not compliant, but just spinning up.

So how do you build something that’s not compliant? What is the revolutionary act here when you don’t agree with the government or what you want to free yourself from the… So here’s the thing. When a nation is really at war, especially if it’s an authoritarian regime, it’s going to try to control the pipe, lock everything down, the spread of information. How do you break through that? Do you do the thing that you mentioned, which is you have to build another app essentially that allows you to flow of money outside the legal constraints placed on you by the government? So basically break the law, is that possible?

Metaphorically speaking, if you want to break out of the constraints of your culture, you learn to speak English. For example, it’s not illegal to speak English. Even if it is, does it matter? But English works everywhere in the world if you can speak it, and then you can tap into a global commerce and intelligence network. So Bitcoin is a language. So you learn to speak Bitcoin or you learn to speak Lightning, and then you tap into that network in whatever manner you can.

But the problem is it’s still very difficult to move Bitcoin around in Russia and Ukraine now during war. And there was a sense to me that the cryptocurrency in general could be the savior for helping people. There’s millions of refugees that are moving all around. It’s very difficult to move money around in that space to help people.

I think we’re very early. We’re very embryonic here. If you look at the-

Who’s we? Sorry, we as a human civilization or we operating in the cryptocurrency space?

I think the entire crypto economy is very embryonic and the human race’s adoption of it is embryonic. We’re like 1%, 2% down that adoption curve. If you take Lightning for example, the first real commercial applications of Lightning are just in the last 12 months. So we’re like year one. We might be approaching year two of commercial Lightning adoption. And if you look at Lightning adoption, Lightning’s not built into Coinbase, is not built into Binance, is not built into FTX. Cash App just implemented the first implementation, but not all the features are built into it. There’s a few dozen, a dozen Lightning wallets circulating out there.

So I think that we’re probably going to be 36 months of software development. At the point that every Android phone and every iPhone has a Bitcoin wallet or a crypto wallet in it of sorts, that’s a big deal. If Apple embraced Lightning, that’s a big deal.

So the adoption is the thing… In a war zone adoption, the people who struggle the most in war are people who weren’t doing that great before the war started. They don’t have the technological sophistication.

Sure.

The hackers and all those kinds of people will find a way. It’s just regular people who are just struggling to make day by day living. And so if the adoption permeates the entire culture, then you can start to move money around in the digital space. If you can psychoanalyze Jack Dorsey for a second. So he’s one of the early adopters or he’s one of the people pushing the early adoption, this layer three, so inside Cash App. What do you make of the man of this decision as a business owner, as somebody playing in the space? Why did he do it and what does that mean for others at the scale that might be doing the same? So incorporating Lightning networking, incorporating Bitcoin into their products.

I think he’s been pretty clear about this. He feels that Bitcoin is an instrument of economic empowerment for billions of people that are unbanked and have no property rights in the world. If you want to give an incorruptible bank to 8,000,000,000 people on the planet, that’s the same as asking the question, “How do you give a full education through PhD to 8,000,000,000 people on the planet?” And the answer is a digital version of the 20th century thing running on a mobile phone, and Bitcoin is a bank in cyberspace, is run by incorruptible software and it’s for everybody on earth.

So I think when Jack looks at it, he’s very sensitive to the plight of everybody in Africa. If you look at Africans, you’re going to give them banks. You’re not going to put a bank branch on every corner. That’s an obscene waste of energy. You’re not going to run copper wires across the continent. That’s an obscene waste of energy. You’re not going to give them gold. So how are you going to provide people with a decent life?

The metaphor I think is relevant here, the biological metaphor, Lex, is type one diabetic. If you’re a type one diabetic, you can’t form fat. And if you can’t form fat, then you can’t store excess energy. Fat is the ultimate organic battery, and if you’ve got 30 pounds of it, you can go 60 days without eating. But if you can’t generate insulin, you can’t form fat cells. And if you can’t form fat cells and store energy, then you can eat yourself to death. You will eat and you will die. You’ll starve to death. So the lack of property rights is like being a type one diabetic. And so if you look at most people everywhere in the world, they don’t have property rights, they don’t have effective bank and their currency is broken.

What are the two things that in theory would serve as the equivalent of an organic battery or an economic battery to civilization? It would be I have a currency which holds its value and I can store it in a bank. So a risk-free currency derivative. I pay you your money, you take your life savings, you put it in a bank, you save up for your retirement, you live happily ever after. That’s the American dream, right? That’s the idyllic situation. The real situation is there are no banks. You can’t get a bank account. So I give you your pay in currency and then I double the supply and I give it to my cousin, or I give it to whatever cause I want or I use it to buy weapons. And then you find a loaf of bread costs triple next month as what it costs and your life savings is worthless.

And so in that environment, everybody’s ripped back to Stone Age barter. And the problem with that, even Stone Age barter, is you’re going to carry your life savings on your back. And what happens when the guy with a machine gun points it at your head and just takes your life savings? So I think from Jack’s point of view, he thinks that, this is maybe too strong, but these are my words, life is hopeless for a lot of people and Bitcoin is hope because it gives everyone an engineered monetary asset that’s a bearer instrument and it gives them a bank on their mobile phone and they don’t have to trust their government or another counterparty with their life force.

So there’s a secondary thing I think he’s interested in, which is… The first thing is the human rights issue. And the second thing would be the friction to trade cross borders is so great. You like AI. So I’ll give you a beautiful notion. Maybe one day there’ll be an artificially intelligent creature in cyberspace that is self-sufficient and rich.

It would have sovereignty. You mean-

Can a robot own money or property? How about can a Tesla car? Can I actually put enough money in a car for it to drive itself and maintain itself forever? Or can I create an artificially intelligent creature in cyberspace that is endowed such that it would live 1,000 years and continue to do its job? We have a word for that in the real world. It’s institution, Harvard, Cambridge, Stanford. Right? There are institutions with endowments that go on in perpetuity, but what if I wanted to perpetuate a software program?

And with something like digital property with Bitcoin and Lightning, you could do it. And on the other hand, with banks and credit cards, you couldn’t ever. So you can create things that are beautiful and lasting and what’s the difference in speed? Well, so I can either trade with everybody in the world at the speed of light, friction-free in 24 hours writing a Python script, or I can spend $100 billion to trade with a few million people in the world after it takes them six months of application. The impedance is like a 10,000,000 to one difference, and the metaphors are literally like launching something in orbit versus almost orbit or vacuum sealing something. Does it last forever and does it orbit forever or does it go up and come down and burn up? Right? And I think Jack is interested in putting freedom in orbit, right?

Putting freedom-

Putting freedom in orbit. And he said it many times, he said, “The internet needs a native currency.” Right? And no political construct or security can be a native currency. You need a property and you need a property that can be moved 1,000,000 times a second. Can you oscillate it at 10 kilohertz or 100 kilohertz? And the answer is only if it’s a pure digital construct, permissionless and open. And so I think that he’s enthusiastic as the technologist and he’s enthusiastic as the humanitarian. And what he’s doing is to support both those areas. He’s supporting the Bitcoin and the Lightning protocol by building them into his products, but he’s also building the applications which you need at the Cash App level in order to commercialize and deliver the functionality and the compliance necessary, and they’re related.

And I should also say he’s just a fascinating person for a random reason that I couldn’t even explain if I tried. I met him a few days ago and gave him a great big hug in the middle of nowhere. There was no explanation. He just appeared. That’s a fascinating human. His relationship with art, with the world, with human suffering, with technology is fascinating. I don’t know what his path looks like, but it’s interesting that people like that exist. And in part, I’m saddened that he no longer is involved with Twitter directly as a CEO because I was hoping something inside Twitter would also integrate some of these ideas of what you’re calling digital energy to see how social networks, something I’m really interested in and passionate about, could be transformed.

Let me ask you, just for educational purposes. Can you please explain to me what Web3 and the beef between Jack and Mark Andreessen is exactly? Did you see what happened? Sorry to have you analyze Twitter like it’s Shakespeare, but can you please explain to me why there was any drama over this topic?

