#17 Monday Night Konsensus: The Great Illusion of Digital Currencies

Yeah, sure. So, hello everyone. My name is Aleksi from the Bank of Finland. So, I wrote a paper on digital currencies, and I think we have to start with the concept of currency. So, especially in English, currency is used for in 2 different meanings. One of them is— it means cash. So it basically means coins and banknotes and physical— a physical form of money which circulates from one user to the other without going through intermediaries. So that's one way to use the word currency. Another way to use the word currency is to refer to the monetary unit in a certain country or a certain economy. So for example, the euro is a currency and the dollar is a currency. And digital currencies, you know, have the word currency in the name. And so basically the paper is about basically 3 different ways to see them as an illusion. So one is that they're not really resembling cash or coins or this physical form of money very much at all. The second is that they're also not really a currency in the sense that they're not a unit of account in any region. region, or country, or economy. And maybe the third way to see them as an illusion is that they're not really peer-to-peer either. They run on a peer-to-peer network, but at least in the central bank community, what's been interesting about Bitcoin and blockchain technology is the possibility to use it as a peer-to-peer payment technology. But I thought it would be worthwhile to, you know, to write and tell that community that this kind of pure peer-to-peer transaction is actually not possible, not even with a blockchain technology. So as a conclusion, what the paper really says is that the only digital form of money that can really exist is a bank account, and that the technology of Bitcoin and digital currencies is essentially just a version of of ledgers, of digital ledgers. And, you know, they're basically book entries in the ledger. And there's really no way around that. So that, you know, that's really the only form of money that can exist when it's in a digital form. Well, I don't think it's, it's actually a good idea to think about economics in terms of there's old economics and new economics, or there's one economics and there's another economics. I mean, I don't think there ever was very strict schools of thought in that sense. I think there's always been very different types of ways of thinking. And money, as I do write in the paper, money has been neglected to some extent in economics, and there currently still doesn't exist a good theory on money. I cite some of the most typical, most common theories, and papers, and models of money without taking any position either/or. My own starting point is very— I think I believe, at least, very neutral, very agnostic in the sense that I believe in evidence. I believe in scientific in the scientific method that if you have a theory and you have empirical evidence to support it, then, you know, that's a good theory. And unfortunately, a lot of the economic theories don't have that much empirical backing behind them. And money is an example of where you have a lot of different theories in the economic literature, but not really much empirical evidence to support one way or the other. So I do cite some empirical work on theories of money. And unfortunately, I mean, I think the Austrian school, how they see this kind of very market-driven, free economy-driven type of money, there's just no evidence that money really has worked that way most of the time. Whereas That said, I mean, there are other theories that also lack strong empirical support, and I do mention that in the paper. The conclusion being that currently the literature is actually— there's a clear gap in monetary theory. I'm trying to give some ideas of which way it would probably be a good idea to take those theories considering the empirical evidence that exists. And one of them is the idea of money as simply an accounting unit, which can denote various things like debts, like IOUs, like different kinds of financial positions and contracts that people have with each other. So this kind of accounting function of money seems to be, empirically speaking, much, much more important in the theory of money, rather than the kind of transactional trade enabler that a lot of the literature has traditionally been about.

Yeah, I kind of agree that there is a lot of— there's a gap in the monetary theories, in the literature and the research, and that— but it's quite interesting because there's different kinds of views. And I try to stay pretty neutral as well in terms of not taking sides too much. Like, yeah, I'm a fan of the Austrian economics, but I'm not like a fanatic about it. So I really, I find different theories interesting. I think there's some truth to many of the monetary theories. Theories, not necessarily the absolute full truth in one single book, but there's interesting things. I think that key thing is, in my view, is that people— I agree, it's kind of an accounting system, and people had debts to each other in the past, like they needed ways to have accounting for those debts, and that's one of the main, main uses for money originally. And then of course, the store of value property is also important, like in a different kind of— it's a different view of money. I think that that's totally different way, like if you're simply taking a have a ledger where you mark the debt between different people in the community. That's one way of using money that's certainly been used in the past. But then the issue is that when you go out of the community, the thing is, this kind of ledger-based IOU system, which is one origin of type of money, I think it works really well in a small community, where it's a group of tribes or something like this, you can have bookkeeping on who owes what to whom and that kind of thing. But then when you go outside the community, you need things that— you need actual things, physical things that have value for another community because they cannot trust the bookkeeping system The bookkeeping doesn't have any value for the other community if you're trading with them. So there you come— the concept of commodity money comes in, where you kind of need to have something physical, something substantial of value that you can trade with. You can trade your cows to, let's say, some clothing, but it as everyone knows, it can be problematic, like how much clothing is one cow worth, and so on. So then you get to commodity money, and there comes the theories about gold, silver, copper, which were quite useful because of their properties. And of course, before that, people used all kinds of different items. but they were all inferior to gold, silver, and copper. And so that's basically my thoughts about the origins of money. There's like, it's a different thing inside a community that can trust a ledger kept by some tribe leader. And it's a totally different thing when you go outside the community and need to have something to trade that is of value to total strangers. So that's my idea.

Yeah, sure. I mean, really interesting thoughts. And well, I agree mostly with Henry, I do also like Austrian economics and I'm pretty much a fan of it. I don't either like to go full-on anything. I mean, like, I'm trying to stay open and get some new ideas and be able to change my mind whenever I want. But I have a few questions for Alexei about His paper, and I was just wanting to clarify if I'm maybe I've heard something wrong or something. But isn't digital currencies referred as like banks bank accounts money or PayPal accounts credits or something like that? And cryptocurrencies are different thing because they rely on different stuff. I mean like. If I understand correctly, digital currencies are currency that you need some trusted authority, and cryptocurrencies rely on cryptographic proofs and algorithms.

