Michael Saylor's Deep-Dive on Bitcoin Energy Misconceptions (BTC099)

I’m here with the one and only Michael Saylor.

Welcome back to the show.

Michael Saylor (00:01:46):

Thanks, Preston.

Preston Pysh (00:01:48):

Hey, so Michael, last week I had Jason Lowery on the show, and Jason and I did a deep dive

on all the nuances between proof of work and proof of stake.

And one of the things that Jason has really outlined in what I think is a meaningful way

is why Bitcoin requires energy to tether itself to reality.

And this is something that we’re going to cover in depth today during our deep dive

on energy, energy FUD and whatnot.

I want to start off this conversation with a quote from Jeff Booth, and Jeff has this

theory or thesis that if the currency isn’t scarce, every desirable good on the planet

will become scarce.

I’m curious if you agree with this idea.

If you do, I’m kind of curious why you think it’s important.

Michael Saylor (00:02:36):

I do agree with the idea, and I think that ultimately it’s anchored in the laws of

thermodynamics.

The whole premise that is required for the universe to function is conservation of energy.

At first, you have to have the existence of energy, and then you have to have the conservation

of energy.

In the Bible, the first thing we remember is God says, let there be light that.

So everything starts with the deity pointing out that in the absence of light, which is

energy, there is no life.

Darkness is the absence of energy.

Energy is fundamental, but conservation of energy is what makes the universe rational,

is what makes it work.

I think Jeff Booth is pointing out that, right?

That the idea of scarcity of money is the same as saying, if money is conservative,

then everything else will be conservative.

If money is non-conservative, the world goes insane.

Michael Saylor (00:03:41):

I think the examples there that pop up, a commodity without energy is a coupon.

If I have a dozen eggs and I take the eggs away and I replace it with a sheet of paper

or a text message, and I send you a text message saying, “This is good for dozen eggs.”

Now, I’ve created a coupon, but I don’t have a commodity anymore.

Now, the problem is you might forward the text message to a million of your friends

and now you have a million text messages that are all coupons, but you don’t have the

eggs that equal the coupons and so that’s an example of non-conservative money, right?

Money without energy is credit.

Commodities without energy are coupons.

In cyberspace, an object without energy is an image.

If you have an object and there’s no energy, it’s like Plato shadow, a person without

energy is a ghost.

Michael Saylor (00:04:40):

When you make a comment and there’s no energy to back it, it lacks credibility.

And if you have a cyber persona and there’s no energy that backs it, again, you lack credibility.

The energy itself is what creates cost to a copy.

Having a cost to a copy is what creates scarcity.

If there is no cost to a copy, if we come back to that example of I want to go to a

party and I’ve got one ticket, and then I email the one ticket to 10,000 friends,

the first friend gets sent to the party, and the next 9,999 friends either A, they all

get into the party and the party collapses in chaos, right?

Because now you’ve got 10,000 people in a room that holds 200 people and the fire

marshal shuts down the party.

Preston Pysh (00:05:32):

And they’re consuming everything.

Michael Saylor (00:05:33):

That’s what happens when the coupon gets redeemed 10,000 times against a single commodity

and the other possibility is the person running the party is competent and they only let the

first person in because they’re scanning and they deny the next 9,999 people.

Then what you have is chaos at the door, 9,999 people, they’re just mad, they couldn’t

get in and kind of a breakdown in civilization because now people all go crazy.

They all literally go crazy because they think they had the coupon to get into the party,

but they didn’t.

And so when I apply that to a coupon for food, a coupon for energy, a coupon for access,

et cetera, then what you’ve got is an example of everyone plunged into chaos.

Nothing has any credibility anymore.

I think Booth says, if money is the ultimate coupon, the ultimate coupon is there’s 21

million units of money and you can’t make anymore.

If I want to guarantee that it’ll be scarce, then I inject energy into each coupon, right?

Michael Saylor (00:06:46):

That’s equivalent to 21 million gold coins.

It’s not perfect, but it’s energy infuse.

So there’s some expense to it, so it’s credible.

But if I want to make it perfect, then I have to come up with a decentralized ledger Bitcoin

type system where it’s not just 21 million gold coins, it’s 21 million Bitcoin and

no one can mine anymore Bitcoin, no matter how much energy they expense.

In that case, I go from digital coupon when I have no energy to digital commodity, when

I have energy, and if I want to become digital scarcity, I have to have digital protocol

or scarcity protocol that the energy circulates within.

So Satoshi’s protocol converts a commodity into scarcity.

If you kept the same proof of work protocol and use proof of work, but you didn’t cap

the Bitcoin at 21 million and you didn’t have halvings, the difficulty adjustment controls

the rate at which the 21 million coins come out and says they have to take until the year

2140.

Michael Saylor (00:07:50):

But the halvings asymptotically approach 21 million and what they say is, we exponentially

decrease the amount of Bitcoin that get produced until we get to 21 million and then we stop

produce anymore.

The real genius of Bitcoin there is you haven’t created a coupon, you haven’t even created

digital commodity, you’ve created a digital scarcity due to the protocol, and the digital

scarcity created absolute scarcity that’s fixed.

And because you created an absolute fixed scarcity, you created the perfect money and

the ideal investment asset, now people can start to act rationally.

The other half of the observation is, if the money is totally not scarce, if I can produce

20 coupons, 200 coupons, 20 million coupons, if I told you here’s the ticket to the party,

first guy gets in, you rush to the party knowing that you don’t want to be the second person.

That’s where I’m saying, here’s some money.

Michael Saylor (00:08:50):

It’s getting inflated at a fast rate, and you’re rushing to spend it before it goes

to zero.

One aspect of the lack of scarcity is I’m urgently wanting to use the coupon and I’m

using it even though my wife is delivering a baby, and I probably should be in the hospital,

but instead I’m rushing off to spend the money because the money will be worthless

by the time the baby is born.

So you’re caught in this wicked conundrum where you have to make irrational decisions

because the clock is ticking, and that’s one big problem.

Preston Pysh (00:09:25):

You’re incentivized that if you know there’s going to be a thousand coupons, I’m now

incentivized to go to the gatekeeper, issuing them to try to get to front run everybody

else.

And this is our Cantillon effect, kind of why that incentive exists in this type of

system that you’re describing?

Michael Saylor (00:09:44):

You end up with a dilemma of impatience, like irrational urgency.

Then the other dilemma is lack of credibility because since they’re just coupons, and

I had the experience, maybe I got in the party first and yeah, that’s good, but if I got

to the party third and I got rejected, then I’m angry about it.

Now, the next time someone offers me a coupon for something else, here’s a coupon for

a dozen oranges, I think, well, this one’s probably also going to go to zero.

You go through these phases, the phase of ignorance, I didn’t think there was a problem.

I get to the party, I get denied.

Then the phase of urgency, I know there’s a problem.

I rush to the party, I get in.

Then the phase of apathy, there’s no way I can beat 999 other people.

