37 min read

Bitcoin is Moral and Fiat Money is Not - With Jimmy Song

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Jimmy Song has written three books. His latest is called Thank God for Bitcoin, and he gets into why the current financial system is corrupt and why Bitcoin can fix it. And that is what we get into today. He is hands down the most interesting person I have talked to regarding Bitcoin and cryptocurrency.

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What you will learn

  •  What is a Bitcoin Maximalist
  • What is Bitcoin
  • Common arguments against Bitcoin and the Rebuttal
  • Why Bitcoin is not like the Tulip Bubble
  • Why Bitcoin is volatile
  • Can Bitcoin be a practical medium of exchange?
  • Bitcoin adoption around the world
  • The Bitcoin standard?
  • Why is the US dollar the world's reserve currency?
  • Why our current system is corrupt
  • Why credit is corrupt
  • Dirty little fiat secret
  • About Jimmy's book - Thank God for Bitcoin

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[00:00:00] David DeWitt: Jimmy song, welcome to the podcast. 

[00:00:01] I'm pretty pumped to have you here.

[00:00:04] Jimmy Song: Thanks for having me. It's going to be great.

[00:00:06] David DeWitt: I think it's going to be great as well. And one thing I kept seeing is that you're a Bitcoin maximalist. And so right off the bat, why don't we just figure out what that is? Cause that's the first time I've heard of that. So what does that mean? 

[00:00:18] Well, the term was coined by Vitalik Buterin, who's the creator of Ethereum about four years ago. And it was meant to be like a way to put down Bitcoiners and say, oh, these guys are Bitcoin maximalists.

[00:00:30] Or they don't think ALTcoins are legit, and we kind of ran with it as a community. And basically, what it means is that. A Bitcoin maximalist thinks that Bitcoin actually has a legitimate use case, and all these ALTcoins like Ethereum, Ripple Bitcoin cash all have no real utility.

[00:00:49] That they are mostly used as a speculative frenzy to essentially scam people out of their money. And unfortunately, a lot of people tend to lump Bitcoiners and alt-coiners together. And that's something that Bitcoin maximalists tend to fight against. And this, by the way, maybe the subject of my next book.

[00:01:10] So meant to be an insult, but you guys have embraced it and own it. I love that. Yes. 

[00:01:15] So you like Bitcoin, and you're not a big fan of the others. 

[00:01:17] Yeah, that's 

[00:01:18] Jimmy Song: correct. 

How Did Jimmy Get into Bitcoin?


[00:01:19] David DeWitt: Okay. Good to know. You've been in this space for a while. So why don't we just quickly talk about how you even got into Bitcoin in the first place?

[00:01:25] like what have you done with Bitcoin? I know you have a programming background.

[00:01:31] Jimmy Song: I've been a programmer pretty much all my life, but I started doing it professionally right out of college, back in 1998. And, my first job was at a startup, and I've been doing startups pretty much like my entire life.

[00:01:44] Back in 2011, I was working at one of these startups, and I came across an article that where I didn't know anything. It was on a website called Slashdot. And if you're a computer programmer like me, that's those are the sites that you go to because it has all sorts of tech news about what's going on.

[00:02:02] The latest Linux distro, here are some patent trolls that are trying to patent something stupid. Here are here's the new Mac book and, the specs around it and here's a new chip, but things like that, but there was one story on there, which all of which I knew absolutely nothing.

[00:02:16] And it intrigued me; it said Bitcoin had reached dollar parity. I was like, what does that even mean? And how do you reach dollar parity? It didn't even occur to me that it could be a currency, and I couldn't parse the sentence. After I looked into it and re-read the story, and started getting curious, I found out very quickly that it had a 21 million limit.

[00:02:37] That's been true. Since the beginning of Bitcoin that there will never, ever be more than 21 million Bitcoins. And that immediately triggered in me an instinct to go get some of it because I, I understood at least vaguely how it worked. Of course, I understand that a lot better now.

[00:02:54] But that this digital scarcity could actually be enforced. That was my first exposure to Bitcoin. Unfortunately, yeah, I didn't actually buy Bitcoin at that point. The dollar parity basically meant that Bitcoin had reached $1. Of course, it's a lot more than that now.

[00:03:10] And one of my, one of the big regrets of my life is not buying more Bitcoin when I first heard of it. I did eventually buy some, and I started programming for Bitcoin open source projects in 2013 as a programmer that led me to get some jobs in the Bitcoin space as a startup programmer.

[00:03:30] And I did that for three different startups. And eventually, I ended up finding out that I happen to be pretty good at teaching other developers about Bitcoin because one of the first things that each of those companies made me do was go through, teach their developers what the coin actually is because I had done the hard work of actually figuring that out.

[00:03:51] And I tried to present it in a reasonable way that led me to Do my seminar called programming blockchain, where I teach Bitcoin developers about Bitcoin and all of the technical underpinnings and so on, which essentially got formed into my first book programming Bitcoin, which is published by O'Reilly.

[00:04:08] And if anyone in your audience is technical, that is the premier technical publisher for anything in the United States, and that's who it's published with. I got to teach a graduate-level class at the University of Texas the, with essentially the same material. I've invested in several startups.

[00:04:28] I've been an advisor at several startups. I've written two other books since then. One, The Little Bitcoin Book, which is a basic overview of Bitcoin for those that don't know about it. And Thank God for Bitcoin, which is the moral argument for Bitcoin.

