The Basics of Bitcoin & Blockchain with Stan Larimer
2018-01-14 · Guest: Stan Larimer (CEO of Cryptomex) · 51:29
Bitcoin blockchain and decentralized financial systems
Bob Zadek interviews Stan Larimer, the “Godfather of BitShares,” to demystify Bitcoin and blockchain technology. They discuss the fundamental problems Bitcoin was designed to solve—specifically the need for freedom from centralized financial control—and how it functions as a decentralized ledger. The conversation covers the technical and economic aspects of cryptocurrency, including its capped supply, transaction efficiency compared to traditional banking, and the ongoing struggle between individual privacy and government regulation.
Topics: Bitcoin, Blockchain, Decentralization, Cryptocurrency, BitShares, Monetary Policy, Financial Privacy, Central Banking, Smart Contracts
Speakers:
- Bob Zadek: Host
- Stan Larimer: Guest, CEO of Cryptomex and “Godfather of BitShares”
- Caller (Jacob): Listener from San Jose
Introduction [00:18]
Bob Zadek: Hello everyone, welcome to the Bob Zadek Show, the longest-running live libertarian talk radio show on the air all weekend in California and around the country. Thanks so much for listening this morning. We will spend the next hour learning how a bunch of zeros and ones hooked together can make for fascinating listening. It is an issue of great importance to libertarians and to anybody who values their privacy and anybody who wants to transfer value from one person to another—the most basic of human transactions.
To help us understand the subject, the mysterious subject of Bitcoins, I’m delighted to welcome to the show this morning the Godfather of BitShares, Stan Larimer. Stan has spent 40 years in software, hardware, and systems engineering. He actually will make this as easy as rocket science because Stan has taught rocket science at the United States Air Force Academy. He is the CEO of Cryptomex, which is a custom blockchain development company. A whole lot of mystery will be made so clear to all of us this morning. Stan, welcome to the show.
Stan Larimer: Well, thank you for having me. Delighted to be here.
The Problem Bitcoin Solves [01:46]
Bob Zadek: Now, Stan, the subject this morning is Bitcoin. Bitcoin is about as intangible a commodity as there can be; it is a series of zeros and ones. So the first subject as we get into “Bitcoin for Dummies”—I include myself in that category, so I don’t want anybody to be offended—the first question is: here we have a world before Bitcoins, and then somebody detects a need for something like Bitcoin. What was the need that the development of Bitcoin sought to solve or sought to satisfy? And how did it go about satisfying that need? The world seemed to be functioning pretty well without Bitcoin, and obviously, if you invent a product or a service, if there’s no need for it, it will die stillborn. So what was the need that Bitcoin attempted to, and indeed did, satisfy?
Stan Larimer: I would say that need is freedom from centralized control. We all have to rely right now on a centralized money system that has a lot of drawbacks for those of us who are libertarian-minded. Bitcoin sought to get rid of all the middlemen. We basically were seeking freedom from centralized control. Bitcoin was a decentralized monetary system that didn’t have any middlemen.
Money vs. Value in a Digital Age [03:41]
Bob Zadek: Now, is it money, a money substitute? And before you answer, Stan, money—I did a show on money and I refer my listeners back to it; it was a very interesting show maybe five or six years ago—but the concept of money itself is quite fascinating, and you have to distinguish money from value.
Here’s what I mean. I realized in preparing for this show that I went about a month—about a month—without touching a coin or paper currency. And I lived my life. I paid for things, I ordered things online, I traveled, I transacted transactions with my friends, and I never used paper currency. But I also didn’t use Bitcoin. So tell me about the relationship between Bitcoin and currency, because I don’t use money very much—in fact, many people don’t use money, that is coin and paper currency, very much anymore—but they’re able to do transactions. So help us understand the relationship between the money that I don’t use in my wallet and Bitcoin.
Stan Larimer: Well, the bankers are always talking about getting rid of any form of money that the average person might think of as money, whether that’s paper or actual gold or some other unit that could be used for trading value. The difference with Bitcoin was the desire to have a form of money, a form of transferring of value and storing value, that did not depend on central authorities.