Someone will get to the party before me.

Michael Saylor (00:10:33):

So this thing is worthless.

It’s toilet paper, I might as well just throw it away.

Whenever you give me something, I think it lacks substance and I don’t value it.

And so now, you have a breakdown of trust in all the systems, a breakdown of trade,

a breakdown of credibility, and we come back to in the economy, you’ve got these classic

examples, the money is becoming worthless.

I have to trade it for something that isn’t going to become worthless.

You just get lots of inefficiency and panic.

But in cyberspace, we see this manifested for whenever I post on Twitter, 99 Twitter

bots will comment and they will say, “Why isn’t anybody talking about this?”

Or they’ll give you the crypto giveaway or they’ll offer to let you join their telegram

group to get free trading advice.

Those are all examples of non-real people.

Michael Saylor (00:11:29):

They’re not real, so they’re not credible.

The credibility disappears from all of the personas.

They’re obviously just bots.

They’re bots because there’s no energy content in the bot.

But what happens by inference is first the credibility disappears from the persona, then

the credibility disappears from the comment, and then the credibility disappears from the

overall system.

I went to a party, there were 500 ghosts, they all lied to me.

Then I realized I was the only person at the party.

Then the party wasn’t fun anymore.

I took myself home and I realized that I’d inadvertently been hanging out in a haunted

house.

That’s what you get, right?

Preston Pysh (00:12:13):

Yeah.

Michael Saylor (00:12:13):

When you go to a party of ghosts.

And what I’ve used, what I’ve said, and metaphorically that describes my DMs and Twitter,

I think I have a 100,000 direct messages of which in the 100,000, there are 57 legitimate

ones that describes my DMs in Instagram, that describes right now if I go to Twitter and

I post something, there might be a 1,000 or 1,500 comments of which there might be 50

real comments.

We have all of these ghost parties going on and the best situation is, well, they’re

just ignored.

But the worst situation is the ghost get in your head and drive you insane, literally

insane.

What happens when your daughter logs into Instagram and finds an 18 year old football

quarterback from the school across town that praises her and then it turns out that’s

really a 65 year old inmate.

It’s like, you don’t really know what they are.

I think Booth’s example is conventional economics and he points out that if the money

is not scarce, everything else will be because of hyperinflation and economic collapse.

There is no method for storing and rationally allocating energy across time and space, so

he’s pointing that out.

But that economic metaphor, that can be applied in cyberspace, the same thing happens.

In essence, you have a collapse of civility and security and credibility in cyberspace

on YouTube or Instagram or Twitter or Facebook.

You can also apply it as a biological metaphor.

If I suck all the oxygen out of your blood, or if I just open up one of your arteries

and your blood pressure goes to zero, and you can also apply…

So you’re bleeding to death.

Michael Saylor (00:14:04):

And that’s also an example of an energy collapse.

And of course, you have an energy collapse.

If I go into a room, maybe I go into a school and the school is in the Arctic and it’s

68 degrees and everybody’s studying and cooperating and working well with each other

and they’re very efficient and they’re working in the lab and they’re doing things

and they’re constructing things and writing books and poems and playing music.

Then I crank the temperature down to 58 degrees and then someone gets up where they walk around

a little bit and they go and put a coat and they get distracted.

Then I crank the temperature out of 48 degrees and then I crank the temperature out of 38

degrees.

At some point, the person that was actually composing the symphony is now just jumping

up and down to try to keep from freezing to death.

Michael Saylor (00:14:50):

Then the kids are fighting with each other over who gets the clothes or who gets the

blanket.

When I crank the temperature down at 28 degrees, there’s no teaching, there’s no creating,

there’s no joy.

The only thing you’re doing is attempting to avoid freezing to death.

And in the midst, there’s a lot of fighting.

You close the door, I want to burn your desk.

You’ll burn the room down.

Why didn’t you give me your lighter?

You’re too close to me.

Get closer.

All sorts of crazy insanity.

All of these systems all collapse because the energy and the fluid lapses, the energy

lapse.

I think classic Austrian economics, as you need hard money in order to solve the coincidence

of once and in order to trade over spent across domains, through space and through time.

I have to have hard money and hard money is simply efficient energy circulation.

Michael Saylor (00:15:47):

I need a fluid that moves through the system that’s no different than your blood holds

oxygen and you’re not bleeding or it’s no different than I’ve got a coolant in

the radiator, right?

Isn’t there a fluid through the system for heat exchange?

That’s what you need.

If I want to break it, I either remove the fluid or I put a defect in the circulatory

system.

Generally, the result is a breakdown of cooperation, a breakdown of trust, a breakdown of credibility,

a breakdown of patients.

How do I do anything that takes four years if I have enough oxygen for one year?

How do I do anything that takes three months if I have enough oxygen for three minutes?

The only way that I get something sophisticated done that requires extraordinary cooperation

is I have to have a long enough time horizon and I have to have an efficient means of cooperation

and money.

Money is critical technology for that, but really money is just energy.

Preston Pysh (00:16:52):

Michael, would you…

Michael Saylor (00:16:52):

And we can talk about money, but we should just always take it back to the creation of

the universe, which is everything works naturally because of conservation of energy, the existence

of energy and matter.

Preston Pysh (00:17:07):

That’s where I wanted to go.

When you say conservation of energy, and you talk about how this is so important to the

physical universe, is it possible to create a digital money without injecting energy into

it?

It sounds like you’re saying that’s impossible, is that correctly summarized?

Michael Saylor (00:17:30):

I don’t think you can.

I think that we only have discovered one way that is settled and universally agreed upon

to create digital energy or a digital commodity and the one way is proof of work.

I take electricity and I run it through some kind of hashing algorithm.

You could do it with SHA-256.

I mean, you could probably come up with another hashing algorithm.

You can come up with certain other algorithms that do it, but I’m modulating electricity

to do work.

I’d say bitcoin’s an example of the creation of a digital commodity.

As I said before, if you took away the difficulty adjustment and you took away the halvings,

you could have a commodity more so than a scarcity.

The brilliance of Bitcoin is not just that it’s a digital commodity, but that it’s

a digital scarcity.

If I uncap the amount of Bitcoin, I just let you continue to create it.

Michael Saylor (00:18:27):

Well, I’ve got a digital commodity.

Well, I mean, oil is a physical commodity, and so it’s uncapped.

I mean, the reason that oil is not necessarily as good in investment as Bitcoin over the

long term is A, it’s not digital and so I can’t carry $10 billion worth of oil on

a USB stick, but I can carry $10 billion worth of Bitcoin.

And the second reason is it’s not a scarcity.

A 100 oil miners or oil refiners can produce a hundred times as much as one, whereas with

Bitcoin, a 100 Bitcoin miners can’t produce any more Bitcoin than one Bitcoin miner can

produce.

Oil’s not a scarcity, it’s a commodity, and it’s the physical commodity.

