Overview
Bitcoin is a digital currency whose supply is limited for all time to 21 million coins, according to Stan Larimer, who appeared on The Bob Zadek Show to explain its basic mechanics. Larimer, described by host Bob Zadek as the Godfather of BitShares, stated that approximately 16 or 17 million of those coins had been issued at the time of the interview, with the remainder released at a rate of about 12 and a half coins every 10 minutes—a process expected to take perhaps 100 years to complete. Larimer characterized this arrangement as a contract made with all holders of Bitcoin, enforced by what he called trusty robots that run the system, ensuring no coins can come into existence except at a very slow trickle rate. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
Zadek framed the discussion by contrasting Bitcoin’s supply mechanism with that of government-issued money. He observed that holding dollars is itself a decision to forego yield and to suffer possible depreciation in value because of government action, inflation, and the like. The supply of dollars, Zadek noted, is controlled by government, whereas Bitcoin’s supply is governed by its protocol. Larimer agreed that Bitcoin is slightly inflationary in the sense that a tiny amount of new coins are coming into existence, but that this will taper off to nothing eventually. That small amount of new money, he explained, is what pays to operate the system and serves as one of the main incentives for people to run the software. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
Market value and demand
Larimer traced Bitcoin’s price history from its inception, when its inventor, Satoshi Nakamoto, introduced it as a system for keeping track of tokens—little electronic receipts for value. Nakamoto suggested it could be a digital currency someday, and that mere suggestion was enough to cause some early testers to begin trading them among themselves, in one instance selling 100,000 Bitcoins for $5 or something. Over the roughly nine years Bitcoin had existed at the time of the interview, more people learned about it and bid the price up gradually. As more people started using it for real purposes, such as sending money to the other side of the planet, demand became more than just speculative. Larimer noted that Bitcoins recently almost hit $20,000 apiece and were back down to $15,000 or something at the time of the conversation, with their value driven by market demand in a manner similar to gold and silver. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
Zadek described Bitcoin as having two important attributes that make it desirable to owners: as an investment, where it has out-performed the Dow profoundly, and as a utilitarian tool in commerce, where it is a very inexpensive, very safe, and anonymous way to transfer value. He offered an analogy in which Bitcoin is akin to a membership organization with a fixed number of members, so that as more people find it essential, the only way to become a member is to buy a membership from somebody else. Larimer agreed that thinking of the tokens as representing a membership is a valid concept, though he noted that one is an equal member whether holding a tiny fraction of a Bitcoin or a million of them. He added that Bitcoin was intended to emulate owning a commodity like gold and likes to call itself digital gold. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
Government, regulation, and anonymity
Zadek raised the question of Bitcoin’s effect on government and government’s effect on the Bitcoin marketplace. Larimer, speaking as a libertarian, said that a good government is a very small government with the minimum amount of control possible, and that control of money has always been an extremely powerful tool for governments—they can print money to fund wars or dilute the denarius down to where it had almost no silver in it. With electronic money, he said, governments see a bonanza because they can track every single financial transaction, ensure they do not miss taxes, and impose sanctions by freezing bank accounts or potentially turning off an entire digital life. He warned that if governments drive toward a one-world currency and eliminate competition, people will one day wake up inside a cage they cannot get out of. Bitcoin, he said, represents a threat to governments’ hegemonic control and is therefore something they want to regulate and eventually seize for their exclusive control. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
On the question of anonymity, Zadek suggested that Bitcoin transactions are totally anonymous and that this makes tax collecting unbelievably inefficient. Larimer pushed back, explaining that there is only a tiny sliver of truth to that. In a vacuum, one can download a new Bitcoin wallet, create a new account, and receive a coin without anyone knowing who owns it. But as soon as that account is transferred to an exchange, the exchange likely requires KYC/AML—Know Your Customer, Anti-Money Laundering—information, tying the address to an identity. Every subsequent transaction creates another link the government can follow, and by analyzing places where they do know something about a given address, authorities can put together a pretty good description of where every coin is and who owns it. Larimer said he would be very hesitant to suggest that anyone but a true expert—and probably not even them—could achieve the type of anonymity Zadek described, and he called it a potential bonanza for the government to be able to quickly audit every single financial transaction. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
