Jeff Wernick Dishes on Bitcoin, Blockchain and the Future of Money


Not everyone that backs a cryptocurrency has a company or organization behind her. Some industry evangelists — and sometimes the most powerful voices — lean on the simplicity of single-coin ownership to reduce claims of bias.

Some call them extremists while others call them purists. In particular Bitcoin has the biggest cohort of individual evangelists. Chief among them is Jeff Wernick, who, after a storied legal career, was an early investor in Airbnb and Uber before he picked up Bitcoin from miners as early as 2010.

At BlockTelegraph’s October CryptoAlley event series, we sat with Wernick to talk money’s origins, hard money, blockchain technology and the evolution of Bitcoin.

BlockTelegraph: I want to welcome to the stage — with a storied career — an early investor in Airbnb and Uber. He sold his stakes as a very-very early investor in bitcoin. A lot of people give him a hard time about it. About how vocal he was. We know what the facts are but we’ll just say, 2010.

I want to welcome to our stage, Jeff Wernick.

So glad to have you.

We could probably just open in to a Q&A because the audience already has questions. I’m not going to do that but literally there’s probably 30 questions already from the audience.

Jeff Wernick: I’d love to answer the questions.

BT: And that’s what I’m all about. You and I had a chance to have breakfast together a week or two ago. We covered a lot of ground. We were also out at Crypto Finance Conference in Half Moon Bay. That was just absolutely enlightening. There are a lot of people out there who agree and an equal number who disagree with what you have to say and that’s how I want to open this.

So just to lay some foundation — a lot of people know who you are but not everyone does and so I want us to elaborate on that. Tell us about — from a really high level view — this cryptocurrency space and your role in it.

JW: I don’t think I have any role in it really. For those who don’t know me, my interest in hard money, is something I’ve had my entire adult life. When I was on the transition team when Reagan was elected president and one of the things that people might not recall about this supposed — supply side agenda — was the fact that one of the things Reagan had talked about, was going back to gold.

So I was an advocate of getting the government out of discretionary issuance of money and going back to the gold standard.

BT: Before we even get into that, let’s talk about money. What is money based off? I mean a some point there was a gold standard? Can you elaborate on that and what that means?

JW: Historically, according to our founding documents and then with the first Coinage Act of 1792 — you know, people might not know this but when the US was founded there were hundreds maybe thousands of currencies in circulation. Actually, the currency that circulated the most, was something called the “Dollar.” You might think of the dollar as a US dollar when actually it was a Spanish Mill Dollar and it was a silver dollar.

At that time the government didn’t have the right to create bills of credit. So the government had nothing to do with the production of money. States were prohibited from issuing bills of credit. So essentially, the only institutions that could issue bills of credit, where state chartered banks because at that point in time there were no national banks. So either money was issued by state chartered banks or private banks — mostly silver and there was some gold.

In the beginning of coinage in the United States, the government didn’t have anything to do with defining what people use for exchange and transactions. Actually, the first time the government got into the legal tender business, where they started outlawing multiple currencies, was in the 1850s.

Gold then became more relevant after the gold discoveries. So principally, what served as money, was basically decided by people voluntarily engaging in exchange. They determined for themselves what was good money and what was bad money. The government really had little to do with it until be began debasing it, which really occurred during the Civil War, which was the Greenback period.

That’s when we first started printing money and it was the Greenback. People thought that printing money ought to be illegal but you know, during a war, the government gets away with lots of things that under different circumstances would not be considered legal. After the war ended the Supreme Court basically legitimized what the government had done.

Throughout history, money has been defined as whatever people thought they could have confidence in, in exchanging value with each other. Over the longer term money was fashioned from metals. Either silver or gold.

BT: So let’s talk about that. You’ve brought up gold a few times. We can talk about other precious metals but predominantly — at least in US history — there’s been an attachment to gold.

JW: Not just in US history, You’ll find coins in Roman times and many others.

BT: Why base a currency off a precious metal? Why do that?

JW: Because it was durable and it was relatively easy for people to carry around. It wasn’t so easy to produce so typically it preserved a staple value because whenever the price went up, more people went and mined it and then the price would go down. So that was the best staple thing that people had that was portable and durable more than any other commodity.

