Inventing Bitcoin with Yan Pritzker - Author Cast 6

Welcome, dear viewers and listeners. This is AuthorCast, and today we have Jan Pritzker here, the author of Inventing Bitcoin that we are publishing currently in Finnish and in Dutch, and hopefully many other languages to come. Jan, welcome to the show. How are you doing? I am well, thank you so much, and thanks for publishing the book. I really appreciate that, and I love reaching, you know, an audience in every language. So Much appreciated on that work. Thank you. Yeah, it's our pleasure. And yeah, it's a great book. It's one of those books that I tend to recommend as newcomers to grab, maybe amongst with the Little Bitcoin Book. This is like more a tech, more of like a little technical Bitcoin book in my opinion. So it kind of answers a lot of the FUD and the, and then, you know, the misunderstandings around Bitcoin, I would say, in an easy to understand way. So maybe Maybe talk a little bit about why did you choose to write the book this way and who is it meant for? Yeah, so the process of writing the book was actually pretty interesting because it was essentially mirroring my own Bitcoin journey. So I started really researching Bitcoin around 2016, summer of 2016 when it was like in the $400, $500, $600 range. And yeah, I had multiple touchpoints with Bitcoin in the past, but didn't really understand what it was. and never really kind of took the time to dig into it. So in 2016, when I started researching it, I was listening to all these videos and podcasts and, you know, Andreas Antonopoulos and that kind of thing that was going on around that time. And I started understanding Bitcoin first from a technical side because I am a technology person and I've been spending my career in startups and writing software and architecture and that kind of thing. So At first I approached it very much from a tech standpoint and, you know, it's an interesting distributed system and, you know, it's kind of solving this problem of being able to, anybody can participate in the network and it's permissionless and all that. And that was really cool. And so as I started getting deeper into it, by 2018 I started having the concept of, I was, you know, I was explaining Bitcoin to people all the time, right? It became the Bitcoin person in my group of friends. They started inviting me to give talks. A lot of my friends are actually teachers, so they started giving me invitations to go to their high schools and talk to their students about Bitcoin. So I started explaining Bitcoin to high schoolers, and this is where really the book started. It was me taking notes and really thinking about what, what do I want to talk to high school people about? How do I explain Bitcoin? And when I started taking these notes, I, you know, very quickly they turned into chapters and, and became very meaty and I said, okay, I have kind of the beginning of a book here. And so originally when I started writing it, it was really intended for a high school audience and I kind of wanted it at that level where you don't really need a deep understanding of math, economics, technology.

It's all kind of there on a 101 level so that if you have that basic understanding of each of those fields, you should be able to understand Bitcoin. That was my goal and really to stay away from code, stay away from really deep technical stuff. And like I said, I approached the book from a tech angle, and that's why it actually has a subtitle of something like, you know, the, the decentralized, I don't even know what it is. The First Decentralized Money, Technology Behind the First Decentralized Money Explained, I think is what it is. So it's a really terribly long subtitle, but the point is that I came at it from a tech side, and as I was redoing research for the book, I realized that I can't just explain Bitcoin from a technical standpoint unless I explain what the problems that Satoshi was solving are. And that's when the book really took a big turn into the motivation side and understanding the why, the why of Bitcoin and all this monetary history and Satoshi's writing and all this kind of stuff crept into it because I realized I can't just say, okay, this is how Bitcoin works. If you don't understand what problems you're solving, you're not going to be able to understand the solutions either.

Yeah, funny you should mention the high school because that's usually what I tell people. Like, if you, if you have like high school level understanding of things, then this book is going to pose no problem for you. And I would even say you don't even need that necessarily. Like, if you have a curious mind and you have, you have a logical mind and you can look up a lot of those things, there's definitely no hurdle to anybody to grab this book if you want to learn about the, you know, technical side of the Bitcoin protocol in an easy to understand way. So it's in no means technical. There's no code in this, and I'm not a technical person either. And by the way, my mom really liked this book, so she was actually proofreading the Finnish version for me, and she really liked it. And I was really happy because I've been trying to orange peel my parents like I'm sure most of the you know listeners and viewers. have the same experience and it's sometimes it's an uphill battle. But luckily my, my mom is an engineer, even though she's quite, quite a bit older than me. But she has the mind to understand and somehow that your explanation and your way of, of putting it really spoke to her. So I, I think that's a, that's a big thing and you accomplished there.

Appreciate it. Yeah, I do hear that a lot as people's, you know, parents or people who aren't necessarily technical. Do get a light bulb moment, especially when mining is explained, because I think that's something that a lot of people don't understand. And there's a lot of voodoo and a lot of misconceptions about mining in the media, even still to this day. And so it's, you know, it's something that once you grasp it, it really helps you understand how the design of Bitcoin, how it's designed to have a certain emission schedule, a certain supply curve. All of this stuff is really kind of important to be able to defend the ideas of Bitcoin, you know, that it is actually decentralized, that it is actually immutable. Like all of these concepts that we talk about, the goal of the book was not just to teach you the concepts, but to teach you in a way that you could probably explain to somebody else and walk them down that same path. And that's why I called it Inventing Bitcoin, because it really is the process of inventing Bitcoin. You know, I don't know how Satoshi invented Bitcoin, obviously, but, or, you know, I can sort of think of it by looking at his reasoning and saying, okay, here are the problems he saw with money. You know, it's not private. You've got, you know, identity leakage. It's being debased by banks, you know, all of these kind of, these issues that he pointed out. And then you go and look at, okay, well, how do you solve those specific issues step by step? And you get Bitcoin, you know, you get the invention of Bitcoin basically.

Yeah, that's very interesting. And, and this is also something that I've been talking a lot about with Knut Swangholm about the, you know, inventing versus discovering Bitcoin. And I think what you are talking about here in your book is inventing the framework of the window through which we can discover Bitcoin that has become evolved, this kind of like, you know, socioeconomic, psychological, multi, field discovery rather. Yeah. You know, like the technical side here is very well outlaid and, and that's why I think the Inventing Bitcoin is an apt name for the book.

