Jeffrey Tucker - Founder of

Jeffrey Founder Jeffrey Tucker discusses Bitcoin’s monetary theory and history.


Interview with Jeffrey Tucker on Monetary Theory and Monetary History

Trace Mayer:  Welcome back to the Bitcoin Knowledge Podcast.  We have an excellent guest today, Jeffrey Tucker from  Welcome to the podcast.

Jeffrey Tucker:  Thanks so much for having me.  It's fun to see you again, Trace.

Trace Mayer:  Yeah.  Good to see you.  So what brought you into bitcoin into the Austrian School of Economics?  Just this fascination --

Jeffrey Tucker:  Well, I like to think that we're living through still in the era of incredulity concerning bitcoin.  Average people just don't believe that it's possible that it really exists or that it has a value based on utility and all of these.  This is still a common belief.  And I used to hold that belief back in 2010 and 2011.  I have read a number of articles about it.

But I had been convinced previously that it was not possible to generate money through computer code and certainly not a money that emerge purely from the market and in the era in which we have well-established moneys, national currencies.  And I didn't think that it could really work.  And so I felt like it was very much of a student of Satoshi come, I guess, it was the early part of 2013.  I wanted to believe it, but I still didn't.

So I had to do a lot of study.  I had to throw myself into cryptography and peer-to-peer networks and distributed systems and open source software.  All these different features and integrate that as my previous understated monetary theory.  And I went through something like two months of intellectual upheaval just to come to terms with the fact that it existed.

Trace Mayer:  Yeah, I mean, when we look at the sheer size and scope and genius of Satoshi, I mean, he's touching on so many different aspects of human knowledge.  We got mathematics and cryptography.

Jeffrey Tucker:  Yeah.

Monetary Theory and Monetary History

Trace Mayer:  We got computer science, distributed systems which is even a much more complicated niche part of computer science, monetary theory, monetary history, monetary economics.

Jeffrey Tucker:  Yeah.  And that's the stuff I'm interested in is how it fits in this monetary theory and monetary history.  Economists have yet to come to terms with what's happened.  It's very interesting.  You're starting to see now the academic literature deal a little bit more with cryptocurrency, but still the mainstream journals haven't really run articles yet.  You only see them as posters, working papers, and that sort of thing. Who invented Gold Standard?   Trace Mayer:  Well, I think one of the parts of this is:  one, if you want to know the truth about money you have to learn it on your own.  It's simply not taught in university anywhere.  Even the most basic fundamental facts of monetary history are not taught anywhere.  For example, I was talking with Steve Waterhouse.  He's chief technology officer at Pantera, major fund investing in bitcoin.  He's a PhD from Oxford.

And I asked him, "Well, who invented the gold standard?"  He is like, "Oh, I don't know."  I was like, "No, come on, give me a serious answer."  He was like, "Some British dude."  And I was like, "Oh, some British dude."  I was like, "Who?"  And he's like, "Look, I don't know."  I was like, "You had the scholarship of Isaac Newton when you were going to Oxford and you didn't know that Isaac Newton invented the gold standard.  I'm like, really?"

Jeffrey Tucker:  Yeah.

Trace Mayer:  "Really?  You didn't know that one of our preeminent scientists who changed our entire view and concept of the universe developed the foundational monetary infrastructure that has lasted even until today?"

Because we still have central banks holding physical gold in the vaults as a relic of bread and woods, as a relic of these other gold exchange standards which ultimately go back to Isaac Newton as Master of the Mint when he developed the gold standard.

And so, I mean, is there anything you kind of want to talk about in this area of monetary economics and monetary history and what do people just not know? And they don't know they don't know it.

Jeffrey Tucker:  Right.  Well, and I think the point you're making is very interesting.  You know the financial systems and monetary systems become so enormously complicated now.  It's not possible for anyone to fully understand them really and so people get very confused about what money is and what it's supposed to be and what banking does and how it's supposed to function.

But one of the beauties of is that it's providing a kind of a nice template for understanding where we're beginning to understand the fundamentals of what money is and what it does, and what banking is and what it does.  And it's changing our sense of things.  I mean, I don't think there's any doubt that if the dollar were re-introduced today as a new currency, it probably would not be accepted by anybody because it doesn't have the features that you want for money from one thing, scarcity.  Right?

Trace Mayer:  Uh-huh.