In certain local economies — Virginia for example used tobacco. So for local trade, people would use the commodity that was unique to your circumstances but for trade beyond that they needed something that would be easy to move. Something who’s attributes would not be changed by the act of moving it over long distances.

So it really depended on where you are and what was the dominant commodity at that point. Most economies with pretty much local.

BT: That relationship though – I want to add to this foundation – is invented. You’d call fiat a technology? Is that fair to say?

JW: Yes. A fraudulent technology because it’s backed by nothing.

Actually, during the Nixon administration one of the senior guys at the New York Fed, a very prominent banker called John Exter, actually wrote a paper in — I think around 1972 — where he called, currency not backed by anything, “I owe you nothings.” So I think that’s probably the best description of what circulates today.

BT: There are a lot of folks from outside the US but just for the illustrative point.

JW: That’s true for everyone. It’s all I owe you nothings. All currency are “I owe you nothings.”

BT: On that note though — just so that people understand the structure. And I think it’s a really great foundation on this runway so far: There is the Treasury and there’s the Fed and someone’s printing money. It seems very vague to most people. They are just used to using Greenbacks. Can you explain to this audience how that all works?

JW: The production of money?

BT: Yes.

JW: Well the Federal Reserve system was created in 1913, the same year we also got the income tax. For all of you who don’t know, the reason why we pay an income tax is to support the financial system. If we didn’t create The Fed, we wouldn’t have the income tax.

After the crisis of 1907, where the bankers were not happy about — basically doing a self reinsurance regime — they decided it would be good to have a lender of last resort modeled after the Bank of England. I don’t know if you’re familiar with Griffin’s book, The Creature from Jekyll Island but for those of you who aren’t I’ll just mention this: The United States had a very small federal government.

So we basically had a system where each state was pretty much independent and the federal government did very-very little. The only time the federal government did anything, was pretty much in times of war. As long as we weren’t at war the federal government did very little.

The bankers weren’t thrilled about how much money they had to put into reinsuring the financial system so they pushed for the creation of A lender of last resort. When they decided to have this meeting at Jekyll Island, of the coast of Georgia, they all boarded a train. They were not supposed to acknowledge each other so they all went in stealth. They had a meeting and when they produced the first document, they called it The Banking Cartel Act. So the objective was to create a bank cartel.

BT: At least they were clear about their intentions.

JW: Yes but politically, they had to change the name so they changed it to The Federal Reserve Bank because that sounded better than the banking cartel. Sort of like we call — you know after September eleventh — we call the act, that gives the government the right to surveil you 24/7 violating the bill of rights — we call that The Patriot Act.

BT: Jeff, Americans are going for really good at marketing. I think that’s what you’re witnessing there.

JW: So they wanted to create a lender of last resort. So they basically created this Federal Reserve system but they wanted to give the illusion that this was a public entity. So they created the Federal Reserve Board of Governors and they created these District Federal Reserve Banks. So now there are twelve federal reserve bank districts.

So who owns each Federal Reserve Bank? None of you know. Who’s on the boards of them? Non you you’ll know but they’re all privately owned. So who really controls the federal open market committee? That’s the board of governors, the bank presidents serve on the federal open market committee.

Where are open market operations run out of? They’re run out of the New York Fed. So who controls the New York Fed? Maybe Jamie Dimon does?

Politicians, senators and congressmen have more access to what goes on at the NSA than the Federal Reserve. The Federal Reserve doesn’t have to basically say anything. All they have to do is swear and say: “We are trying to comply with the Humphrey-Hawkins Bill and we’re doing our best. How we’re doing it, we can’t tell you but trust us, we’re doing our best.” That’s basically what they say and Humphrey-Hawkins is the bill that says: “You have to promote economic growth with as little inflation and unemployment as possible.”

I you think about it the IOU is basically issued by banks with the back up of all of you. So who insures it? You all do. The banks don’t insure it. Their deposit insurance premiums do not cover the risks. It’s the appearance that they’re covering the risk. What happens is when the banks go bad, they have to have recoursed the taxes of the tax payer. So given the fact that the federal government had no money, how can they be a lender of last resort with no balance sheet? The whole point of instituting income tax was, if the federal government needed to have a balance sheet to support the banks, they could then tax us all so they’d be able to support the banks.

