The Power of Bitcoin and Why There Is a Need for “Sound Money” with Bob Burnett - Episode 83

Welcome to the Next Level Income show where it's our goal to raise your income, your investments and your life to the next level. I'm your host Chris Larsen. Get your free copy of our book@nextlevelincome.com just click on the book link. Also, if you're an accredited investor, check out our Invest link to learn how to gain access to our Self Storage Fund as well as other institutional quality real estate opportunities. You're not going to want to miss part one of our interview with Bob Burnett of Barefoot Mining. Bob is going to talk to you about why Bitcoin is unlike any other cryptocurrency and we are going to dive into so much more. Hey, have you heard of the Multifamily Investor Nation Summit? It's coming up on January 20th through the 22nd. It's a three day information packed event for multifamily investors with over 1000 attendees and over 50 speakers including yours truly. You will hear from experts about finding deals, raising capital, underwriting strategies, selecting markets and so much more. Go to mfinsummit.com to grab your ticket. That's mfinsummit.com to grab your ticket and use promo code. Next Level. That's all caps. Next level. You get $100 off. Whether you are new to multifamily investing or a seasoned investor, you do not want to miss this event. Join me at the Multifamily Investor Nation Summit. Visit mfinsummit.com on today's show we have Bob Burnett. Bob is a technologist and entrepreneur with over 35 years of experience in technology related companies. He spent 11 years at Gateway, which if like me you remember is the computer company with the cows on it, in a variety of management positions including Chief Technology Officer, Executive Vice President of Products and Executive Vice President of the International markets. Since Leaving Gateway in 2004, Bob has also founded or co founded over 15 companies, mostly in the technology space. Among his most recent ventures are two companies focused on cryptocurrency which we're going to talk about today. The first, Divi Systems is a company focused on the design and manufacturing of cryptocurrency mining servers. And the second, Barefoot Mining manages and hosts cryptocurrency mining centers. He's also a licensed life insurance agent. Bob Burnett, welcome to the show.

Hey Chris, great to be here. Thank you.

Oh yeah man, I can't tell you how excited I am. I've been waiting since, you know, we had our conversation a couple months ago about having you on. So this is just no offense to the other guests here recently, but this is the one I've been most excited about here.

That's kind of you. But I enjoy my time with you. I'm sure we'll have fun today.

Yeah, and you have, I mean, Bob, you have such an interesting background in my mind. I know we've had a lot of different discussions about different things, but if you would start by talking a little bit about your background, your time with Gateway, and share with the audience a little bit about your history.