Yeah. So when we think about how I see Bitcoin as an invention, as an innovation, there's really 2 things. There's the bookkeeping system. on the one hand, and then there's what is being kept account of is the other part. So there's a bookkeeping system, but then you need to ask the question, okay, what are we keeping account of? And Bitcoin also introduces something that is sort of a new unit or a new kind of thing that can be traded, which the bookkeeping system is for. And these are, of course, 2 different things. So if we think about the bookkeeping system, yes, it is clever in the sense that you don't need a trusted authority or trusted accountant to keep the accounts reliably, but you can actually trust the network or sort of unidentified group of accountants to do their job right because of certain kinds of incentive systems that have been built in. So that's the bookkeeping part. But then, of course, a completely different question is, what are we keeping account of? And I think With Bitcoin, that's a really important question. Whoever, I think, in the banking community and the central bank community, when I try to explain Bitcoin to them, I usually break it up into these 2 parts. Okay, there's the bookkeeping part. There's an interesting system of a new way of running a ledger. But then you need to ask the question, what are we actually keeping account of? Like, if I make a book entry in a blockchain, what am I keeping track of? account of, like, what is it that I'm making this book entry for or about? And that is a completely different story. And so I think that we can maybe go deeper into that, what I think happened and how Bitcoin also became a kind of tradable good in a way. But I would consider that question separate from, from how the bookkeeping system works. Yeah, just a quick comment on that tribalism thing. So I think that is, you know, I think Henry had a point. So that's true that money evolved in certain sort of limited communities first, and then you need something else when there's trade between communities or across community boundaries. But even today, still, I think it's good to know that even today, still, the vast majority of trade takes place within these kinds of— if you want to call them tribes, then that's fine, but communities, quite sort of familiar counterparties. So for example, in a country like Finland, which is part of the SEPA payment system, you can basically make payments across 35 countries in Europe, but actually, in fact, 99% of the payments are being made domestically. So there's really very, very little trade that actually takes place across these communities. It's true that you need some sort of payment method also for that type of trade, but it's actually a very small percentage. So economic actors tend to trade with the same counterparties all the time. That's just, you know, empirically how it goes.

Yeah, apparently I've been unmuting my wrong, wrong audio, so people haven't been really hearing what I have been saying. So sorry about that. Um, yeah, that's, that's a really, really good point, actually. Um, so what I said earlier is, um, if you want to learn about the Bitcoin Standard, um, this book by Saifedean Ammous and the origins of the money. And that's what we were kind of talking about. And also the tribalism part, I don't think it's super useful. But as Alexei pointed out, domestic trade and local trade is obviously the biggest by volume. And however, I think it's important that Bitcoin has this possibility of— well, Bitcoin or other digital cryptographically proven currencies have the possibility of being used as a settlement layer for global settlements at any given time. So I think that gives it tremendous value alone as a store of value, a medium of exchange. And what, in my opinion, Bitcoin lacks at the moment the worst is the unit of account part, which I think will come with adoption alone. It's still quite early days and it's difficult to say. where it will go, but I think that will happen. And I wanted to— we were having a conversation about this on a Finnish forum. I think you mentioned there, Alexei, that you didn't think much of— maybe I misunderstood, and correct me if I'm way off here, but you said that you— I think gold is not a great money either. So maybe you could clarify on that a little bit before we move on.

Well, okay, so the one point I made back then, and usually make on this question, is that pure gold itself, like the metal, hasn't really been used as money. I mean, people have a misconception that you just use a metal like gold and people just start spontaneously using something like that as money. That's not true at all. I mean, the reason— how gold has been used in money is as a material for coins. That's not the same as saying that gold is money. It's just saying that gold is a material for money, just a physical material that you basically make money out of. Money still is a claim on somebody. It's always been that way. And somebody has guaranteed the value of it, and you put a stamp on the coin, on the gold coin, with a face of a king or something like that who guarantees the value of the coin. So there's always somebody you can go to and make a claim on someone, whether it's the amount of gold in the coin or another type of way to keep the value. But to think that gold in itself, just as a physical element or like a chemical element has been money. That's just simply not true.

Yeah, I would like to add there. I think that that's a bit like there's semantic issues there as well, like what people are really talking about. I think mainly gold has been viewed as good money because of the physical properties of the metal. So that's basically like— people don't usually think about that kind of specifics, like how exactly is the gold used technically, but it's an interesting point. I'd say, but I think that what is usually focused on is the material and how it differs. Like, for example, gold is simply better than any other physical material, like even compared to silver or copper or anything. It's much better in terms of having a store of value. Like if you use silver or copper, it will like become worse over time. For gold, nothing happens to gold. You cannot destroy it. Nothing. It stays the same way. There's a lot of— it's pretty scarce as well. It's very scarce, actually. So that's some good things. But there's bad things, like historically with gold, it was difficult to use in practice. So gold was used more for kind of storage and maybe really large purchases. And then you needed silver and copper and stuff like that. And you made silver coins, copper coins, and so on. And that actually stopped. The interesting thing is when that you had like paper money based on gold. So somebody had certificates that's based on gold in a vault that basically destroyed silver and copper's kind of use case in a way, because their use case was that they are kind of like smaller value items you can use for smaller purchases. But then When you can actually make just paper certificates based on gold, you don't really need silver and copper that much anymore. Yeah, I think it's about the physical properties that gold brings compared to any other type of material or anything else, basically anything else that separates it. And that's why it's been viewed as good money. But I think, um, yeah, that, that's an interesting point, that is it, you need maybe coins of certain type to, to, for it to actually be useful. Because, uh, one reason is the valuation, of course. Like, if you, if you don't have, um, you need uniform, uh, coins of certain value to be, for it to actually be practical. I think it's more about that. and you can verify the actual— you know the actual amount of gold in it. That's the important thing. If you just use pieces of gold, it's extremely impractical because to know the exact value in gold in that scenario. I think it's— in my opinion, it's more about that than anything else. It's about practicality.