BT: Jeff, this all sounds like new but existing bad news bears but we’re all still using fiat currency. We have a tip jar over there and someone put some singles in it. I’m hoping for a twenty but I digress. We’re still using this system.

JW: We don’t have a choice.

BT: Do we?

JW: If you tried to pay your taxes, what would the government accept? Dollars.

BT: So you’re saying they have a monopoly on this system?

JW: Yeah, the government will not allow competition for payments. That’s the problem for most Crypto to be a form of payment, is the government is never going to let anything, other than its own currency, circulate as a form of payment.

BT: Jeff, you’ve highlighted a bigger problem. The US government in particular. They have all the guns. They can force us to do what they want?

JW: The jails, the police, the guns, the surveillance. Right

BT: So what utility is any cryptocurrency? Should we all just pack up and go home? They’ll shoot us and they’ll kill us and that’s the end of this story?

JW: Well I think the utility of bitcoin, is as a store of value. So essentially every paper money regime has failed. I think we’re seeing the beginning of the end of this paper money regime.

Globally — if you study the stock market — the decline in bank stocks recently are mimicking what happened in 2007/2008. So if you’re looking at what’s happening in global. Why don’t you take a look at the stock markets and see a decoupling basically?

The global stock markets are bear markets and in the US we might be in pre-bear market territory. Technically it’s not down 20 percent from its high, it doesn’t mean a bear market, but if you take a look at the performance of financial stocks around the world and compare that with the United States, we’re starting to see the type of decline in financial stocks the way we saw in 2007/2008.

BT: Why would organs of US government allow any cryptocurrency, including bitcoin, to compete with the US Dollar?

JW: Well, the question is, what the government wants and what it will have the capacity to enforce. If 300 million Americans held one bitcoin and started trading with it that basically gives us the power, not the government.

So I think a lot of it is mental. The government has the power as long as we are in fear of it. If we form a block and we all form a huge protest movement. You just need a few lunatics to go somewhere and the government gets afraid. If we had 300 million bitcoin holders march down to Washington and sit there and protest against the US Dollar and against the US hegemony over the payment system, politicians would do something.

So ultimately, it is in our hands to change this circumstance. So ultimately, if people become less scared of holding bitcoin or some other crypto, then ultimately, power would be conveyed back to us.

For example, Venezuela has had limited success in prohibiting cryptocurrency from circulating and the governments. When governments get weaker and they lose credibility, then ultimately their ability to enforce things also diminishes in time. I think ultimately our government will go through something similar to Venezuela.

If you think of the demographics of this country. Our average income in the US is about $60,000 but the median income is about $30,000. So half the population is making $30,000 or less. When you define what subsistence is for a family of four, we find that about one-third of the population is living on subsistence wages. About one-third of the population doesn’t have $1,000 dollars in their savings account. About 50 percent of the population doesn’t have $10,000 in their savings.

So what are we going to do 20 years from now when social security is bankrupt – which is going bankrupt faster because of quantitative easing and because of low labor force participation rate and you can’t fund medicare and all the health care promises.

I don’t know what people think is going to happen but probably we’ll have a problem. That’s why government is getting more oppressive now.

The FBI, in all their reports — they say the biggest fear they have is not foreign terrorists but domestic terrorists and who they define as domestic terrorists, are groups that believe in the constitution, that use the word liberty. That’s who they’re most concerned about and they are concerned for a good reason. They know that they’ve broken the principles embedded in our founding documents.

BT: I’ll give the audience a few seconds to applaud you and I know a lot of questions will be coming.

You gave us a great foundation. Let me follow up on that. You’ve laid some groundwork that appears to be coherent. You’ve offered an alternative. You’ve explained how we got here with the US dollar. You have mentioned bitcoin several times but not everyone fully understands what that is. Can you walk through that for us?

JW: You have to think about what used to work — what we used to rely upon — is gold. Gold was mined and some people went underground, they extracted gold and after a period of time, gold was not very portable.