First of all, Web3 is a term that’s used to refer to the part of the economy that’s token finance. So if I’m launching an application and my idea is to create a token along with the application and issue the token to the community so as to finance the application and build support for it, I think that that’s the most common interpretation of Web3. There are other interpretations too, so I’m just going to refer to that one. And I think the beef in a nutshell, not articulated, but I’ll articulate it, is whether or not you should focus all your energy creating applications on top of an ethical digital property like Bitcoin or whether you should attempt to create a competitor to it, which generally would be deemed as a security by the Bitcoin community?

So I’m going to put on my Bitcoin hat here. Right? If it’s driven by a venture capitalist, well, it’s a security. If there’s a CEO and a CTO, it’s a security. All these projects, they’re companies. Foundations are companies. Right? If you call them a project or a foundation, it doesn’t make it not a security. They’re all in essence, collections of individuals that are issuing equity in the form of a token. And if there’s a pre-mine, an IPO, an ICO, a foundation or any kind of protocol where there’s a group of engineers that have influence over it, then to a securities lawyer or to most Bitcoiners, and definitely to anybody that’s steeped in securities law, you look at it and say, “Well, that passes the Howey test.” It looks like a security. It should be sold to the public pursuant to disclosures and regulations, and you’re just ducking the IPO process. Right?

And so now we get back to the ethical issue. Well, the ethical issue is if you’re trading it as a commodity and representing it as a commodity, while truthfully it’s a security, then it’s a violation of ethics rules and it’s probably illegal.

Well, you keep leaning on this. Let me push back on that part. Maybe you can educate me, but you keep leaning on this line of securities law, with all due respect to lawyers, as if that line somehow defines what is and isn’t ethical. I think there’s a lot of correlation as you’ve discussed, but I’d like to leave the line aside. If the law calls something a security, it doesn’t mean in my eyes that it is unethical. There could be some technicalities and lawyers and people play games with this kind of stuff all the time. But I take your bigger point that if there’s a CEO, if there’s a project lead that’s fundamentally… Well, that to you is fundamentally different than the structure of Bitcoin.

It’s not that creating securities is unethical. I created security. I took a company public. Right? That’s not the unethical part. It’s completely ethical to create securities. Block is a security, all companies are securities. The unethical part is to represent it as property when it’s a security and to promote it or trade it as such.

This whole promotion, that’s also a technical thing because what counts as not as promotion is a legal thing and you get in trouble for all these things, but that’s the game that lawyers play. There’s an ethical thing here, which is like what’s right to promote a not? To me, propaganda is unethical, but it’s usually not illegal.

You roll clock back 20 years, right? All the boiler room pump and dump schemes were all about someone pitching a penny stock-

Sure.

Selling swampland in Florida. And if you roll the clock forward 20 years, and I create my own company and I represent it as the same thing, and I don’t make the disclosures, you’re just one step removed from the boiler room scheme, and that’s what’s distasteful about it. There are ways to sell securities to the public, but there are expectations. Maybe we could forget about whether the security laws are ethical or not, right? I will leave that alone. We’ll just start with the biblical definition of ethics.

Yes.

Don’t lie, cheat or steal. So if I’m going to sell something to you, I need to fully disclose what I’m selling to you, and that’s a matter of great debate right now. So I think that that’s part of the debate, but the other part of the debate is whether or not we need more than one token, we need at least one. Right?

Yes.

We need at least one digital property.

One is better than zero.

Because zero means there is no digital economy.

Yes.

And by the way, the conventional view of maximalists is they think there’s only one and everything else isn’t. That’s not the point I’m going to make. I would say we know there is at least one digital property and that is Bitcoin. If you can create a truly decentralized, non-custodial bearer instrument that is not under the control of any organization that is fairly distributed, then you might create another or multiple and there may be others out there. But I think that the frustration of a lot of people in the Bitcoin community, and I share this with Jack, is we could create $100 trillion of value in the real world simply by building applications on top of Bitcoin as a foundation. And so continually trying to reinvent the wheel and create competitive things is a massive waste of time and it’s diversion of human creativity. It’s like we have an ethical good thing, and now we’re going to try to create a third or a fourth one. Why? Bitcoin conflict of interest

Well, let’s talk about it. So first of all, I’m with you, but let me ask you this interesting question because we talked about properties and securities. Let’s talk about conflict of interest. You said you could advertise… You have a popular Twitter account. It’s hilarious and insightful. You do promote Bitcoin in a sense. I don’t know if you would say that, but do you think there’s a conflict of interest in anyone who owns Bitcoin, promoting Bitcoin? Is it the same as you promoting farming?

I would say no. There’s an interest. I think that you can promote a property or an idea to the extent that you don’t control it. I think that the point at which you start to have a conflict of interest is when you’re promoting a proprietary product or proprietary security. A security in general is proprietary asset. So for example, if you look at my Twitter, you’ll find that I make lots of statements about Bitcoin. You won’t ever see me making a statement that say micro strategy stock will go it forever. I’m not promoting a security MSTR because at the end of the day, MSTR is a security. It is proprietary. I have proprietary interest in it. I have a disproportionate amount of control and influence on the direction. Whereas-

The control is the problem. The control is the problem because you have interest in both. If Bitcoin is as successful as we’re talking about, you very possibly can become the richest human on earth given how much you own in Bitcoin. The wealthiest, not the richest. I don’t know what those words mean.

I would benefit economically.

You would benefit economically.

That’s true.

So the reason that’s not conflict of interest is because the word property that Bitcoin is an idea and Bitcoin is open-

It’s because I don’t own it. I don’t control it. In essence, the ethical line here is could I print myself 10,000,000 more Bitcoin or not? Right?

Or can anyone? Right? It’s not just you. It’s can anyone? Because can you promote somebody else’s? Yes, I guess you can. Can you promote Apple when you have no stake?

You could have a Twitter account where you promote oil or you promote camping or you promote family values or promote a carnivore diet or promote the Iron Man, right?

But you’re not going to get wealthier if you promote camping because you can’t own a stake in… You own a lot of Bitcoin. What is that? Don’t you own the stake in the idea of Bitcoin?

Yeah, I would grant you that.

But the lack of control is the fundamental ethical line that you don’t have… All you are is you’re a fan of the idea. You believe in the idea and the power of idea.

Yeah, I think-

You can’t take that idea away from others.

Let me give you some maybe easier examples. If you were the Head of the Marine Corps and someone came to you and said, “I created Marinecoin, and the twist on Marinecoin is I want you to tell every Marine that they’ll get an extra Marinecoin when they get their next stripe. And then I’m going to let you buy Marinecoin now, and then after you buy Marinecoin, I want you to promote it to them.” At some point, if you start to have a disproportional influence on it, or if you’re in a conversation with people with disproportionate influence becomes conflict of interest and it would make you profoundly uncomfortable, I think, if the Head of the Marine Corps started promoting anything that looked like a security.

Now, if the Head of the Marine Corps started promoting canoeing, you might think he’s wacky. Maybe that’s a waste of time and a distraction. But to the extent that canoeing is not a security, not a problem, unless you… Ultimately, the issue of decentralization is really a critical one.

So not having a head. Can Bitcoin be replicated? So all the things that you’re saying that make it a property, can that be replicated? Have any other-

I think it’s possible to create other crypto properties.

Does the having a head of a project, a thing that limits its ability to be a property if you try to replicate a project? Is that the fundamental flaw?

No. Look, I think the real fundamental issue is you just never want it to change. If you really want something decentralized, you want a genetic template that substantially is not going to change for 1,000 years. So I think Satoshi said it at one point. He said, “The nature of the software is such that by version 0.1, its genetic code was set.” If there was any development team that’s continually changing it on a routine basis, it becomes harder and harder to maintain its decentralization because now there’s the issue of who is influencing the changes?

So what you really want is a very, very simple idea. The simplest idea, I’m just going to keep track of who owns 21,000,000 parts of energy? And when someone proposes big functional upgrades, you don’t really want that development to go on to base layer. You want that development to go on to layer threes because now Cash App has a proprietary set of functionality and it’s a security. And if you’re going to promote the use of this thing, you’re not going to promote the layer three security because that’s an edge to a given entity and you’re trusting the counterparty. You’re going to promote the layer one or at most the layer two.