Bitcoin is a digital commodity.

Now, other people have launched, I mean, other groups have launched crypto networks that

use proof of work, I mean, Ethereum was a proof of work network.

You’ve got the Bitcoin forks, a handful of other cryptos that are proof of work networks.

That might make them, what would I say?

Michael Saylor (00:19:28):

It might make them an ersatz or an architectural digital commodity.

It doesn’t guarantee they’re a specialty or it doesn’t guarantee their digital scarcity.

For example, Dogecoin keeps increasing its supply.

It’s not a scarcity, it’s a proof of work protocol that creates more and more and more,

right?

It’s commodity in the same way that someone creates more silver or more soybeans every

year.

It doesn’t necessarily make them regulatory commodities or ethical commodities.

And the distinction there is if Apple computer launched a proof of work network tomorrow

and it kept half the coins, it wouldn’t be an ethical commodity.

It would be an architectural digital commodity.

But Apple computer makes it a security because there’s a pre mine.

And so if there’s a pre mine or if there’s an ICO, or if I created a protocol where 10%

of all the coins that were mined were funneled to a wallet that I controlled, that I used

to pay developers, all of those things make it more of an investment contractor security,

even though it’s using energy.

Michael Saylor (00:20:47):

The use of energy doesn’t guarantee that something’s a commodity.

The use of proof of work doesn’t guarantee it’s a scarcity, right?

Because the protocol is what makes it a scarcity, and the providence is what makes it ethical

and a commodity.

So Bitcoin is special because it has a providence of Satoshi disappears, that Satoshi coins

never moved.

There’s no ICO, there’s no central development organization, there’s no protocol that funnels

energy to developers and there’s no pre mine.

The ethical launch of the digital commodity could create a regulatory commodity or an

ethical commodity, which would be deemed as an asset without an issuer, right?

An asset without an issuer is a technical definition.

The regulatory definition of a commodity.

So the oranges, wheat, coal, steel, soybeans, oil, natural gas are all assets without an

issuer but they’re not capped.

Bitcoin is the asset without the issuer because the ethical providence and the way that it

becomes without an issuer is you have to have a consensus mechanism that doesn’t require

the coordination of engineers.

Michael Saylor (00:22:06):

The problem with proof of stake is that proof of stake is a simulation of the universe or

an imaginary universe.

You’re imagining energy and you’re cutting a virtual machine.

I literally call it a virtual machine, a virtual machine with virtual energy in the form of

virtual tokens for virtual security, all manifested in software code.

Someone has to write that software code.

And if you write that software code and you keep changing it over and over and over again,

then you’ve got this problem, which is how can I continually change the software without

someone having influence over the software?

In essence, have created a software company.

So with Ethereum, the Ethereum Foundation is a software company.

There’s a lot of software engineers that have to write the software.

They have to be paid, someone has to budget for the payment of the engineers.

The only hope you have of something based on software becoming a commodity is you write

the software once you gift it to the world, and then you stop changing it and you distributed

across 20, 30, 50, a 100, a 1,000 different parties.

Michael Saylor (00:23:18):

And if everybody can run the software and if there’s no need to change it, and if

no one organization controls it, now it becomes sufficiently decentralized.

So you see, that’s the fact pattern with Bitcoin.

The reason it’s important for Bitcoin to be simple is the software, the protocol needed

to be substantially finished when it was first released by January 3rd, 2009.

They needed to have it done.

They couldn’t keep changing the protocol because otherwise you end up with a software

company.

So proof of work allows you to place the consensus and the security and the integrity of the

network in the hands of Bitcoin miners and Bitcoin node runners.

So you’re using electricity and you’re using 256 Asics in order to create the security

and the integrity of the network.

That’s generally thermodynamically bound and it’s open and everybody can participate

and anybody can create their own Bitcoin miner.

Michael Saylor (00:24:19):

Anybody can mine Bitcoin, anybody can…

Electricity is broadly found in the universe, and you’re not waiting.

You don’t need the permission of anybody to allow you to get on a network and mine,

nor do you need the permission of anybody to run a node.

It’s permissionless and that’s what makes it without an issuer.

As soon as you decide that you want to get rid of the energy, then you’ve decided to

create a virtual machine, virtual energy.

And when they create the energy in a proof of stake network or any other non-energy protocol,

you’re not just getting rid of the electricity, you’re also getting rid of the material

energy, which is the SHA-256 mining Asic.

The application specific integrated circuit is matter, the electricity is energy.

You’re limiting the matter and the energy, and the hardware’s important here, just

as important as the energy because the electricity is a commodity.

Michael Saylor (00:25:19):

Whereas the thing that creates that makes this a specialty or makes it a scarcity, is

the fact that you are modulating the energy through a SHA-256 mining chip and that mining

chip is special purpose.

That’s important.

It’s not a general purpose chip, and it’s also getting exponentially more efficient.

The genius of the Bitcoin protocol is that the hardware is proprietary, there’s no

other use for it, and it gets exponentially better over time, such that the energy efficiency

of the network is improving with Moore’s Law and with the having protocol.

That makes this an increasingly efficient security protocol, and it protects the protocol

from someone that has a huge amount of commodity computing power or a huge amount of electricity

power.

It doesn’t matter that you build a fusion reactor that generates thousands of terawatts

because it’s not the pure electricity that secures the network, it’s the encrypted

energy.

It’s the SHA-256 hashes that secure the network.

If it was only the electricity, it would be vulnerable to an attack from someone that

harnessed the power of the sun.

Preston Pysh (00:26:41):

I think what you’re talking about is one of these questions that I have coming up here,

and I’m going to just read this because I think it ties into what you’re saying

here.

In 2017, the World Economic Forum posted an article that said by 2020, the Bitcoin mining

could consume the same amount of electricity every year as is currently used by the entire

world.

This is the World Economic Forum just a couple years ago.

Well, as we know, that calculation was grossly misstated, but that doesn’t stop other experts

from still stating such salacious headlines right now that we’re seeing in 2022.

What is it that these experts fail to understand about Bitcoin’s energy consumption that

I think you’re getting at with what you were just talking about?

Michael Saylor (00:27:20):

I think what they’re missing is that the efficiency, that network is improving with

Moore’s Law exponentially.

That’s what they’re missing.

The other day, I walked through one of these Newport mansions and now you can actually

download a mobile app to your phone and then you can download the audio for, and you can

listen to the tour guide using AirPods, walking to a mansion in the year 2022.

While I watched this, I’m downloading it and sometimes the audio tour is 80 megabytes

and sometimes it’s 160 megabytes or something.

Then I thought back to when I was at MIT when one of my classmates had a five megabyte hard

drive or something, and if you simply took the effi…

Then I thought about the efficiency of audio in the 1980s, and you could have easily said,

if people continue to use computer music or if Napster spreads computer music, by the

year 2010, all of the hardware and all of the electricity in the world will be sucked

up listening to rock and roll music.