Yeah, very well said. And yeah, talking about the money backed by promise, that is of course what money has always been. Like, you do a thing for me, I do a thing for you, barter exchange. And then people found different ways to use as a medium of exchange. And what constitutes good money is something that you can trust that it will be there tomorrow, like you said, Henry. gold doesn't decay, which makes it good money. But there is the problem with divisibility and this kind of like smaller denotations, which I think Bitcoin or some other kind of digital scarce cryptographically proven asset can fill very nicely because it's almost infinitely divisible. So it makes it much more useful. And the resilience—

Can I just add a small—

Yeah, go ahead.

Just a small thing. I just want to explore the issue about the— or the topic of having a coin with a king's face on it. I think it's important to understand that even historically, like, if you had a gold coin, like, it's good money even somewhere completely different compared to where it was originated. Like if a certain country or empire, they created their gold coins, they were very valuable everywhere where people understood the value of gold generally. I don't think— I cannot agree with a statement that says the gold coin was valuable because it was this specific gold coin with this king's face. It was because the coin was gold, period. That's why it was valuable.

And that's— can I just interrupt? I'll explain. So if you get a gold coin and there's no face on it, you're not sure how much gold is actually in it. So the role of the king's face is that the king says, I guarantee there's this amount of gold in this coin. So

Yeah, that I agree with actually. I mentioned it already, like knowing the amount of gold in the coin. So yeah, that's a good point.

Yep. You can also weigh the gold. I mean, you can determine the amount of gold there using arithmetic, I think, at least at some point of time. But yeah, all good points, all good valid points. I just wanted to go a little bit more about the resilience of money and why it makes This resilience and these properties that Henry Yu listed about gold, and I think a lot of those apply to Bitcoin as well, will increase the appeal of the money. So that will create demand and that will in turn give the currency more value. And of course, I think personally that money backed up by mathematics and cryptography is better than money backed up by somebody's promise, because promises can be broken, whereas mathematics— well, at least not to my knowledge at this point with this technology— cannot. So that's something I wanted to put out there. I also wanted to briefly touch on the ownership tracking of money and assets that Alexei also mentioned. That does it, does it really matter that you can't really digitize real-life assets? That's what we're talking about, like the whole illusion premise. So actually what you are trading is just claims on ownership of this virtual good that is at the same time scarce, which I understand that is something quite difficult to wrap your head around. How can something digital exist? Because normally what digital goods are are non-scarce goods. You send a PDF to somebody and then you will still have the PDF and the other person has the PDF. You can use email to do that. But the point with good money is, and I think the only vital necessary property of a good money, is that once you give it away, it's not yours anymore because you gave it away to somebody and now it's theirs. And then you start adding these features, like for example censorship resistance is something that I would like to talk about as well, which I personally feel is quite important. And I think Bitcoin is better in censorship resistance than any other kind of money, including gold. Gold can be— physical commodities can be seized, all those things. Even if their ownership would be tracked in blockchain or whatever, they can still be seized. But Bitcoin itself, or digital currency of similar scarce digital currency, cannot be seized. So I think that's something worth noting going forward with this conversation. Feel free to comment.

Yeah, I had a comment about this gold as money or whatever. I just think that one of the big problems might be with gold. I don't think it's that you have to have a certain number or something else in gold, for example, a coin. or that you would need to have a king's face or something like that. But I just think that gold is a thing that people would have to verify themselves at the time when people were using gold. And that gives a little bit of risk because they didn't have all those tools and tech to do that. And people were, you know, like, if they didn't have a scale at the time, it would be really hard to try to do stuff with gold or buy stuff because there was some certain currencies that people were just taking weight off the gold coin and keeping the same face, same number on it, but there was just less and less gold on it. And that's what I think is a bit of a problem. And yes, in this digital time that we're living in right now, I don't think that gold would be good money, but something like gold I would like, like Bitcoin.

Yeah, the very— yeah, go ahead.

Yeah, I just wonder why and how do you, Alexei, see that this current banking system is good or probably the best way of us having money in our system? And is this the best way for you to— people to transact?

Yeah, I think that's a good question in the sense that I think in the end gold has nothing to do with Bitcoin or money or bank accounts or anything like that. It's an interesting discussion, but it's quite sort of far off. from money eventually. So, you know, how good is the current banking system? Well, I mean, it's the only banking system we have, so I don't think we have much choice. And one of the points in the paper that I said, and also something that Niko just brought up, is that my claim is that you can't have assets in a digital form. It's impossible. It's not a matter of not having the right technology. It's just simply impossible. And the banking system has been developed over the course of centuries, and the one we currently have, and it's the only one we have. And money only lives on bank ledgers. There's really no other place where money exists apart from physical cash, banknotes, and coins, like actual coins. But so in that sense, I think that question is problematic. Could an alternative system exist? My imagination is not big enough that I could imagine another banking system. Bitcoin definitely is not a banking system. It's not an alternative to a banking system either. If it were, you would have to think, okay, which one do you mean? Do you mean the accounting system? Do you mean the bookkeeping system? Okay, but there might be elements there that could use in a traditional bank in their IT systems. You could use cryptographic proofs or something like that in transactions, maybe, but that's not the same as recreating or disrupting the whole banking system. That's just using some of the technology. And then on the other hand, if you use a new unit of account like BTC or some other unit of account, what are you really winning? Like, what's the benefit of using another unit of account compared to some other unit of account. So there again, I don't see much improvement. So one of the conclusions of the paper is that this is the banking system we have. And currently, I haven't seen anything in terms of innovation that would disrupt it or change it. It's the one we have, and that's the one we have to deal with.

All right. All right. Well, just—

Can I just jump in quick here?

Sorry, Niko?

Can I just jump in quick here?

Yeah, sure.

Yeah, I'm glad, Alexei, that you said that you're limited by the imagination mostly to imagine a different kind of money from what the central bank says. And I think you're speaking from position, which I understand and I respect that, your position. What I would say is that the new kind of money is promoting personal responsibility in favor of this kind of like promises giving us from up high. And I think it's a matter of kind of like shifting, how to say, consciousness or imagination, like you said, for people to imagine different systems. Imagine that, like, well, the only thing that gives Bitcoin value is that because people believe that it has value, right? I mean, it won't have any— nobody will want it if it's not usable. But clearly it is usable for many people, and hence the price. So it might be a lot of speculation there, but I think it's undeniable that there is definitely some other value besides speculation, namely store of value at the moment, of course, because we are still lacking on the scaling part pretty heavily. Henry, you wanted to— Yeah. Okay.