Okay, so one of the fascinating things about Bitcoin, and sorry to romanticize certain notions, but Satoshi Nakamoto that the founder is anonymous. Maybe you can speak to whether that’s useful, but also I just like the psychology of that to imagine that there’s a human being that was able to create something special and walk away. Though first, are you Satoshi Nakamoto?

I’m certain I’m not. No, actually I think the providence is really important, and if I were to look at the highlighted points, I think having a founder that was anonymous or stood anonymous is important. I think the founder disappearing is also important. I think that the fact that the Satoshi coins never moved is also important. I think the lack of an initial coin offering is also important. I think the lack of a corporate sponsor is important. I think the fact that it traded for 15 months with no commercial value was also important. I think that the simplicity of the protocol is very important. I think that the outcome of the block size wars is very important and all of those things add up to common property. They’re all indicia, indicators of a digital property as opposed to security.

If there was a Satoshi sitting around, sitting on top of $50 billion worth of Bitcoin, I don’t think it would cripple Bitcoin as property, but I think it would undermine its digital property. And if I wanted to undermine a crypto asset network, I would do the opposite of all those things. I would launch one myself. I would sell 25% or 50% to the general public. I would pre-mine some stuff or early mine it and I would keep an influence on it. Those are all the opposite of what you would do in order to create common property. And so I see the entire story as Satoshi giving a gift of digital property to the human race and disappearing.

Do you think it was one person? Do you have ideas of who it could be?

I don’t care to speculate.

But do you think it was one person?

I think it was one person, maybe in conjunction with a bunch of others. It might’ve been a group of people that were working together, but certainly there’s a Satoshi.

It’s just so fascinating to me that one person could be so brave and thoughtful. Or do you think a lot of his accent, like the block size wars, the decision to make a block a certain size, all the things you mentioned led up to the characteristics that make Bitcoin property? Do you think that’s an accident or was it deeply thought through? This is almost like a history of science question.

They tried 40 of them, right? I think there’s a history of attempting to create something like this, and it was tried many, many times and they failed for different reasons. And I think that it’s like Prometheus tried to start a fire 47 times and maybe the 48 time it sparked, and that’s how I see this. This is the first one that sparked, and it sets a roadmap for us. And I think if you’re looking for any one word that characterize, it’s fair. The whole point of the network is it’s a fair launch, a fair distribution. I have Bitcoin, but I bought it. In fact, at this point, we’ve paid $4 billion of real cash to buy it. If I was sitting on the same position and I had it for free or I bought it for a nickel, a coin, or a penny of coin, the question is, was it fair? And that’s a very hard question to answer, right? Did you acquire the Bitcoin that you own fairly? And if you roll the clock back, you could have bought it for a nickel or a dime, but that was when it was 1,000,000 times more likely to fail, right? When the risk was greater, the cost was lower, and then over time, the risk became lower and the cost became greater.

And the real critical thing was to allow the marketplace absent any powerful, interested actor, right? If Satoshi had held 1,000,000 coins and then stayed engaged for 10 more years, tweaking things in the background, there’d still be that question. But what we’ve got is really a beautiful thing. We’ve got a chain reaction in cyberspace or an ideology spreading virally in the world that has seasoned in a fair, ethical fashion. Sometimes it’s a very violent, brutal fashion with all the volatility, and there’s been a lot of sound and fury along the way.

How do you psychoanalyze? How do you deal from a financial, from a human perspective with the volatility? You mentioned you could have gotten it for a nickel and the risk was great. Where’s the risk today? What’s your sense?

We’re 13 years into this entire activity. I think the risk has never been lower. If you look at all the risks, the risks in the early years are is the engineering protocol proper? One megabyte, block size, 10 minute clock frequency, cryptography is first, will it be hacked or will it crash? 730,000 blocks and it hasn’t crashed. Will it be hacked? Hasn’t been hacked. It’s a Lindy thing, right? You wait 13 years to see if it’ll be hacked. But on the other hand, with $1 billion, it’s not as interesting a target as it is with $ 100 billion. And when it gets to be worth $1 trillion, then it’s a bigger target.

So the risk has been bleeding off over time as the network monetized. I think the second question is, will it be banned? You couldn’t know. It literally could have been banned many times early on. In fact, 2013, I tweeted on the subject. I thought it would be banned. I made a very infamous tweet.

Infamous tweet, yeah.

I thought it was going to be banned. In 2014, the IRS designated it as…

In 2014, the IRS designated it as property and gave it property tax treatment. They could have given it a tax treatment where you had to pay tax on the unrealized capital gains every year, and it probably would’ve crushed it to death. Right? So it could have been in any number of places banned by a government, but in fact, it was legitimized as property. And then the question is, would it be copied? Will it be something better than that? And it was copied 15,000 times. And you know the story of all those, and they either diverged to be something totally different and not comparable, or someone trying to copy a non-sovereign bearer instrument store of value found that their networks crashed to be 1% of what Bitcoin is. So now we’re sitting at a point where all those risks are out of the way.

I would say that year one of institutional adoption is it started August 2020. That’s when MicroStrategy bought $250 million worth of Bitcoin and we put that out on the wire. We were the first publicly traded company to actually buy Bitcoin. I don’t think you could have found a $5 million purchase from a public company before we did that. So that was like a gun going off. And then in the next 12 months, Tesla bought Bitcoin, Square bought Bitcoin. I’d say now we’re in year two of institutional adoption. Should be 24 publicly traded Bitcoin miners by the end of this quarter. So you’re looking at 36 publicly traded companies, and you’ve got at least in the range of $50 billion of Bitcoin on the balance sheet of publicly traded companies and hundreds of billions of dollars of market cap of Bitcoin-exposed companies. So I would say the asset, decade one was entrepreneurial experimental. Decade two is a rotation from entrepreneurs to institutions and it’s becoming institutionalized. So maybe decade one, you go from zero to a trillion and in decade two you go from 1 trillion to 100 trillion.

What about government adoption? You said institutional adoption, are governments important in this, maybe making it some governments incorporating it as a currency into their banks, all that kind of stuff? Is that important? And if it is, when will it happen?

It’s not essential for the success of the asset class, but I think it’s inevitable in various degrees over time. But the most likely thing to happen next is large acquisitions by institutional investors of Bitcoin as a digital gold, where they’re just swapping out gold for digital gold and thinking of it like that. The government entities most likely to be involved with that would be sovereign wealth funds. If you look at all the sovereign wealth funds that are holding big tech stock equities, the Swiss, the Norwegians, the Middle Easterners, if you can hold big tech then holding digital gold would be not far removed from that. That’s a non-controversial adoption.

I think there are opportunities for governments that are much more profound. If a government started to adopt Bitcoin as a Treasury Reserve asset, that’s much bigger than just an asset investment that’s 100X bigger. And you could imagine, that’s like a trillion dollar opportunity. Like any government that wanted to adopt it as a Treasury Reserve asset would probably generate a trillion or more of value. And then the thing that people think about is, “Well, will oil ever be priced in Bitcoin or any other export commodity?” I think there’s $1.8 trillion or more of export commodities in the world, and right now they’re all priced in dollars. I think that this is a colorful thing, but not really that relevant. You could sell all that stuff in dollars. The relevant decision that any institution makes, whether they’re a nonprofit, a university, a corporation, or a government, is what’s your Treasury Reserve asset? And if your Treasury Reserve asset is the peso, and if the peso is losing 20% or 30% of its value a year, then your balance sheet is collapsing within five years.

