Trace Mayer, renowned Bitcoin investor, writer and speaker joins me in this episode to talk about a range of topics on jurisdictional competition in relation to Bitcoin, how best to learn, shifting perceptions on Bitcoin, whether there are any threats to Bitcoin, and this concept of Bitcoin as the ultimate collateral.

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Podcast Transcript by GiveBitcoin.io:

Stephan Livera: Trace, I’m a big fan of your work. Uh, I know you’re, you’re very influential in the space and the way that many of us think about it as well. I mean, you’re responsible for popularizing many different ideas such as, you know, the seven network effects of Bitcoin. HODLers of last resort. So it’s a great pleasure to welcome you to the show.

Trace Mayer: Oh, thanks so much. And uh, and also December 23rd, 2015, I talked about the impact of stock to flow ratios on the price of Bitcoin. So I’ve been talking about that for a long time too, and I’m really glad to see plan B’s work in that area.

Stephan Livera: Oh, fantastic. Yeah, I think you’ve got a really great framework for thinking about Bitcoin because obviously you’re known as a very early investor in Bitcoin. You invested in some of these early Bitcoin businesses and projects such as, Armory and Kraken and BitPay. Can you give us some insight into how you came to Bitcoin so early?

Trace Mayer: Yeah, so I had studied money, uh, always been interested in it. Uh, and when I say studied it, it was at the graduate level. And then as I pulled on those threads, I found myself, uh, in Rothbard and Mises and whatnot. So I had the philosophical foundation, the understanding of the economics, uh, when I ran into Bitcoin in addition to having plenty of experience with, uh, things like e-gold and PGP encryption and, you know, Napster and then Kazaa and Limewire and a bit torrent, you know, these, peer-to-peer networks that came on the scene that were censorship resistant. So, you know, having been in the digital or the virtual currency space for a couple of decades, um, uh, you know, it, it, I could see that it played a, it definitely solved a problem that the world needed solved. Uh, and then also my understanding with GATA, the gold antitrust action committee and just the interference that the institution of the state has done in terms of censoring interest rates. So, you know, all of that kind of combined together. So that when I came across Bitcoin, I was like, “Oh my gosh, this is going to be huge.”

Stephan Livera: That’s fantastic. And I think the other thing about it is not just, it’s not just that you came to Bitcoin early, there were others who came to Bitcoin early, but then they sold out. What was it that made you have such a level of conviction about Bitcoin?

Trace Mayer: Well, I just thought about it. Um, you know, I think, we often get distracted by various voices, uh, and we lose our ability to kind of think and do our own economic calculation. And because I had this, uh, background, all of these skills that I’d developed, I’d been doing all this research, you know, safety and likes to talk about the concept of time preference. You know, a lot of people watch TV. When I left, to go to college, at 16, I never had a TV in my house since I went to college. Like I don’t watch TV. And when you don’t watch TV, you have a lot more free time. You can, you know, you can exercise, you can exercise your body and you can exercise your mind. And so when we’re talking about time preference, you know the greatest investment you’re gonna make is going to be in yourself.

Trace Mayer: And that education is a key to opportunity. And you never know when the, all of this knowledge that you can accumulate is actually going to become applicable. And so, you know, that’s luck is when opportunity meets preparation. Right? And so, you know, I’d been honing in on little threads, little voices here and there all throughout my life. And so, you know, when, when the time was right, like I was able to capitalize on it, you know, would I have been able to do that if I’d been sitting around like watching TV a lot more? Probably not. You know, probably not. And so, you know, a lot of people are like, Oh, the early Bitcoiners just got lucky. And I suppose some of them did perhaps. But you know, time, time, preference begins to sting with opportunity costs because think about how much money some of these people spend on silk road, right?

Trace Mayer: Like they were, they were listening to wrong voices and they allocated their capital and they lost a ton of they lost a lot of the resources that their future self would have had. They had the discipline and the time preference and all of those things. So I think that’s a very important component is, you know, it didn’t just get lucky. You know, I develop that human capital and we’re seeing it even today. I mean Bitcoin’s been around for a decade. I mean I’ve got friends that, that have liked Bitcoin and bought it, you know, since it was triple digits and they’re still storing it on Coinbase. Like why aren’t they developing the human capital? Like what’s the deal? I don’t understand. So you know, like whatever you’re going to get wrecked one of these days if you’re doing that.

Stephan Livera: It’s a great point you make about building our human capital. And I’m wondering, do you have any suggestions on good resources and how do you find out what’s a good topic to go and research? What’s a good book to read? What’s a good podcast to listen to? How do you think about finding the good resources?

Trace Mayer: Well, I mean, you’ve got to start with what you’re passionate about and what you love. And so, because that’s what’s going to power you through and give you that desire to do the reading and do the studying and stuff like that, you know, so, so you have to find something that you enjoy, uh, something that you’re passionate about. Uh, even better if you can mix that with something that’s going to be helpful for other people, because you know, that’s where we really find joy if you’re just doing it for yourself, uh, you know, that’s gonna get old pretty soon.

Trace Mayer: Uh, so, you know, that’s, that’s where I’d start like figure out like where your emotions are at and then you start figuring out, uh, the wisest way to go about, acquiring that knowledge. And so for me, I like to go to like the best, you know, like I don’t want to just listen to anybody. I want to listen to the best. And so, you know, it doesn’t take very long. You can sniff around in any particular area and hopefully you’re able to find the best, uh, within a day or two. And then once you’ve found the best, you got to start reading all that stuff, you know, which is a lot of stuff because the best are often very prolific, uh, in their writings. Uh, so, you know, I mean we’re talking about the polymaths, like the DaVinci, the Newton, the Gutas and the Swedenborgs, the Jeffersons, the, you know, these are the best in their different areas.

Trace Mayer: And in some cases they were masters of all the areas, you know, people like Newton and Divinci. So, you know, I think that’s important. People like Tesla, um, you know, it’s important to, to hone in on the best, but it takes a lot of, it takes a lot of grit to be able to do that. A lot of discipline and, uh, you know, you got to find balance in your life, but at the same time, like, you know, people sitting around like watching TV and just like, what are you spending so much time on this stuff for, you know, another one is interruptions. People I think greatly underestimate the impact that interruptions have on your ability to accumulate human capital. Cause if you think about these people who were the best and the type of world that they lived in, uh, they weren’t getting interrupted very often, right?

