MIT Bitcoin Expo 2021: The New Normal - Fireside Chat on Bitcoin

00:10 - Michael is a technologist, entrepreneur, business executive, philanthropist, and best selling author.

00:17 - He currently serves as chairman of the board of directors and CEO of MicroStrategy.

00:22 - Since co-founding the company at the age of 24, Mr. Taylor has built MicroStrategy into a global leader in business intelligence, mobile software, and cloud based services.

00:32 - In 2012, he authored The Mobile Wave, How Mobile Intelligence Will Change Everything, which earned him a spot in the New York Times best seller list.

00:41 - Michael is an MIT alum, having double majored in aeronautics and astronautics and science technology and society.

00:48 - Welcome, Michael. Thanks for having me.

00:52 - Yeah, it’s a pleasure. We know MicroStrategy owns over 9,000 Bitcoin, being one of the biggest institutional adopters to the Bitcoin standard.

01:04 - 90,000. More than 90,000. I apologize.

01:07 - 90,000. However, you, personally and through MicroStrategy, have put a lot of effort into education.

01:14 - Can you expand as to why that is? Why not just buy HODL and just let it be? I think we’re going through a paradigm shift in monetary economics.

01:27 - It happened in a low level for the past decade while Bitcoin was expanding at 200% a year.

01:36 - But since March of 2020, Bitcoin has been expanding at 600% a year plus.

01:43 - So it’s the conversion of fiat money and analog money to digital money, the digital transformation.

01:55 - Base layer money has accelerated dramatically.

01:59 - Bitcoin’s now a trillion digital monitoring network.

02:03 - It’s the fastest growing thing in our lifetimes.

02:07 - It’s the most powerful technology of our lifetimes.

02:10 - It’s going to continue to disrupt every industry.

02:14 - It’s going to change the lives of eight billion consumers, of 100 million businesses, of every investor on the planet.

02:19 - It’s going to impact the valuation of $500 trillion of assets.

02:24 - 99% of the world doesn’t understand it. They think it’s a fad.

02:28 - They think it’s a bubble. They think it’s a rally.

02:30 - They think it’s a strange thing. And so if there was ever a thing that needed to be educated or there’s ever an idea that need to be introduced to society and if it was ever good for people to learn a new thing, I would say that this year, this thing is the single most important thing of our lifetime.

02:54 - And so it’s a worthwhile pursuit to explain to the world what Bitcoin is, what an open monetary network is, what a digital monetary asset is, why it’s good for the human race, how it’s going to change their lives, and why it would be irrational and tragic for them to dismiss it as another speculative fervor.

03:19 - Yeah. And you mentioned this paradigm shift.

03:22 - And previously, I’ve heard you talk about how with a paradigm shift, either the idea that slowly or it takes like a shock to the system for people to adopt this new paradigm.

03:35 - So it seems like the pacifist way, right, to educate people into Bitcoin without having some drastic thing change and people flock to adopt it.

03:42 - If you wanted to introduce electricity to every home in the world, then you’d probably start by explaining what electricity is and why it’ll make everybody stronger and better and why it’s safe and how to handle it safely.

03:58 - And the same would be true with the automobile or compressed air or hygienic running water.

04:07 - So they’re all just requiring education. Luckily for us, the cost of education in the year 2021 is a penny, is minuscule compared to the cost of education even 20 years ago.

04:24 - So information moves quickly. This is an idea whose time has come, but it’s a new idea, sophisticated idea.

04:32 - And it’s going to be much rougher and more turbulent in its adjustment if people don’t get their heads around what it is and how they should manage it.

04:46 - I think to that note, I’ve heard some people kind of refer to how if you like Bitcoin you’re not patriotic because it doesn’t allow for the United States to use the petrodollar system to do what it wants to do geopolitically.

05:03 - But I think for a lot of things you’ve just mentioned, I was wondering if you could spend like maybe how Bitcoin is actually patriotic and not unpatriotic to be holding it, to be a part of.

05:12 - I think it’s pretty clear at this point that the way that the world is going to evolve, we’re going to have one layer, which we call the currency layer, and it’s going to be dollars or euros or the fiat currency of every legitimate effective government on the planet.

