Ep. 162 - The Fiat Standard
How the fiat money system works 💸
In this episode, Mattimore explores the current stage in evolution of money, using Saifedean's new book, "The Fiat Standard" as a guide...
Topics Discussed:
The evolution of money
Transferring value across time
Transferring value across space
The history of fiat money
High vs low time preference
Comparing Bitcoin to fiat
Next stage in the evolution
Future Scenarios:
Worst case scenario
Best case scenario
Most likely scenario
Thanks for tuning in ðŸ”
Episode 162 Transcript
Mattimore (00:13):
Welcome to Hence The Future podcast. I'm Mattimore Cronin. And today we're discussing The Fiat Standard.
Mattimore (00:18):
I've been reading "The Fiat Standard: The Debt Slavery Alternative to Human Civilization by Saifedean Ammous, which just came out this month, and it really is the best description I've ever come across about how our current monetary system works. So I definitely would recommend this book if you want to go deep into this topic, but this episode will give you a nice overview of how the Fiat standard works, how that compares to the Bitcoin standard, and what we can expect in the future.
Mattimore (00:45):
The other chart I've been very much enjoying recently is this chart shared by plan B on Twitter. It says, "Bitcoin: don't trust, verify. The logical next step in money technology." And you can see this nice flow chart that shows how money has evolved over time.
Mattimore (01:03):
In early civilizations, money was composed of things like shells, things like glass beads, which were traded, and this worked well on a local basis, especially if it's hard to find those shells or to find those beads in your local area. But obviously, if you then trade with people from other parts of the world, those shells or those glass beads might be quite common. And so this works okay locally, but it doesn't work great if you're trading over geographic distances. The next type of money is gold. And this has been in use since at least 600 BC. People found that gold is something that really holds its value well over time. It's scarce. It doesn't degrade. It's a hard metal. It's really hard to produce. It takes a lot of time and effort to mine gold. And the next evolutionary step is gold coins, where you actually had a central authority who would mint gold coins. And they all had a certain amount of gold. They had a certain stamp or seal of approval. So it was more standardized. After that, because it might be scary to bring all your gold coins around with you, one thing that became very popular is notes. Things like dollars and euros and paper money, which are essentially claims on hard money like gold and silver. So now you don't have to carry this heavy metal around with you. Instead, you can carry around notes that provide a claim for that gold, which is then stored safely in some sort of bank or vault. The next evolutionary step after that is the current digital monetary system where you now have bank accounts, you have credit cards, and essentially you have the central monetary system where everything goes back to the fed, the federal reserve. All the banks are secondary to the fed. And then you have all the regular people who depend on the banks. And this has been actually really great for certain reasons. It's great for trading across space, but it hasn't been great for trading across time. Because, over time, the wealth and the purchasing power diminishes as the supply inflates, and there are a lot of downsides to having this centralized approach where we give so much power in the hands of the federal reserve and the politicians and cantillionaires that can influence the federal reserve.
Mattimore (03:14):
Now that brings us to the next stage in the evolutionary cycle of money, which is Bitcoin. This is a decentralized, peer-to-peer monetary system, which is backed by mathematics. It's backed by energy. And it is pretty much inevitable that we will achieve this next state of money. It's already happening very quickly. And so we're going to go through a little bit of the history that's brought us up to this point, and then also look towards the future and how this evolution is likely to take hold.
Mattimore (03:42):
But before we go further, let's first talk about why did we ever go off the gold standard? A lot of Bitcoiners and will rightly criticize the Fiat standard and Fiat money as being like a melting ice cube. And there are all these downsides to using this melting ice cube as money, but there were some very real benefits to the Fiat standard.
Mattimore (04:05):
And if we think about what the world looked like before the Fiat standard was in place, it was a very fragmented world before world war one and world war two. We had all of these different countries that pretty much only traded physical gold and silver with one another. So they would have to ship all of these stock piles of gold and silver, for instance, to America, so that they could get tanks and wheat and other types of supplies. And this is a pretty slow and inefficient way to trade. And so after world war two, we really had this era of globalism where now, because all money was concentrated under the federal reserve and backed by the United States, which is the most powerful economy and military on the planet after world war II, this allowed for incredible trade across space. So it wasn't as good for trading across time as with gold because Fiat money does lose its value pretty quickly over time, but across space, it's incredible.