And if the Treasury Reserve asset is dollars in currency derivatives and US Treasuries, then you’re getting your seven… Right now it’s probably 15% or more monetary inflation. We’re running double the historic average. You could argue triple. Somewhere between double and triple depending upon what your metric is. So, do I think it’ll happen? I think that they’re conservative, but they have to be shocked, and I think there is a shock. The late Russian sanctions are a big shock that when the West sees $300 billion worth of Russian gold in currency derivatives, I think you got the famous quote by Putin that we have to rethink our Treasury strategies. And that pushes everybody toward a commodity strategy, “What commodities do I want to hold?” I think that’s got a lot of people thinking. I think it’s got the Chinese thinking. Everybody wants to be the reserve currency, so if I buy $50 billion worth of dollars every year, then I buy 500 billion over a decade and I probably pay $250 billion of inflation costs on the backs of my citizens in a decade.

So inflation could be one of the sources of shock. You wonder if there is a switch to Bitcoin whether it would be a bang or a whimper. What is the nature of the shock of the transition?

I think that the year 2022 is pretty catalytic for digital assets in general and for Bitcoin in particular. The Canadian trucker crisis I think educated hundreds of millions of people and made them start questioning their property rights and their banks. I think the Ukraine war was a second shock, but I think that the Russian sanctions was a third shock. And I think hyperinflation in the rest of the world is a fourth shock. And then persistent inflation in the US is a fifth shock.

So I think it’s a perfect storm. And if you put all these events together, what do they signify? They signify the rational conclusion for any person thinking about this is, “I’m not sure if I can trust my property. I don’t know if I have property rights. I don’t know if I can trust the bank. And if I’m politically at odds with the leader of my own country, I’m going to lose my property. And if I’m politically at odds with the owner of another country, I’m still going to lose my property. And when push comes to shove, the banks will freeze my assets and seize them.”

And I think that that is playing out in front of everybody in the world such that your logical response would be, “I’m going to convert my weak currency to a strong currency. Like, I’ll convert my peso and lira to the dollar. I’m going to convert my weak property to strong property. I’m going to sell my building Downtown Moscow, and I’d rather own a building in New York City. I’d rather own in a powerful nation than be stuck with a building in Nigeria or a building in Argentina or whatever. So I’m going to sell my weak properties to buy strong properties. I’m going to convert my physical assets to digital assets. I’d rather own a digital building than own a physical building, because if I had a billion dollar building in Moscow, who can I rent that to? But if I have a billion dollar digital building, I can rent it to anybody in any city in the world, anybody with money, and the maintenance cost is almost nothing, and I can hold it for 100 years.” So it’s an indestructible building.

And then finally, I want to move from having my assets in a bank with a counterparty to self-custody assets. It is not just Ukraine, but this is like the story in Turkey, Lebanon, Syria, Afghanistan, Iraq, South America. You don’t really want to be sitting with $10 million in a bank in Istanbul. The bank’s going to freeze your money, convert it to lira, devalue the lira, and then feed it back to you over 17 years, right?

So self-custody assets would be layer one Bitcoin?

Self-custody assets is like if I got my own hardware wallet and I’ve either got… Your highest form of self-custody would be Bitcoin on your own hardware wallet or Bitcoin on your own self-custody. And the other thing people think about is, “How do I get crypto dollars tether some stable coin?” If you had a choice, would you rather have your money in a bank in a war zone in dollars or have your money in a stable coin on your mobile phone in dollars? I mean, you would take the latter risk rather than the former risk.

In a war zone, definitely, yeah.

And you can see that happening. We’ve gone from 5 billion in stable coins to 200 billion in the last 24 months. So I do think there’s massive demand for crypto dollars in the form of a US dollar asset. Everybody in the world would say, “Yeah, I want that.” Well, unless you’re just an extreme patriot. But most people in the world would say, “I want that.” And then a lesser group of people would say, “I think I want to be able to carry my property in the palm of my hand so I have self-custody of it.” Bitcoin price

So Bitcoin price has gone through quite a roller coaster. What do you think is the high point it’s going to hit?

I think it’ll go forever. I mean, I think the Bitcoin, it’s going to climb in a serpentine fashion. It’s going to advance and come back and it’s going to keep climbing. I think that the volatility attracts all the capital into the marketplace. And so the volatility makes it the most interesting thing in the financial universe. It also generates massive yield and massive returns for traders, and that attracts capital. We’re talking about the difference between 5% return and 500% return.

So the fast money is attracted by the volatility. The volatility has been decreasing year by year by year. I think that it’s stabilizing. I don’t think we’ll see as much volatility in the future as we have in the past. I think that if we look at Bitcoin and model it as digital gold, the market cap goes to between 10 and 20 trillion. But remember, gold is defective property. Gold is dead money. You have a billion dollars of gold that sits in a vault for a decade, it’s very hard to mortgage the gold. It’s also very hard to rent the gold. You can’t loan the gold. No one’s going to create a business with your gold.

So gold doesn’t generate much of a yield. So for that reason, most people wouldn’t store a billion dollars for a decade in gold. They would buy a billion dollars of commercial real estate property. The reason why is because I can rent it and generate a yield on it that’s in excess of the maintenance cost. So if you consider digital property, that’s 100 to $200 trillion addressable market. So I would think it goes from 10 trillion to 100 trillion as people start to think of it as digital property.

What does that mean in terms of price per coin?

At 500,000, that’s a $10 trillion asset. At 5 million, that’s 100 trillion dollars asset.

So you think it crosses a million it can go even higher?

Yeah, I think it keeps going up forever. I mean, there’s no reason we couldn’t go to 10 million a coin. Because digital property isn’t the highest form, right? Gold was that low frequency money. Property is a mid-frequency money, but when I start to program it faster, it starts to look like digital energy. Then it doesn’t just replace property, then you’re starting to replace bonds. It’s 100 trillion in bonds, there’s 50 to 100 trillion in other currency derivatives. And these are all conventional use cases. I think that there’s 350 trillion to $500 trillion worth of currency, currency derivatives in the world. When I say that, I mean things that are valued based upon fiat cash flows. Any commercial real estate, any bond, any sovereign debt, any currency itself, any derivatives to those things, they’re all derivatives and they’re all defective. And they’re all defective because of this persistent seven to 14% lapse which we call inflation or monetary expansion.

Can we switch subjects to talk about the energy side of it-

Sure.

… like the innovative piece?

Yeah.

Let’s just start with this idea that I’ve got a hotel worth a billion dollars with 1,000 rooms. When it becomes a dematerialized hotel-

I love that word so much, by the way, dematerialized hotel.

We’re a cross from the Fontainebleau here. Imagine the Fontainebleau is dematerialized. The problem with the physical hotel is I got to hire real people moving subject to the speed of sound and physics laws and Newton’s laws, and I can rent it to people in Miami Beach. But if it was a digital hotel, I could rent the room to people in Paris, London and New York every night, and I can run it with robots. And as soon as I do that, I can rent it by the room hour, and I can rent it by the room minute. And so I start to chop my hotel up into 100,000 room hours that I sell to the highest bidder anywhere in the world. And you can see all of a sudden the yield, the rent, and the income of the property is dramatically increased.

I can also see the maintenance cost of the property falls. I get on Moore’s Law and I’m operating in cyberspace. So I got rid of Newton’s laws, I got rid of all the friction and all those problems, I tapped into the benefits of cyberspace. I created a global property. I started monetizing at different frequencies. And of course, now I can mortgage it to anybody in the world. You’re not going to be able to get a mortgage on a Turkish building from someone in South Africa. You have to find someone that’s local to the culture you’re in. So when you start to move from analog property to digital property, it’s not just a little bit better, it’s a lot better. And what I just described, Lex, is like the DeFi vision. It’s the beauty of DeFi flash loans, money moving at high velocity. At some point, if the hotel is dematerialized, then what’s the difference between renting a hotel room and loaning a block of stock? I’m just finding the highest best use of the thing.

It feels like the magic really emerges though when you build a market of layer two and layer three technologies on top of that. So maybe you can correct me if I’m wrong, but for all these hotels and all these kinds of ideas, it’s always touching humans at some point and the consumers or humans, business owners and so on. So you have to create interface. You have to create services that make all of that super efficient, super fun to use, pleasant, effective, all those kinds of things. And so you have to build a whole economy on top of that.