Sorry. Go ahead. So one of the points in the paper which I wrote specifically about is that, does Bitcoin have inherent value and intrinsic value? And I did write explicitly that it has. There are uses for Bitcoin, and people have different reasons why they want to hold or use Bitcoin. I don't deny that. Those uses, I just don't see them in any way similar to money. So there are other types of uses. But, you know, okay, so there might be a small number of people who also use it in ways that are resembling monetary use, but it's a very, very small community.

Right. Yeah, that's fair. That is true. You did say that. Unfortunately, Alexei has to go in like 20 minutes or so. So let's try to maybe pick up the pace. We have quite a few questions from the audience as well. But let's go to Henry's comment, and then I want to move on to talk a little bit about what is the role of free market in defining the value and utility of money. And then I want to talk about future of global monetary policy, namely censorship resistance and inflation, deflation and personal responsibility. Hendry, take it away.

Yeah, I'm going to try to keep this quick. Yeah, I just want to mention that Yeah, to me, it's kind of funny that suddenly, from a longer historic perspective, I would say suddenly, like money based on the banking system and central banking is everything there is, even though it's much more short-lived than gold as money, like much, much more short-lived. Like Civilizations have been using gold as money for thousands of years. We've only had a banking system of current type of banking system for a very short time compared to that. And of course, these are two different ways of thinking about money. And for me, Bitcoin has always been closer to the kind of commodity money theory and thinking about it from a commodity money perspective. And there you have certain attributes of the actual commodity that are important. You have durability, portability, divisibility, fungibility, limited supply, and acceptability are, I think, some of the key ones. Gold is good at most of them. Bitcoin is good at most of them. Bitcoin is better at gold at some of them. Gold is better than Bitcoin perhaps in some of them, like durability. Arguably, gold is better. But this is just my point was that these are different ways of thinking about money and totally different ways. And there's a clear difference of thought here. What some people see as money and see relevant in money is clearly a bit different than what others see.

Great. And we are joined by Max Hillebrand from World Crypto Network. Welcome, Max. And Rafael, I'll get to your question in a moment.

Hi, guys. How are you doing? I've listened to the conversation on my phone already when I was running from my office to back home here.

Oh, great.

So can I chip in?

Yeah, go ahead. Rafael has his hand up, so let's give him the floor first and then Max, you go.

Yeah, I was just going to say that, like you said, Alexei, there's just this one current monetary system and this is what bothers me is that Are we really even trying to get another ones, or are we trying— are we letting another different type of systems even flourish or even try their wings? I just think that we are really pretty much suppressing everybody else and whoever tries to do anything differently. And just like Hendrik said, people just evaluate different things as For example, I really don't like in a current euro system or whatever fiat system that I don't really even know how much money is there because that's pretty relevant to me depending on how much do I have, how much do I have in percentually about the whole monetary, the whole currency. And if that value keeps changing all the time, That just makes it even worse for me at least. And one thing is that it is really just, for example, paper or numbers in our accounts, and I can't really do anything with those numbers unless I get them out or unless I get some stuff with it. So they are controlled by the bank. And with the paper also, I can't— well, white paper is even better because I can at least paint on it something. it's not dirty already. But my point is that I just think a system like Bitcoin where I really know the rules and how does the system work and I don't have to trust anyone, especially someone I don't even know. Let's say that if euro just goes crashing down or something like that, or it doesn't even have to be that. Let's say that like in Greece or Italy or Ireland or whatever country, euro is still working correctly, but the monetary system in that country just collapsed totally. And there is nobody who we can go and blame, not a certain one people, or at least there's no— it doesn't help anything for us to blame him. And these trust issues, there has been so many times that different countries, different people has been breaking these promises. And well, that's just my opinion that I'm just sick of trusting. I want to verify.

Yeah, I think we do need a new kind of system instead of this trusting like you said. I don't want to have to trust anybody. I don't want to give any of my personal information when I make a transaction. The only thing I want to— the only message that it should read is the amount of the money and And that will be it. But yeah, let's keep the pace up because unfortunately Alexei has to leave in 20 minutes. So I'll give the floor to Max now. And since you've been listening in, you probably know what's up already. And after that, I'll give the floor to Alexei.

Yeah. So it was a great discussion so far. I really, really enjoyed it. Thank you all for participating. Alexei, you said earlier that the problem with gold is that we needed the government to stamp their, their, the picture of the king, right, and the amount of gold and the fineness of this gold on the coin itself. And I agree that this is an essential function of gold, because if you do not stamp it, then you have to weigh it for every transaction. But what I disagree with you here is that we need violence just in order to stamp a coin, because if you hand the government the monopoly of issuing and coining new coins Then you give them the full power over those coins. And what they can do, for example, is say that there is 1 ounce of gold in this one, in this gold coin, but actually there's only 0.9 ounces of gold in this gold coin. On a free market, people would just see, okay, now this is 0.9 ounces, so I'm gonna trade for it as, as if they were 0.9 ounces. But what the government does with legal tender laws is it says that this specific piece of gold, although it is only 0.9 ounces, should or actually has to be traded at 1.0 ounces. And as soon as the government starts meddling with that, Gresham's Law kicks in, which means that artificially undervalued money will drive out artificially overvalued money. And this means that the full coins that are of 1 ounce of gold coin, they will get out of the market because people will no longer spend it, but rather the 0.9 gold coin will be spent and people have to accept it as if it was 1.0 ounces of gold. So I do agree with you, Alexei, that we need a coinage system, but I do think that a free and peaceful and voluntary market of private entrepreneurs and private individuals will be much, much better than government coercion and violence