Mattimore (05:03):
You can instantly now trade with anyone in the world who uses the Fiat system, and it's all backed by the federal reserve. So this enabled an incredible amount of world trade, and it also made it cheaper to trade across space. When you think about how much it would cost to actually trade gold, if you don't have any sort of claim on gold or any sort of digital claim on gold, then you essentially are going to have to pay about half a percent or maybe even 1% of the value of gold every time just to transact. If you're giving someone some gold, they have to check that there's actually the right amount of gold in there. And that requires drilling into the gold and running some tests to be sure that there is 14 karat gold or whatever amount of gold you're transmitting to them. And it also is expensive to simply ship this across vast distances.
Mattimore (05:55):
And so, by creating a digital monetary system, we're able to transfer value cheaply across space and transfer value instantly across space. And you can see this chart here, which shows the growth of exports from 1913 onwards. And you can see once we went on to this Fiat's standard, global exports absolutely skyrocketed. So this enabled the world we have today. And while there are tons of downsides for Fiat money, it's probably a necessary step in the evolution of money where we can transmit value across space really well, just as we were able to transmit across time, very well with gold. And once we get into the Bitcoin standard, we will be able to transfer value across space AND time easily, cheaply, and in a verifiable way where you don't have to trust any other third party.
Mattimore (06:46):
Now let's talk about how the Fiat standard actually works.
Mattimore (06:51):
One of the most important components to understanding any monetary system is the supply. You'd want to know how much supply is there and what percentage of supply do I have, or does my country have? And with Bitcoin, it's really easy to calculate this. There will never be more than 21 million Bitcoins. This is one of the most important, unchangeable parts of Bitcoin. And moreover, the amount of new Bitcoin that can be mined, that can be added to the supply at any given time, gets cut in half every four years. So this is what's referred to by the "Bitcoin having cycle." Every four years, there's fewer and fewer Bitcoin being added to the supply, until eventually it reaches this asymptote of 21 million Bitcoin. And there will never be more than that. However, when it comes to Fiat money, no one actually knows exactly how many dollars there are.
Mattimore (07:45):
There are a lot of estimates for how many dollars are in existence, but no one knows the future supply of dollars. Nobody knows how many dollars will be created next year, next month, next decade, it's a total unknown. So all we can really look at is what the historic supply issuance has been for Fiat money. So let's look at some of these historic supply trends from the Fiat standard over time. Well, originally the US and the entire world was on the gold standard. And that pretty much started to end in 1913 when the federal reserve was created. At this time, the federal reserve required 40% gold backing of fed notes, which is higher than the amount required in today's fractional reserve banking. And this went on until about the Great Depression. And when the great depression occurred in the 1930s, there was a lot of stress on the U S economy.
Mattimore (08:40):
And so FDR issued Executive Order 6102, forbidding the "hoarding of gold" by us citizens. So now within the United States, you could only hold paper money. You couldn't hold actual gold. And so this is the point where the US is only kind of on the gold standard. We've already jumped the shark a little bit, and it was seen as a necessary move to put the US in a stronger monetary position, leading up to world war one. After world war one and world war II, the US was in the strongest economic position. And so therefore, all of the allied countries essentially gave their gold and silver to the United States and created the modern Fiat standard with the US dollar as the global reserve currency that we have today.
Mattimore (09:27):
By 1971, Nixon took the US off the gold standard completely. And this was a response to France and other countries had basically called the United States bluff on the convertibility of dollars into gold. They sent ships to the United States asking to exchange their dollars for gold. And Nixon knew that there was no way he could actually exchange all the dollars for gold or there'd be no gold reserves left in the United States, because the US had spent so much to fund the cold war to fund Vietnam, that there was just simply no way they could exchange all those dollars for gold.
Mattimore (10:05):
After 1971, the fractional reserve banking rules also changed. So whereas from 1913 onwards banks were required to keep 40% of what they lent out in their reserves, in case of emergency, now banks were only required to keep 10% of what they lent out in their reserves in case of emergency. And this has become even more extreme since the COVID-19 pandemic. In fact, starting on March 26th, 2020, in response to the COVID-19 pandemic, now there is 0% reserve requirement for banks.