So if you get rid of the things the bankers want to get rid of—the paper notes and the use of gold and everything like that—so everything is stored in their computers as an entry in their ledger that says how much money you have, then they have ultimate control over our lives because they only have to throw one switch to deny us access to our funds and we become non-persons. With Bitcoin, they don’t have that switch. We have the direct ability to still keep trading electronically.
Bob Zadek: So Bitcoin is intangible, it is virtual, there’s no tangible manifestation of that. When I purchase a Bitcoin—and I guess that’s the right verb, is it not? I purchase a Bitcoin? Is that how I acquire it?
Stan Larimer: Yes. Well, there’s other ways to get Bitcoins and put them into circulation that we could talk about, something called mining, which is a slow, decentralized way of putting new coins into existence. But the average person out there, like 99.9% of us, gets a Bitcoin by buying it from someone else.
Bob Zadek: So if I buy a Bitcoin to start a transaction, I pay for that, and I pay for that with dollars—whether dollars in paper currency (highly unlikely) or I instruct a third party such as a credit card company or a bank to transfer dollars or an account containing dollars to the Bitcoin seller. Now, I kind of have faith in the short run of what a dollar is worth. So I give up a dollar, which I have a fair level of confidence what it’s worth in the short run, and I give it to a Bitcoin seller. What does the Bitcoin seller give to me in exchange for that dollar? So now I’ve given up something of, as far as I’m concerned, somewhat ascertainable value. What do I get in exchange, and how do I know the value of what I’ve gotten in exchange?
Stan Larimer: Well, what happens is that the person who had the Bitcoin really controlled that Bitcoin in a decentralized ledger that’s spread all over the world, run by “trusty robots” who keep track of how many Bitcoins everybody has. What he does to give you the Bitcoin is to tell those trusty robots, “I release control of this Bitcoin and give it to this account.” The robots change the ledger. In that sense, it’s no different than what a bank would do in terms of transferring money from one checking account to another; they delete it from one account and add it to another account, and the transaction has occurred.
The Decentralized Ledger and Personal Responsibility [07:52]
Bob Zadek: Now, with a bank, which of course is a sensible and easy-to-understand analogy, with my bank account, I see in my bank account a deposit of $1,000 and I have a paper record or an online record that I can print a print-screen of. I have this trail. Then if I write a check for $900 and the check bounces, I can show to the bank, “Wait a minute, here is a record in tangible form—it’s a printout—that showed I have $1,000. Why did you bounce my check?” The bank would say, “I made a mistake,” and it would be resolved. If I buy a Bitcoin worth something—and I understand the Bitcoin has a fluctuating market, but it appears to be worth around $1,000—and then I go to spend that Bitcoin and the buyer says, “Well, this is not a Bitcoin,” or “This was not acceptable”—I don’t know what the buyer would say—but the buyer doesn’t get the value. Who do I complain to that I bought a phony Bitcoin?
Stan Larimer: Well, there’s no one for you to complain to because the trusty robots, if you will, out there don’t make that kind of mistake. It’s well-proven software that’s been around since 2009, and the accounting process is essentially foolproof. You can make a mistake. If you make a mistake, you’ve got to take personal responsibility for it. If you send that coin to the wrong person, there’s nobody to go take it back for you, and that means you’d better be careful when you’re paying somebody. But the act of sending it somewhere is extremely reliable, and therefore your money shows up in the right account if you did it right.
Bob Zadek: So somebody who deals in Bitcoin is making an assumption—implicit in the decision to use Bitcoin to either store value or to transfer value, the two things you do with money—the assumption is that the system will not make a mistake. And if you have some distrust of systems—black holes, things that go on that you can’t control—then Bitcoin is probably not for you. But the experience you’re explaining in the world is there has not been any example of somebody being defrauded and thinking they bought a Bitcoin and taking the appropriate steps and finding out they didn’t. That just is not a real risk in dealing in Bitcoin. Is that correct?