Trace Mayer: They could like sit down and they could focus their mind and like read the book all the way through. They weren’t getting text messages and phone calls and emails and they just weren’t distracted in so many different ways. Uh, and I think that’s, you know, I think a lot of people today, we have a challenge. A lot of people just have the attention span of a goldfish. Like they really have no discipline of their mind. And as a result, they can’t like sit and think about something. Uh, and then they exacerbate it by the stuff that they eat or, or drink, you know, they, they’re drinking coffee. I don’t, I don’t drink any coffee. Like I, I don’t know. I don’t know why people need coffee. Like I, I sleep like four and a half, five hours a night. I got tons of energy all the time.

Trace Mayer: I never get sick. Like, you know, why do people need coffee? I mean, if you eat right, I don’t think you need any coffee. And then, and then stuff like coffee or tea, uh, you know, this stuff tends to exacerbate feelings of like anxiousness and having to do stuff. You, you see people that drink this and they’re always like tapping their foot or you know, they’re nervously twitching or, or all of this stuff. And then there’s, you know, other stuff like alcohol that’s even like more damaging to your ability to concentrate and sleep well and stuff like that. So, so, you know, I think, I think that that’s a, it’s a large combination of all of this stuff. You have to get your body in the right condition. You’ve got to get your mind in the right condition, you got to get your emotions in the right condition.

Trace Mayer: And if you’re out of order, like you’re, you’re going to get disciplined, it’s probably going to be through a form of debt. You know, you’re going to get yourself in debt and then you’re going to get disciplined externally, uh, by the creditor, uh, or you know, however else our modern society tends to discipline people who can’t discipline themselves. And so, you know, it’s much better in my opinion, to just discipline yourself and do the work like, you know, than have somebody kind of force you into economic circumstances where you’re now the servant to the lender. Right.

Stephan Livera: Excellent. And I’m interested now to talk a little bit around if you’ve got any views around jurisdictional competition around the world. So I know you have a, you know, you’re doing some work with Wyoming for example. Do you see in terms of Bitcoin and jurisdictions around the world, so let’s say jurisdictions that, for example, have no capital gains tax laws or you know, other examples like that. Do you see a potential for competition there?

Trace Mayer: Oh yeah, there’s, there’s definitely going to be competition here because you know, we’ve got this monetary asset that we’re able to transfer value over communications protocol, so it becomes much more portable than gold for example. And, uh, so in whichever nation state adopts the hardest soundest money or individual for that matter has a tremendous competitive advantage over somebody who’s fighting the economic war with inferior tools. Like it’s just the way it is. And, and so, you know, Singapore’s been very progressive on this front. Uh, the United States is pretty much middle of the road, uh, but they’ve got a lot of stuff, where the groundwork is now being laid. You’ve got the bit license in New York, which I’d stay away from anything in New York related. Uh, but then you’ve got Wyoming. I’ve actually helped craft some of the bills and the banking rules because we’re going to be able to create a special purpose depository bank, a full fledged bank in Wyoming that’s regulated by the banking commissioner, passport it into 42 States.

Trace Mayer: Uh, I mean, that’s a huge deal. It can custody digital assets. We have property rights on the digital assets. Uh, one of the things that I got in was a lien cleansing provision on UCC liens. I mean, that’s huge. Like if you buy Bitcoin from somebody you want to know, you have clear title to it, you know, because the legal system doesn’t recognize the Bitcoin network any more than the Bitcoin network recognizes the legal system. And you might have a technological fortress, but why wouldn’t you want a legal fortress also? And so, you know, these Wyoming are, those are laws that a HODLer of last resort would write in my opinion or get it got as close as we could. Um, and then you’ve got other jurisdictions that are just going the other way. They’re banning it, you know, they’re trying to ban Bitcoin or like, look at India, you know, you can withdraw $140 from your savings account.

Trace Mayer: Like, Oh boy, this is, that’s a confidence inspiring. And so, you know, when capital is so much more portable like this and can’t be confiscated through inflation, can’t be confiscated through a traditional means. You know, like ask the incas about getting their gold confiscated, right? Like they could kill you and take your gold. But like in Bitcoin’s case, it’s, it’s more difficult than that. Uh, so, you know, I think that we’re definitely going to be seeing jurisdictional arbitrage. Uh, the US overall in balance seems to be the best jurisdiction so far. We’ve got the CFTC that’s, uh, started handing out swap execution, facility derivatives clearing organization and designated contract market licenses. We’ve got Wyoming with the special purpose depository bank, we have New York with the bit license, we have trust company charters and various States. We have other model legislation coming up and many of these States, Rhode Island for example, is working on perfecting security interests.

Trace Mayer: Uh, so you know, that sixth network effect of financialization of Bitcoin, uh, not only with the puts and calls and the futures, but also with a security interest in order to start using it as collateral. You know, all these things are, are instrumental in its path towards world reserve settlement currency, which ultimately is where I see it going, uh, as its destiny. You know, and as you alluded to, those seven network effects are in full swing, uh, and barely just growing out right now. But like this thing’s it’s got some unstoppable momentum to it.

Stephan Livera: Fantastic. And I’m curious as well with the Wyoming work that you’re doing, is there any risk there at the federal level in terms of a federal government regulations, uh, impacting on the freedoms that you are trying to work towards with Wyoming?

Trace Mayer: So this is a somewhat nuanced point when you’re dealing in American law. So under, under American law you’ve got the federal government and under article one, section eight, it’s got specific areas, it’s able to legislate in. And then you’ve got the States, well, one of the, one of the provinces of the States is property rights. So guess what? One of the first things we did in the Wyoming legislation, we called these digital assets property. Okay. Because the, the States, you know why, why, wow. Back in the day it was New York and Virginia and everything, they formed the federal government. So the States are sovereign and the federal government is sovereign. And if there’s a case or controversy between a state and the federal government, it goes right to the US Supreme court of the, of the US Supreme court. So I mean, like the States are sovereign in this regard. And that’s one of the reasons, like with Wyoming, the first thing we ran out and did was we, we said that these digital assets are property, uh, and defined by state law.

