CW 412: The Future of Digital Currencies with Steve Lord Editor-in-Chief of the Modern Money Letter & Modern Money Report

Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before. And a new slant on investing fresh, new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Good day everybody, and welcome to the Creating wealth show. This is Jason Hartman, your host and this is episode number 412. 412. Thanks for joining me today on this September 11th. And let us never forget what happened on September 11, 2001. And let us never stop questioning what happened on September 11, 2001 either, because there are quite a few questions surrounding that day. If you're one of these people that doesn't entertain conspiracy theories and might dismiss them and think they're just a bunch of bunk, I just want to remind you that the United States of America was a conspiracy theory against Britain. There are definitely conspiracy theories out there. I'm not a paranoid freak. I definitely think that they exist. So. And if you haven't ever watched any of the documentaries on what really happened on September 11th, please do so. They're quite fascinating, really. There are just so many questions that have not been answered by anybody ever. So anyway, let us never forget that day because obviously it was a tragedy regardless of how it happened. It feels like it's starting to fade. You know, every year I notice that there are fewer and fewer posts on the social media about it and so forth. And just want to bring that up and remind us that we should always remember today our guest is going to be quite fascinating. We're going to take a pretty deep dive into alternative currencies. And with the recent announcement by Apple, yes, you probably know about the big Apple announcement. You know, that's, it's funny nowadays corporations and CEOs and these kinds of people, they're like rock stars. You know, this is like the Beatles must have been in the 60s. I don't know. Nobody's ripping Tim Cook's shirt off probably for good reason. But it's just sort of funny how this, these companies, especially Apple, of course, which makes incredible products, they're just their Events are like, you know, these coveted amazing events that everybody wants to go to as if it were a Beatles concert or something like that. Probably know about the announcement. We've got not the iWatch, but we've got the Apple watch. Heard what the naysayers say about it, and I just want to remind them that this is the first really valid attempt in my eyes at wearable computing. And whether you like it or not, I know some people say, you know, that's tacky. I would never wear an electronic watch. A friend of mine posted in social media the other day, she said, jason, I disagree with you about the Apple watch because nobody is going to hand an electronic watch down to their child or their grandchildren through the generations like they do with a Swiss watch. Well, so what, you know, just amazing. But my little financial mind instantly went to doing the math. And so I thought the math was pretty interesting because, say, for example, you, like some friends of mine are a watch aficionado and you collected for yourself maybe one or two or three or four nice Swiss watches. I think the Swiss watch market has been disrupted. We'll see how it all goes. But this is Apple's first attempt. You know, this is really the first iteration. Okay, so it's only going to get better. We all know that. But say, for example, and let's just do the math. I think you'll find this interesting. The numbers, I must say, I did this at about midnight the other night and I'm questioning my calculations. I did it on a compound interest calculator, compounding interest annually. And this is very instructive about inflation and interest rates and investing because it doesn't matter what it is. I just use the example of someone who owns a few nice Swiss watches and say those watches are valued at $40,000 and they decide, you know what they're going with a new trendy apple watch for 350 bucks that does all kinds of cool things. They decide to raise $40,000 by selling their Swiss watch or their Swiss watch collection, as it were, whatever it may be, and say they were going to live, you know, I don't know how old they are today, but let's just say they're 40. And a 40 year old today I think stands a very good chance of living, get this, another seven decades. Yep, 70 more years, maybe a lot longer than that. And we've talked about this longevity impact on the economy before in the show and we'll continue to explore that. Okay, you know, if you don't believe me, maybe they're 20. They've got 40 grand, and they want to go out and spend it and buy a new car or a Swiss watch or whatever the heck it is. Okay? I took $40,000 as the principal amount, and I took 12 times 70 years, and that's 840 months. I'm assuming. I did all this math, right? I didn't recalculate it for you. I just took a screenshot of the calculator and saved it in my hand. Dandy iPhone. Say that you could earn 10% annually off that $40,000. Now, with the magic of compound interest. Now, of course, we know better, okay, because compound interest isn't quite as magic as most people think it is, because we also have something called compound inflation. Inflation compounds just like interest, right? Because if the price of something yesterday was $100 and you have 10% inflation, and it's $110 the following year, and you have 10% inflation again, that's going to add another 10% to the base. The compounded base of $110, if you're talking about a house, could be $110,000. Whatever it is, just add or subtract a zero. That compounding effect happens with inflation as it does with interest. Just say you took that $40,000 and, you know, you sold your Swiss watches and you bought an Apple watch, okay? You're going to live another 70 years, and you're going to earn 10% annually on that $40,000. Now, this is where I got to redo this math. Maybe. But maybe it's right. You know, I've seen graphs like this, and they've amazed me. The number my little trusty calculator app came up with. Get this. 31,549,000. Oh, wait, sorry. The maturity value is. It's slightly different, okay? At the annual percentage yield of 10%, the maturity value is $31,589,878.27, compounding 10% annually for seven decades. Wow, that's amazing. Say the inflation rate was 8%. So you really only gained a compound of 2% on that money. That's very significant. And so it's like that old funny story about the two guys, they're hiking in the woods and they see a bear and they start running. And one of them stops to tie his shoelaces and says, hey, man, you know, quit tying your shoelaces. You can't outrun a bear. And he says, I don't have to outrun the bear. I only have to outrun you, his friend, you know, who's going to become lunch for the bear. And, you know, that's really what we have to always keep in mind about our return on investment and economics in general. Economics is a relative game. And all you have to do, and I hate to say it, you know, like there's this scarcity concept and the pie is limited. But, you know, when it comes down to cold, hard economics, that really is true, at least so far. I mean, the value of a dollar is based on scarcity. So when we print a bunch of them, create a bunch of them electronically out of thin air, a la helicopter. Ben Bernanke. But now we have Janet Yellen, who seems to be of the same ilk pretty much, and they all have been. Paul Volcker was the only one that, you know, had any guts and really did the right thing. And so when we create more money and it becomes less scarce, it becomes less valuable. I mean, that's pretty simple. You know what's more valuable, diamonds or sand? There's a lot of sand. It's not scarce, diamonds. They're pretty scarce, so they're valuable. When you look at this whole thing of the technology and so forth, what I was really getting to in that example, but I thought of the Swiss watch thing. I wanted to share with you, What