September 3, 2025 • 58 mins
Why does Bitcoin struggle to find its place in the real economy of supply chains, factories, and things? What role does credit play in building the economy, and could a new layer on top of Bitcoin be the missing piece?
Hubertus Hofkirchner is an economist and entrepreneur from Austria. Hubertus is a key figure in developing the Bitcredit Protocol, an open-source initiative focussed on building a flexible credit money layer on top of Bitcoin for enabling businesses to finance working capital needs, using bills of exchange and ecash.
Bitcredit on X - https://xcancel.com/bitcr_org
Bitcredit Website - https://www.bit.cr/
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
I think that it is actually an absolute impossibility for
Bitcoin to remain a store of value medium or long term if we
don't also get it to win as a medium of exchange.
Hello, I am Cody Allingham and this is the transformation of
value, a place for asking questions about freedom, money
(00:22):
and creativity. My guest today is Hebertus Hof
Kirchner. Hebertus is an economist and
entrepreneur from Austria. Hebertus is a key figure in
developing the BIT credit protocol and open source
initiative focused on building aflexible credit money layer on
top of Bitcoin for enabling businesses to finance working
capital needs using bills of exchange and E cash.
(00:45):
Hi, Burtis, welcome to the show.Hi, Cody, Thanks for the kind
introduction and happy to speak to you again.
You know, I keep having these conversations with both
Bitcoiners and people close to the traditional banking world
who seem to talk over each otherwhen it comes to the question,
why is Bitcoin not being used inthe real economy?
(01:07):
The real economy, of course, refers to the creation and
exchange of non financial goods and services.
Thinking farms, factories, schools, hospitals, that kind of
thing. And as we know, Bitcoin is an
incredible long term store of value.
It's hard money, but there are still almost no supply chains or
service contracts priced in Bitcoin.
(01:28):
And for the most part businessesdon't want to have anything to
do with it. What is missing from this
equation? Hebertus.
Yeah, Well, thanks for the question.
As you say correctly, I think, Iguess the, the central bankers
whenever they are so to say. I mean, I had this story
recently, for instance, there was the Europeans, as you may
(01:49):
know, are currently desperately trying to get a CBDC, the
digital or Euro off the ground. And I was this guy on stage from
the from the EZB presenting thischart, you know, where, where
they show the various quantitiesof digital money out there in
terms of market capitalisation. And on top, of course, there was
(02:11):
Bitcoin there with its 2 trillion plus dollar market cap.
And then came already Tether, Tether or U.S. dollar based
digital currency. And then they showed this, I
don't know, 1% or so maximum layer of stable coin, EUR and
(02:32):
the kind of synthesis. Yeah, the DSP needs to do that
now because otherwise we're going to be left behind by the
Yanks and the dollars doing it all.
So, So I, I, I kind of felt compelled to ask the slightly
provocative question. Guys, you can see that nobody
wants a digital euro. On the other hand, Bitcoin is 20
(02:54):
times bigger than than the digital dollar.
So why don't you join the winning the winning team instead
of trying it there? And the answer is the same,
always to say we can't do that. Bitcoin is too volatile.
Yeah, that's the explanation andit's true, Yeah.
Yeah, so this volatility question is really quite
(03:16):
interesting because I just was rereading the classic Austrian
economics text Denationalizationof Money by Friedrich Hayek,
which is is a Seminole piece. It came a little bit later, came
and I think around the late 1970s, that book. 76 and 78 in
the second version, yeah. So I was, I was having a look
(03:38):
through that and really this idea of volatility, again, it's
the words that are coming out ofthe mouths of central bankers
when I talk to them about Bitcoin.
And it's also the thing that just normal people seem to have
an issue with is volatility. And from a Bitcoin perspective,
I understand, you know, that's kind of the price of, you know,
riding, riding the wave. You know, it is price discovery.
(03:59):
This thing is, is going, going up and up over the long term.
But trying to contextualize thisin, in, in a business sense,
stability is incredible. There's a reason why central
banks have price stability targets for better or for worse.
And maybe we can dive into the Austrian take on what that
actually means. But stability doesn't come that
often in nature. It's not really something that
(04:20):
we have around us. And so when you do find it, it's
incredibly valuable. So tell, maybe you can tell me
more about how stability, price stability at least plays into
the side of supply chains and and businesses.
Oh yeah, that's this huge topic,Cody, maybe first of all, why is
it so important for businesses to to be able to adopt Bitcoin
(04:43):
that we have a stable currency, a stable money?
Yeah, the the answer is quite simple.
Many businesses depending on industry have very low margins.
Like, for instance, if you take wholesale, sometimes they work
on a 234 percent margin for is already high.
And you can imagine if they do some business and, and Bitcoin,
(05:04):
you know, fluctuate something like 10% in in a matter of days
or maybe even a single day, thatsimply would wipe out that
company. And the companies are the
infrastructure, the supply chains are what gives us our
abundance. This is why most people nowadays
can live a fairly good life, a life which was unimaginable not
(05:27):
so long ago. So it, it that's the problem of
volatility. It's it's a very hard problem
and that's why central bankers focus so much about it.
But not only the they, it was also in the Austrian school very
clear that you need a stable money.
Mises said it multiple times in in theory of money and credit
(05:50):
already in 1912. The whole debate at the time was
how do we get to a stable currency in in 2019 twelve
because gold was getting scarce for for certain reasons and
which we can come go into if youwant and and which which caused
deflationary pressures, which again causes so-called
(06:13):
deflationary spiral whereby businesses shut down one and the
after. And essentially there's there's
misery, hardship, people can't get food stuff which we need and
which we're used to can't be produced.
That's why you need a stable money.
And Hayek, since you mentioned the nationalization of money was
(06:34):
also very clear about it says you, you cannot have a stable
money if the supply of money is fixed.