Sure, sure. So I'm a technologist at heart. I'm a degree in engineer, computer engineering. Spent most of my career in the personal computer industry, most prominently with Gateway, as you referenced. And I was the chief technology officer there, which meant I led the product development there. So I designed laptops and desktops and servers and TVs and MP3 players and just, just had a ball, you know, being part of that. And, and I started in that industry in 1986. So as you can probably tell, I'm older, those of you watching on video. But you know, what a blessing to have been able to enter an industry at its infancy, truly its infancy, the beginning of the personal computer and ride that wave through, really through the whole development of desktops, laptops, and then into the Internet. And that was my main thrust, like 1986 to about 2004. That was my world. And like I said, it was really a blessing. Then I left and did technology startups, started actually an incubator to help other technology companies and started that in 2004 right after I left. And I will take a little divergence here. I also have a minor in economics. It's always been a passion of mine. So around that same time period, those of you who are a little young may not know there was kind of a dot com bubble and things that happened in the early 2000s. The allure of Wall street and all those sort of things started coming off and I started to question really a lot of the things I had learned earlier from an economic finance standpoint. And I stumbled into Austrian economics, which is not typically taught, but it's a whole different view. The traditional view taught in schools is Keynesian, and that's what the Fed is based on. It's what most of the politicians follow, which is, I won't bore you guys with it, but it's really a debt based, spending based kind of thing. That's the, that the essence of Keynesian and Austrian is about savings and sound money and really discipline and things like that. And resonated with me so Fast forward to 2017 and a fortuitous phone call that I almost didn't take. My wife always reminds me it was a Thursday evening, late one evening, and my phone rang and it was an unknown caller, but from a Seattle phone number. And I didn't want to answer it. Probably like most, I wouldn't have picked that up. And my wife, who's very, she's very instinctual, she said, answer that phone. To this day, I think it's the only time she's ever done that, like, answer that. So I did. And make a long story short, it was a guy was from my past, an ex Gateway business acquaintance, who said, can you design me some Ethereum mining equipment? And he wanted to buy a large amount of it. My exposure to cryptocurrency at that point was limited. I was aware of it, I knew how to design a computer, but I really didn't know the specifics even of what an Ethereum mining computer required. But it turned out that at that time the industry was in its infancy. The people designing kind of equipment were not doing it well. And so I looked at it as a business opportunity and said, well, this guy wants to buy several hundred of these computers, which are several thousand dollars each by the way. So I said, well, okay. So I did. And with a guy named Keith Thomas, who's still part of our group today, he and I are good friends. He was the head of desktop engineering. We got together, we basically overnight formed this company to build these computers to sell to him. And then we started asking other people, would you like to buy too? And interestingly, the answer was yes, but most of the people said, yes, but only if you'll operate them for me and we'll talk about what mining is. So we ended up having to start a second company which would host, called Hosting. We would host the computers. So we had one company called Divi Systems, which would build and sell the computers. And then we had another company called Barefoot Mining, which if you wanted us to manage it for you, we would do that. And then even at that point, I was looking at it in my traditional lens. I was making money in both business ventures, but not really deep into what is it, why does it exist? And then I went into the rabbit hole of it, ended up taking all the profits that we were making from both ventures, plowing it into equipment that we bought for ourselves, started mining that money, started mining for ourselves and making money that way, which honestly is now our primary emphasis. And while I'm not an Ethereum hater, I'VE subsequently discovered the beauty and elegance and power of Bitcoin. And that's our primary focus going forward, is mining bitcoin.

Yeah, well, we're going to get more into divvy and barefoot mining here, Bob, but I wanted to. You kind of mentioned this here. You talked about your interest in Austrian economics. And I'll never forget our first conversation and talking about being an engineer and then interested in economics. And my favorite class in grad school was economics after, if listeners don't know, I'm an undergrad in engineering as well. But I'm not as smart as Bob, so I couldn't actually be an engineer. They wouldn't let me. So. But no. And then Gateway, if, again, if you're listening, you don't know, this was the cows. This was the computer company with cows. And I remember because we got our first computer in 91, I think, and Gateway was one of the leaders. But, Bob, you're also a licensed insurance agent, as am I. And Austrian economics is really the underpinning of the IBC philosophy, the infinite banking concept philosophy. And Bob, if you would. You described bitcoin to me in the terms of Austrian economics. And that night that we met, I was so tired, I was going to bed and I sat there for two hours listening to Bob tell me about this. And it started my interest in bitcoin. So if you wouldn't mind share a little bit with the audience, how Bitcoin flows with the philosophy of Austrian economics.

Okay. Well, obviously I could spend two hours talking about this, so I'm going to be my.

Appendix. Yeah. And we can definitely have you back on.

Okay, Well, I would say the core of Austrian thought is sound money. And for those of you who haven't followed monetary policy and things like that closely, we do not have sound money today. So the US Dollar and the currency the world are what are called fiat currencies. And fiat literally means by declaration, if you look it up. And so it basically is a dollar is money only because the government declares it to be money. And it's only a value because at this point in time, we all accept it. I like to give an example. If I go cut your grass and you pay me $20, the reason I accept the $20 is that I know I can go to Target and buy something with it and that merchants are going to accept it. That isn't true the world around. And that's one thing I'll say as we get into this is I would challenge everybody to take your optics. And I'm Guessing most of your audience is North Americans. You're living in a first world economy. You're in a pretty privileged position. But imagine yourself in Venezuela, in Syria, in Lebanon, in some place like that. Imagine you're in Argentina and I'm 57 years old. In my lifetime, the currency has failed four times in Argentina. Fascinating thing. So imagine you're an Argentinian, you're a successful business person, you're a hard worker, whatever, you got your money in the bank and four times it's gone to zero. It's, you know. So the concept of sound money in Austrian thought traditionally has been centered around the gold standard. So prior to 1971, the US had a gold standard.