Larimer added that he has no doubt governments have armies of software engineers developing tools to analyze everything about Bitcoin, and that where they lack the ability to track it down, they will require exchanges to have licenses. Every on-and-off ramp that touches a dollar or a euro or a yuan, he said, will be a checkpoint where they check the ID of who owns it. He acknowledged that better privacy would be nice, noting that products other than Bitcoin provide tools to increase privacy, but that it is a never-ending arms race. He compared the tension to the grievances the founding fathers listed against King George III, including illegal search and seizures, and said that if one looks at what government does today, the founding fathers would have had a much bigger list of complaints. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
Mt. Gox and exchange risk
A caller identified as Jacob from San Jose asked about Mt. Gox, described as the biggest failure in Bitcoin, and about murder and suicide associated with Bitcoin. Larimer responded that Bitcoin’s blockchain was not hacked in Mt. Gox; what was hacked was the company, which was a trading company for Bitcoins. He explained that when one goes to an exchange like Mt. Gox, one gives them Bitcoins, and they let you trade what amounts to casino poker chips—representations, IOUs—while the actual Bitcoin sits separately, ideally offline. Somebody did not take good care of those Bitcoins while they were in the control of Mt. Gox, and whether they were stolen or how, Larimer said he did not know if it would ever be known for sure. But that was not a fault in the blockchain. If one had kept Bitcoins in one’s own wallet, there would be a supremely much lower chance of being hacked. The only reason it was hacked, he said, is because too much Bitcoin was put in one place, creating what is called a honey pot, and hackers then spend a lot of time trying to get into that company’s computer system—not the Bitcoin system, but where the company keeps the keys. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
Zadek responded to the caller’s reference to suicides by comparing the scale of losses to the Great Depression of 1929, when so many people lost their value through no fault of their own. He attributed the suicides and profound loss in value during the Great Depression to government action, including poorly thought-out governmental policies from tariff and trade wars. He observed that whatever may happen in private markets such as Bitcoin, the scale is unbelievably smaller than the scale of suicides and bad things that can happen if government makes a mistake. Mistakes in private business, such as Target being hacked or Equifax, even though large in absolute terms, are very small relative to losses caused by failure of government. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
Money substitutes and the future
Zadek placed Bitcoin in the broader category of money substitutes, recalling New York subway tokens and the Fastrak system on the Golden Gate Bridge as examples of ways to transfer value that machines can use. He described Bitcoin as a money substitute on steroids with so much utilitarian value that, combined with a fixed supply, its value goes up as people want to buy it for its intended use. Larimer agreed that Bitcoin falls into the category of just one of many different kinds of digital currencies, noting there are probably thousands of them, many of which are nothing but clones of Bitcoin with a cute name. He said those coins have many more uses than pretending to be a commodity representing digital gold—they can represent everything from frequent flyer miles to voting rights to shares of stock. With the BitShares system, he said, one can make one’s own coin, and there are innovative companies introducing coins that people will want to own because of their unique utility. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
Larimer described the current state of the market as the Wild West because there is limited regulatory oversight, with a lot of very bad products, scams, mixed in with very good and regulatory compliant products, so that buyer has to be aware. Zadek joked that this sounded like an ode to regulation, and Larimer clarified that the problem is not regulation but over-regulation and malicious regulation designed to give unfair advantage to the powers that be and to deny entry to new competition and new ideas. He acknowledged a legitimate role for a small amount of regulation that allows tracking down of people who would defraud others, but said that right now regulations are being used to stop innovation and protect incumbents, which he called unacceptable. The Basics of Bitcoin & Blockchain with Stan Larimer (2018)
Across episodes
The excerpts come from a single episode, The Basics of Bitcoin & Blockchain with Stan Larimer, and show no development across multiple episodes.
What the sources do not cover
The excerpts do not state the name of any bill, the holding of any case, or which amendment any legal question turned on. They do not provide the founding date of Bitcoin or the full name or identity of Satoshi Nakamoto beyond the name itself. They do not cover the ending of Larimer’s final sentence about the struggle between centralization and decentralization, which breaks off mid-thought. They also do not state the city or state in which any event occurred, beyond a caller being identified as Jacob in San Jose.