So, to make it easy to use, people minted it. So  why did we use mint and how did mints get centralized? Mints get centralized because we were concerned about counterfeiting bills. Now they really could go around validating the quality of the gold all the time. So what they did, they appointed trusted agents to mint the gold and ultimately the governments got into the business of saying, “We’ll be the trusted agents that mint the gold.”

Of course every government that got into the business of minting the coins debased the coins that they minted and people stopped trusting the government. Those governments all eventually failed because each was busy debasing it’s coin and had breached the trust.

BT: So in some ways it’s effectively fraud — is what you’re saying? That eventually led to the demise of all these governments that issued and then debased currency?

JW: Yes, they committed fraud.

Every government did it and they all collapsed.

So back to bitcoin. So now, if you take a look at — what are some of the negative attributes of gold? Ok, the basic attributes again, is the validation of it.

Who’s going to validate that that gold has the mineral content? In bitcoin, the work done on the blockchain solves that problem. Each bitcoin is validated by all the nodes, so essentially Bitcoin is a better form of gold. It’s mined. It has rules under which that process done. It’s validated through all the nodes. There’s a lot of duplication to make sure that if there are bad actors, the bad actors get caught. The whole ecosystem of bitcoin is designed to do fraud detection so that you can’t create counterfeit bitcoin.

That’s how you take a look at the activity of what the miners do — is they produce it and they make sure they confirm and validate so that you can be confident and trade using it. All of this while maintaining anonymity — like gold, which has similar attributes — you can exchange gold and preserve your anonymity.

With gold, you still have to make sure of the purity and quantity while with bitcoin the miners have already done that for you. So it can be broken down into smaller units and it’s easier to transfer and that’s why bitcoin is an alternative form of gold.

So anyone who believes that gold is the best store of value — and historically it has been the best store of value — that bitcoin is a superior form of gold.

BT: So historically — mining technology — they got gold and other precious metals out of the ground. Just explain at a really high level what the technology is at the base of bitcoin?

JW: Well it’s multiple technologies. It involves Merkle Proofs and various other technologies. Basically, what you have is – to be able to create a block, you need a bunch of machines that are not necessarily working in cooperation together, they’re actually working as adversaries to some extent. In competition with each other. But the act of people working in competition with each other, validating the work that that each are doing and keeping a ledger that’s on every single node. Every time it’s validated by all the nodes — basically is the system of how we produce a series of blocks that then form a chain, that then confirms the emission of the bitcoin and the production of the ledger.

The quantity that gets issued is basically controlled over time with an absolute limit to it. Right now, we’ve issued about 70 – 75 percent of the total quantity.

BT: You said “we.” What do you mean by we?

JW: Anyone can be a miner. Anyone can work to produce money so that’s the beauty of it. What makes bitcoin different than every other project? Bitcoin never did an ICO. Bitcoin never raised money.

Bitcoin was started out with a paper that was circulated. Everything was in the public domain and after the paper was circulated — under which it established the protocol — somebody decided to mine. So anyone could have done it. There were no barriers to entry. So anyone can get into the business of producing money.

Anyone who wants to work for the effort of producing money will get rewarded for their efforts if they do so. There’s absolutely nothing stopping you.

There is no entity — unlike other blockchain projects, there’s no company out there. Nobody hires you, nobody fires you. Nobody’s there to scold you whether your doing good or bad work, whether you are working enough hours or not enough. Basically, if you work smart and you work well, you’ll generate more bitcoins and you’ll generate more revenues associated with mining than people who are not good at it.

BT: You are marketing this in a way. We all understand that you own a lot of bitcoin and we can appreciate that there might be some bias there. A lot of the people in the audience is certainly interested in it.

JW: You might say that there’s a bias because I own a lot of bitcoin and yes, I own a lot of bitcoin but I had the same ability to buy any other token I want to buy. I’ve made a decision not to buy the others. It’s not that I have a company where I make money off promoting bitcoin. I think bitcoin is the dominant currency and I back my money with it.

