Here is the transcript page for episode #8. We discussed the monetary system and how it started. Other topics include gold and the decoupling with the U.S. dollar, Inflation and other options for your money, Bitcoin and blockchain, and their differences. You will read about NFT’s and DRM technology, good ways to accept crypto for your business if you’d like to, the lightning network and micropayments, and so much more!
Please visit the full episode page #8 – Jimmy Song – All about Bitcoin and why it will win! For complete show information.
Transcripts may contain a few typos and can be difficult to catch minor errors sometimes.
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Rick Mazur: Hey everyone. I have Jimmy Song here. Jimmy is a Bitcoin developer, educator, and entrepreneur. He’s also an open-source contributor to many different Bitcoin projects and programming Bitcoin from O’Reilly books. A little bitcoin book and thank God for Bitcoin. Jimmy writes a weekly newsletter, Bitcoin tech talk and also has a podcast bitcoin fixes this. Hello, Jimmy, how are you?
Jimmy Song: I am good. Glad to be on your show.
Rick Mazur: I’m happy. See, and I didn’t say anything beforehand that you’re wearing the white hat,
Jimmy Song: Yeah. Well, it’s a, it’s both, so it’s not exactly like, this is the nicest hat I have, and honestly, I like it better than any other hat,
Rick Mazur: okay. Cause I wasn’t sure what to expect. I heard about this. This is becoming a phenomenon with you on podcasts. And I was wondering if I was going to get the black one or not.
Jimmy Song: Yeah, no, no chance on the black one today.
Rick Mazur: So you’re a programmer since 98, huh?
Jimmy Song: Yeah, so I’ve been attracted to computers from a very young age. This isn’t a Commodore 64, which had all these great games. I didn’t even know what they were, but I was begging my dad to get me one as a nine-year-old, and my dad relented and got me a Commodore 16 for my birthday from toys R us.
This is the Commodore 16, which only had like two or three games. So having not much to do on that system, I started learning how to program, and I was hooked. I had other computers after that, and it became a career. I did a lot of different startups before getting into Bitcoin and, even in Bitcoin, I did a few startups as well, so yeah, that’s my major
Rick Mazur: Yeah, I had the Commodore 64, and I started an internet company when I was back in 96. And I started, and we did a little bit of everything back then. And there were no real manuals or education that you could get. So, I was a programmer for a while. I started with cold fusion.
Jimmy Song: oh,
Rick Mazur: yeah, it was a company called the Allaire before that, and then they changed it to cold fusion, to the little ASP. It’s changed a lot, boy. But I’m out of that game lately, but I have a background experience.
Jimmy Song: oh, I mean, significantly. I don’t think anyone uses ColdFusion anymore.
Rick Mazur: They do, believe it or not. There is a little bit, but. Now it’s dead. It’s
Jimmy Song: Well, it’s like a bank running on a mainframe or something like that. Right? Like you want to virtualize it as much as possible because I like keeping that stuff up is very difficult.
Rick Mazur: Right. Exactly. I wanted to have you on here; you’re the Bitcoin guru. I got you, I did read one of your books, and it was just phenomenal. We’re going to talk about that in a little bit. But before we could talk about Bitcoin, I think we need to understand how the current money system was to understand better why Bitcoin may have come about in the first place.
And I was hoping you could explain it a little bit, kind of, like I’m a seventh grader, cause some nice people need that.
Jimmy Song: okay. Well, you’re asking about why Bitcoin exists, period, or how it came about.
Rick Mazur: Well, yeah, the start with the current money system is, and how it maybe has changed over the years and how we got to the point where maybe there was a need for bitcoin in the first place for somebody to develop.
Jimmy Song: Yeah. Yeah. So the current monetary system is what we would call a central bank-backed fiat monetary system. And that’s a mouthful. But all of those words mean something. So a Fiat money system just means that it’s not backed by anything. There’s no convert ability to the money.
That you can trade your dollars for gold, and that sounds strange because nobody thinks of converting their money or their dollar bills to anything else. But it used not to be that way for a long time. It was. It was convertible, as they would say, or in other countries, it would be convertible for silver. Even in the U.S., it was a convertible for silver.
For some time the reason why it isn’t anymore is that it’s simply got too expensive. The money supply kept expanding, and it got too difficult to do that. Now, how did all of that come about? Well, the federal reserve is the central bank of the United States, and it was established in 1913 ostensibly as a way to manage the economy better.
Prevent disaster by managing economies with their sort of iron fist, if you will. The iron fist is the conceit of central bankers everywhere that they can somehow. Of course, that isn’t the case, and all the evidence points to the fact that they are the cause of most of these economic disasters that we see every 10 to 12 years. Most recently, last year with the pandemic before that 2008 before that 2001 before that 92 before that 87.
Yeah. I mean, like we could keep going, right? There are just every eight to 10 years; there’s just something that happens. And it’s sort of like inevitable. So then that’s the apparent reason why central banks were set up, but even when they were set up originally, you could convert your dollars to gold.
So you can go to any bank and give them $20 and 67 cents. And they would give you one ounce of gold. That’s the conversion ratio that you had for a long time? Everything changed in 1933 with executive order 6 1 0 2. This was by Franklin Roosevelt. It was an executive order. He didn’t need the permission of Congress.
I don’t think he would have gotten it passed even with the very liberal Congress that he had at the moment actually to do a bill like this, but he made it an executive order. Essentially. He said private citizens could not own more than one ounce of gold. So. He seized all of the gold. Now, most private citizens didn’t like that.
So if they held gold, they refused to turn it in. And the government wasn’t going door to door and like trying to seize gold from people’s houses. They didn’t do that, but a lot of the gold wasn’t the banks. Because you can always convert it for 20.67 cents per ounce, they just took all of those and said these are all ours now.
