HS 274 - The Age of Cryptocurrency with Paul Vigna & Michael Casey

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Welcome to the Holistic Survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The Holistic Survival show is your family's insurance for a better life. Jason will teach you to think independently, to understand threats, and how to create the ultimate action plan. Sudden change or worst case scenario, you'll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.

It's my pleasure to welcome Paul Vigna and Michael Casey to the show. Paul Vigna is a Wall Street Journal reporter and host of Money Beat daily web show on WSJ.com Michael Casey is a senior columnist at the Wall Street Journal and they both are co authors of the Age of Cryptocurrency. How Bitcoin and Digital Money are Challenging the Global Economic Order. This is a fascinating topic and Paul and Michael, welcome. How are you?

We're good. We're very good.

Very well, Jason, thanks for having us.

Yeah, it's good to have you. It has been truly amazing to watch the of bitcoin and other cryptocurrencies. You know, just so you know where I stand on this, and I hope I'm wrong, I don't think it has a big chance of success only because, and like I said, I want to be wrong about this only because it doesn't have the blessing of the powers that be, the government and the central banking cartel. But I would love nothing more than to see this become the new global economic order. How is bitcoin and other cryptocurrencies, how is it challenging the global economic order? Tell me how I'm wrong. That's what I want to know. I want to be right.

How about I jump in? So there's a number of ways to think about this. One is, of course, the fact that you don't actually need their blessing. Now. What you do need is mass adoption, so it can't be killed by the powers that be because it resides outside of any kind of framework in which that could happen. So that's one thing. Then the question is, how do you get adoption? And maybe you're right that in fact, the lack of any sort of support from major institutions might be a problem. But what we are finding, in fact, is that there is actually a lot of interest amongst the establishment in the technology behind it. And one of the things we are really emphasising both in the book and some of the other stuff we have written about, is that there has been a little bit of misinformation, because I think a lot of bitcoiners themselves are actually believers in the currency as well. But there is another side story to bitcoin that doesn't get told nearly enough. It is one that a lot of investors in Silicon Valley who have put money into companies around this are very interested in, and that's that the technology is capable of doing so much more than just being a currency that you and I might use in our daily purchases and so forth. And that capacity to actually make the financial system far more efficient, which is what it does, is really where the real potential for this lies. We may not actually ever see bitcoin as part of our daily lives. It might be, or for that matter, whatever cryptocurrency comes and takes its place, but the technology behind it, the fundamental idea of a decentralized monetary payment system is actually the very powerful. It may be that banks and governments and others use it as a way to speed up the payment system or to do all sorts of other things for that matter, while you and I just go around continually using our dollars, kind of oblivious to the fact that this powerful technology is now actually operating in the background.

Okay, Paul, what are your thoughts on that?

You know, I think you hit on a good topic, a good question. Because one of the things, and one of the things that I think kind of got me certainly interested in bitcoin initially, really kind of piqued my interest is the fact that, listen, myself along with a lot of people thought, well, you can't have money that isn't backed by a government. You actually can. And I think one of the most interesting things about Bitcoin is that it sort of shows that this technology is proving that things we've had for hundreds of years, which we needed because there was just no alternative we don't really need anymore. There is an alternative. Whether or not Bitcoin makes it, that's a big if still. But whether or not it survives in its current form, the technology is proving that the way we used to do things can actually be improved upon. That's a very powerful thing. And a lot of people are still trying to wrap their heads around it. And that was really one of the big reasons we wanted to write the book, is because we did see this potential. And you're Right. Right now it's pretty much potential. I mean, the system is up and running. It has people using it, it has merchants accepting it. But it is still a relatively small system. When you compare it to certainly almost any other currency, certainly US Currency, certainly any other economy. It's still a small thing, but. But it is there and it works. And I think people are going to have to eventually start to wrap their heads around this idea that can you have a currency that is not backed by government? Yes, you can. And the next question is, well, how can you? And that's why we just wrote the 300 page plus book to explain that.

You both referred to technology. And when you say that, are you talking about the blockchain technology, the tracking technology?

Yes, absolutely. That's the core. The blockchain is the breakthrough piece of the puzzle.

If you.

There's other elements to what makes bitcoin tick. But ultimately the key thing is this permanent ledger, this permanent and public ledger.