Mattimore (10:41):
This means banks can create new money - this is what mining Fiat would be, like similar to mining Bitcoin - and there is absolutely nothing limiting them from lending out more money. They don't have to keep any amount of reserves. And this is really crazy to think about. A lot of people don't even realize this, but banks can now create new money out of nothing, knowing they'll get bailed out by the federal reserve if there's any sort of run on the banks. We've already proven that in the 2008 crisis where all the big banks got bailed out. And so we've essentially jumped the shark completely at this point.
Mattimore (11:15):
I like to think of this as the "Wile-E-Coyote Moment," where, if you've seen the cartoon, Wile-E-Coyote runs off the cliff, and then there's a moment where he hasn't fallen to the ground and he's like, oh, and then finally he does fall. Right now, we're in this moment where Wile-E-Coyote, the federal reserve, the fiat system, has already gone off the cliff, but it still has that momentum keeping its legs flailing in the air before actually hitting the ground, which would be the equivalent of the value of the dollar going to zero.
Mattimore (11:48):
Now let's talk about how the money supply issuance works under the Fiat standard... Under the gold standard, it's pretty straightforward. You mine new gold, and then the newly mined gold gets added to the supply. So in any given year, there's something like a 2% new addition of gold added to the supply, or in olden times, you would have Kings battle one another to take their gold reserves. That's another way you could "mine" gold in a way. And under Bitcoin, it's similar where you have these miners who are essentially solving these puzzles, solving these mathematical problems, by harnessing computational energy at a low cost. And if they solve the problem first, if they succeed and they have proof of work, meaning they've proven out every transaction historically up until the most recent transaction, then they get the block reward. They actually get some of that new Bitcoin that's issued. It's a straightforward, totally decentralized process.
Mattimore (12:43):
In my opinion, the coolest thing about the Bitcoin standard is that there is a "difficulty adjustment." So, if many new Bitcoin miners join the ecosystem, and they all want to mine Bitcoin because they all want that block reward, the difficulty of solving that math problem increases so that there will only be one new block of Bitcoin mined every 10 minutes. Bitcoin is better described as a time chain than a blockchain, because this is what it optimizes for. It optimizes for predictability, where you know for certain that, every 10 minutes, there's going to be a new block of Bitcoin that will be mined. And therefore there will be that exact block reward added to the supply every 10 minutes.
Mattimore (13:26):
And this is a really astounding innovation because it solves so many difficult problems. It solves the problem of computers getting better and better over time. In the early days of Bitcoin, you could use any normal laptop or PC, and you can mine BTC quite effectively. Now you need these really sophisticated ASIC chips and high powered computers in order to mine BTC effectively. So, over time you would think that there'd be more and more Bitcoin added to the supply as the computing power gets better and better, and as there's more and more miners that want to enter the space, similar to how, when there's a gold rush, a lot more miners go out and they try to get gold because the price of gold is going up. That's simply not possible with Bitcoin because as more miners enter and as more computing power gets added, the difficulty goes up accordingly, so that there will still only be one new block of Bitcoin mined every 10 minutes.
Mattimore (14:21):
This is very different from the way the Fiat standard money issuance works. The way the Fiat standard money issuance works is essentially there's the central database using the COBOL coding language that hardly anyone knows anymore, and the fed can simply change this database at will. And then once they've added new dollars, once they've created that money out of nothing, they then buy assets like bonds, like treasury bills, like equities, and then voila, you have new money added to the system. Maybe some of it will trickle down to regular people, but most of it stays up at the top near people who are connected to these big banks, people who benefit from the Cantillon effect, which states that those closest to the money printer benefit the most under a Fiat system. And those who are furthest away from the money printers benefit, the least. This is one of the main ways that money is created under the Fiat standard.
Mattimore (15:15):
The other way that money and credit is created under the Fiat standard is that banks lend out money. So if I want to get a loan on a house or a loan for my business, I go to the bank and apply. And if I pass some basic checks on my credit history, things like that, then the bank doesn't lend out money that they've borrowed from someone else. They literally create new money and give it to me. And so the bank just gets to then benefit from whatever interest rate I'm paying to them, because they didn't have to actually pay for the money they're lending out to me. They just created it out of nothing. And so, voila! Now you have new credit in the system. And some of this credit maybe trickles down to regular people, but most of it stays at the top per the Cantillon effect.