BT: Just to flatten out the rest of the runway here Jeff. You’re advocating for it. It’s a better alternative than the US dollar and a lot of other currencies out there. You mentioned Venezuela and we’ll talk about that some more in a minute. You are forecasting — or expect bitcoin, because of its technological superiority — to at some point, overtake the US dollar. Is that correct?

JW: Yes.

BT: Jeff, let’s talk about an example of a fiat currency collapse. Venezuela earlier: What’s going on there? There appears to be a beach head — that there’s some use of bitcoin or other cryptocurrencies. Can you tease that out for us just as an example of what could possibly happen in other countries beyond Venezuela?

JW: Yes, and in many of these countries people don’t want to take the currency anymore as legal tender. So when people engage in transactions — in the past, what people did during hyperinflation, would be, they bought it. So now, what we’re seeing instead of people bartering, they’re using various crypto. Some are using bitcoin, ZCash and Monero because with many of these currencies people want to preserve their anonymity. I think in Venezuela they impose the death penalty on those who use cryptocurrency.

We find that people are converting to privacy preserving currencies and right now, bitcoin doesn’t preserve privacy. A pseudonym is not anonymous. Monero and Zcash is anonymous. There’s some work being done to make bitcoin anonymous in future and I think in a couple of years there will be anonymity in bitcoin exchange.

BT: I want to go back to two other terms we mentioned. We mentioned ICO, that is an Initial Coin Offering. You distinguished bitcoin from other cryptocurrencies. Bitcoin having not gone through an ICO. Generally, in financial media, it’s perceived as a controversial means of blockchain companies crowdfunding. You call other cryptocurrencies that aren’t bitcoin, “$hitcoins.” Explain your reasoning.

JW: I have a number of reasons why and one is: As a seasoned investor, whatever currency you invest in, when you’re betting on something and you’d like to know a few things.

You want to know who the managing team is. You’d like to know what experience they have. You’d like to know that they are working on the project full time. You’d like to know that they will disclose information to you. You want to know what they’re doing with your money. You want to see a business plan and you want to see how the business evolves relative to the business plan. You’ll want to be informed about the governance structure.

So what the ICO has basically been about — with the creation of what’s called a Utility Token — everybody, pretty much ran away with the money or they spent it on marketing. They’d spend half of the budget or more on marketing and spend very little on actually building out the tech. I think you’ll find that if you audited some of those companies, you’ll find that they’ve developed little or no tech at all.

I don’t think anyone should invest in something that has bad governance structure.

As a philosophical principle, anything that has bad governance, is a shit stock or a $hittoken — or $hitcoin or whatever. Shame on me if I decide to invest by giving my money to someone who feels no accountability towards me.

There’s very little that comes out of Wall Street that I agree with but one of the things that I learnt from there is, “A fool and his money are soon parted.”

BT: On those companies that issue cryptocurrencies through an ICO or other means. You’ve mentioned that a lot of them spent the money on marketing. It sounds like you are saying that some of those who have collected money, misrepresented to their investors. It sounds like you’re saying they committed fraud.

JW: I think it’s a couple of things. I think there’s a lot of fraud and I think there’s a lot of scammers. I also think that people didn’t know — because people read the Satoshi paper and they saw, cash and payment system — everybody thought the best utility was a payment system. So I think the least useful utility of crypto is as a payment system because that’s what the government is not going to allow you to do.

So how something is going to function as a payment system is subject to this tax regime. I just don’t see that succeeding. If you are going to do micropayments, think about how complicated the tax return is going to be. Every time you’re buying and selling small payments – and you have to always record these — once you get granted a token, the granting of the token is taxable. It gets worse tax treatment than the granting of stock option. The tax attribute of tokens doesn’t give it basic utility as a payment.

Then the worst thing that happens — people try and design a system where the token serves equally well as a payment and store of value. So people didn’t know how to design the token. I don’t think that was necessarily due to the fact that they were scammers but more because everybody copied of the design of the first token.

No matter good your project is, if your token design is wrong, your project will fail.

BT: One last question Jeff. I want to end on this. Do you see uses for blockchain technology beyond bitcoin?

JW: Yes, for data sovereignty.

BT: Right. On that note. I love the terminology, data sovereignty and I do want to make sure that we get some questions from the people in the audience.