So the interesting thing about the blockchain, that permanent ledger, if you will, is that it's not proprietary. I mean, bitcoin doesn't own or control that. I mean, nobody owns bitcoin except people who own a certain amount of them, which is really cool. I love how it's decentralized. But they can make a new, you know, crypto US dollar with blockchain technology. I mean, big deal. The government could come out with that tomorrow, right?

Mm, absolutely. And that's one of the things we talk about in the book. And that's one of the things, I think eventually you're going to see that, because I think governments are going to see the advantages of it and they can. Yeah, anybody can come up with their own coin. You, me or Mike, any of us could make our own coin. Now, just because you make it doesn't mean other people are going to use it. There's a couple hundred of these so called altcoins and the vast majority of them are never going go anywhere.

Yeah. What happened with Kanye coin, by the way? Kanye west.

It was a good example. It wasn't Connie. It was a couple of guys who wanted to sort of piggyback on his fame and they, they just as a joke designed it. They said, oh, we'll call it Kanye coin. And he hated it and he threatened to suit. And it was a big mess. And it never happened. So it never actually happened. But yes, anybody can come up with a coin. But what has to happen is you have to have a community grow up around it. You have to have people Want to.

Use, you got to have a doctor. We understand that.

Bitcoin, Bitcoin, that did happen. And whether that was a quirk of history or not, it did happen. So, you know, and there are some other coins out there. I know Mike and I go back and forth about which one is ultimately going to survive and which are ultimately going to make it. But all of them have a community of backers. There's a reason for them to exist.

You know, every band has their following. Every movie, as it's called, following to.

You know, because as opposed to a government currency, it is not the law of the land. You are not legally mandated to use it. So it has to be adoption.

Yeah, of course. Thing is though, how would someone set up their own cryptocurrency? I mean, can I do a search online and for 2995 find a piece of software that creates a JSON coin?

I don't think you'd even need to do that. You would anything. I mean, you just copy it. I mean, that's the whole point about open source. The code is there available for you, so it's publicly available. That doesn't mean you can change it. The whole process through which open source is actually developed is a little bit more hierarchical in terms of the roles played by the chief coders and so forth who have special keys to manage it. So that idea of community based development is not quite. It's not entirely this big wisdom of the crowd thing. On the other hand, it's publicly available, so you could just copy it, run.

It through your system.

And yeah, you have to find a good software engineer who knows how to do a few things here and there and maybe it'll cost you some money. But ultimately this is trivial for anybody with any basic knowledge. It is a simple thing to be done. And that's the whole point. Look, one of the things that's most interesting though for me about this idea is that it implies innovation. Bitcoin is flawed. And lots of people in the bitcoin community, lots of expert coders know this. I mean, there's various flaws in it and there's various things that might not work on a scalable level if they ever take this to a much greater scale. It just won't be able to process enough transactions in time, for example. And it's got problems with its special mining algorithm, that is the mechanism through which the coins are created and the transactions are confirmed. But there are people coming up with models that might be better ways of handling that that don't create so Much heavy competition for it, which creates something of a more democratic coin and others who have got different algorithms that have more coins produced over time. So you don't have the risk of a kind of a deflationary crisis at some point. All this is open debate as well. Which is one of the things that's just really interesting about it, is that what makes a good currency really depends on where you sit in terms of whether you're a saver, borrower. Right. I mean, it's kind of a big public dialogue, a big negotiation. So you've got, in that context, the capacity to have competition between a lot of silly coins like Kanye coin, but actually some serious attempts to take bitcoin and improve upon it and create something else that might actually work in a more functioning way or that can do a lot of different purposes, different actually specific services.

Right, right. It's interesting that you point out that bitcoin has these flaws. I didn't know it had any flaws like that. I mean, it seems very democratic because it can be mined by anybody. Of course, if you have, you know, huge racks of servers and a lot of money to pay for electric bills and technicians, you can mine more coins than other people can. But how would it be more democratic?

The problem with that is a. The concentration of ownership.

Right.

So that gives you a lot of power. And what you've got are these pools now. So if you and I wanted to mine bitcoin and make money on our own account, unless we had an enormous. An absolutely enormous farm, probably, in fact, it's almost impossible for even the biggest to do this now to get a steady flow of bitcoins, you actually need to do it on a pooling basis because the release of bitcoins is random.

What is that word used? Pooling?

I think you said holding. Pooling.