Yeah. I happen to think that won’t be done by the crypto industry at all. I think that’ll be done by centralized applications. I think it’ll be the citadels of the world, the high speed traders of the world, the New Yorkers. I think it’ll be Binance, FTX, and Coinbase as a layer three exchange that will give you the yield and will give you the loan and the best terms. Because ultimately, you have to jump these compliance hoops. BlockFi can give you yield, but they have to do it in a compliant way with the United States jurisdiction. So ultimately, those applications to use that digital property and either give you a loan on it or give you yield on it, are going to come from companies.

But the difference, the fundamental difference is it could be companies anywhere in the world. So if a company in Singapore comes up with a better offering, then the capital is going to start to flow to Singapore. I can’t send 10 city blocks of LA to Singapore to rent during a festival, but I can send 10 blocks of Bitcoin to Singapore. So you’ve got a truly global market that’s functioning in this asset, and it’s their second order asset. For example, maybe you’re an American citizen and you own 10 Bitcoin and someone in Singapore will generate 27% yield in the Bitcoin but legally you can’t send the money to them or the Bitcoin to them, it doesn’t matter. Because the fact that that exists means that someone in Hong Kong will borrow the 10 Bitcoin from somebody in New York, and then they will put on the trade in Singapore, and that will create a demand for Bitcoin, which will drive up the price of Bitcoin, which will result in an effective tax-free yield for the person in the US that’s not even in the jurisdiction.

So there’s nothing that’s going on in Singapore to drive up the price of your land in LA. But there is something going on everywhere in the world to drive up the price of property in cyberspace if there’s only one digital Manhattan. And so there’s a dynamic there which is profound because it’s global. But now let’s go to the next extreme. I’m still giving you a fairly conventional idea, which is, let’s just loan the money fast on a global network and let’s just rent the hotel room fast in cyberspace. But let’s move to maybe a more innovative idea. The first generation of internet brought a lot of productivity, but there’s also just a lot of flaws in it. For example, Twitter is full of garbage. Instagram DMs are full of garbage. Your Twitter DMs are full of garbage. YouTube is full of scams. Every 15 minutes there’s a Michael Saylor Bitcoin giveaway spun up on YouTube. My Office 365 inbox is full of garbage, millions of spam messages. I’m running four different email filters. My company spends million dollars a year to fight denial of service attacks and all sorts of other security things.

There are denial of service attacks everywhere against everybody in cyberspace all the time. It’s extreme. And we’ll all beset with hostility, right? You’ve been a victim of it in Twitter. You go on Twitter and people post stuff they would never say to your face. And then if you look, you find out that the account was created three days ago and it’s not even a real person. So we’re beset with phishing attacks and scams and spam bots and garbage. Why? The answer is because the first generation of internet was digital information, and there’s no energy. There’s no conservation of energy in cyberspace. The thing that makes the universe work is conservation of energy.

If I went to a hotel room, I’d have to post a credit card. And then if I smash the place up, there’d be economic consequences, maybe there’d be criminal consequences, there might be reputational consequences. A lamp might fall on me. But in the worst case, I can only smash up one hotel room. Now imagine I could actually write a Python script to send myself to every hotel room in the world every minute, not post a credit card, and smash them all up anonymously.

The thing that makes the universe work is friction, speed of sound, speed of light, and the fact that ultimately it’s conservative. You’re either energy or you’re matter, but once you’ve used the energy, it’s gone, and you can’t do infinite everything. That’s missing in cyberspace right now. And if you look at all of the moral hazards and all of the product defects that we have in all of these products, most of them, 99% of them, could be cured if we introduced conservation of energy into cyberspace. That’s what you can do with high-speed, digital property, high-speed Bitcoin. And by high-speed, I mean not 20 transactions a day, I mean 20,000 transactions a day. So how do you do that? Well, I let everybody on Twitter post 1,000 or 10,000 satoshis via a Lightning badge, “Give me an orange check.” If you put up 20 bucks once in your life, you could give 300 million people an orange check. Right now you don’t have a blue check, Lex. You’re a famous person, I don’t know why you don’t have a blue check. Have you ever applied for a blue check? Twitter verification

No.

There are 360,000 people on Twitter with a blue check. There are 300 million people on Twitter. So the conventional way to verify accounts is elitist, archaic.

How does it work? How do you get a blue check? I mean, I’ve worked-

You got to apply and wait six months, and you have to post three articles in the public mainstream media that illustrates you’re a person of interest.

Interesting.

Generally, they would grant them to CEOs of public companies. The whole idea is to verify that you are-

Who you are.

… who you say you are. But the question is, why isn’t everybody verified? There’s a couple of Threads on that. One is some people don’t want to be doxed, they want to be anonymous. But they’re even anonymous people that should be verified, because otherwise you’re subjecting their entire following to phishing attacks and scams and hostility. But the other-

What’s the orange verification, so this idea? Can you actually elaborate a little bit more? If you put up 20 bucks…

Yeah, I think everybody on Twitter ought to be able to get an orange check if they could come up with like $10.

What is the power of that orange check? What does that verify exactly?

You basically post a security deposit for your safe passage through cyberspace. The way it would work is, if you’ve got $10 once in your life, you can basically show that you’re creditworthy. And that’s your pledge to me that you’re going to act responsibly. So you put the 10 or the $20 into the Lightning wallet, you get an orange check. Then Twitter just gives you a setting where I can say, “The only people that could DM me are orange checks. The only people that can post on my tweets are orange checks.” So instead of locking out the public and just letting your followers comment, you lock out all the unverified. And that means people that don’t want to post $10 security deposit can’t comment.

Once you’ve done those two things, then you’re in a position to monetize malice. Monetize motion or malice for that matter, but let’s just say for the sake of argument you post something and 9,700 bots spin up and pitch their whatever scam. Right now you sit and you go report, report, report, report, report, report. And if you spend an hour, you get through half of them, you waste an hour of your life, and they just spin up another 97 gazillion because they’ve got a Python script spinning it up. So it’s hopeless. But on the other hand, if you report them, and they really are a bot, Twitter’s got a method to actually delete the account. They know that they’re bots. The problem is not they don’t know how to delete the account, the problem is there are no consequences when they delete the account. So if there are consequences, Twitter, they could just seize the $10 or seize the $20 because it’s a bot, it’s a malicious criminal act or whatever as a violation of the platform rules. You end up seizing $10,000, give half the money to the reporter, and half the money to the Twitter platform.

That’s a really powerful idea, but that’s adding friction akin to the kind of friction you have in the physical world. You have consequences. You have real consequences.

It’s putting conservation of energy.

Conservation of energy, but-

There’s no friction. There’s no nothing on this earth. I mean, you can’t walk across the room without friction. Friction is not bad. Unnecessary friction is bad. So in this particular case, you’re introducing conservation of energy, and in essence, you’re introducing the concept of consequence or truth into cyberspace. And that means if you do want to spin up 10 million fake-less Fridmans…

It’s going to cost-

It’s going to cost you $100 million to spin up 10 million fake Lexes.

But the thing is, you could do that with the dollar, but your case, you’re saying that it’s more tied to physical reality when you do that with Bitcoin?

Yeah. Well, let’s follow up on that idea a bit more. If you did do it with the dollar, then the question is, how does six billion people deposit the dollars? Could you do it with a credit card? How do you send dollars? Well, you have to dox yourself. It’s not easy.

Sure.

So you’re talking about inputting a credit card transaction, doxing yourself, and now you’ve just eliminated the two billion people that don’t have credit cards or don’t have banks. You’ve also got a problem with everybody that wants to remain anonymous. But you’ve also got this other problem, which is credit cards are expensive transactions, low frequency, slow settlement. So do you really want to pay 2.5% every time you actually show a $20 deposit? Maybe you could do a kludgy version of this for a subset of people.