And if you don't have a stable money, then you don't have
abundance and you don't have full employment.
So that's that's that's simply afact that Austrians have always
said it. Yeah.
(06:55):
So I, I want to maybe start herejust to dive in and again to
contextualize this role of Austrian economics in the
foundational, how would you say ideology of Bitcoin.
Now we talk about Austrian economics.
There's actually 2 schools of thought here, right?
There is the hierarchy and school, which is really
concerned around the problems, coordination problems, the the,
(07:17):
the importance of price, the incentives.
And then there's the Rothbardianschool, which is this idea of
property rights, of justice and,and that side of things.
And I think maybe we can talk a little bit about those two
because I think most people involved with Bitcoin would
agree that Austrian economics has played a role, at least
ideologically, theoretically in the development of what we call
(07:39):
Bitcoin. But as you say, the idea of a
fixed supply, 21 million certainly is not what Hayek
talked about. It is part of the puzzle though,
And so there's nuance there. So maybe you can expand on just
so those two schools of thought and how those have influenced
our view on Bitcoin? Yeah, I think, I think the
(07:59):
problem is just one of a gap. I think all Austrians,
Gothbardians, Hayekians, museums, we all agree that the
fixed supply of base money is the right thing.
It's just the word money is so often used without neons, even
though it's extremely important to distinguish between base
(08:23):
money, credit money and fiduciary media and money
substitute, so to say created out of thin air, which obviously
we don't want. So I think, I think Austrians
are are very clear on that. And if some of us have, so to
say, focused more on the, on thefixed element of money, it's,
it's probably due because that'sthe battle.
(08:46):
That is the battle which we haveas, as free market proponents
versus the status which centralized money and
essentially created a kind of communist foothold in the
economy, which essentially dominates everything.
So you can't ever really say we have a free market economy, a
(09:07):
capitalistic economy, which, which is productive, growing
and, and progressive. If if you have this central
plan, are hiding in plain sight.Yeah.
So I think I think we can agree,generally speaking, again
quoting Hayek here, that the central theme is crystal clear.
Government has failed, must fail, and will continue to fail
to supply good money. And I think all of us here know
(09:29):
that and we understand that. And it really then comes down
into the implementation of what does a new system look like.
And again, the denationalizationof money in the 1970s, this is
coming off the back of the inflation of the 1970s, which
was incredibly damaging to a a lot of economies.
Interestingly, my understanding was a lot of it was in in it
wasn't the oil shock per SE, butit was the response to the oil
(09:52):
shock from nation states that led to that inflation.
As usual, yes. And so I think Bitcoin is as
anyone who's prudent would understand that the state
doesn't have the right incentives.
And this is maybe something thatwe can talk about just to kind
of begin this journey to step through the logic of the
importance of credit money. So talk about incentives, how
how do incentives play into the nature of good money?
(10:15):
And maybe in terms of, say, how the government approaches
incentives when it comes to money.
Let's start with what you just said.
It was that it it was the response of the governments to
the oil price shock which causedthe whole thing.
Yeah. I mean, ever since we had Fiat
money early 1900's, the, the regulation of the money supply
(10:42):
was not anymore a spontaneous market process.
It was centrally planned, like the Soviet Union or any
communist state. Yeah.
And So what did these guys do to, to regulate the, the amount
of money, the measured inflation, CPI, consumer price
index, producer price index, youknow, all these kinds of things,
(11:04):
leaving out the asset price, mostly asset price inflation.
And then they, they they were very confused and, and, and
puzzled when they adjusted the money supply according to the
CPI and still, still had problems.
Yeah. And, and why is that?
(11:24):
I mean, you need, you need don'tneed to know much about Austrian
school to know the, the resolution, the, the the pie
shocks which come in certain sectors for various fundamental
reasons should not trigger a monetary response.
Yeah. So if computers get cheaper.
(11:45):
Yeah. It it doesn't mean you need to
change the the money supply of base money.
Yeah, if if oil gets more expensive, that also doesn't
mean it, it just means that oil is now dearer.
We should reduce our our use of oil in favour of other things
that and, and, and to try to cancel out that correct
(12:09):
adjustment of quantities. It's just completely wrong.
And, and so, yeah, and, and so with that, that's responding to
political pressure, that's responding to maybe demands upon
the government to do something about it, right.
And this, I think, again, we allknow this, you know, this is a
pretty, pretty obvious Bitcoin story.
We we, we understand that the government is kind of bound to
(12:32):
do this and yet this role of incentives comes in.
So that led to this period of 1970s high inflation.
Following that, there was innovations in central banking,
you know, quote UN quote, innovations that led to central
bank independence. And in a sense, there was the
introduction of some kind of incentives.
And again, quoting Hayek, he talks about how New Zealand, my
(12:55):
home country, that brought in incentives for the governor of
the Reserve Bank to target and hit those inflation rates and so
started to bring in some kind ofmechanism to hold somebody
responsible. And yet still we have massive
inflation when the political wins push push it in a certain
way. And, and in a sense, central
bank independence is arguably not as independent as it might
(13:17):
seem on paper. And so the story of Bitcoin, the
story of private banking, the story of Austrians is that we
can actually get the state out of this.
We can separate money and state.And here we are today with a
very, very good opportunity withBitcoin, yet it hasn't usurped
the role of Fiat and business supply chains.
And so it's kind of like, well, what's the missing piece here?
(13:40):
That was the opening question. And what is the missing piece
here? And I think you, you, you
alluded to this a little bit. Herbert has this idea of the
different layers of money. And so maybe we can come into
there and sort of start with base layer money.
What, what does that mean for Bitcoin?
What is base? Layer Well, the first thing
which is important to know that if you have a perfectly secure
(14:01):
claim to money, you can pass on that came in payment of things
just like you could pass on money.