Pooling. Pooling, sorry, pooling. P O L I N G. So you have these big pools, and so everybody participates and shares in these pools together so that everybody gets a little piece of what is being earned by the collective whole. Now, these pools, some of them have grown so big that they can control. Occasionally they get so big that they rise over 50% of the entire power of the actual hashing power. And ultimately it means that there's a risk that you could start manipulating things. If you've got more than 50% control, there's a risk that you could change the software in some way to your advantage and you could actually start to double spend coins, which is a real. No, no. In the bitcoin world, it's a means of digital counterfe. And the argument that why you wouldn't do it is that you would undermine bitcoin itself and therefore you'd undermine all your interests. And so there's a huge debate around. It's called a 51% attack. But it gets very, very technical. But it truly is a problem that you've got a lot of concentrated mining power in places that have, for example, access to cheap or subsidized power, like in China. So the idea that the biggest miners who control the system are these people who are piggybacking on the back of state owned enterprises and sort of effectively stealing cheap power from the Chinese government, you know, doesn't make for the best, most democratic model. And I think that's what I mean by it being more democratic. It's not that everybody has equal access to this capacity to produce and mine.

I got it. Okay. You both alluded to the idea of the government and the central. I mean, see, I say that governments and central bankers are the most powerful force in the world, bar none. They create wars out of thin air so that they can back both sides and have the debt. You know, they can finance both sides of the war. And wars are tremendously destructive. It creates a lot of demand on goods and machinery and so forth. These are incredibly powerful entities. And both of you and all of the bitcoin proponents out there say, well, you know, we don't think that the government or the central bankers can control it because it's decentralized. And I mean, I think that makes sense on its face. You know, I would agree with you. But then when you think more deeply about it, I mean, you know, isn't the cocaine trade decentralized? You know, and not that that's fully controlled, admittedly, but the fact that it's illegal is going to keep it from having widespread adoption.

You know, there's certainly, there's something to what you say there, but I think the cocaine trade in bitcoin are pretty fundamentally different things. Yeah, I mean, look, an issue with bitcoin, and this is going to be a fascinating thing to watch over the next several years, is how bitcoin grows and how regulation grows around it and how the law plays catch up to it. I mean, it does exist outside the law right now and it is a threat because of that. And there are people who want to bring it within mainstream society because they're building for profit businesses on top of the technology and they want to make money. And there are the true believer types who want it on the Dark Web and don't want it within that, that tent. You're going to see that hashed out over the next several years, and it's going to be very interesting. But this idea that Bitcoin essentially is uncontrollable, look, it's decentralized. There's no one place where you can go and shut it down, much like the cocaine trade, as you alluded to. So how do you shut down Bitcoin? You can't do it as long as there's one server up there it's running, and there are many more than one server.

But if you make it illegal and people run the risk of losing their freedom or even their lives for trading in it, I just don't think you're going to have a big, big push for it, you know, because, see, the comparison is. Look at the comparison. Is this what is what everybody objects to about these centralized fiat currencies controlled by governments and central banks? Well, they object to the fact that their wealth is being eroded. You know, the value is being inflated away. I mean, it's a scam. We all know it's a scam, okay? You know, anybody paying attention? That's why I'd say I'd love nothing more than to be wrong about Bitcoin, okay? But, you know, that's the objection. If you're a borrower, you benefit because your debt is being eroded away, which is beneficial to you as the borrower. Like you said earlier, it depends which side of the coin, pardon the bun, you're on.

For every saver, there's always a borrower. So, I mean, it's not like. That's why I have an issue with that whole statement, to be honest, Jason, because as much as I understand the rationale behind the concern about central banks and so forth, I don't come to Bitcoin as a libertarian who wants to kill the central banks, because I actually believe that for every saver, there's a borrower, it's impossible to have a saver without a borrower. So there's always two sides to that argument. And at the end of the day, there's lots of really irresponsible central banks who do incredibly irresponsible things, that's for sure. So there's degrees of it. But I just don't think that's. Again, I think the key point to focus on is. Again, one of the things that we're certainly trying to get a message across here is that the interest that's being developed around it right now amongst People with money, particularly venture capitalists, and to be honest, Wall street firms, hedge funds, is a little bit more nuanced than to think about, oh, is this currency going to supplant the dollar and end the Fed? It's actually about the power of the blockchain to decentralise exchange in a very broad sense of what that means to facilitate all sorts of new services that would no longer require middlemen to participate in those particular industries. And it's not just currency, but it's also stocks or it's database management or copyright system and all sorts of things that actually become very, very powerful peer to peer tools that can be built around it. And the currency is kind of in there as part of it, because you can't make these things work without the transfer of the currency. But it's less important than it is being used by mom and pop to buy their groceries. So that's a different vision.