Mattimore (16:02):
And here's a tweet from Elon Musk where he said, "Normal money is actually a bunch of ancient mainframes running COBOL in batch mode where the government can edit money database whenever they want." I love this. It's a great way to understand how this actually works and really how problematic it is, that there's this God-like ability to edit the world's money whenever they want. And there's so much trust required for this to actually function in practice. And when you look at the amount of money supply, whereas Bitcoin supply gets lessened over time, meaning it approaches this asymptote where there will never be more than 21 million Bitcoin. And that'll happen sometime around 2040. The Fiat monetary system is the reverse. It's actually accelerates over time to the point where eventually dollars will be worth close to zero, and the issuance will get faster and faster with more and more Fiat added to the system as we reached this point of no return.
Mattimore (17:00):
The other important chart to look at here is the velocity of money. And this shows how much is money actually changing hands. And this gets back to the Cantillon effect where, if you're creating all of this new money, whether by purchasing assets or by creating new credit through banks, how much of that money actually gets dispersed into the economy? Well, you can see the velocity of money has gone down drastically, meaning even though the federal reserve is pumping out all this new money, the actual amount that gets circulated in the economy is going down drastically over time. And the other important chart that I want to mention here is the total public debt as a percentage of GDP. And you can see that now we have about 130% debt GDP ratio, and it is going up. So there is more and more debt being added to the Federal Reserve's balance sheet compared to the amount of GDP that we actually produce as a country. These are all really problematic data trends when considering what the future of the Fiat standard will look like...
Mattimore (18:09):
Now, let's talk about the incentives under the Fiat standard compared to the incentives under the Bitcoin standard. And this really gets at the most important takeaway from understanding the monetary evolution and the second and third order effects of the money system being used. Under the Fiat standard, high time preference is the name of the game. People want to spend money now because it's going to be worth less later. Whereas with Bitcoin, the money grows in value or at the very least holds its value, so people have much longer time preferences. They might want to raise a big family. They might want to educate themselves. They might want to not get into debt because they realize that that will hurt them later on. And so this is the single biggest difference between the Fiat standard and the Bitcoin standard is high time preference, where you want instant gratification under Fiat, or low time preference, where you're willing to delay gratification to have a better future.
Mattimore (19:09):
And one thing that's important to know is that most of your economic transactions in your life are not with someone else. They are with your future self. If you decide to spend a lot of money now, you are essentially taking money away from your future self. Whereas if you decide to save money now, invest money now, put money away in a rainy day fund, you are investing in your future self. This is a very important concept to absorb.
Mattimore (19:35):
When you look at the high time preference incentives under today's Fiat standard, what are banks incentivized to do? Well, banks are incentivized to lend out as much money as they can because they don't have to pay for anything if they go under. They know the federal government will bail them out just like they did after the 2008 crash. They've already become "too big to fail." They've become too ingrained in the system for the Fiat system to let the banks fail. And so they just want to lend out as much as possible. And this is what led to the subprime mortgage crisis in 2008, and the dot com bust in 2000. A lot of these boom and bust cycles are because banks, investors, and consumers are all incentivized to focus on the short-term rather than the long-term. So consumers spend money now versus save money for later, investors have to invest in riskier and riskier assets so that they can try to beat inflation and not have their purchasing power melt over time like an ice cube. Businesses are incentivized to focus on next quarter's results, and other short-term accounting periods, rather than build a long-term sustainably profitable business. Food producers are incentivized to maximize production now versus have a sustainable practice where they're recycling the nutrients of the soil and using different crops rather than these massive mono-cultures where you're just growing as much corn or wheat as you can. And then the surplus in these mono-cultures result in all these corn oil and seed oils get into all of our foods.
