Volatility

Remember George Washington, you know how he died? Well-meaning physicians bled him to death. And this was the most important patient in the country, maybe in the history of the country, and we bled him to death trying to help him. So when you're actually inflating the money supply at 7%, but you're calling it 2% because you want to help the economy, you're literally bleeding the free market to death. But the sad fact is, George Washington went along with it because he thought that they were going to do him good. And the majority of the society, most companies, most conventional thinkers, the working class, they go along with this because they think that someone has their best interest in mind and the people that are bleeding them to death, they believe that prescription because their mental models are just so defective. The following is a conversation with Michael Saylor, one of the most prominent and brilliant Bitcoin proponents in the world. He is the CEO of MicroStrategy, founder of Saylor Academy, graduate of MIT. And Michael was one of the most fascinating and rigorous thinkers I've ever gotten a chance to explore ideas with. He can effortlessly zoom out to the big perspectives of human civilization and human history, and zoom back in to the technical details of blockchains, markets, governments and financial systems. This is the Lex Fridman podcast. To support it, please check out our sponsors in the description. And now, dear friends, here's Michael Saylor.

Let's start with a big question of truth and wisdom. When advanced humans or aliens or AI systems, let's say, five to 10 centuries from now, look back at earth on this early 21st century, how much do you think they would say we understood about money and economics, or even about engineering, science, life, death, meaning, intelligence, consciousness, all the big interesting questions? I think they would probably give us a B minus on engineering, on all the engineering things, the hard sciences.

You said table. Some of that also is the task of visualization, how to extract from this complex set of numbers, patterns that somehow indicate something fundamental about what's happening. So summarization of data is still important. Perhaps summarization not down to a single scale of value, but looking at that whole sea of numbers, you have to find patterns like what is inflation in a particular sector? What does it maybe change over time, maybe different geographical regions, things of that nature. I think that's, I don't know even what that task is. That's what you could look at machine learning, you can look at AI with that perspective, which is how do you represent what's happening efficiently, as efficiently as possible? That's never going to be a single number, but it might be a compressed model that captures something beautiful, something fundamental about what's happening. It's an opportunity for sure. If we take, for example, during the pandemic, the response of the political apparatus was to lower interest rates to zero, and to start buying assets, in essence printing money. And the defense was, there's no inflation. But of course you had one part of the economy where it was locked down, so it was illegal to buy anything. It was either illegal or it was impractical, so it would be impossible for demand to manifest. So of course, there is no inflation. On the other hand, there was instantaneous immediate inflation in another part of the economy, for example, you lowered the interest rates to zero. At one point, we saw the swap rate on a 30-year note go to 72 basis points. Okay. That means that the value of a long-dated bond immediately inflates.

Can we zoom out, keep zooming out into, we reach the origin of human civilization, but on the way ask, you gave economists a D minus. I'm not even going to ask you what you give to governments. Do you think their failure, economists and government failure is malevolence or incompetence? I think policy makers are well-intentioned, but generally all government policy is inflationary and it's inflammatory and inflationary. So what I-

I think what distinguishes human beings from all the other creatures on the earth is our ability to engineer. We're engineers, right? To solve problems or just build incredible cool things?

A lot of the engineering you talked about had to do with ships and cannons and leveraging water. What about this whole digital thing that's happening, been happening over the past century? Is that still engineering in your mind? You're starting to operate in these bits of information? I think there's two big ideas. The first wave of ideas were digital information, and that was the internet wave been running since 1990 or so for 30 years. And the second wave is digital energy. So if I look at digital information, this idea that we want to digitally transform a book, I'm going to dematerialize every book in this room into bits and then I'm going to deliver a copy of the entire library to a billion people, and I'm going to do it for pretty much de minimis electricity, if I can dematerialize music, books, education, entertainment, maps, that is an incredibly exothermic transaction.

So you mentioned in the digital world, digital information is one, digital energy is two, and the possible impact on the world and the set of opportunities available in the digital energy space is much greater. So how do you think about digital energy? What is it? So I'll start with Tesla. He had a very famous quote. He said, "If you want to understand the universe, think in terms of energy, vibration< and frequency." And it gets you thinking about what is the universe? And of course, the universe is just all energy. And then what is matter? Matter is low frequency energy. And what are we? We're vibrating, ashes to ashes, dust to dust. I can turn a tree into light. I can turn light back into a tree. If I consider the entire universe, and it's very important because we don't really think this way. Let's take the New York disco model. If I walk into a nightclub and there's loud music blaring in New York City, what's really going on there? Right. If you blast out 14 billion years ago, the universe is formed. Okay, that's a low frequency thing. The universe. Four and a half billion years ago, the sun, maybe the earth are formed. The continents are 400 million years old. The shift that New York City is on is some hundreds of millions of years, but the Hudson River is only 20,000 years.