Michael Saylor (00:28:26):

It would’ve been true if you extrapolated the efficiency of music compression and the

cost of hard drives, pretty much would’ve said that we can’t allow teenagers to listen

to music on a computing device because the world will come to an end.

And you could have said the same thing about digital photos, if this keeps up, then teenage

girls taking selfies will suck up all the electricity and all of the minerals in the

earth’s crust by the year 20 something or other.

And of course, what happens in all cases is the efficiency of computer music and the efficiency

of storing files and the capacity of memory, the capacity of computer memory, the capacity

of computer drives, these things are increasing exponentially, such that it turns out that

people can listen to music on their phones and take photos, and the world doesn’t come

to an end.

Michael Saylor (00:29:23):

And so when people make these statements about Bitcoin, what they’re doing is the same

thing.

They’re missing the point.

It’s not secured by energy, it’s secured by digital energy or encrypted energy.

And the efficiency with which that encryption is taking place is improving somewhere in

the range of 36 to 40% a year.

Ironically, Moore’s law is every 18 months to double.

If you have an 18% improvement every year due to having protocol, and if you have an

18% improvement every year, because every four years the Asics double, okay, you got

36% a year.

And when you start dividing that into 70 with a few twists, you realize in about 18 months,

you double the efficiency of the network and you keep doing it for the first 30, 40, 50

years.

Maybe you continue to do it for a long time to come.

As of today, as far as we can see, we run the numbers.

Michael Saylor (00:30:27):

Bitcoin has taken up maybe 15 basis points of the world’s energy and it’s not clear

to me that it’s going to grow that much more.

At some point, it is some maximum, and it actually starts to decrease because the proprietary

protocol is such that ultimately in the year 2100, it won’t matter whether you have harnessed

all the power of a star, it won’t matter because that won’t allow you to build, to

create hashes.

I could give you all the electricity, the powers of New York City tomorrow, but you

can’t generate hashes with it.

And unless you can get your hands on 256 mining rigs, set them up in a world class mining

center, get the transformers and turn it on, so you can see there’s already a limiting

factor there.

Michael Saylor (00:31:15):

On the other side, if Google and Microsoft and Amazon, they all decided tomorrow they’re

going to turn all of their data centers into Bitcoin mining data centers, their cost to

generate a Bitcoin would probably be like a million dollars of coin and not $10 million

of coin because they don’t have Asics, right?

And the ASIC isn’t thousand times, it’s million times more efficient.

It’s this specialization of labor, the driving of the tractor is a better idea than a hand

plow, right?

In every field of human endeavor, everything humans put their mind to, we find when we

create a specialized machine and then we power that specialized machine, then we overcome

any generalist who’s willing…

Michael Saylor (00:32:00):

Then we overcome any generalist who’s well intentioned.

I toured the DuPont gunpowder factories.

The DuPonts showed up.

They set up a factory on a hill where the Brandywine River runs down it.

And the reason they wanted this creek is they had to harness the creek for hydro power to

turn their water wheel to turn the mills to grind the gun powder.

Michael Saylor (00:32:26):

And so, here are some smart immigrants.

They use the power of gravity, the power of water.

Then they mix three elements together.

They create gun powder.

They hand you the gun powder and you blow your way through the mountain.

Okay.

Michael Saylor (00:32:41):

And someone starts by saying, “I have this idea.

I’m going to build tunnels through mountains.”

And some non-technologist says, “No, no, no.

We can never build tunnels through mountains that will take every single human being in

the world and we will all starve to death because it’s too expensive using our little

rubber mallets or our little chisels to chisel our way through the mountains.”

Preston Pysh (00:33:04):

Exactly.

Michael Saylor (00:33:04):

Right.

And the point is, we’re not doing it that way.

We’re going to use our brains and technology.

If you actually back calculate, someone says, “Okay, I’m going to connect San Francisco

to New York.”

And you back calculate, well, how much energy is it going to take to haul a bucket of water

on my back 10 million times?

Well, we can’t do that because the human race will suffocate trying to connect New

York and San Francisco.

Michael Saylor (00:33:32):

And then if you calculate what it costs to build the railroad, you would conclude it’s

too much.

And if you calculate the maintenance cost on wooden rails, that’s too much.

And the answer is, I invent explosives, I invent steel.

I come up with some technique to get through, then I create a locomotive.

Then I go and I drill for oil, then I put the oil into the locomotive.

Then I drive the train back and forth.

Michael Saylor (00:33:58):

Every single one of those things would have used all of the energy in the world, if you

were to attempt.

We can’t give public transportation to people, that will use all the energy.

All the ox carts in the world will be allocated to letting people commute back into work.

We can’t let them live in the suburbs.

Preston Pysh (00:34:19):

Michael, this is hard for, I think for a lot of people to wrap their head around because

the examples you’re providing are physical examples that people can relate to.

And it makes sense to them when you describe it in that way.

But when you think about ASICs and you think about Moore’s Law and you think about how

these things that people can’t touch or really understand at the level that you understand

and that many people in this space understand, it’s just completely lost on them.

It’s intangible.

It’s not something they can feel or touch.

Michael Saylor (00:34:49):

Yeah.

Bitcoin miner is, it’s a machine to create security in cyberspace.

That’s what it is.

You have to see it as a mechanism.

Preston Pysh (00:34:59):

Like a digital vault.

A digital vault if you will.

Is that how you’d describe it?

Michael Saylor (00:35:03):

I would almost describe it as a transmitter of encrypted energy.

It creates a wall of encrypted energy.

You’re feeding electricity into one end and out the other end comes a hash wall.

And then you’re building…

Preston Pysh (00:35:19):

Like a bank vault.

Like a bank vault, but virtual.

Right?

Michael Saylor (00:35:22):

Yeah, that’s probably…

An energy vault.

You’re putting electricity in and you’re creating a vault of encrypted energy.

And that’s what you’re using to build as your foundation to build civilization in

cyberspace.

Like I said.

And a lot of people can’t figure it out.

They can’t work it out.

But you ever cross a bridge and you look down at the caissons or the structures the bridges

are built on.

And the bridge is resting on these, what are they?

Caissons I suppose.

Resting on these structures.

And they’re buried 30 feet down into the East River or the Hudson River.

Michael Saylor (00:35:59):

And the average person can’t figure out how to create that bridge.

But that doesn’t mean that the bridge doesn’t work.

In this particular case, I see the Bitcoin miners as the foundation to hold up the entire

digital ecosystem.

And we’re feeding them electricity and then we’re running them through an ASIC.

And the ASICs just keep getting more and more efficient.

Michael Saylor (00:36:20):

And just like you take a history of civil engineering and you look at Greek architecture

and they’re using stone architraves.

Those things crack.

And then they replace them with some wooden beams and they crack.

And then they come up with the idea of a truss.

And a truss creates this, dramatically increases the strength of the beams.

And now things stop cracking.