And we just crossed the 50 year anniversary. Right.

So this is very.

Yeah, this is very timely to kind of look back in this period and.

Again, we won't have time for it today, but in 1971, the US dollar failed. We defaulted. We had an obligation to all the people around the world who held dollars to that point that it was backed by gold and that they could redeem it in gold. Especially other governments, we defaulted on that. Now the reason the world feel it was essentially because of our military power and our might and our control of the banking system. It wasn't allowed to collapse in the way that the Argonians did. But it would be hard to categorize it as anything other than a currency failure. The Austrian thought would say, hey, you have to have something behind that dollar. You have to have sound money. And what's not important so much is that thing that's behind it. A lot of times people talk about things like intrinsic value. We won't really go into that rabbit hole today. But what the idea would be is that if prior to 1971, the US wanted to expand its monetary base, it had to expand its gold base because it had to be able to legally. And when I say legal, I mean international legal. There had to be enough gold behind those dollars, so if somebody wanted the gold, that you could give them the gold. So it was a big handcuff on a government. We look at what's happening today, we have governments literally can print money. When I gave a little talk that, that was at the event Chris and I were at, I shared a quote from one of the Federal Reserve presidents who says we have an infinite ability to print money. And it's what they're doing.

It is. Oh, it's the past year. Yeah. What's the statistic? We printed more money in the past year than we have in the first 200 years of this country.

It's absolutely incredible. Well, since COVID we've expanded the monetary base by a third. So is it surprising when you see CPI at 6.8, which is a terrible.

Surprising. That's surprisingly low. If you.

Well, I'll tell you why it's low, Chris. The reason that it's low is that they keep changing PPIs. Did you know this is an interesting little fact. If you took the same metrics from 1980 and applied them today, inflation is 14%. That feels more right, doesn't it?

Yeah, absolutely. And that's exactly what I was snidely referring to is that it's low because, yeah, we keep changing. Much like a lot of things in the world today, we change the end posts.

And also remember, inflation is not a broad thing. It's not a symmetrical thing. It doesn't spread like nut butter across all goods and services. There are certain winners and losers. And for each of us, we have certain needs in our life and we have certain desires in our life and they're different from person to person. Therefore inflation is different. So we talk about this a lot in the bitcoin world. Say if your dream, let's say you're 22 years old and your dream is a house in the hands. Well, the way inflation has been applied over the last two years since COVID real estate in the Hamptons or condos in Miami or things like that, they have skyrocketed. And the distance between that 22 year old and ownership and a property like that is, is widened. You know, that is, by the way, is the. We're off the track a bit from your question, but that's the wealth gap, by the way. So when people talk about you can't tax the wealth gap. Wealth gap is not. It's taxing the rich, it's stopping the way money is managed and money is flowed and money is distributed. So get back to your question, which is the Austrian school of thought. The Austrian school of thought says let's control the money supply. And in the case of bitcoin, it was modeled after gold. But what happened in the case of bitcoin was said, well, hey, you know what we're going to do? We're just going to make an absolute limit. There's going to be 21 million Bitcoin and that's all there will ever be. We will release that money into circulation through the miners. We can talk about how that happens later, but it's released through the miners. Miners, by the way, act somewhat like the bankers, they act kind of like the central bank in the way that they distribute the money to the market in a set schedule. It can't be increased or decreased. It can't be changed. And so now we have a monetary base. Everybody knows what it is, everybody knows the rate at which it will be released, and the rules can't ever be changed. So that's a game changer. Because if you think about it, there's only going to be 21 million bitcoin. Own one bitcoin, by the way, you own 1,121 millionth of all the bitcoin there will ever be. So if I said, I think I may have done this with you already, Chris, but we'll just play along. If I said, hey, Chris, 10 years from now you will have $100 million, what would that mean to you?

Depends.

That's the right answer.

That's the right answer?

Yeah. That is the right answer.

It seems like a lot of money. Yeah, I mean, it seems like a lot of money, but that's my perception in today's world.