Trace Mayer: Uh, you know, and we mapped on a taxonomy onto the UCC in order to do that cause Caitlin’s brilliant and that’s what she does. Right? And so, so that’s, you know, I think that if the federal government did try to get into this, they’re going to run into, they’re going to start running into constitutional challenges. I mean, we’ve put a bunch of different landmines like that into the Wyoming legislation. Property’s just the biggest one. I, you know, I want to point out, um, but there are a lot of other smaller sneakier ones. For example, under federal law, a bank holding company, uh, the bank has to be a bank and lend. So, uh, Wyoming special purpose depository bank is prohibited by statute from lending. Therefore a SPDI bank in Wyoming does not count as a bank under the bank holding act, which, which really, you know, for investors and stuff out there, I mean, that’s a big deal.

Trace Mayer: So, you know, we put different landmines in there and everything, you know, being able to avoid the FDIC since they, uh, like to engage in financial repression and banking blockades against things like, uh, WikiLeaks, you know? Well guess what, this SPDI bank gets a fed master account. Oh, and like a lot of these exchanges, they need to do stuff internationally, right? Well guess what, with a fed master account, you can have dollars and you can have euros. All right. So like, I mean, there’s just a lot of really cool sneaky stuff that we’ve put in that, you know, when, when a lot of these companies realize what we’ve done in terms of laying the foundation, because in order for there to be large capital, you’ve got to have certainty for the investors. And that’s what rule of law does. And, and so that’s what this foundation does is it lays a foundation for, you know, this human action in this cooperation to take place through the, the institution of a corporation.

Trace Mayer: And, and you know, that’s otherwise you’re not going to have the certainty and you’re not going to be able to grow or scale in terms of the social scalability and the growth and the size of the companies without it. And so that’s what we’ve really done with the Wyoming legislation is we’ve been laying this foundation, uh, to be able to take Bitcoin to a whole new level in terms of integration or backwards compatibility with the current institutions and structures that humanity have used to form themselves and do corporate governance and capital allocation, all that stuff.

Stephan Livera: I really liked the point you were making around regime uncertainty and doing what you can to allay that uncertainty so that Bitcoin businesses, entrepreneurs, investors can feel more safe as they enter the space. Do you have any views on what jurisdictions around the world, what can people do to outline that and spell that out as well? Like, not just for Wyoming, but just to outline that, look, if you come out and put these laws that are very anti Bitcoin, you’re basically shooting yourselves in the foot.

Trace Mayer: Yeah, I mean, and it’s not just Bitcoin, right? Like how solid are your property rights in Argentina or Rwanda? Like when those property rights aren’t very solid because there’s not very much competence in the rule of law, then the assets that are in those jurisdictions get discounted relative to a safer jurisdiction. And what Bitcoin does, in my opinion, is it enables us to acquire property rights at a much lower cost because we’re effectively able to acquire protection of our assets or our purchasing power that we store in the Bitcoin just with a private key and okay. So we’re getting it inflated by new mining rewards, but everybody knows what that is. So that gets discounted into the present price anyways. So really, you know, when we’re looking at what, what would the negative interest rate be on storing capital in Bitcoin, it’s going to be lower, uh, than other assets.

Trace Mayer: Um, because the other assets have counterparty risk. They have, now they have negative interest rates in the bank accounts. You know, and I’m not, I mean it’s not really apples and oranges right now because Bitcoin is so small relative to the other ones. But you know, when Bitcoin becomes its own storage tank right now it’s empty. Uh, but when it’s filled up and then capital’s moving between the different storage tanks and I mean the different types of assets that the world has to store capital. And that’s when we’re going to see Bitcoin really begin to shine because it’s this global monetary unit can’t be inflated, hardest money ever. The new risk free asset because there’s no counterparty risk. And what I mean by that is there’s no financial ability to pay. There’s no performance risk if you have your own full node and holding your own private keys.

Trace Mayer: I mean, you’re really, you’re really removing all the risk, uh, away and, and starting from a first principle and that becomes your risk free asset and your risk free rate. And then you move out from there and in, in order to move out from there. Yeah, you’re going to start assessing the regime risk or the uncertainty that you’re going to get bailed in, for example, or the bank will get bailed out or that your property is just going to get confiscated. Or maybe it’s a piece of real estate in Chicago and your property taxes are going to have to go up in order to pay the unfunded pension liabilities, or whatever it is, right? With Bitcoin, like Bitcoin fixes this, like it fixes all of this for, for people who are to perform economic calculation, uh, it’s, it’s got a specific definition that’s enforced by our network, uh, and all the full nodes.

Trace Mayer: And you know, once we have that definition because US dollars, they’re not defined. Euros aren’t defined. Uh, Australian dollars aren’t defined. Like none of these things are defined there. They’re all just ephemeral illusions. Uh, I mean, even under federal law in the U S dollars are defined as different things that are unintelligible. For example, one ounce of fine silver is a dollar and one ounce of fine gold is $50, but 50 ounces of fine silver is not equal to one ounce of fine gold on the periodic table. That’s unintelligible. Like if you tried to build a building and you were performing mental calculations of length with that type of unintelligibility, your, your buildings would be falling over. So, I mean, it’s not any wonder that the financial system is all falling over because the fundamental unit that’s being done, used by people to perform economic calculation is undefined and unconstitutional.

Trace Mayer: Uh, and yet, you know, we’re just all hobbling along because you know, these, while there’s no way to avoid the final crack up boom, but we’ve seemed to find ways to delay it here and there through all of this privatizing of the gains and socializing of the losses. And Bitcoin puts an end to all of that. Like, look at Mt. Gox you know, look at Quadriga CX. Look at, look at all these examples throughout Bitcoin history, uh, where, you know, people, people took the losses, you know, they didn’t get bailed out. And, and that’s the type of mindset or mentality that the holders of capital on the other side of this gulf are going to have.

Stephan Livera: It’s a great point you make about regime risk. And I’m curious now just to ask if you see any existential threats to Bitcoin, perhaps whether they are a state sponsored attack or otherwise.