Mattimore (21:02):
Militaries are incentivized to spend more and more each year so that they don't lose their budget. And under the Fiat standard, total war is enabled because, it's no longer like in the old medieval days where you could only spend as much gold as you had in your reserves. If you ran out of gold under the gold standard, then you pretty much lost the war. And if you won the war, then you took the gold of the other King's reserves. Under the Fiat standard, you can actually spend all of the wealth of your entire civilization by inflating away the currency. And this is precisely what made world war one and world war II possible, this ability for the governments to spend all of their citizens wealth. And so this obviously has fueled many more conflicts rather than fostering cooperation as was more common under the gold standard, and which is far more likely to happen under the Bitcoin standard when all incentives are aligned. In summary, the result of these Fiat's standard incentives are unhealthy people, unhealthy businesses, unhealthy economy, and short-term thinking. Now let's talk about the future scenarios.
Mattimore (22:12):
Let's start with the worst case scenario.
Mattimore (22:22):
The worst case scenario is the US banning itself from Bitcoin. Remember, no one can actually ban Bitcoin unless you took out every single computer and every Bitcoiner in the entire world, which is not possible. But, you can ban your country from Bitcoin. China has done this. Other countries have started to try to do this. But if the US banned itself from Bitcoin, that would be in my mind the worst case scenario, because it would be a big setback for all of the freedom-loving Westerners, and people who depend on America's leadership, including Americans themselves. And this would be something like the US seizing Bitcoin from exchanges. They might also try to seize Bitcoin from people's cold storage hardware wallets as well, similar to how they did when FDR introduced executive order 6102. And they can impose really stringent rules about how you're allowed to spend money.
Mattimore (23:16):
They might even prevent you from being able to take your money out of the system. And this would be a really terrible outcome. It makes me think of this graphic, which is very insightful, which states that: "Hard times create strong men, strong men create good times, good times create weak men, weak men create hard times." This is sometimes referred to as "the four turnings," and this has happened many times throughout human civilization. And when you think about our founding fathers, those were the hard times that created strong men, our founding fathers. And you could also say potentially those who fought in world war II, the greatest generation, they really fought against evils, and they fought for a better future. They foresaw so much of what we were going to have to deal with to have a good life and to just live freely. And so they created the world we have today.
Mattimore (24:08):
They created America and everything that's great about America. Unfortunately, that created good times, which then created weak men and the weak men are the current people in charge of the Fiat system: the politicians, the corporate lobbyists, the people at the federal reserve. These are the weak men who are simply trying to cling to power and trying to maintain the status quo because it's so good for them as they're benefiting from the Cantillon effect. That's why right now we are in the weak men create hard times phase. We're seeing massive inflation. We're seeing people's freedoms get taken away. And unfortunately, we might not even be in the hardest of the hard times yet. We're still in the phase of wile-e-coyote spinning his legs before actually fall into the ground. So once we fall to the ground, that might actually be much more difficult for people if they wake up and all of a sudden the money in the bank account can't really purchase what they need in the form of food, shelter, energy.
Mattimore (25:12):
And I just want to show this one video, which is Biden's nominee for comptroller of the currency, Saule Omarova, who literally talks about how, under the central bank digital currency system, which she is in support of, the government would not only be able to "stimulate" the economy by giving out stimulus dollars to people directly without going through banks, as everyone would have a account at the federal reserve... Not only that, but they could also "take money from people's accounts" in order to deflate the currency. So, if there's too much inflation, the fed could literally take money out of your account without you agreeing to this. And they would have total control therefore, of the currency, of the economy, and of your own ability to survive and pay for what you and your family needs. So I'm just going to play this so you can actually hear the words from herself. So, you know it's not some crazy conspiracy theory. This is literally what the proposed comptroller of the currency is planning to do with CBDCs...
Saule Omarova (26:15):
"Imagine what would it be like if instead of being just the public option for deposit banking, this would be actually the full transition. In other words, there will be no more private deposit accounts, and and all of the deposit accounts will be held directly at the fed. And there are very interesting implications from that thought experiment. For example, with the much more direct and proactive tools of monetary policy like helicopter money, which is, you know, considered radical primarily because economists really do not know how to manage the issue of what will happen if, in the inflationary environment, when the central bank needs to contract the supply of money, how is it politically feasible for the central bank to effectively take money away from people's accounts?"