Yeah. Or I would maybe. I'd say it's your guess and you're probably right, but we really don't know if that hundred. If we bring it back to 20, $21, does it represent $50 million of purchasing power today or 80 million or 30 million? We don't know. Likelihood of a complete collapse of the dollar in the next decade is low. But if you're a guy in Argentina and I were talking Argentine pesos instead of dollars, and I said, you had 100 million Argentine pesos, that person would say, I have no. They would get the answer. I would say completely right. Because they would say, I have no idea. Is there any way I could have something else? Is what they would say because they have no faith in it. So there's this certainty, fundamentally, Austrians would stay. And what bitcoin is founded on is we have to remove control of the money from the government.

From the government.

Yeah. And I like to say, if history has shown and it goes way back, for instance, narius and coin clipping in Roman times, historically, whenever you've given governments control of the money supply and especially the ability to have fiat money, give them just a little bit of time and they will either corrupt it or mismanagement or both. So it's 100% track record, by the way.

Absolutely. Yeah. I just read. So I've been trying to do a little homework before this and I just finished Bitcoin. Hard Money youy can't F with by Jason A. Williams.

Great book.

Yeah. And yeah, it's a terrific book. So if you're listening today and you want to hear a little bit of background like what Bob just described over the last five to 10 minutes, Jason goes into kind of some of the history and all of this stuff and it's fascinating and you listen to it and you feel like somebody just smacks you upside the head and you're like, yeah, this is crazy. But it's everything. We all know everything you're saying. Most people just nod their heads. We just don't think about it on a day to day basis because it's like a frog being boiled.

That is the perfect analogy. And money. I'm in the. Another career, I'm probably in my third career, but I've come to realize that there's nothing more important that I can do with the rest of my life, professionally at least, than to try to get the world to see what's happening and to let them hopefully embrace bitcoin. Because I think it is our only hope of resting control of money and wealth and value from governments and a very small group of people and to let a true free market appear, an equitable market appear. I believe it helps topple dictators and tyrants around the world. And that might sound very grandiose to some people and I'm sure other people might say, well there's other causes and in your own optics I'm sure you have that. How can he say that Covid is more important or climate change is more important, or racism is more important, whatever. But I'll say this. If you don't fix the money, I promise you everything else is going to be broken. And there's this they, this they being a. A select group of very powerful people who've been in control of this thing, especially since 1913. Another great book is called the Creature from Jekyll island and it's about the birth of the Fed and the way that central is really the creation modern central banks and the way money changed. And that was the inflection point, 1913, by the way. No coincidence that within what would that be, four years of that date we had the first World War and the ability to fund wars. And the track record, if you look at it big picture, World War I, the Depression, World War II, I mean this track record of things that happened right on the heels of it and the broader media, the history books, those sort of things, they don't point back. Nobody points back and says, geez, was this creation of The Fed, which all came down Jekyll island, by the way, is an island in Georgia, just so people know. So it's.

It's not troubling us Carolinians. We. Some of us might know about that. Do that. No, I want to. And I want to point to two things, Bob. I think, you know, World War II, you look at Germany and how World War II and kind of the birth of the Nazis started with the currency and the unrest. And then, I mean, look at the birth of this country, property rights and the ability to do that. I think there's a lot of similarities there in my mind. And you're obviously, well, more. Well, more versed in all this. But I think, again, it's one of those things that once you take a step back and look at it, it's pretty apparent. Before we talk about. I really love to dive into what mining is and how the bitcoin mining system is designed for multiple different reasons. But real quick, when I first heard about bitcoin, I heard of these other cryptocurrencies. I said, okay, I need to learn about all these different currencies. But what I found was bitcoin is different. And can you share why bitcoin is unique in terms of cryptocurrencies?

Sure. The first thing I'll say is there's this concept of decentralization. And if you go out and you start researching, you'll see that almost every cryptocurrency claims to be decentralized. There's only one that really is, and that's bitcoin. So why decentralized? What's important about decentralized? Well, decentralized means there's no central point of control. There's no central point of failure. Bitcoin was created by a guy named Satoshi Nakamoto, who's an alias. Nobody knows who he is. Which, by the way, is the ultimate decentralization point, because it means there is no head. Right. He was a brilliant man. Maybe we'll talk about, time permitting. We'll talk about some of the beauty and elegance and technological innovation within bitcoin. But he created it. He got it working. He hung around for about two years after launching it, and he disappeared.