Trace Mayer: Not really. I mean, this thing is, uh, is a beast, um, as Mises wrote, ideas can only be overcome by other ideas. And so, you know, what, what could, what could a state sponsored attack actually do? Like, what are you going to do? Get some, get some developers in there and try to compromise the code. I mean, we got hundreds of eyeballs on that code with, with pull requests, uh, in every new version that’s coming out. Plus you can run a version from years ago and it’s still going to be in consensus. Uh, and you can’t force anybody to run, run your code, you know, and they’re with, with guix, uh, you know, it’s making the build process even less trust involved in the build process, you know, however small. Uh, so I mean, what’s a, what’s a state sponsored attack going to be?

Trace Mayer: You’re gonna, you’re gonna have like some rogue developer in there trying to compromise a constant like they did with NIST, uh, when they compromise one of the constants in a, in a protocol that they then signed off as being secure. And so CSOs relied on it and then they all got hacked because they were using a bad cryptographic standard. Like they’re just a lot more eyeballs on Bitcoin because there’s, like, you know, how many billions of dollars at risk, you know, so people are not, are not taking any risk in that regard. So, you know, if you are a rogue developer that’s trying to cause a stink, I think you’ve already got yourself ran out of town. Uh, and, and how do you get back into town? Like when the, when the wagons are circling, you gotta earn street cred. Well how do you earn street cred?

Trace Mayer: Well, it’s been a decade. It’s gonna take, it’s gonna take new people that try to get involved in this a while to earn street credit. And so that’s on the developer front. And then you know, a lot of, uh, a lot of, um, different alt coin promoters and stuff. They, they really don’t like Bitcoin maximalists whatever that’s supposed to mean. And it’s like, well, okay, well that’s the other realm of, of getting street cred. Like what are you going to be some shady fly by night? Like alt coin promoter and, or, or who are you going to listen to? Like what you’re going to do? Who are you going to listen to? You know, listen to someone like me who’s had a consistent voice for pretty much a decade for free for everybody and been right and called in advance like all the bull markets.

Trace Mayer: Are you going gonna listen to some fly by night, shady like alt coin promoter who’s just going to pay his $24 million fine to the sec. For doing an unregistered securities offering so that he could, he could flip a bunch of a bunch of money to Peter Thiel and his other cronies. Right. You know, cause Peter made like over $100 million on EOS. So you know, you’ve gotta be extremely careful like what voice is you’re going to be listening to and why you’re listening to them. And getting street credit in Bitcoin I think is going to get increasingly more difficult also because, you know, just like with the developers, you’re going to have to get street cred, right? And how are you going to get street cred? You’re going to have to have a consistent voice that’s kind of in consensus with everybody else. And don’t get me wrong, like, I mean, I’ve talked about other coins and stuff like that and I’ve even, you know, interviewed some people on my podcast about them when I think that there’s interesting innovations, uh, in the altcoins, but like, do I think any of those altcoins are gonna pose a serious threat to Bitcoin?

Trace Mayer: Like, good luck with that. I mean, we got seven network effects, like show me where they’re possibly like taking any territory in any single one of the network effects, let alone all of them at the same time. So, you know, I think, you know, threats to Bitcoin, it’s, it’s really hard. You know, we, it’s not, it’s not like it was, you know, back when I first started talking about it where were a small community of, you know, a very, very small community of, uh, of, you know, just very few people. I mean, you probably could have like gone and rounded us all up one night, you know, but like, we’re a lot bigger than that now. Like the community is huge, I think 35 million unique AML KYC’ed accounts, uh, at the end of 2017 based on one of the Bloomberg articles. I mean, there are tens of millions of people all over the globe like working on this stuff now.

Trace Mayer: Like it’s an entire industry and there’s a lot of money at stake. Uh, and, and the financial incentives and the game theory are just tak root now. Uh, and, and it’s all playing out kind of how a lot of these early consistent voices have set at would. And so, you know, the threat, the threats to Bitcoin I think are, are going to be in the realm of ideas more than, than anything else really. And you know, that’s going to be for each of us to maintain vigilance, uh, in that area. That’s one of the reasons last year I started proof of keys, you know, proof of keys.com because every year we’re gonna have a global coordinated bank run on the asset that’s strictly limited in amount, right? Like we’re going to, we decapitated Quadriga CX last year now for real. Like there they’re gone.

Trace Mayer: I did perfect keys. A week later he met with his attorney to plan the will. A week after that he died in India and then his wife, took his body from the hospital back to the hotel, like whatever. Uh, but that, that bad actor is now out of the industry. They’re gone. And, and that’s, you know, that’s the power that people get with proof of keys. Like I, I talked with Peter McCormack over on What Bitcoin Did about this and when he did proof of keys, he found half a Bitcoin in an account that he had totally forgot about. You know, so having good personal hygiene, you’re, you’re gonna, you’re going to develop that human capital to run your own full node and have your own private keys. We’ve got resources on proofofkeys.com to help people, you know, figure out the procedures, you know, like a purism laptop and smart custody.com and glacierprotocol.org you know, all this stuff because we have to help people get up to speed on developing this human capital. Because when people are holding their own private keys and to have their own full nodes, the Bitcoin network is so much stronger that way because the technology can get monetary sovereignty out there, but it’s going to take the political will to keep it there. And that political will is going to have to be in each individual because their money’s at stake now. And so they’re going to start making, they’re going to start making a stink with their politicians. About this stuff.

Stephan Livera: Do you see any threats around privacy in Bitcoin and individuals who let’s say have performed KYC and now there’s any sort of, uh, risks to those individuals if they’re not careful around their Bitcoin privacy?

Trace Mayer: Oh yeah. I mean like AML KYC is a difficult one because I mean, you’re not going to get any of these institutions unless people do that. And you know, a lot of legitimate actors, quote unquote like pension funds or whatever, they’re only gonna really invest in this stuff if they have that legal certainty. So it becomes a requirement almost in order to get the large amounts of money. Now where can, and as long as Bitcoin’s got the lowest price in terms of time, money and privacy in a combination of that, it’s going to be able to outcompete the other instruments there. So you know, this like at the fundamental level, I mean, it’s really difficult to have that pure anonymity with Bitcoin because there’s so much of an industry now built for all this AML, Chainanalysis and cipher trace and whoever these, these, these institutions are, you know, because they’re serving a different customer, they’re not serving you or me, they’re serving a government, but guess what?