And the sensible reason why they did that is the reason why all these governments sort of want to get off the gold standard, if you will, it’s to expand the money supply because by 1934, just a year later, they revalued the dollar to $35 an ounce. So it went from $20 to and 67—the $35. So, Roosevelt essentially expanded the money supply by something like 50% just with the stroke of a pen.
And all of the people that held the dollar got diluted something like 50% overnight.
Rick Mazur: Wow.
Jimmy Song: So that was what happened in 19 33, 19 34. World war two comes around. And because most of the fighting was in Europe, some in the Pacific, and so on. Everybody needed American manufacturing.
Many people familiar with world war II history would know about lend-lease and so on, but essentially all of these. Countries needed goods from the United States, and how are they get them? What they had to pay for it, but you’re not going to accept their currency because it’s, you don’t trust their currency.
They have to pay the U.S. and gold. DF=ue to the fighting in Europe and the Pacific, much of the world’s gold ended up in the United States. So by 1944, when the Bretton woods agreement happened, we had enormous leverage. So the Bretton woods agreement was a meeting by the top officials of every country.
And their explicit goal of that conference was to set a new monetary world order. Like, that was it. And if that gives you chills, it should because the agreement was trying to decide on behalf of the entire world what the money system would be. The U.S. had enormous leverage because a lot of the world’s gold, I think it was something like 75% of all of the world’s gold. Because of their manufacturing capability and all of these other countries being at war, the trade balance was such that the U.S. ended up with most of the gold.
So the U.S. had this enormous leverage. And part of the Bretton woods agreement that they could put on everybody else was okay instead of holding gold in your vaults; I know all of you guys want some gold, right. In your central bank. We’re going to make it so that you just put dollars in your vaults and trust us.
We’re good for it. Anytime you want to convert, you ask us, and we’ll convert it for you at like $35 an oz. And, you can see where this story is going because like the bank saying, oh, anytime you want to convert, it’s $20 and 67 cents, we’ll do it.
It only worked until 1971 when France threatened to convert many of its dollar reserves to gold, seeing the enormous spending that the Nixon and Johnson administration had done with Vietnam and social welfare programs in the United States. They were like, and there’s no way you can afford this.
And there, there’s probably not enough gold to back up the dollars that you have. So we’re going to convert it to gold. So Nixon just said in 1971, we are going to suspend the converting ability of gold temporarily. He said temporarily. But of course, it wasn’t temporary, just stop forever.
So from that moment everything, I came just Fiat money, and amazingly the world continued on it because, in 1973, the dollar essentially became the only way to buy oil. So this is where we get the petrodollar moniker—starting with Saudi Arabia.
One of the unknown facts about the first Gulf war is that Saddam started selling oil. The U.S. was able to convince many oil-producing countries to sell oil only for a dollar. So, no country can sell oil for non-dollars without facing some heavy sanctions or us reprisals or something.
In the second Gulf war, Saddam started selling oil for euros right before all of that happened, which makes you wonder from 2003, w what was happening, a similar thing in Libya? I believe he was selling it, selling oil for gold before he got there. So geopolitically, the petrodollar is enormous.
To the United States. And it’s part of how it keeps a hegemony or monetary imperialism over every other country. But all that said, the current system is based on the central bank back on the monetary system. So, the central bank is the lender of last resort and how that works, but the government has a budget, right?
Their tax revenues, 3 trillion. Where do we get the other 3 trillion? $6 trillion budget, something like that. Technically what happens is that the treasury now has to sell $3 trillion of treasuries or federal bonds. And they sell it out into the market.
Now, some of it sells to the public. Some of it sells to other foreign central banks who like to keep it in that instead of dollars because it gets a little yield. But if not, all of it gets sold, well, the lender of last resort steps in and buys it now. Where did they get that money to buy it?
Well, they created at their near. So additional money is added to the money supply to take, say, $2 trillion worth of treasuries that nobody bought. And this isn’t the this is one way in which money expands, but that’s not the only way there is also at the commercial level.
All these commercial banks also create money out of nothing. You might think that most. So say there’s a corporate bond that pays like 3% over 15 years or something like that. That there’s like when a bank is w when you think about it, that those aren’t very good investment terms, right?
Like who’s buying this? Like if I want a 15-year investment, I’m going to want way more than 3%, especially if there’s even a little bit of credit risk. And 3% isn’t very much so, so who’s buying this well, it’s commercial banks. And the thing is there’s nobody that it’s not coming out of somebody’s safe things it’s coming out of nothing.
Like they create money to buy those bonds. Similar thing with your mortgage. Again, if you think about it, 3% over 30 years with some credit. No one is giving up their savings and thinking, oh, this is a great investment. I think I’m going to do that. Like there, there are exactly zero people that want that kind of risk.
It’s usually a significant amount of money, somewhere between a quarter-million and a million dollars or something like that. And, you’re going to have some credit risk. You’re not going to get paid off until 30 years from now or something like that.
There are just way too many variables. So this is how money sort of comes into existence in the current system. But it’s created on behalf of these people; it happens all day long because the bank creates it on the customer con on the mortgage borrower’s behalf. And as I write in my book, thank God for Rebecca, A cesspool of theft, cronyism, and corruption. And it’s got some insane moral problems with it.
Rick Mazur: So, correct me if I’m wrong on the year because I’m not a hundred percent sure. Wasn’t it around 71, 73, when the goal was decoupled from the dollar, didn’t have to be backed dollar
Jimmy Song: Yeah.
Rick Mazur: So essentially, that allowed them to print unlimited money. And that’s what started the escalating debt to GDP ratio that’s been skyrocketing over the years. Right?