Yeah, really glad you brought that up. So give us some examples of how it would be used in other ways. Either of you, by the way, in terms of peer to peer, like with, I think you said, copyrights and trademarks. How does this apply there?

So we are going to tonight insert our book into the blockchain. What does that mean? It means that we will have a permanent time stamped record of our copyright claim on our book that nobody can refute. Because the point about the blockchain is it's irrefutable. It's a public ledger that is agreed to be legitimate by the forces of consensus around it. And because it can't be hacked, it's always there. So it is a way of saying this on this date now, we claim copyright to this thing. It's rather, you know, it's a bit of a gimmick in our case.

That's fascinating. How do you do that? How do you do it?

Okay, how do you do it? You make a hash. A hash is a powerful kind of encryption tool that is used as a key function of Bitcoin, lots of other encrypted technologies. So a hash is an alphanumeric code that encapsulates everything behind it and then that is inserted into the blockchain. Now what happens is somebody then who has access to a file of our book, PDF, for example, of the book and wants to prove that we have it, can run this through a decryption mechanism that will show that it matches what is on the blockchain. You have to have access to a special key. And when we provide a special key, people can then prove that it is there. They can't actually, without having access to the book itself, they can't steal the data itself, but they can prove that what they do have in their hand is ours and that we have it at that time. So that's the point. Now you could apply this. What's really interesting to me is to direct, particularly photography. For example, one of my previous books, in fact, was about the image of Che Guevara, the famous photo by Alberto Korda, the Cuban photographer. It's the most reproduced photo through history. All these derivative works have been done and people have done screen prints and weird twists on everything else. But there's a copyright claim on it. And it really all actually has to flow back to the Korda family, that everybody along the line also has a copyright claim on the derivative work that they have. If you were to create a timestamp mechanism through the blockchain to show that each of these participants in that chain of derivative work would have their own special claim, you could create a contract around that, an automated bitcoin based contract that would pay them and divvy up the payments to every single time somebody wants to use a particular derivative work so that there's a contract that agrees. Everybody who rightfully contributed whatever amount to it can get paid. And there would be absolute proof that each of the people on the line were the first party to have actually produced their copyright to that version of the artwork. It's very, very powerful.

That is truly interesting. Yeah. Okay, go ahead.

The one thing you must make is that that the reason this works is because within a transaction you can embed any information that can be embedded you can put in there. So what we're putting in there is the book. That's the trick. It's that, you know, people think of this as a currency. What it really is is it's an exchange of information. And any information that can be digitized can be recorded. So that's simply what we're doing. But one of the other applications, an interesting thing is we did a podcast on Friday with this hip hop channel on Sirius and it reminded me of this, is that say you're an artist and you want to sell your stuff online. Well, you can set website, you can. There was a Toronto band that did this. They put their album out on a file sharing service so anybody could download it and they accepted bitcoin as payment so anybody could pay them directly. So if you're an artist and you don't have a label and you want to get your music out there, this gives you an avenue to do that and to get paid for it, too. That's just one other thing that. The really big thing, though, what people talk about, we dedicated a whole chapter to this, is what they call the unbanked, is the ability of Bitcoin to have an impact in the developing world where people don't really have access to banking services. That's what gets people really excited. And that is what. It's very experimental and it's very early days. But this idea that if you have access to a cell phone and most people in the developing world do have cell phones, they may not have banking services, but they have cell phones. If you have a cell phone, even a simple flip phone, right, you can access Bitcoin services. And people are trying to build those things out because they see a huge potential there.

Yeah, fascinating. Okay, fascinating. So on the copyright stuff, that's really interesting. You know, the old version of a poor man's copyright was just to. To mail the piece to oneself and have mark on it and don't open it. When you get it back, you could hold it up in court and the judge could open it and say, look, I copyrighted that.

That's a great analogy. That's a really good analogy.

So that's what that is. But can still do that, right? Anywhere in the world they've got a mail service, right?