Yeah, I mean, the banking system certainly isn't foolproof. And there has been instances where governments have misused the supply of money and clipped gold coins and so on. But that's describing a world that existed 100 years ago, 200 years ago, or maybe in some some parts of the world, but the majority of, of at least European countries, European— like, the euro system is independent of governments. That's because of, precisely because of the reason you mentioned. You know, they were, when they designed the euro, the one most— one of the most important points was to make it independent of any government. So no government can have control over it. Precisely because of the reason you mentioned. So, I mean, there are ways to solve that, to solve these things, and they're not perfectly solved even yet, but they are solved to a large extent. And I think the only point that I have is that I just don't see how Bitcoin is solving them. I see many other ways to solve them, but a free market money or Bitcoin or an Austrian version of money has never worked. It's been something of a failure forever. And it was designed for a world that existed 150 years ago. So a lot of that literature is from 150 years ago. And it's actually quite amusing to some extent that so many technologically advanced Bitcoin enthusiasts refer to literature that is already completely outdated. The current banking system, the monetary system that exists today is nothing like the one that the Austrian economists described in their books.

I would like to push back on that a little bit because I don't think the age of any text will define anything. If it makes sense, if it's logical, I do think that it should be considered as the truth. But that's my viewpoint.

Well, 2 things. It has to be logically right, but it also has to be empirically proven. You know, there has to be some empirical evidence for it, and there just isn't much for any of those.

You mean several thousand years of gold as a currency is not enough evidence?

No, I have seen no evidence that gold has been used for several thousand years as currency. A lot of other things have been used much more than gold. Gold has been quite marginal in that sense. And we already had the discussion about gold, like why was gold used? And there are many reasons why gold was probably used for money. And one is that— what I said is that gold was used as a material for money. So I wouldn't agree that gold was used as money. What I would agree with is that gold was used as a material to make coins, and that's a different thing. So the actual concept of money is more complex than just taking gold and using it to trade. So there are more aspects to it than just the material.

Rafael, go ahead, chip in.

Yeah, I was just noting that we are running out of time. I just want to do a couple of quick questions about the current monetary system, just because I really don't know. But first of all, I have to say, Alexei, I appreciate really much for you coming to our show and answering to our questions and clarifying things. But can you tell me who is really controlling, let's say, how much is there Euros around, or can you say how much of— how much euros are there as physical money and digital money totally?

Yes, so the number is exactly known, and it's on the ECB website, it's on the Bank of Finland website, and it's on every central bank website. You know, there are very precise statistics on the exact amount of money that there is. banknotes, coins, bank accounts, different types of bank accounts, all the money that's in there. I don't remember the exact figures, but they're widely available. So it's very well known. I think one of the best ways to think about money, and I wrote that in the paper, is to think about it as liquidity. I think that's one of the most useful concepts to understand money is that you have a whole variety of assets. So an asset could be anything. It could be a house, could be a A share certificate could be any sort of valuable thing. And the most liquid asset in the economy is what we call money. So there always needs to be one of those assets is the one that is most liquid, means that you can, with the lowest transaction costs, and it's easiest to exchange into anything else. That's money. It really doesn't matter if it's gold, or coins, or bank accounting units on a bank account, or something like that. There will always be a sort of most liquid form. Form of assets, and that's money. Currently, it's the central bank that keeps— that enables the creation of that money. It's not really centralized because it's actually created by 9,000 banks, for example, in Europe. All commercial banks have the possibility to create that most liquid asset. The supply of it is flexible, and that's a key design feature of it. So it's not controlled. The supply is not controlled by the central bank. It actually reacts to demand. So whenever people and companies and governments need liquid assets, so they need the most liquid form of assets, they demand it, and they, they ask for it from banks, and they give something else in return, something less liquid, something, you know, something else. Could be, they could be pledging their house for a loan, for example, or could They could be selling shares or something like that. And they get hold of the liquid asset. And the central bank runs a system where the supply for this most liquid asset reacts to demand. And the reason why it reacts to demand is so that the value is stable. So, this is very simple economics in the sense that you have supply, and you have demand, and you have the value. One of them needs to be flexible if demand is changing. So, whenever demand changes, Either the— if the supply is fixed, then the value will fluctuate. And that's what we see with something like Bitcoin. But if you want to keep the value stable, then it's best to let the supply be flexible. So the supply is actually flexible. And when we talk about the supply of money, what we mean by that is liquidity. So, you know, the need for a very liquid asset.

So what Alexei here is— you're talking about from the context of central planning. central banks, that central banks decide what's the money supply and what's the emission rate and all these things. What about free markets? Like, when are we going to have an actual— have we experienced free market? And how would that change the equation in your opinion? And also, we have 2 raised hands here, Henry and Max. So I'll give you— Yeah, just give me a brief one and then let's Let's keep it short because you have to go soon. But yeah, do it quick.

So how central is an institution that has 66,000 employees and even the board has 25 members and it's run, it's controlled by the EU and dozens of—

Again, the key word is control. It needs to be controlled.

No, no, it's not controlled by anyone. It's extremely Decentralized, actually. I mean, there are thousands of banks. Each one has a different board, different owners.

And they vote?

Yeah, I mean, there's millions of people who control this machinery. I mean, there's no— no one is in control.

Can they vote or decide anything?

Yeah, I mean, voting is a great decentralized way of governing.

Okay, let's go to Henry and let's try to keep it short.

Yeah, I think that many can agree that having euro type— well, I don't know many, but personally, I do agree there's some benefits to having a euro type system compared to having, let's say, a single country having their own currency. It's a bit more unlikely for things to happen like in Venezuela right now, there's been a huge inflation and the currency there is total crap. And that kind of thing is more unlikely in a euro-type system, but it's still possible. More unlikely, but possible. And I think that still the possibility of those kind of things, because if you look at history, I think this is probably a big debate, like how good was gold as money in history? I think the ones who don't like gold say, okay, it wasn't good money. But on the other side, the ones who like gold like to point out that all the attempts of paper money ever in history ended in disaster, in complete disaster. All of them. So there's two sides to it, as I explained before. There's arguments that gold was always bad. There's arguments that, okay, paper money was also always bad. But yeah, that was one thing I wanted to say. I actually had something, something else as well, but the discussion was, was going on. I don't know, maybe it comes back to me later.