Trace Mayer: Government’s got like big sticks and they can whack you with them. And so you know that that’s kind of what you gotta you gotta deal with. And that’s where I think Bitcoin actually could face a little bit of a threat, uh, you know, where it won’t necessarily have a hundred percent market share in all the different types of stuff. Because, you know, with things like Mimble Wimble, uh, you know, we can have much more private fungible and in a anonymous, uh, digital transfer tokens. And so I could see though, you know, I could see some of these more nefarious uses, uh, use cases, um, migrating towards coins like that. Uh, instead of using Bitcoin, you know, I think that’s already kind of been the case. You’re seeing a lot of the, the markets move over to stuff like that. So, you know, that’s, that’s definitely something to be, um, cognizant of, you know, don’t, don’t do, don’t do stuff that’s gonna land you in jail for life with two life sentences with no opportunity for parole.

Trace Mayer: You know, like how many Bitcoins was that worth? And he’s never getting out, by the way, the only way he’d get out as a presidential pardon, because he lost his appeal. I mean, he’s done. So like there’s no reason to donate. So like to, to free Ross or anything like that. Like, cause he’s done, he’s never getting out period. And that’s, that’s what you’re, you know, people should value their freedom. You know, that’s why pay my taxes. I might not like to, but I just don’t want to be looking over my shoulder in that regard. And I think that, you know, I think that everybody’s got a different way that they’re going to interact with the institution of the state. Um, but you know, I’m just not one to go out and get shot in the chest in Hong Kong. Like, I’m going to get on a plane and I’m going to leave and I’m going to hopefully have my, my ability to maintain my standard of living wherever I land. And Bitcoin now gives us much more mobility in that sense. And capital, both human and economic can become much more portable. So, you know, just avail yourself of that increased freedom that we’ve got.

Stephan Livera: And I guess one other point around, you know, threats to Bitcoin. There is discussion around, uh, the centralization of mining and it appears to me that it is increasingly de-centralizing. What’s your view around mining centralization and the theoretical risk reducing as it may be of mining centralization? Oh, sorry. So censorship of transactions by a miner.

Trace Mayer: Yeah. Just ask Jihan, how much power he’s got. Right. Yeah. I don’t pick a fight with the HODLers. That was a bad idea, but, um, yeah, I, you know, I’ve mined everything from a laptop to ASICs and the miners like, I just, I really don’t think that they have as much. Uh, there’s this really, I just don’t really feel, there’s like a lot to be scared of there. Um, especially if they’re playing a game where they’re, uh, trying to have an increased ROI in terms of Bitcoin because, you know, large HODLers, they can step in and buy a ton of mining hardware if they want to, you know, to protect the network. So, uh, you know, and, and what are the miners going to do anyways? Like you gonna roll back a transaction. Like that’s it, you know, um, and yet there’s a good amount of money to be made there with the block reward. And so as, as the ASICs have gotten more distributed, I think that we’re seeing the power.

Trace Mayer: Uh, yeah. There, there was a time where miners had more power, uh, because of the centralization and that that happened when we shifted from CPU to GPU also, by the way. Um, and then from GPU to FPGA and then from FPGA to ASICs. And you know, now that we’re on a sick and we’re on this, this particular hashing algorithm and, and more equipment is getting out there in a lot more different distributed hands. I think that this centralization of power with the miners is actually being spread out much more horizontally now. And so, and that overall I think is a good thing. Um, but it’s difficult, like mining is a hard business and like, okay, so you’re mining and you’re trying to get a return in Bitcoin, and yet you’ve got the, like you want to be in a nefarious, but you’ve got these HODLers that are able to get a return in Bitcoin by selling derivatives now.

Trace Mayer: So, so hardwares are basically able to sell, sell covered calls and mine Bitcoin that way with just their Bitcoin, right? You know, sell like a sell an October 20, uh, 25 K strike, you know, very unlikely that it’s gonna get exercised. And yet you, you get a little bit of premium that way. Uh, so HODLers, you know, they, they’re actually able to start generating cashflow in the derivatives markets. And so miners have to be cognizant of that also, if they were to try to be nefarious or bad actors. Um, and so I just, I think the game theory is just playing out the way one, should have expected it to play out and the way that it did, uh, with Bitcoin cash and as far as I’m concerned, like, let’s have more of this stuff. Like that was great. I’d like some more of that.

Stephan Livera: So you mentioned ROI in Bitcoin terms. Now that’s a challenge as well because many people in this space, it depends on what is their unit of account. Are they thinking in terms of fiance, right? U S dollar or the, and, and as you have mentioned, uh, you can you compare from both the US dollar, gold and Bitcoin terms? Uh, in terms of, am I making a profit on this deal or this investment? It has historically been very difficult for investors to earn in Bitcoin terms. You can probably count on maybe one or maybe two hands, the number of Bitcoin companies who would have returned in Bitcoin terms. So in your view, does that represent a challenge for the space to grow? Will people simply say, I’d rather just HODL my Bitcoins rather than invest? What’s your view there?

Trace Mayer: Yeah, well one, uh, yeah, I think it’s great to just HODL all your Bitcoins instead of invest in these. I mean, you have to, you have to pick very well, you know, you have chosen why, you’ve chosen poorly, right? Like you’re going to age a lot faster when you choose unwisely. Uh, you know, let’s, let’s look at Pantera or Barry Silbert for example, you know, investing in a 150 plus like startups. Um, I’ve invested in three. One of them was just cause I wanted cold storage software to be built so that one doesn’t really count. But even with my other two, you know, I’m, I’m, I’m mark to market, I’m up like in Bitcoin, but I have the liquidity discount that needs to be applied, right? Because I can’t just like sell my shares like whenever I want, like you can with Bitcoin and I can’t use them as, I can’t use them to post as collateral to sell covered calls, you know, so I’ve got opportunity costs and selling these covered calls.