Stan Larimer: Well, there’s all kinds of fraud that could occur between somebody who has been misled by someone who promised to send them a Bitcoin and didn’t, or used potentially other fraudulent software or something. But if you’re using the real Bitcoin system and you’ve downloaded a valid wallet—which is just a little application that keeps track of your keys—then that wallet gives you access to the global ledger where the funds are transferred on, and that is the part that’s foolproof.
But if you use something that is a counterfeit version of that system, then of course anything could happen. And the big thing, of course, for libertarians is this is a caveat emptor type system. Let the buyer beware. You are going to take personal responsibility now. There’s two kinds of people out there: the type of person who loves the idea of having control over their money that nobody else can take from them and is willing to take that personal responsibility. There are other people who say, “No, no, no, I’ll screw it up. It’s more likely that I’ll screw it up than it is that someone will steal from me. I want to have a bank that I can trust that will make it all right for me when I make my mistakes.” And if you could trust banks, then everybody would just use that. But we’ve all had experiences for one reason or another where the banking system is not the level playing field that we all would like to think it is, where your account can be frozen either due to legitimate or illegitimate government action, or due to banking errors of different types, or due to some of the other dirty tricks banks play with our money. And so it’s a tradeoff. You say, “I don’t want the bank having the ability to do that to me. I want to take personal responsibility.” And for that type of person, this is ideal. For a person who wants someone to take care of them, well, then with that care comes the risk that you will be exploited.
Capped Supply and Inflation [10:26]
Bob Zadek: Now, there’s another very important characteristic of money that is often not understood or not understood enough. One could say, “Well, I am so concerned about being harmed by the outside world that I am going to—and this is the proverbial—keep my money in the mattress. I know where it is, it’s safe, and I’ve locked in its value. I cannot take a loss.”
Now, that of course, Stan, as we know, is kind of absurd because money, although it’s worth a dollar—a dollar bill says it’s worth a dollar—but the dollar doesn’t always buy the same quantity of goods. That is, there is inflation. So the value of a dollar itself goes down vis-à-vis the commodities you can buy with the dollar. So buying or holding a dollar is itself making a decision to invest in something which doesn’t appreciate very much and could very well depreciate, and it could depreciate by dint of governmental action. So we have to understand that holding your value, the value of what you are worth, your net worth, in dollars is itself making a decision to forego yield and to suffer possible depreciation in value because of government action, inflation, and the like.
So tell us about the supply of Bitcoin. The supply of dollars is controlled by government. What controls the amount of Bitcoin? Is it unlimited? Because that will affect its value.
Stan Larimer: Yes. The value of Bitcoin is limited for all time to 21 million coins. I think about 16 or 17 million of those coins have been issued, and the rest are issued about 12 and a half of them every 10 minutes—a very slow process that will take perhaps 100 years to finish as it gradually leaks out the last coins into circulation. But that was a contract made with all the holders of Bitcoin, and those trusty robots that run the system enforce that so that no coins can come into existence ever except at a very slow trickle rate.
And so you would say that Bitcoin right now is slightly inflationary—not as bad as the dollar, but just a tiny little bit of new coins are coming into existence, and that will taper off to nothing eventually. But that little bit that does get leaked in is what pays to operate the system. So new money is “printed,” if you will, in the Bitcoin system to keep it operating as one of the main incentives for people to run the software that runs those robots.
Bob Zadek: This is Bob Zadek. I’m speaking with Stan Larimer, the Godfather of BitShares. We are talking about Bitcoin. It’s really quite a simple concept. We are helping all of us understand Bitcoin as a commodity and as a medium of exchange. We’re taking calls now, questions for Stan Larimer on Bitcoin.
The Evolution of Market Value [18:04]
Bob Zadek: Now, Stan, Bitcoins trade, and there is a value expressed in dollars. What has happened to the value of a Bitcoin in recent history, or perhaps since inception if you know?