Jeffrey Tucker:  I mean, paper currency just doesn't have that scarcity.  It would not be trusted.  One of the reasons cryptocurrency is trusted is that you can follow precisely its creation rate.  You know where they all are exactly.

Trace Mayer:  It's mathematically provable.

Jeffrey Tucker:  Yeah.  And it's built into the protocol so everything's completely open source, we can know everything. It's a lot more open sourced for example than the Federal Reserve.

Trace Mayer:  Well, Federal Reserve.  I mean, what's happening there?  We got premine (ph) scam.  We don't know the distribution rate.  The decisions are being made behind closed doors, not necessarily subject to public perception event.

Jeffrey Tucker:  Right.

Trace Mayer:  And then out of nowhere these central banks will completely reverse their policies like the Swiss National Bank did.

Jeffrey Tucker:  Right.

Trace Mayer:  And just throw massive turmoil into the market.

Jeffrey Tucker:  Right.  And there's --

Trace Mayer:  Bankrupting businesses, bankrupting --

Jeffrey Tucker:  Yeah.

Trace Mayer:  -- currency trading businesses in addition to the manufacturers that are domestic.  I mean, it's crazy.

Jeffrey Tucker:  You know, central bankers, you never know what policies they are going to adopt.  And you never really know if the polices they adopt are going to actually be realized in the real world.  Like, one of the things that central banks can't control is the velocity of money which has plummeted since 2008, making it essentially impossible for central banks to create as much money as they attempted to.

So it can fill the coffers in the banks up with as many newly created notes as they want, or getting them out of the street.  It's a different problem entirely.

Trace Mayer:  One of the self-regulating mechanisms in bitcoin, because we have the ten-minute block reward and as the veracity increases, it decreases the actual demand for the bitcoins.  And so it has a self-regulating effect on the price.

And we have so many of these self-correcting, self-regulating aspects in bitcoin that harness the natural laws of economics just like the original gold standard did that Isaac Newton had introduced.  It's just this natural Newtonian type balancing.

Jeffrey Tucker:  It's true.  Yeah.  And he really -- I think that Satoshi must have studied the operation of the gold standard when he put together the protocol and even the mining which is a metaphor really in the end.

Trace Mayer:  Well, we can see that Satoshi, he obviously studied tons of this and had particular beliefs on it.  For example, his name profile, he chose a particular birthday.  And it was I think, like, April something in 1975.  And it happened to be the date in April was when Franklin Roosevelt issued Executive Order 6102.

Jeffrey Tucker:  Funny.

Trace Mayer:  And 1975 was when Nixon got rid of the illegality of Americans holding gold.  So Satoshi left his little Easter eggs all over the place.  I'm sure that there's an Easter egg there about Isaac Newton just waiting to be found.

Jeffrey Tucker:  He was so much more advanced even than I thought.  I thought I knew everything there was to know about money and monetary policy.  I've been studying it since I was -- I mean, I wrote my undergraduate thesis on the topic.  It was a huge paper on the gold standard.  I thought there was nothing else for me to learn.

But cryptocurrency really challenged me fundamentally to rethink what I thought I knew already.  And it took me really upwards of a year to fully integrate the existence of cryptocurrency with my existing theoretical apparatus.  It took a long time to kind of think it through, which is a process that this generation is going to have to go through.  But in the future, we want people will not be worrying about the things that we worry about a bit.   Trace Mayer:  It would probably be taught in the beginning curriculum.

Jeffrey Tucker:  Yeah.  And also people would just be using.  It's just like electricity.  If we want the lights to gone, we press a button.  We flip the switch and it causes to lights gone, nobody questions how this happens.  But in the early age of bitcoin, which is we're still very early in the process, people do have a desire to understand it and to think it through.

Because, really, there's still a lot of people that don't believe.  Did you notice, recently we've gone through a big price correction in 2014 and in early 2015.  And once again, people are saying --

Trace Mayer:  Oh, bitcoin is dead.

Jeffrey Tucker:  Bitcoin is dead.  And it gets so boring because you know once you've lived through these cycles.

Trace Mayer:  When I lived through all of them.

Jeffrey Tucker:  Yeah.  You lived through all of them.  So there was a moment when you just fundamentally panics.  It's my first one.  I actually was terrified when it went from -- I think it was up to about 216 and it fell to 80.

Trace Mayer:  Yeah.

Jeffrey Tucker:  I sweated it out that day, you know.

Trace Mayer:  Yeah, I mean, there were times when there's like $3,000 of volume in the whole day on the chart.  And maybe it was all my volume, right?