Jimmy Song: Yeah. I mean, a lot of things happened in 1971. There’s a wonderful website. WTF happened in 1971, and you can look at all of the different things that sort of started to go crazy right around 1971. Like the financialization of the economy, people aren’t like inventing or creating new goods or services. Still, people that are in finance that are moving money around become richer and richer, right?
Like those are the people that tend to benefit in situations like that. And that’s what we see 1971 to, pretty much the entire decade of the seventies. The U.S. is paying for all of the money printing that they essentially did in the sixties and early seventies, the Vietnam war, and like all the great society programs.
It comes to a head, and we get some insane amount of inflation. The seventies decade may be most like this decade of just unending inflation and very high unemployment. Then, on top of that, it was partly due to all of them, we had to pay the Piper basically like, wait, we spent all this money in Vietnam.
We spent all this money on social programs. Well, like, yeah, what’d you think would happen that you didn’t have to pay for it. We also saw the oil shortage and stuff like that. It was because not many people understand where that came from that oil was becoming dollarized.
So. The country started holding back oil as a way to keep its reserves. It was like the dollar, et cetera, had different properties. So it was a very good hedge and a store of value for a while. So, of course, there was a shortage, and we had all these long gas lines and stuff like that.
So the seventies ended up being this very interesting decade where, you know, many things just sort of started changing very quickly. And it ended up changing American society going forward.
Rick Mazur: Well, I hope they didn’t see me coming because I was born in 1971. So
Jimmy Song: Yeah.
Rick Mazur: Maybe that’s when this all started, but I’m dating myself a little bit, but and I know a lot of people that had bridge loans and mortgages back then, they were telling me 17% interest rates and things like that, which that was crazy.
Jimmy Song: Yeah, it is. Isn’t it.
Rick Mazur: Well, when you think about now, people are getting two and a half and, it’s, nobody’s complaining about two and a half, but,
Jimmy Song: Yeah. Well, the thing is, if you, there’s a picture that I’ve seen on Twitter of like the prices at McDonald’s. And I think it was 1971, and it was like 5 cents for a cup of coffee. Right. And like 15 cents for a hamburger and things like that. And you’re like, okay, let’s 17% inflation makes sense, though.
Or interest rate there at that point. It makes sense because, like through the next decade, things got a lot more expensive.
Rick Mazur: I don’t know if it even really matters anymore. And I’m a day trader, and the market’s been going up, and now today it was just announced that we’re recording this January 10th, 2021, just so everybody knows or June, I’m sorry, June 10th. But inflation is going up.
It was just announced today. It’s the highest, since 2008, a spike, yet the markets just made another all-time high today. So I find it’s very interesting that they just shrug off the high debt. Nobody cares. Eventually, it’s going to come to fruition at some point, I would suppose.
Jimmy Song: Yeah, I, and this is the question everyone has to ask is, okay, well, where do I put my money? Right? Cause you don’t want to put it in the dollar. The empty money supply has gone from 15.5 trillion to 19.5 trillion in the space of like nine months. That’s an expansion of 35%, which is almost as bad as 1933 to 1934.
We also see like, okay, well, I guess you could put it into the stock market, but there’s no yield anywhere. Nobody’s paying any dividends that are worth anything. It’s like one or 2%. W where are you going to go back? One or 2%, right? Like you’re not going to get any yield Berry there either way.
What are you going to do in real estate? Like there’s no inventory anywhere. And like days on the market is like single digits in many places in the country. And you’re going to have to pay 30% above asking even to be considered. I like what, where are you going to put your
Rick Mazur: Here’s the new phenomenon buy some Bitcoin,
Jimmy Song: Yeah, well, my argument is that all of these things have some inherent risk. Stocks can have fraudulent directors. They might be cooking the books. They might not get the drug that they’ve been working on approved by the FDA.
If you’re in a real estate market that suddenly becomes less popular or there’s a huge tract of new housing that comes online or something like you don’t know. Like that there’s risk
Rick Mazur (2): So explain to me and everybody who’s listening, because everybody’s heard about Bitcoin and blockchain and all this other kind of stuff, more Bitcoin than blockchain and cryptocurrency. But a lot of people don’t understand. What is Bitcoin? What is blockchain? What is the difference?
They get confused. Can you give me just a brief overview of that?
Jimmy Song: Yeah. So, the easiest way to think of Bitcoin is digital gold, and the reason why I say that is because a lot of people are familiar with gold because it was money for thousands of years. And the reason it was very good money for thousands of years is that it stayed scarce. Also, it had many other properties that made it relatively easy to divide, relatively easy to transport, relatively easy to identify and recognize, and things like that.
So, gold is also decentralized in the sense that if you own some property, you can feel free to dig for gold one day on your property, right? Nobody is stopping you if you own some land somewhere. Like I own my house, so I can go to my backyard and start digging for gold and not likely to find any, but I have the right to do it.
Right. And that, that’s how it was. It was sort of like gold works. You don’t need anybody’s permission to produce it. Contrast that with the U.S. dollar; if I start printing $100 bills out of my basement, I will get arrested by the secret service because that is illegal. Only the treasury can print $100 bills, and only the fed, commercial, and retail banks can expand the money supply through lending. So in that sense, it’s like gold in that it’s incredibly scarce long-term, and it is decentralized. Those are the two properties that we’re getting there. But gold is physical. The nice thing about digital things is that it’s very easy to transact across space to order something from Amazon, based in Seattle. And I can pay with my credit card, which is natively digital, so that I can pay for it, and they will ship an item to me, and I’ll have it on my door like two days from now. And it’s great. I don’t need to transfer something physically.
It’s not like, 1997 eBay where you had to mail a check over to the other person, and they would have to cash it and then send you the item. It’s not like that anymore. There’s no physical exchange required. And being digital gives you the ability to do things very quickly and conveniently across space.
