https://youtubetranscript.com/?v=hMWviRIadqw
You know, I’ve been contemplating permanent storehouses of value, concerned about such phenomenon that we’ve been discussing as inflation and potentially hyperinflation, which is far from rare even among developed countries. I think you have a 1% chance if you live in a developed country of hyperinflation incident at some point in your life. It’s something like that. But anyways, the cryptocurrency people, and I think the Bitcoin people have made this case the best, is that they’ve managed to duplicate gold in its important elements in that they’ve produced a storehouse of value that can’t be corrupted because it’s blockchained and distributed. And that’s a nice argument that also gets more scarce with time, which was quite the brilliant technological innovation that requires work to obtain. So that’s the Bitcoin mining, but that is also easily distributable digitally. And so it’s out of the hands of governments. It’s an uncorruptible store of value. It’s widely distributed and it’s easily moved. And so, you know, that’s not that that accounts for a fair number of the properties that you described a monetary unit had to possess. So what do you think of crypto in general, but more specifically about Bitcoin? Because I think it’s king of the cryptos. And do you think there’s a case to be made that gold has an advantage that crypto cannot duplicate? And then we might ask, well, what if you had a gold-backed crypto? Because maybe then you could have the best of both worlds. So what are your thoughts about the… I mean, Bitcoin’s done pretty well for a currency that doesn’t exist, you know, that’s not government-mandated, etc. It’s stored its value. There’s a lot of variability. Well, first of all, Bitcoin isn’t a store of value because you can’t store something that you don’t have. Right? First, you have to have the value. So as I said, gold’s value is its use as a metal. Right? That’s what you’re storing is the future use of gold and metal, whether you’re going to use it in jewelry or as a conductor in electronics or in medicine, whatever it is, you’re storing that. Bitcoin only has a price. You can’t have value. Price is something that you pay. Right? Value is something that you get. When you buy Bitcoin, you pay a price, but you get no real value. And now I agree, the price of Bitcoin has gone way up from when it was first started, where you could get multiple Bitcoins for a fraction of a penny or a dollar, whatever they started next to nothing. And at one point, people were paying almost 27,000 as we’re recording this. So depending on when you bought, you potentially made a lot of money if you sold. If you bought during the mania hysteria of 2021, you’ve lost a lot of your money if you get out. But looking at Bitcoin, Bitcoin did an excellent job of replicating the qualities that gold has that made it better money than cattle or salt or other commodities that have been money. Gold has certain properties, and Bitcoin captured those properties. But the most important property of all is gold’s metallic properties, gold as a commodity. Bitcoin has none of that. And so Bitcoin, just like a fiat currency, what gives a fiat currency its value? Just confidence. People just believe that it has value. They believe that people will accept it. Now, part of that belief is driven by governments which declare it legal tender and which require it for payment of taxes. And so there is some real demand for dollars if you live in America. There’s a demand for euros if you’re in Europe because you have to pay taxes. And if you don’t pay taxes, they could put you in jail. And so in order to avoid jail, you need the currency that the government demands. But Bitcoin is similar to fiat in that all of its value comes from faith and confidence. People just believe that people in the future will want it and they’ll pay a higher price for it, except there is no legal currency status. There is no government really, maybe other than El Salvador. I don’t know what’s going on over there, but there’s no government that is accepting tax payments in Bitcoin. So there’s no natural demand other than the speculative demand from people who think they’re going to get rich. I mean, people who buy Bitcoin are buying it because they expect the price to go up. And the people who buy it from them thinks the price is going to go up. So it’s this greater fold theory that the price is going to go up and that’s what’s driving people to buy it. It’s very cumbersome if you want to use it as a medium of exchange or a unit of account. It’s too volatile to be a unit of account. It’s too expensive to be a medium of exchange and it can’t be a store of value. So it’s not gold. It’s digital fool’s gold. But you hit the nail on the head when you talked about a crypto that’s actually backed by gold. That works. That solves all the problems that Bitcoiners claim gold has. Well, I can’t send my gold around the world. I can’t use my gold to buy a