So for instance, if you have a banknote, we can discuss where
the banknotes are wise thing. But if you have a banknote and
it's it's perfectly secure that the bank will make good of on
(14:23):
it, then everybody will accept it, particularly if the banknote
has, let's say some practically advantages to gold, you know,
like it's, it's less heavy, it'smore divisible, all these nice
things which which you have withsymbolic money.
So, so the the layers which you are alluding to come from the
(14:48):
fact that there are two kinds ofmoney necessary in an ideal
money system. But the problem is there are
other types of money possible and as well as the missing
needed layer of money as well asthe fake possible layer of money
which we should not accept any more.
(15:09):
They are all based on credit. Credit which is nominally
repayable in base money, but credit which can also fulfill
the function of money in a good fashion in the case of, of, of
real credit money and in a bad fashion in the case of bad
(15:31):
credit money, or let's call it fiduciary media, to use a very
old fashioned Austrian term for it.
So there are these three possibilities and and the Fiat
system is a is a perversion of all of it because it's entirely
made-up of bad credit money. The base money which we are
working in made by by a central bank is essentially 90% more
(15:56):
these days. Credit money in terms of
government bonds. So which which which we call in
a in a bit flippant way out of thin air, but it just means
there's no real business activity, no production, no
supply chain behind that money. It's pure future consumption of
future consumption of of governments and the future
(16:18):
income they have from taxes, which which so to say give some
form of assurance that this camewill be on that at some stage.
But of course, we all know they don't do that to just blow up
the deficit year by year ever since we had Fiat money.
So what we need to focus on thisas bitcoiners are these two good
(16:40):
layers of money which are neededfor the economy. 1 is the base
money layer. We all know it, love it.
It's the 21 million Bitcoin you need proof of work to produce
Bitcoin energy ASICS, you know, facilities.
And the same is true for for real money, real credit money,
which may only be issued againstreal goods being produced and
(17:03):
going into the supply chain. And the important thing to know
when we we talk about elastic money is that this money is
produced as a medium of exchangeagainst real goods when they
enter the supply chain and it must be destroyed, burned.
When those goods leave this the supply chain and go to the
(17:24):
ultimate consumer, That's the moment when credit money must be
destroyed again. Of course, this is very hard to
understand because it's a continuous process.
There are continuously goods being fed into the supply chain
and there are continuously goodsbeing bought out of it.
So this breathing credit money layer, you can also call it
(17:46):
elastic, is what makes what willmake Bitcoin work in the real
economy, without which the real economy simply cannot function.
Mostly because of that what we we discussed before that if you
just have a fixed layer, a constant quantity of money is
high, called it in the nationalization of money, full
employment and productive rich abundant society is impossible
(18:10):
because it's impossible to keep up division of Labor.
Yeah, So something I want to sayas well, you know, I, I bring up
this topic with my Bitcoin friends and I know when none of
us have to argue the fact that if you hold Bitcoin, it goes up,
number go up. That's that's a pretty clear
thing. But the issue is, again, as you
say, if you're in a company in an industry that has tight
(18:31):
margins, whether it's up or downit it, it can really mess with
your ability to deliver a product or service and even all
for your business partners. You know, an increase in
appreciation or depreciation cancause a lot of issues.
And again, to quote hierarchy, when it comes to private money,
(18:53):
you know, it is conceivable thata limited amount of notes of
such of an appreciating currencymight be issued and used for
special purposes, but it would seem most unlikely that they
would become generally used. The chief demand for holding
would probably be for the currency in which people expect
to have to pay debts. And it seems to me the case at
the moment is we've got half thestory about us.
We've got a very, very good basemoney that goes up in value.
(19:17):
But in most situations, outside of say investing in Bitcoin
related derivatives, it's very hard to put that Bitcoin to work
in the real economy because it'sso volatile, right?
And so you're almost playing on hard mode with something that
can bounce up and down 10% in a day.
(19:37):
And that's just really hard to run a business on, right?
And so the actual alternative ofa slowly depreciating Fiat
currency, in fact, despite what we may believe is, is a little
bit, you know, it's more appealing to a business because
they know at least that that's going to hold its value
day-to-day. And so again, coming back to
this idea of elasticity, anotherthing that Hayek says is keeping
the quantity of money constant does not assure that the money
(20:00):
stream will remain constant. And in order to make the volume
of money stream behave in a desired manner, the supply of
money must possess considerable elasticity.
And that's exactly what you said, this credit layer on top
of of a hard money base layer. So maybe we can just elucidate a
little bit more on that because,sorry, it's maybe a little bit
hard for people to visualize. As you say, it's a flow, right?
(20:24):
Yeah. And and the, the problem is that
the narrative has gotten a little bit out of hand within
Bitcoin. Yeah, I think in the in the very
beginning, the very first discussions which we which we
read on P2P foundation between Satoshi and the first people
discussing that people who knew about private money, for
(20:46):
instance, because they were fromthese German, you know, regional
money aficionados. I always want to say these fans
who despite the difficulty triedto establish regional money
systems like the the Reingold guys or the Keemsey guys around
the Keemsey in in in Germany, which had which, which still
(21:10):
exist. Yeah.
There's. One in Strasbourg as well, I
think it's called, yeah. There's there's a couple of
them. I couldn't even put a number on
that Cody. So, so yeah, but they're around.
But what you said is completely correct.
So for instance, what we've seenso far in economies which
breakdown is that they unfortunately because of what we
(21:31):
just talked about before, the impossibility of bit businesses
to adopt Bitcoin while it's a volatile, they turn to
stablecoin. Yeah, I, I recently saw a
recording of Peter McCormack from a while ago that he visited
Lebanon. Yeah, which as we all know broke
down in 2019 after some shenanigans of the the boss of
(21:54):
the central bank and people did not switch to Bitcoin.