So Bitcoin is digital gold in the sense that it’s both decentralized incredibly scarce long-term and it’s digital. So it adds this very nice quality of essentially transforming for this value very quickly over a large amount of distance. And it’s very useful because you could pay somebody halfway across the world in about 10 minutes and that’s that that allows you to not only buy goods and services from very far away, but more importantly it’s much easier to secure yourself.
So if you had like a 400-ounce gold bar, that is very hard to secure. And in fact, this is why sort of like centralization of money happened in the first place. Money used to be gold. But people didn’t like having to secure their goal cause then a robber could come into your house and take it.
And so they, they put it all in one place where, you know, somebody that knew a lot of out security can just secure it themselves. These were called banks that, that’s and they would have fixed the old doors. They would have armed guards and so on. And, modern ones have motion detection systems and all kinds of really cool ways to secure.
Does it secure their vaults? But that’s what they were there for originally. And this one of the weaknesses of gold is that it’s very hard to secure with something digital. It’s much easier to secure. It’s like having a 400-ounce gold bar in your house, but instead of having fixed steel doors and motion detection systems and armed guards, you have a hardware wallet, which is like a hundred bucks, and you have the same sort of equivalent security than you would with with with a bank.
And this is why we call it, like in Bitcoin, you can be your bank. You don’t need to sort of outsourcing the security of your stuff. And it turns out that whenever one entity is trusted with many things, they run into many morals. And they abused their position for their benefit, which is what a lot of these banks did.
They started doing what was called fractional reserve lending. And would go bankrupt as soon as there was a quote-unquote run on the bank, which would mean that many depositors would lose their money. And essentially, the current Fiat system is essentially bankrupt because they’re issuing debt out of nothing with nothing backing it.
But yeah, I, that’s the comparison between the two systems. It’s
Rick Mazur: And then Bitcoin is built on top of the blockchain platform. So blockchain is a platform that, which Bitcoin operates on top of,
Jimmy Song: well, so the blockchain is just it’s a chain of blocks. That’s what; this is why we call it a blockchain. And if you think about Bitcoin, you can think of the ledger at your bank, right? Like, when you go deposit money at your bank, what does the bank do?
It doesn’t go and take, say you deposit a hundred bucks. They don’t take your a hundred bucks and put it into a drawer labeled with your name, put it in there. That’s not what they do. Right? Like they take the deposit, and they update a ledger. It says, plus 100 to your account or something.
And if you use a check to pay somebody and somebody comes to cash that checks, what happens? Well, the debit from your account and credit Thero camps, right? That’s how the ledger works. The blockchain is just the ledger for Bitcoin, and it has every single transaction that Bitcoin has ever occurred on Bitcoin in that blockchain.
That’s it? That’s all it is.
Rick Mazur: Interesting.
Jimmy Song: It’s a ledger of every single transaction that’s happened in the last 12 years of history. Twelve years of history, you and you. And the nice thing about having that is that now it allows anyone that wants to audit the entire thing, right? You don’t have to trust anybody.
You can just go in and audit everything and say, okay, is the amount of Bitcoin increasing at the right rate? Is anyone cheating? Is anyone creating Bitcoins out of thin air soon as that’s an important quality you can verify? Try doing that with the fed, not going to happen.
Rick Mazur: I had a question about that. We’re going to get to that in a second because that’s very important. So bit Bitcoins, and we hear a lot about minors and Bitcoin mining, and that’s pretty hard to do these days. Isn’t it? You need a lot of resources to do that,
Jimmy Song: Yeah, it’s like a, and this is similar to, gold in the sense that I’m told that to mine, one ounce of gold these days, you have to process somewhere around 40 tons of dirt and rock. So yeah, I mean, you need to crush it and process it with some chemicals and so on. So that’s a lot of dirt and rock or just one ounce of gold.
But once you find that answer gold, it’s very easy to verify, right? Like there are chemical tests and touchstones and things like that you can use to test. Okay. Is this gold or not? And Bitcoin mining is very similar in that. It takes an enormous amount of the digital equivalent of dirt and rock, which is numbers.
You have to run lots and lots of them. To find your one ounce of gold or, if you will, or the digital equivalent. But once you find it, it’s very easy for anyone to verify. Your cell phone could do it in less than a second, right? Like it can just, okay. Yeah. That, that’s sufficient what we would call proof of work.
And that’s the key to how the whole system runs. You don’t need to trust anybody. You can go and verify yourself, which is amazing.
Rick Mazur: That is, it is amazing. Besides the fact that there are much easier ways currently to pay in the United States. And I know it’s probably more widely used, I believe not in the United States. Why are more stores and things like this not accepting Bitcoin? And what do you believe will have to happen or will happen for people to actively seek to take the coin as a payment in more of a widespread fashion,
Jimmy Song: yeah. Great question. So the reason is that many Bitcoiners don’t like spending their bitcoin. They would much rather spend their Fiat money. So, in 2014, 2015, there were a ton of companies that just started taking Bitcoin. So overstock was one, Expedia was another, Adele was another, I think even Microsoft, a store might’ve taken it.
There weren’t a ton of stores. And the thing that they found is that initially, you get a little spike because people want it to support them. But then it would just sort of Peter out and then like the engineering costs of keeping it up. It just wasn’t worth it compared to all the tiny amount of business they were getting.
And if you think about it, it makes sense because, in 2014, Bitcoin was like 400 bucks
Rick Mazur: I bought two at 500
Jimmy Song: yeah.
Rick Mazur: And sold them a long time ago. A long time ago, unfortunately.
Jimmy Song: And yeah, well, so that, that’s the thing that every time you buy something with Bitcoin, you’re essentially selling Bitcoin. So you know that, those,
Rick Mazur: I didn’t think about it that way. Actually. It’s a good point that you made, why people don’t want to part with it because they’re holding it. So they’re not; they’re going just to use their credit card to pay.
