Transcription
The idea of Bitcoin is, I'm using technology to create perfect money. The first question is, you know, will it be banned? Will it be copied? Will it be hacked? Right? Does Bitcoin represent sound engineering? Does it represent sound ethics? Does it represent sound economics? It's very, very difficult to know that in the first year or the first two years.
In fact, people tried to launch something like Bitcoin a hundred times before Bitcoin came along, right? And all of those early attempts failed. Bitcoin caught and it started to flicker and, you know, for the first year and a quarter, it traded. No, no one ever did a transaction with it on pizza day. After a year and a quarter, uh, Bitcoin traded for effectively a third of a penny. So, it was worth a third of a penny to half a penny after a year and a half. So, it had, um, it had a slow early germination period.
Uh, the ethics of Bitcoin are, Satoshi created it, he gave it away, and he went away. So the ethics are, or what we call, the immaculate conception. Someone gave this as a gift to the world. And if it wasn't given as a gift to the world, if Satoshi was still here, rich, you know, and bragging about it, and then uttering opinions about how you ought to change or modify the network, that would be an ethical failing, and that would represent unsound ethics.
The engineering of Bitcoin is based upon proof of work, SHA 256 hashing. So the network has evolved such that it uses something like 20 gigawatts of electricity, which costs $5 billion a year, running on $25 billion or more of semiconductor hardware. And that hardware is special purpose, single purpose. It's like specialized ASIC chips. And why is that important? Because if it was CPUs, the network could be attacked by Google or Facebook or Microsoft, that had more CPUs. And if it was GPUs, then it might be attacked by the AI data centers. But because it's SHA 256 ASICs, those other types of semiconductors can't be used to undermine the security of the Bitcoin network. It is simply put, the most powerful computer monetary network, and maybe the most powerful computer network in the world. If you calculate power using the SHA 256 hash, you know, running 600 exahashes, you can't dent it with all the other computer power in the world.
So, just to clarify, there's like a place where they have all of this hardware and data, and no one, I'm guessing, has any idea where it is?
No, it's better than that. The network is decentralized. If there was a place, it would be fragile. You don't want it to be in one place. Um, it's an open protocol, which means that anybody in the world can run a Bitcoin mining rig, and anybody in the world can run Bitcoin nodes. So imagine tens of thousands or hundreds of thousands of nodes, and millions and millions of different Bitcoin mining computers spread across thousands and thousands of locations in Russia, in China, in Africa, in South America, in Australia, in North America, in Iceland, in Scandinavia, everywhere. And imagine that's shifting all the time, and no one can stop it, right? It's, uh, it's kind of like, where is the cold virus in the human race?
But back to Graham's question, what is the best argument against Bitcoin? And what would it take to convince you that it's not it?
Well, the best argument against Bitcoin is, you've got a better monetary network. And if you had a better monetary network, then all the smart money in the world, all the smart people with money, would be using it, right? So, Bitcoin has accumulated the most physical power in terms of electricity, the most computer power in terms of hash power. It's accumulated the most economic power, $780 billion of real money has been invested in it. It's got the highest market cap, worth $1.3, $1.4 trillion. And it's accumulated the most political power, hundreds of millions of people who are passionate about defending it. And so, how do you know it's not working? Well, if someone came along and launched something that was more popular with intelligent people, then I guess it wouldn't be working. But, of course, Bitcoin's been growing, first 200% a year, then 100% a year. Right now, it's still growing 40 to 50% a year. So it's a monetary virus that's spreading, and it's extracting the capital from all other capital assets. Right? So the proof that Bitcoin is winning is the performance of Bitcoin is 5x the performance of the S&P index. If Bitcoin is outperforming gold, outperforming the S&P, outperforming every individual stock, outperforming bonds, outperforming cash, outperforming real estate, what do you see? You see intelligent people with money voting with their money. And what they're doing is they're selling the weak assets, buying the strong asset.
And why Bitcoin over Ethereum?