Michael Saylor (00:36:44):

And that works well for a while.

And then they come up with arches and then buttresses.

And of course, ultimately, they solve the problem when they figure out how to put enough

energy into iron to create steel.

Iron works and steel works and steel is a material energy.

It’s a massively dense energy.

And if you want to build structures, you have to create the steel.

I think about a steel refinery and I think about how much energy goes into the refining

of steel and the heat and the energy.

And then you think about what comes out.

And then, if you want to build any structure in the world, that steel is the material to

build that structure.

Michael Saylor (00:37:23):

Bitcoin miners are energy refiners in a way.

And what they spit out is digital energy.

They not only create it, but they secure it.

You can also think of them as supporting the railroad in cyberspace.

It’s a railroad.

And there’s a fixed cost to build the railroad and there’s a fixed cost to maintain the

railroad when something breaks.

But once you’ve got the railroad and it’s properly maintained, now the cost to move

tons of cargo from one end of the line to the other in the line has decreased, not by

a factor of 10 or a factor 100.

It’s probably decreased by a factor of 10,000 to 100,000.

It might have decreased by a factor of a million, if you want, you did the energy calculations.

Michael Saylor (00:38:10):

Try to move 80 tons of coal from New York to Chicago in one day without the railroad,

without the road on an ox cart.

I mean it’s such a silly comparison.

Because no one would ever think to do it because it’s almost impossible to do.

But when we created the railroads, we created this extraordinarily expensive, upfront engineering

project that required a lot of capital investment, very capital intensive.

Michael Saylor (00:38:37):

But then after you’ve created it, then for a…

You’ve got a moderate maintenance cost and then you get this super conducting effect

where you’re able to move material.

And it’s orders and orders of magnitude less cost.

Preston Pysh (00:38:53):

Michael, since Bretton Woods, when we go back in time, the world has become more digital

than at that period of time, where you didn’t have these digital units representing energy

and representing money.

Our currencies have become digital.

And with that, there appears to be a need for a technology to tie this virtual digital

world to physical reality.

Preston Pysh (00:39:14):

If people are going to desire physical goods but keep virtual records, there needs to be

a way to force virtual records to be immutable.

Do you see this as the crux of the energy debate?

Do you see this as the crux of the environmental situation that we see playing out?

And I know those are two very big and separate, maybe not separate, but two separate questions.

But I’m curious how you think about this.

Michael Saylor (00:39:41):

Yeah, I think the best way to break it down is in two areas.

With regard to currency and digital currency, the problem we have right now is, although

the world wants to be digital, there is no digital money.

There is only digital credit.

Remember when I said money without energy is credit.

And so, right now, what you have is credit circulating on the digital network.

And the credit is got a first order failing and a second order failing.

The first order failing is the credit card network where the settlement is slow once

a month or something.

The settlement is censored and it’s crippled.

I can’t settle between France and Nigeria or between Argentina and China.

I can’t settle between the US and China.

And you can’t settle with three, four, 5 billion people that aren’t on your credit

network.

Michael Saylor (00:40:37):

The first order problem is the settlement is just crippled and it is slow and it is

expensive.

My transaction will go through a third of the time to a third of the world for two and

a half percent fee with a one month delay.

After lots and lots of expensive engineering to get the systems to work together and after

lots of expensive KYC, AML and compliance issues.

That’s the first order problem with circulating credit.

Michael Saylor (00:41:10):

And the second order problem is the underlying asset, the euro, the dollar, the peso.

They’re credit and they’re not backed by energy, which means that they’re all

lapsing in energy content anywhere from 10% a year, to 50% a year, to 90% a year.

Over time, the entire system is collapsing because there’s no energy backing it.

And it’s neither a commodity, nor is it a scarcity.

It’s not a commodity because any politician can decide to print as much as they want whenever

they want so it’s just political money.

It’s not a scarcity because it’s not totally capped.

Michael Saylor (00:41:49):

It’s really just mismanaged credit on the base layer with 20th century inefficient banking

on the transaction layer.

And so that itself is a structural problem.

And we can leave that for a moment.

I mean, Bitcoin solves that problem by substituting.

Bitcoin is the base layer and Lightning as the transaction layer.

Michael Saylor (00:42:10):

And now you go from a velocity of one transaction a month to one transaction a millisecond.

You’re increasing velocity by a factor of 10 million.

You’re decreasing impedance transaction fee by a factor of 10 million.

You’re converting the coupon into a commodity, upgrading it to a scarcity.

You’re setting up an energy system that will hold money without energy lapse forever

and will move it millions of times or billions of times more efficiently.

And you’re making it open as opposed to permissionless.

Michael Saylor (00:42:44):

8 billion people can access any kind of monetary transaction, friction free with instant final

settlement.

That’s why Bitcoin and Lightning or superior monetary system to fiat currency and credit

cards and banks.

Now we go to the energy side.

The entire energy debate is interesting because I don’t really think bonafide energy activists

are focused upon Bitcoin.

I’m not even sure if there are bonafide energy activists to tell you the truth, Preston.

And I think that the entire debate about energy usage has been corrupted and has always been

corrupted by the political process and commercial interests.

Preston Pysh (00:43:30):

In what way?

Michael Saylor (00:43:30):

And so, I think in what you have is a bunch of…

Preston Pysh (00:43:31):

Yeah.

Michael Saylor (00:43:31):

You have a bunch of propaganda that’s being driven by self-interested groups for either

political or for commercial purposes that have generally very little to do with the

environment.

I might say, out of 100 people or actors that are acting in this bath, there might be one

or two that actually are doing it because they actually believe this is an environmentally

good thing, whatever they’re advocating.

Michael Saylor (00:43:57):

I think 95 to 98 are doing it because they’re being paid by someone to advocate a certain

position.

And so let me back up and let’s start with the classic example, the Jack Abramoff affair.

If you want to know how lobbying works in DC.

It used to be a bunch of people that are playing online poker.

I’m very famous for an online poker quote I once said.

I once said, “I think Bitcoin’s going the way of online poker, just a matter of

time.”

Michael Saylor (00:44:25):

What I should have said, by the way is, “Crypto is going the way of online poker.

It’s just a matter of time.”

If I’d actually understand the nuance of Bitcoin versus crypto, I would’ve said,

“The cryptos are probably going the way of online poker.

Just a matter of time.”

But here’s the online poker story.

A bunch of people set up online poker, gambling sites.

Everybody loves them, people like to play online.

And it starts to cut into the earnings of a bunch of casinos, especially some Indian

casinos.

Michael Saylor (00:44:54):

These India casinos are making a fortune because they’ve been given a government license

to allow gambling on their reservation.

The Indians decide they want to stop online gambling.

They go to DC and they hire a lobbyist, Jack Abramoff.

This is all, they made a movie about this, Casino Jack.

You can watch the movie, you can read the records.

Michael Saylor (00:45:14):

They give Abramoff tons of money, let’s say 20 million.