Stan Larimer: Well, when Bitcoin started out, its inventor, Satoshi Nakamoto, introduced it as a system for keeping track of tokens—little electronic receipts, if you will, for value. He said, “This could be a digital currency someday.” And his mere suggestion that it might be worth money was enough to cause some geeks out there who were testing his software to say, “Well, you know, I want to save some of this,” and they started trading them among themselves, selling, I don’t know, 100,000 Bitcoins for $5 or something.
But as time went on, people—more people found out about it and wanted to get some and were willing to pay a little bit for it. And they bid the price up very gradually over the past nine years or so that Bitcoin’s been in existence. And as more and more people started to use it for real purposes, like sending money to the other side of the planet, the demand for those Bitcoins became more than just speculative. There were people that wanted a Bitcoin so they could send it to somebody in payment for something. And that has led us to today where Bitcoins recently almost hit $20,000 apiece. I think they’re back down to $15,000 or something right now. But their value is driven by market demand, which is really similar to what gold and silver are, right? You go out there and look at the price of gold and silver; they fluctuate every day too.
Utilitarian Value and Transaction Costs [21:39]
Bob Zadek: And what’s really interesting about Bitcoin is—and you mentioned it just a second ago, Stan—that Bitcoin is not just something for, if you will, hobbyists or somebody who just likes playing in the crypto world, but it actually has an everyday, somewhat pedestrian use. It enables you to transfer value, as you said, around the planet very quickly and, more importantly perhaps, very cheaply.
One can transfer value now using tons of existing commercial systems: PayPal, credit cards, wire transfers, ACH, Western Union. There’s any number of vendors who provide, for a fee, the service of moving money around. Well, Bitcoin in its utilitarian function is a way to move value from one person or one entity to another. The advantage is it is profoundly less expensive than any of the other systems I just listed. So tell us about the purely utilitarian—putting aside the investment value, which is one whole concept, it’s an investment—putting aside the investment, buying Bitcoins because they appreciate, talk about buying Bitcoins because they’re useful, and tell us about the use and the cost of Bitcoin.
Stan Larimer: Okay, let’s compare three different categories. By the way, I use “Bitcoin” so far—I’ve been talking about Bitcoin as a very specific type of digital currency, but like the word “Kleenex,” which now means tissues to people, there are many different types of Bitcoin called by many different names, and they all have different characteristics.
But let’s just say for right now, let’s compare banks, Bitcoin, and BitShares as three different examples so that you can get sort of a cover over the three questions you asked. If I use a bank to wire money to somebody, it might take me three days and maybe $30 to send money somewhere. Then it may have to sit and age for a while before they’ll let me actually spend it. So I’m at the mercy of whatever the bank’s rules are.
Compare that to Bitcoin. When Bitcoin was in its heyday back a few years ago, you could maybe take three hours and $3 to send that same amount of money somewhere, and nobody could interfere with it. It would go straight to where it was supposed to go, and you’d have use of it and could forward it. When we first formed our company, a Chinese investor sent me a bunch of Bitcoins. It took one hour to get to me, took me another hour to send it to an exchange over in London to convert it to dollars, and then it took the system three long days to wire it back to me.
So that’s the ideal side of Bitcoin. Lately, it’s become pretty saturated, a victim of its own success. So many people want to use it that you don’t really get that type of a benefit anymore. It could take three days and $30 to send Bitcoin somewhere. So in some sense, it’s lost that big advantage over the banking system. But new products like BitShares come along that take three seconds and three cents to do the same job and have enough extra bandwidth to handle all the world’s transactions without being clogged by the system. So it’s a rapidly evolving industry, and your performance that you get over the banking system is truly stunning when you look at some of the more modern versions of Bitcoin.
Bitcoin as a Tool for Commerce [26:39]
Bob Zadek: This is Bob Zadek, speaking with Stan Larimer. Stan is known as the Godfather of BitShares. He has actually taught rocket science, so this is not rocket science; Stan knows that firsthand. We are discussing Bitcoin as a generic description for a whole range of cryptocurrencies—ways to create and transfer value outside of the governmental system.