Greg N: So first of all, thank you for coming here and giving us your background on the US dollar and The Greenback and how we got to this point. I have a question but I just want to take 20 seconds to say I’m a big believer in technology’s ability to decentralize power and give it back to the people. This reminds me of two previous revolutions. One was the printer when before the invention of the printer, you had to have somebody print for you and if what you wanted to print was deemed unacceptable, then nobody would print it.

The other is the phone system where you had the switchboard operators where today you have VOIP that you can encrypt. So the government had to evolve and accept that because they couldn’t do anything about that.

So my question is this: On scalability bitcoin is a little different in that there’s one monolithic ledger for all transactions. You mentioned 300 million people getting bitcoin — let’s say 21 million people. They can only do seven transactions per second at the moment, on the main chain. If people were actually going to use it as a currency, for peer to peer payments. How do you see that working. Is it going to be layer two technology? Do you think that layer one will be able to handle everything because if you go to layer two then the trust issue returns. How is it going to be a currency at the end of the day?

JW: We always have trade-offs so I think yes. Bitcoin is not scalable enough to be a currency but it’s a good store of value now and I think it will be a while before bitcoin is needed as a currency. I think, ultimately at that point in time, we’ll have other forms currencies. It won’t just be bitcoin. So whether bitcoin will be the global standard or not – If bitcoin can’t solve the scalability issue, and layer 2 ends up causing a reduction of trust in the technology, we might see a currency competition and we’ll see alternative currencies out there.

That is not a bad outcome, if there’s not just one global currency. I embrace currency competition. One of my mentors was Friedrich Hayek when I was at the University of Chicago and his work on the denationalization of currency really influenced me back then.

I am not worried about thinking that bitcoin will be the only global currency out there because I don’t think there’s likely to be only one.

I think the efforts that the governments will try and do, with the dollar debased, will be the SDR. I think the Sino-Russian block would like to see the SDR. You know, after WWII, Keynes wanted to create a global currency but at that time, when they had the Bretton Woods meeting, Great Britain was pretty irrelevant after WWII. They only kept Keynes to give the impression that there was a dialog but really it wasn’t. The US had set up the system it wanted.

Keynes’ vision was that this SDR would become the new global currency. It represents a basket of a number of different currencies. About a year ago, China became part of the basket and China’s percentage of the basket represents a higher percentage than is reality in the global capital markets. The percentage of the basket consisting of US dollar is smaller than what central banks hold in dollars all over the world.

So if we get to an SDR standard the US can no longer intimidate people through the payment system.

BT: Jeff. These SDRs are?

JW: Special Drawing Rights.

BT: Interesting twist, given what you said earlier. I think we have time for some more questions.

Member of Audience: So you know a lot about what’s wrong with cash. I just want to know what you think. What characteristics would the ideal currency have?

JW: Bitcoin. The Satoshi Paper, those are the ideal characteristics. So it has a fixed quantity. It’s produced in a way that, thus far, hasn’t been counterfeited. There is no discretion over issuance and there is a single ledger that is not controlled by any one person or entity. That is my ideal form of money.

BT: So in short, bitcoin.

Let’s go to another question from the audience.

David Banfield: Thanks very much Jeff. I’m completely onboard with all your descriptions from The Creature from Jekyll Island and the global fiat currency debacle. My question regarding bitcoin: Aside from staple value because there’s a lot of volatility, especially early on – once all the bitcoins are mined, all those intense server farms that are required to continue adding blocks to the chain, don’t they lose their incentive? What incentivizes them after all the bitcoins are mined?

JW: There are still incentives for the mining after that in preserving the ledger. There are still incentives involved with maintaining the integrity of the ledger. Just because all the bitcoin has been mined, doesn’t mean there’s not economics associated with the trading and exchange of bitcoins and the preservation of the ledger. At that point in time, the fees will be significantly reduced as they continue to be reduced right now.

BT: So just to distill that more Jeff. Once we reach that cap of a little over 21 million in Bitcoin, there will still be incentives to continue mining?

JW: Yes.

BT: OK. Let’s grab another question from the audience here. Please say your full name.