Abramoff keeps half the money and he turns around and he gives the other half the money

to a bunch of fundamentalist ministers, a variety of ministries.

Now what do ministries have to do with Indian reservations?

Well, he got the ministries to then go and they probably kept a third of the money.

He took a third of the money and bought TV ads and he gave a third of the money to the

ministers.

And the ministers signed a letter and they put the letters in the New York Times, the

Wall Street Journal, in the Washington Post and the like.

Michael Saylor (00:45:47):

And they said, “We think online gambling is abomination of the eyes of God, it’s

corrupting America’s youth.

It’s not Christian, it’s corrupting.”

The fundamentalists began lobbying against online gambling.

They weren’t lobbying against gambling on Indian reservations or in Vegas, presumably

maybe because Junior can’t get there from his bedroom, but he can…

I guess there’s some kind of, I argument that somehow it’s much more corrupting for

America’s youth.

You can do it online and you can play poker.

Michael Saylor (00:46:17):

You had a non-profit organization, seemingly unrelated organization, promote morals.

Why did they choose to pursue improvement of morals by shutting down online gambling

or online poker?

Well, no one’s giving them money to object to other breaches in morality.

There’s a customer here offering them money.

And so they took the money, they signed the letter.

Then Abramoff took the letters to Congress and he marched in front of a bunch of congressmen

and senators.

And they ended up passing a law making online poker playing illegal.

Michael Saylor (00:46:50):

Okay.

They shut down online poker.

People go back to the casinos and the Indian reservations.

The casinos are happy.

Inadvertently, it’s not really a debate about whether you should gamble.

It’s a debate about whether or not you should give your gambling money to my competitor

or you should do it in person.

Michael Saylor (00:47:09):

This idea, which is I have some money and then dirty money and I use it to corrupt the

lobbyist.

And then I actually find a non-profit.

And the non-profit becomes my front organization to lobby the general public.

And then I combine that with a bunch of donations to politicians.

Now the politicians can’t just take my money from the Indians and outlaw their competitor.

That looks bad.

But the politicians can take money from everybody involved and say they’re outlawing the Indians

casinos competitor because they want to protect America’s youth, is acceptable.

Michael Saylor (00:47:43):

Everybody gets paid, Abramoff gets paid, the politicians get reelected, they get paid,

and the non-profit gets paid.

Like an iron triangle.

I think that’s been going on since time immemorial, for thousands of years.

If you look at the nuclear industry, nuclear looks to be the cleanest, most efficient way

to generate energy.

And yet it was environmentalist, the Green Peaces of the world, that lobbied against

the nuclear industry.

Michael Saylor (00:48:11):

Now why would they do that?

Well, because nobody’s paying them money to lobby in favor of the third redwood tree.

The redwood tree is not paying you money.

If you’re lobbying in favor of ultimately no one’s going to pay you money to save

the 19 millionth dolphin.

But if somehow I happen to run a fishing operation and my competitor uses carbon fiber fishing

javelins, then maybe I can give you money to lobby against the use of inhumane, cruel

carbon fiber fishing javelins from these evil offshore people.

Michael Saylor (00:48:49):

And then I shut that down so I can fish the waters and they can’t fish the waters.

Ultimately, what you find is the most common driver for all these narratives is someone

has an agenda.

And the agenda is either a foreign government, like your enemy, like a political enemy has

an agenda.

Or maybe a frenemy.

Maybe a foreign government that trades with you has an agenda.

Or a not in kind competitor to you has an agenda.

Michael Saylor (00:49:20):

With nuclear, ironically it was probably the oil and the gas industry that was paying off

the non-profits to shut down the nuclear industry and they were very effective at that.

We haven’t built a nuclear power plant in 50 years.

Okay.

Who’s lobbying to stop the creation of a pipeline in the US?

Well, who would benefit?

The Russians would benefit because they saw the oil.

They have their own pipeline, so they might benefit, but also all the Middle Eastern countries

would benefit.

Michael Saylor (00:49:51):

If you’re pumping oil out of the desert in the Middle East, you would benefit from

a oil and gas pipeline getting shut down in the US.

our allies that produce the same product would actually benefit by having a non-profit organization

fight for the rights of Indian Native American burial mounds.

Michael Saylor (00:50:12):

You remember all the arguments that were made to keep the pipeline going through in the

US?

It’s like, “Well, we’re desecrating Native American burial grounds.”

No, you need a Native American Indian to campaign for that.

How do you do that while you go and you give them tons of money?

What does everybody want?

A job.

Okay, so I will give you a job protesting or I’ll give you a job restoring the Native

American burial grounds.

I happen to live in Asia and I own billions of barrels of oil, but I’ve decided to take

a special interest in restoring Native American burial grounds that happen to be in the 10

square mile radius that the pipeline’s going across.

Michael Saylor (00:50:52):

Now, I’ve got a non-profit, I’ve got a local interest, I funnel the money quietly.

Now it becomes an embarrassment for the local politicians.

What happens is maybe that campaign works and now they shut down the pipeline, which

creates a net shortage of 10 billion barrels of oil that they have to buy from somebody

else.

But the price of oil goes up and the competitor sells it.

Michael Saylor (00:51:18):

Ironically, it might be an foreign intelligence.

If I was a hostile nation state and I wanted to undermine my enemy, I would want them not

to build ports, not to build infrastructure, not to build refineries, and not to have oil

and not to build nuclear power plants.

It might be in foreign intelligence.

They have plenty of money and the motive.

It might be just a friendly trading partner in Europe or the Middle East.

Michael Saylor (00:51:46):

Remember, it used to be we have these campaigns against child labor.

Okay.

Well, if the child labor is your 16 year old kid working at McDonald’s, no one much cares.

But if the child labor is 16 year old working in a shoe factory in Indonesia.

And that’s competing against maybe another factory in the US or another factory not in

Indonesia, then maybe I want to actually campaign for the rights of child laborers.

And the way that I’m going to help the children in Indonesia is I’m going to make it illegal

to buy from that factory so they all lose their jobs and their parents lose their jobs

and they all starve to death.

Michael Saylor (00:52:23):

But no one’s going to think about that.

They’re going to be thinking about whatever the issue is.

The classic trope, propaganda is you can’t tell people what to think, but you can tell

them what to think about.

My agenda is to shut down a foreign import.

I can’t say, “Stop buying from my competitor that’s cheaper and better than me.”

I say, “Stop buying from that vendor that’s unethical, that uses child labor.”

Preston Pysh (00:52:51):

Michael, so a lot of this granularity that you’re getting into is I think an area that

people probably have never really considered.

Let’s say that you have a person who’s looking at the environmental narrative that

is hot and heavy, ESG.

Hot and heavy right now.

I have a hard time even going down that path because it seems like the world, and if you

buy into this environmental discussion point that people are making, that they candidly

believe in, I’m of the opinion that they haven’t gone far enough upstream to, if

the money is in sound, how in the world can we possibly expect the efficiency and optimization

of producers and consumers to take place?