Jimmy Song: yeah. Yeah. And this is a thing that a lot of Bitcoiners have learned over the years. So the story I like to tell is 2013. There’s a new store online that’s accepting Bitcoin, and it is a beef jerky store. I love beef jerky. So I was like, okay, you know what, I will give them some of my business.
And I think Bitcoin was. Around 400 bucks at the time. So I bought a hundred bucks worth of the beach Turkey. I’m like, all right, let’s get some beef jerky support this story. They sent it to me, and I ate it. It was delicious. I loved it, but that costs me a quarter of a Bitcoin quarter of Bitcoin right now is about $9,000.
That wasn’t $9,000 worth of Turkey. Do you know what I’m saying?
Rick Mazur: was 18,000 a week ago
Jimmy Song: Yeah. Like that. And five years from now, it’s probably going to be like $40,000. I don’t know. And that’s the thing that every time you spend Bitcoin, you end up regretting it. That’s just how it is. So, this is why, like many, many merchants that sort of started taking Bitcoin.
I mean, they were converting it for Fiat money. Yeah. Sort of like the publicity that it gave them the perception that they were on the edge of tech, technological, I don’t know frontier or something like that. And but you know, they weren’t keeping it the people that like, do take Bitcoin that, that are serious about it.
So I have a seminar on programming, blockchain. I teach developers how to how to program Bitcoin or teach them all about the protocol. I will not take Fiat money. I won’t pick one. They will only take Bitcoin. And this is something that I require because I don’t want to deal with the Fiat system.
Suppose you know anything about starting a business, like getting the payment gateway set up and the little fees that everybody takes. It’s a headache I don’t want to deal with, Right. Like once in a while, people would be like, please. Can I pay with PayPal?
All right, I’m going to, I’m going to charge you like 10% more, and they’re like, okay, I’ll do it. But like most of the time, I’m like, okay, if you’re that desperate, just buy that much on the cash app and then send it to me. Like, what’s the big deal. It’s not that hard. But like, people are like that sometimes.
So, I think to answer that part of your question for merchants to start getting on board with Bitcoin in a major way is to start demanding Bitcoin and Bitcoin only. And their goods or product has to be so good that there are no other alternatives to getting their product other than through them.
And that does tend to happen in times of inflation where there are shorter. We’re seeing a lot of shortages right now, right? If you have lumber, you could probably sell it for Bitcoin and demand Bitcoin for it, right? If you have copper, aluminum, plastics, Silicon, computer chips, a computer chip factory, or any of those things, you could probably demand Bitcoin and get paid for it in Bitcoin.
But you know, like that’s, or they’re down the road, and the sort of lesson you can take is from Venezuela where the Boulevard is going insane. If you go to the black markets there and try to paint boulevards, they’re not going to take it.
They want dollars or sometimes Bitcoin. And the reason is that if they take the Boulevard, by the time they get around to converting it to something more stable, it’s going to have lost its value. So they, they don’t want it. And they refuse to take that. Now, the U.S. dollar is nowhere near that, right?
But it’s also nice to think that it can never happen. And I believe that a hyperinflation scenario is entirely possible at some point in time in the next 20, 30 years.
Rick Mazur (2): Right, and I think I’ve been looking at this the wrong way because I always thought bitcoin would not be able to rise in popularity unless it was taken everywhere, like in stores and things like that. I never really looked at it as more of digital gold, where people are just, so it doesn’t have to be, taken in a bunch of merchants and stuff like that in the United States, people will just want to accumulate it essentially
Jimmy Song: Yeah. Yeah. And the thing is there’s a lot of technologies for a method of payment, right? Like there’s not just credit cards. There’s now like Venmo and cash app. Apple pay and Google wallet, and international leave. There’s like M-Pesa and octopus card we chat. Yeah. Yeah. And like, there’s just so many sorts of the quote, unquote, convenient ways to pay, and they do make it less friction have less friction, but that’s not that important per se.
Especially because like for Bitcoin to fill. Yeah. Because all these other things already do it. And as my friend safety and likes to say, nothing stops any of these companies from settling in Bitcoin, right? Like visa already supports like 35 different currencies bake a very easily add Bitcoin to that list that just settles in Bitcoin.
You couldn’t do the same thing, PayPal, or, as a cash app or, even reach out if they wanted to it’s not hard at all. The technology. For making it, making sure that everyone can take it. Isn’t what’s needed in the market? What’s needed is a store of value.
And on that front, there are just so few choices for people. We said earlier that we have pretty much like stocks and real estate, maybe gold, and that’s right? Like, where else are you going to store value?
Rick Mazur: Is there any truth to the fact in your opinion that some of the companies have not put forth a bigger effort because they’re worried about the government, or I know it’s been discussed a lot. Still, the government somehow doesn’t like Bitcoin, or they’re going to ban Bitcoin or something like that. And I know that wouldn’t be easy to do, but I know, for example, the fed just announced that they were going to start their coin because they can control the currency that way. And some people even said they’re going to say it’s a national security issue where they say it’s their job to manage the money stability. And if they allow people with Bitcoin to use their money untracked, essentially, that could somehow be a problem. I mean, do you have any thoughts about that?
Jimmy Song: Yeah, I mean, they can try, but I have a hard time seeing how they would do it. Right. Like, it’s decentralized. So there’s no central chokepoint that you can just go to and say, well, you’re not allowed to do the same one.
Rick Mazur: What about Coinbase? They’re already starting to ask Coinbase for user information and to track who’s depositing money in there. So isn’t that the start?