You know, they did not switch toBitcoin.
They switch to U.S. dollar basedstable coins.
The countries which lose the faith into their own Fiat
currency, they switch to dollar.You know, even even El Salvador
where where Bitcoin still is nominally legal tender, maybe
(22:17):
not in the traditional sense which the status want, but
obviously even there it didn't take root.
And when I was there for adopting Bitcoin last year in
November, I was actually told bypeople that the businesses get
kind of negative on Bitcoin because they put everything in
(22:38):
place to be able to accept Bitcoin.
And then nobody comes along or very few people come along to
pay with Bitcoin. It might be the odd Bitcoin from
foreign countries coming along and that's it.
And then they have one transaction every half year.
And it's just not enough to warrant attention.
The significant know how which you need with today's Bitcoin to
(23:00):
to keep these things up. So, so yeah.
So Hayek, of course, is correct here.
You need this elasticity and, and, but we must be very
careful. It doesn't.
He did not say that the base money layer needs to be elastic.
Yeah, he was for money which waspegged or even in a certain form
(23:23):
redeemable into competing commodities.
But he did not yet know about digital commodities, of course.
So he thought of various kinds of metals and and other
commodities. So that can be fixed.
And then if you add the elastic credit money layer, then of
course also the total is elasticbecause fixed plus elastic as a
(23:45):
total system. What you can observe if you were
a central bank for instance, is means that the total is elastic.
They don't distinguish those twocomponents anymore.
So, so that's why we need the credit money layer.
You know what's interesting as well?
So I picked up on that piece of the commodity money, what Hayek
talks about. And he actually is quite clear
that token money, paper money isprobably a better idea than gold
(24:09):
in his context. But that was a token money that
was redeemable maybe in other token monies or in commodities.
Other commodities as, as, as faras I understand the, the, the
limits of gold, he seems to be quite clear about maybe if, if
you want to expand on that, but he seemed to think that having a
(24:29):
number of competing currencies that maybe hold each other as,
as, as a way of doing it. That's maybe perhaps better than
gold, which has got a geographicdistribution.
There's some challenges there. What?
What do you think about that? Yeah, that, that was also what
you just mentioned was a significant amount of debate and
it it, it gets, so to say even more confusing, let's say for
(24:52):
the normie, because at later higher correctly clarified that
there are two types of competition going on.
Yeah, it's on one, the competition.
What's the better base money? Well, Fiat money, of course, and
by FEMA is the worst kind of basement you can think about.
It's unlimited because governments can make unlimited
debt. They're prone to do that.
(25:14):
But is it gold? Is it silver?
Is it a digital currency? My personal opinion is, is that
that the digital currency is way, way preferable to the
digital commodity is way, way preferable to physical commodity
because governments will always be able to get The Dirty little
fingers on on physical commodities simply by, you know,
(25:35):
confiscating it. Bitcoiners know about that and
you know, the, the executive orders and things so that with,
with Bitcoin, it's very hard for, for interventionism, for
politicians to do that. So this is 1 competition and the
other competition which which Hayek in his in the 1978 version
(25:57):
of the book expanded, said what's the competition of
people? He didn't say it in those words,
but issuing currency, meaning credit money on top of whatever
is the best commodity. So there's the the competition
between for instance, gold, Bitcoin, if you want Ethereum
(26:19):
and things on one layer. And then there will will be a
competition, which is not happening at all yet to issue
credit money on top of such basemonies.
So that's completely missing notonly in Bitcoin, but also in the
sheet coin sphere. Yeah.
They all talk about formal like adjustment of the quantity of
(26:40):
money and that's impossible. Satoshi knew that.
He said it verbatim. We know it from from from as we
discussed already, the central banks can do it with the CPI.
It's just impossible. It needs to be a market process
where those businesses who need to create credit money can do
so. And here's the important thing.
(27:01):
And there was this this interesting podcast which Tucker
Carlson had recently with Richard Werner.
I don't know if you've if you'veseen it.
Yeah. So here's The funny thing about
about Werner. Yeah.
So he he correctly said that credit creation for speculation
and for consumption is a very bad idea.
Yeah. It's, it's so to say, unlimited,
(27:24):
but he was very outspoken about that.
The creation of credit money or just money as he called it for
production is a very important thing.
Yeah, he was very clear about that.
So unfortunately, he then arguesthat the the investment that,
excuse me, the central banks need to take care of that, which
they can't. Yeah, but but it's it's very
(27:47):
interesting. So what we need to do as
Bitcoiners who who understand proof of work is we understand
proof of work to create base money.
The next thing we need to understand is that the real
economy also does proof of work when they produce goods.
OK, there's always a limited amount of goods in the in the in
the supply chain. And that proof of work is what
(28:09):
must back the valid, the real credit money layer.
If we ensure that we will be fine, we will have the most
stable currency which we ever had and there will possibly be a
competition on various ways to produce Bitcoin based credit
money. And some of them may have good
(28:30):
quality credit money and others may have bad quality credit
money and they will drop out by a very natural market selection
principle because they simply will will go bankrupt.
Yeah. Can you just clarify?
I, I think this is important that we get this right.
So just having a look back through through Hayek and he is
he says here better even than gold, that there is just not
(28:53):
enough gold about an international gold standard
could today mean only that a fewcountries maintained a real gold
standard while the others hung on to them through a gold
exchange standard, which sounds a little bit like Bretton Woods
to me. And so I'm just trying to
conceptualize maybe we can linger on this point.
The idea of a redeemability intoa commodity, whether it's gold
(29:15):
or Bitcoin at at a base layer is, is one thing.
And it seems, and maybe I need to read this closer, but it
seems that Hayek also talks about the idea that the value of
the credit layer is based on itsability to hold a stable price.