Preston Pysh (00:53:42):

It’s like this unit that we’re using in order to conduct trade amongst each other

is so mutilated and so distorted that how can we possibly expect it to happen efficiently?

And then you’re going to have over consumption if you have all these digital units that have

no peg or no scarcity to them.

Is that where we should start when we’re thinking about energy and environmental impact?

Michael Saylor (00:54:04):

I think all the ESG fund is originated by and promulgated by the other cryptos.

This starts within the crypto industry and it is a fire set by the crypto industry.

And so, the whole basis is Bitcoin is bad because it uses energy and we have a better

tool that doesn’t use energy using proof of stake.

And it’s a not in kind propaganda campaign or marketing campaign.

Call it gorilla marketing.

This is all just gorilla marketing by other crypto promoters.

Michael Saylor (00:54:35):

And the motive is I want to convince you that you should consider a crypto other than Bitcoin

that doesn’t use energy.

And also, I want to distract you from the observation that the other cryptos without

energy or unregistered securities and therefore, you can’t trade them.

And you shouldn’t buy them.

It’s not ethical to promote them.

Michael Saylor (00:54:55):

I want to change the subject.

There really is no defense to creating a software company and issuing a coupon and selling to

the general public without a registration statement.

It isn’t morally defensible.

It isn’t legally defensible.

You can’t start by saying, “I want to do it.

Please let me do it.”

What you say is, “That thing you’re looking at is interesting, but it’s using too much

energy and our thing does the same but without energy.”

And they hope you don’t think too much beyond that.

Michael Saylor (00:55:29):

I think you can approach this from two points.

But one point is you can make the deep argument that you need sound money.

And the problem with that is you have to explain to people this sound money requires energy

and it actually requires scarcity, requires more than energy.

Gold is not sound money because of all the other defects in gold.

It’s just better than the other stuff.

Gold is a commodity.

What you really want is scarcity for sound money.

You can go down that path, but ultimately, the crypto attack is, “Yeah, but we can

create our own token without any energy and it’s just as good and it’s just as secure.”

And so now, and so you really have to go the other direction, which is to make the observation

that if you take the energy out of the coin, you’ve created a coupon.

And if you take the energy out of the coin, it’s not money, it’s credit.

it’s not a commodity, it’s a security.

And therefore, the only question is how are you going to inject the energy?

You can inject the energy into the coin with multiple protocols.

You can do it with Satoshi’s protocol.

the Doge coin protocol.

You can do it with big blocks, small blocks.

There’s plenty of other protocols.

You don’t need to use SHA-256, but you can’t avoid putting energy into the product if you

want to create something of substance.

Michael Saylor (00:57:03):

I think it doesn’t hurt to explain the theory of money and the theory of economics and Austrian

economics, and why we’re doomed if we don’t have sound money.

It doesn’t hurt.

But ultimately, most people that are looking at cryptos and they’re trying to figure

out between Bitcoin and all other proof of state coins, they’re definitely not thinking

deeply about Austrian economics or sound money.

They’re just juggling six different tokens.

And they’re probably not considering this for more than 10 minutes to an hour.

Michael Saylor (00:57:34):

And so, in their case, I think the real challenge is to explain to them why there’s a moral

hazard and an economic hazard and a technical hazard to take the energy out of the crypto

network.

The economic hazard is when the energy disappears, it’s easy to spin up 10,000 copycat networks.

The real problem is once you go to proof of stake, well the what’s to keep you from

making copies, endless copies of all these networks because you’re running on generic

hardware using imaginary energy.

Michael Saylor (00:58:09):

How many teams of eight programmers can copy and paste and then spin up an AWS node or

set up nodes and gen up their own system.

We have 20,000 cryptos now, so there’s no scarcity.

And ultimately, the economic hazard is they’ll be 50.

And then they’ll all just chew into each other’s monetary premium and then there’ll

be 100, then 1,000 and the like.

Michael Saylor (00:58:33):

And so, there’s no way that it will hold value because there’s no scarcity when you

take the energy out of it.

It becomes a marketing game.

It’s really a casino chips or coupons.

And you’ll be limited to the value that you can create in a coupon network or a security

network, which is two orders of magnitude less than a monetary network.

That’s the economic hazard.

Michael Saylor (00:58:59):

The technical hazard, The technical hazard to not using hardware with electricity, not

using those two forms of energy, is that you have to create a simulation.

And what you’re doing is you’re creating a virtual world.

And in the virtual world, you have to simulate everything people might want to do.

And it turns out that playing God by creating a simulation of the world is really difficult.

For example, you can turn off your Bitcoin mining rig.

It’s decentralized.

ETH hasn’t figured out how to withdraw your ETH stake token yet.

Preston Pysh (00:59:32):

Yeah.

Which is crazy.

Michael Saylor (00:59:36):

And by the way, it might not be that they haven’t figured out.

It might be they don’t wish to.

Preston Pysh (00:59:40):

I think that’s where that’s at.

Yes.

Michael Saylor (00:59:44):

The technical hazard is I have to have the purge and the surge and the verge.

And I’ve got pretty much a decade worth of programming yet to do.

I’ve got to implement slashing.

And you’ve got slashing and charting and withdrawals and staking and all these things.

And you’ve got to deal with a question of, “Well, what if someone does this?

And what if they do that?

And what if they do this?”

Michael Saylor (01:00:04):

That’s very expensive.

That creates a lot of technical debt, it creates very complicated code.

And because it creates very complicated code, it creates very large tax surfaces.

From a computer science point of view, a lot of security threats to it.

But from a maintenance point of view, there’s a lot of technical debt and you have all these

regressions.

Michael Saylor (01:00:23):

Every time you add a feature, you break two things.

And I know this because I’m actually in a business.

There aren’t that many people that have overseen the same software for 30 years.

MicroStrategy software, we were coding it in 1993.

And so, we have some code, and ’92, ’93, with some ideas there that now they’re approaching

the 30th year.

And I can say that after you’ve had some software and you’re 30 years in and you’re

the sixth generation of engineers, the 13th version, you add a feature and you break something.

And you add a feature and you break two things.

Michael Saylor (01:01:01):

You end up spending as much time on regression and technical debt, and then you have to go

back and rearchitect the entire thing to make progress.

And these are just extraordinarily expensive rearchitecting exercises.

And you have this entropy and you reach this entropic frontier.

And it just gets to be really, really challenging.

That’s a technical risk.

Michael Saylor (01:01:24):

If you live in a universe where the laws of thermodynamics hold, there’s a rate at which

heat dissipates everywhere in the world.

And you don’t have to write a piece of software to tell Bitcoin miners how to dissipate heat.

to apply gravity and apply the speed of light.

You get that for free.

Michael Saylor (01:01:45):

In a virtual world, you have to actually write the software to control things like speed

of light and speed of sound and heat dissipation and gravity and materials coefficients.