Thanks. Yeah, I think there's an interesting discussion there about invention versus discovery. I mean, it's almost like a little bit of both because we, we discovered essentially the concept of digital scarcity, right? Which we thought was not even possible because in digital, in the digital realm, we're used to the idea that we can copy And paste and, you know, to infinity, any music file or photo or even, you know, money that we send digitally is really just a transmission of data. And so today we need a centralized party in the middle of any of those things in order for it to be not a copy, right? So when you send money from person A to person B digitally, usually there's a bank in the middle and that bank is the one that's ensuring that there is some central record that knows that money's actually been spent. So it's not being copied and pasted because if people could copy paste money, we'd have a big problem, right? And Bitcoin was the first time that we discovered that, hey, it's actually possible to prevent the copy and pasting and have true scarcity, but not have to have that bank or somebody in the middle that is regulating it and is making sure, you know, that each transaction is okay. And then that gives them ultimately control over the transaction. So I think that kind of is the discovery. To me, the invention part is, you know, how do you put the pieces together? Because the pieces of Bitcoin, the pieces that make up Bitcoin were not really that unique. They were around for a long time. If you look at Bitcoin's prehistory, you know, some of the technology in Bitcoin is 30 or 20 years old by the time it makes it into Bitcoin. Even proof of work, which is kind of, a lot of people think it's like the core thing about Bitcoin, right? It's that We burn energy to produce Bitcoin. That is not Bitcoin's invention. That's Adam Back's invention from 1998. So by the time Bitcoin comes around, it's already been around for quite a while. So Bitcoin wasn't really about putting, it wasn't really about inventing some new thing. It was actually about putting those pieces together to make digital scarcity work.

Yeah, exactly. That's like inventing the wheel. Like circular shapes have always been there. Like, like basically the number space has always been there and we just, use those tools to, in a creative way, to invent new ways to utilize these things that are already there. So, you know, discovering new uses for them. It's very fascinating. So you already mentioned about the, you know, solving the double spending problem, right? Which, which is something that you go through in the, in the beginning of the book, which I think is, it is the, you know, the, the problem, the age-old problem that we have been trying to solve with money since forever. And, and, and maybe now it's for the first time in human history that it's actually solved. So maybe dive into that a little bit more.

Yeah, so I think the word, you know, double spending problem, it's a little bit foreign to people. It sounds scary, like what, what problem? There's no problem, right? I don't have this problem in real life. So what problem is Bitcoin actually solving? So, you know, what, what that refers to is the idea that when you spend money, right? Or you send any object to anybody else, if it's, you know, a bearer instrument, if it's like a physical thing, a dollar bill or a gold coin, if I take it from my hand and give it to somebody else's hand, I obviously don't have it anymore. So there's no double spending problem there because once I've spent it, it's gone, right? In the digital realm though, if I send a digital dollar or a digital asset of any sort to anybody else, it could be a music file or video, I haven't lost access to that music file or video, right? I still have it. I still have that digital dollar unless there's somebody in the middle of that transaction. So as an example, you know, like there's iTunes, right? There's Apple's store for music and movies and stuff. The reason that store works and the reason that when you pay for a movie and then you get it and you can watch it for 24 hours and then you lose access to it, the only reason that works is because Apple's in the middle of that, right? And what they're doing is they're issuing this digital right to you and then they're revoking it. So they're that central party and they're ensuring effectively like the fake scarcity of that music because it's not actually scarce. You could then make a digital copy of that music and you can send it to a million people and that doesn't really cost you anything. So Satoshi was trying to solve that same problem, but in the realm of money. So how do you prevent somebody, how do you make a monetary system where you can send money digitally, but then the other person, when they receive it, you no longer have that money? Who, who insures that? So in a banking system, you have the banker that's in the middle of that transaction, right? So When 2 people send each other money, whether it's PayPal, Apple Pay, or credit cards, or, you know, anything, there's always somebody in the middle. And that somebody could be a bank, could be a corporation, you know, could be both. Those things are really just keeping a database of everybody's accounts and they're just moving, you know, numbers around. They debit one account, they take numbers out of it, and they put numbers into somebody else's account. So because that central party's there, That system works and there's no double spending problem. Now what Satoshi's trying to do is say, okay, well what happens if we remove the bank? We want to have a peer-to-peer electronic cash system. That's what Bitcoin is, right? If you look at the white paper, it's called peer-to-peer electronic cash. What does that mean? Cash is a bearer instrument, something you have in your hand, you give it to somebody else. Peer-to-peer means there's no bank in the middle, right? There's no, there's nobody who's not your peer, some other person on the network. So the way that Bitcoin does this is it replaces the banks with a network of anybody, which, you know, which are the nodes of, of the Bitcoin network. And these nodes, they all store a copy of what the bank usually has, which is a ledger system. They have a ledger of accounts and they show how money has been moving. So in Bitcoin, we have the same exact idea. We have everybody who wants to be a bank can be a bank. They plug into the network and they get a copy of the ledger. And that's the first sort of building block of Bitcoin. But then of course you say, well, if everybody has a ledger, then how come I can't just, you know, go into my ledger and give myself a million dollars and all of a sudden I'm super rich, right? Well, that's where the whole process of mining and proof of work and everything like that comes in, because what that system creates is a single point of entry into when new records can enter into the ledger. It creates a certain barrier. to entering records into the ledger such that not everybody can do it. It requires a certain amount of energy to do that. It requires, there's a certain kind of lottery system which we can get into. And this creates a kind of a gate to writing into the ledger, but not in the sense where in a banking system the gate is there's only one bank. In Bitcoin, anybody can be that participant, but there it requires essentially energy and some luck. to become that gatekeeper that gets to put in a transaction. And then once you do that, and once the transaction's written to the ledger, everybody else in the network gets to validate whether you play by the rules, whether those transactions follow the rules of Bitcoin, whether they actually have been spent before or not, whether they follow rules like, you know, the issuance schedule of Bitcoin and things like that. And that creates a very strong effect in Bitcoin where nobody can cheat, even the people with the money, the miners, the, with the, with the massive operations and electricity and mining facilities, they can't really cheat. They can't change the rules of Bitcoin and do something that's outside of those rules because whenever they spend those coins, they would just be rejected by the recipient. So it's a very interesting system of these parties keeping each other honest, essentially. Yeah.