05:31 - And there’s going to be an underlying layer, a store of value layer, called the asset layer.

05:36 - And that’s either going to be pure base layer of money, which is what Bitcoin is, or it’s going to be a hybrid mixture of like an investment and commercial real estate or a stock that the people feel has a portion of asset in it and a portion of speculation in it.

05:59 - So that being the case, you’re looking at eight billion people on the planet.

06:04 - And the killer application is a mobile wallet, like the BlueWallet or the Moon Wallet or the Square Cash wallet or Apple Pay or fill in the blank, there’ll be 1,000 of them downloaded on them on a mobile device.

06:20 - And that mobile wall, it’s going to have a fiat currency layer and a payment rail that moves probably dollars or the equivalent and then underlying, there’s got to be a savings account asset layer.

06:34 - And that’s going to emerge as Bitcoin. So I don’t think Bitcoin is at all threatening to the dollar.

06:39 - I actually think that if we look right in front of our face what’s happening, the Argentine peso is collapsing.

06:45 - The Nigerian currency is collapsing. The Zimbabwe currency is collapsing.

06:51 - Probably the currencies in the weakest 50 countries in the world, they’re all collapsing.

06:56 - And what everybody wants is they want to do their medium of exchange in dollars.

07:03 - And so the US dollar is actually going to spread on that Bitcoin base layer to Nigeria, Venezuela, all of Africa, half if not most of South America all through Asia because if the government can’t maintain a currency which is strong enough to be effectively pegged to the dollar, then it’s going to lose control of the currency.

07:29 - So you see, you’ve got three types of currencies.

07:31 - You’ve got the rich countries, Switzerland, UAE, Europe, Singapore.

07:37 - They manage to maintain parity to the dollar roughly because they’re well managed and they have assets.

07:43 - Then you have the countries that are weakening and they’re losing 20% of their strength against the dollar.

07:48 - And then you have the countries where the currency is literally collapsing, right.

07:52 - Lebanon, Iraq, Afghanistan. Or there is no currency.

08:00 - So if you’re interested in doing the best thing for the world, what you want to do is deploy this open monetary wallet with Bitcoin as a base layer asset protocol, and then with a stablecoin rail, which is probably the US dollar because if you’re going to go to in a currency other than your local currency, you might as well just go right to the one that’s 90% of the world.

08:26 - That’s what you’ll see. You’re either going to do that on a proprietary network like Square Cash or PayPal with a compliant payment rails, or you’re going to do it on open network that’s probably lightning based.

08:40 - And it’ll be open protocol because maybe Square’s not operating in Zimbabwe, right.

08:48 - But if the Zimbabwe currency hyper-inflated to a billion Zimbabwe, buys you less than a cup of coffee, it’s pretty obvious you can’t use that one.

08:59 - And so what are you going to use? You’re going to basically flip it for the dollar.

09:04 - What we’re seeing is Bitcoin as an open monetary protocol is making it possible for 100,000 Bitcoin banks to spin up in cyberspace.

09:17 - They’re all going to settle with each other on the Bitcoin protocol.

09:21 - They’re all going to do payment, billions of transactions and payments and other trust transactions on lightning rails or other proprietary rails, settle with each other at a slower frequency, and this is the way that the best technology spreads all eight billion people.

09:43 - So coming back to the question of is this good for the US, well, it’s good for the US dollar because the US dollar is going to become the medium of exchange for the next 3 billion people on the planet that currently are struggling to use the Zimbabwe whatever it is, right, or the bolivar, right.

10:02 - So you’ll see that the US dollar moving on that Bitcoin base layer.

10:08 - It’s also good for the US because the mobile wallet’s coming to everybody on the planet whether we like it or not.

10:18 - And if it doesn’t sit on Bitcoin controlled and owned by American investors and American companies running on American technology, spreading American values, spreading the US dollar, it’s going to sit on the Chinese yuan.

10:35 - What happens if you don’t want to spread the dollar to five billion people for daily payments? What are they going to use? Yeah.