All right, you can just jump in later. Everybody who's watching, we have 28 live viewers. It's quite good. If you could just leave us some likes and shares, that would be much appreciated. And let's go to Max next.

Well, Alexei, you said that the central bank is not central, it's decentralized. And again, I disagree here because the control is what is important. And there definitely is control. But quite, as a matter of fact, I don't even care if it's centralized or not. What I care about as an economist is number one: Is the money supply being messed with? Is the money supply being increased? Because if this is, then this is shifting purchasing powers from those who save money to those who produce the money. And if then the production of the money is exclusive, so that not anyone can enter. this money production, then I define it as being centralized. And Alexei, I ask you, can you personally create new central bank money? You as an individual? No, you cannot. Therefore, you are excluded forcefully by government intervention. And as soon as we have the government monopoly that is enforcing this exclusion of new participants coming to the market, I speak of a centralized system. Yeah,

okay, but there is no government monopoly. There's no government monopoly. Like, the euro is not controlled by any government.

Can you print new euros?

I can't print money, and the majority of people can't print money. There's only one, but it's an institution, and it's not dependent on any government. It's not a government monopoly.

Try printing your own euros and, and see how fast the government will enforce its monopoly rules.

Well, there are laws that need to be obeyed, but that's different.

No, that's government manipulation.

Well, then any law is a government monopoly, and you can say that about any law, not just money. Exactly. Yes,

it is.

Yeah, I think it's important to see that even if the euro system in itself, the decision-making is decentralized between a lot of governments, a lot of people, board members and so on. It's important to not think of it as a separate thing that the countries enforce it as a legal tender. So they, they're not separate things. It's, it's part of the same system. And thinking of them as completely separate things, I think, is not, not very good because— You're right.

If you think about Venezuela, then, you know, it's not the central bank that— not only the central bank or the money that failed there. It's the entire society and the entire state. It's a failed state in its entirety. So none of the institutions work. Kind of single out that, okay, in Venezuela, money doesn't work. Yeah, sure. But nothing works there. So, I mean, you need institutions to to run money. That's just, you know, okay. And there seems to be disagreements here. So, I think Max is of the opinion that, you know, it could be the free market could supply money. I don't think we've ever seen that working anywhere in the world. So, maybe it is possible, but there's, you know, quite a shortage of evidence of that.

Awesome. Thank you for saying that. And also goes back to what you said earlier, that they are limited by the imagination of imagining them. better money. Rafael, go ahead.

Yeah, I was just gonna say that just like you said, Alexei, that there is no really— we haven't witnessed a free market or whatever like that, and we have laws to control people not to make their own money. So I just think that that's the problem here. We cannot have different options. We are just forced to use this certain one and everything else is just prohibited. And I do— well, another thing that I was just going to say is that it's not just about Bitcoin, at least for me. Bitcoin is just the asset or the currency, the digital cryptocurrency that people has picked right now. The point is that everybody, whoever can make their own currency, I can do my own currency with certain rules. Max can do that. Anyone can do that. And that's the greatest thing that cryptocurrency has brought to us, for what I think. And this is that there is different kind of solutions and ideas that people have been throwing out and making their different currencies, but there is always some kind of trade-offs. And Bitcoin is the one that people have willingly, freely chosen to use. as a currency. And this is what I think is just the big difference between fiat and euro, that you are choosing to use Bitcoin or another cryptocurrency, but in euros or dollars, you are kind of like forced to use it. You have to pay taxes with it and stuff.

Yeah, personal responsibility is key here in my opinion, and freedom of choice. Obviously, and unfortunately Alexei has to go soon, so I'm gonna reserve him the chance to speak his mind one last time. But I promised to take a couple questions from the audience, so let's do that right now. And if you like our conversation so far, remember to like. So Alexei, there's a couple questions here. Are you opposed to CBDCs as well? I guess that's central bank digital currencies.

So about CBDCs, I see 2 things. One is that they would be the same as opening bank accounts at the central bank. So I think it's less relevant what the technical way to implement it is. Practically speaking, it would mean that people would have bank accounts at the central bank. To me, it doesn't make sense at the moment, because we have a We have a system that is based on not doing that, and I don't see how the current system would be improved by opening bank accounts. So I think the Swiss voted for something like this just a while ago, and I think it would have not been an improvement to the current system.

Thank you. Another question: What features does a bank provide that cryptocurrency could not Aside from trade,

what features does the current banking system— well, instant payments, for example. I mean, truly instant. I'm sorry, but Bitcoin is actually really slow.

But aren't— isn't that— sorry for— but isn't that just because it's decentralized and we have to get the information to all these different computers? As in a centralized system, we— the information goes quickly and we can just trust another third party.

Yeah, I mean, if we put all the philosophy aside and just think in terms of technical implementation and IT, there are good reasons to sometimes centralize an information system, a computing system. One is to enable really fast transactions. So there are sort of good technical reasons sometimes to do that. So in a way, you might think, you know, maybe as the next Bitcoin, would it maybe make sense to just build one massive ledger on one server just for the sake of efficiency, but somehow do the governing of it, you know, in a more decentralized way? I don't know. But yeah, I mean, there are sometimes good reasons for— just technical reasons for centralizing things.

Just to chip in for one second, you said that Bitcoin is a slow money system, and I would say that yes, Bitcoin is Kind of slow, ten-minute confirmation time, but it is a cash system, a cash system that is the base money. So you you must not compare Bitcoin to PayPal or Bitcoin to Visa, which is not the base money. You have to compare it to central bank money transfers. First question: Have you as a private person ever done a central bank wire transfer? No, you have not. Question number two: How long does it take to settle? such a transaction? Over a day, sometimes even 2 to 3 days. Bitcoin is already on the base layer so much faster, actually the fastest money-based system that we've seen other than gold. Don't even talk about Lightning Network, which would be more comparable to Visa, but it has billions of transactions every second.