Signed off. Right.

Just signed off. There's a couple great books, the writings of Satoshi Nakamoto, where people have gone, and he was back on CompuServe bulletin boards. And I'm really showing my age, but I remember those posts and things like that. I mean, the writings of him and some of the early people whose work he leveraged to create Bitcoin. We're all back in those sort of times. You could see that he got it, that he knew that if he stayed in control, that that was a liability to the network, that he had to disappear. And what he had to do was he had to get it off the ground. He had to let it grow to a certain point. And grow means. So in bitcoin, what happens is there's no bank, there's no central authority. The way transactions are approved, the way the money supply expands is through the miners and the nodes. So you had to let it get to a certain point where it was essentially self sustaining. And then he left. Rules of bitcoin. Why Is there only 21 million Bitcoin? What's the rate at which it moves in circulation? Those are essentially unchangeable rules. I shouldn't say essentially they are unchangeable rules and they are unchangeable because there's nobody that can change them. There's no person, there's no committee. A government can ban it. A government say, I don't like these rules, but how are they going to change it? And by the way, the bitcoin network has now grown. There are several million mining servers running around the world. There are hundreds of thousands of nodes running around the world. The collective horsepower of those computers is greater than the horsepower of Amazon, Google, Microsoft, the US Government, the Chinese government, combined. Incredible. So the bitcoin network, the beauty of the code and the strength of the network are such that we're now 13 years in. It's never been hacked, it's never been touched.

Say that again. It's never been hacked.

Never been hacked, right? Nope, nope. Never been hacked.

Not even unlike some politician servers, that right?

Yeah.

Some email without the.

Yeah, that's a great. You know, that's a great illustration of the way that it works and to essentially infiltrate it. Yeah.

And why is that? Because this is what fascinated me when I started to learn about it. I was like, wow, this is where you really find the genius in the design, in my opinion.

Yeah. So we got to go into a little of the mechanic, the way it works. So let's say, Chris, I am going to buy a car from you and we have agreed on a price of one bitcoin.

Okay.

And let's parallel that with I'm going to buy a car from you and I'm going to give you a check for $50,000. Roughly the same in today's terms, roughly the same transaction. If I give you the check, we Know each other. But you'd be foolish to give me the title keys until the check cleared because there's a lot of.

I'd probably even meet you at the bank.

Yeah, right. We need that bank there to be what's historically called the trusted third party. And in the history of transaction, any non cash transaction. So cash is a bearer asset, by the way. But any non cash transaction means we need a trusted third party. So a check, a wire, a credit card transaction, all those sorts of things require a banker or financial institution to sit there and say, yep, Chris, Bob's check is good. Okay, now you would probably say you want a cashier's check.

That's right.

The reason you would say you want a cashier's check is that theoretically, if I give you a personal check, even if the bank said, chris, it's good, and you put it in your account, the transaction's really not final. Transaction finality. I mean, in reality, you don't really even know when it's final because if, let's say, 90 days late or six months later, it turns out that I owed the IRS a whole bunch of money, there's actually a chance they'll back and say, hey, Chris, that check that Bob gave you? Well, IRS had precedence.

Wow, I never even thought of that.

And you owe the money back. This happens. I guess I won't this really happens. Or I'll give you another example, a credit card transaction. If you walk into a store and you buy a new TV and you run your credit card, the merchant probably within one or two days will get a credit in their account for that. But the transaction's not final yet. If 45 days later, you've had all kinds of problems with the tv, whether they really happened or you're lying. Right, But. And I used to own a chain of consumer electronics stores. That's why I know this. You could call American Express or Visa and say, hey, I've had a terrible experience.

You want money back?