Trace Mayer: I mean, this is a beautiful tool for HODLers. Um, because you’re able to, you know, you take on some performance risks, you don’t take on counterparty risk because they’re not on the institution’s balance sheet. They’re held, uh, in segregated off balance sheet and, uh, you’re able to sell very far out of the money calls and you pick up a little bit of premium here and there. You know, because you’re effectively selling vol sure, you might get exercised, but the probability is very low. Um, and even if you did, you’d probably be happy because the Mayer multiple would be excessively high, uh, at that time. And so you’d be able to turn around and sell a put or something with the USD that you got. Um, but you know, this is the, this type of financialization is increasingly going to be coming into the space and the people who are managing the portfolios and managing the assets, uh, large, large assets, um, you know, they’re going to have to look at the sharpe ratio, the risk reward return on Bitcoin.

Trace Mayer: They’re going to have to look at that. They’re going to have to decide like, you know what, I have to be invested in this, in this asset class because of the sharpe ratio and okay, so they started getting invested in the asset class. Like how are they gonna do it? And if they’re smart, they’re there, they’re going to sell puts and then they’re going to turn around and sell calls like when they get the, when they get the Bitcoins. But for the people on the other side, for HODLers of last resort, people who are, who have a conviction and holding the Bitcoin part of the problem when you’re selling this vol is, okay, so you’ve got $300 of premium, on the contract, but your collateral went down $4,000, right? Like, so you’re actually down 3,700 measured in USD even though you’re up majored in Bitcoin.

Trace Mayer: Right? So, so it’s going to give people a lot of opportunity, uh, based on how they’d perform their own economic calculation and what they prioritize. Uh, in terms of portfolio management and strategy, I personally, I try to have a gain in dollars gold and Bitcoin. Like, I actually keep my, I actually keep financial statements in all three of those every month, you know, and, and I’m, and I make fancy little charts and graphs and stuff like that. Um, and so as we have this transition to a new world reserve settlement currency, that’s going to happen one by one, and there’s 7 billion people on this planet, so it’s probably gonna take awhile. Um, you know, there’s gonna be a lot of just different strategies that are gonna that are gonna produce winners for two people. You know, one person’s going to be up in dollars, the other is to be up in Bitcoin.

Trace Mayer: They’re both going to be happy. Uh, and, and you, everybody’s going to be going down the road now, who’s actually going to be up in terms of purchasing power? That’s going to be the multi trillion dollar question, right? And, and you know, I would, I would argue that it’s going to be in the medium to long term, it’s going to be the holders of Bitcoin as opposed to holders of dollars. And what I mean by that is like a four year plus time horizon or greater and so, okay. Yeah you can, you can, you might get a little bit of a dollar gain in the short term, but if you’ve got this four plus year time horizon, you’re going to have to be in Bitcoin and, and I’d really like to see, you know, some of the, some of these options be much more longer dated because uh, right now we have 20 December, 2020 is the furthest out options we can write.

Trace Mayer: But I’d love to see like 2022 2024 2028 you know, and like just start layering out like calls all the way out there based on stock to flow. Um, and getting all that USD in the present and like acquiring more Bitcoin in the short term. I mean there’s a lot we could do to manage portfolios and also on this point is going to be carry trade. You know, because we’ve got these negative interest rates on a lot of these currencies and negative interest rate debt, both government and corporate, almost 20 trillion or something insane. Uh, like why not borrow a bunch of these illusions that aren’t defined, that are not limited in amount and buy something that’s totally limited in amount that you can hedge, uh, you know, by selling puts or covered calls or something on, you know, so you can generate a yield, the, you know, generate that positive yield in the carry trade and that’ll just suck more and more capital into this black hole on the world’s, debt based financial statements. Uh, th that transports everybody into, into a new equity based, uh, dimension.

Stephan Livera: Excellent. Yeah, there’s a lot to take in there. And I think a lot of it also plays into this idea of how quickly will perceptions shift. So some skeptics right now might say, Oh, the government will shut down Bitcoin. Oh, it’s just a bunch of Uber drivers who are trading and so on. But then the perception shift changes. Right? And so even now there was the recent news about a Venezuelan state owned company seeking permission or asking whether the Venezuelan central bank could use Bitcoin. So have you got any comments around how the perception shifts will happen over the next few years?

Trace Mayer: Man, never underestimate people’s capacity to watch cat videos on the internet. Like, you know, it’s just how, how people are allocating their capital. I mean, Bitcoin has been around for a decade. It’s been majorly in the press, like in like two or three cycles now. You know, where everybody’s heard of it. And yet people still haven’t done their homework. They still haven’t put in the effort to figure out how to use this thing, to buy it, to secure it. Even a lot of people in this space are still holding their keys on institutions, you know, not taking things like proof of keys. Seriously. Uh, and so, you know, we just keep having failure after failure and people keep learning the hard way, getting their stripes and you know, I think that’s just going to be how it’s, you know, it’s probably just going to be that way.

Trace Mayer: And it’s going to be a long, a long transition. You know, a lot of people are like, Oh, I totally would have bought bitcoin at $10. Well you would’ve sold it, you know, when it went to 12, like, because you didn’t put in the effort to figure out how to learn it and understand it and all of these things. And so I think it’s very similar. You know, you look at stock to flow and it’s not going to be below 100,000 by December 2021 based on that model, which is co integrated. I mean cointegration is a big deal. And so, so what’s Bitcoin going to do is it’s currently, most people think it’s dead and, and, and, you know, 24 months from now it could be, uh, over a hundred thousand dollars. And yet people are going to be like, Oh, I think I missed it. You know, and then like four years after that, it’s going to go to $1 million, you know, and people are gonna think they missed it again, when, when really what they’re, what they’re missing out on is if it really does become world reserve settlement currency and it becomes that risk free asset that corporations are holding their retained earnings in.