What is Bitcoin?

[00:04:42] David DeWitt: And that book I want to get into in a little bit. Cause it seems to me to be the most intriguing thing that I've read about recently about Bitcoin, but first, let's just still cover some of the groundwork here. So you said that you got good at explaining Bitcoin or having people understand it. So how about you help people who are very much the layperson understand it?

[00:05:01] Jimmy Song: Sure. The easiest way to think about Bitcoin is as digital gold. Gold for a long time was used as money; I think somewhere around 5,000 years, and Bitcoin shares many of its characteristics; for example, no one will arrest you if you're digging in your backyard for gold. But if you're in your basement printing $100 bills , the secret service can and probably will arrest you for making counterfeit money.

[00:05:27] There's no permission required to go and gather Bitcoin. Just like there's no permission required trying to gather gold, especially on property that you own. Now, in that sense, it's decentralized versus centralized. Centralized usually means that there's permission required somewhere.

[00:05:44] And the current system of money very much requires permission. The monetary system is based on what we call central bank-backed currency. It used to be backed by gold until 1971, almost exactly 50 years ago. I think we celebrated the anniversary like three days ago.

[00:06:02] It used to be backed by gold, but 50 years ago, Richard Nixon cut the ties to gold by temporarily suspending its convertibility. And that means that it's no longer backed by gold. It is literally fiat money. Fiat in Latin means let it be done. The first verse of the Bible is Fiat Lux, let there be light. And it is just money created out of nothing. God can obviously do that, but not man. And so, in a sense, it's money created out of nothing. And it's in stark contrast with Bitcoin, which is a lot more like gold, but much like the fiat currency; the reason why or the dollar exists is because.

[00:06:40] It's a lot easier to spend across space. If you try to right now, like, pay somebody in physical gold, you would actually have to physically deliver the gold, which is very inconvenient, versus what you can do now, which is pay via credit card and have the digital transaction online.

[00:06:59] You don't need to be in the same place. And you can get good **** from all around the world very easily as a result. So Bitcoin gives you the best of both worlds. It has the decentralized nature of gold which is not subject to government debasement and many other things, government confiscation, government censorship, and all these others.

[00:07:18] But at the same time, it's digital. So it has all of the advantages of the dollar, which is that you can quickly spend it and. Be able to transact with people all around the world. And I would argue that it's actually better than gold and its scarcity and its ability to preserve value.

[00:07:36] And it's better than the dollar and its ability to transmit across space without any third party involved. 

[00:07:45] David DeWitt: Okay. I think that is a pretty good way to put it. At least I can understand that. So that's a job well done now. And the scarcity thing, I mean, that's the one thing that I always come back to you because you know what creates value. I mean, that's, you have to have some level of scarcity. I mean, it's just economics. And I guess we don't really know how much gold actually does exist, but we know exactly how much Bitcoin can exist. So I guess, yeah. I guess that is a good thing. 

Arguments Against Bitcoin

[00:08:10] David DeWitt: Now there's always so many arguments from usually older people like I just don't understand Bitcoin, and they come up with things to say as Bitcoin sucks for this, for that reason. Why don't we go quickly and just go through a couple that I always hear, and let's see, I want to see what you say. So the one that I always hear the most is that there's no inherent value; it's just a number on a computer created from nothing. So what would you say? 

[00:08:34] Jimmy Song: Well, there's no inherent value in anything. Really, if you think about it, it's only what value we give to it. Like iron, for example, has no value until people figure out how to make tools out of it or weapons out of it. And it's. It's valued. That is like all value essentially is subjective. It's not; there's no objective inherent value to anything. Now, the fact that you can make something out of that iron does give it utility, and for people that know how to do that, but for you or me, or. I assume you're not an ironsmith. That that don't know what to do with like a piece of rock that has some iron in it. It's kind of useless. Maybe you can use it as a paperweight or something like that, but for the most part, it doesn't have quote-unquote inherent value either. All value is subjective. So that means that digital things can have value, especially if they have scarcity and anyone that's younger, they, they tend to get it a lot faster because maybe they've played World of Warcraft or something like that, where you have digital objects that are worth quite a bit of money. The thing that I would point out to older folks is that the US dollar is exactly the same way. Most like something like 97% of all US dollars are not in the form of bills or coins. They're actually just ledger entries on some bank's database. Really you're doing the same thing and saying the same thing about the dollar already. So when you say, okay, it has no inherent value. Well, then you pretty much have gimme, gimme your bank balance because that also has no inherent value. And I'll give you rock for it or something like that. Yeah, digital things definitely can have value. And that's because all value is subjective, and it's based on what other people will pay for it. 

[00:10:15] David DeWitt: Yeah. That was a great answer. I actually totally agree with you. I mean, everything that we even stocks, I mean, it's a coming together of humans putting a value on something. So since we are all humans interacting in this world, we are subjectively assigning value. Pretty much everything. So that's great. Yeah. The other one I hear, and there's a lot of people out there that are holding up signs and protesting; it's terrible for the government. I've heard that it uses as much energy as certain countries. It uses as much energy as 23 coal-fired plants a year, all that kind of thing. I mean, isn't Bitcoin just awful for the environment, and we should just not be doing it. 