I was really getting to was the Apple pay system. Think about the power of this, okay? You know, some of us use our phones to pay for things. And in Scandinavian countries, they've been doing this for many years. I can't wait till all the vending machines, you can just aim your phone at it and that'll be super convenient. Certainly many of you have used the Starbucks app, where you go and scan the screen of your phone at the Starbucks. And you know, there are different apps for this. I believe Square has one. You know, the credit card processing company. And there are some great things out there. There's Google Wallet. You know, it's not like Apple's the first to market with this, but it is different because Apple has such a giant market share and so many people use itunes, and that means they have an account linked to a credit card. So Apple already has your credit card number. You know, most of you, okay, I know some of you out there hate Apple and won't use them no matter what. And you won't use Facebook and, you know, all of that good stuff. And you know, that's your prerogative, and I certainly understand your concerns. Okay? Doug, who's been on the show before, he says something funny About Apple. He doesn't like Apple, by the way. He uses Android and PCs and all that kind of stuff. He says, you know, Apple is a prison, but it's a pretty nice prison. Just showing how that that ecosystem is, you know, it's a relatively closed ecosystem. Right. But it is a very nice ecosystem. And so Apple pay, you know, when we can go around, you know, paying with our wristwatch and with our iPhones and this becomes very widespread, which I think as of a couple of days ago with the announcement, I think we're going to see that pretty w widespread adoption. They've got the market share already, they've got the credit card numbers, the habit, the hardest thing to change in business. You know, like people, they approach me with these multi level marketing things and oh, by the way, I have a great quote on that. I thought of this one myself. I thought it was pretty good. Network marketing or multi level marketing is like socialism and communism. It only really works for the people at the top. Think about that one. That's a quote by Jason Hartman, yours truly. You know, they come to me with these MLM ideas and say you got to get in this and you got to look at this new product and this new opportunity and you know, you can make so much money and all this kind of stuff. And you know, so many of those things are about changing people's habits, let me tell you, changing consumer behavior, changing people's habits, getting them to act differently is really, really, really challenging to do. And only the largest companies, the most successful companies or the most incredibly innovative, easy and accessible ideas can change people's behavior. And even then it's an uphill battle. Okay. People are creatures of habit. Many good reasons for that. And you know, that reminds me of an interesting book I'll recommend to you. It's by what's his name, Daniel Ariely, I think is how you say his name. And it's called the Upside of Irrationality. Pretty interesting book. Pretty interesting book. So, you know, maybe we'll get him on the show sometime to talk about that. Before we get to our guest who's going to take a deep dive into alternative currencies, namely bitcoin. This was a fascinating interview. I learned some new things. You know what I really started to say, you know, we're like three deep into my tangent now already. What I really wanted to say when I mentioned that is that I wonder how the alternative currency people and the bitcoin people namely feel about a major player like Apple getting into the payment processing business. You know, the the payments business, the convenience of using the device to pay for things and not having to carry a physical wallet anymore. I think that is a detractor from the, the cryptocurrencies, the bitcoins, the litecoin cyber currencies, whatever you want to call them. The alternative currencies, I think in a way, the credit card or that really, the payments business, that is an alternative, alternative currency in a way. Not as much as Bitcoin, obviously, but you're going to see. I ask them some pretty tough questions. I remain unconvinced on these alternative currencies. I really do. I would love, as I've said before, I would love to be wrong about this. I just, I don't think I'm going to be wrong. I don't think that they are really going to be allowed by the powers that be, the central banks around the world, the Rothschild family, whatever. There's just too many incredibly powerful entities, governments and central banks that are incredibly powerful that can squash these things with a stroke of a pen and just put them out of their, you know, out of existence, basically. For those of you who say things like, well, the government can't control Bitcoin, the government can't control alternative currencies, I think you're right. Really deluding yourself. They can't control everything. Of course not. But there are legal tender laws. You're not allowed to trade in illegal drugs, you're not allowed to trade in prostitution. Okay, you're not allowed to trade in many things. You can trade in dollars. You can trade in gold if both parties agree. But if one party says, I want to use dollars, the law is. The legal tender law says you have to accept the dollars because that is the currency that is sanctioned by the government. And the government has the power. The government has the guns. They have the ability to imprison you if you don't obey their laws. So we'll get into that with our guest here. And you know what? Without further ado, because as usual, I'm rambling on and on. Well, I just want to tell you one more thing. First of all, we got a couple more people that joined us for the Little Rock property tour recently. We look forward to seeing you all there. It's coming up pretty quick. Just what about almost three weeks away? About two and a half weeks away. I guess that's going to be a great time. So I'm looking forward to seeing you there. Register@jason hartman.com if you haven't done so already in the events section. Also, I'VE got some travel coming up starting tomorrow. Actually, I am going to Tampa, Tampa, Florida, which is a. I like Tampa. That's a nice town. I'll be there for a two day mastermind meeting and I'm also going to Dallas for another two day mastermind meeting. And then I am going also to Peru for a little business and vacation at the same time, kind of combined with one of my sort of business mastermind groups and travel adventure groups there. It's kind of a combined thing. And we're gonna climb Machu Picchu and I hope I don't get sick from altitude sickness. And it's going to be an interesting experience. So I will be podcasting from there from these places and I'll talk to you as it develops and let you know how it is. You know, having been to 71 countries so far, it's interesting. I look at real estate deals in most of them. I don't know if I will actually do that in Peru. I don't know that that's even a place you'd want to look. But I've certainly looked in all the markets all the international promoters are talking about, you know, whether it be all the Central American markets and some of the South American and European markets and so forth. And once again, I just think the good old US Of A really has the best, the best property opportunities. And so we've got some more guests coming up on future episodes. I've been recording like a madman lately. I recorded, I think, six shows just today and I think four yesterday. And we've just got such a slew of, I can't even remember who they all are. But we've got some fantastic guests coming up on the show, so stay tuned for that. Let's get to our guest today, and it is Steve Lord, editor in chief of the Modern Money Letter. He's a really knowledgeable guy. So you're going to like this guest. We'll be with him in just a second.