Jeffrey Tucker:  Yeah.

Trace Mayer:  But I don't talk about how many bitcoins I may or may not have.

Jeffrey Tucker:  But this is still relatively thin market today.

Trace Mayer:  Yeah.  It is relatively thin, but I think we've largely past the point of no return.  There was a time when I thought bitcoin may or may not survive.  There were a lot more weak points all across the system.  But the community is so large now, the code is so distributed, so many developers are working on projects and working on code.

There aren't really single points that can be taken out anymore, whether it's big mining nodes or companies, you know, Mt. Gox failed.  It didn't take bitcoin down.  And so all of that, I think, like, the network effects of bitcoin have just taken such deep hold and it's been growing so fast.  But I think it's larger to past the point of no return.

I think it will be the protocol that it's developed for and adopted for transferring value over the internet.  Now how it will mutate before it fully realizes that, a lot of speculation, but I don't see any other protocol anywhere close on the horizon that will be able to supplant it.

Jeffrey Tucker:  Yeah.  And eventually, over the long term bitcoin may not survive.  It could be something else.  I think what matters here is the technology.  That's the knowledge as you say.  Now that we have that knowledge, we know how to transfer value peer-to-peer to commodify information and make that valuable and transferred it on a geographically non-contiguous basis anywhere in the world.

Trace Mayer:  Of course.

Jeffrey Tucker:   In a way that's it's non-forgeable.

Trace Mayer:  Solar system or universe, for that matter.

Jeffrey Tucker:  Yeah.  Non-forgeable.  Non-reproducible.  That's amazing.  Now I have to say that that's what convinced me.  When I first began to look at, this is February 2013.  There wasn't nearly as much information out there about bitcoin as there is now.  I mean, you have a lot of very good introductory articles and people explaining it in plain English and everything.

But in prior to February 2013, it was actually hard to find out the things.  And I had to dig very deeply and I finally found out this point about the non-reproducibility of the individual unit, the monetary unit, bitcoin.

I found it out from a wicked article in Wired magazine where they were again announcing bitcoin's dead.  And it was paragraph 18 or something like that, where it just mentioned the passing that bitcoin had solved the double spending problem.

Trace Mayer:  And because you had this background and a lot of areas of knowledge, you were actually able to understand.  Holy cow! This is a big deal.

Jeffrey Tucker:  Yeah.  That one paragraph just blew my mind.  And they call it a double spending problem.  That's a funny word for it, really.  What it really means is the reproducibility problem.  The digital realm is famous for its reproducibility.  That's why it's so viable.  And once something's on the Internet, you can create trillions of copies of it and that's beautiful.

Byzantine Generals Problem

Trace Mayer:  Well, I mean, yeah, the Byzantine Generals Problem.  The solution that proof-of-work is introduced, the whole concept of distributed consensus, that's a major, major breakthrough.  It's plagued the computer scientists for decades now.

Jeffrey Tucker:  Yeah.  And to write that kind of scarcity and to the code and put it up on the block chain so that it's carefully monitored.  I remember I have become convinced something like in March, 2013.  I was all in and so I began to write articles about it like somebody who had just discovered it for the first time.

And then I remember I was sitting there one night in April, when a new lock was introduced without a sufficient number of confirmations and the community started going nuts.

Jeffrey Tucker:  And I was watching this.

Trace Mayer:  The inadvertent hardfork.

Jeffrey Tucker:  Yeah.  You remember this?

Trace Mayer:  Oh, yeah.  It's like two o'clock in the morning.

Jeffrey Tucker:  Yeah.

Trace Mayer:  Like, everybody has somebody their phone just starts lightened up with these text messages.

Jeffrey Tucker:  I know.  It was crazy.

Trace Mayer:  It was really kind of nuts.

Jeffrey Tucker:  And I was going nuts.  I was watching this happen.  And, yeah, the thing forked, and the price dipped, right?  But it only lasted about twenty minutes, I think.

Trace Mayer:  Well, that's because everybody's on IRC channel, all the emergency first responders, like, we show up, bam, and SIPA actually figures out.  He diagnoses the problem and then everybody kind of discusses and we have a potential solution all within like five minutes, right?

Jeffrey Tucker:  Right.