If you're trying to launch a monetary network, you need it to be ethically sound. It needs to be sound ethics, sound engineering, sound economics. The economic policy of Bitcoin is 21 million coins, unchanged, very difficult to change, extremely conservative. In fact, no one ever would ever think you could change the supply, which is transparent. And even the second-order economics, the bandwidth of the network is the subject of bitter, bitter fights. The block size wars was a fight over whether or not the second-order scarcity should change, and whether the bandwidth should change. And as the network gets bigger, it becomes much more conservative economically. So now it's nearly impossible to change the economic policies of Bitcoin. And if you compare that to Ethereum, Ethereum changed economic policies with every hard fork. And so it's changed it half a dozen times. And so economically, the real question is how much of that asset will there be in a hundred years or a thousand years, and can anybody change it? And what you really want is for nobody to be able to change it, and you want to know that you're buying 1/21 millionth of all the economic energy in the network a thousand years from now. So all of the hardware, all of the semiconductor technology, all of the electricity that's being used to secure the network disappears. Now the network is secured simply by the staking of a token with economic value. But you're going to lose Moore's Law, because if you have to stake $50 billion of tokens, you can't make the $50 billion of tokens worth $500 million and keep the same amount of security over time. But you see, with Moore's Law and with a silicon ratchet, you can actually create $50 billion of security with $500 million of hardware over time.
Like, let me illustrate a different way. You have a hundred billionaires in a room, and then one middle-class dude with a $300 gun walks in. Who's the most powerful person in the room? Right? The guy with the gun. That is a very special purpose machine for projecting and channeling energy. If you actually want to get productivity, if you want to spend $300 in order to hijack a billion dollars, right, you do it with a gun. On the other hand, if you want to protect a billion dollars without spending like without spending 10 or 20 billion, you protect the billion dollars with the hardware. So, the engineering of Bitcoin plugs you into semiconductor technology, to Moore's Law, to electricity. And what it also does is it creates this very interesting dynamic where if you have billions of dollars of Bitcoin in Manhattan, your Bitcoin is being defended by Bitcoin mining off of hydroelectric power in Bhutan. You might be getting defended, the network is defended by a Bitcoin mine running on stranded natural gas in Kazakhstan. And so if your money is only defended at a bank in New York, and the mayor of New York wants to seize your money, he just takes it. What you want is a very distributed network, and you want incentives for every nation-state and every type of actor to build massively powerful centers. If you see these Bitcoin mining centers there, you know, they're 100 megawatt, 200 megawatt data centers, and you think, well, what would incentivize someone to build such a massively powerful defense mechanism? And the answer is, somebody's got a dam with water flowing over the dam, and no one wants to buy their electricity. And so they've decided to build a Bitcoin defense center in order to monetize the running water on their dam 8,000 miles away. So there's a genius to that engineering because it's continually expanding, continually growing, continually becoming more efficient, and it anchors the Bitcoin network into the electrical network and into the technology network of the world. And it incentivizes good semiconductor engineers to be thinking all the time about how to create more efficient defense mechanisms to keep a hacker from hacking the network.
And that just takes us to the last point, which is ethics. You know, if you want an ethical monetary network, like, do you want to trust all your money in a bank run by three people that you know? Or do you want to trust all your money in a bank that's collectively owned by humanity, where nobody in the human race can possibly hack the bank? And it's a, it's one of them is a protocol beyond the reach of any individual, any corporation, any government. Bitcoin is a system so diffuse that no one entity or person is systemically important or influential, right? Whereas Ethereum or any of these other proof-of-stake protocols, if there's a company, if there's a founder, if there's an engineering team, if you can identify them, then they can change it. And the ability to change the network undermines the integrity and the security and the immutability of the network. The one thing you want with a monetary network is you want to know that a hundred years from now, 500 years from now, a thousand years from now, the network's going to maintain its integrity. And if it relies upon any individual action, you've already failed. That's why, for example, you speak English, and you don't speak the language made up by your best friend that's a little bit more efficient, that's got special words in. Like, you're buying into a shared protocol of all of the smart money in the human race.
And the smart idea, if you study history, is don't trust anybody. Don't trust yourself, right? Like, you could say, "Michael, would you rather invest in a network where you control them?" I'm like, "No, right. I'm the weak link, right? We're all the weak link at the end of the day." So, you want to put your energy and your support behind a network which transcends any institution. That's what secures you. That's what makes it, you know, safe and economically sound.