It's my pleasure to welcome Steve Lord to the show. He is editor in chief of the Modern Money Letter. And we're going to talk about the economy, we're going to talk about the banking system, we're going to talk about alternative currencies. And in that discussion, of course, we will include bitcoin. And he's got some fascinating ideas about this that have probably not yet been covered on any of my shows. So I'm glad to welcome Steve Lord to the show. Steve, how are you doing? You're coming to us today from New York, is that correct?

I am just north of New York City.

Great. Just always like to give our listeners a sense of geography. You know, you've got some interesting thoughts where you and your newsletter are talking about how if Bitcoin or I guess any alternative, you know, cyber or cryptocurrency takes hold at even kind of its next level of interest, that it has profound implications for the world. What are those?

The right way to answer that is we don't really know yet.

What we do know is that Bitcoin created in a sense a parallel universe when it comes to monetary policy and monetary functioning, unit of account and store of value and all that sort of stuff. And what it really did was create this discussion about what is a, what is a currency, what is it now? We've had a lot of discussion over the last several years or maybe even a decade now about the lack of actual value in a national currency. The so called fiat currencies are really not backed by anything other than the cost of the paper that they're holding in your hand. And yet because of really raw habit, we all ascribe a certain value to it because somebody tells us that that's what it's worth. But there's a lot of issues with that. And one of the things that Bitcoin was created to address was the ability of a central bank to print it with abandoned. And that's, you know, if you think about when the original creators of Bitcoin started thinking about this process, they actually reached back to several papers originally written by Austrian economist Friedrich Hayek and a couple other guys in the 30s and then again in the 70s that looked at what a central bank's role is in managing, or not managing, as the case may be, inflation. There's really no coincidence, I think, that the original thinking around Bitcoin happened right into the teeth of the worst financial crisis we'd seen in, in three generations. So when you take a thing like Bitcoin and you create a massive distributed untethered network of self verifying transaction capability that is not beholden to any single network, any single politician, any single government agency, any single country really for that matter, you are sort of unleashing another line of thinking that is going to, I think eventually develop into applications that we haven't really even seen yet. So to sort of sum it up, there is going to be profound implications surrounding the concept of Bitcoin protocol, the theory of a blockchain and this distributed network verifying transactions independent of anyone else, sort of the hive looking at Everything that's going on and passing judgment on it. The hive being smarter than any one of us or any bureaucrat or any individual.

Okay, so let's dive into the whole technological side of bitcoin for a moment because the bitcoin believers talk about the technology being really something that is awesome. And I don't know if the listeners or I understand what the technology really is. I mean, I know it's limited, I know it's a mathematical formula. I know that there are some ways that you can kind of use it to self escrow. I guess that's my own description. But you know, you probably have a better phrase for that. And money doesn't do that. You know, cash doesn't do that. And you know, with online transactions, we'll go back to ebay and look at that. You know, originally people thought, oh my God, you know, what am I going to do? Send them the money before they send me the thing they're selling the widget. That actually turns out to work fairly well because people value their online reputations and those online reputations take a lot of effort to remake all the time. Of course you can make fake profiles and so forth, but with bitcoin, it has some really unique technological features. So first of all, you mentioned blockchain. What is blockchain?

So the blockchain is really the heart of the whole bitcoin ecosystem. And what the blockchain is, is essentially a giant open ledger of every bitcoin transaction that's ever happened and every bitcoin that's ever been used in any of those transactions. It is a giant distributed open source accounting book that logs every step of the way, every bitcoin that's ever been used, who's ever done it, where it's okay.

So is there any other example of this blockchain concept being used or was that a phrase that was came about as a result of bitcoin?

It's unique to bitcoin and the reason why it's called a chain is transactions within the ecosystem are blocked together. And this is the real brilliance of the concept. And this is something that I think your average person out there on the street has to still understand very clearly. This process of creation of new bitcoins is called mining. And that's solving this very complex series of mathematical equations. And that's all these computers that are sitting there day and night, churning out trying to find the answer to these questions. And to spare you all the math behind it, the 30,000 foot view of it is all of the Transactions that are being created in blocks are being grouped together. So say the last 400 Bitcoin transactions around the world are going to be pulled together into a block. So that's one block of 400 transactions, okay? And in there is a transaction between you and I say, I'm buying a cup of coffee from you. The math that is being used to create new bitcoins, all the folks out there in the world whose computers are sitting there churning night and day trying to find the answer to that math question, is related to the block of 400 transactions we just created when somebody solves it. And again, this is the 30,000 foot view. When someone out there solves that math equation and earns those new bitcoins, they verify that all of the bitcoin in our 400 transaction group and all the addresses in that transaction group are valid and are actually supposed to do what they say they're supposed to do. And once that happens, that block that we call a block gets sealed and added to the blockchain and then everyone moves on to the next group of transactions. So in a way, every single transaction is linked to the ones that came before it. Because the one thing I needed to add there is every new block contains information from the block that immediately preceded it. Because of this structure, it's all self defined. Everybody's out there trying to earn new bitcoin and in the process of doing that, they're verifying the transactions that are happening right now on the network. And because every block has the pieces of it in its math from the block that came before it, no transaction can be faked and no bitcoin can be counterfeited. It cannot happen. It is not feasible. Because as soon as something was introduced into a block that didn't belong and didn't have the pieces from the prior blocks, it would be instantly flagged and audited and kicked out.