Yeah, that's very interesting. And, and before we, let's move on to the mining next. But I want to make a couple more comments about what you just said. And I think what you explained and what you described here is the crux of hard money versus easy money, right? I mean, it's so easy to press a button on the computer and money appears on the account and then you can lend it and then that's how money is created. Or rather, I should say currency. Bitcoin is money and fiat is currency. So yeah, that's something that we need to go into and all the thermodynamics and And why it's important to have this proof of work. And one more thing about cash, you know, like cash is instant settlement, right? Like you said, you have the cash in your hand, you give it to somebody, and then you don't have the cash in hand and the other person does. And it's your, the debt is settled or the payment is settled. What, what I feel like a lot of, there's a lot of confusion about what cash means. Like there's people who misinterpret this like electronic peer-to-peer cash system. Like it's just about payments, like it's just making payments like medium of exchange. but it's also about settlement. And I think what a lot of people don't understand is that when you pay with Visa, for example, or PayPal, it's not instant settlement, right? It takes maybe weeks in the background. You just don't know what, how it works.

Sometimes months. You, you can reverse a Visa transaction months later, right? So

yeah, yeah. Funnily enough, you know, people often think that it's a downside that, you know, Bitcoin transactions are irreversible, but that's precisely what makes it cash. because it is irreversible. I mean, it's final settlement. And that's what is amazing because you can settle a debt or payment globally anywhere from anybody in, in matter of, you know, depending on the fees that you want to pay, but in matter of hours rather than days or weeks or months. It's amazing.

Yeah, it, it, it really is amazing. And I think that's an important distinction. So I think let's talk about 2 things. So the distinction between hard money and soft money or fiat money, As you mentioned, basically in our world that we know today, all money is fiat money, which is, is just money backed by nothing. The government can create as much of it as they want. Banks can create loans, denominate that money as much as they want. I mean, the supply of dollars is always growing, right? And as we know from the last year, we saw a dramatic increase in the supply of dollars and also other currencies all over the world because effectively we are in America, the world's reserve currency. And, you know, we kind of impact everybody else's monetary policy when we print lots of dollars. So that system is actually the system that Satoshi was trying to subvert, right? That he didn't like that. And he explicitly said something to the effect of, you know, we trust the banks not to debase our money, but the history of fiat currency is filled with breaches of that trust. And if you look at it, from that standpoint, you'll look in history and every great empire that ever was had a great currency that was a world reserve currency. And sure enough, what happened is they debased the currency, which in traditional terms used to mean the currency was made of gold or silver and they just kept decreasing the amount of gold and silver in it until it became kind of junk. Or another form of debasement would be when it's backed by gold or silver. So in the United States, we had You know, early dollars were basically IOUs on gold. So you actually had a $20 bill that said redeemable for gold, right? You could take it to the Federal Reserve and redeem for gold, except for then they made that illegal. So at some point the gold backing was removed and now all we have left is this fiat currency. So it has no physical commodity backing. So Bitcoin is very different from that. Bitcoin specifically is fixed in supply. And it's intentionally difficult to create. So you can't just snap your fingers and create it out of thin air because, you know, I explain this to high schoolers and it's funny because high schoolers really have an easy time understanding this. But, you know, Harvard-trained economists have a real hard time with this. The real basic concept of supply and demand, right? There's, you know, one chair and there's $100 in the world versus one chair and a million dollars in the world, right? The more dollars there are, then the more the value of that thing relative to dollars will be affected, right? The dollars will lose value relative to the physical goods and services that exist. And you don't have to look very far. Just look, if you look for candy advertisements from the '50s, you'll see that things used to cost a nickel. Now they cost a dollar. Or minimum wage in 1963 was 5 silver quarters. I just saw this meme was put out on Twitter somewhere. You know, 5 silver quarters, which today are worth actually like $20-some. That was the minimum wage in 1963, right? So if you look at that framework, then you see that the problem isn't really that we don't have enough money. The problem is that the money has to hold value. It has to be hard. And how do you make it hold value? Well, you prevent people from creating more of it, right? Create more of something, it loses value. And this is something that there's a great paper by Nick Szabo called Shilling Out where he goes through the history of money and he talks a lot about this concept of unforgeable costliness. So for money to be good, useful for transactions, useful for storing value, you have to have some assurance that nobody can just create it out of thin air because otherwise you don't have any assurances that it won't just lose all of its value tomorrow, right? And we have this throughout history. We have lots of situations of hyperinflation, currency debasement, where the currency just evaporates because people lose faith in it because it's been printed to infinity. And so of course it loses value. So Bitcoin is hard money. It actually enforces those rules by creating this unforgeable costliness. The idea that you can't just create it out of thin air, you actually have to put in some kind of effort. input of work. And in Bitcoin, that input of work is in the form of energy, real-world energy, which we know, you know, from the first law of thermodynamics, you can't create or destroy energy. It requires work to convert, say, hydro, you know, water flowing to electricity, right? It requires work to convert coal to electricity. You have to create, you have to put in the work to do that. And then Bitcoin takes that electricity and then it uses it In the mining process to give us a sense that any Bitcoin that was formed and discovered, really mined, came from the consumption of real-world resources. So now we know that nobody can create it out of thin air, and that's what gives Bitcoin its hardness and very critical property for Bitcoin to be successful as money. Because otherwise, you know, anybody can print, put a, push a button and print it, and we have a problem. And this again goes back to this concept of, you know, in the banking system, only the Federal Reserve and only certain banks can sort of create money. But in Bitcoin, because anybody can participate in the network, it's absolutely critical that we use some real-world objective measure of what it took to create that Bitcoin. Otherwise, we wouldn't know if it was counterfeit or it came from, you know, where it came from. And that's what proof of work is about.