[00:10:47] Jimmy Song: So there's a lot of articles that have been written on this. The latest takedown on it, I thought, was absolutely brilliant. It's by Lyn Alden, and you can look up why Bitcoin energy consumption is not a problem, but very briefly, this is basically like a complete misunderstanding of how the energy market works and how. Bitcoin draws energy. The energy that Bitcoin mining is using is not the same energy that your dishwasher is using.

[00:11:19] And that's a little bit of a hard concept to understand. People tend to think that electricity is electricity. But that's not it at all. And in fact, electricity is highly nonfungible, which is why in certain countries where there aren't that many energy sources that you pay upwards of 35 cents per kilowatt-hour. Whereas in very cheap places where there's an abundant amount of energy, you may like 2 cents per kilowatt-hour, but the difference is in energy production in many other things, but more to the point. Energy the entire energy market is optimized for availability. And by that, what I mean is when you turn on your lights, it should come on every single time, right? That's what the energy company wants is that when you are ready to consume energy, that it is available for you, it's the rental car market in that respect. If you go to the rental car counter and they have no cars for you, Terrible customer experience. And you're probably not going to go back there again. What they want to do is make sure that it's available whenever you have needed it. And if you, if it's not available, you're not going to like the company and switch and so on. Although foremost, public utilities like that, that's not how it is. So in order to make sure that it's available, what energy companies do is they always. Build out for peak demand. And here in Austin, where I am, that tends to be during the summer when everyone is running, the AC is on full blast, and whatever the peak demand is, maybe it's like 3:00 PM on July 7th or something like that. They build out the energy capacity so that you have at least that much every single day of the year. And that's good because that means that whenever you turn on your lights, that'll come on and so on. But that also means that there's a lot of waste because you're generating enough energy to fulfill peak demand. But most of the time, you're nowhere near peak demand, and, September 5th or something like that when it's neither too hot nor too cold, you're not going to just use that much energy. So, as a result, You have all of this excess energy that gets wasted. In fact, something like a third of all electricity generated around the world gets wasted precisely; for this reason, it's kind of like rental car capacity, right? Not all of those cars are driven all of the time. It's only, in fact, most of them sit on lots of them.

[00:13:38] For a majority of their life. So energy is kind of like that. And what Bitcoin does, it has this unique feature where you could turn it off whenever you want. You don't really care to have it running all the time. Especially if somebody is paying you to turn it off, and this is. This is essentially what happens with a lot of these power contracts that these miners use is they consume that electricity that would otherwise be wasted.

[00:14:06] And that means that for these electricity providers, it gives it to them, it essentially gives them revenue where they would otherwise be wasting money, and that subsidizes their energy production. This could be everything from oil and gas to this stuff like green energy where you're subsidizing in some way especially like, intermittent sources of energy, like wind or solar.

[00:14:30] You're essentially able to sell this energy to miners that are always ready to buy essentially and can consume at your schedule instead of the schedule, the constant customer. It, it's based on a completely flawed understanding of the energy market, and it's saying, okay, this country uses this much.

[00:14:50] And Lyn Alden's article points out that stuff like zinc production and running dryers take up way more electricity than Bitcoin does. I mean, if you're going to moralize about Bitcoin's energy use, you should also moralize about that.

[00:15:06] Do you really need zinc here in your life? Do you really need to dry your clothes in a dryer? Why don't you drive them outside you electricity hoarding person, like it's a false argument, and I don't think people really understand how energy actually works. 

[00:15:21] David DeWitt: Yeah, I sympathize with you because I mean, there's always that the hypocritical nature of it, where it's like, well, how did you drive to your protest today?

[00:15:28] And what were you using? Like everyone's using petroleum and fossil fuels in one way or the other. I mean, unless you, if you cut it all out of your life, you'll basically be Living in your intent in your backyard, hopefully, you find some animals to farm any and all that. I don't know.

[00:15:42] Jimmy Song: I talk to Alex Gladstein about this, and he's like, well, most of the solar panels and wind turbines that you build, there are all made from fossil fuels. So it's not like you're. That the energy required to produce those things is all fossil fuels. So you're converting one form of energy to the production of another, and it's more intermittent and less stable. So yeah, there's a lot of hypocrisy in this whole. Yeah. 

[00:16:08] David DeWitt: There's a lot of, there was the one energy CEO who put up the billboard that said, cause North Face was saying that they're gonna like stop So something with fossil fuels that are going to stop doing something or other, and an energy company put up a billboard that said, thank you the north face for being one of our biggest customers.

[00:16:25] Cause they make their plastic puffers out of petroleum. So it's like, it's crazy. All right. So it's funny. Another thing I hear is that Bitcoin is in a bubble, and crypto is a run-up in a bubble is too much euphoria. And then B that there's going to. There can be like theoretically, an infinite number of new cryptocurrencies. How well, I mean, in that case, there will be a lot of excess supply to does dilute the whole everything.

[00:16:54] Jimmy Song: Yeah. The first thing I would say is that Bitcoin is not altcoins and those two things are very different, and the supply of all coins is absolutely correct. They do expand very quickly. And the amounts in each one are like more; it can expand infinitely basically. I think back to when I started; there were only like 10 altcoins, something like that.