Where, where is this transaction taking place? I mean, when I first used bitcoin, I was fascinated to see how it worked. I just wanted to try it, you know, and understand the mechanics. So I went online, I found something I wanted to buy. And by the way, I know you talked with Patrick Byrne, I had him on the show too, the founder and CEO of Overstock.com and he's, you know, he's the first major e tailer to take bitcoin. And that was just a huge, huge move really at the time, you know.

Very much so, yeah, definitely.

And so, you know, I found something I wanted to buy and then they asked me to put in the number, you know, there was a big long sequence of numbers I put in. I put it in and clicked submit and I bought the product. Right. So what happened when I did that?

Did it go to somebody?

I mean. I mean, this is all open source and decentralized. So, you know, did it. You know, it didn't go to some centralized server at the Federal Reserve. I know that.

No, it didn't do that. Did do is go into a giant collection of virtual private servers, the blockchain. And the bitcoin clients are downloaded on all these miners that are out there trying to solve this.

Okay, so the miners, all of these miners around the world that are mining bitcoin, are the ones that are actually clearing the transactions. Exactly right.

That's exactly right. And they're not doing it because it's their job. They're doing it through a process that they hope will earn them new bitcoin. You know, they're not doing it out of the goodness of their heart. They're doing it as a byproduct of earning new supply, which is what I think the beauty of the whole system is. And when you gave that long string of alphanumeric characters into Overstock, that was your public key. Now, when you have a bitcoin wallet at one of these providers like Coinbase or Bitpay, you also are given a private key, and that's what authorizes that the bitcoin you're sending to the fellows at Overstock is actually yours. So you have a private key and a public key. And in the blockchain, they can see that the math, again, is used in a way that will verify the bitcoin that you're trying to send to Overstock is actually coming from your account, and that through the use of your private key, you are authorizing it. This is an important distinction because there's this perception out there that it's not safe. And bitcoin is a very shady thing and all that because of some of these providers that have blown up in the last year. But the reality is, none of those problems really had much to do with the bitcoin protocol itself or the bitcoin theory. What it had to do was lack security and hacking issues and things like that related to the folks that are running these, what we call wallet companies that are essentially online accounts to store your bitcoin. The best parallel is if you drive down into New York City and go. Go into the Bronx in a Porsche and you leave your keys on the front of the Porsche when you come back from the movies, your Porsche is probably going to be gone. Now, is that Porsche's fault or is that your fault? Right. Very similar here. If you have a wallet provider who is not doing their job to secure your Bitcoin, it's not really bitcoin that's the problem, it's the provider. When a bank gets robbed, we don't stop using dollars, we just stop using that bank.

But when an entire planet gets robbed by central bankers, we using the dollars and the other fiat currencies.

You know, there wasn't another alternative, and now there really is. And you know, that opens up another whole line of discussion.

Let me ask you on the technology part again though, for a moment. So how do the miners get paid for collectively clearing all of these bitcoin transactions? I know that mining, they can create Bitcoin and that's just such a weird concept that you would cyber mine something. I mean, you know what's really interesting for this discussion? Like, like, let's just get really semantic and nitpicky for a moment, okay? Everyone is always talking about fiat money. All the gold bugs are talking about, oh, fiat money. It's the worst thing, you know, ever, right? And you know, and I mean, I blast fiat money all the time myself. The definition of fiat, I pulled it up while you were speaking. It says, quote noun, a formal authorization or proposition, a decree adopting a legislative review program rather than trying to regulate by fiat. Definition number two, in arbitrary order. And the example they give is the appraisal dropped in value from 75,000 to 15,000, rendering it worthless by bureaucratic fiat. Okay? And its origin is Middle English, from Latin, let it be done. Okay? So fiat just means by authority because it means because someone says so. But when people criticize the US dollar, and believe me, I'm a critic, they say, oh, well, it's not backed by anything. Since 1971 when we went off the gold standard, Nixon untethered the dollar and it's just paper and ink. Right? Right. And technically it's not actually paper, but it's close enough for government, we'll say for government work. How's that? But the dollar really is backed by a lot of things. Number one, it's backed by the most powerful military the human race has ever known. Come on, that's not fiat.

Well, I mean, I think it's fiat in the sense that it can be modified, like you said, by decree. Right. I mean, it has been. If you look at what the Federal Reserve has done with its dollars or its supply of dollars through QE1 through wherever we are going to end up. It is by fiat in the sense that its structure, its components, its supply can be changed by policy as opposed to by the market. Bitcoin is not, I mean, it's important to make this distinction. It is a fiat currency in the sense that it is not backed by gold as people currently.

It's not like, you know, if you want to criticize things equally, you could really just rip bitcoin apart. Because Bitcoin's not backed by anything except math and software. It doesn't have to be backed by gold to not be a fiat currency. It just has to be backed by something in my eyes that has intrinsic value, right? And that's the blockchain. You could have a real estate backed currency, a, an agriculture backed currency, a gold backed currency, whatever. Anything that just is valuable in and of itself without having to be. It's not a derivative, in other words, right? It's just got intrinsic value where it is very different.