Yes, well said. And, you know, It's about standardization of measuring the value, right? And this is something actually that we came across with the— when we were thinking about translating the Bitcoin Standard by Saifedean. And a lot of people understand it like, well, yeah, it's, it's like gold standard, so Bitcoin Standard, but not exactly necessary because we are also talking about standardization of measurement of value, right? Just like you said, you know, but we have a way to now verify that they will, that the measure stick will not change. Measure stick will remain constant. So we can now start to measure all value in this stick that does not flex. So I'm a construction engineer, so I like this metaphor a lot. So for example, you know, imagine trying to build a house and you have a measure stick, but you don't know every day it's getting a little bit shorter. You just don't know exactly how much. So,

right,

you know, we're building this kind of society with that kind of a stick, you know, the fiat society, and it's about to collapse because, you know, yeah, we, it's, it's, you cannot rely on that. You cannot make long-term decisions based on that because you don't know how long the stick is going to be tomorrow.

Yeah, I think that's a very good analogy and I will take it even one step further. It's as if we have a stick that's shrinking, but then we actually have somebody in charge of that stick that's like, Hey, if we shrink the stick by 50%, it's going to look like our house is twice as big. So that sounds pretty awesome. Yeah. Let's make our house really, really giant by just shrinking the stick,

right?

Yeah. And that's basically what the government's doing. They're like, let's just shrink the value of the dollar so that everything looks like it's going up. And everybody's really happy because everything's going up. The stock market's up and house prices are up. Oh, but food costs are up too. So what's happening, right? We're shrinking the stick. We're shrinking the the value of the dollar and it's causing everything to look big in proportion. And what have we really done? We actually have distorted all markets and it's worse than building a house because a house is one thing. Here it's like the entire world and it's extremely complicated how everything interrelates. So we're distorting everything that's happening in the world by screwing up the stick. And it's all happening in nonlinear ways. The effects are nonlinear. So it's much, much worse than messing with a ruler that's For building a house.

Yeah, for sure. And there's also shrinkflation. Like if you talk about food, like look at the Big Mac size in the '70s, you know, and look at it now, and price has gone up multiple times while the, while the actual product got smaller. And you can see this anywhere. You know, if you look at old packaging of chocolate bars or whatever, you will find out that actually, and this is how people get fooled into thinking like, oh well, the inflation is not that bad. I mean, this same product that I bought 10 years ago, it's about the same price, but actually you're getting Maybe 70% of the product that you used to, and then, you know, the price is higher also. So that's how many, many ways that this kind of like value and quality of life is being stolen from people just by meddling with the measure stick. Yeah, maybe let's move on to the mining because that's really the point here, how to make the money hard and to make kind of like tie it into real-world consequences via thermodynamics and energy expenditure. And this is, by the way, something that currently is the, I feel like the dominating FUD narrative against Bitcoin, you know, climate change and blah, blah, blah. And by the way, as a side note, probably you watched the episode with Saifedean and Jordan Peterson where—

I've seen some clips. I haven't had the chance to watch the whole thing. I saw the mind-blowing—

Yeah, exactly. That, well, that's what I'm talking about. Like this realization I think is going to happen more and more in the That actually Bitcoin is, if there's such a, like, let's put that aside if, if climate change is a problem that we need to solve or not. But if, if it is, then Bitcoin is the one that is going to solve it because of, of the efficiency. So let's, let's maybe talk about a little bit of thermodynamics, energy expenditure, proof of work, security model, censorship resistant, and which all of this brings us to the value proposition. Why number go up in Bitcoin?

That's right. Okay. There's a lot there. So let's start with the, the nuts and bolts and then kind of move up in the layers. So why, why does mining exist? Again, mining is really the process. Mining is a twofold process. One is, is discovering Bitcoin that already exists in the protocol, but needs to be mined just like in the sense gold needs to be mined, right? There's actually a known, some known amount of gold within the Earth's crust, right? Somewhere inside of there. There's gold, but we don't actually know how much is in there and we don't know when we're going to discover it. It's kind of random. We have to dig giant holes and we have to see where the gold is, right? It's kind of the same with Bitcoin in a sense, except for it's just much more transparent. The Bitcoin protocol has defined exactly how many Bitcoin will be issued. And what we say when we say protocol, it's really a set of rules that are enforced by software. Okay? So it's a protocol is really a set of rules more than anything. So When you connect your computer to the Bitcoin network, that, and you run, you know, Bitcoin software, that Bitcoin software has to follow the same rules that every other piece of Bitcoin software follows. Otherwise it will be, it won't be able to talk to everybody else, right? It has to share that same view of the world. And part of that view of the world is that there's going to be a certain number of Bitcoin, which is close to 21 million. So the way that works is that there's a cycle in Bitcoin called the halving. where every 4 years the supply of Bitcoin, the, of newly produced Bitcoin is cut in half. And what do we mean by that? Well, all over the world there's people called miners, and anybody could be a miner. It doesn't take anything special. You need a, you need a computer. There are specialized computers called ASICs, which are boxes. They're about this big. They make a lot of noise. They have a fan. And what they do is they run an algorithm Which is a piece of computer code. It's not complicated. A lot of news articles will say they're solving complex math problems, which is not actually true. What they're doing is they're running a mathematical function called a hash function, which is basically a sort of random number generator that works on data. So what they're actually doing, the way that I like to talk about it now is think of it like a dartboard. Okay? We're trying to find Bitcoin, just like when we're mining gold, we're just like, we're using a hammer or, you know, a fancy machine, but basically we're digging into the earth. Every time we strike the earth, we expend some amount of work, right? We expend some amount of electricity and there's some chance that we'll strike gold. There's also some chance, there's a large chance that we'll strike nothing, right? So gold takes an enormous amount of energy to produce a tiny little bit of gold because most of the time that energy is wasted in doing nothing. In Bitcoin, it's kind of the same idea. In order to produce Bitcoin or really discover Bitcoin, discover one of the 21 million Bitcoins that is out there, we are doing a similar process except for instead of striking the earth with a hammer, we are throwing a digital dart at a dartboard. And the way we're doing that is using these special computers to crunch a formula, which is not a complex equation by any stretch of imagination. It's just a hash function. It's taking the Bitcoin data, so transactions, people are sending Bitcoin to each other, and it's sticking it together with a random number and it's producing a dart throw and it's throwing that dart against a giant dartboard, which is about the size of the number of atoms in the universe. It's a very, very large space of possible numbers that computer will produce. And if they land in the bullseye, which is very, very small compared to this giant you know, total number of atoms in the universe. If they land in that bullseye, they can then share that information with the world and say, hey, here's how I did my dart throw. Here's all the information that went into it, and here's where I landed on the dartboard. And everybody else can verify that they actually hit that. And if they verified, then they get a Bitcoin reward. That Bitcoin that they produced is now considered valid and is written into the ledger and everybody takes a copy of it. So the rules of Bitcoin basically stipulate that You have to hit this bullseye and they enforce the size of the bullseye over time to be smaller or bigger depending on who is participating in this mining process. What that does is it basically makes it really, really hard to hit that bullseye. It actually becomes proportional to the price of Bitcoin. So if Bitcoin's worth, you know, $50,000, it will take you almost $50,000 worth of electricity to hit that bullseye because If it was really, really, if it was worth $50,000, but it only took you $10,000 to hit the bullseye, then lots and lots of people would start mining because it's basically free money. But what the network does when that happens is it shrinks the bullseye so that it's harder and harder to hit it until the point where the price and the cost kind of converge a little bit.