Trace Mayer:  Because when you can bring this amount of intellectual brainpower to bear on problem and within 23 minutes, I think the solution had been implemented, the people who needed to be contacted had been.  And it took about another 6 hours for the chain to get overtaken and then the history to all merge back together.  But at the end of the day, like, the end consumer was not affected in any way.

Jeffrey Tucker:  No.

Trace Mayer:  Some miners were slightly affected, but we actually raised some money and compensated them for what they would have lost and there's analogy of these different operating systems and version control systems.  And one of them is GitAirlines that they talk about and with GitAirlines referring to GitHub, and this open source version control system.

The people build the airplane and they take off in it.  And they actually take apart parts of the airplane and rebuild it while they're in the middle of flight and sometimes the whole plane just like starts spiraling down to the ground and looks like it's going to crash.  And then the programmers actually just like build a time machine and go back in time and fix the problem, right?

Jeffrey Tucker:  Right.

Trace Mayer:  People don't understand just how extensible bitcoin is in the sense of how resilient we can be in fixing problems that do come along.

Jeffrey Tucker:  And the network is watched so closely and so carefully.

Trace Mayer:  Oh, yeah.

Jeffrey Tucker:  And even the slightest problem, I mean, everybody is seriously incentivized to discover anything.  I learned a lot from being there at that moment to that, which you called the hardfork.

Trace Mayer:  It was an inadvertent hardfork because we do hardfork the network occasionally.  We try not to, the developers.  But this time because there'd been a change in the database used and it had created an inadvertent hardfork.  Bitcoin would have continued on, but it could have been very disruptive --

Jeffrey Tucker:  Right.

Trace Mayer:  -- to overall consensus within the community.

Jeffrey Tucker:  It is beautiful to watch that taking place because you realize --

Trace Mayer:  Oh, yes.

Jeffrey Tucker:  -- how carefully watched this thing is.  And it's hard to explain to people.  I mean, you compare that with like modern monetary policy.

Trace Mayer:  Oh, yeah.  Let's go in and say, "Hey, you got to give a $700 billion or the world ends."

Jeffrey Tucker:  Well, I think how much money is being created over the last 5 years.

Trace Mayer:  Oh, my goodness.

Jeffrey Tucker:  Just like three trillions or something like that.

Trace Mayer:  Well, are we talking just with the Fed?

Jeffrey Tucker:  Yeah.

Trace Mayer:  Or, are we talking with the ECB in Japan?

Jeffrey Tucker:  Oh, yeah, right.

Trace Mayer:  And, I mean and then what about all the additional leverage and things like that, I mean?

Jeffrey Tucker:  Oh, it's crazy.  And nobody really knows where it goes or what's going on.  I mean, you find out about it months later.

Trace Mayer:  Or even scarier, we don't know who owns what.  I mean, when we look at change of title on houses or cars or airplanes or stocks or bonds or like other financial assets out there, we don't know who owns what, we don't know what has been pledged against what.  I mean, we don't know how encumbered things are.

Jeffrey Tucker:  They can't even count at money stock anymore.

Trace Mayer:  Yeah.

Jeffrey Tucker:  In fact, people don't even have a viable agreed upon definition of what money is.

Trace Mayer:  Dr. Vieira's Pieces of Eight where he wrote the article, what is a dollar and basically under Federal Law, it's unintelligible.  There's no definition of the dollar.

Jeffrey Tucker:  No, and the Fed has no clue.  I mean, you can pick your measurement.  That's all you can look at some of those Fed.  But it all depends on how you want to measure it and you don't ever know if it's going up or going down or it depends on what you call a dollar, really.  But in the bitcoin world everything is so extremely in precise.

And the slightest error, you know, this slightest misstep in the block chain and everybody is all over it. To be the guy who finds the flaw is to be immediately famous.   Trace Mayer:  Yeah.

Jeffrey Tucker:  And wonderful in the bitcoin community.  That's amazing.  That's the right kind of policy, if you want to call it a policy.  I think what we've learned from Satoshi and from our experience with cryptocurrency is that, really, this kind of centralized management strategies are not workable as compared to the decentralized protocol based monetary policy, if you want to call it that.

I really think that in an alternative universe, which I hope we get to someday, you could have all the world's currencies based on self crypto modeling.

Trace Mayer:  On block chain technology.

Jeffrey Tucker:  Yeah, I think so.  I think it could happen and it may eventually happen.  It's some much superior to very old-fashioned trust-based nationalized currencies.  These things are really old-fashioned.

Trace Mayer:  Well, they are just obsolete.

