Episode Transcript
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Speaker 1 (00:02):
If I passed the hour third hour Morning Show with
Preston Scott. Great to be with you friends. We're about
to wrap up the month of April. Tomorrow's it and
then we head into the fifth month. Already time is
just screaming by, and great to have you with us
this morning, and it is terrific to have back with
(00:22):
us from the Heritage Foundation. Richard Stern and Richard Take two.
We're going to talk crypto. How are you, sir, hey
doing well?
Speaker 2 (00:30):
Thanks again for having me back.
Speaker 1 (00:31):
On Absolutely all right, I am gonna lay my stupidity
out there in front of everybody. I've been talking about
it for months. I don't get it. Let's start with
as fundamental as you can go. How does something become
a currency that is outside the realm of a government?
Speaker 2 (00:53):
Well, if it makes you feel better. Most economists don't
even get this, So for everybody listening as well, this
is really a new even for economists. So the way
I would think about this, right is that a currency
basically does two things. It's something that stores value. You've
worked hard, You've produced something of value. How we keep
(01:13):
track of that? And then the other thing is it's
something you can use to exchange in the moment with somebody,
which again is an indication that you've got something I want.
I don't have anything you want right now, so I'll
give you currency. So then the question becomes, well, that
could be absolutely anything. So the more important parts of
(01:35):
it are, how do I know that the thing you're
giving me is something somebody else will value and not
just you writing IOU on the back of an appkin. Right.
The thing that crypto right is that it's a unique
code packet that mathematically has to be unique, but fits
in like a jigsaw piece puzzle to every other bitcoin
(01:59):
or whatever that currency is. So every single holder of
another one of the cryptos knows instantaneously if your jigsaw
piece puzzle fits their broader puzzle or not. That's why
you can verify whether crypto is or isn't what you
claim it is.
Speaker 1 (02:17):
I'd love to say that helped me.
Speaker 2 (02:22):
I hear you.
Speaker 1 (02:23):
For example, last hour, I joked in the day that
we're living in the price of chicken eggs is just
gone crazy, right, And so in theory, eggs could be
turned into a form of currency.
Speaker 2 (02:41):
And in fact, in a lot of countries they used
to be. I'll I'll tell you want to see even
better about this. So if you want to ask yourself,
where does the word dollar come from? It comes from
this very long chain going back to the Roman word
for a day. In fact, they have the same route
for word, and it comes from the Roman word for
(03:02):
a day's worth of grain rations, And so that's the original.
In the West, the original concept of money was what
was a day's worth of grain?
Speaker 1 (03:14):
Is crypto an umbrella that for example, underneath that umbrella?
Is you mentioned bitcoin? Is that one form of crypto?
Speaker 2 (03:25):
Oh? Absolutely, But I'll say I'll give you this. I
think the best way stepping stepping back out from the
technical part of it, I think the best way to
think of a crypto. So let's take bitcoin or ethereum,
or is literally a million of these. I would say
that the way to think about it is you have
a million artists. You've got what I would do, which
(03:47):
is at best finger painting, but then you've also got
red Brand and Vermier and Picasso. The way to think
of bitcoin is that each individual bitcoin is each of
the individual paintings of Brant, and all of the rem
brands together make up all of the bitcoins. So I
and my finger paintings would be one of the mean
(04:09):
coins that nobody buys and nobody wants. But bitcoin would
represent all of the paintings of a master painter. And
I think that's probably the best way I think about it.
There's an infinite number of cryptos in the same way
there can be an infinite number of painters if you
bring in all the Kindergarten finger paintings as well as mine.
(04:30):
But some of those are people like Ramier and Rembrandt
and Picaso.
Speaker 1 (04:34):
You said, there's a million different versions out there that intuitively,
I think to myself, well, doesn't that then diminish the
value of it if there's all these different iterations.
Speaker 2 (04:46):
Oh? Absolutely, But again what I would say is the
best way to think of each crypto is it's the art.