What you're describing there is the difficulty adjustment algorithm, which Saifedean calls the secret sauce of Bitcoin that makes it makes it work because that's, that's what makes it sure that no matter how much hash rate, how much calculating, how many computers you plug into the network, the network will adjust and, and vice versa. If like, for example, the miners in China got shut down, so about 40% of the hash rate dropped off the, off the network. So the network adjusted to that and suddenly everybody else got a discount and it become much more profitable to mine elsewhere. That's right. So this is, I, I think—

For a brief, for a brief amount of time, right?

For a while. Yeah, of course. Yeah.

So what you're describing is that this difficulty adjustment, and I agree, is the secret sauce of Bitcoin because almost every other piece of Bitcoin was essentially invented and existed before Bitcoin came along. And proof of work, which is that concept I described around burning electricity and showing a number, existed. What didn't exist and nobody could really figure out, which seems obvious in retrospect, is that you can adjust the difficulty of the proof of work dynamically. So over time, right? So as As more people join the network and more people are throwing these darts, we want to shrink that bullseye and make it more expensive for them to do so. Or vice versa. If what happened in China is half the hash rate of the network, 40% of the hash rate, which means 40% of the miners basically just unplugged and said, hey, we're offline. All of a sudden the bullseye was still this big, but only, you know, there's only half as many people throwing darts at it, right? So now they had to enlarge the bullseye because there was less people mining. So that sort of thing adjusts over time. It either shrinks or grows depending on whether the hash rate shrinks or grows. So I think that is the key to Bitcoin. And if you look at the code, like the actual computer code related to the difficulty adjustment, it's like trivial. It's like 5, 10 lines of code, right? It's like really, really basic. It's just, okay, we're going to look back at the last 2 weeks. There's a period of time, it's not really 2 weeks, it's really, you know, 2,016 blocks. But because Bitcoin doesn't have a sense of time and has a sense of Or blocks, which are these things that miners discover. But every 2,016 blocks, which is roughly 2 weeks, they look back in time and say, how fast have we been going? Have we been going too fast or too slow? And let's adjust that bullseye based on that. And the interesting thing is that every single node in the network, every computer independently comes, does a calculation. They're not relying on some central authority to tell them what the new number will be. They just all recalculate it for themselves. And because they all run the same Calculation algorithm, they all come to the same conclusion, which is the bullseye is too big by this amount. Okay, shrink it, or it's too small, enlarge it. And that is really the secret sauce of Bitcoin that makes it so that no matter how many people start mining, everybody in the world gets super greedy and turns on a miner, that bullseye's going to get really, really small. It's going to get really, really hard for them to find the Bitcoin. So, you know, It's a very interesting way to make sure that we don't violate these, the supply schedule, which is what I was kind of getting at with the halvings, is that every 4 years, you know, or every, you know, certain number of blocks that is cut in half so that Bitcoin becomes rarer and rarer and rarer to find. And you have to be ultra efficient in order to participate in that network because now you're getting less and less Bitcoin in this conversation.

Yeah. And it really is important because like you said earlier, you know, we don't know how much gold there is, right? I mean, nobody, we, we've literally scratched the surface of Earth and let's not even talk about, you know, asteroids and whatever is out there. Asteroids out there. You know, it's safe to assume that there's infinite amount of gold in the existence, at least, you know, from the universe. Yeah. I mean, from a very practical perspective, the point is that, you know, any other resource except Bitcoin is the only, you know, exception to this rule. If you pour, if there's a gold rush and you pour more and more resources and money into mining or of finding or producing that resource, the price of it will go down because more will be found. Because it's just a matter of like, we, we can just make, you know, submarines that go, go 20 kilometers into, into the oceans and find gold there. I mean, it, it doesn't matter as long as the price keeps going up, you know? Yeah. So that's the effort that is being poured into it. But Bitcoin absorbs all of that effort. And after, after 2016 blocks, it, it becomes that much harder to find more new Bitcoins. And it's, it's truly amazing. It, it makes me warm and fuzzy inside just Whenever I think about, because this is such a, such an elegant and simple solution to such a complex problem that has, has been really plaguing humanity, you know, forever.