The common definition out there of fiat is that it is not backed by anything of intrinsic value. Now, where Bitcoin and the dollar or any other national currency right now differ is that there is no way to modify the rules of the road. There will be 21 million bitcoin created. That's it. As a matter of fact, it will be created at a very steady rate. We can modulate it. The bitcoin miners that are out there right now, they get a reward of 25 miners. 25 miners, sorry, 25 bitcoin for sealing a block. Their computer solve that math and they seal a block, they get 25 Bitcoin. Now the math that's being created, what.

Does seal a block mean?

So when we, remember when we, when we took the 400 transactions or however number there are in a certain, certain block and we solve the math, the miners get the math right and are able to find the solution to that block's math. It gets sealed. No one needs to go touch it again because all the transactions have been verified by the process of solving the math. So that block gets sort of ring fenced and added to the blockchain and everybody moves on to the next one. So that's what we call sealing a block. When that happens, when you get the math right, you get 25 bitcoins.

So how many bitcoins have been mined so far? If 21 million is the limit, how many?

About 13. About 13 million.

Okay, so more than half. So like getting into the bitcoin mining business would not be a long Term proposition.

No. And actually, it's getting hard to be economical doing it if the price doesn't begin to rapidly appreciate. It is getting harder. Because one thing I was going to say is the protocol, the bitcoin protocol for that math that we were just talking about, it has it structured so that sealing a block, right, should take about 10 minutes. So the math is constantly being tweaked to be easier or be harder, depending on how long it's taking the global mining community to seal a block. As it starts getting down toward nine minutes, the difficulty gets harder through some very sophisticated crypto algorithms and math. If it starts getting much higher than 10 and a half minutes, they back off a little bit and the math gets easier. There is no way to go into that system and say, like the Fed has done, you know what, we're going to pump a ton of more bitcoin in here. So the grind, you know, the gears of the economy are greased a little bit back. There's no way to do that because there is no one person or one thing or one country that's in control of how this all works. It's distributed. You could ban bitcoin in the United States right now. You could ban it. The government says it is illegal to use bitcoin right now. It would still survive. It would be, just not here. That's the only thing that would really happen. China has learned this. They have tried to ban bitcoin and the usage went up.

Well, did the usage go up in China, though?

Yes. Oh, yes. It went up in one. It went up in India. It went up in. In Chinese currency. Actually, Chinese currency is one of the largest, believe second largest denominations of fiat currency that is transacting within the bitcoin universe. Makes perfect sense. Any country that has currency controls is terrified of something like bitcoin.

What I've always said is, look, you know, with legal tender laws in the US we have to accept dollars for trade. You know, it's valid for all debts, public and private. But we're not allowed to trade in some things that are actually illegal. Many drugs are illegal. We can't trade in heroin, for example. That would be illeg. And so when China outlawed bitcoin, is that similar to the one thing that I think Reagan did that was like a miserable failure? And that's the war on drugs.

And what's interesting about the war on drugs and the war on prostitution, these sort of arguably victimless crimes. Okay. And I know you can argue with that. I'm just saying it's Arguably victimless. Okay.

So I don't want to go there. But. But, you know, the concept is, is that the government, by making them illegal, they've actually created and supported monopolies by the criminal players in those industries. The same way crony capitalism supports monopolies or virtual monopolies on Wall Street. Try and compete with Goldman Sachs. Good luck. Right. You know, so it's. It's kind of the same thing, but, you know. So how did it go up in China when China outlawed it? I mean, if they say they're gonna put everybody in jail for using Bitcoin, aren't people scared?

Well, no, not really, because they deal with that sort of thing, I think, all the time over there. And what they really did, because the Chinese were very clever with a currency that is controlled the way it is. They were bright enough, I believe, to look at the way the whole Bitcoin ecosystem is built and realized that there would be no way to stop it. You'd have to outlaw every IP address that was dealing in Bitcoin at all. And you would never be able to do that. So what they tried to do was make it difficult to transact in it. Banks are not allowed to use Bitcoin, they're not allowed to settle in Bitcoin or exchange Bitcoin. But what people have been able to do is figure out that they can go out of one, go out of renminbi or out of one and into another currency, go from that currency into gold, perhaps, or from gold into silver, platinum, whatever, and then from there into Bitcoin, and then they can take it anywhere they need to go. The methodology from which they were doing that is all manner of different accounts and places that are allowed to transact act with the outside world. All they need is a crack. And this is your parallel with the war on drugs is apt, because the reason why you will never be able to ban this is because there's too much demand for the utility that it provides. And it'd be like pushing on a string. There's nothing to hold back against. The only way a country will be able to truly limit Bitcoin is if they shut off Internet access to their country. And even then, they'd also have to shut off mobile phone access to their country. Then they could prevent Bitcoin being used. But until they did that, there will always be a leak, a way to get around it, because it is, you know, it's one of these things that exists everywhere and nowhere at the same time. There's no bank branch, you can go.

Nail the door shut every time they try to make something illegal in any part of the world. There's always a gray market, there's always a black market. You know, rent control doesn't work. There's tons of gray markets in rent controlled apartments. I mean that's just an idiotic thing. I love that you can't be a Keynesian with bitcoin.

No, you absolutely cannot be thing a good Bitcoin. It is an Austrian economist's dream.

How should it be viewed? You know, you've given some really interesting insights into the technical aspects of it as a payment system. I guess there's three choices. Can we view it as a payment system, an investment or a currency, or d all of the above?

Oh, it's definitely all of the above. I mean, if anything, the first two are probably more apt going forward. You know, a currency.