Yeah. Okay, so the central bank RTGS system is real-time, so they get instantly settled. But yeah, you're right. I mean, only banks can have accounts there, and that's how the banking system currently works. It's a 2-layer system where banks have accounts at the central bank and everybody else has accounts at the bank. And gradually, it's almost real-time. The whole sort of 2-layer system is almost real-time already now. So I don't think a sort of decentralized network like Bitcoin could ever achieve that kind of efficiency, it would need to be centralized to some extent.

All right. I feel like there's a couple more hours of this conversation, and unfortunately we have to let Alexei go. Thank you, Alexei, so much for your time. And please leave your final remarks and please tell also everybody where to get in touch with you. And I hope we can continue this discussion another time.

Yeah. So one misconception also that paper money, you know, of course you can say every paper money in the world has failed. In that sense, everything in the world always fails in the end. But I think— I don't think that's helpful. The paper money we have now, the euro, is about 400 years old. So, I mean, the first currencies that you can sort of trace back where that money came from, from the 1600s. So, you know, we've had the current money for 400 years. Second is that what I'm really— I'm not so much defending the euro because we don't want innovation or we don't want alternative monetary systems. The only point I was trying to make is that the banking system is also innovating its current system. And when I said I can't imagine a different banking system, what I wanted to point out is that it's not standing still. It's also developing. It's also being, you know, made better, safer, better governed, and so on. So it's sort of not standing still either. There's innovation going on there as well. And there's definitely also room for alternative systems and innovations. So I don't think it is the case that anyone would want to prevent new systems or new alternatives from emerging. But I think it's also useful to be able to criticize them. If they are not doing what they were planned to do, or if there are certain shortcomings, then everybody should be able to point them out and say, okay, this is a shortcoming in Bitcoin or blockchain or something else. And can we maybe develop something else or take it to the next step? But it's been a real pleasure to be in the show. And I think these are really interesting discussions. And I think we should definitely have another show, maybe even a series of shows like this.

Absolutely. And Henry and Rafael, you can see Alexei, you had your hands up. So Henry, you go first and then Rafael.

Yeah, yeah. Comments here. Yeah, one one was about the liquidity. Like I found it quite interesting that that Bitcoin has been able to to achieve so much liquidity in such a short period. Like and and the way I see it, you can trade large amounts of Bitcoin. Quickly, like pretty much almost instantly anywhere in the world, and then you can buy stuff with it. Like, I think it's, it's, um, not really that important that you can't necessarily always buy everything with Bitcoin directly, but you can trade it immediately to something that you can use to, to, to purchase things, and even with very large amounts. And the daily trading volume is like $5 billion nowadays. And that's, that's been pretty fascinating to see. And if the true real money, the best money is the one with most liquidity, I think with this rate, Bitcoin is going to do pretty well in 5 to 10 years in the global market. That's, that's one point I wanted to make before I actually— Forgot about it, but yeah. Yeah,

it's too bad that Alexei had to, had to go already, but if you guys want, we can, we can keep this conversation going for a while.

Yeah, sure, I'm okay with that. I was just going to say that it's sad now that Alexei left already, but like he said, that we should be able to criticize all kinds of monetary systems and cryptocurrencies and all. And I agree with that, and that is true, but we should always also be able to criticize our banking system and our current systems. And I just think that some competition to that industry would just make it much better.

Oh, absolutely, I agree. Competition is key, and we— I criticize everything, and I'm going to change maximalism as soon as it's logical. Go ahead, Henry.

Yeah, I was just saying that cryptocurrencies are the competition. They are the means to compete. So that's basically— that is the free market money that the world hasn't truly seen yet. And that's the exciting thing about it. And it's going to be quite quite exciting. But one thing I wanted to agree with Alex was actually the fact that it's a fact that a centralized system will be, in some sense, more efficient. It's simply by the laws of physics, it's not possible to make an as efficient payment system in terms of speed and capacity with a decentralized system, even if you use a Lightning Network, Even lightning is not as scalable as a centralized payment system. It's simply not. Even though it's highly scalable, and I love lightning, and it's one of the greatest things to happen to Bitcoin, and it will like revolutionize potentially Bitcoin's payment system and change its capabilities to much better, so you can have more uses for Bitcoin and micropayments and. and things like that, it's a total game changer. But still, from a purely theoretical perspective, I can't really see a decentralized system being as efficient as an optimized centralized system in terms of having fast and efficient payments. But then you lose all the benefits that a decentralized system brings because Lightning still attains the same features as Bitcoin does, the main blockchain. So you have censorship resistance. You have even better privacy than in Bitcoin itself, the main blockchain. And you still have the same supply benefits. So the supply is not controllable by anyone. It's like all the features that actually make Bitcoin unique are still retained in the— remain in the Lightning Network. which makes it so great of a scaling upgrade. So you can maybe have a more efficient system that's centralized, but it won't have those features that only Bitcoin or a Bitcoin-like system can have.

Yeah, I agree. Lightning Network is definitely one of the better things happened to Bitcoin in a long time. I just wanted to take one more moment to Give Alexei a huge respect, and he's obviously a very intelligent guy. And not a lot of central bankers will sit down with four Bitcoin maximalists to talk about digital currencies. So it's pretty awesome of him, and I hope we can keep doing this. Like he said, I would love to do a series and you know maybe a little bit a series of shorter shows so we can we can keep this conversation going. Very very badly needed and important. Max, you had something to say?