Yeah, that's right. And I think, so to circle back now to this energy FUD stuff, so basically what we're talking about there is, okay, we just said, you know, Bitcoin burns a ton of energy, a ton of electricity to produce Bitcoin. And even in the future, in the year roughly 2140, when all of the Bitcoin is fully mined, We're still going to need to do that because in order to write new transactions to the ledger, that's still the same process of mining. So mining is actually the process of discovering new Bitcoin and writing transactions to the ledger, meaning people, you know, spending Bitcoin to each other or performing Bitcoin transactions. And that's another thing we can get into because a Bitcoin transaction is not a payment, but we can cover that in a second. But essentially, you know, what's going to happen is we're going to, Sort of expend this electricity in perpetuity. And so for a lot of people, this is kind of scary, like, oh my God, it's going to burn down the world and so on, right? So one of the things that people, I think, don't have a good conception on, and this is often misconstrued in the media, and when they say Bitcoin burns as much electricity as Argentina or some, or they'll say some country, right? So in your mind, you picture an entire country and all that country is doing is burning electricity for no reason at all. Except for like, you know, tech bros to like, you know, gamble, right? That's the mind of the average sort of mainstream media reader, right? The reality of Bitcoin mining is actually quite different because of the difficulty adjustment, right? Actually, you have to be ultra efficient. You have to have really, really low energy costs because if you think about it, if you come into the Bitcoin network with a high energy cost and the difficulty goes up, then all the people on lower energy costs are going to have a good time mining and you're going to have a really bad time until the point where you're unprofitable. You actually have to get kicked off the network. So what actually happens is there's not a country full of Bitcoin miners. Bitcoin miners go to where electricity is the cheapest. Where is electricity the cheapest? Well, where there's no other demand for it, right? Because electricity is a supply and demand market. So it's not like if you look in the media, they're like, this could power 100,000 homes. Well, no, it can't because it's in the middle of nowhere. This electricity is typically stranded resources, right? And actually, when Bitcoin comes to an area and builds an electrical system there or takes advantage of some natural resource like a hydropower plant or wind or whatever, they create a subsidy for building electricity there. And that means they actually create a subsidy for creating communities, for creating jobs, for giving electricity to people who never had it before. Actually, at Bitcoin 2021, the 2020, whatever, the previous Bitcoin conference, I met a guy from Congo and he said what they're doing down there is they're building Bitcoin mines on solar energy. And these are villages in Congo. They have zero electricity, zero running water, nothing, right? They're coming in there, they're building power plants for the purpose of Bitcoin mining, and then they're using the extra energy that they're generating to create electricity for the village, right? Like they're bringing power to people who haven't had it before. So it's not really like stealing energy from other useful uses. It's actually going and finding all the stranded energy in the world that nobody's actually using, and it's utilizing it to create sound money, which, you know, you have to understand how actually powerful that is, right? It's freedom money. It's money that people in these disadvantaged communities can actually use to improve their situation. People that are unbanked, people who are in countries where they have capital controls and they can't even get access to dollars. I mean, even countries like Argentina, which is relatively, you know, a first world-ish country. Like they have extreme capital controls. You know, you can buy $200 of US dollars a month. People's currency's devaluing, their society's going to fall apart unless they have sound money. So you have to understand the value of that money. And then you have to understand what Bitcoin's actually doing is subsidizing the development of stranded energy resources, which is actually a good thing for society. And it's not at all this idea that it was stealing this energy that would otherwise be useful for hospitals or houses or something. That's just nonsense. And it falls apart if you understand the difficulty adjustment, but unfortunately most people don't.

Yeah, I think a lot of people have a naive understanding of energy, like especially in the first world where, where you just, you know, you plugged in your smartphone to the wall and yet there's energy and you somehow think that all of the energy in the world that has been produced in some kind of a pool. And now if you take a slice of that, it's, you know, it's out of reach for the rest of people who would need it for something else. But that's not the case. Like for example, you mentioned the hydropower, like consider, you know, like hydropower is usually next to the river, right? And there's often maybe not that much of other infrastructure that can efficiently use that energy that would come from there. Sure, you can store some of the potential energy on top of the dam, but not infinitely. Right. So what often happens is that you'll find aluminum production or something like that, high energy production factories built next to this. Exactly. And that's where you sink the energy. So the, you know, instead of making aluminum cans or aluminum bars, you can now make Bitcoin and then you can invest that Bitcoin and use that to build anything. Maybe a more, a bigger infrastructure there. Maybe bring electricity to the stranded areas that never had that before. You know, because that's true. Bitcoin makes that possible. Just like in that Peterson video we talked about earlier, you know, what he realized is that Now you can't move the energy without cost, right? That much is sure.

That's the thing that a lot of people don't understand. They think you put a, oh, why don't they put an electrical plant on that hydro dam and transmit electricity 1,000 miles away? That's not how it works. You can't do that. But what you can do is mine Bitcoin and then transmit Bitcoin to that village 1,000 miles away in a second. Now all of a sudden you have the transportation of energy into money and then money's completely portable. It's instantly portable across the world. That energy is not portable. And actually a lot of energy now, you're seeing a lot of development on oil fields and stranded gas and stuff like that where, you know, in the middle of the oil field, they're pumping all this gas and it's actually just being flared or vented into the atmosphere. So it's actually very bad if you are, you know, following the climate change narrative, then venting methane into the atmosphere is not so good for climate change, right? What would you rather do with that methane is capture it and use it to mine Bitcoin. Because now at least you have sound money as a result of that, and instead of it just being, you know, pumped into the air. Yeah. So it's actually a much better thing from that standpoint as well.

You know, talking about methane, there's even, even people who are actually now using livestock, you know, waste to mine Bitcoin. So because you get, if you have a farm, a meat farm, let's say, or you have a lot of pigs or cows, you know, they produce a lot of excrement, which then you can turn into methane and, and burn that into Bitcoin. Like if, because there's like this kind of a, in my opinion, this a little bit of a ridiculous narrative that the cow farts are destroying the world somehow. Well, now that narrative is kind of gone because you can turn cow farts into money and use the money to do whatever you want.