[00:17:16] Currently, on the coin market cap alone, there are about 10,000 listed. There's probably a lot more that people don't know about that exist as well. I mean that that supply is expanding, but Bitcoin is 21 million. Yeah. If you measure the returns of these altcoins against Bitcoin, you find that they all do terribly. They're like at a very small fraction of their all-time high against Bitcoin, typically, when, whenever they're the frenzy for that coin happened to be and they go up and down, and they have different issuance schedules, and we can get into exactly how all coins are different from Bitcoin in general.

[00:17:53] The volatility around all of that is due to pick ones out there. Everything follows Bitcoin. So when Bitcoin goes up, it tends to go up a little less. When Bitcoin goes down, all those altcoins tend to go down a little more, which is how you get negative returns against Bitcoin.

[00:18:10] If you held, for example, Ripple from December of 2017 something like that. It's , it's gone down significantly against Bitcoin. 

Bitcoin Volatility

[00:18:19] Jimmy Song: But but the reason why Bitcoin is volatile is is because it's just like natural volatility. If you understand, like how other central banks work.

[00:18:29] So, for example, typically, what the examples people give are like the Euro, the yen, the wan, something like that, other currencies, which are relatively stable to the dollar. So, for example, the Euro has been, plus, or minus 1.2, your dollars per Euro for lunch. Last 20 years, which is pretty much all of its existence.

[00:18:51] I think for a short time there, it was below a dollar and stuff like that, but it's not too far off the Japanese yen since the eighties or something like that has been around a hundred yen per dollar for most of its side. And many other currencies are similar to that.

[00:19:06] The reason why they're so stable is because of the existence of a central bank. And what the central banks of all of these countries do is as it gets too high, it will. It'll print more of its own currency to keep it stable against the dollar. And as it gets too low, it'll sell some of its treasuries to buy back its own currency.

[00:19:29] Usually, this is why most of them keep US dollars in there. In their reserve in the form of US treasuries and sell those treasuries to buy back their own currency, to lift it back up. And the reason why they do that is that they want stability in terms of their currency to the dollar.

[00:19:47] And that allows exports to not be too expensive and imports to also not be too expensive. So it's this delicate balance that these central banks are performing by selling treasuries or printing more of their money. So all of that is to say that what all of these currencies that are more stable against the dollar do is centrally managed the volatility away.

Bitcoin has no Central Bank.

[00:20:13] Jimmy Song: Bitcoin does not have a central bank. It's completely decentralized. It has no central organization that's making that happen. So it has much more natural volatility, but that natural volatility is actually a good thing because it's what gives it the upside risk, and the upside is risks. And upside, right?

[00:20:32] Like the volatility and upside are two sides of the same coin. If you don't have that volatility, then you also don't get those returns. And that's something that a lot of people don't recognize. The reason why bond markets have almost no yield right now is that central banks have essentially de-risked them of everything.

[00:20:50] Once you de-risk it, you also give us the return. Like, no, there's nobody that's actually making that much money off of bonds, and you get like crazy stuff, like negative rates in Europe. And ultimately, what the volatility of Bitcoin is. 

Bitcoin Bubble?

[00:21:05] Jimmy Song: Okay. I don't think it's a bubble. Like people compare it to Tulips or something like that. You look at the Tulip bubble, it had one bubble, and it dropped. Bitcoin has gone through. Five bubbles in the times that I've been that I've observed in the last 10 years, right? Like 2011, it went from a dollar to $30 back down to two in 2013 and went from $10 to $266 back down to $50.

[00:21:30] In 2013 again, it went from $100 to $1100 and back down to $200, and in 2017 and went from $1000 to. $19,000 and back down to $3,000 and this time again it went from $3,000 to $65,000 back down to, $27,000. So like, this is if it's a Tulip bubble, this is like you can't call it that because it's not a one-time thing. And coming back then, that's the pattern of pretty much every alt-coin, but it is not the pattern for Bitcoin.

Can Bitcoin be a Practical Medium of Exchange?

[00:22:06] David DeWitt: So it's generating more and more price history, which has also been one of the arguments against it so that as we keep going on, it's generating more and more of a track record. So I guess that argument is getting deflated now. What is your thought on Bitcoin actually practical in terms of being an actual medium of exchange? So you think it's great money, but do you think it's great money for using, to have in your wallet to buy things? Given the volatility. Because one day it might be better to buy something with it. And one day it might be the worst idea to buy it with it. 

[00:22:38] Jimmy Song: Yeah. That's a great question. And there, there are two sorts of aspects to it, which is, can it handle the capacity which I can talk about with the lightning network? I think, but I think the deeper question is. Well, how are you going to buy stuff if it's like $65,000 one day and $27,000 in the next, and like it gets the volatility there makes a buying anything kind of difficult. So that, that part, I think I can answer a little bit better until. We are on a Bitcoin standard.

[00:23:10] Generally, what people are going to want to do is to save money in Bitcoin and not spend it. And that and every holder that I had known that that had held Bitcoin for any number of years, they regret every purchase that they've ever made with Bitcoin. So the story I usually tell was back in 2013; I bought some beef jerky because there was an online store that sold beef jerky for Bitcoin.

[00:23:33] I bought a house—dollars of Bitcoin, a hundred dollars worth of beef jerky with Bitcoin. And at the time, Bitcoin was $400 per Bitcoin. Now that was pretty good beef jerky, but a quarter of a Bitcoin now is worth over $10,000. So it wasn't $10,000. Good. And this is why. Most people will prefer to save instead of spend.