Trace Mayer: And all of this stuff, I mean, you’re talking about this is, this is a claim on the future productivity of the planet in perpetuity discounted to the present. I mean, yeah I think we, I think we really underestimate just how much governments through Fiat currency have siphoned off the purchasing power of the average person. My father, for example, when he graduated from college, his first job, $900 a month, 25.7 ounces of gold, that’s like $500,000 a year for a brand new kid out of college. That’s how much of a shortage we should have when it comes to human labor in order to get people to actually go out and be doing stuff. But instead, you know, we all the productivity from the internet and spreadsheets and all this stuff just get siphoned away into the military industrial complex and the health industrial complex and bureaucracy and all this other stuff. They’re primarily able to do it because if the out currency and fractional reserve banking and, and being able to confiscate their inflation, but you, you take that ability away and you have like self-reliance and economics, substantive due process and you technological tools that protect and enforce it and now the individual, you know, is able to keep the fruits of their labor and I think we might be surprised at just how many fruits there actually are.

Stephan Livera: Yeah, no, totally. Yeah. 100% agree with you. And you made, you made a great comment about how we may be seeing the growth of this new risk-free asset and how it may be much more powerful in terms of being collateral. It may be the collateral demanded. Do you have any comments on how that may, how that space may evolve, using Bitcoin as collateral?

Trace Mayer: Yeah, I mean, I see it as the ultimate collateral, you know, because it’s strictly limited in amount and you can hold the private keys, you’ve got your full node for consensus. Um, a lot of the value for the dollar is that you have to get dollars to pay debt and there’s like $73 trillion of US dollar denominated debt out there so that, you know, you have to get a lot of dollars, to pay that debt. And so the fed, you know, what they really have is they, it’s like they have control of the throttle, you know, but so they can change like the amount of, the amount of mixture that goes into the engine, but they can’t really, you know, control what happens after that. Um, as they’re starting to find out with this repo market mass. But, you know, so I think that that’s, you know, when we’re talking about collateral and the ultimate collateral, you know, it’s something that they can’t print.

Trace Mayer: You know, you gotta get stuff they can’t print. And so then, you know, when you’re talking about true liquidity, you know, okay, well they can have an unlimited number of dollar liquidity because they can just print that to the moon. But to get actual real liquidity, you know, there’s limited in amount, like how are you going to get liquidity for a proof of keys event 15 or 20 years from now? You know, when, assuming we’re still doing it, which I don’t see any reason why we wouldn’t, you know, and, and a lot of the Bitcoiners are going to have more than enough money, kind of like Roger to be having whatever fun they want to have with their media properties, which Buffett says have value besides just their earnings. You know, cause media properties can be a lot of fun. Um, as I’m sure you know, and, uh, and so, you know, I don’t see Bitcoiners, like I don’t see them being silent like 15 or 20 years from now.

Trace Mayer: And so they’re probably gonna still. I remember the first proof of keys be in a wheelchair or whatever, right? Like, you know, they’re, they’re just going to have a much longer time horizon. They’re going to, they’re not going to be taking people’s crap because they grew up in the greatest oppression, like, you know, with massive bailouts and huge amounts of student debt. And like they had to claw their way out of this, uh, and all they had on their side was math. And, and yet they were able to fix, you know, so many things because of, getting in on sound money. And so that’s just gonna change, you know, the, the culture and all that stuff. And, and so when it comes to liquidity and it comes to collateral, it’s going to be hard to get these, uh, people with this type of a mindset to actually be willing to take risk. You know? And when people lend people the ultimate collateral, like, like the has the person, you would actually be able to generate a return on that. You know, I mean, imagine if you took a, took out $100,000 loan, but denominated in Bitcoin three years ago, like bankruptcy, you know, you’re done,

Stephan Livera: Right? And we were speaking earlier around stock to flow and what the implications of that are. So in my most recent interview with plan B, we were talking about this idea of how many more cycles? And I think he was basically making the point that potentially after 2028 we may not, it may not make sense to measure things in USD terms, but what’s your view there? Around how many cycles? Do you have any thoughts on that?

Trace Mayer: Man. Uh, yeah, after 2020 somethings going to have to give with this model. Uh, it’ll probably be the U S dollar as you’ve implied. Um, but, but even that, you know, I 2028 just seems way too soon. I mean, that’s only eight years from now. I just, I don’t really see society and culture moving that much that fast. Uh, but hey, eight years ago, like YouTube was just barely a thing, right? And now it shapes like presidential elections all over the place. And like 12 years ago, like Facebook was barely a thing. And now it’s getting hauled into, hauled in as the boogeyman to to Capitol Hill all the time. Um, and you know, eight years ago, Twitter was barely a thing. And now, uh, you know, President Trump like Twitter helped propel him into the white house. So, you know, the rate at which technology can, can just man, it’s stuff’s happening so fast and that, that’s what’s really scary, I think for, uh, at least if you don’t own any Bitcoin because I mean, it’s all digital now with 24, seven markets.

Trace Mayer: That’s how fast everything can happen. You could wake up tomorrow and I’m like, the dollar can be done and the Fiat system could be done. Like that’s just how fast everything moves now, you know? And so, um, yeah, I mean, I don’t think it’ll move that fast. Uh, you know, you look at the, my book, the great credit contraction and what’s at the bottom of that liquidity pyramid, it’s, it’s, you know, US dollars at the, you know, and gold and silver at the tip Bitcoin. I say, I would argue increasingly becoming more of that tip at the bottom of the liquidity pyramid. And you know, that, that the Fiat currencies that will be the last layer to deflate through hyperinflation. If you understand like the original Austrian terms, you know, deflation being a decrease in the money supply and inflation being an increase in the money supply.

Trace Mayer: And so it’ll be an increase in the money supply, through hyperinflation that kills the thought currencies as capital burrows into the safest, most liquid assets. And so that will actually be deflation because the size of the liquidity pyramid will be shrinking if that occurs,

Stephan Livera: a credit contraction.

Trace Mayer: A credit contraction. Um, so I mean, that would be one of the scenarios where it could happen extremely quickly. Uh, like that, you know, we just all wake up and dollars and euros and yen are just all done. Um, but I, I just don’t really see that happening. I mean, pension funds move so slow, like so many people move so slow with, I mean, it’s just, and, and those, those financial markets are so deep and they’re so liquid, like the US financial markets are so deep. Um, you know, I just don’t really see, I just don’t really see stuff happening overnight.