Mattimore (27:06):
It's pretty terrifying to think about what kind of a world this would lead to, where there is so much power, even more power than the federal reserve has today, in the hands of this small oligarchy. And it would probably look similar to what we're seeing in Austria right now, where there is literally this Gestapo-like group of policemen going around Austria, checking everyone's papers to make sure that they've been vaccinated. And if you haven't been vaccinated, you're on lockdown. You can't leave your house at all. Now, I'm not an anti-vaxxer. I myself have been vaccinated twice, but I am anti mandate, I'm against having two different rules for two sets of people that are both citizens of the country.
Mattimore (27:48):
And you can look at the "divida at impera" strategy, which was employed brilliantly by the Roman empire. This is the same strategy that's being deployed right now in America and in countries all around the world. When the Romans wanted to conquer all of the various Germanic tribes, they made sure that they would pit the different tribes against each other. They would pit the Gauls against the Aquitani, and they would basically make all of these strategic alliances so that all the Germanic tribes couldn't unite against the Roman empire. And that's exactly what's happening right now. Whites are being pitted against blacks, Republicans against Democrats. And now the latest thing is the vaccinated against the un-vaccinated. So I would say don't be fooled by this strategy. The easiest thing for them to do is to try to divide us, but it woon't work becuase now we have Bitcoin. Bitcoin isn't a political movement. It's not about whether you're a Republican or Democrat, or white or black, or whether you're from this country or that country. It really is a neutral global monetary movement. Some people have even said, "Bitcoin is for your enemies." It's not just for you and your friends. This is what makes it, so game-changing.
Mattimore (29:07):
Now let's talk about the best case scenario.
Mattimore (29:16):
The best case scenario is that, rather than America implementing this divide and conquer strategy, eventually America decides to lead the charge in adopting Bitcoin and in creating this new layer of freedom, which the whole world can build upon. This would prove to be a peaceful revolution as impactful as the American revolution. And it really is similar to what our founding fathers have fought for, and the values and the principles that were most important to them at the time that America was founded. And I'm always reminded of this Thomas Jefferson quote, which is so incredibly insightful. Here's what he said way back in the days of the founding fathers, "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing powers should be taken from the banks and restored to the people, to whom it properly belongs."
Mattimore (30:28):
Thomas Jefferson obviously had no way of knowing that Bitcoin would eventually be created by Satoshi Nakamoto, but now Satoshi Nakamoto has indeed created a path for the issuing power of the currency to be restored to the people. That's literally what Bitcoin mining is. It's totally decentralized. It's totally powered by the people. And so I would say the current Fiat system that America and the federal reserve are operating under is unconstitutional. It's un-American. And what we're doing under the best case scenario is we're returning to the core values of America, which is freedom, freedom of the press, freedom of the individual, and freedom to create a good life for you and your family. The pursuit of happiness. That's so important. The American dream, we are restoring that by returning to sound money and getting away from this melting ice cube that has created so much suffering among regular people.
Mattimore (31:24):
I would also say that the best case scenario is that this new foundation of freedom that Bitcoin enables will create art and innovation on par with the Renaissance. And you think about all the incredible paintings, the amazing buildings that were created under the gold standard. These are the types of structures and things that we can create when we return to sound money. And the other thing I would say, just as a final note is that the best case scenario is that we have total incentive alignment for everyone. So whether you're Chinese, Russian, American, Brazilian, El Salvadorian, no matter what nationality you come from, everyone is incentivized to work towards the same long-term goals. And this is an incredible way to align all types of human. Despite all the other differences they may have, whether you're Chinese, American, Taiwanese, or Russian, everyone can agree on how many Bitcoin there are and how much a Bitcoin is worth. That is incredible. That is not something that has existed before.
Mattimore (32:28):
Now, let's get into the most likely scenario.
Mattimore (32:39):
The most likely scenario is that Bitcoin will become the next monetary stage in the evolution. Elon Musk tweeted, "In retrospect, it was inevitable." And this is the same day that he added "#Bitcoin" to his bio. I think this is going to prove very prescient. I think Bitcoin, in retrospect, will seem blatantly inevitable. It's kind of amazing to me how few people are actually focused on this relative to the people that I know. So few people are actually thinking about this every day. And in my mind, it's one of the biggest changes in at least a hundred years, maybe the biggest change in human history. And so it's kind of crazy that people have fallen asleep when these changes are taking place, but increasingly they're going to wake up and eventually Bitcoin will inevitably become the standard for all economic activity across the world.