Bitcoins have two important attributes, two important qualities that make Bitcoin desirable to their owners. One is as an investment, and as an investment, to say the least, it has out-performed the Dow profoundly, tremendously. And as a utilitarian, as simply a tool in commerce, it is a very inexpensive, very safe, and—we haven’t discussed this all that much—but an anonymous way to transfer value from one person or entity to another. So Bitcoin is not just a game; it is simply a tool to be used in commerce.
Now, what makes Bitcoin interesting as a tool to be used in commerce is if you want a tool to use in business and it’s a service, you will buy it. And people can buy Bitcoin service, can get credit cards, can buy wire transfers from banks, and as many people as want wire transfers, the bank is happy to sell them to you at a fee—we used the hypothetical fee of $30, that’s kind of the range. With Bitcoin, since the amount of Bitcoin in circulation is controlled and it is finite, it’s something akin to PayPal being a membership organization where you cannot use PayPal unless you’re a member and they have a fixed number of members. Now, if you find PayPal to be essential in your business, you have to be a member. And since they have a closed membership in my hypothetical, the only way to become a member is to buy a membership from somebody else. That’s kind of, in my mind, a rough analogy as to why Bitcoin as a useful tool is increasing in value. Is that a fair analogy, Stan?
Stan Larimer: Well, certainly there can be many metaphors for Bitcoin, and thinking of it—of those tokens as representing a membership—is certainly a valid concept. Although you’re an equal member whether you have a tiny fraction of a Bitcoin or whether you have a million of them. So Bitcoin was intended to emulate owning a commodity like gold. In fact, it likes to call itself “digital gold.” And so you can own a piece of the supply. A tiny little piece of Bitcoin dust—0.000001, seven zeros if you will—a tiny little fraction of it, or a single Bitcoin could represent quite a lot of money.
The Threat to Centralized Government [29:51]
Bob Zadek: Now, whenever you talk about something like investments or money, we think of money as being one of the functions reserved exclusively to government. Governments have long since sought to control the money supply—Stan, you made reference to it, and we’ll get into that in more detail in a moment. But governments now around the world have perked up and have—Bitcoin has captured their attention. So the question is, of course, we are libertarians and government is always not very far from our consciousness. So two related questions: What is the effect of Bitcoin on government, and what is the effect of the role of government on the growth and operation of the Bitcoin marketplace? They are two, although they sound the same, they are very different. So first, what is the effect of the growth of cryptocurrencies on the functioning of government? Why do governments care so much? Because we know they care a great deal.
Stan Larimer: Well, that I guess a lot depends on your assumption about government. As a libertarian, we recognize that a good government is a very small government that has the minimum amount of control possible. And control of our money has always been an extremely powerful tool that governments have. They can print money to fund wars, they could dilute the denarius down to where it had almost no silver in it and therefore increase the money they had with which to buy armies and exert control. All that has always been the case.
In recent years with electronic money, governments around the world see it as a bonanza because they can track every single financial transaction, make sure that they don’t miss any taxes in the process, and basically do sanctions with the money where they can simply not just freeze your bank account, but possibly turn off your entire digital life. So it’s a question of how much power do we really want our government to have? Because if we continue to allow them to drive towards a one-world currency and eliminating everything but that currency as a competition, then we will one day wake up and find that we are inside a cage we can’t get out of.
So what does Bitcoin represent to governments? It represents a threat over their hegemonic control of our lives and therefore something that needs to be regulated and eventually seized for their exclusive control. And that is the big battle of our time. A free society with lots of digital currencies out there is something that helps enhance freedom. And if we allow it to collapse down to a single one-world currency, then we will find one day that we are under the total dictatorial control of a central government.
Privacy, Anonymity, and Regulation [32:03]
Bob Zadek: Now, also, Bitcoin transactions are totally anonymous. There is no—if I have paid you money using Bitcoin, there is no easily obtainable—and maybe I don’t even need the modifier—there’s no way the government will learn that Bob paid Stan $1,000 worth of Bitcoin. And that anonymity, I would think, makes tax collecting unbelievably inefficient, and the government has no way to determine these financial transactions which drive the taxing economy so much.