[00:23:59] And now eventually get to a point where the inflating currency and this, in our cases, the US dollar is not really desired by merchants. So this happens in hyper-inflating economies. I think the most recent example I can give is Venezuela if you go to the black market in Venezuela, not like the state ones, which are always running out of food because people want to spend their Bolivars as quickly as possible.

Bitcoin Adoption Around the World

[00:24:23] Jimmy Song: But the black market, generally, you're not going to be able to get merchants to take Bolivars, and if you do, then they're going to charge a premium because. It's inflating away so quickly. Instead, they're going to demand dollars. And I think this is what will eventually happen. But maybe not in the United States, that probably be the last place to come under a Bitcoin standard, but in places like Nigeria and Lebanon and so on, you're kind of running into a similar problem where if you're trading your goods and services for the Nigerian Nira for example, it's inflating away pretty quickly. And instead of saving in that currency, you want to receive in Bitcoin instead. And not surprisingly, Nigeria is one of the places in the world where Bitcoin adoption is absolutely exploding.

[00:25:09] It's one of the fastest-growing markets for it. Places like Turkey and Lebanon are also adopting Bitcoin. And my friend Alex Gladstein just wrote about how it's becoming a thing in Cuba despite its authoritarian nature.

[00:25:21] David DeWitt: Okay. So so the countries and the places that have the least where the citizens have the least faith in their government and their dollar and currency, and you, that's where you're kind of seeing the most adoption, because there's something here that's an alternative. You don't need trust from someone; you can just rely on the Bitcoin kind of what you're getting at? 

[00:25:40] Yeah. Yeah. 

[00:25:41] Jimmy Song: And and this is the crazy thing. And a lot of people don't know like the dollar is used absolutely everywhere because it is like the global reserve currency. My friend Timi Ajiboye, who wrote the little Bitcoin book with me, he's a Nigerian and grew up there all his life.

[00:25:56] And we were talking about the dollar and he, and we were saying, ah, the dollar isn't that important to Nigerians or are people in the third world. And he's like, Nope! This is the most important currency in my entire life. Like it was way more important than the Nira growing up because that's what we saved our money in. And that's the case everywhere, including places that you wouldn't expect, like North Korea in the black markets in North Korea, the dollar is the most desired currency out of anything.

[00:26:21] Because it is the most liquid and it is the most quote-unquote stable. And of course, those are the people that are feeling the effects of inflation the most apparent, prices in the North Korean black markets have doubled that they're like what happened. Well, yeah, the federal reserve has expanded the money supply by 40% in the last year; that's what happened.

[00:26:42] And you're the first ones to feel it because goods are getting scarcer and things are costing more. 

The Bitcoin Standard

[00:26:48] David DeWitt: So do you foresee like a potential future, like probably decades down the road where it's like, the dollar is the last standing like established currency, and it's versus like Bitcoin, like, is that sort of some sort of potential like crazy future.

[00:27:04] Jimmy Song: Yeah. I don't know if it's decades away or five years away or whatever, but generally, what happens in hyper-inflating economies is that it's a very slow burn until all of a sudden it goes crazy. So if you study the Weimar Republic, for example, Yeah, like inflation was like kind of reasonable right up until like 1922 and then 1923, absolutely everything went crazy, and in a single month, you had like, 10000% inflation or something like that. We're kind of seeing that now with like goods and shortages. I mean, I went to Costco yesterday. And I noticed like the prices on absolutely everything was up like 50% compared to like, even just a couple of years ago.

[00:27:48] Stuff like beef stuff like bacon, milk, everything is like we're starting to see it. Typically for people on the ground that that don't necessarily know what's going on. This is a little bit of a shock, but then they get used to it, and they expect things to turn around any minute now, but it never does.

[00:28:08] And that, that, that's usually how things kind of collapsed and, this is how Rome collapsed, although this happened over centuries because coin debasement was much slower than federal reserve monetary expansion, which is extremely fast. It, it tends to affect the economy much faster.

[00:28:25] So I expect this to take shorter, and it'll be very gradual and then extremely sudden, and it'll collapse in a blink of an eye relatively. 

[00:28:35] David DeWitt: So do you think it's re it relies upon like us dollar actually like collapsing? 

[00:28:41] Jimmy Song: I think you've surely it will. Because there, there is this alternative available which is like hard scarce money and that, like, it might take decades, as you said.

Why does the US have the Global Reserve Currency?

[00:28:50] Jimmy Song: But it'll be gradual. And then suddenly the thing, a lot of people don't understand about the US dollar is that it is the global reserve currency, but it doesn't have a right to it or a natural reason for it. The reason why we have that is one, partly due to weird historical factors at the end of world war II, essentially the US had a large amount of the world's gold supply inside its borders.

[00:29:18] And the fact that we have the biggest military in the world, Like that sort of secures a lot of it. And we can enforce the petrodollar system all over the world as a result. But the US dollar doesn't have to be the reserve currency for the world. It, it doesn't have to be the settlement for international trade, which I think something like 90% of all international trade gets settled in the dollar.

[00:29:40] Well, that's the case. It doesn't have to be that way. The British pound and the, I think the, I forget the Portuguese some other currency, but they used to be reserve world reserve currencies too. And they lasted about a hundred years and then collapsed were, I guess if you count from Bretton woods, we've been the world reserve currency for something like 80 years and it, it doesn't have to last much longer than that.