However, that is done and they're kind of almost two
(29:35):
different mechanisms. I'm just trying to think how how
we sort of connect those two in a way.
OK, sorry. That's a very good point, Cody.
If it's done correctly, if it ifthe credit money layer is based
on real goods, what's happening?Yeah, it's it's actually much
simpler than meets the eye. If, if credit money is only
(29:58):
generated when, when goods enterthe channel, enter the supply
chains, there was a fair price negotiated between the buyer and
the seller, whatever that is. It, it's, it's, it, it could be
very situational. I mean, a tank of water is more
valuable in the desert than here, right?
Besides the Danube River in Vienna.
(30:20):
So, so it's very situational andit's the buyer and the seller
each to the best to get the bestbargain for their side.
So that the seller obviously wants more money, the the buyer
wants to pay less wherever they meet.
It's an objective truth. It's the the negotiated actual
price. And what happens if you create
medium of exchange credit money at that moment?
(30:43):
Yeah, which which works by a very well known instrument
called the bill of exchange. That's why it's called so and,
and they agree for instance, to pay this credit after let's say
90 days, three months. Then within that period these
these goods stay in the channel and they are being sold to
(31:04):
consumers only in the end. And the, it is the the value of
those goods which stabilizes themoney.
And we have to take into consideration that the credit
money layer is, is way, way bigger than the, than the base
money layer. I mean, Hayek reported in, in,
(31:25):
in theory of money and credit, afactor of 10.
Jevons about 50 years later reported a factor of 1 to 20
credit money over over base money on gold.
So there's much, much more credit money available than than
base money. But that's actually not even the
the important thing because they're holding the storing of
(31:48):
base money. It will end up in some wallet
somewhere and it will be needed to finalize, verifiably finalize
the repayments the the cancellation of credit money.
So, so it's, it's, it's the constant production of credit
money which stabilizes the priceof money because the quantity of
(32:12):
demand when when shifting is metwith a adjusting quantity of
supply. And what adjusts the quantity of
supply is the so-called discountrate or in a Bitcoin system, we
probably call it better than minting fee of of Bitcoin based
credit money. So, so as the as the demand for
(32:34):
money, total money, credit moneyplus base money rises, the
minting fee to mint imperfect credit into perfect credit money
will rise. And as demand goes down, that
fee will fall. So that's that's the spontaneous
order which which the free market can give to it and it
(32:55):
will put use the money exactly there where it's needed.
So good to go back to your example of the oil price chalk.
Yeah. So when when the the oil
producing countries increased the the the price of oil, it was
not the total economy which all of a sudden needed more money.
It was those people who needed to buy oil yet to put it into
(33:18):
refineries, to put it in warehouses to distribute it to
service stations, to service stations to to store it until
finally a car comes by and and fill fills up the tank.
So, so it was only that specificpart of the money supply which
was which needed to expand to adjust to the new to the new
(33:39):
system. And the central banks can't do
that. They look at the CPI and they,
oh, CPI is going up. We need to increase the quantity
of money by giving it to the government to spend, which is
crazy. So here's a context then.
So what you've just explained, to be fair that there's a little
bit of complexity there. I think some, some people might
listen to that and and struggle to follow along.
(34:00):
But I think what, and it's OK, we'll, we'll elucidate.
I've just got this concept though that I've just come up
with. So looking at hierarchy, he
again talks about the idea of convertibility, which still
talking at this base layer, he says convertibility is a
safeguard necessary to impose upon a monopolist, but
unnecessary with competing suppliers.
Now that would argue that, you know, maybe it's not needed, but
(34:22):
the reality is we are living in a system of a monopoly money,
which is the state is issuing money.
And so in a sense, you know, andthis was, you know, written a
long time ago, Is it possible that the innovation that allows
us to now be in a position wherewe can realistically consider
the possibility of private moneythat is separate to the state is
because Bitcoin has given us this private peer-to-peer
(34:46):
censorship resistant base layer that we can then use to disrupt
the monopoly, which for it to organically work, it would be
maybe quite challenging, right? You know, there's been attempts
in the past in the 90s and, and,and that with various digital
monies, but because they didn't have that base layer, right,
they sort of struggled to reallymake any headways, right?
(35:08):
And so they. Tried to adjust the base layer
instead of distinctly separatingthose two layers.
Yeah. Oh, and, and, and also the
decentralization, right, they got shut down.
Let's be real, you know, these, these various digital currencies
in the 90s, they just couldn't stand up to the, to the federal
government of the United States.You know, So if we think of that
as the innovation that has meantthat we can now have a very
(35:30):
serious conversation about this becoming a a global monetary
system, that is the innovation perhaps that we've got a
censorship resistant base, we'vegot a decentralized base money
now just kind of expanding upon this, though, the reality it is,
as we discussed in the beginning, there is no supply
chains, there's no factories people, you, you, you often have
to give a discount if you want to, you know, get Bitcoin.
(35:52):
You know, there's all of these things that are kind of strange
when it is the hardest money we know.
And so kind of diving into the side of of a credit layer, maybe
you can tell me more about sort of what this means because
people get allergic to this wordcredit, right?
This, this, this idea that there's going to be trusted
parties involved. There's going to be banks.
You know, I thought Bitcoin was about, you know, getting rid of
(36:14):
the banks, becoming your own bank.
There's all this kind of narrative out there.
Can we maybe expand on exactly what we're talking about here?
Is it about bringing banks back into the system?
No, it's it's, it's, it's more or less it's, it's the opposite.
Yeah, it it means getting banks,all kinds of banks out of the
(36:37):
system for part of it. OK, so banks will be needed, but
they have centred both central banks and commercial banks have
right now usurped. I don't even know how you
pronounce that word. Usurped the the creation of
money. And they shouldn't.