cup of coffee. Well, yes, you can. It’s a lot better than Bitcoin. If I have gold stored with any third party, it could be a government, it could be a private company, it could be anybody. You could tokenize that gold and have a Bitcoin, similar cryptocurrency, that is a digital representation of that actual gold. It’s like a warehouse receipt, an IOU for gold. And then if I wanted to give you some of my gold, I wouldn’t have to ship you my bar. I could just send you my tokens over the Internet. And now the ownership goes from me to you. It’s an improvement on paper money. Because again, initially paper money came as a substitute for gold. I had my gold stored with a blacksmith and instead of lugging my gold around, my blacksmith gave me an IOU and then I could circulate that IOU because everybody knows the gold is there. And instead of having to get it, they just circulate the IOU in a paper terms. Well, it’s much more efficient to do it crypto digitally. And you can take an ounce of gold or a gram of gold and divide it to tiny little pieces I could buy a cup of coffee and pay the barista with my gold using the token and it would be faster and cheaper than Bitcoin. And the difference is when I’m paying with gold, I’m paying with something real. I’m getting one commodity for another. I’m getting coffee and the guy that sold me coffee is getting gold. And you can actually denominate the price in gold because gold is stable. I mean, it can function much better as a monetary instrument. The only thing that you have, you have to trust the third party. But I mean, capitalism is all about trusting third parties. I mean, private third parties, we buy an insurance policy. People buy life insurance, fire insurance, health insurance. It’s all a third party that’s selling you that policy. The policy is only as good as the third party’s ability to pay. We have rating agencies, we have capitalism, we have competition for reputation. There is no reason that you can’t have third parties to store your gold and then you could use it. You don’t have to store all of your gold that way. You can keep a lot of your gold yourself. But the gold that you want to use as a medium of exchange, you can use that digitally. And that works much better than Bitcoin. You have real value, you have real scarce. I’ve talked to people who have attempted to produce gold backed cryptocurrencies and they’ve run into, from my understanding, a variety of legal impediments on that front. Do you know of anybody who’s doing that successfully? And if so, why aren’t they prime competitors, let’s say in the international market for Bitcoin? I mean, the argument you laid out seems to make sense. And so you’d think, well, you’d think two things. You’d think, given that governments are rushing to digital currencies and that some governments would like to displace the US dollar as the reserve currency, that the logical thing to do for some enterprising country would be to produce a digital currency that was gold backed. And so what’s happening on that front? Okay, so there’s two things. First of all, the demand that is mainly coming in cryptocurrencies, including Bitcoin, is to get rich. People want to buy Bitcoin because they think it’s going to go to the moon. And so that’s really the demand for cryptocurrencies. It’s not to have an alternative as a medium of exchange and as a unit of account. Most people that are buying Bitcoin, they still use dollars or euros or pounds in their transactions. They just hoard their Bitcoin because they think they’re going to get rich. And so there’s no real demand yet for a cryptocurrency that’s backed by gold to be used as a medium of exchange. People are still content to use their fiat currencies for that role. But I think that once this crypto bubble really pops and the losses stack up and people get burned and they’re no longer interested in these get rich quick schemes, and they really start to focus on an alternative not to get rich, but to preserve what they have. Because that’s what gold is. Physical gold is not about getting rich. It’s about avoiding becoming poor. It’s about avoiding the inflation tax. And so I think as the inflation rates get worse throughout the world, there will be more of a demand for an alternative medium of exchange to these fiat currencies that can also store value. You said some of that is happening already. You said that many countries around the world, the central banks are buying gold. The central banks, right. Many of those central banks are also starting to experiment with the idea of an imposed digital currency. I guess there’s flirting on the margins. What they’re talking about is a digital fiat currency that just gives them more control. And if they want to eliminate cash, it’s just inherently a very oppressive monetary system that concentrates even more power in government and diminishes individual liberty and makes it easier for governments to become more tyrannical. So that’s a whole different topping.