Jimmy Song: Yeah, I mean, that’s an exchange, and they are, of course, centralized, but no one has to use coin base to possess it yourself. You don’t have to use Coinbase for anything really; if you don’t want to, you can trade peer to peer for cash. And I’ve done this in the past where I go and either buy or sell Bitcoin to like strangers that I meet in a marketplace online or whatever, and this is entirely possible. We do this all day long on eBay, and it’s entirely possible to do all of these actions. So, what would that look like, how would they penalize it, and their justification? They could try. But I don’t see an effective sort of way to prevent it. Like the executive order, 6,109 supposedly made it illegal for any us citizen to hold up more than one ounce of gold. But many people who held gold were like; I’m not giving it to the government. It’s, I think what they’re doing is immoral, and this is a complete seizure. And they kept their back, and of course, their gold was worth 50% more later. Like a year later, when Congress passed the bill saying it’s now $35 to announce. So, I mean,
Rick Mazur: Well, wait a minute. So let’s say that you’re a business owner and you take. And you collect it as revenue for your business, and then you go and spend it to buy groceries somewhere, and you don’t have to have her pay tax.
Jimmy Song: I think you do when you spend it for groceries, I think,
Rick Mazur: Well, you would pay sales tax, but you’re not paying tax on,
Jimmy Song: Well, it’s it that’s a taxable event now. So you have to pay anything.
Rick Mazur: a taxable event, but how would they anybody be able to, how would
Jimmy Song: Yeah. Yeah. You’re supposed to self-report it. One of the advantages of somewhere like El Salvador is that you wouldn’t get taxed that way there because it’s legal tender. So if you spend it there that way, then it’s better. But yeah, unfortunately, the U.S. doesn’t have that legal tender law, which I would like to see, but it hasn’t happened, at least not yet.
Rick Mazur (2): The next question I have deals with this issue, not the conception that Bitcoin is anonymous. And I want to bring up the current colonial gas, the pipeline hack that came up again; we’re recording this June 10th, 2021, which they got paid in Bitcoin. And the government was able to recover most of the money and, they’re saying they weren’t very good hackers. They didn’t cover their tracks as much and stuff like that. But you know, the question then becomes, is there something that they could have done better to, I mean, how is it that the government can just come in and find the fact w what wallet they paid for and recovered the money?
Jimmy Song: Yeah, I have no idea. Like how much of this story is true. A lot of things just smell a little off
Rick Mazur: I agree. I’m just saying what’s being reported in the media, but Yeah. Exactly. I don’t know either,
Jimmy Song: So, first this was called a ransomware attack where they, in fact, the computer and say, if you want the data it’s encrypted pay bitcoin to this address, or else you will never see it again.
And then what the FBI did was track the Bitcoins to some cloud storage. And who knows, maybe there’s some sensitive data in there, some private keys that you need to unlock certain servers or something like that. But whatever, it was important enough that they paid it supposedly.
A cloud server somewhere could subpoena the cloud services company, go in there and recover the coins or something to that effect. Anyway, a lot of it just sounded fishy to me. Just given the terminology they use, the claims that they had. It didn’t add up the thing I would caution about any of these press releases, and what’s quote, unquote being reported is that it’s really hard to tell what’s true.
It’s also possible that it wasn’t an internal hack by an employee. It could have been a ransomware attack. It was like a disgruntled employee who hacked his server and said, Hey, it’s some ransomware, and we have to pay this guy.
And like what the FBI might’ve done to make themselves look good, there’s no real incentive for transparency in these things. Most of the people in any sort of press release, all they want to do is look good. And that’s it. They, there, there’s no real desire to put out the truth.
And if you doubt that, I mean, think about the kinds of people in these positions, they’re politicians, right. And what are politicians known for lying to make themselves look good? Right. Like that bed. I mean, that’s what these things are filled with, so I’m very scared of the goal of these claims.
And like whether they recovered it or not, it really wouldn’t take much for them to show that they recovered it. There’s a way to just point to an address, show us that it’s there and sign a message saying, we, the FBI recovered these coins, and we now have them in our possession, something like that.
It’s cryptographic proof right there. And everybody in the Bitcoin community would verify it themselves and say, okay, this checks out the money is there. And the FBI, it does seem to come from this trail and so on. Like, it would be very easy, but they haven’t done that.
So for me, it’s like, oh, I’m going to suspend judgment and be very skeptical until they do.
Rick Mazur: Well, that’s why I wanted to ask you because you would know. I mean, if your B.S. meter is going off a little bit or whatever you saw Coinbase did their IPO. That’s interesting way overvalued, in my opinion. I don’t think that they can sustain that.
Jimmy Song: Yeah. I mean, this is the thing about the stock market that they are all way overvalued. I was saying the other day, Amazon has never paid a dividend, and they have no plans of ever doing so now they’re getting bigger and bigger. But this is a stock that pays zero, right?
What does that work like as an asset, as an investment? If you’re getting no returns on it, year after year, it should be worth zero. Still, because there are very few stores of value out there, people use it as a store of value, and it gives it this enormous store of the value premium, which Amazon takes advantage of and grows even bigger.
And this is the case with every other stock. So many that like, so many stocks that even like there’s this phenomenon of meme stocks like stocks that like are bankrupt or have very low prospects for growth. It’s pumping because people want it to pump. It’s not about the fundamentals or the reality underneath.
So I mean, Coinbase, to some degree, is part of that, but I mean, it’s by no means like the most. I think everything in the stock market is overvalued, with the possible exception of something like a micro strategy, which holds a lot of Bitcoin on its balance sheet. Pretty much everything else is people trying to store the value somewhere, finding very few places.
And just hoping that there aren’t other people who don’t put it into something like Bitcoin or
Rick Mazur: you’re not going to catch me buying that anywhere. I feel like the spreads, how they’re making their money with the payments and the conversions, will come in, and they’re going to get tighter as more people enter the game.