So open, permissionless, noncensorable. So basically no way for you without explicitly saying so, outsourcing control to somebody else. So it's a kind of, you have full control. Even with a barrel of oil, what's the difference between a barrel of oil and a Bitcoin to you? Because you kind of mentioned that both are property. You mentioned Russia and China and so on. Is it the ability of the government to confiscate? In the end, governments can probably confiscate no matter what the asset is, but you want to lessen the effort involved. And barrel oil is a bucket of physical property. Liquid property.

Let me give you a good model for that. If you think about the layer one of Bitcoin, the layer one is the property settlement layer, and we're going to do 350,000 transactions or less a day, a hundred million transactions a year is the bandwidth on the layer one. And it would be an ideal layer of one to move a billion dollars from point A to point B with a massive security. The role of the layer one is two things. One thing is I want to move a large sum of money through space with security. I can move any amount of Bitcoin in a matter of minutes for dollars on layer one. The second important feature of the layer one is I need the money to last forever. I need the money indestructible, immortal. So, the bigger trick is not to move a billion dollars from here to Tokyo. The big trick is to move a billion dollars from here to the year 2140. And that's what we want to solve with layer one. And the best real metaphor in New York City would be the granite or the schist. What you want is a city block of a bedrock. And how long has it been there? Millions of years it's been there. And how fast do you want it to move? You don't. In fact, the single thing that's most important is that it not deflect. If it deflects a foot in a hundred years, it's too much. If it deflects an inch in a hundred years, you might not want that.

What do you think that looks like? So, now there's a war going on in Ukraine. There's other wars, Yemen, going on throughout the world. In this most difficult of states that a nation can be in, which is at war, civil war, or war with other nations, what's the role of Bitcoin in this context? I mean, Bitcoin is a universal trust protocol. A universal energy protocol, if you will. English is one. What I see is a bunch of fragmentation of applications-

Sure. The hackers and all those kinds of people will find a way. It's just regular people who are just struggling to make day by day living. And so if the adoption permeates the entire culture, then you can start to move money around in the digital space. If you can psychoanalyze Jack Dorsey for a second. So he's one of the early adopters or he's one of the people pushing the early adoption, this layer three, so inside Cash App. What do you make of the man of this decision as a business owner, as somebody playing in the space? Why did he do it and what does that mean for others at the scale that might be doing the same? So incorporating Lightning networking, incorporating Bitcoin into their products.

Well, let's talk about it. So first of all, I'm with you, but let me ask you this interesting question because we talked about properties and securities. Let's talk about conflict of interest. You said you could advertise... You have a popular Twitter account. It's hilarious and insightful. You do promote Bitcoin in a sense. I don't know if you would say that, but do you think there's a conflict of interest in anyone who owns Bitcoin, promoting Bitcoin? Is it the same as you promoting farming? I would say no. There's an interest. I think that you can promote a property or an idea to the extent that you don't control it. I think that the point at which you start to have a conflict of interest is when you're promoting a proprietary product or proprietary security. A security in general is proprietary asset. So for example, if you look at my Twitter, you'll find that I make lots of statements about Bitcoin. You won't ever see me making a statement that say micro strategy stock will go it forever. I'm not promoting a security MSTR because at the end of the day, MSTR is a security. It is proprietary. I have proprietary interest in it. I have a disproportionate amount of control and influence on the direction. Whereas-

Okay, so one of the fascinating things about Bitcoin, and sorry to romanticize certain notions, but Satoshi Nakamoto that the founder is anonymous. Maybe you can speak to whether that's useful, but also I just like the psychology of that to imagine that there's a human being that was able to create something special and walk away. Though first, are you Satoshi Nakamoto? I'm certain I'm not. No, actually I think the providence is really important, and if I were to look at the highlighted points, I think having a founder that was anonymous or stood anonymous is important. I think the founder disappearing is also important. I think that the fact that the Satoshi coins never moved is also important. I think the lack of an initial coin offering is also important. I think the lack of a corporate sponsor is important. I think the fact that it traded for 15 months with no commercial value was also important. I think that the simplicity of the protocol is very important. I think that the outcome of the block size wars is very important and all of those things add up to common property. They're all indicia, indicators of a digital property as opposed to security.