[00:30:06] And it's entirely possible that we get a newer, better one. Yeah. 

Fiat Currency Vulnerabilities

[00:30:10] David DeWitt: And going back to what you said before like now it's been 50 years of the US dollar as Fiat. I mean, it's not that long now that I'm thinking about it. And to me, it's kind of like an experiment that we just don't know what the ending is.

[00:30:24] Jimmy Song: Well, we kind of do, because there's been a lot of economies which had Fiat money. The average lifespan, in fact, of Fiat money, is 26 years. So 50 years is actually double the length of most Fiat currencies. The oldest one, by the way, is the bank of England. And the British pound, but it's been debased like crazy since its inception, I think in the 1690s, something like that.

[00:30:46] So that one's over 300 years. Most other ones they collapsed, and it's usually due to hyperinflation of some kind 

[00:30:55] David DeWitt: and...government spending, perhaps? 

Up to our Eyeballs in Debt

[00:30:58] Jimmy Song: Yeah, that's definitely, yeah. Part of it, but it's not just government. It's companies and individuals too. And especially in a central bank-backed fiat currency, as we have, what you get is the ability for pretty much at every level to expand the money.

[00:31:14] So the federal government can take out loans that it doesn't repay for a long time. Like that expands the money supply. For example, it has a budget of 6 trillion, and it only gets 4 trillion in tax revenue. What do you do with the extra 2 trillion that you need? Well, you sell something to the public, to other central banks, though.

[00:31:32] No other central bank is really buying US treasuries right now. So it's really only a few private investors. Most of them realize that it's a scam, so they aren't buying either. So what you get is the lender of last resort, which is the federal reserve buying $2 trillion of US treasuries and creating money out of thin air. So that's one form of expansion, and we had something like 5 trillion of that in the last year. The other form of expansion is through loans on the commercial lending market. So if you are a business and you want a cheap loan, this is what you do. You issue your own bond, and a lot of banks will buy your bond. And the way that banks buy the bond is by, again, creating a loan out of thin air. And they create money out of thin air and put the asset and liability on their books, and that's it. And it's done that way, which is why these companies can get 1% loans and so on.

[00:32:26] David DeWitt: So walk me through that. The person who wants to issue the bond sells it to the bank. But how has the bank, like you meant, like a commercial? 

[00:32:34] Yeah. Yeah. These are commercials. How does that work? They don't have the printing press. 

[00:32:38] Jimmy Song: Yeah. Yeah. Well, they kind of do, so this is the whole point. All right. Normally what most people think of loans is how they think it works. It's that a bunch of people put money in the bank. And, give it to the bank for some interest rates, say like, 3% or something like that. And then the bank loans out that same money at 5%.

[00:32:59] And then when they get paid back, they can pay back the savers at 3%, and they pocket the 2%. That's how they think it works. That's not how it works. There's something called fractional reserve banking, so if you have something like—a hundred thousand dollars in deposits.

[00:33:16] What you do is you lend out a million dollars worth of money. So that expands the monetary supply by $900,000, right? Because there's $900,000 more. And this is how it's done. And the reserve requirement used to be 10%. I think that was instituted on their FDR. Basically removed that. So the banks can loan out with impunity. And it kind of, if you doubt this, just think about like the other side of the trade. Some commercial business wants to borrow money. And right now, they're getting rates at like one or 2%, something like that.

[00:33:50] Who's taking the other side of the trade, right? Like, and they're getting like a hundred million dollars. Who's taking the other side of the trade, which is actually loaning them. Money at 1% at a hundred million dollars, right? Like that doesn't make any sense at all. Like no one would ever invest in something like that.

[00:34:07] Especially since there's some risk involved that the company won't repay. Of course, you're the senior creditor, so you're probably going to get paid back. But so like that's a terrible use of your money. Unless you can get leverage and leverage is another way to print lots and lots of money, which is what these banks do.

[00:34:25] And in fact, there's like a 0% reserve requirement for these. So essentially, they loan out the money, and it's an entry on their ledger, but it doesn't come from any savings. It comes out of nothing. And this also happens at the retail level. So whenever you go out and get a mortgage right now, I think you can get a 30-year mortgage for 3%, something like that.

[00:34:44] Like think about who's on the other side of tissue of the trade. Who's willing to lend you $500,000 at 3% for 30 years, right? The term is way too long. The risk is way too high, and you're not making nearly that much money. There's nobody in the world that will give you that sort of a loan yet.

[00:35:03] It's happening all day long. Why because it's printed into existence. It's created out of nothing instead of out of savings and costing somebody in the form of opportunity costs. It's created out of nothing. This is how the entire banking system works. This is why everyone is up to their eyeballs in debt...

[00:35:22] This is why you have like like banks are able to issue credit cards with nothing backing them. All the money that they are loaning you temporarily for the use of your credit card, it's printed out of nothing. It doesn't cost them anything. And especially in the case of home mortgage loans and things like that, there's a federal backstop it's called Fannie Mae and Freddie Mac.

[00:35:42] the federal government ensures those conforming loans. So there are zero risks to the bank because if you default. The federal government will bail you out and for commercial stuff and for bank bailouts and stuff like that. I mean, that's exactly what they do too. So there's no risk for any of these people that are really loaning things out or printing money into existence. Monetary expansion is happening at every level, and everyone is incentivized to do it. 