I don't want to say it's a misnomer because it is thought of that way and it is used in a lot of ways that way. But our world is still heavily denominated in our national currencies. And as you noted, I don't anticipate a time. I'm not one of these Bitcoin acolytes that believes this will replace the United States dollar certainly within many lifetimes. It's just not that type of thing.

Right.

So using it, saying it's a currency is, is correct in the sense of the way it's being perceived right now. But I don't believe it to be a direct replacement for things like dollars because our world is still denominated that way. Leave the other two. I mean it is a payment network, it is an investment. There is no doubt in my mind. I mean if you have only ever 21 million of something and it's half of them are out and the interest is rising, you know, if you have limited demand and rising, I'm sorry, limited supply and rising demand, there's really only one way that that could curve still works in basic economics and the price has to go up.

See, I got to totally disagree with you there, okay, on two, two counts. Number one, first of all, I don't consider, just so you know where I'm coming from, I don't consider anything an investment unless it produces income. Because if it doesn't produce income, it's totally a speculation, it's a gamble. High priced real estate that people buy in places like the Socialist Republic of California or New York, you know, that doesn't produce cash flow. That's not an investment. That's a gamble, that's a speculator's deal. Non dividend paying stocks, same deal. If you know you're just a one dimensional guy, right? Gold, same deal, gambler, speculator, silver, same deal. Because none of these things produce cash flow and bitcoin falls into that category. So that's the first strike against it in my eyes as an investment. Now you could argue though, there's a distinction between an investment, in my opinion, and a store of wealth. So a store of wealth is a savings account in essence. And we know that dollar denominated or any fiat currency denominated savings accounts don't work because they're always debased by inflation and usually taxes, depending on where you are. For me, those are my issues. But here's the big one. Bitcoin isn't the only system out there. It may well be limited to 21 million. And I think that's awesome, I love that. But you know, people can just decide that they're going to do Litecoin or Kanye coin or I'm surprised there isn't a Trump coin, a Donald Trump. You know, you're absolutely right.

There's 414 I think at last count.

Yeah, Alternative currencies. Right. Wow.

But you have to look at that in scale.

Okay.

There are only two that have any kind of heft right now. There's Bitcoin by a huge margin and then Litecoin, there's a couple others that are coming on strong. One in particular is called Darkcoin, which tries and so far I think succeeds fairly well in sort of doubling down on the anonymity that a lot of people perceive bitcoin to have. Where I think.

You have the massive investment and the resiliency that has come about over the last couple years of the bitcoin blockchain. And that will be what is very hard to reproduce. That network is huge.

These other, these other cryptocurrencies, by the way, do you like to call them cyber currencies or cryptocurrencies?

I tend to call them either digital currencies or alternative currencies.

Okay, so I'll call them digital currencies then because they all are digital. That's right. So these other ones, they don't have the bitcoin technology, the blockchain?

Well, sure, some of them new. Like for instance, Litecoin's whole is that it is the almost exact same type of protocol. And remember all of this stuff is open source. Anybody can go on to GitHub and look at it and Download this stuff and tinker with it and do whatever they'd like. It is all there for everyone to see. Litecoin was created simply because the fellows that got behind litecoin didn't think 21 million would be enough. So they wanted to have something, in this case, 80 million or 81 million and a lower hurdle in terms of solving that math. They wanted to make it easier to mine litecoin than it is to mine bitcoin because, you know, mining bitcoin has gotten very hard. It's not an easy process. This is very sophisticated math that you're asking your computer to try to figure out. Many of these altcoins use a similar type of concept or a slightly modified or tweaked concept of the blockchain, but none of them have the distribution and the scale of a bitcoin. I mean, will bitcoin ultimately be the one that survives? I don't know right now. Now it's massively in the lead, and there is a penalty right now to almost starting over again. There'd be no reason to go back.

And I hear you. Okay. So I just want to, you know, mention. When we look at history and we look at all of the big things from history, we look at all of the huge companies, the first companies. Remember how many auto companies there used to be? Why isn't IBM controlling the world of computers? They lost their dominance, really, in many ways. And there are so many companies that just. You don't even know who they are anymore. I mean, I read about them in business books from decades past.

Absolutely.

And, you know, there's that old saying. How do you recognize a pioneer, Steve? Well, they're the ones with the arrows in their back. That's right.

The first guy over the wall gets shot.

Yeah.

Now, in this case, that may end up happening here because some of the smartest people literally in the world are looking at bitcoin and the blockchain and developing new ways to think about what this is really going to mean. That sort of leads us into, like, where does all of this go?

Yeah, yeah. So is there a Bitcoin 2.0?

Yes, that's exactly where. Actually, it's called Bitcoin 2.0. And what it is. This is. In the beginning of the piece, we were speaking about the real implications of what bitcoin represents. And that's where this starts to really get interesting, because Bitcoin 2.0 essentially says, okay, if. If the real upshot of the blockchain theory that you're going to have this, this distributed group of people essentially going through some process to verify a block of transactions inside of an ecosystem like this. Well, you can apply that to really anything that is currently using middlemen to do that same thing for some fee.

Right.

You know, you want to wire money to Germany, you're going to go to your local, you know, whatever bank branch, Wells Fargo or whatever, going to fill out a form, they're going to wire it, it's going to leave your account. Now, two days later, they're going to charge you $75, they're going to charge you 75 dollars. And two days later your guy in Germany is going to have good use of the funds. It may show up in his account, but he can't use it yet. And that's because Wells Fargo wants to play with the float. With Bitcoin, you can do that as quickly and as cheaply as sending an email. And again, it's all verified within the blockchain that those are your bitcoin, that they are not counterfeit bitcoin, and that they're going to a legitimate address with. You know, all of these things are automatically done inside of anywhere between 9 and 10 minutes. So if you take that blockchain concept and look a little afield, you can see all sorts of applications in this society where that would be a useful methodology to use. And that is Bitcoin 2.0.