Jeffrey Tucker:  They really are in a digital age.  And we have to break the network effect of it.  But I believe that bitcoin and other cryptocurrencies can actually break the network effect.  Mainly because the costs of transactions are so much less and it's so verifiable and it's still inclusive, too, which is the other amazing thing about it.

Trace Mayer:  Even better, you know who owns what.

Jeffrey Tucker:  Yeah.

Trace Mayer:  You know what's and what address.  In our current system, we don't know who has what.

Jeffrey Tucker:  People have no clue what they actually are entitled to.  We have this deposit insurance which insures your deposits up to a certain amount, but either you don't --

Trace Mayer:  But then the CRomnibus bill like now the depositors have been superseded by particular bondholders and bailants (ph) and then I mean, even worse if you've got another layer of distraction with someone else between you and your assets with something like an IRA or 401(k).  I mean, we just don't know who owns what.

Jeffrey Tucker:  No, we have to see if had to pay out everybody at the same time.

Trace Mayer:  Well, I think it's about $38 billion and it's insuring $13 trillion or something.  I mean, in the Fed's balance sheet itself is down to, like, a 1.26 assets to debt ratio.  So, I mean, like the Feds never been more overwhelmed than it currently is.  And then we got customer segregated accounts that are supposed to be sacrosanct that you can just hypothecate and re-hypothecate like MF Global and Jon Corzine and we just don't know who owns what or how it's been pledged or who's got claim on it.

Jeffrey Tucker:  Now when you start to look at the details of modern money and finance, it's scary.  Actually, you just wonder what's going to be the event that causes the run.

Trace Mayer:  Well, I mean --

Jeffrey Tucker:  Or just the panic.

Trace Mayer:  Well, we all know the first rule of panic, you do it first.

Jeffrey Tucker:  Yeah, that's right.

Trace Mayer:  I mean, like, Kyle Bass was talking about it.  He is one of the fiduciaries for a big pension fund in Texas.  And he had been touring the Karl Marx and looking at where the gold is vaulted.  He is, like, "It's actually kind of weird.  It's not like it's in cages and marked off.  It's like here's a bar over here and a bar over there and no rhyme or reason to it."

And then he is talking with the manager about there's $80 billion in the futures markets, but only like 2 to 3 billion in the deliverables and he's like, "Well, you know what if like more than kind of the average decides to take possession of the physical?"  And he's like, "Oh, it'll just be a function of price."  And Kyle Bass was, like, "Oh, that's nice, give me my billion dollars of gold."

Because, I mean, nine-tenths of the law possession, right?  So if 4 or 5 or 10 or a 100 people all have ownership or the asset is encumbered to someone and everybody's got rights to it, well, at the end of the day if you got rights just as good as everybody else's but you've actually got possession of the asset, then you're in a lot better position.

Jeffrey Tucker:  Right.  Have you thought about this, Trace, in the last big financial crisis we faced just 2008, that was when things got really messy and very scary.  I wonder what would have happened had bitcoin been around already in existence and already valued as it is today.  In the fall of 2008, what would have happened to the price?

Trace Mayer:  Yeah.  I mean, I had actually just finished my book The Great Credit Contraction.  I published it in March of 2009.  So two months after bitcoin came out.  I said The Great Credit Contraction had begun.  And in The Great Credit Contraction, we're seeking safety and liquidity.  That's one of the reasons velocity is so slow is because capital just parked in treasuries because those are considered extremely safe.

But we don't know how much the two-year particularly has been hypothecated and re-hypothecated.  So we don't know the quality collateral on the system.  Last time, it was money moving out of the money market funds and those breaking the butt, they kind of seized the system up.  But this time around, I think it's a run on the good collateral.

I think the New York Fed particularly is very worried about this.  When it comes to the custodians whether it's the State Streets or long-term capital management or Bank of New York Mellon, I think there's increasingly being a run on the good collateral.

So if individuals can remove the risk between them and their assets, if they can just get rid of any hypothecation or re-hypothecation that's happened with their assets then they know what they own and they know it's not encumbered.

With bitcoin, this is particularly easy to do.  Because unlike gold, you want to take possession of the gold like the Chinese are doing.  You have to melt it down and re-asset and figure out that you actually got the gold.  You can check the block chain and instantly verify the quantity and the quality of the bitcoins.

Jeffrey Tucker:  That's right.

Trace Mayer:  And there is nothing like a good bank run to focus the mind.