Reverse that charge and boom, out of nowhere, the money disappears from the account of fortune. And the term upon which that thing gets final is very hard to determine. It's somewhat up to the policies of the credit card company, but in reality, it's several months really until final. So Bitcoin changes that completely. It changes it in a couple ways. First is the reason that those trusted third parties exist is that there's always been what's called the double spend problem in banking. Okay. And the double spend problem is go back to the check I gave you, even make it Simpler. I wrote you a check. I have 50,000 in my account. I write check for 50,000, I write somebody else a check for 10, I give you the $50,000 check. I give somebody else the $10,000 check. I double spent some of that money. So the bank's there to arbitrate that situation. And it's a big part of the reason for the existence of financial institutions. And they leverage that for credit card fees and all the things in Bitcoin, it completely changes. So I'll go back to that. I'm going to send you one Bitcoin to buy my car or buy car. When I send you that money, I will have my own wallet and I will have what's called a private key associated with that wallet. I will ask for your wallet address. And this is important too. In Bitcoin, everything is what's called a push transaction. So the sender, the owner of the asset, the property, in this case bitcoin, must push the money to the receiver. The credit card transaction, by the way, is the opposite. You gave the merchant your credit card, they pulled the money out of your account.

Interesting.

It's just kind of a subtle security thing people probably don't really think about. You're putting a lot of faith merchant, by the way too, giving him a lot of power. So anyway, I push my bitcoin to you and what happens is it goes up into. You could think of it kind of as a pending area. So this transaction between Bob and Chris and my private key, my. I'm going to simplify for that. This is my password on steroids that says I, I own the wallet and I have the right to do this. It goes up into this pending area every 10 minutes. The miners of the world take the pending transactions, they accumulate them into a group which is called a block, and they process the block. When they process the block, they're going to verify that I actually have the bitcoin as well as all the other people I have Bitcoin. And it's the right key that I have the authority to do this. They then take that block and they authenticate it. They crunch a bunch of numbers to make this happen. They then present block to the nodes. The nodes control the ledger. That's the balance of accounts. The nodes then say they, they, they can authenticate the work of the miners.

And just to clarify, define nodes for the audience if somebody's not familiar with that.

So a node is a holder of the ledger. So miners process transactions and nodes maintain the ledger. So I think if my bank Sundays, I have $50,000 in my account. The bank holds that ledger. And by the way, that I have an account with that bank is probably public information. But what I have in the account is not known in Bitcoin. It kind of on its ear the opposite. The account balances of every account, which is a specific number, are known to everybody at all times in the whole world. What we don't know is the owner of the account.

Beautiful.

That's not held on the ledger. So you me your number so I could send you the money, but that's not known to the rest of the world. So the nodes, though, so what happens when the. When the block is processed by the miners? They have to solve this mathematical equation. It's very difficult. It requires phenomenal horsepower. Once they have the answer, though, it's very easy for the node to say that the. The miners have processed this block and they've presented it to me to put it on the ledger. I will accept it or reject it. By verifying their work, they present what's called the hash of the block, and if the hash matches, then they add those transactions to the ledger. Another name for the ledger, by the way, is the chain. Block. Chain comes from the block of the miners plus the chain maintained by the nodes.

And Bob, I think this is a great point. Normally I don't do this, but I'm going to say we're going to do part two of this. I'd love to have you back because I think we're talking about now mining, and I'd love to dive deeper into what I mentioned briefly before, which is, you know, how bitcoin was set up with miners and how it becomes stronger. And I'd love for you to share with the audience how your company, Barefoot Mining and Divi are becoming part of this whole process.

Yeah, sure, be happy to do that.

Outstanding. So, Bob, before we let you go today, please share with the audience how they can learn more about you, get some of your articles that you put out there, and check out your companies.

Great, thanks, Chris. Yeah, well, the website, which is barefootmining.com I'm very active on Twitter, which, for those of you interested in the bit world, there's a very, very active Twitter community. And I'm boomerbtc there and if you're interested in some of my work, you can find me on Medium. I have a blog there. And I'm also contributing for Bitcoin magazine. So if you go to their site, you can just search for my name and see a few of the articles that I've published there, which are all.

Great and I've been digesting them myself. So I encourage you to check out Bob Burnett and all the stuff that he's putting out there. And stay tuned. We're going to have part two coming up shortly here on the Next Level Income Show.