And what you find is it’s not so easy for a small group of engineers to duplicate what

the universe worked out over the last 4 billion years.

You’re literally playing God and you forgot one thing.

Preston Pysh (01:02:11):

Yeah, go ahead.

Michael Saylor (01:02:12):

And the one thing blows you up.

Bitcoin, because it’s working in the physical world, it absorbs all of the physical constants

in the universe.

And everything works in parallel at the speed of light.

Whereas in a staking network, you have to create a simulated world where you have to

simulate all these constants and you have to enforce your own concept of time.

Michael Saylor (01:02:35):

And when you attempt to create a decentralized world in software, you’ve bitten off probably

more than you can chew.

If you get everything perfectly right, then it may work for a time.

But of course, if you actually just overlook one thing.

And who knows what that one thing is?

It only takes one mistake in the code to bring it all crashing down on your head.

And of course, when it crashes down on your head, the entire universe collapses on you.

It’s a very challenging task.

And so that’s why there’s technical hazard.

Michael Saylor (01:03:09):

The one last point I wanted to make is, in addition to the economic hazard and the technical

hazard, there’s the moral hazard.

And the moral hazard is when you choose to create something that’s a simulated universe

and virtual security on a virtual machine, you have to have a very organized software

development function.

And generally, you’ve created the software development company.

Michael Saylor (01:03:31):

And the software developers have the ability to…

If they have the ability to slash or to grant permission or deny access.

Or for example, to let you withdraw your tokens are not.

At that point the software company has become so central to the network that you’ve created

a security.

It becomes an investment contract per the definition of securities law because you are

relying on the efforts of others.

And it’s pretty much impossible not to rely on the efforts of others when you require

software-

Michael Saylor (01:04:00):

Rely on the efforts of others when you require software engineers to make the sun shine,

and make the planets to revolve around the sun, and enforce gravity and the like.

Even if they didn’t want to, if you finish it, eventually they’re subject to nation

state attack.

The government shows up and says, “You have to do this, block that.”

You have to make it impossible to spend the coupons in China, or you’re not allowed

to spend the coupons in Russia.

Now you’re jiggering with the universe.

Now imagine if I was able to stop gravity in Russia, or if I was able to make it impossible

to eat oranges in China.

Well, they wouldn’t be commodities, right?

The universe wouldn’t work if one software engineer has that kind of power.

The real problem with a virtual universe and a virtual network is ultimately the power

concentrates in the hands of the software engineers, and inadvertently you’ve created

an investment contract, and you’re relying on a software company and the token becomes

equity in a software company.

Michael Saylor (01:05:08):

There’s an ethical way to sell equity in a software company.

It’s been done by Oracle and by Microsoft, but you see it requires registration statements

and a whole set of other disclosures, and that’s not in the crypto ecosystem.

They can’t really afford to do that.

That’s why energy, a la Bitcoin, is the superior approach, and maybe the only approach

that we know of for solving the problem of sound money.

Preston Pysh (01:05:36):

Michael, what you’re talking about there with this virtual reality universe constant,

I think is such a profound idea, and it’s such a profound idea especially for policy

makers.

If there’s policy makers out there listening to this anywhere in the world, they’re being

fed narratives from this perverted incentive structure that you so eloquently covered,

from all these other protocols that are out there, specifically proof of stake protocols.

No proof of stake protocol is bigger than this announcement that was recently made with

the merge and Ethereum.

I’m about to play, I’m going to play you a clip from Vitalik Buterin who’s the, whatever

you want to refer to him as, the CEO of [inaudible 01:06:19].

But here’s the clip of him talking about something that completely relates to what

you were just describing in detail, Michael, with respect to virtual constants.

Vitalik Buterin (01:06:32):

I think to summarize that, one of the ways that I think about this in a more philosophical

way is proof of work is based on the laws of physics and so you sort of have to work

with the world as it is.

You have to work with electricity as it is, hardware as it is, what computers are as it

is.

Whereas because proof of stake is virtualized in this way, it’s basically letting us create

a simulated universe that has its own laws of physics.

That just gives us as protocol developers a lot more freedom to optimize the system

around actually having all of the different security properties that we want.

If we want the system to have a particular security guarantee, and then often there is

a way to modify the [inaudible 01:07:16] mechanism to also achieve it.

It’s just much more flexible and it shows through in the efficiency and the security

of the network.

Preston Pysh (01:07:26):

Michael, what are your thoughts?

Michael Saylor (01:07:29):

Giving the protocol developers the freedom to optimize the system as they wish is what

makes it a security and not a commodity.

The whole reason that it doesn’t work is because you’ve got us.

Who does us refer to right?

In the entire [inaudible 01:07:47]?

Presumably us refers to a small group or a defined group of protocol developers that

are tinkering with the code in order to make the universe the way they want it to be.

That makes it a software company and that makes ETH an investment contract and that

makes every ETH investor reliant upon the efforts of others.

That throws into a bunch of questions, which is, there’s so many different problems with

this.

Michael Saylor (01:08:16):

One problem is you’re implying that you’re going to get one group of software engineers

to write software to simulate the entire universe.

Good luck with that.

But the second problem is if one group of software engineers did write the software,

that makes it a investment contract.

The only way for it to be a commodity is you have to have dozen different groups of software

engineers without coordination bouncing into each other randomly agreeing on some software

code that simulates the universe after lots of bitter dissent without any one of them

able to take a leadership role.

Michael Saylor (01:08:55):

You think about it and you just think, where to even start?

If you found the hundred smartest scientists in the world that ever lived and you put them

on the team to write the code, it would be a security and that would be an investment

contract, and it’s not a commodity.

But if you found the not a hundred smartest people, they’d probably screw it up.

You probably can’t write software that simulates the universe.

It’s not so easy to do it perfectly for a billion years, even for a year.

Michael Saylor (01:09:28):

Then the third problem is you just can’t have…

Vitalik implies that they’re just going to keep changing it whenever they wish for

whatever reason they wish.

Well, who appointed him God, and who appointed the ETH developers God?

If the people that talk like that are software company CEOs, if you’re the CEO of a software

company and you have the controlling interest in the shares, maybe you’re Mark Zuckerberg,

you could say, “I’ve decided I’m going to change the way Facebook works.

It’s my way or the highway,” but it’s a security and he’s accountable to his public

shareholders.

The reason he can do it is because he runs the company, but if you’re actually promoting

your crypto network as the commodity, nobody has the power to dictate what happens next,

and certainly you shouldn’t be able to force that.

Michael Saylor (01:10:20):

If you can force your views onto the asset holders, then that doesn’t sound like consensus.

If you can force your views on the Bitcoin, on the ETH miners, that doesn’t sound like

consensus.

The fact is, you have a situation where a small group of software engineers have hijacked

a crypto network to their benefit to the detriment of the outsiders and the miners.

It wasn’t a vote for sure.