Jeffrey Tucker:  That is so true, isn't it?

Trace Mayer:  We've seen it with Mt. Gox and Bitstamp and The IndyMac and Lehman Brothers and Bear Stearns and Fannie Mae, Freddie Mac, AIG, you know, that's why AIG wasn't allowed to fail.  It was because they were the collateral backstop.  And so I think what's happening is the good collateral is increasingly getting taken out of the system and that could very well precipitate our next major crisis, which bitcoin is there.

It's like, "We'll just put in my address on the block chain."  "I mean, if I own it and you've got it and I can take possession of it?"  Yes, stick it over there right now.  I'll take possession of it.  And if Bitstamp or Mt. Gox or whoever owes 4 or 5 people the same bitcoins or a 100 people same bitcoins, yes, somebody's left holding the bag.

So, of course, if you're going to panic, do it first.  So I think we're going to see an increasing return to the safety and liquidity.  In bitcoin, every day it's around, every day it proves it's worthy of the safety.  And the more the network effects take place, Microsoft accepting bitcoin with BitPay, all of these merchants, those were on network effects, that's liquidity.  And so bitcoin could be very much the primary solution in terms of safety and liquidity that's needed as a solution in this crypto contraction.

Jeffrey Tucker:  I noticed over the last five years, really over the last two years, is increased interest in bitcoin as a safe haven.

Trace Mayer:  Oh, yeah.

Jeffrey Tucker:  Relative to gold.

Trace Mayer:  Better than Hybernias and Ukraine, better than Venezuelan bolívars or Argentine pesos.

Jeffrey Tucker:  Yeah.

Trace Mayer:  And we don't know what the institutions are going to do.  I mean, obviously if they've got the private keys on your two-year treasuries or on your bank accounts.  And if the government says, "Hey, you got to use the private keys to give us that two-year treasury."  Yeah, the banks are going to do it because they hold the private keys.

Bitcoin is much, much, much more difficult for the government to misappropriate or redirect because they don't control the private keys to it.

Jeffrey Tucker:  Right.  Now earlier you said something about Bitstamp and a few other exchanges, were you implying that they hold fractional reserves.

Trace Mayer:  Well, Bitstamp lost $5 million worth of customer funds recently.

Jeffrey Tucker:  Yeah.  That was a couple weeks ago.

Trace Mayer:  And whether they have fractional reserves or not we don't know because unfortunately and I talked about this extensively at the CoinSummit Panel I was on.  We need new standards in terms of information security standards, crypto standards to build out this whole concept of crypto auditing.  So we're going to be needing to merge different disclipines.

Jeffrey Tucker:  But isn't there a consensus within the bitcoin community that full reserves equal good business.

Trace Mayer:  Oh, yeah.  Yeah, having hundred percent reserves like we did Kraken who I'm invested in we actually produced the first audit for our crypto reserves and we did like a Merkle tree and you could figure out, like, whether your bitcoins were included in your total balance without us also disclosing the total balance because that could be a security risk.

Jesse Powell and I talked about it in I think episode 124, but I don't necessarily think the problem is with the fractional reserving.  I think the problem is we need explicit informed consent by individuals to be engaged in the fractional reserving.  We don't have that in the current system.

Jeffrey Tucker:  I see.  Well, there's a wonderful website I enjoy looking through called batbitcoin, I think it's dot com or maybe it's dot org. I don't know if you looked at it but --

Trace Mayer:  No, I didn't even know it.

Jeffrey Tucker:  Yeah, it's fun but it's a complete list of bitcoins scams, right?

Trace Mayer:  Uh-huh.

Jeffrey Tucker:  And there are really thousands of them.

Trace Mayer:  Yeah.  All over the place.

Jeffrey Tucker:  But what's funny is that they all kind of have some or another version of the same thing.  What they marked is for you to give up your bitcoin, in exchange for which they are going to give you a higher rate of return, maybe it's from mining, maybe it's from investing.

Trace Mayer:  Winning them on margin.

Jeffrey Tucker:  Yeah, yeah, yeah.  Maybe planning futures or whatever.  Whatever the claim is, they're going to give you a higher rate of return, that you will otherwise get just by holding them.  And that's what they want.  They want your bitcoin.  And maybe you give it to them one time, they promised you access to them.  You know in some way.

Trace Mayer:  Of course, they do.