It’s 10% is good if you did it with conventional payment rails. But what you can’t do is the next idea, which is I want the orange badge to be used to give me safe passage through cyberspace tripping across every platform. So how do I solve the denial of service attacks against a website? I publish a website, you hit it with a million requests. Okay, now how do I deal with that? Well, I can lock you out and I can make it a zero trust website, and then you have to be coming at me through a trusted firewall or with a trusted credential. But that’s a pretty draconian thing. Or I could put it behind a Lightning wall. A Lightning wall would be I just challenge you, “Lex, you want to browse my website, you have to show me your 100,000 satoshis. Do you have 100,000 satoshis?”

Click. Okay. Now you click away 100 times or 1,000 times. And after 1,000 times, I’m like, “Well, now Lex, you’re getting offensive, I’m going to take a satoshi from you or 10 satoshis, a microtransaction. You want to hit me a million times? I’m taking all your satoshis and locking you out.” What you want to do is you want to go through 200 websites a day, and what you want every time you cross a domain, you need to be able to in a split second prove that you’ve got some asset. And now when you cross back, when you exit domain, you want to fetch your asset back.

So, how do I in a friction-free fashion browse through dozens or hundreds of websites, post a security deposit for safe passage, and then get it back? You couldn’t afford to pay a credit card fee each time. When you think about 2.5% as a transaction fee, it means you trade the money 40 times and it’s gone. It’s gone.

Yeah. So you can’t do this hopping around through the internet with this kind of verification that grounds you to a physical reality. It is a really, really interesting idea. Why hasn’t that been done?

I think you need two things. You need an idea like a digital asset like Bitcoin, that’s a bearer instrument for final settlement. And then you need a high-speed transaction network like Lightning, where the transaction cost might be a 20th of a penny or less. And if you roll the clock back 24 months, I don’t think you had the Lightning Network in a stable point. It’s really just the past 12 months. It’s an idea you could think about this year, and I think you need to be aware of Bitcoin as something other than a scary speculative asset. So I really think we’re just at the beginning. Second best crypto

The embryonic stage. I have to ask, Michael Saylor, you said before there’s no second best to Bitcoin. What would be the second best? Traditionally there’s Ethereum with smart contracts, Cardano with proof of stake, Polkadot with interoperability between blockchains, Dogecoin has the incredible power of the meme, privacy with Monero. I just can keep going. There’s, of course, after the block size wars the different offshoots of Bitcoin.

I think if you decompose or segment the crypto market, you’ve got crypto property, Bitcoin is the king of that, and other Bitcoin forks that wanted to be a bearer instrument, store of value would be a property, a Bitcoin Cash or Litecoin, something like that. Then you’ve got cryptocurrencies. I don’t think Bitcoin is a currency because a currency I define in nation-state sense. A currency is a digital asset that you can transfer in a transaction without incurring a taxable obligation. So that means it has to be a stable dollar or a stable euro or a stable yen, a stable coin.

So I think you’ve got cryptocurrencies, Tether, Circle, most famous. I think you’ve got crypto platforms, and Ethereum is the most famous of the crypto platforms, the platform with smart contract functionality, et cetera. And then I think you’ve got just crypto securities. It’s just like my favorite whatever meme coin, and I love it because I love it, and it’s attached to my game or my company or my persona or my whatever. I think if you pushed me and said, “Well, what’s the second best?” I would say the world wants two things…

And said, “Well, what’s the second best?” I would say the world wants two things. It wants crypto property as a savings account, and it wants cryptocurrency as a checking account. And that means that the most popular thing really is going to be a stablecoin dollar. And there’s maybe a fight right now, might be Tether, right? But a stable dollar, because I feel like the market opportunity… It’s not clear that there’ll be one that will win. The class of stable dollars is probably a one to $10 trillion market easily. I think that in the crypto platform space, Ethereum will compete with Solana and Binance Smart chain and the like-

Are there certain characteristics of any of them that stand out to you? Don’t you think the competition is based on a set of features? Also… So the set of features that a cryptocurrency provides, but also the community that it provides, don’t you think the community matters and the adoption, the dynamic of the adoption both across the developers and the investors?

If I’m looking at them, the first question is what’s the regulatory risk? How likely is it to be deemed a property versus security? And the second is what’s the competitive risk? And the third is what’s the speed and the performance? All those things lead to the question of what’s the security risk? How likely is it to crash and burn? And how stable or unstable is it? And then there’s the marketing risk. There are different teams behind each of these things and communities behind them. I think that the big cloud looming over the crypto industry is regulatory treatment of cryptocurrencies and regulatory treatment of crypto securities and crypto platforms. And I think that won’t be determined until the end of the first Biden administration. For example, there are people that would only US FDIC insured banks to issue cryptocurrencies. They want JP Morgan to issue a crypto dollar backed one-to-one.

But then in the US right now, we have Circle and we have other companies that are licensed entities that are backed by cash and cash equivalents, but they’re not FDIC insured banks. There’s also a debate in Congress about whether state-chartered banks should be able to issue these things. And then we have Tether and others that are outside of the US jurisdiction. They’re probably not backed by cash and cash equivalents. They’re backed by stuff, and we don’t know what stuff. And then finally you have UST and DAI, which are algorithmic stablecoins, that are even more innovative, further outside the compliance framework. So if you ask who’s going to win, the question is really, I don’t know. Will the market decide or will the regulators decide? If the regulators get out of the way and the market [inaudible 03:27:03] Well then it’s an interesting discussion.

And then I think that all bets are off if the regulators get more heavy-handed with this. And I think you could have the same discussion with crypto properties, like the DeFi exchanges and the crypto exchanges, the SEC would like to regulate the crypto exchanges, they’d like to regulate the DeFi exchanges. That means they may regulate the crypto platforms, and at what rate and in what fashion? And so I think that I could give you an opinion if it was limited to competition under the current regulatory regime. But I think that the regulations are so fast moving and it’s so uncertain that you can’t make a decision without considering the potential actions of the regulators.

I hope the regulators get out of the way. Can you steel man the case that Dogecoin is, I guess the second best cryptocurrency, or if you don’t consider Bitcoin a cryptocurrency, but instead a crypto property-

I would classify it as crypto property, because the US dollar is a currency. So unless your crypto asset is pegged algorithmically or stably to the value of the dollar, it’s not a currency, it’s a property or it’s an asset.

So then can you steel man the case that Dogecoin is the best cryptocurrency then? Because Bitcoin is not even in that list.

The debate is going to be whether it’s property or security, and there’s a debate whether it’s decentralized enough. So let’s assume it was decentralized. Well, it’s increasing at not quite what, 5% a year inflation rate, but it’s not 5% exponentially. It’s like plus 5 million, 5% something capped than is less… I forget the exact number. It’s an inflationary property. It’s got a lower inflation rate than the US dollar, and it’s got a much lower inflation rate than many other fiat currencies. So I think you could say that.

But don’t you see the power of meme, the power of ideas, the power of fun or whatever mechanism is used to captivate a community?

I do. But there are meme stocks. It doesn’t absolve you of your ethical and securities liabilities if you’re promoting it. I don’t have a problem with people buying a stock. It’s just… The way I divide the world is there’s investment, there’s saving, and there’s speculation, and there’s trading. So Bitcoin is an asset for saving. If you want to save money for a hundred years, you don’t really want to take on execution risk or the like. So you’re just buying something to hold forever. For you to actually endorse something as a property, if you said to me, “Mike, what should I buy for the next a hundred years?” I’d say, “Well, some amount of real estate, some amount of scarce collectibles, some amount of Bitcoin. You can run your company.” But running your company is an investment.

So the savings are properties. If you said, “What should I invest in?” I’d say, “Well, here’s a list of good companies, private companies. You could start your own company. That’s an investment.” If you said, “What should I trade?” Well, I’m trading as a proprietary thing. I don’t have any special insight into that. If you’re a good trader, you know you are. If you said to me, “What should you speculate in?” We talk about meme stocks and meme coins, and it sits up there, it sits right in the same space with what horse should you bet on and what sports team should you gamble on, and should you bet on black six times in a row and double down each time? It’s fun, but at the end of the day, it’s a speculation, right? You can’t build a civilization-

On speculation.