True. You absolutely could. Not very convenient. And it's certainly not for digital works. It's not very convenient, and you can't build a contract around it. What we're talking about here is a technology that is programmable for a programmable age. We live in the age of the Internet. This is where we do most of our commerce now is over the Internet or some form of electronic transfer. Even when we're talking about physical goods, a lot of the transfers and the contracts and everything else is done digitally. So that being the case, you want to have a monetary system that is adaptable to that. That's what I find. One of the things interesting about this copyright model is that not only do you get the proof of the copyright chain, you also have the capacity to build a monetary payment system and contract system around that. So it's the kind of convergence of the two of them that's really kind of interesting there.

I want to leave this interview with some takeaways of something like people listening to this. You're really talking about a new, new digital era of currencies. And, you know, my argument is that in a way, bitcoin is the ultimate in Fiat currencies actually. But, but you know, it has, it has accountability and we can argue that forever and, and listen again, I want to be wrong about this, okay, I want to be wrong, but okay, but you know, what can people listening, what can or should they do about this? Should they just know about it, listen to it? Should they run out and buy bitcoins and enjoy invest in them? Which I think is obviously, you know, look at the performance, pretty risky. What's the actual action step here, if there is one for anybody listening?

I don't think there's any real detriment to somebody to actually doing nothing right now. These are still very early days as a personal investment. I think it's, it's too risky for people. I mean it's still. Currency is volatile. You don't know which company is going to make it and which aren't. And you can't even invest in most of them. Investing is not the best way to go down. But what I think you probably should do is just open your eyes to it, read up, educate yourself. That's it. Just be aware of it. And then if you go from there and if you think it's something and you get interested, it piques your interest, then you take it from there, then maybe you open up a wallet, maybe you do buy bitcoin, you start practicing with it. That's it.

Okay, good. Yeah, interesting.

I would say though that the investment strategy really depends on what sort of person you are. It's the same thing that you hear from every investment advisor. Of course, if you're the sort of person who does have some risk capital available, and you do believe that there is the potential for this technology to become something profoundly important in the backbone of our financial system, which is one of the things that we're arguing, then by all means put a few percentage points of your portfolio into it. There are different ways to do it. You can obviously just own bitcoin yourself, but then you face the problems of some of the security risks behind it. A lot of those are being fixed now by new technologies. But you can also. Now there's various investment vehicles that are being created for people to own access to bitcoin via fund. There's also a third way and that is to actually invest via venture capital and hedge funds that are doing this in the companies that are building the services around this. So there's lots of Silicon Valley based companies that are building interesting services in that. So there's different ways to gain exposure to what may well be the transformative new Innovation of our age. The sort of second Internet, if you like, if you really buy into that. And I'm not advocating investing or anything particular, but if you think that that argument is one worth holding, then there are way ways to gain some, you know, risky investment to it and maybe enjoy some big upside when it pays off.

Right, right. And here's the thing, you know, I. I would say with that, I think money definitely needs to grow up, if you will, and this is pretty darn exciting. We need a new, more modern version of money. Okay. And I would totally agree with you there. The problem is bitcoin doesn't have anything proprietary about it, you know, really? I mean, it was the first one to make a splash. It's got the biggest momentum. But again, you know, a government could come along and make its own version. It's too bad that you can't almost just invest in the concept, in the index, if you will, like, you know, I'll do the S and P index fund concept idea. Right. Because I do think money needs to grow up. Whether bitcoin is going to be the answer or anything else is going to be the answer, who knows? I think that's very, very uncertain. But we've got to evolve, right?

Well, you know, you know what? That's why we called the book the Age of Cryptocurrency and not the Age of Bitcoin.

Yeah, good. Good title.

I mean, we think that this technology is really going to have a lasting effect on the world. Which one is it going to be?

We don't know.

We don't know yet. We don't know yet. But it's going to be really interesting ride.

It certainly is an interesting ride. Give out your website, tell people where they can find more.

Sure. Well, the website for the book is just the Age of Cryptocurrency dot com. Both of us write for the Wall Street Journal WSJ dot com and I write for the Moneybeat blog on there, and Mike does, too. So those are probably the two best places to find us.

We have a Facebook page and there's the Amazon page. Of course, there's Amazon.com that's where you're gonna go buy the book. That's the one we like. We have to stress that one. Yes.

Well, the book's got great reviews. And Paul and Mike, thank you so much for joining us today for a very lively discussion on this.

Thank you, Jason.

Thanks for having the fun.

Pleasure.

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