Jeffrey Tucker:  Yeah.  And maybe if you test the system once or twice they will give you that access.  But at some point, they start delaying the payment or something goes wrong.  And these are scams.  But what's interesting to me though if you look through them and I enjoyed this the other day, I was just looking through it and really I think that maybe a thousand or something listed there.

But the funny thing about it is that most of the bitcoin what they called scams have a lot in common with actually conventional commercial banking.

Trace Mayer:  Oh, yes.  Well, I mean --

Jeffrey Tucker:  So in the bitcoin world what's considered a criminal is considered completely conventional in the mainstream world, you know.

Trace Mayer:  Well, and we used to have a distinguishment between payment banks and depository banks.

Jeffrey Tucker:  Yeah.

Trace Mayer:  And this actually gets to one of the core reasons that I funded Armory.  There wasn't necessarily a business model when I funded it.  But I wanted the software created that was free for individuals to use, where they could safely and securely store their private keys to their own bitcoins.

Jeffrey Tucker:  Uh-huh.

Trace Mayer:  Because what that would do is it would place out there in the market, a silent signal.  They could have always demand possession of the bitcoins if the individuals wanted to.

Jeffrey Tucker:  Right.

Trace Mayer:  Like, a silent signal and then if someone is running their fractional reserve system or their Ponzi scam or whatever it is, get a grip on your bitcoins.  Just demand delivery and you can immediately like figure out whether they're solvent or not.

Jeffrey Tucker:  That's right.

Trace Mayer:  And if they don't give you your bitcoins, we got a problem.

Jeffrey Tucker:  Yeah.  Bank runs and the bitcoin world could have got -- they are not really banks, right?

Trace Mayer:  Yeah.  But any run on collateral or run on the assets or any of these.  So now when people are keeping money in their 401(k) or their IRAs or they're keeping money in their bank or in their securities account or in whatever it is, they have now decided to -- knowingly or unknowingly they're taking on additional risk for additional profit when instead they could reduce everything to bitcoin and take possession of the physical keys themselves in their Armory wallet there for free.

That's one of the reasons I wanted to place a silent signal out there where the individual could literally take the private keys to the wealth and put them into the cold storage.  You know, you could be killed and your gold taken and the personal code actually gets a purchasing power from the gold.  But if you've got the bitcoins in your armory wallet, they can't just kill you.  I mean, they got to get your cooperation to get those bitcoins out in order for them to actually realize the purchasing power of those bitcoins.   So it acts very much like a silent signal out there to just stand watch and provide people an opportunity or an alternative to keeping their capital on some of their asset.

Jeffrey Tucker:  For the most part, the main stream exchanges have been very reputable.  Ever since that failure of Mt. Gox, there's been a great deal of risk aversion, I would say in the bitcoin community.

Trace Mayer:  Oh, yeah.  Yeah, I mean --

Jeffrey Tucker:  And it's good.  It's a good thing.  For two years before the failure of Mt. Gox, people are hoping that it was going to die.  They were convinced that it was something --

Trace Mayer:  In the pricing mechanism kind of pointed to it.  It's a --

Jeffrey Tucker:  Yeah.  That was interesting in the final days, right?

Trace Mayer:  Yeah.

Jeffrey Tucker:  At some point, Mt. Gox's exchange rates completely diverged from the bitcoin community consensus.   Trace Mayer:  Yes.  So, I mean, I think it's very much if you want to crawl out of your cold storage and go take on additional risk, hopefully you're going to be properly compensated for that.

Jeffrey Tucker:  That's right.  But, as you say, the key is to understand the difference between ownership and transferring that ownership in exchange for which you get supposedly a promised of higher return but also higher risk.  This is what's lost in modern monetary systems, the distinction between risk and property really, between ownership and speculation.

Trace Mayer:  Right.  And the other big problem is we've never had the ability as individuals to control the private keys ourselves because with our bank account we have beneficial ownership, but we don't hold the private keys.

Jeffrey Tucker:  No.

Trace Mayer:  We still got to go ask permission and fill out that form.

Jeffrey Tucker:  We do.

Trace Mayer:  To wire the money.

Jeffrey Tucker:  That's right and pay fees and whatever.

Trace Mayer:  And pay fees or whatever.  But with bitcoin, you literally hold the private keys to the wealth yourself.

Jeffrey Tucker:  Yeah.

Trace Mayer:  And I think that's part of the big, big deal on why it can be so much safer.  Because like with gold, you still got to entrust somebody to store the gold unless you're going bury it in your own yard.