Oh yeah, absolutely. Alexei, thank you so much for joining. Although I could I only could talk. to you for a couple of seconds. We really need to continue this discussion because it's really helpful, right? We all don't know what is going to happen. This is a really new and innovative field, and we need as much thought and as much content as possible. So absolutely, that was fantastic. Maybe from my side, just to sum this up, I agree with Raphael that I really don't care too much what currency is being used. However, what I do care quite a lot about is that it is voluntary. And as soon as we, you know, say that each and every transaction has to be voluntary or not at all because aggression and violence is just wrong, then per definition you need to have competition in money. You need to be able as an individual user to choose whichever money you want to use. And therefore, I am 100% against any kind of legal tender laws. That is the forceful government monopoly to use the currency, at least for paying taxes, which is theft, and debt, which with the current scheme is kind of theft as well. So that's the issue that I mainly have. And competition in money is beautiful. As a matter of fact, I'm writing part of my bachelor's thesis on anarchy in money, where I go into depth why we neither need nor want government regulation in Bitcoin. But of course, that applies to everything. What I would argue, though, that if we have such a free market, if we have a freedom in currency, freedom of choice in currency, great book by Hayek, then I would say that a good money, a sound money, such as gold or Bitcoin, will outperform fiat money, government money, by a landslide every time. And you see that right now. Yes, you could say Bitcoin went up in value. But you could also say that the dollar went down in Bitcoin. The dollar is crashing against Bitcoin. So is every fiat currency. So we see it's proof over the last 9 years, almost 10 years, that Bitcoin has outperformed all fiat currencies by a factor of several thousand. So yeah, they're dying. But guys, I really gotta go. It was a pleasure talking to you all, and we should absolutely continue the discussion on the next show.

Remember to tell who you're going to interview next.

Oh yeah, right. If you guys want to get more stuff about Bitcoin and Austrian economics, and especially education, go to the World Crypto Network, and I'll be there in a couple minutes starting a livestream with the one and only Jimmy Song, Bitcoin core developer and educator, fantastic anarcho-capitalist. So looking forward to that discussion and hope to see you guys in the chat.

Yeah, I think we're gonna be wrapping up here as well because panelists start dropping off and maybe it's time to move on to the chat of the Jimmy Song Show. So yeah, thanks Max for tuning in and a great insight again. Again, I've said this before, but I think Max is one of the better Bitcoin talkers at the moment. He can really bring together the Austrian economics and Bitcoin really clear and unique way. I really like his style. Rafael, you had something to say?

Yeah, I was just going to comment about that, the decentralized and centralized system and the data flow and all that. Of course, yes, centralized system will be much faster than a decentralized one, at least normally, because you would just have to send your information to one place instead of in various different places. So of course it will be much faster to one place. And just, this is the thing that I wanted to ask about from Alexei, but we didn't have the time. But just as he said that in Venezuela they have a really screwed government and politicians and all that. But I was just wondering, what did happen in Greece or Italy or Ireland or whatever? They have euros. They have these same guys that are backing up our money and saying that we can trust them and this is gonna stay and you're gonna be able to buy the same amount of bread tomorrow as you did today. But I mean, like, I know a little bit what happened, but I just think that even if these currencies are backed or trusted by someone, it just doesn't mean really anything.

Yeah, I think we'll have to wait for the answer for the next show. I think it's a really good idea to have more shows like this. And it's really great that Alex is willing to join with some crypto fanatics to speak about these things. It's really admirable. I think it's great. I think it's a learning experience for both sides to see different viewpoints and ways of thinking about things. Learning opportunity for sure. Yeah, I think I'm going to go as well. But I just have to say that I enjoyed this. It was a nice discussion. And I'm also willing to join some shows in the future. It was nice to talk to you. And also, I can also recommend The Bitcoin Standard book by Saifedean Ammous. I'm actually— I still haven't finished it, but I've read some now, hopefully finish it soon, and it's some great stuff. It probably has to be definitely at least in the top 3 of crypto books ever, if not top 1, but it's definitely top 3. It's something people interested in Bitcoin, anyone should read, especially Alexei. I forgot to say about this, but say about this to Alexei, but I definitely want to challenge him to read Bitcoin Standard and write a kind of a review of the book on his blog. I would love to read that and see how he thinks about the stuff in Bitcoin Standard.

Yes, indeed. And thank you, Henry, again for your insight and joining in. And definitely let's keep making these videos. And yeah, since we're all on our way 2 different things. Why don't you tell people where to find more about you, how to get in touch with you, Henri?

Yeah, well, one way of getting in touch is through Twitter. The profile is Technomage and the A is a 4. So that's my kind of public social media profile is on Twitter and I'm the most active there. That's one way to get in touch. And yeah, that's pretty much it. And of course, our company Praasos is coming up with all kinds of new interesting things in the crypto world that I'll probably tell more about. Well, I can actually tell something, kind of a hint of what's coming to CoinMotion, our main service.

Awesome.

We're going to launch instant deposits there soon, and I mean universally instant to anyone. Yeah, you can maybe guess what kind of deposit option that is. But anyway, it's going to be a big upgrade because right now we have just basic bank transfers mostly, some niche instant payment options, but the new upgrade will be— Instant. will be a big one because you can make instant deposits universally. So looking forward to the launch, it will be pretty soon. So that's it.

Awesome. That's fantastic to hear. I'm looking for the sparks to fly on that one. And if anybody of the viewers don't know what is Prosos Limited, that's not only one of the first in Finland, but one of the first in the world of Bitcoin and cryptocurrency companies. And Henry is the CEO, so pretty exciting stuff. Rafael, why don't you give your closing remarks and where can people find more about you?

Yeah, I would just like to thank you all guys for this great conversation. I learned a lot and I'd like to really have some more of these. And people can find me in Telegram. With the name Crypto Rave, and with the same name in Twitter. I just started it about a couple of days ago. Oh, just learning.

All right, go help brother out. And you me, you can find my personal Twitter is Omni Fin double N at the end. Telegram, you can find me on N1KOFI. That's my nick. So that's the most direct and easy way to getting. Get in touch with me, and it was a pleasure, gentlemen. It was awesome to have you guys here. And if you guys watching afterwards, Alexei, thank you again for for being here, and let's schedule the next one. And also thanks to Max and everybody who's still watching. Please go and check out World Crypto Network right now. Max is starting up the show as we speak. So yeah, I think that's all we have for today. Thank you and see you next time.

Yes, thank you.