… on it. It’s not an institutional asset. And in fact, where I’d leave it right is Bitcoin is clearly digital property, which makes it an institutional grade investable asset for a public company, a public figure, a public investor, or anybody that’s risk-adverse. I think that the top 100 other cryptos are like venture capital investments. And if you’re a VC, and if you’re a qualified technical investor and you have a pool of capital and you can take that kind of risk, then you can parse through that and form opinions.

It’s just orders of magnitude more risky because of competition, because of ambition and because of regulation. And if you take the meme coins, it’s like when some rapper comes out with a meme coin, it’s like maybe it’ll peak when I hear about it. SHIB was created as the coin such that it had so many zeros after the decimal point that when you looked at it on the exchanges, it always showed zero, zero, zero, zero. And it wasn’t until six months after it got popular that they started expanding the display so you could see whether the price had changed.

That’s speculation. Maybe you can correct me, but you’ve been critical of Elon Musk in the past in the crypto space. Where do you stand on Elon’s effect on Bitcoin or cryptocurrency in general these days?

I believe that Bitcoin is a massive breakthrough for the human race that will cure half the problems in the world and generate hundreds of trillions of dollars of economic value to the civilization. And I believe that it’s in an early stage, where many people don’t understand it and they’re afraid of it, and there’s FUD, and there’s uncertainty, there’s doubt and there’s fear, and there’s a very noisy crypto world, and there’s 15,000 other cryptos that are seeking relevance. And I think most of the FUD is actually fueled by the other crypto entrepreneurs. So the environmental FUD and the other types of uncertainty that’s around Bitcoin, generally, they’re not coming from legitimate environmentalists, they don’t come from legitimate critics. They actually are guerrilla marketing campaigns that are being financed and fueled by other crypto entrepreneurs because they have an interest in doing so.

So if I look at the constructive path forward, first, I think it’d be very constructive for corporations to embrace Bitcoin and build applications on top of it. You don’t need to fix it. There’s nothing wrong with it. When you put it on a layer two and a layer three, it moves a billion times a second at the speed of light. So every beautiful, cool DeFi application, every crypto application, everything you could imagine you might want to do, you can do with a legitimate company and a legitimate website or mobile application sitting on top of Bitcoin or lightning if you want to. So I think that to the extent that people do that, that’s going to be better for the world. If you consider what holds people back, I think it’s just misperceptions about what Bitcoin is. So I’m a big fan of just educating people. If you’re not going to commercialize it, then just educate people on what it is.

So for example, Bitcoin is the most efficient use of energy in the world by far. Right? Most people, they don’t necessarily perceive that or realize that, but if you were to take any metric energy intensity, you put $2 billion worth of electricity in the network every year and it’s worth $850 billion. There is no industry in the real world that is that energy efficient. Not only that energy efficient, it’s also the most sustainable industry. We do surveys, 58% of Bitcoin mining energy is sustainable. So there’s a very good story, in fact, every other industry, planes, trains, automobiles, construction, food, medicine, everything else, it’s less clean, less efficient. So-

So the basic debate was-

I wouldn’t say there is a debate. I would just say that to the extent that the Bitcoin community had any issue with Elon, it was just this environmental uncertainty that he fueled in a couple of his tweets, which I think just is very distracting.

Well, that was one of them, but I think it’s the Bitcoin maximalists, but generally the crypto community, what you call the crypto entrepreneurs are… It’s also they’re using it for investment, for speculation, and therefore get very passionate about people’s, celebrities, including you, famous people, saying positive stuff about any one particular crypto, a thing you can buy in Coinbase. And so they might be unhappy with Elon Musk that he’s promoting Bitcoin and then not, and then promoting Dogecoin, then not. There’s so much emotion tied up in the communication on this topic, and I think that’s where a lot of the-

Look, I don’t have a criticism of Elon Musk. He’s free to do whatever he wishes to do. It’s his life. In fact, Elon Musk is the second-largest supporter of Bitcoin in the world. So I think that the Bitcoin community tends to eat its own quite a bit. It tends to be very self-critical, and instead of saying, “Well, Elon is more supportive of Bitcoin than the other 10,000 people in the world with serious amounts of money,” they focus upon…

Yeah, this is strange. Eating your own is just…

I think he’s free to do what he wants to do. I think he’s done a lot of good for Bitcoin in putting it on the balance sheet of Tesla and holding it, and I think that sent a very powerful message. Advice for young people

Do you have advice for young people? So you’ve had a heck of a life, you’ve done quite a lot of things, start before MIT, but starting with MIT, is there advice you have for young people, in high school and college, how to have a career that can be proud of, how to have a life they can be proud of?

I was asked by somebody for quick advice for his young children. He had twins, when they enter adulthood. He said, “Give me your advice for them,” in a letter. “I’m going to give it to them when they turn 21,” or something. I was at a party and then he handed me this sheet of paper, and I thought, “Oh, he wants me to write it down right now.” So I sat down, I started writing and I figured, “Well, what would you want to tell someone at age 21?”

You wrote it down.

So I wrote it down. Then I tweeted it and it’s sitting on Twitter. But I tell you what I said. I said, “My advice, if you’re entering adulthood, focus your energy, guard your time, train your mind, train your body, think for yourself, curate your friends, curate your environment, keep your promises, stay cheerful and constructive, and upgrade the world.” That was the 10.

Upgrade the world. That’s an interesting choice of words. Upgrade the world. Upgrade the world.

It’s like an engineer’s [inaudible 03:39:42]

It’s a very, yeah, it is a very engineering themed… Keep you promises too, that’s an interesting one.

I think most people suffer because they don’t focus. You got to figure out… I think the big risk in this world is there’s too much of everything.

Yeah.

You can sit and watch chess videos a hundred hours a week and you’ll never get through all the chess videos. There’s too much of every possible thing, too much of every good thing. So figuring out what you want to do, and then… Everything will suck up your time. There’s a hundred streaming channels to binge-watch on. You got to guard your time and then train your body, train your mind, and control who’s around you, control what surrounds you. So ultimately, in a world where there’s too much of everything, then your success-

It’s like those laser eyes, you have to focus on just a few of those things.

Yeah. I got a thousand opinions we could talk about, and I could pursue a thousand things, but I don’t expect to be successful. I’m not sure that my opinion in any of the 999 is any more valid than the leader of thought in that area. So how about if I just focus upon one thing and then deliver the best I can in the one thing. That’s the laser eye message. The rest get you distracted.

How do you achieve that? Do you find yourself, given where you are in life, having to say no a lot, or just focus comes natural when you just ignore everything around you? So how do you achieve that focus?

I think it helps if people know what you’re focused on.

So everything about you just radiates that, people know. People know this is-

If they know what you’re focused on, then you won’t get so many other things coming your way. If you dally or if you flirt with 27 different things, then you’re going to get approached by people in each of the 27 communities. Right?

You mentioned beginning a PhD, and given your roots at MIT, do you think there’s… There’s all kinds of journeys you can take to educate yourself. Do you think a PhD or school is still worth it, or is there other paths through life?

Is it worth it if you had to pay for it? Is it worth it if you spend the time on it?

The time and the money is a big cost?

I think…

Time, probably the bigger one. Right?

It seems clear to me that the world wants more specialists. It wants you to be an expert and to focus on in one area. It’s punishing generalists, jack-of-all-trades, especially people that are generalists in the physical realm. Because if you’re a specialist in the digital realm, you might very well… You’re the person with 700,000 followers on Twitter and you show them how to tie knots, or you’re the banjo player with 1.8 million followers, and when everybody types banjo, it’s you, right?

Yeah.

And so the world wants people that do something well, and then it wants to stamp out 18 million copies of them. And so that argues in favor of focus. Now, the definition of a PhD is someone with enough of an education that they’re capable of or have made… I guess to get a PhD, technically you have to have done a dissertation where you made a seminal contribution to the body of human knowledge. And if you haven’t done that, technically you have a master’s degree, but you’re not a doctor. So if you’re interested in any of the academic disciplines that a PhD would be granted for, then I can see that being a reasonable pursuit. But there are many people that are specialists… you know the Agadmator?