So Bitcoin price has gone through quite a roller coaster. What do you think is the high point it's going to hit? I think it'll go forever. I mean, I think the Bitcoin, it's going to climb in a serpentine fashion. It's going to advance and come back and it's going to keep climbing. I think that the volatility attracts all the capital into the marketplace. And so the volatility makes it the most interesting thing in the financial universe. It also generates massive yield and massive returns for traders, and that attracts capital. We're talking about the difference between 5% return and 500% return.

No. There are 360,000 people on Twitter with a blue check. There are 300 million people on Twitter. So the conventional way to verify accounts is elitist, archaic.

The embryonic stage. I have to ask, Michael Saylor, you said before there's no second best to Bitcoin. What would be the second best? Traditionally there's Ethereum with smart contracts, Cardano with proof of stake, Polkadot with interoperability between blockchains, Dogecoin has the incredible power of the meme, privacy with Monero. I just can keep going. There's, of course, after the block size wars the different offshoots of Bitcoin. I think if you decompose or segment the crypto market, you've got crypto property, Bitcoin is the king of that, and other Bitcoin forks that wanted to be a bearer instrument, store of value would be a property, a Bitcoin Cash or Litecoin, something like that. Then you've got cryptocurrencies. I don't think Bitcoin is a currency because a currency I define in nation-state sense. A currency is a digital asset that you can transfer in a transaction without incurring a taxable obligation. So that means it has to be a stable dollar or a stable euro or a stable yen, a stable coin.

I hope the regulators get out of the way. Can you steel man the case that Dogecoin is, I guess the second best cryptocurrency, or if you don't consider Bitcoin a cryptocurrency, but instead a crypto property- I would classify it as crypto property, because the US dollar is a currency. So unless your crypto asset is pegged algorithmically or stably to the value of the dollar, it's not a currency, it's a property or it's an asset.

That's speculation. Maybe you can correct me, but you've been critical of Elon Musk in the past in the crypto space. Where do you stand on Elon's effect on Bitcoin or cryptocurrency in general these days? I believe that Bitcoin is a massive breakthrough for the human race that will cure half the problems in the world and generate hundreds of trillions of dollars of economic value to the civilization. And I believe that it's in an early stage, where many people don't understand it and they're afraid of it, and there's FUD, and there's uncertainty, there's doubt and there's fear, and there's a very noisy crypto world, and there's 15,000 other cryptos that are seeking relevance. And I think most of the FUD is actually fueled by the other crypto entrepreneurs. So the environmental FUD and the other types of uncertainty that's around Bitcoin, generally, they're not coming from legitimate environmentalists, they don't come from legitimate critics. They actually are guerrilla marketing campaigns that are being financed and fueled by other crypto entrepreneurs because they have an interest in doing so.

Do you have advice for young people? So you've had a heck of a life, you've done quite a lot of things, start before MIT, but starting with MIT, is there advice you have for young people, in high school and college, how to have a career that can be proud of, how to have a life they can be proud of? I was asked by somebody for quick advice for his young children. He had twins, when they enter adulthood. He said, "Give me your advice for them," in a letter. "I'm going to give it to them when they turn 21," or something. I was at a party and then he handed me this sheet of paper, and I thought, "Oh, he wants me to write it down right now." So I sat down, I started writing and I figured, "Well, what would you want to tell someone at age 21?"

And that's a beautiful thing. Speaking of deep thinking, you're just a human. Your life ends. You've accumulated so much wisdom, so much money, but the ride ends. Do you think about that? Do you ponder your death, your mortality? Are you afraid of it? When I go, all my assets will flow into a foundation, and the foundation's mission is to make education free for everybody forever. And if I'm able to contribute to the creation of a more perfect monetary system, then maybe that foundation will go on forever.

And speaking of one of great people who did also get out of the way is George Washington. So hopefully when you get out of the way, nobody's bleeding you to death in hope of helping you. What do you think, to do a bit of a callback, what do you think is the meaning of this whole thing? What's the meaning of life? Why are we here? We talked about the rise of human civilization. It seems like we're engineers at heart. We build cool stuff, better and better use of energy, channeling energy to be productive. Why? What's it all for? You're getting metaphysical on me.