Yeah, gold can be perfectly produced without banks.
(37:00):
Yeah. You just need a mint to to mint
it in in value units. Yeah, Bitcoin can be perfectly
produced without the government,without central banks.
It's it's in fact, we're all worried about making sure it
stays decentralized enough. Yeah.
And the same is true for credit money.
Banks should not be allowed to produce credit money.
(37:23):
And here, here is is a fine linewhere I think even the Austrian
school is sometimes not specificenough.
Because when you produce credit money, it must be produced only
(37:44):
from credit. And as long as it's production
companies granting each other that credit against real goods
which are going in the supply chain, it is in reality the
production companies which coulduse the credit which is
necessary for perfection to become credit money.
(38:09):
So what I'm saying is as long aswe make 100% sure as Bitcoiners
that the credit which is used toenhance it into fungible
divisible symbolic money for Bitcoin, we call it bit credit.
For the bit credit protocol. As long as we make sure that
that's only uses productive credit, we'll be fine.
(38:32):
There will be no, no inflation because the, the goods which go
into the into the supply channel, they approve of work
and when they are being consumed, those bills of
exchange are automatically repaid or paid as it called and
and that credit money disappearsagain.
So that's, that's the reason whywe are why bitcoiners correctly
(38:56):
are so allergic to credit is that this principle has been
completely perverted because of what happened.
We all thinking today of banks to create to to give us credit,
but in the future the banks willessentially not do any more
demand deposits because we bitcoiners, we will hold both
(39:19):
base money as well as credit money, self sovereign in our own
wallets. Not your keys, not your coin.
That's true for credit money. That's true for, for and the
trick how this all came about, if you allow me, the, IT was
became into being after the appeal act in, in the United
Kingdom in in 1844, when they sort of say correctly restricted
(39:43):
the issuance of, of banknotes toessentially be warehouse receipt
backed by gold. And that did not allow any other
credit creation by banks, but the left out, unfortunately, the
the bills of exchange. So what happened is that all of
a sudden the, the banks created demand deposits, Yep, with which
(40:05):
people could dispose of via paying with checks.
So that's bank money creation. Of the bad kind, but it was
necessary because otherwise the British economy would have
broken down. And in fact the for the first
three years after the Peel Act 1844, which we did see
substantial pressures in the in the economic system.
It's just people didn't realize what it was and and so does that
(40:28):
the solution to accept demand deposits of banks as money was
very obvious. But this is a wrong solution.
The correct solution is that that mints take credit produced
by the real economy by production and minted into
fungible Bitcoin credit unit. So that's shorten it to the name
(40:49):
of bit credits or just credits in the future.
So that's that's the correct process.
OK. Because I, we talk about demand
deposits, that is probably actually how a lot of people
think about their bank account, right?
They're not using cash like physical cash, they're they're
using their checking account. And that that is just numbers in
a in a spreadsheet somewhere that can be given to someone to
(41:10):
buy a house from, from the bank,right?
Yeah, Unlimited, yeah. Unlimited and so this is very
interesting. So I think I'm beginning to get
an the, the idea of sort of whatwe're talking about here is it's
bringing, I want must think, coming back like agriculture,
agricultural examples. It's like you've got this, like
this, the seed, right? There's these, you know, these
things that this capital, you know, original capital and it
(41:33):
can become, you know, food. It can become something or you
can eat the seed and you there'sthere's a potential energy in
there. And with credit that's based on
production, you know, there willbe, you know, some, some, some
weight come out of this. Or in the case of timber, there
will be some product, some manufactured good that comes out
(41:53):
of this. That actually is the bridge
between the real world, the realeconomy and the financial
economy. And again, you can't eat paper.
You can't live off that. You you live off the real
economy. That is what gives us
prosperity. Exactly.
Yeah. And in a sense, this modern
project where the financialization of everything
(42:14):
in a sense that mirror of the financial economy has become
tarnished. It's not reflecting the reality
of the productive economy. And so you do get the classic
business cycle boom and bust in misallocation of capital and all
these issues that we're aware of, right, speculative bubbles
as well when it comes to housing.
But this is still, I think, I know it's just we're limited on
(42:36):
time here, Hibertus. But this is still, I think a
little bit complicated for people who are used to the
simple narratives of fixed supply of huddle, you know, hold
your Bitcoin, these kinds of things.
But that has still LED us to thecase.
Here we are 16 years later where, you know, there's no,
(42:57):
there's no, there's no production, there's no.
Yeah, what I what I would what Iwould remind people of Yeah,
it's the question, where do you want to be?
Yeah, it's it's nice for each ofus wanting to be safe.
Yeah, we we put some of our wealth in Bitcoin.
While it's not 100% sure assuredthat Bitcoin will win, we
(43:19):
probably should also still keep a bit of gold and and thereby
escape the Fiat scam. But what but must be aware of is
Bitcoiners. Just because we are personally
safe, it doesn't mean that essentially the economy can get
better. We will still have inflation if
the economy runs on on Fiat. We will still have boom, bust,
(43:42):
boom, bust because the banks cancreate money for speculation and
for consumption instead of instead of just for production.
This will still have asset priceinflation because money being
created for speculation then instead of just for production.
As part of the asset price inflation, there will still be
people who try to protect the net worth not only in Bitcoin,
(44:05):
not only in gold, but also in houses in real estate, which
makes houses unaffordable for for the younger generation, with
all the implication that has on,on our values on family on and
you know, the social fabric. And and of course they can will
still be able to print for war and all kinds of stupid ideas
which the politicians have daily.
(44:27):
Yeah, I mean, I always say, look, if you have a a venture
found one and you try to get venture money, every venture is
fully aware that 90 to 95% of ofnew ideas are rubbish.