[00:36:10] David DeWitt: Wow. Yeah, that's crazy. And I think I absolutely need it. To understand this better at a later time, because it's, that's fascinating. 

[00:36:19] Jimmy Song: We cover some of it in Thank God for Bitcoin, but yeah, like this is one of the things about money that like a lot of people don't get, is that the current monetary system is all based on credit and like credit is extended. And this was done in the olden days when you had a shop owner. I'm not getting paid until next Tuesday. All right. Well, I'll just extend you credit and give you this thing. Instead of extending goods temporarily, they're extending money temporarily, except that temporarily is essentially forever because, but that level continues to expand.

[00:36:50] Then all of the money in the world just keeps expanding as more and more loans are given out, more bonds are issued, and more mortgages are made and things like that. This is how the dollar, well, every central bank around the world, works. 

Corruption! Dirty Fiat Money Secret

[00:37:04] David DeWitt: Alright, so you've explained a bunch of ways why the financial system is broken? Why is this happening? And is like, it seems like it's almost corrupt. Like, are there people who are incentivized to have this all happen? What is, where is the corruption in all of this? Where is the law? 

[00:37:19] Jimmy Song: The corruption is that every time you do this, you're essentially stealing from everybody else. And this is the dirty secret of firat money. If you go back in history, the real sort of starting point for Fiat money, at least as a global thing, was WW1. And the thing about WW1 is it was very; it was an extraordinary war in more ways than one. Usually, wars before that ended fairly soon after they started.

[00:37:47] Why? Because they were extremely expensive. And wage war for a long time required a lot of resources. And in order to do that for a government, you have to go and tax people. Soldiers are not going to take IOUs, right? They want like money. And if you don't give them money, then they're going to quit, and you're not going to have an army to wage war and so on.

[00:38:08] So they would have to actually explicitly tax the populous, which made wars extremely unpopular. As soon as you start the war and that people have to count the cost, they don't like it. And that's been the case for a long time. What changed in WW1 was that governments had central banks to be able to escalate the war without having to do explicit taxation.

[00:38:30] So every country in world war one, essentially expanded the money supply continually. Now, what does that effectively do? When you expand the money supply, you are essentially stealing from people. This is what I, what we call in the book, stealth taxation. You can steal the resources of everyone using that currency by diluting the savings that they have.

[00:38:50] And this is essentially what every single one of those countries did. And this is historically why WW1 was so different than every war that came before it; it was total war. It was a war that like started as something actually fairly minor, right? Like Serbian separatists have murdered the heir to the Austro-Hungarian empire.

[00:39:10] It w it wasn't like that big a deal. Somehow it blew up into this thing. It's because everyone could escalate without any repercussions. They could just essentially tax their entire economy very quickly. By expanding the money supply, and that's exactly what they did and what that, that effect is essentially stealing the resources of everybody else for the purposes of war in that case, but for whatever other purposes as well. And that also happened in WWII, where every government essentially expanded the money supply to steal everything from their citizens, and it became a total war of destruction instead of suing for peace, which is how most wars ended.

[00:39:50] And it devastated the German and Japanese economies, as well as a lot of the other economies, even for the victors, for the reason that they essentially tax their citizens to death without the citizens really knowing that was what was happening. Yeah, fiat money and expanding the money supply is a form of theft . At least with taxation, a lot of libertarians say taxation is that ethic, it kind of is, but at least you give some consent to it by voting for it or whatever. With the monetary expansion, it's stealth taxation; it's taxation without representation, legislation, or even any transparency.

[00:40:26] It taxes every owner of that currency. So you are not just stealing from us citizens. At least we get to vote in a president who appoints the federal reserve chairman, who can then set monetary policy. So we have at least an indirect path to having some level of say in what the federal reserve does, but think about the people, the black market traders in North Korea or in Venezuela or Zimbabwe or, Nigeria or Turkey or Lebanon.

[00:40:56] Like those people all use the dollar, and we're stealing from them every time we expand the money supply, and it's not just the federal government. It's large businesses that are getting these insanely cheap loans. It's us who are getting mortgages for extremely cheap rates. We are stealing from them because we are expanding the monetary supply.

[00:41:17] We are stealing resources from some of the poorest and vulnerable people around the world. And that, that I think is highly immoral. And that's essentially the case that we make in the book. Is that where the this is that like straight up, and it's a system of theft, and because we're so used to it, we don't recognize it like that, but it really very much is.

Thank God For Bitcoin

[00:41:43] David DeWitt: That is really fascinating. We've talked a lot about immorality. So why don't we, so now we're onto the book now because we're running out of time, but why don't we, why don't you talk about the book a little bit more and I want to know a little bit more about the morality of Bitcoin, and I've read somewhere about it how it even kind of, feel what's the word I'm trying to say? Like Christians, like I've read that like Christians are into it potentially or something like that. So what's that all about? 

[00:42:09] Jimmy Song: Christians should be. Thank God for Bitcoin is the book. And the first seven chapters don't even really mention the word Bitcoin, right?

[00:42:15] It is all about the current system and all of the moral shortcomings of the current system. And a lot of the things that you see around today, including the highly divided politics, complete bitterness, and extreme like, at least verbal violence, that's hurled at each other.