Rob Williams: Thanks for coming. I’ve got a two part question. The Security and Exchange Commission – if they allow ETFs – they’re saying bitcoin could really explode because institutional investors will start getting into bitcoin. Let’s assume that they don’t, apart from the US, can bitcoin survive country by country without the US?

The second part of my question is: We talked about the store of value. How is it a store of value when volatility is so high?

You mentioned store of value three times. If I sell a car for $30,000. If I receive the equivalent in bitcoin, six month from now that bitcoin could be worth $30,000, $2,000 or $300,000. How is that a store of value when the volatility is so high? Six months from now, I can count on the dollar to be worth $30,000.

JW: The issue is what $30 000 will get you.

BT: Jeff do you want to answer the first question first? The first question was: “Can bitcoin survive without the US?”

JW: Of course it can. The US is pretty irrelevant to the existence of bitcoin.

With regards to your second question. If I gave you a dollar ten years ago versus today, how far would that dollar go today relative to ten years ago? The reality is that most of the things you purchase — college education, health care and housing — all have significant levels of inflation. You’re money’s being debased. That’s not stable. What currency has given you more purchasing power than bitcoin has in the last ten years?

If I gave you a dollar ten years ago versus one bitcoin ten years ago, which would you be able to buy more with today?

RW: In January, bitcoin was worth almost $20,000. Today that same bitcoin is only worth $6000.

JW: Hyperinflation doesn’t creep up. You might find that your dollar will buy you a reasonable amount today and you might find that, a month from now, the dollar will get you almost nothing. If you read the history of hyperinflation, it doesn’t creep up. It’s a jump effect.

So if you believe that the dollar will last forever and maintain its value, then buying these crypto’s is a bad bet. If you think the current situation in the US is sustainable, that you could continue to borrow and borrow, run the type of debt levels that we are, have the interest coverage be such a high percentage of the government’s fiscal commitment, continue to grow spending, the pension system is bankrupt, the student loan system is bankrupt, medicare is bankrupt, social security is bankrupt, most people don’t have any capacity to fund their retirements.

So if you think that all of this is going to end beautifully, then you’re entitled to believe that and hold onto your dollars. Good luck to you.

RW: So if bitcoin is capped off at 21 million, what happens when they’ve all been mined? So that would mean that the demand would go up because of limited supply. That inherently means that each bitcoin becomes worth more and more and if I don’t own any.

JW: If everybody owns bitcoin and it’s being used as a method of payment, then probably, it would become a stable coin. At that point in time, as bitcoin gets adopted by more people, its volatility would be reduced.

There have been a whole lot of stocks this year that have been more volatile than bitcoin.

BT: I do want to continue the questions here. Let’s move onto the next audience member.

Hughey Mark: What is the intrinsic value of buying bitcoin. Earlier, you talked about how money is based on distrust. Would it be fair to say that the same applies for bitcoin?

JW: There are several things that I’ll describe as intrinsic value. One is, there isn’t a single point of failure. There is not one person or entity who can subvert bitcoin and ultimately it’s the game theory and protocol design that decide whether you trust it or don’t trust it. I think if you trust the rules, you trust what’s a product of the rules. So for me, the intrinsic value are the rules. I think it’s like that with most things in life — we have rules and in rules we trust. The intrinsic value is the trust we have in those rules.

I think that if enough people form a consensus and agree that these rules make sense and that system is designed such that it doesn’t allow for those rules to be violated, that is intrinsic value.

BT: Jeff, I just want to read this back to you so everyone understands. Distilled, it’s a relative argument. It’s not that bitcoin is necessarily a panacea, it’s that everything else is worse?

JW: Yes.

BT: Next question please.

Lin Dai: Bitcoin is like gold other commodities. The Jobs and Gates families are holding tons of it in Swiss vaults. How and at what point, will bitcoin be popularized — when will my mom know that there is value in bitcoin? Until that watershed moment, when general consumers are onboard, isn’t it kind of like what commodity traders and currency speculators are doing?