Stan Larimer: Well, there is a tiny sliver of truth to that in the sense that in a vacuum, I can download a brand new piece of software, a Bitcoin wallet, and I can create a brand new account and I could have somebody send me a coin to it, and no one would know that I owned or controlled that account. And that’s about the limit of the anonymity that I have because as soon as I transfer that account to an exchange, that exchange probably puts it in an account where they’ve asked me to do KYC/AML—that’s Know Your Customer, Anti-Money Laundering—kinds of things where I’ve had to give them my identity.
And the instant that I do that, I have tied that address where I put my nice anonymous coin to my account. And if I start spending money in and out of that account, every time I transact it, I make another link that the government can follow that will basically eventually tie everybody together. So by analyzing places where they do know something about a given address, they can put together a pretty good description of where every coin is and who owns it. And so I would be very hesitant to ever suggest that anybody but a true expert—and probably not even them—could achieve the type of anonymity you’re talking about. I think it could be a bonanza for the government to be able to quickly audit every single financial transaction out there.
Bob Zadek: So therefore Bitcoins do not function as a threat to the efficient collection of taxes. When governments complain or seek the need to regulate Bitcoin, that reason doesn’t have much merit. Is that fair to say? It doesn’t adversely affect the efficiency of tax collection?
Stan Larimer: By the time they get done, I have no doubt right now that they have armies of software engineers developing the tools necessary to analyze everything about Bitcoin. And 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 is going to have been checked and will be a checkpoint where they check the ID of who owns it. By the time they get done, they will have completely made the system analyzable.
So that doesn’t, to you as somebody who functions in the cryptocurrency world, that to you is not a source of discouragement. That doesn’t reduce in any way the utilitarian value of Bitcoin for all of the reasons we’ve discussed on this show. So you don’t find that to be—the fact that the government—the fact that you don’t have secrecy does not greatly decrease the value of Bitcoin in the marketplace.
Stan Larimer: Well, it certainly is one thing that would be nice to have: privacy so that people could not track and know everything about what I do, because that type of knowledge gives them power over me. So yes, I would love to have better privacy. There are products—not Bitcoin, but other chains out there—that provide various tools that help to increase the degree of privacy that you can have in doing certain transactions. But it’s a never-ending ongoing arms race.
I don’t object to having an accurate knowledge of what I owe in taxes. I find that, you know, we all have to pay a certain amount of taxes. I think the taxes should be much lower than they are, but I don’t object to the government doing taxation for its own legitimate reasons whenever it can. But you’re going to find as we go on, it’ll be an arms race where new developments will come out to give people more privacy and the government will work to develop ways to still continue to snoop. And that tension needs to be there because it’s the same kind of problem that our founding fathers in the Declaration of Independence listed as the things they didn’t like about King George III: doing illegal search and seizures and all the other things. If you look at the things our government does today, the founding fathers would have had a much bigger list of things to complain about than they did with King George. And so I think that the digital currencies that we’re talking about are tools of freedom and that we need to have that good ongoing battle. But it could go either way. It is a major struggle between the forces of centralization and the forces of decentralization.
Listener Q&A: Mt. Gox and Global Participation [37:57]
Bob Zadek: We have a caller, Jacob in San Jose. Welcome to the show this morning.
Caller (Jacob): Yes, Mr. Larimer, you and Bob were talking about anonymity, but what about pseudonymity? You mentioned the, I guess it was sort of a Japanese name, the so-called inventor of the Bitcoin, but isn’t that a false person? Some say it might even be Elon Musk. And what about the—you and Bob were talking about government interference, but what about private non-government interference, such as Telecheck in Texas? You’ve got a good check, personal check, a good bank check, and you put it through the merchant checkout machine that Telecheck has and it nixes it. It disapproves it; you can’t buy with good tenders, good legal tender. You mentioned Chinese investors that you got, but what about China, Vietnam, and Israel? They’re not participating in Bitcoin. And what about Mt. Gox, that failure of Bitcoin, the biggest in the world, it’s a failure, and all the murder and suicide associated with Bitcoin? Is this enhancing freedom?