10:43 - I think when I got started in business people used to say a really good marketing strategy or a good business strategy is one that you would hate to see your competitor pursue.

10:53 - So either US technology and Fintech is going to be built on top of 21st century crypto asset network Bitcoin or we’re not.

11:09 - And the six billion people on the planet that need such a thing are going to go to somebody else.

11:15 - I mean, the truth of the matter is they’ll probably go to Bitcoin, but they’ll just be running instead of US dollars on Bitcoin, they’ll be running Chinese yuan, renminbi, on Bitcoin, right.

11:29 - But they’re going to run something. We know they’re not going to run the naira or the bolivar.

11:37 - And in Argentina, the official inflation rate this year is 45%.

11:41 - The unofficial inflation rate is 85%. And that’s 40% plus last year 40% plus the year before that.

11:50 - What are they going to do? And the question really is, is the United States going to provide technology that’s going to solve the problem of monetary economics for the entire planet? Or are we going to abdicate our leadership role? And all that means is the capital moves offshore, the technology moves offshore, and people don’t use– maybe they don’t use English or the dollar, they use Chinese and CNY.

12:24 - I don’t really think that’s good for the United States.

12:27 - So once I think technologists think about it, and once anybody thinks about it, I think they’re going to go, yeah, I have a way to do something a million times faster, better, stronger, than the old way.

12:40 - And are we going to do it? Or are we going to abdicate responsibility for doing it? So yesterday we had a couple of people from the FCC talking.

12:50 - One of the things that they talk about is how the process to regulate is slow and just inherently so.

12:57 - It allows some time to watch, see kind of how this new technology and this new ecosystem develops.

13:04 - And then kind of be able to act on kind of how things manifest themselves.

13:10 - Do you think that is beneficial in this space at this time? They have a complicated job.

13:19 - They have a complicated job. I think you have to do it very carefully and constructively.

13:24 - I think that regulatory clarity develops that’ll be really good for the industry.

13:31 - I think there’s a lot of inefficiency and wasted energy due to the uncertainty of the regulatory environment.

13:37 - And so I think as clarity develops, that’s good.

13:40 - But I also think it needs to be good regulation.

13:44 - Yeah. So I’m in favor of doing the right thing.

13:48 - By the way, my view on regulation is the same as my view on Bitcoin core development.

13:53 - We should move forward progressively yet carefully.

13:57 - Yeah, no. And I agree there. It’s important.

14:00 - We don’t want to make sure that we don’t hinder something by stepping into regulation too early.

14:05 - We also don’t want to maybe move too slowly where people are uncertain and maybe don’t want to act for whatever reason.

14:12 - I have another question for you. I think it’s appropriate because we’re at the MIT Bitcoin Expo.

14:17 - But I heard you reference Bitcoin as it is a technically thermodynamically superior as an asset.

14:25 - It’s a technically thermodynamically superior asset.

14:28 - So I wonder if you could maybe expand on what you mean by that because to someone that hasn’t heard about Bitcoin and is just learning, they would just hear that and be like, what does he mean? I mean, the basic principle of thermodynamics is a closed system or an adiabatic system is closed to matter coming or leaving.

14:47 - And if I have a closed system or adiabatic system, I can solve for the problem.

14:54 - And if I don’t have a closed system, if I keep introducing mass in the system, I can’t solve the problem.

15:01 - So an example of a thermodynamically sound swimming pool would be one without a leak.

15:09 - And if you have a leak and you wait a day and you jump into a swimming pool, you’re going to break your neck.

15:14 - And an example of a sound fuselage in an airplane is one without a leak and if you have a leak when you get to altitude, the air gets sucked out and everybody suffocates and the plane crashes, right.

15:27 - And if you have a monetary system, you need two things.

15:33 - You need a monetary asset, which is fixed, closed asset if it’s going to be mathematically proper.

15:42 - And then you need a monetary network to move the asset around, to change the ownership of the asset.

15:49 - So if I create a compressed air system, right, a good one would be the balloon without the leak.

15:58 - Yeah. And the bad one would be the balloon with the leak.