Trace Mayer: So instead I suppose, you know, it’ll probably just be a slow burn, kind of like it has been, uh, which will be plenty of opportunity to sell lots of covered calls and make a lot of money, you know, selling volatility, uh, in this whole transition. Um, you know, and give fund managers opportunity to outperform in USD terms or whatever, but not in BTC terms. You know, it’s just, there’s a lot up for grabs all at once. I think in this big, we’re just in such an age of transition, political power, technological power, monetary power, like this is just such a huge upheaval, in terms of human history.

Stephan Livera: Yeah. I love that. I love the comments there. I think maybe sort of like a closing comment, what sort of things does Bitcoin need at this point? So some of, some of the ideas that you might hear in the Bitcoin community, they say, okay, what about education? More developers and code review, more Bitcoin businesses or maybe more development on privacy. Do you have any thoughts on that?

Trace Mayer: Man? Bitcoin always needs more holders like HODLers of last resort that is like, that is the foundation of Bitcoin, right? There is people who will buy it when nobody else will and people would just won’t ever sell it, you know? And, and that’s what, you know, that’s what Bitcoin needs and it needs its current HODLers to become even stronger financially, you know, which is, uh, you know, selling, selling those covered calls for example. That’s a way that you can be taking territory on the Bitcoin blockchain and becoming stronger financially, um, without, you know, you know, just getting your ultimate collateral to start working for you. Uh, and you know, also the technological development is very important. Um, I, I liked the second layer, uh, things that are happening, like, uh, lightning network, simplicity, Schnorr signatures, taproot graftroot. If we can get, you know, if we can get a lot of this stuff in a mast, mimblewimble, you know, that’s kind of outside of Bitcoin, but, uh, you know, cause I don’t see that getting merged in anytime soon, but you know, the financial innovation can still take place over on other coins.

Trace Mayer: And if it works there, then we can merge it in. Like, look at litecoin. We activated SegWit there first. Uh, someone put $1 million in an address, nobody stole it. You know, that’s kind of a nice test net, right? So, you know, these are, these are the types of things, you know, the technological development. We need people who are just, uh, they’re, they’re committed to the cause, you know, they’re those HODLers of last resort. They get in, they start working on stuff. Uh, I mean, keep in mind when you’re educating people, you’re actually training your competition for those, those scarce, scarce satoshis. Um, you know, that might not be the best idea. I mean, I think the first decade was a decade of altruism, but this next decade, um, as plan B talked about, you know, with the, with the black Scholes model, there was a decade where that that model was able to be exploited before everybody kind of wised up to it.

Trace Mayer: You know, and I think this decade might be that decade for Bitcoin. And so this might be the decade of competition. You know, the first decade was the decade of altruism. This next decade, might be the decade of, of competition for those [inaudible]. And you know, and, and so, you know, we, I, I don’t know why people think that they need to spend a bunch of money, like educating people for free to become their competition. I mean, I did it because I wanted to gather a core of gold bugs and libertarians so that there would be a particular political constitution among the main early adopters of Bitcoin. And then if they’re the beneficiaries of this wealth transfer, then they’re going to change the political constitution of the world. You know, because they’re going to have a lot of money to do it with, you know, so I, I had, I had ulterior motives you could say, besides just, besides just, you know, spreading Bitcoin in that sense.

Trace Mayer: I wanted to spread Bitcoin to particular niches of people that shared particular ideologies. Um, but the, you know, now Bitcoin is kind of out there for everybody. I mean, do you really want a bunch of Bernie Sanders supporters to have a bunch of Bitcoin? Right. I mean, I just don’t know that that’s the wisest thing, you know, because now you’re arming them with a bunch of financial resources, you know, so at your own expense, you know, I, you know, what’s, what’s the, what’s the age old Axiom? He who has the gold makes the rules, you know, so this is the age of competition, and so who’s going to have the Bitcoins, you know, 10 years from now? Yeah. Like who’s going to have them and, and who do we want to have them, you know, as another question,

Stephan Livera: who do you want? So I was just saying,

Trace Mayer: Yeah, I mean, I, I mean, I want, I want Bitcoin. HODLers to have them. I want people who understand Austrian economics to have them. I want people who have a, uh, you know, good time preference, good sense of opportunity costs, who I, I’d prefer they be self-made as opposed to some trust fund baby. Um, you know, people who have really had to be scrappy, you know, those are the people that I want to have the Bitcoins, you know, instead of, uh, you know, having them go to whatever trust fund babies, like, uh, you know, we, we just don’t need more of that. The sooner they burn through all the, that intergenerational wealth and the sooner that intergenerational wealth gets transferred to a new generation who’s got, uh, values that are more conducive to building civilization because of this time preference difference. Uh, you know, the better, in my opinion, that’s who I’d like to see having the Bitcoins.

Stephan Livera: These are the people that you want as your neighbors in the Bitcoin citadels.

Trace Mayer: Hahaha I suppose.

Stephan Livera: But, uh, yeah, look, I’ve really enjoyed chatting with you Trace. Do you want to just take an opportunity to tell my listeners where can they find you and obviously tell them about proof of keys.

Trace Mayer: Oh yeah. So perfect keys. We mentioned it. It’s going to be super fun this year cause we’re gonna, we’re gonna have more than just three weeks of preparation. Uh, you know, already starting to beat the drum, I guess now a proof of keys.com. Remember not your keys, not your Bitcoin. Uh, and we’ll be changing a little things on our Twitter handles to put like the key and the lock and all this stuff to raise awareness with that. Um, I mean I think we’re 95 days out or 94 days out right now. You know, maybe we’ll do that in about another month or so.

Trace Mayer: About 60 days out. Yeah, so proofofkeys.com and then I’m on Twitter @TraceMayer and also I host the Bitcoin Knowledge podcast, so www, bitcoin.kn. And thanks so much for having me. I mean, I really appreciate the work that you’re doing. We need more people kind of carrying the standard, you know, waving the banner around. And so yeah, I’m really happy with the work that you’re doing and just keep it up. You know, it’s hard work getting all these interviews done and, and being able to prepare for them and stuff like that. And so I give you props for that.

Stephan Livera: Well, thank you very much, Trace. It’s, it’s been a pleasure to chat with you, so thank you for joining me.