[00:42:33] It's the result of beyond money. And we make that argument in there. Like very corrupting to our souls. And the entire Fiat monetary system, at least the central bank-backed one, is based on loans. And if you think about that, it is the opposite of the biblical model. The biblical model is sowing, then reaping, or saving, and then getting what you want.

[00:42:54] That's how it's supposed to be. That's how God designed the world. The debt-based system is exactly the opposite, which is you get to consume now and then be enslaved later. And anyone with kids can tell you what's better giving that kid the candy now and getting them to promise to take out the garbage for the next three weeks or something like that, or doing it the other way, where you pay them a small amount for every time they take out the garbage and then they can get the candy or toy they want at the end of it.

[00:43:21] What's better for the character? It's the saving and then getting things at the end instead of getting what you want now and being enslaved later. That, that's the current system that we're all on there where we're all up to our eyeballs in debt, getting whatever we want whenever we want.

[00:43:35] And then in return for that being enslaved essentially to the system, to your debt for a long time. There's a verse in Proverbs that says that debtors are a servant to the lender and there is nothing more of a harsh taskmaster than debt. And unfortunately, that's corrupted our souls, corrupted people, corrupted even churches because a lot of churches go into debt in order to fund these giant buildings and so on.

[00:43:58] And they become servants to the bank and essentially become landlords over their property to generate more revenue doing weddings and preschools and so on instead of actually doing ministry. All of that is to say that the current system is highly immoral. And when we talk about Bitcoin, it is in that context that we talk about it, which is that it fixes a lot of these problems that the current system has, which is all based on debt.

[00:44:26] With Bitcoin, it is all about saving. It is all about sowing and reaping. It is all about actually building something up instead of consuming something now. And it doesn't have all of these moral hazards that the central bank has of printing money for itself and enriching their cronies in the defense contractor business or whatever in order to they; they essentially used the power that they have to enrich their friends.

[00:44:52] It removes these moral hazards. Bitcoin is uncensorable essentially, and you have a lot of these properties that make it so that you have a much better base layer of civilization. And I see money as a base layer, it's a corrupt base layer, and everything that's grown on top of it is also corrupt.

[00:45:11] Whereas with Bitcoin, it's a lot, we're a lot more moral, a lot more just, and it doesn't have sort of a systematic debt built into it. So it's a lot better. And this is why I think Christians should get into Bitcoin.

[00:45:26] David DeWitt: Everybody else because everybody is because you're right, man. I see so many people that, they drive the fancy car they have the nice house, but there's just not a whole lot underneath it. There's not a lot of real wealth. It's just; everyone's in debt. It's really true. So thank God for Bitcoin. There are a few ways to interpret that. One way is to thank God it exists because it's a way out potentially.

[00:45:49] Jimmy Song: Yeah, that's how I would interpret it. But what's the other interpretation that you were thinking?

[00:45:54] David DeWitt: Oh, the other interpretation. No, it wasn't really an interpretation. It was just, thank God you, you allude to Christianity. 

[00:46:01] Jimmy Song: Yeah. I mean, I think there's a sort of an arc to money that that's similar to our arc with sin, right?

[00:46:07] Like God, where we're all corrupted by sin. And we were created, and then we've been corrupted by sin, and Christ redeems us. And not to like put an analogy there specifically, but. There, there is kind of this really corrupt money, and it needs redemption. It needs to be fixed.

[00:46:27] And Bitcoin is that fix. And it affects way more things than you would think. And the more you study this stuff, the more you realize a lot of the corruption in the world is because of this bad money. It just incentivizes all of the wrong things, including just really impulsive behavior or sinful behavior, instead of thinking towards the future and building up stuff.

[00:46:50] So I would say that Bitcoin is the more Christian money and Fiat is more the devil's money. So like maybe that would make sense. 

[00:46:58] David DeWitt: That's really very fascinating. And I know on buying this book now, I think I have a lot to learn about, especially just about how the system works now because I need to have my eyes wide open about all of this.

Follow Jimmy Song

[00:47:08] David DeWitt: So yeah, we are running out of time here, but how can people find your book? How can people stay in touch with what you're doing? 

[00:47:16] Jimmy Song: Yeah. So I'm available on Twitter @Jimmysong. I have a newsletter that I put out every week. It's called Bitcoin Tech Talk. And if it is more technical, I am a programmer, and that's my trade.

[00:47:28] So it's on jimmysong.substack.com. You can subscribe to it. I usually have some articles in there as well that point to what's going on economically, not just technically as well. There's that you can find my books on Amazon. If you search up by name Jimmy song, you can find the three books that I've written.

[00:47:48] Also have a website programmingbitcoin.com thats the title of my first book. And all the stuff that's going on around the seminars I teach and the books that I've written are all on there as well. Those would be the main ways, but there's yeah I also have a YouTube channel, medium blog, and a bunch of other things, but yeah, I don't want to take up too much that you can find me on Twitter.

[00:48:10] David DeWitt: Okay. Yeah. I mean, I saw you; you're pretty active on Twitter, so that'd be a good place to start. Yeah, I feel like this could go on forever, but maybe we'll circle back and some months, and I'd do this again and be it, but wow, man, your brain is pretty interesting. That was fun. 

[00:48:25] Jimmy Song: Thanks. 

[00:48:26] David DeWitt: Yeah. So yeah, with that, I really appreciate you coming on and have a good day.

[00:48:31] Jimmy Song: Thanks.

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