16:02 - OK? So if we look at all the other monetary systems– so we try gold.

16:07 - The problem with gold is it’s got a 2 and ¹⁄₂% leak per year in it, which means it’s got a half life of 30 years, which means the energy is bleeding out of the system constantly.

16:20 - And there’s a big difference between a half life of 30 years and a half life of infinity.

16:25 - In one case, you live forever, right, a million years.

16:30 - Like I shine a flashlight in outer space or a laser beam and it goes forever.

16:35 - And the other case, it goes for 30 feet. So not only is it a superior idea to have an asset which is capped at 21 million, it makes it mathematically proper, right? The 21 is equal to 21 and it’ll be equal to 21, and that makes it adiabatic and solvable in a closed system, right.

16:57 - I mean, the fundamental principle in aeronautics is every single thing that starts with assume an adiabatic system.

17:05 - And then, dot dot dot, you can do something.

17:08 - And what if we assume not an adiabatic system? Well, that’s a beautiful airplane, and when shear smashes it to a pulp in one second because wind shear.

17:18 - And what’s the equivalent of wind shear? It’s like a politician printed 10x more money, like wind shear in Zimbabwe or in Venezuela.

17:29 - You just saw it, right? Now why is Bitcoin special? Because it’s the first effective worldwide asset network.

17:40 - You can build a crypto asset network that is not thermodynamically sound.

17:45 - Dogecoin has $100 billion doge, right. And you keep adding it.

17:49 - So if I keep adding more tokens, that’s not sound.

17:52 - The protocol could be wrong. And on the other hand, in the absence of Bitcoin, people change to another asset network.

17:59 - So we just saw a massive $10 billion wipe out last week with Archigos because you had someone shorting Viacom’s stock.

18:12 - But Viacom’s stock is not a closed system. It works fine unless the CEO of Viacom wakes up and says my stock is overvalued.

18:21 - I have a fiduciary obligation to sell stock.

18:25 - So Bill Long had– I don’t know– $50 billion in leverage on an assumption that the share count of Viacom wasn’t going to change.

18:34 - When the CEO of Viacom decided to issue $3 billion worth of stock, he diluted it.

18:41 - That was the pin in the balloon. Everything collapsed.

18:45 - The entire capital structure of the leverage trade collapsing.

18:50 - And $10 billion, $20 billion got wiped out.

18:53 - Why? Because stocks aren’t closed systems, nor is debt, right.

18:59 - If you buy up all the debt of New York City and you drive the price to infinity and you tell all your friends on Reddit to buy all the New York City debt, the mayor of New York might just go ahead and issue another $20 billion worth of debt.

19:11 - Just like people say, oh, GameStop. They should issue stock.

19:15 - Well, this is a news flash. Don’t short a system which isn’t the closed system.

19:21 - Yeah. Right? And that means the problem is real estate.

19:26 - If you’re buying apartments in Manhattan, they can build another building next to you and put more apartments on the market.

19:32 - With debt, if you buy up all the government debt, they can issue more debt, and that doesn’t work for you.

19:39 - And if you buy equity, they can issue more equity.

19:41 - If you buy gold when the price goes up, they will mine more gold.

19:46 - And so we’ve got $500 trillion worth of assets that are being used as a store value.

19:51 - They’re all defective, Daniel. And they’re all thermodynamically defective, but if you don’t like the word thermodynamics because that seems like a big word and adiabatic is just for aeronautical engineers, I have another.

20:03 - We can just go back and we can use Newtonian mathematics and say because arithmetic, right? Because you could also look at Principia Mathematica and say, well, I’m just going to design an asset based on the principles of mathematics.

20:18 - Well, how does that work? Well, I issue 21 million units in my bank and we just agree that for all of eternity there are not going to be more than 21 million units.

20:29 - And so if you and all of your friends decide to buy up all the units and if you all agree that you’re not going to sell the units, then you have a hard point to stand on.

20:41 - And you don’t have to worry about the CEO of Bitcoin issuing another 21 million units and diluting you out with a rug pull.

20:48 - I think I’ll end this little soliloquy with Archimedes.