Stan Larimer: Well, I hope I can remember all those questions. Those are good questions, and I’m glad he asked them. I’ll do the Mt. Gox thing in the first place. Bitcoin’s blockchain was not hacked in Mt. Gox. What was hacked is the company, which was a trading company for Bitcoins, and something happened behind the scenes, whether it was their fault or they did it on purpose is something that people could argue about.
But what happens whenever you go to an exchange like Mt. Gox is you give them your Bitcoins, and then they let you trade what amounts to casino poker chips—representations, IOUs if you will—on their exchange while sitting off separate, ideally offline where it can’t be hacked, is your actual Bitcoin. And they’re only used when you are done trading; whoever winds up with the poker chips can go get the real Bitcoins and have them sent to them. 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 they were stolen, I don’t know we’ll ever know for sure exactly what all happened. But that was not a fault in the blockchain. If you’d have kept your Bitcoins in your own wallet, there would be a supremely much lower chance of it being hacked. The only reason it was hacked is because too much Bitcoin was put in one place; it creates what’s called a honey pot, and hackers then spend a lot of time trying to figure out how to get into that company’s computer system—not the Bitcoin system, but where the company keeps the keys. And that’s the kind of thing, the kind of danger that you have. With BitShares, for example, we have a decentralized exchange so you can trade your coins directly peer-to-peer with other people without having to put them at risk like that.
Help me remember some of the other questions there.
Bob Zadek: Well, it was Israel, reference to China and Israel not participating in Bitcoin.
Stan Larimer: Well, China, I would say, is definitely participating in Bitcoin. Most of the people who run the Bitcoin network are located in China. It has been the leader in Bitcoin most of this time. It has started to do regulatory constraints on it, but I would say that that stops short of eliminating Bitcoin. You find different attitudes in different governments around the world. Some want to stamp it out—South Korea is recently more toward trying to stamp it out—whereas Japan is working very hard to make it widely acceptable. And so we’re going to see different countries take different initial stances, and then the ones who have tried to stamp it out will find out that they’re missing out on a huge economic opportunity, a boon to their country, and they’ll reverse policy eventually. But it’ll be an ongoing battle and we’ll see every single day new headlines where some government did something outrageous.
Bob Zadek: And I would say, Stan, there was a reference that Jacob made to suicides, people lost all their money. I wonder how many suicides there were as a direct result of the Great Depression in 1929 when so many people lost their value through no fault of their own, perhaps. Now, perhaps they were speculators, I don’t want to go there, but the fact government had a huge role to play with poorly thought-out governmental policies from tariff and trade wars and the like. So the suicides and the loss, the profound loss in value, was, if you make reference to the Great Depression, was all as a result of government action and on a large scale. And one could observe that whatever may happen in private markets such as Bitcoin, the scale, since it is not governmental, is unbelievably smaller than the scale of suicides and bad things that can happen if government makes a mistake. Every mistake government makes has a profound and overwhelming effect. Mistakes that happen in private business—if you want to go to Target being hacked, whatever, Equifax—even though they are large in the absolute sense, relative to the losses caused by failure of government, they are very, very small.
Money Substitutes and the Future of Crypto [43:31]
Bob Zadek: Now, Stan, in this subject of Bitcoin—and we are now talking about Bitcoin as a generic, as you said earlier in the show, as the “Kleenex”—Bitcoin describes any number and a growing number of newly created, as they are called, cryptocurrencies. These cryptocurrencies have both, as I said earlier, an investment quality and a utilitarian quality, a commodity as you said—something akin to gold. So what is likely, as you look into the future as I’m sure you have, what do you see as the future? If one were to look back five years from now at where we are today, they might be chuckling at how naive and how we didn’t—we couldn’t have imagined what would be happening five years from now. So help us look into the future. What’s going to happen with Bitcoin? Is there a train leaving the station that we are in danger of not being on board? Help us understand. And the beauty of my question, Stan, is you are allowed to wildly speculate because nobody is holding you to your prediction, but your view of the future is infinitely more informed than mine or anybody else who doesn’t understand the marketplace.