JW: Well I can’t speak for traders and speculators. I hold. I’ve never sold bitcoin. I just accumulate more. There’s something called Gresham’s Law, where bad money forces good money out of circulation. When people no longer accept bad money, bitcoin will start circulating. As long as bad money exists, it’s better to spend bad money than good money. If you have money that has a bad attribute versus your other money that has good attributes, which are you going to spend first? Spend your money that has the bad attributes and hold onto the money that has the good attributes.

Ultimately, if you believe fiat currency will always have good attributes, then maybe bitcoin will never be used and eventually it won’t even be a good store of value. If there is so much trust in the current financial system and every government is solvent and people don’t think they need to hedge against them.

Everything is correlated with your belief in fiat and all the assets are tied into your belief in fiat. If that belief in fiat dissipates, everything tied to that, is going to go down as well. People go and buy insurance if they think there’s a risk. If you think that there’s a risk that fiat will fail, then the only alternative you have is gold or bitcoin.

There’s no other option that won’t be correlated with the collapse of fiat. Real estate will go down in value. It’s all levered. Everything else is levered of fiat. Everything that’s levered off fiat, is all going to go bankrupt – Because of hyperinflation, wholesale default on loans all of that will be worthless.

The only factor now, that determines who get to own assets, is cheapest cost of capital. That’s what has caused the wealth inequality. It has nothing to do with anything other than — the central bank is the biggest tool for promoting wealth inequality — because who gets to own assets? Those who can produce the cost of capital cheapest.

There are only a few institutions that can reproduce cost of capital very cheaply and for everybody else…Let me give this example. Several years ago I was looking to bid on a property and I was bidding against Blackstone. I went to the bank that wanted to finance me, I did my cost accountant calculations and I approached somebody at Blackstone and I asked, “What’s your cost to capital?” Then I figured out how much cash flow I needed to compensate for my cost of capital disadvantage. I needed to produce 30 percent more cash flow from the business, from a real estate property. I maybe could get five or ten percent more cash flow but 30 percent cash flow from real estate – nobody can do that.

So basically, nobody could beat Blackstone because nobody could reproduce the cost of capital that they could produce. So they get to own the asset.

So given the fact that assets are all owned by people who produce a low cost of capital, the only people the sell it to are people with low cost to capital. When that game ends, all these asset values will collapse in value and the people who buy them, will be people who own bitcoin.

BT: Thanks Jeff. I think we have time for two more questions then we’ll turn our attention to the wine again.

Adryenn Ashley: We met in Half Moon Bay. Good to see you again. I absolutely, thoroughly enjoy listening to you.

It was mentioned earlier that all bitcoins will be issued and then they’ll be all done but it was my impression that it never runs out because it always halves and halves and halves and when you’re talking about the energy it costs to produce a fraction of a bitcoin, won’t that automatically make the bitcoin value skyrocket and get us to that million dollar bitcoin?

JW: There are two questions here. How much circulates and the throughput for exchange. Very little of exchange is done super fast. How long does a settlement take in the securities market today? It’s not ten minutes, I’ll tell you that. So for making transactions, the settlement of bitcoin is cheaper and quicker than the settlement of most transactions people do in the world.

For everyday payments, for small items, it isn’t but for almost everything else, bitcoin is cheaper and faster than settling than almost any other form of settlement.

One of the key aspects of bitcoin, is it’s divisibility into almost infinitely small units. So you can trade any single unit. So then the question is: What’s the value purveyed by that unit? So the question isn’t how many you need to have, it’s the fact that they’re almost infinitely divisible.

Yes that would cause the price to go up and it will stabilize. You know there are estimates that if bitcoin replaces the monetary base, each bitcoin would be worth about a billion dollars. If bitcoin should be a substitute for gold as a store of monetary value, that’s about $450 000. When people think about money – You know there’s different definitions for money. There’s M1, M2, M3 and M4. If you took a look at the broadest monetary aggregate, which is M4, the amount of money that actually gets used for spending is less than one-third of the total money. Most money is used for savings, not for spending. So bitcoin is good for savings.

We had periods of time when we had no new gold discoveries and the world didn’t come to an end. During the 19th century, the US experienced deflation. The only inflationary periods of the 19th century, were during the war of 1812 and the Civil War.

BT: That’s all the time that we have for this event. A bit thanks to Jeff Wernick.

JW: Thank you.


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