It's the painting works of a painter. So the question is,
you know, does every random street painter or finger painter
or you know, like if you or I want to
take up art, I assume you don't. You know, I
don't either. By the way, then you know, do we
(05:07):
diminish the value of Monet's paintings or rem brand or
a mirror? And so that's why you can have a
million of these, but they don't change the value of
each other because and like I said, I really would
view it as each crypto is like the collected works
of an artists. So most of them are random street painters,
(05:28):
but nobody likes them, nobody cares about them. There's really
only a handful of them that have gotten to this
position the way that the very famous artist has. And
that's why there's value, because everybody else identifies that they
like that coin, but that's where the value comes from.
Speaker 1 (05:45):
One of the things that I've heard explained Richard is that,
for example, there is a finite amount of and let's
just stay with bitcoin because it seems to be among
the most well known. Would that be a fair statement.
Speaker 2 (06:00):
It's not the most well known.
Speaker 1 (06:01):
Okay, So if bitcoin is the crypto of choice for many,
that its value is derived in part from the fact
that it's finite in number, there's just so much of it,
and they're not going to be quote producing even though
it's digital, right, I mean, it's digital money, So how
(06:22):
do we know that they're not going to produce more
of it?
Speaker 2 (06:26):
Absolutely? So, it's mathematically set, and I know that everybody's
favorite way to understand something is to bring math into
the situation.
Speaker 1 (06:34):
But there's a percentage of my audience that now hates
you exactly.
Speaker 2 (06:41):
Well, you know they would be in luck. Most of
the people in DC hate me as well, so they're
a good company.
Speaker 1 (06:46):
Okay, here's the way here.
Speaker 2 (06:48):
I'll give you a physical way of thinking about it.
Imagine a jigsaw puzzle that's a circle. And because each
no layer finishes, the puzzle always extra pieces at the
edge of the circle, so you could always add more
pieces to the puzzle each layer you go out, each
(07:10):
circle you add to the puzzle, it gets larger and
larger and larger. There's a moment where the next circle
you'd put on the puzzle, the next ring is you know,
the size of a state or the size of the planet.
There's a moment where physically you're just not going to
add to the puzzle because that next ring would be
(07:30):
so large. That's how bitcoin limits us. The supply is
the mathematical calculations you have to do to get the
next coin are exponentially larger than the coin before it,
And so it's mathematically set up so that it would
be physically impossible to actually do the number of calculations
(07:51):
needed to get over twenty one million bitcoins. So we're
not at twenty one million, but we're getting close. Because
each coin that gets one lot, it gets harder and
harder and harder to do the millions billions of calculations
you need to get there.
Speaker 1 (08:07):
Is there an actual bitcoin that someone can put in
their safe.
Speaker 2 (08:13):
No, so this is this is I think the least
tangible part of this. It's really just a strain of
zeros and ones. That's a it's a code packet, if
you will. But what I would say is like a
jigsaw piece puzzle of the other holders of bitcoin. No
mathematically whether when you say, hey, I've got a bitcoin,
(08:34):
here's my code, everybody who's already a holder of bitcoin
knows mathematically whether your jigsaw piece actually fits into the
broader puzzle. That's why you can verify it, because you
can't just walk up with random mask, because everybody else
in the network knows instantaneously if you're holding the unique
(08:55):
puzzle piece you claim to be holding or not. That's
why the network allows you that verification. In the same
way that the serial number on a dollar tells you
whether it's a real dollar or not, or rather tells
the bank whether it's a real dollar or not.
Speaker 1 (09:10):
I have to believe hurting in some fashion is that
whenever you see a story on cryptocurrency, they put on
some sort of like this bitcoin an actual coin, and
I think it causes people to think that there's an
actual such a thing.
Speaker 2 (09:27):
Oh absolutely, but I will say there is mathematically such
a thing in terms of the code. But yeah, no,
I hear you. Es people said, so there's a thing
you can actually literally put your hands on.
Speaker 1 (09:38):
Yeah, yeah, absolutely. I'm staring at articles right now, even
on the Heritage site, and they've got the B on
the bitcoin and it's like, okay, whatever, So let's get
down to it. It's actual useful valuation here. And you
were just telling me in the break that one of
the big keys here is its ability to be a
hedge against inflation. How soo.
Speaker 2 (10:00):
So the important thing to recognize them, by the way,
to the extent that you feel like a dollar is
you know, a physical piece of paper can put your
hands on. I hate to break it to everybody, most
dollars exist as digital coding in the banks and the
APT the Federal Reserve. And this gets to the problem
with this, which is that the Federal Reserve in DC
(10:21):
can print as many dollars as it wants. And every
time the FED prints a dollar, the dollars you own
lose value. There's no cap on the supply of the dollar.