Bitcoin is Weightless

Jeffrey Tucker:  The more I think about it, the more I realize that there are many features that money had, scarcity, durability and so on.  But the thing that bitcoin has added as a feature of money that didn't previously exist is that bitcoin is weightless.

Trace Mayer:  Transportable.

Trace Mayer:  Of course, infinitely portable and it takes up no space whatsoever except for just memory space.  That's very important because you eliminate actually the warehousing requirement.

Trace Mayer:  And those are additional risks which decrease the safety of assets that do require that.  Whether it's art or diamonds or gold or whatever.

Jeffrey Tucker:  What is the origin of banking?  I mean, we have to go back to the middle ages and see --

Trace Mayer:  Custodianship.

Jeffrey Tucker:  Yeah.  It all began in a kind of warehousing feature.  And then the speculative element of lending got mixed in with warehousing function and there's lot of court precedents there and judges have to decide, do you own warehouse or not and for the most part, they said you don't.

Trace Mayer:  When we split it up between beneficial ownership and legal ownership.

Jeffrey Tucker:  Yeah.

Trace Mayer:  But with bitcoin, bam, you take possession of the private keys.

Jeffrey Tucker:  It's amazing.

Trace Mayer:  So you don't got to trust even the warehouse operator anymore.

Bitcoin is disruptive

Jeffrey Tucker:  It restores the idea of money as property.  That's the theme of my talk I'm going to give today here at this conference.  It's about money as real private property and which we've lost.  We lost that since we tend to think of it as a government created social good to which we have access depending on the policies of Federal Reserve or the Treasury or whatever.

Trace Mayer:  When it really returns the right to money or the right to currency to the people which currently rests with the government.  And it's so disruptive because we're defining property rights with software code not with legal code.

Jeffrey Tucker:  Oh, I know.  Right?

Trace Mayer:  And that is just so disrupted.

Jeffrey Tucker:  It's mind-blowing.  It's hard to wrap your brain around it, really.  I mean, even now we're twenty years, I would say, into the digital age, people are still very confused about what is the value of code, what is the value of information.  There's still a great deal of incredulity out there about the fact that Facebook makes money or that Amazon actually functions.

Trace Mayer:  As if making money is a bad thing.

Jeffrey Tucker:  You're right.  Right, right.  So people are still not quite believers.  I mean, the average person on the street is not a believer.  They think they have to be growing corn or laying concrete or putting up bricks or whatever to be creating value.

Bitcoins has really challenged us in sort of fundamental ways to come to terms with the digital age, to come to terms with the new form of value in the world, which is really all about information.  It's always been about information, but in the digital age it's sort of made that more real to us.  And --

Trace Mayer:  Yeah.  We all just going to change.  People got to just read that.

Jeffrey Tucker:  Yeah.

Trace Mayer:  Well, it's part of our ability to abstract which makes us different from animals.

Jeffrey Tucker:  Yeah.

Trace Mayer:  The ability to abstract and kind of see things in different layers or in more complexity.

Jeffrey Tucker:  Have you ever think that's amazing to me about this crypto revolution is that it's an inclusive kind of enterprise.  Up to now we kind of just recognized or just sort of come to terms with the fact that there is excluded and there's included in the sort of heavily cartelized system.  Maybe there are two billion people in the world that have access to banks and credit cards and that sort of thing.  And we just have blown off the other five billion.  Crypto actually holds out the prospect of including them in the global division of labor, which is an extraordinary thing.

Trace Mayer:  Yes, it's so exciting.  We kind of gone over our time, but what are you most optimistic about in this space just in general?

Jeffrey Tucker:  Well, I'm most optimistic in particularly about its inclusion point.  I think that once cellular technology sort of spreads all over the world which it is, everybody is going to have access to this new system of money and banking to include all kinds of new people and talents and skills into global prosperity.  And that's going to be amazing.  I think we're going to see it.  We're going to look back 10 years from now and say, "Oh, my God, this amazing. This is a brand new world."

So that's what I'm most looking forward to.  It's not so much the bitcoin adoption in the developed world, but I would say in the under-developed or developing world that that excites me the most.

Trace Mayer:  Wonderful.  We've had Jeffrey Tucker, founder and CEO of  Thanks for being on the podcast.

Jeffrey Tucker:  It's a pleasure to be here.  Thank you so much, Trace.

Written by Jeffrey Tucker on January 27, 2015.