That's the point is that Bitcoin actually solves a lot of problems and there's maybe even secondary uses. Right now I'm following this narrative in Vancouver where they're going to use Bitcoin mining waste heat to do some kind of heating project. So that's interesting. I don't know if it's going to play out, if it's economical. Apparently it is. But Bitcoin actually can go to a lot of different places where you have no other solution for the stranded energy and you can actually plug into that stranded energy. And it's also, if you, if you're a fan of green things like wind power and solar and stuff like that, Bitcoin can actually act as a subsidy for building those out. And in Texas, this is happening now. So if you Google like ERCOT Bitcoin, which is a Texas power grid, you'll see that Bitcoin's coming in and acting as a, basically as a base demand, right? The problem with some of these power plants is they're not economical. Like when it goes on, it goes off. It's very high cost. You have to build these giant farms so Bitcoin can come in and actually act as a base demand to subsidize the building out of these power plants. And then if there's a surge in cost, Right? And then Bitcoin's not profitable, they'll turn it off, right? And that actually will act like a balancing factor for that power grid. So Bitcoin actually has the potential to be a very interesting load balancing technology for power grids, and that actually improves the development of green or renewable resources. So you have to look deeper beyond the surface of, oh my God, Bitcoin's burning X amount of electricity because that's completely out of context. And you can also compare it to, okay, the idle PlayStations burn as much electricity as Bitcoins. Okay, so what is anybody going after idle PlayStations or, you know, idle TV sets that are sitting at home burning that, or Christmas lights? I mean, nobody's going after these things because they think they have use, but they just don't understand the use of Bitcoin. So all of a sudden it becomes enemy number one, even though it's actually not only useful, but actually dramatically an improvement to energy infrastructure rather than a detriment.

Yes, exactly. The understanding is key here and people are afraid of things that they don't understand. I don't blame people for that. And especially with Bitcoin, when you start to hear that a lot of people got rich from the Bitcoin and then you didn't, you have kind of like an incentive to believe that you didn't really miss out on anything, that it's going to collapse and it's not going to work and it's bad. Right. It's going to be banned. It's unfortunate, but the sooner people realize that and, you know, start reading about it and accept that, okay, maybe I was wrong about this, you know, I was wrong about this and I had to accept that at some point. And I guess it's just the longer you prolong that and lie to yourself, the harder it becomes. And, you know, some people are just going to, I guess, have fun staying poor.

Yeah. I mean, that's the thing is that it is challenging to admit to yourself, but even for me, you know, it took me, I first started Bitcoin in 2011 and it took me several touchpoints to actually understand it. And for a while I was stuck in like Ethereum and ICO land and, you know, it's like you don't beat yourself up for it, right? I wish I was brilliant. In 2011, I mean, the first time I bought Bitcoin was at $30 and then I ended up selling it at $2, right? Because I didn't understand what I bought and I thought it was a joke and so on. And I didn't even bother reading the white paper, right? I just bought something because I heard about it on Slashdot. So a lot of people in that boat, you know, I don't beat myself up for it because I just didn't invest the time to understand. And that's what I did. And it took me many thousands of hours to get the depth of understanding and conviction to actually understand, to say, okay, yeah, Bitcoin is the future of money. It's not trivial by any means, you know, and most people don't have the time to invest into it. So I don't want to like say, oh, hahaha, you don't understand Bitcoin. I think everybody just needs to put in the time. And that was really the goal of writing the book to make it easier. It's shorter. Hopefully it's a little bit more digestible than, you know, some of the bigger stuff that's out there. But I think everybody can invest 2 hours and try to read it and after that, make, maybe make a more informed decision rather than just kind of reading what's in the mainstream media about it burning up the planet because it's completely false and it literally falls apart with any amount of, you know, thinking. But you just need to do the thinking rather than the reading. That's, that's the problem.

Yeah. Like, you know, I don't want to make people feel bad about that either. Although I, I heard about Bitcoin in 2010, I was running the software even at that time, but I was, I was running all kinds of software. It was just another play, another toy to play with. I didn't understand. And I read the white paper, I think 2017. So after that, it was like, you know, after that I started learning about it, but you know, it takes time. And, and even if I got it at that time, I'm, I'm sure I would've done the same as you sold it at, you know, whatever. For sure.

'Cause it was insane and it was wild and it was an experiment.

Like, so, you know, highest, highest respect to those people who, who held from those time. Yeah.

If there are people like that, I mean, I don't know how many there are really, but yeah, that's, that would be amazing because it was so much. There were people, I think, to be fair, that understood it really early on. And this is where I'm like, I have insane respect for people like Bitstein and Pierre Rochard because they were writing in 2014 when Bitcoin was under a billion dollars and they were explaining exactly what would play out, the currency speculation attacks. They would just, everything was explained. It was right there and like they literally predicted it. And I, now I read it and I'm like, wow, these guys were just brilliant. But perhaps all they were was the coming at it from beginner's mind, like first principles. Just like, hey, let's set everything we know aside and like, let's just follow the logic. Where does it lead us? Because I think the problem nowadays is that we are so smart, we know so much stuff. All that smart stuff, it impacts us, our ability to understand because we know economics, we know how fiat money works. We know the Fed is the savior of our economy. You thank God the Fed is here, that we're not in a Great Depression right now, right? These are the things we know, but if we set them aside for a second and think from first principles, then we come to different conclusions. And that's, I think, something that's very much missing these days is very few people are willing to set aside their preconceived notions and think from first principles.

Right. I mean, you know, do yourself a favor and put your ego in the side for a while. It doesn't cost you much and have another look. I know it's hard when you're invested all your life. The older you get and the more you've invested in the lies that fiat world is build on, the more difficult it is to put that aside and start from scratch. But it's not too late. Like you, I hear it all the time that, you know, I'm not going to look into it now. It's too late for me. It's not about, it's not a, you know, get rich quick scheme. It's, you know, forget about the dollar valuation. This is about protecting your wealth and your ability to function and your family, you know, multi-generational wealth. This is what we're talking about, you know, the new golden age. This is not like, yeah, I will flip it for more fiat after 2 years. No, forget about that.