In fact, the joke that we have at Heritage is
that the dollar is the ultimate meme coin. Now, you
might ask yourself why does the FED print money? And
(10:42):
the answer increasingly is because the federal government runs a deficit,
needs more money, so they don't have the courage the
transparency in public to tax the American public. They simply
print more money at the FED, causing inflation, devaluing your dollars.
And so it's really just a silent tax policy that
(11:06):
shuffles your purchasing power towards the government. But if you're
using gold or silver or crypto, then your money is
protected because it isn't controlled by the FED. They can't
just print it and devalue your money.
Speaker 1 (11:21):
What determines out of you sent me to a website
coinbase dot com as a reputable place where people buy
and sell crypto. And as you look at the first
page of one thousand and eight hundred and seventy some
odd pages, some are valued at a dollar. Some are
valued at ninety five thousand dollars. What determines that.
Speaker 2 (11:46):
Oh, the market on coinbase. But you know, this gets
back to the analogy of you know, famous painters. You
can to think of it as that there's one thousand
and eighty six painters whose work is on sale on
the market, and the same kind of thing. It's what
people looking at it want to sell it for and
want to buy it for. Some of these coins are
limited and supply, some of them are not. What the
(12:09):
numbers are limited on. All of that gets into the valuation.
But the important thing here again is that you know
who is producing it, and it's not the government that
can just unlimited make whatever and want and devalue your holding.
So there's especially for bitcoin or the ones or the
limited supply, is real trust that they can't just inflate
(12:31):
away the value of it after you buy it.
Speaker 1 (12:34):
How does one learn whether there is a cap on
how much of it is there versus it's there's there
is no cap As you mentioned, some of these don't
have one.
Speaker 2 (12:44):
If you if you look it up, you can you
can often find the information. Coinbase themselves gives you a
real full detailed breakdown on all of the cryptos that
are on sale on coinbase. And again, Coinbase is a
very reputable company. You can you can use them to
do that research and get to know all of the
details about each of the different cryptos.
Speaker 1 (13:06):
So if I'm looking up that, for example right now,
the number two, because Bitcoin is way far and away
the largest in terms of value, Ethereum is sitting right now.
But inside the stats it says mac supply, it says
not enough data.
Speaker 2 (13:24):
Yeah, so Ethereum is a little less transparent about their algorithms.
Part of why bitcoin is is so popular is that
everything about bitcoin is very well known, very robust. We
know there's a finance cap on it, gotcha, and so
that's why it's impart why bitcoin is so valuable, why
it's market cap is so large. But yeah, no, each
(13:48):
crypto has its own little flavor. They're each engineered to
do different things.
Speaker 1 (13:53):
When you say engineered to do different things quickly, what
does that mean.
Speaker 2 (13:58):
So one of the other advantages of cry goes is
that the coding keeps track of all the transactions that
have ever happened. It's a little bit like a running receipt,
and so you can verify what's happened, where it's been
know that it's in fact a real coin. But part
of that is, if you think of it this way,
when you go swipe your credit card, you and the
(14:20):
business pay a feed to the credit card companies so
that their network can move the money around. And in
fact that's actually where they get the money from to
give you awards points, which is to say that they
overcharged you in the first minute and then are giving
you awards points in the back end. Cryptos technologically work
the way that a credit card exchange works, but they
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don't charge you for it. So each of them is
engineered to handle those transactions, the physical movement of the
data in different unique ways. Some of them are a
lot better, a lot faster than banks are. You know
right now, if you want to transfer money, it can
take three to five business days. Cryptos generally can do
this from a human perspective, basically instantaneously, but they're each
(15:06):
engineered differently to handle different data transactions.
Speaker 1 (15:09):
Gotcha, Richard, fascinating topic and thanks for illuminating it a
little bit for us today.
Speaker 2 (15:16):
Well, thank you for having me on the talk about it.
Is as helpful as I could be about it.
Speaker 1 (15:19):
Thank you, I thank you. Richard Stern with us from
the Heritage Foundation. Hopefully you know a little bit more.
Twenty eight past the hour