Yeah, yeah, yeah.

The Agadmator on YouTube. He’s the world’s greatest chess commentator.

Yeah.

I’ve watched his career, and he’s got progressively better, and he’s really good.

He’s going to love hearing this.

If the Agadmator ever hears this, I’m a big fan of the Agadmator. I have to cut myself off, right? Because otherwise you’ll watch the entire Paul Morphy saga for your weekend. But the point really is, YouTube is full of experts who are specialists in something, and they rise to the top of their profession. Twitter is too. The internet is. So I would advocate that you figure out what you’re passionate about and what you’re good at, and you do focus on it, especially if… If the thing that you’re doing can be automated… The problem is, back to that 500,000 algebra teacher type comment, the problem is if it is possible to be automated, then over time, someone’s probably going to automate it, that squeezes the state space of everybody else. Like after the lockdowns, it used to be there are all these local bands that played in bars and everybody went to the bar to see the local band, and then during the lockdown, you would have these six super groups, and they would all get 500,000 or a million followers, and all these smaller local bands just got no attention at all.

Well, the interesting thing is one of those 500,000 algebra teachers is likely to be part of the automation. So it’s an opportunity for you to think, “Where’s my field, my discipline, evolving into?” I talked to a bunch of librarians, just happen to be friends with librarians. Libraries will probably be evolving, and it’s up to you as a librarian to be one of the few that remain in the rubble.

If you’re going to give commentary on Shakespeare plays, I want you to basically do it for every Shakespeare play. I want you to be the Shakespeare dude. Because just like, Lex, you’re like..

I don’t know what kind of…

You’re the deep thinking podcaster, or you’re the podcaster that goes after the deep intellectual conversations. And once I get comfortable with you, and I like you, then I start binge-watching Lex. But if you changed your format through 16 different formats so that you could compete with 16 different other personalities on YouTube, you probably wouldn’t beat any of them, right? You would probably just kind of sink into the, you’re the number two or number three guy. You’re not the number one guy in the format. And I think the algorithm, right? The Twitter algorithm and the YouTube algorithm, they really reward the person that’s focused on message, consistent. The world wants somebody they can trust that’s consistent and reliable, and they kind of want to know what they’re getting into, because, and this is taken for granted maybe, but there’s 10 million people vying for every hour of your time. And so the fact that anybody gives you any time at all is a huge-

Is amazing.

… privilege, right? And you should be thanking them and you should respect their time.

It’s interesting. Everything you said is very interesting. But of course, from my perspective and probably from your perspective, my actual life has nothing to do with, it’s just being focused on stuff. In my case, it’s like focus on doing the thing I really enjoy doing and being myself, and not caring about anything else. I don’t care about views or likes or attention. And that just maintaining that focus is the way, from an individual perspective, you live that life. But yeah, it does seem that the world and technology is rewarding the specialization and creating bigger and bigger platforms for the different specializations. And then that lifts all boats actually, because the specializations get better and better and better at teaching people to do specific things, and they educate themselves. Just everybody gets more and more knowledgeable and more and more empowered.

The reward for authenticity more than offsets the specificity with which you pursue your mission. Another way to say it is “Nobody wants to read advertising.” If you were to spend a hundred million dollars advertising your thing, I probably wouldn’t want to watch it, but-

That’s so Fascinating.

Yeah.

That’s so fascinating.

We see the death of that. And so the commercial shows are losing their audiences, and the authentic specialist or the authentic artist are gaining their audience.

And that’s a beautiful thing. Speaking of deep thinking, you’re just a human. Your life ends. You’ve accumulated so much wisdom, so much money, but the ride ends. Do you think about that? Do you ponder your death, your mortality? Are you afraid of it?

When I go, all my assets will flow into a foundation, and the foundation’s mission is to make education free for everybody forever. And if I’m able to contribute to the creation of a more perfect monetary system, then maybe that foundation will go on forever.

The idea, the foundation of the idea, so not just… Each of the foundations.

It’s not clear we’re on the s-curve of immortal life yet. That’s a biological question. And you asked that on some of your other interviews a lot. I think that we are on the threshold of immortal life for ideas or immortal life for certain institutions or computer programs. So if we can fix the money, then you can create a technically perfected endowment. And then the question really is what are your ideas? What do you want to leave behind? And so if it’s a park, then you endow the park, right? If it’s free education, you endow that. If it’s some other ethical idea, right?

Does it make you sad that there’s something that you’ve endowed, some very powerful idea of digital energy that you put out into, you help put it into the world, and that your mind, your conscious mind, will no longer be there to experience it. It’s just gone forever.

I’d rather think that the thing that Satoshi taught us is you should do your part during some phase of the journey, and then you should get out of the way. I think Steve Jobs said something similar to that effect in a very famous speech one day, which is “Death is a natural part of life and it makes way for the next generation.” And I think the goal is you upgrade the world, right? You leave it a better place, but you get out of the way. And I think when that breaks down, bad things happen. I think nature cleanses itself. There’s a cycle of life. Meaning of life

And speaking of one of great people who did also get out of the way is George Washington. So hopefully when you get out of the way, nobody’s bleeding you to death in hope of helping you. What do you think, to do a bit of a callback, what do you think is the meaning of this whole thing? What’s the meaning of life? Why are we here? We talked about the rise of human civilization. It seems like we’re engineers at heart. We build cool stuff, better and better use of energy, channeling energy to be productive. Why? What’s it all for?

You’re getting metaphysical on me.

Very. There’s a beautiful boat to the left of us. Why do we do that? This boat that sailed the ocean? Then we build models of it to celebrate great engineering of the past.

To engineer is divine. You can make lots of arguments as why we’re here. We’re either here to entertain ourselves or we’re here to create something that’s beautiful or something that’s functional. I think if you’re an engineer, you entertain yourself by creating something that’s both beautiful and functional. So I think all three of those things, it’s entertaining, but it’s ethical. You got to admire the first person that built a bridge, crossing a chasm, or the first person to work out the problem of how to get running water to a village, or the first person to figure out how to dam up a river, or mastered agriculture, or the guy that figured out how to grow fruit on trees or created orchards, and maybe one day had 10 fruit trees. He is pretty proud of himself.

So that’s functional. There is also something to that, just like you said, that’s just beautiful. It does get you closer to, like you said, the divine. Something… When you step back and look at the entirety of it. A collective of humans, using a beautiful invention or creation, or just something about this instrument is creating a beautiful piece of music, that seems just right. That’s what we’re here for. Whatever the divine is, it seems like we’re here for that. And I, of course, love talking to you because from the engineering perspective, the functional is ultimately the mechanism towards the beauty.

Isn’t there something beautiful about making the world a better place for people that you love, your friends, your family, or yourself? When you think about the entire arc of human existence, and you roll the clock back 500,000 years, and you think about every struggle of everyone that came before us, and everything they had to overcome in order to put you here right now, you got to admire that, right? You got to respect that.

That’s a heck of a gift they gave us. It’s also a heck of a responsibility. Don’t screw it up.

If I dropped you 500,000 years ago and I said, figure out steel refining, or figure out silicon chips, fab reproduction, or whatever it is.

To fly, or fire.

You’d be like, “Ugh.” And so now we’re here, and I guess the way you repay them is you fix everything in front of your face you can. And that means, to someone like Elon, it means get us off the planet. To someone like me, it’s like, I think fix the energy and the system,

And that gives me hope. Michael, this was an incredible conversation. You’re an incredible human. It’s a huge honor you would sit down with me. Thank you so much for talking today.

Yeah, thanks for having me, Lex.

Thanks for listening to this conversation with Michael Saylor. To support this podcast, please check out our sponsors in the description. And now let me leave you with a few words from Francis Bacon “Money is a great servant, but a bad master.” Thank you for listening and hope to see you next time. This entry was posted in transcripts on September 29, 2024 by

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Host of Lex Fridman Podcast. Research Scientist at MIT, working on human-AI interaction, robotics, and machine learning. View all posts by Lex Fridman →