Mattimore (33:36):
And there's these different cycles that people refer to. Some people refer to the four turnings, which we talked about earlier, the hard times create strong men, strong times create good times, good times create weak men, and weak men create hard times. And then the cycle repeats. There's also the long-term debt cycle that Ray Dalio talks about. And there's also the 250 year revolutionary cycle, which essentially states that from the American revolution, when America was created under the founding fathers, we've been in one mega cycle from then until today until Satoshi Nakamoto released the white paper in 2009 for Bitcoin. And this transition is predicted to conclude sometime around 2025. And that'll be the next stage of this massive revolutionary cycle, where we're essentially laying the groundwork for the next founding of America. But rather than just being one country, it's going to be a layer of freedom for the whole world, not just for one country.
Mattimore (34:39):
The other most likely scenario aspect is that the current adoption will be like an S curve. Most new technological paradigms are adopted in this way, where you have the innovators, then the early adopters, then the early majority, then the late majority, and then finally the laggards. And the wild thing about it is that most of the value actually accumulates very quickly. Malcolm Gladwell calls this "the tipping point," where you very quickly go from no one using the internet to everyone using the internet, or no one having smartphones to everyone using smartphones. And we haven't yet gotten to that tipping point for Bitcoin, where we go from right now, almost no one has Bitcoin as a percentage of the population. And we're about to go to where everyone has Bitcoin. And I'm often wondering to myself, why do so few people buy Bitcoin, given all the evidence that's out there about how likely it is that this monetary revolution is going to take hold...
Mattimore (35:39):
You can't delete Bitcoin. You can't copy and paste it and slightly tweak the code without having some major drawbacks. And you can't ban Bitcoin. All you can do is ban yourself from Bitcoin. So knowing this, why don't more people buy Bitcoin now, rather than wait until most of the value has already been gathered and you're in the late adopter or laggard phase of the S curve? Well, one of the biggest reasons I've noticed is there is a unit bias. People think, oh my gosh, one Bitcoin is worth $60,000? I've already missed the boat. That's too expensive for me. I'm never going to be able to have a whole Bitcoin or a couple Bitcoin. Well, this is a unit bias because the fact that you can't have one whole Bitcoin is pretty meaningless when you consider that, eventually, the world is going to operate under Satoshis. And one Satoshi is worth one 100 millionth of a Bitcoin.
Mattimore (36:34):
So you could imagine a future where maybe a burger costs 10 or 15 Satoshis. Well, today you can buy 1,500 or 1,600 Satoshi for just $1! And so if you think about it from that perspective, not of how many actual Bitcoin can I buy, but how many Satoshi can I buy with $1 or $10 or $100, your whole mindset changes. So getting over the unit bias is a big thing.
Mattimore (37:04):
And finally, I think there is this fear, and this herd mentality that people have, where until it's the best practice to put all your wealth in Bitcoin and your neighbor and all the people on TV, all the talking heads, all the people around you say that's what you do, people are too afraid to take the leap themselves. They're too afraid to make their own assessment and to actually see the underlying trends and where those trends are likely to lead.
Mattimore (37:30):
So I would urge you, don't take my word for it. Do your own research as it relates to Fiat and Bitcoin. When assessing any engineer or engineering project, the proof is in the survival of the bridge. If you create a bridge and the bridge lasts for a hundred years and it never has any problems, you're a great engineer. Whereas if you build a bridge and it collapses 10 days later, you're a terrible engineer. So the proof is really in the pudding with Bitcoin. Every single day, it gets harder. It gets more resilient. It gets harder to take down. And just to conclude, I am very optimistic about the future. I think Bitcoin is inevitable. The only question is, how quickly do you adopt it? How quickly does this country or that country adopt it? And what is the meandering path to get us there?
Mattimore (38:13):
I can't wait to see what the next Renaissance looks like once we have fully adopted the Bitcoin standard. Thank you for tuning in. I hope you enjoyed today's episode. And see you next time.