20:53 - Archimedes said give me a lever long enough and a fulcrum upon which to place it, and I can move the world.

21:02 - And all the non engineers as a non physicists, they think that quote would sound a lot better if we shortened it to give me a lever long enough and I can move the world.

21:13 - But it doesn’t work unless you have the fulcrum.

21:18 - The fulcrum is the point at which I can put a million pounds of force.

21:23 - And the fulcrum has to be able to support a million pounds of force to move something on the other end that weighs a million pounds.

21:30 - Yeah, definitely. Right? And once you understand that idea, I need a fulcrum, what does that mean? I need something that’s not going to move in the universe.

21:42 - What’s the most stable thing in the economic universe today? And the answer is Bitcoin.

21:50 - If I have a trillion dollar monitoring network, it’s like a gyroscope spinning so fast, right.

21:58 - Intuitively you know a trillion dollars of energy is more than a million dollars of energy or dollar of energy.

22:04 - I can muscle around $1 or a million or billion or $10 billion.

22:09 - It’s hard to muscle a trillion dollars. Now, can I actually put $100 trillion of leverage on a trillion dollar network? Probably not.

22:19 - Like, I would not advise that you go and borrow $100 trillion and buy Bitcoin to drive the price up, pull yourself by your bootstraps.

22:29 - You can’t do that. But can you borrow a billion dollars of leverage and buy Bitcoin? Yeah.

22:37 - I did that. You can do that. And as the liquidity of Bitcoin grows, as it goes from about a billion a day to $2 billion a day to $4 billion a day to $8 billion a day to $16 billion a day to $32 billion a day, you’ll be able to get more leverage on that fulcrum, and you can literally move the world.

23:00 - Yeah. That’s a really good way of putting it.

23:03 - I think one last thing I want to talk about, and that is with MicroStrategy you guys had that conference that really focused on businesses.

23:12 - And there’s like, rightfully so, the institutional adoption is very important for Bitcoin.

23:18 - But I was wondering if then for the people that don’t have a business or maybe don’t think in the scale of a business, if you can maybe just talk about the different perspective between like acquiring Bitcoin for your business fiduciary duties and acquiring Bitcoin for your personal fiduciary duties? I think people that understand Bitcoin understand that what’s going on is exchanging of soft money for hard money or conversion of analog assets to digital assets or taking open paper sitting in a box in your backyard that anybody can borrow or steal and convert it into an encrypted money that’s in a bank in cyberspace that nobody can steal.

24:05 - That’s a transformation. The way that people understand Bitcoin is they think it’s a speculation.

24:12 - Sorry. If they don’t understand it or they’re afraid of it, they think it’s a speculation and it’s an investment and they’re thinking Bitcoin versus silver versus gold versus GameStop versus Tesla.

24:25 - That’s what they’re thinking. When they understand it, they say it’s just a conversion from a soft asset or an analog asset to a digital asset.

24:36 - So how should an individual think of it? Well, if you’re going to make $100,000 a year for the next decade and if the US dollar is going to weaken at 15% a year, you should discount your cash flows by 15% next year, by 30% the next year, by 15, 15, and 15 cubed the next year, and by 15% to the 10th power the 10th year.

25:06 - It isn’t a hard sequence to figure out, right? Your purchasing power is going exponentially to zero.

25:11 - Yeah. All you got to do is fill in what is the percentage weakness of the money to figure out what your purchasing power is going to be.

25:19 - This is the same math you would do for an individual dentist or an engineer or small business or large business.

25:27 - Or if you held a bond and the bonds paying you $100,000 a year, right, it’s the same exact math.

25:33 - It’s just discounted cash flow. Once you figure that out, then the question is, what are the consequences of me continuing to work in the US dollar? The answer is you have to basically grow your salary faster than the rate at which the currency collapses.

25:49 - So if you can raise your salary 15% a year every year forever, then you’ll have the same amount of money in 10 years as you have now.

25:57 - By the way, you won’t get rich. [INTERPOSING VOICES] You’ll be getting paid a million dollars a year at some point and it will buy you nothing.