Whereas the politicians can implement all those ideas
without any any market control whether they're actually
damaging. Yeah, well, I, I do hope people
(44:49):
are still with us at this point.And I guess coming back to what
what I'm trying to do here, which is, you know, understand
what what's going on. Because there is maybe this the
simple argument that, you know, we're just early, that, you
know, this thing just continues going up in value.
And then at some point, you know, it is it gets used more
(45:12):
and more. But I mean, the reality is, you
know, it's, as I said, it's pretty hard to get a cafe up the
road to accept Bitcoin and it's a much even harder thing to get
them to pay their employees and Bitcoin and then for those
employees to then buy their own groceries and Bitcoin and so on
and so forth. Yeah, it's, it's an uphill
battle. And so I think what I'm looking
for is, is kind of a level headed analysis of like the
(45:34):
situation, which I know you're looking at with, but credit,
certainly the Austrians have given us some material to work
with, but something's up. And as you say, we might, you
know, we might be OK personally,we, you know, number go up, you
know, we have a stack. But if there is the continual
degradation of Fiat money, that has some real implications
(45:55):
because in a case where the realeconomy is massively impacted,
how much stuff can you actually buy with Bitcoin when you know
your economy is actually in a recession or a depression,
right? There's some connection there.
Yeah, exactly. So we will still have this, this
production misallocation distorted because of Fiat money.
(46:16):
But what's even more important and, and I think I proposed a
debate here to adopting Bitcoin in El Salvador these days, I
think that it is actually an absolute impossibility for
Bitcoin to remain a store of value medium or long term if we
(46:37):
don't also get it to win as a medium of exchange.
So I hope adopting Bitcoin will will record the debate.
But the argument is very simple.Right now we have a little bit
of breathing space because of, you know, the, the attitude of,
of the Trump administration towards, towards Bitcoin and
(46:58):
other cryptocurrencies, which isso to say, accommodating.
But there could be a political change tomorrow.
And some other politicians in the world, particularly in
Europe, are still very authoritarian and are continuing
to buy to, to build the mass surveillance state and, and
suppose the communist model of, of central planning, price,
(47:21):
price controls and all these things are happening as we
speak. So I'm saying it is impossible
for Bitcoin to remain a store ofvalue because the politicians
will build new laws, new regulations, new punishments to
avoid that that Bitcoin can be exchanged into into Fiat, which
(47:45):
is necessary if Bitcoin is only store of value.
And once they get out with the, with the CPDCS, they will have
total control about that. They will, if you, if you sell
Bitcoin for Fiat in CBDC, they can just switch it off and, and,
and, and that's to me, that's very key.
(48:06):
And that's the end. There might be other countries
where they still have that, but that's the end also of the store
value. Whereas if we do what's needed
so that the real economy can accept Bitcoin, that if we have
the credit money layer, which always used to be what's called
to, to fund the so-called wage fund with which people working
(48:28):
for businesses get paid and thenbuy goods.
If we get that going, even just in a small area to play out
correctly, then we have an insurance for that day when they
switch on CBDC. Yeah, this is, I think this is
important. And again, I, I appreciate this,
this truth that we're trying to find together.
(48:49):
Hibertus maybe not that many people are talking about this,
but you know, Hayek, if you lookat his writing from 78, he was
very pessimistic about the idea of the euro, which I don't think
it was just a glimmer and, and afew people's eyes, some
authoritarians. But now, as you say, today we
are in a state where the, the EUhas become this totalitarian
(49:11):
monster, exactly what Hayek was warning about, you know, in the
70s and it has come to fruition.And so I think we do need to
look at that with clear eyes andnot maybe rest on on our pride
and our hubris. That number go up because of a
favorable US administration. The, you know, going back to the
original idea of this whole thing is that we separate money
(49:33):
and state. And I think the questions we're
asking today and the questions Ihope I can explore again.
Maybe we expand on this with youagain soon, But how can we
actually achieve that? Because as you say, when you've
got real economy, real production, real factories out
there who are integrated and intimate with Bitcoin, they're
not just holding it as as as a nice to have that's going to,
(49:54):
you know, line their pockets, but it's actually essential and
part of their production. That's part of their supply
chains. It's in their contracts.
That's what's going to give bargaining power and political
power to this project, I think. I mean, it's, it's the right
question and answers them. If I know Cody, it's actually
what's keeping lots of the people involved in the bit bit
(50:18):
credit initiative up at night. How do we do it then?
How how do we make sure that Bitcoiners understand and that
we do the correct credit money there?
Sorry, you said? Yeah.
This so just quickly then on this debate adopting Bitcoin,
who who are you hoping to talk with on that or is that already
happened? I, I don't know, but I think
there's 99% of, of bitcoiners who think that the SOV story can
(50:41):
go on forever. So there won't be a lack of, of
people to, to argue against medium of exchange.
Funnily enough, Chuck Dorsey recently seemed to have made a
couple of of of comments and given his, you know, following
that probably has much more weight than a little project
like like bit credit, even though it's spreading throughout
(51:03):
the world. So there's more and more
countries where people say idea,we want to have that.
We want to talk to real economies, try to orange peel
them. So so that's that's going very
organically. But of course somebody like
Chuck Dorsey has has a huge following and then he says guys
go back on medium of exchange that has that has power.
Yeah, yeah. Just in our last few minutes
(51:24):
then Hubertus, tell me more justabout bit credit.
So where is the project at and kind of what, what stage are you
guys at? Any updates on that front?
Yeah, earlier this. So the project right now is
probably a dozen or so extremelyactive core core people writing
code and and thinking through the, let's say the business part
(51:47):
of how to make that happen goinggrowing rapidly.