And I think they’re just betting that the growth of the cryptocurrency is going to outdo at a faster pace. The fact that the exchanges are going to be making less money per transaction. And I don’t see that happening shortly. But again, I don’t play those anyway, so it doesn’t matter.
But talk to me a little bit about NFTs and digital rights management DRM. Cause I’m not because I’m not, I’ll just let you know. I think we talked offline or at the beginning of the conversation. I started an internet company back in 96, and we were one of the first to do digital rights management using a company called real networks.
So when I heard these terms about non-fungible tokens in the way it works, I’m just like, this is just DRM. I mean, now there’s a technical side to it, which, there’s centralized and decentralized and all that. And then there’s the end-user kind of experience with both of them.
So I know, do you have any opinions on that or
Jimmy Song: Yeah. Yeah. I get the DRM. It at least gives you a right to something, right, which is the right to listen to the song or read this book or watch this movie or whatever. And that, like, we can argue about whether or not that’s like a legitimate right that’s available to be sold or whatever, but regardless, at least we understand what it is. Here’s the thing about NFT that’s insane. It’s not the bits on this, right. Supposedly like people’s art that sold for 65 million dollars or something like that. It’s like a five-gigabyte JPEG.
So it’s a huge JPEG, but you can go and download it anytime. You want. Press right-click, save as it’s not the bits on disk clearly that you are buying as a buyer of the NFT. It is also not some sort of copyright or digital right or anything like that. It’s not like, okay, now that I have this NFT, I have the right to make t-shirts with that NFT and sell it at a profit. That would be something valuable.
It would be like a patent or copyright to a song or something like that in the market. Which people value for good reason because people like them. And you can commercialize them, make money off of them. And so on what it is, it’s just a ledger entry, and it doesn’t even point to anything.
It’s a ledger entry made by the artists saying that it’s supposed to represent this piece of art. So it’s a ledger entry with a pointer to the actual piece of art.
Rick Mazur: But why would somebody pay for something like that?
Jimmy Song: Excellent question like; logically, it makes no sense, but with enough hype around it and enough sort of like greater fools, it does end up that many people get caught in the wave. And of course, you have lots of celebrities promoting their quote, unquote NFTs, and fans like to feel closer to their celebrities by buying stuff directly from them.
I don’t understand why they don’t like it; just do the same with shoes, jerseys, or something like that. That it’s way more honest than like, Hey, I’m going to sell you an NFT that, I’m just going to assert out of note nowhere that it doesn’t make any sense. Yeah. I mean, D, like, it, wouldn’t be challenging for Floyd Mayweather too.
Sell the boxing gloves from his latest match at auction or something like that, and like make a bunch of money for himself. What, like, that’s way more honest than an NFC, which is, to me, the scam, yes. Of the scam scammy
Rick Mazur: I agree. Interesting. So if a business wanted to accept Bitcoin as payment these days, I had a store. A few years back that I, online. And I used a company called BTC pay. And I put up my server. I used a Luna node or downloaded the whole ledger or whatever, or maybe not the full one.
I don’t remember. There was an option to do partial or something like that. And it would settle through that. I mean, is that, are there easier ways for businesses to take these days that you could recommend?
Jimmy Song: Yeah, I wouldn’t recommend BitPay. I think BTC pay is a free, open-source alternative, and it supports a lot better protocols and is more robust, and so on. And it’s free, and it’s open-source and
Rick Mazur: the one I use B, yeah. That’s the one I use BTC pay.
Jimmy Song: pay. Yeah. A bit BitPay is not a very
Rick Mazur: I called them to get information, and I never even got any reply.
Jimmy Song: Yeah, they’re more bun, semi zombie company at this point a lot. I mean, a lot of companies that, they’re now going on what, like 70 years, and I honestly they’re a little long in the tooth. They haven’t had any innovation in this space for a while.
They lost a lot of good people that they used to have and so on. So I just not a good place for them.
Rick Mazur: And it’s not that easy even. Cause I know when Bitcoin first came out, many people said, because of the fractional nature of each coin, how you could buy it and use it that micropayments were going to be significant with Bitcoin. But because of the cost to settle, that hasn’t been the case.
So I don’t think that’s going to take off anytime soon.
Jimmy Song: well, I mean, I on-chain. Yeah. But lightning, you can make payments all day long.
Rick Mazur: I was going to ask you about lightning. Talk to me about the lightning network, too, because we get that question a lot.
Jimmy Song: Yeah, so a lightning network is a way to compress many transactions into a single one. So imagine if you and I were doing a lot of business, so I sent half a Bitcoin, you sent me to point .2 bitcoin, and then you send me 0.1, Bitcoin, I send you 0.1 Bitcoin. And, we do like a hundred such transactions.
We could put all hundred transactions on-chain, or we can just settle up at the end of the day and do what I think traders call like technical netting, right? That’s what you can do. And that’s very useful because then you only have one entree transaction representing, however many we did.
And that could be 5,000 thousand, who knows. Now that enlightening is what would be called a channel. It would be a channel between you. And I can ha and if I have a channel open with somebody else say, Bob, then then the nice thing is not only can I transact with Bob many times a day or whatever, but also Rick, you can transact with Bob as well because you can pay me and I can pay Bob.
And that, that would end up being your ping. I would net out to zero, and that that would be it. Maybe I take a tiny fee for the routing or whatever. And now we start to have a network. And if Bob is connected to Alice, now, Rick, you can pay Alice through Bob and me. And that would be a route of three.
And you would be able to do that, and you can have an extensive network of nodes. And this is what we would call the lightning network. It’s a network of choice. Where you can pay each other in small doses, and it works just fine. And you can compress a lot of transactions into small amounts, and it’s a little more private because only the in-between nodes have any idea of what’s going on.