Stan Larimer: Ooh, I like the idea of being able to wildly speculate. Okay. Well, first off, Bitcoin falls into the category of just one of many different kinds of digital currencies. There’s probably thousands of them out there right now. A lot of them are nothing but clones of Bitcoin itself with a cute name that someone thinks that, “Bitcoin went up by a factor of a thousand in the past few years, why don’t I change the name and make one of my own and I’ll get rich just like that?” But there’s so many thousands of those right now that chances of that happening on any given one of them are small.
But those coins have a lot more uses than just pretending to be a commodity representing some flavor of digital gold. Those tokens can be used to represent everything from frequent flyer miles to voting rights to shares of stock—lots of different and interesting and exciting concepts. With the BitShares system, that’s an alternative to Bitcoin that has the ability to make your own coin. It can represent Joe’s Pizza and Lube Shop and their special promotion to get a discount pizza with an oil change—whatever you can think of out there. And there are a lot of really innovative companies that are coming up and introducing coins that people will want to own because of their unique utility. They could provide you with a discount, they could provide you with shares of stock in something.
And therein lies the Wild West right now because there’s limited regulation oversight of it right now, so there’s a lot of very bad products out there, scams, mixed in with the very good and regulatory compliant products. And so buyer has to be aware.
Bob Zadek: Stan, be careful, that sounded like an ode to regulation. If the word gets out, I’ll lose all my listeners if they hear that on my show.
Stan Larimer: Well, I would just say to that, the problem is not regulation, the problem is over-regulation and malicious regulation designed to give unfair advantage to the powers that be and to deny entry, put up barriers of entry to new competitions, new ideas, and so on. Certainly, a small amount of regulation that allows tracking down of people who would defraud other people is something that the most libertarian of us would say, “Well, you know, if you got defrauded it’s your own fault for not doing your homework.” But the governments get the call-in lines start heating up with people complaining about a given scam, and they’re expected to do something about it. So a little bit of a balancing act there where there is a legitimate role for some regulation. But right now what we are seeing is those regulations used to stop innovation and protect the incumbents, and that’s just unacceptable.
Bob Zadek: What’s interesting is the concept of creating money is not anything new. I’m of course from New York and I grew up using subway tokens. Subway tokens were pieces of metal that I put into the turnstile to board the subway. I bought them from the booth and I put them into the machine and I rode the subway. That was nothing other than a convenient money substitute, a way to transfer value that a turnstile machine could use. And when I go through the toll on the Golden Gate Bridge, I go through Fastrak, and that’s a money substitute. I have an account and I don’t pay with currency—I used to, I don’t anymore—I pay by an electronic signal going from my transponder. So many, many, many commercial activities are done using money substitutes. Bitcoin, it seems to me, is just a money substitute on steroids which has so much utilitarian value. You don’t just buy a trip on the Golden Gate Bridge, but you can buy lots of things. So that makes its use—and when you have something that’s useful, people want to buy it because they want to use it for the intended use—with a fixed supply, the value therefore goes up.
Now, Stan, we have only a minute or two left. How can our friends out there follow your work and follow your work on BitShares, and how can they keep abreast of what’s going on in this very dynamic, very exciting, very innovative activity of cryptocurrency?
Stan Larimer: Okay, we have a website that teaches people about digital currencies called BillionHeroCampaign.com. And there we’re giving away a billion dollars’ worth of digital currencies and letting people help vote on who we give that money to. And in the chance you get to get your own digital currency account, learn about all these different tokens, and give you a little free play money to play with. That’s BillionHeroCampaign.com, and there it will point you to everything else you’d ever want to know.
Bob Zadek: Thanks so much to Stan Larimer for giving us an hour of his time. Thank you for all my friends out there for listening. This is Bob Zadek saying so long for now. I’ll be back again next Sunday with another hour of ideas, never attitude. Enjoy your Sunday.