This is where it gets exciting.

This is where it gets exciting.

Okay, so tell us, so now we're not even talking about money anymore? No, we're not. What are we talking about? About Steve?

Well, I mean, one good example is contracts. So if, if I buy a car from you, but you need to deliver that car to Miami beach before I give you the money. There's always been this conflict of, well, who's going to give the money before they get the car?

Right?

I'm not going to give you the money till I have the car and you're not going to give me the car until you get the money. So what we do is we use a blockchain application and there are some right now that are, that are getting built. There's, you know, six months in the bitcoin world is an eternity and within six months I think you're going to see open consumer facing application for this kind of thing. But you're going to buy this car. Now what we do is we use a token, call it a bitcoin, call it a car coin, call it whatever you want. We essentially program that token to execute once the Car has arrived where it needs to be. So you drive the car to Miami. I get a notification from my system that the car is there. When that happens, the contract that we've programmatically created into this blockchain system executes, and the money is transferred to you.

Okay, let's talk. Tell me how that really works. So the car gets delivered to, in your example, Miami Beach. Right. I'm in Scottsdale, Arizona. So I sell you the car, and what do we do? We download an app on our smartphone. Blockchain escrowing app.

So exactly. Think of it like that. So both of us have this client on our systems, and we can both see that a token has been created that has the value of the car in it. And the parameters of that token are that when the car shows up in Miami beach, and I confirmed in the system that it's there, you get the money. But we can both see that it's there like an escrow. But in this case, there's no lawyer charging you for the purpose of having an escrow. There's nobody really charging you anything.

We've disintermediated the escrow company or the title company. Good.

Nobody's in it. It's just you and I.

Okay, so I'm the seller of the car, you're the buyer, and I deliver the car. And the physical car is in Miami Beach. You've the car, and then you could just say, hey, I never got the car.

Well, no, because you wouldn't be able to do that. You can see where the car is and you can see the system. And remember, using a blockchain. Using a blockchain, it's not just us that are verifying it. It's everybody. Now, there's lots of ways that this can happen, and we certainly don't have a lot of time to get into how it would happen. But the folks that are looking at these Bitcoin 2.0 applications are going to use math, they're going to use the hive. You know, the sort of distributed wisdom of everyone involved in a system like this. There's some ripple, is one that's creating this thing where essentially you have certain nodes of authority within the blockchain that can approve or disapprove these things. So you and I both see the token there. My money goes to the token. You see that the money's been put up there essentially in escrow. I got, when the system recognizes, and this would all happen very quickly, that the car is there, the money is essentially.

So my only question is how does the system recognize the car is there?

There's a myriad of different ways to do that. I mean one of them obviously is there are some sort of proof of stake where you have to have done something with the car in Miami that's independent of telling me that it's there. Okay, log into an email address, scan the VIN and send it up into the scan and put it to the server, something like that, where there's no way for me to fudge it. I mean this is one of the things that is really interesting about blockchains is that there is, if they're built correctly, there's very, very little capacity to trick anyone because it's all automatically authorized.

Yeah, that's, that's really cool. Give us like one more example. Teed this section up with talking about how it goes beyond money. And that's really money. You're escrowing money to fulfill a contract is the example, example you gave. So most people are familiar with that. And I like, you know, it's neat that it disintermediates the escrow company or the lawyer. But you know, escrow companies and lawyers for that kind of function aren't that expensive. Hire a lawyer, that's expensive. But for this kind of like assembly line type function, it's not that expensive. Is there something you know, even more exciting that it, it does that's a non money type of thing.

It's really any kind of transaction, right. It doesn't have to be capital, it can be the delivery on a futures contract. So it's you know, 50,000 bushels of wheat in return for, for x amount of. I mean, I guess that's still money. But you know, there's any sort of thing or operation that requires authentication to make sure that a buyer is imposing on someone else and verifying that the payments have actually happened, assuming that that transaction is valid. Just say electronic commerce. Good example. Credit card cards. I mean you realize credit cards are using 1960s technology, right? Mag stripes and raised numbers, right. With pin. And they're still not very good at securing those. I mean look at Target.

Some have chips in them, but. Yeah, yeah, well, yeah, well even with a chip it's still the target scenario.

What we've seen is the application of as much modern technology as is possible onto a very antiquated and old fashioned system where MasterCard and Visa have banks and banks and banks of servers sitting there every day trying to figure out if, if a card has been compromised or not all of that goes away. It's the Internet of money is what a lot of people call it. And so you have any sort of transaction type of system that's going to require verification of the people and verification of the transaction is going to use in this Bitcoin 2.0 world, is going to use some kind of underlying blockchain type of thing. I mean, MasterCard, while they have also hired a full time lobbyist in Washington D.C. to argue against Bitcoin, has taken out patents on using the blockchain type of technology or protocol underlying their credit card transaction. So they know where this is going, right?

They get it. I mean, Bitcoin 2.0 is really already here, right? I mean, people are already doing this.