On-chain transactions are recorded in the blockchain for everyone to see. The rest of the network doesn’t find out about it. So, Bitcoin has been edited as it’s a second layer, and many people are using it for some compelling use cases.
So something like Spinx chat and breeze app is two that I like. Sphinx chat is like a group chatting thing. If you’ve ever been on telegram or WhatsApp groups, it’s similar to that except to prevent spam. First of all, you have to pay to join a lot of these, which is good. That way, if you’re going to spam, it’s going to cost you some money. Also, a lot of them have the staking feature where any comment that you make you have to stake some SATs to make it so that it might be a hundred SATs or something like that. It’s, that’s not very much money, but a hundred SATs to post some to say something on the chat.
And if you were comment is judged to be trolling or spam or by the admins, they keep it. Otherwise, it gets returned to you after about 12 hours. So it’s to maintain the quality of conversation in a group chat. Hi, so that’s one possibility, that’s one application that’s come out of it. There’s another one called a breeze apps podcasting module.
So breeze is a wallet, but in it is a bunch of podcasts. And if you’re listening to it, it’ll be auto. There are some sets for every minute that you listened to the podcast, which is incredible because I have a black cast, and I can get paid from random strangers. I have no idea who’s paying me, but they’re saying, I appreciate you, Jimmy, for putting out some content, and I’m taking time to listen to it on the breeze to pay you some money.
And I’ve gotten paid not a tiny amount of money in some, resulting from making that. Yeah.
Rick Mazur: Can can children own Bitcoin legally?
Jimmy Song: Yeah, of course
Rick Mazur: do you have any children?
Jimmy Song: I do. I do.
Rick Mazur: How old?
Jimmy Song: Well, my oldest is 14, but he’s still not quite ready to hold his keys yet, so I have to handhold them through
Rick Mazur: So you’re a 14-year-old. I have a 13-year-old. So, how would, what would be the best way that you recommend doing that for children?
Jimmy Song: Well, for now, I’m holding his Bitcoin for him, so I’m there. But at some point, I would want to teach them to be their bank. Yeah.
Rick Mazur: Right. But not at that age.
Jimmy Song: I mean, he’s probably close cause he knows some programming and stuff. And just want to be assured that he’s responsible enough not to lose as private keys and
Rick Mazur: And what about people using Coinbase vs. the software wallets and the hardware wallets. I have a Coinbase account. I use a, what do I use Exodus that’s and I don’t know if that’s the best one to use or not, or if there is a best one, but do you have a preference over hardware, software, wallets, or
Jimmy Song: Yeah, I would say hardware wallets are better in general. If you will use a software wallet, keep the device offline and never touch it on the internet. You’re not going to shoot yourself in the foot or expose yourself to malware and things like that, which internet-connected devices tend to have.
So, at that point, it’s basically like a laptop that never connects to the internet. So it’s like a hardware wallet already. So, yeah, I would say that something like that I recommend multisig. If you can do it if you need some help and want some handholding, I would recommend services like an Unchained capital full disclosure.
I’m an advisor there, or something like Casa, where they’ll hold one of your vital multisig keys and walk you through how to set it up and everything. So your stolen, controlling of your funds. But like if something happens to you or you compromise one of your keys, then they can help you recover and do things
Rick Mazur: and people can just go to that website and get some information. For it, I’ll look it up, and we’ll post it in there. So you have your podcasts, your books programming Bitcoin, you have a little bitcoin book. Why Bitcoin matters to your freedom, finances, and future?
I read that book recently. It’s great. Great book. I recommend it for anybody that wants to know more about Bitcoin, and then you have to thank God for Bitcoin, the creation, corruption, and redemption of money. Why did you write that one?
Jimmy Song: Yeah. So, first of all, the book is a moral argument for Bitcoin from a Christian perspective. And I and it started as a sort of like a book club with a bunch of other Christian Bitcoiners that I had met. And we studied a couple of books, ethics of money production by Guido Von Holzman and real money by Gary north.
The current Fiat monetary system. Both are from the Austrian school of economics and give the ethical, moral case for again. A lot of the arguments that I’ve given to you today are laid out in their books as well. And we enjoyed both books. The only thing about both books was the ending.
The ending was essential; hey, now that this is what we need to do. We need to go back to the gold standard and go back to the gold standard by convincing enough people to go back on the gold standard by lobbying Congress and getting a political action committee together. And yeah, I mean, at that point, you just sort of stopped reading, right?
Cause it’s like, okay, this is never going to happen. There’s no way. Anybody’s going back to the gold standard
Rick Mazur: I was just going to say that.
Jimmy Song: So, when we wrote the book, we were like, okay, I like, let’s condense a lot of these arguments and give a more hopeful ending message, which is. Bitcoin is your way out, and you don’t need a majority of the population to do it.
You could do it on an individual-by-individual basis, and you can opt-out of the system. And that’s essentially the argument that we made, and thank God for Bitcoin.
Rick Mazur: Wow. Well, look, this has been very informative. You answered a lot of questions, and I think he gave a lot more information. You also have your website programming Bitcoin, and you have your course there where you teach people, as you said. Can they sign up for that?
Do you have any classes coming up or courses coming up
Jimmy Song: Yeah, I have one coming up in Mexico. It’s out on the west coast on August 10th and 11th. And it’s two full days, and it’s a fire hose of information. So come prepared.
Rick Mazur: pick and pay you in Bitcoin?
Jimmy Song: Yeah, that’s right.
Rick Mazur: Okay, well, I want to thank you for being on the show. You can find Jimmy also on Twitter @ Jimmysong. He’s on LinkedIn. I’m going to put all the links on the episode page, along with his website links to his books, podcasts, everything.
So, been, excellent speaking to you, Jimmy
Jimmy Song: thanks.
Rick Mazur: all right. Have a
Jimmy Song: All right.