And I would go beyond, it's not just wealth, it's also freedom, right? Because wealth is no good if you have no freedom with your wealth, right? You could be extremely wealthy in Venezuela, but like, good luck getting your money out or, you know, like in any of these countries that have capital controls. So you have freedom and that freedom with your money leads to a freer society. I think it's the key of free society, right? Because the freedom to speak with your money is such an important part of it. You can, if you can shout from the rooftops, but you can't make any economic effects in the society, then you're not really free. So the money has to be free. Speech has to be free too, but those 2 things have to be together. So Bitcoin is the only form of free money we have left. Every other money is now censorship money. It's going to get worse because it's going fully digital, fully centralized. So now people are going to be forced to make that choice, and hopefully they make the choice before the choice is made for them. You know, because once your country's fully on lockdown and, you know, all your Bitcoin exchanges are banned, I mean, there's always going to be a black market for Bitcoin. There's always going to be peer-to-peer exchange and all that. But right now is the golden era. Like Bitcoin's available almost anywhere. Go and get some. There's not really a reason not to have some Bitcoin because that is the only free money left in the world. by pre-earning Libre in Amazon beer.

Yes. Yeah. Well said. And yeah, what I mean by wealth is to have your time that nobody can dilute your time or waste your time and take it. And Bitcoin is a great tool to preserving that. And, you know, I think it's reckless not to own any Bitcoin, to be honest. It's for sure. Like, as just as a little bit, I think Satoshi said the same thing, you know, just get a little bit in case it works out. If it works out, People are going to be completely left out in the cold. If you have some, at least you have some kind of an insurance, you know, like people take insurances. Why not this? You know, it's—

Right. And getting a small amount of Bitcoin is also a nice incentive to learn more because it's hard to incentivize to learn more until you're actually like, your sort of wealth and, you know, your self-worth is dependent on something. And then if you have a significant amount of Bitcoin, then all of a sudden you have to start thinking, Why is it doing this? Why is it doing that? Maybe I should read it and actually understand what's happening here.

Yeah, it's been a nice conversation. I think we can start to wrap up here, but I wanted to, if you have a little bit time, I wanted to do one more point here and then we can, we should maybe close it up. So why is it said that you can't own Bitcoin? So I think this is something that you hear among the Bitcoiners. It's kind of like a, mind game or, or, you know, a play in the mind to think that, do you really own Bitcoins? And I think the idea behind this is what you also talk about in the, in the latter parts of your book is the vast number space. Like these are just huge, huge numbers of Bitcoins actually that we also talked about earlier in this episode that we kind of like discovered a way to utilize these numbers. So,

yeah. I mean, I guess when, when you, When you own Bitcoin, all you really own is a key, which is really just a giant number that allows you to spend that Bitcoin, right? So it's actually kind of like, well, what do you actually own? Well, you own the rights to sign a transaction in the future to spend that Bitcoin. That's what owning Bitcoin really is. And actually I wanted to dive really quick, and I do have to stop in a minute, but the idea of a Bitcoin transaction I think is really a key thing. It's not a payment between To peers. It could be that, but that's the really, really basic version of a Bitcoin transaction. A Bitcoin transaction could also be thousands of payments. A Bitcoin transaction could also be the execution of a piece of code. It could be a fairly sophisticated conditional thing, like it could be a multi-signature spending contract that says you can spend if 3 out of 5 people have signed off and a certain period of time has passed. And now with the upgrade of Bitcoin with Taproot, we're going to have Really, really complex versions of those scripts. So we're really creating a programmable type of money. And a Bitcoin transaction is the settlement of, it's really the final settlement, as you said, you know, of that contract. And there could be so many things that are done with this. As an example, we already have Lightning Network, which is essentially a piece of code that runs on a Bitcoin network that the Bitcoin code knows how to execute. And you spend and you create a transaction, but the transaction's not sending money. What it's doing is it's Creating a special kind of new layer network called the Lightning Network, where that Bitcoin is now locked up in that Lightning Network and can travel much more quickly, much more cheaply, right? So the constructs we're going to be able to build on top of Bitcoin are just starting to become explored, and there's almost an infinite amount of things you can do there. And that's the key that when people say, oh, print Bitcoin can only do 7 transactions a second or whatever, well, that 7, one of those transactions could be the settlement of millions of Bitcoin payments on Lightning Network. Or it could be something even more exotic that we haven't even thought of yet. So Bitcoin transactions, it actually doesn't matter how fast or slow they are. It could be 7 transactions a second forever because we're going to find out new ways of squeezing more stuff into those transactions. Because the transactions at the end of the day is just the final settlement to a piece of data. And that's really the key information here because with data we could do anything. And so we're going to see a lot of really cool expansions to the Bitcoin network and what's possible with it. And really the only limitation is the value, right? The value pie that Bitcoin represents, which today is over a trillion dollars. So today we can settle over a trillion dollars worth of value over the network. If tomorrow that value's $10 trillion or $100 trillion, now all of a sudden, you know, you can settle 100 million Lightning payments worth hundreds of billions of dollars in one transaction. And I think that's the key that a lot of people miss as far as what Bitcoin means really.

Yeah, that's, that's really good that you pointed out. And, and that's also something that you hear in the FUD that, you know, the per transaction energy cost, that's like complete bullshit. It has no meaning.

It doesn't make any sense. It's no meaning, right? So anytime, anytime you see per transaction energy costs, like immediately just turn off whatever source you're reading because they don't understand Bitcoin. They don't understand what a Bitcoin transaction is. And you can't publish Bitcoin research if you don't understand what a Bitcoin transaction is. I'm sorry, disqualified.

Yeah, exactly. So to sum up, Bitcoin is programmable, free, unstoppable, unconfiscatable digital cash. So go get some. And Jan, thank you so much for your time. Thanks for having me. Do you have any final remarks? Where can people find more about you or follow you?

No, it was my pleasure. You can find me on Twitter. The handle is Skwp, S-K-W-P. And then you can also find my company, which is Swan Bitcoin at swan.com. We sell Bitcoin. We help people buy Bitcoin on a recurring basis. We also help companies, high net worth individuals, entities of any sort, trusts, IRAs. So come hang out with us and we will help you with any Bitcoin questions you may have. And you can get the book all over the internet. Just type in Inventing Bitcoin into Google.

Excellent. Thank you, Jan, and thank you viewers, listeners. Remember to subscribe to our channel, hit the bell button to get the next authorcast. Gonna keep making these with the other authors, and it was a it was a pleasure. I really enjoyed the conversation. So, like, see you next time.

Hey, bye bye.

Cool. Bye bye.