Well, we're already doing it. There's, there's several companies that are essentially in beta stage with their products. There are several altcoins that have been created that we are able to modify into something that can act like that token we were describing earlier. There's several firms that are beginning the process of fleshing out exactly how this can work and in which market niches they're going to try to make it apply. So it is early. There are a couple out there that are beginning to actually use them operationally, but I would say that it's still very early. Bitcoin itself is only a few years old. This is all happening very quickly. And then one last thing to note is there's a little bit of debate within the bitcoin ecosystem itself about how exactly does this happen. Do each one of these Bitcoin 2.0 applications, do they go create their own blockchain, or do we want to create all of these things that essentially would live on the existing Bitcoin 2.0 type of blockchain, where you're essentially creating branches, almost like a subway map, where you've got a main line where those for all the bitcoin transactions are, and then these little sidelines where they go into particular niches. You can easily see in a few years where there's a blockchain application for things like cars or houses, where there's a lot of middlemen that are all standing there to make a fee if the transaction happens, there's some big amount of money, there's little trust. All of these sort of things. You can see, I think within five years a multitude of applications that are very established and very well thought through and worked out to use Bitcoin 2.0 type of technology.

It's really very interesting. I mean, this is fascinating stuff. So. So I can't wait until the future?

Yeah.

You know, you were asking earlier to answer this better.

You were asking earlier about another example. I mean, just think of voting.

Yeah, right.

In that sort of scenario, blockchain technology could use what we've already built to verify that you're who you say you are and that your vote was validly cast.

Right. But in this country, we have such a completely stupid system that we can't even act, ask people to identify themselves.

To vote because are you a citizen?

Yeah.

No, forget it. Doesn't matter.

It's just, it's. I mean, this is just sickening. What, like the stuff that passes for. I can't even believe there's an argument about some of this stuff. It's, it's insane. Okay. You know, it's, it's just, you know, all. And all the, all the politicians want to do is just increase their power base and stay in power and you know, their Keynesian philosopher philosophies where they can just dole out the goodies and buy votes. It's just, it's really disgusting. They've turned a whole nation of people into prostitutes, basically. It's just gross. The whole thing is gross. When you're receiving money from the government, I think you should have to abstain from voting, you know, so you can't vote yourself your raise. It's a conflict of interest.

The thing I was going to kick out of is with the technology we have today, and that's really what this is all about. This is the application, application of technology to the financial, the monetary sector, which has never happened before. But with the technology that we have, why do we have to have a whole evening of the tallies coming in from this jurisdiction With a blockchain system with technology applied to that, the voting would be almost instantaneous. You would have a running tally that was probably good up to the last five minutes of where we were. You'd have the results the minute the polls close at 9 o' clock in California, boom. There's a.

But Steve, the lobbyist for the television networks, that commercials wouldn't like that at all.

And you know, to get back to something you said earlier, there will be a push from national authorities to figure out a way they can get onto this. New York has actually already put out draft regulations that will require a license. You have to be licensed to do business in bitcoin and things like that. It's just only a draft form at this point. But there is already a push to begin putting regulation around this. And from the Federal Reserve's perspective, they're a little terrified.

Oh, they gotta be totally terrified.

And how would they track it?

They must hate this.

The economic activity that is existing right now in Bitcoin denominated transactions is completely outside of the Fed's data purview. They can't see it. It doesn't get tracked.

Well, in my opinion, this is what the government will do or governments around the world will do to force people into their central banking conspiracy. They will either be complicit or actually engineer a crisis in, you know, with these wallet companies or, you know, it's money laundering to support terrorism or drug trafficking or human trafficking or something. You know, they'll make up whatever they have to to protect us from ourselves. And you know, it always be for our own good, of course, you know, and then they'll make laws against it and try to put the kibosh on it. You know, they always like this whole thing has repeated itself. The playbook is so obvious. Why people can't see it sometimes see.

It over and over again. One thing that just to leave your listeners with is there have been revolutions in every other area or not necessarily every other area, but I mean you have a GPS in your phone now. Your thermostat can be. You can log onto your thermostat from your office and change your. All of this stuff is possible because of two things. The speed and the development of computing technology and telecommunication connectivity. Now those two things coming together is now finally getting to monetary units and we're just using the same sort of technology we could do for the people that are unbanked, for the folks in other countries that don't have the kind of banking system we have where if the bank close you can sue them and actually maybe get your money back. This is huge. Talk to someone from Venezuela.

Oh sure.

They can't wait for this to get you.

Right.

Yeah, it's all coming. Your listeners need to understand this is all coming Christmas or Hanukkah or whatever.

Yeah, yeah. Very, very interesting. Very interesting. Steve, give out your website and tell people where they can find out more. You know, you have a great newsletter. It's really in depth and, and detailed and well illustrated. I love it. So tell people where they can get a hold of that.

We have, we have a free blog you can opt into@modernmoneyletter.com and we have a. The newsletter site is at modernmoney Co.

Fantastic. Steve Lord, thank you so much for joining us.

Thanks for having me.

I've never really thought of Jason as subversive, but I just found out that's what Wall street considers him to be. Really? Now, how is that possible at all? Simple. Wall street believes that real estate investors are dangerous to their schemes because the dirty truth about income property is that it actually works in real life. I know. I mean, how many people do you know, not including insiders who created wealth with stocks, bond, mutual funds? Those options are for people who only want to pretend they're getting ahead. Stocks and other non direct traded assets are a losing game for most people. The typical scenario is you make a little, you lose a little and spin your wheels for decades. That's because the corporate crooks running the stock and bond investing game will always see to it that they win. This means unless you're one of them, you will not win. And unluckily for Wall Street, Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than a 26% annual return is disappointing. Yep, and that's why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us. We can pick local markets untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely. I like how he teaches you how to protect the equity in your home before it disappears and how to outsource your debt obligations to the government. And this set of advanced strategies for wealth creation is being offered for only $197. To get your Creating Wealth Encyclopedia Book 1 complete with over 20 hours of audio, go to jasonhartman.com store if you want to be able to sit back and collect checks every month just like a banker. Jason's Creating Wealth Encyclopedia series is for you.

This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. Exclusively.