26:04 - But that’s one strategy. The other strategy is you convert your existing assets.

26:12 - If you are fortunate enough to have assets invested in bonds commercial real estate or equities that are valued on cash flows or sitting as cash in the bank, you convert that into the hard asset, which is Bitcoin, as much as you dare.

26:28 - Some people say 5%. Some people say more.

26:32 - I’ve done a 400%. My view is, first, I convert all my stuff then I borrow money then I convert that.

26:39 - But everybody makes the decision as to how invested they want to be in the digital asset universe versus the analog asset.

26:48 - Once you do that, after you after you decide what portion of your existing assets you should convert, you can decide if you want to forward finance your cash flows.

26:59 - And maybe you do. I did. But then you decide you want to finance your other assets.

27:05 - You have a house? You have a million dollar house? You can borrow $800,000 of it.

27:10 - Maybe you can borrow an $800,000 home equity line of 2 and ¹⁄₂% interest.

27:15 - Well, if I borrow $800,000, pay 2 and ¹⁄₂% interest, invest it in Bitcoin paying 250% interest, it’s a 247% arbitrage, right? Yeah.

27:27 - It’s a great deal. OK. Some people are afraid to do that.

27:31 - I would say, well, you get to borrow money against your house to buy a dominant digital monitoring network growing more than 200% a year that’s got a monopoly on money that should grow by a factor of 100.

27:41 - Sounds to me like a better– by the way, the same people that are afraid to do that will start up their own business to complete the next Snapchat.

27:49 - Well, it seems to me like creating the next Snapchat’s a lot more risky than buying a piece of a monopoly digital network that’s more powerful and more useful to everybody on Earth than anything ever invented in your lifetime.

28:04 - Everybody assesses risk differently, right.

28:07 - Our brains are wired differently. If I was giving advice to my niece, I would say if you can finance your house, finance your house if you’re lucky enough to have it.

28:19 - If you can sell equity in yourself or in your business, you want to sell equity in your business.

28:25 - OK, good idea. Invest in something related to Bitcoin because it’s growing by a factor of 100.

28:30 - Better idea, buy some Bitcoin with the money, and then borrow against the Bitcoin to invest in the thing that you think is cool because there’s a 99% chance that a new business fails.

28:45 - But in the 99 probability that your Snapchat substitute fails or your TikTok competitor fails, if you finance the business in Bitcoin instead of in US dollars while you were failing, you’re going to get rich.

28:59 - Yeah. Right? And so this is the thing a lot of people can’t get their heads around.

29:04 - It’s less risky to launch a company with your treasury invested in Bitcoin than to launch the company with your treasury invested in dollars.

29:13 - And it blows their mind because they think that the dollar is the safe place to put their cash until their business works.

29:20 - And the answer is if there’s a 200% arbitrage between the dollar and the– the dollar is collapsing at the rate of 200% a year against Bitcoin for the next five years, it won’t have been a prudent thing to save your money in dollars.

29:37 - Yeah. So I think everybody’s got to think of it the way they want to think of it.

29:42 - You can’t you can’t tell people how to invest their money or how to treasure their money.

29:48 - But I do think the road to serfdom is working exponentially harder for a currency growing exponentially weaker.

29:56 - And the strategy does matter. If I drop you, Daniel, in the middle of Argentina or Zimbabwe or Venezuela a decade ago and I said go at it and create whatever you do whatever you want.

30:09 - And let’s say you’re the best person in the entire country, the smartest person in the country, and you have the best idea in the entire country.

30:17 - Can you come up with an idea that’s better than convert all your money back into dollars before you do that? OK.

30:24 - Yeah. I think that’s a really good spot to kind of end this conversation.

30:31 - I think we could go on forever, but we have to continue with the conference.

30:36 - Michael, thank you so much for this conversation.

30:38 - It was really insightful. I had a really good time, and I hope everyone else watching had a good time.

30:44 - And I think up next we’re going to have Tomas kind of introducing our next talk.

30:50 - Thank you so much, Michael. Thanks, Daniel.

30:53 - Go tech. .