We, we had a full prototype working prototype ready in Q1
this year, which we demoed. It's you can find it on, on, on
Twitter. The account of the of the
initiative which is bit bit CR under score ORGORG where we
(52:08):
recorded how it works is essentially this wholesale money
layer made of bills of exchange between businesses, between
production businesses, which then is given to mints who
enhanced this credit with a guarantee and make the bill of
exchange divisible into mini bills as we call them.
And we we essentially used cashew as a as a base to build a
(52:35):
new form of mint which we call which we calling Wildcat, which
is a credit mint. And those Wildcats make these
bills of exchange divisible and into a payment instrument.
Because we discussed before, a perfect claim to money is like
money. It's just perfect claim to base.
Money is credit, money is money.So you can use this with E cash
(52:57):
in in, so to say every Bitcoin astream of how how a payment
should be. It's absolutely no fees.
It's absolutely instant. It is scalable to whatever
number of transactions you want in the world.
It is perfectly fungible, which of course means that it's also
private and non sensible becauseif something is not private and
(53:20):
therefore sensible, it cannot ever be fungible.
So it's it's essentially the ideal money.
So I really love it and the difficulty is really the chicken
egg problem. How how do we get committed
businesses to do at least a little bit of the supply chain
business in Bitcoin while it is so volatile.
(53:41):
That's that's the nut we are needing.
We need to crack now. Yeah.
And I think ecash is very interesting and it seems like
there's more and more interest in that space where it is a very
smooth and and kind of elegant system.
I mean, obviously payments on chain and payments with
Lightning have an infrastructurecost.
There is sort of overhead for the user.
But with E cash, it's it's kind of a more simple instrument in a
(54:03):
sense because it's higher up thestack.
You know it is a lot easier and lighter weight, Lighter weight
from my understanding to use forthe actual payments, right?
Yeah, yeah, I mean it is and andthe problem with Xiaomi and E
Cash ever since its foundation was that it's custodial.
Now this is this is also at least my interpretation why
David Chalm originally, apart from some personality problems,
(54:27):
failed to to get it going and and Satoshi, so to say, did did
refer to E cash when building Bitcoin.
And so this is the the what we have also now in in Bitcoin is
to sit back to the roots. There are two two projects,
fedement and and cashew, which tried which tried the the
Charmin E cash specifically on Bitcoin, which, and as I said, I
(54:52):
think the the better one to build upon with with some pretty
big changes is is cashew becauseit needs to be made non
custodial. Yeah, if if we can't get like
Bitcoin, if we can't get E cash to be non custodial,
governments, politicians will beable to do their usual thing to
(55:13):
to capture it ultimately. So, so that's that's the effort
which is ongoing right now knocking on wood that will be
able to present non custodial E cash latest in Q4 this week, Q4
this year, excuse me. And and then I think the system
is ready to be be released in inthe wild.
(55:35):
It probably will take some 2-3 years for hardening, but the
idea is to harden the system andbe ready when the next Fiat
currency collapses. They collapse all the time as we
know. Nobody knows where.
Maybe it's Bolivia or wherever and and be ready when the next
country is looking for somethingand they hopefully don't switch
to stables but then do a Bitcoinwhich can stabilize.
(55:58):
Yeah, interesting. No, Well, that look, that's
fascinating and, and thanks for sharing this again, I do
appreciate this as as a complex topic.
I'm going to have to do a bit more reading on this.
Certainly diving into the Austrian classics has given me
some more insight into the way we can look at this.
But it is an ongoing conversation.
I think the take away is, is certainly that we cannot rest on
(56:18):
our laurels. You know, Bitcoin isn't
guaranteed as much as the numberfurnishes our, our, our egos
that we were right. That can also go away when
political forces come into play because there's no claims on the
real economy as it stands. It is all just speculative and
you know, some good properties there.
But once it's actually embedded into supply chains and factories
(56:42):
and businesses, that's got a lotmore power.
I appreciate that from you, Hiberto.
So if people want to find out more as well, the website bit
dot CR people can go there, check out, but credit, I think
you've even got a demo people can download, right?
Yeah, there's a demo video on, as I already mentioned, bit CR
to under score org on on X, we're probably going to upload
(57:05):
on the bit CR page 2. The bit CR page is dedicated to
wholesale money. So the bills of exchange
essentially between businesses. We will very soon now have a
retail oriented website showing the the wallet with which you
can use those divisible mini bills just like you would be
(57:27):
using a Lightning wallet today, essentially self custodial.
So like Phoenix or like like Breeze, these types of things,
but non custodial expected also in Q4.
Meanwhile, we are working hard talking to trying to find the
odd bitcoiner in the trade finance segment of of banking to
(57:47):
start talking to businesses to adopt it.
So any Bitcoiner who hears that,who is hearing this podcast and
knows a real economy businesses with a Bitcoiner who might want
to do this with a couple of sets, please point them into our
directions. And yeah, this is going to be
the way to to Orangeville businesses and not just Bitcoin
(58:08):
is * of value. Yeah, awesome.
Thank you very much, Roberto. Thanks, Cody.
Goodbye. Speak soon.
Thank you for listening. I am Cody Allingham and that was
the transformation of value. If you would like to support
this show, please consider making a donation either through
my website or by directly tipping to the show's Bitcoin
wallet. Or just pass this episode on to
(58:29):
a friend who you think may enjoyit.
And you can always e-mail me at hello at the
transformationofvalue com.
I think that it is actually an absolute impossibility for
Bitcoin to remain a store of value medium or long term if we
don't also get it to win as a medium of exchange.
Hello, I am Cody Allingham and this is the transformation of
value, a place for asking questions about freedom, money
(00:22):
and creativity. My guest today is Hebertus Hof
Kirchner. Hebertus is an economist and
entrepreneur from Austria. Hebertus is a key figure in
developing the BIT credit protocol and open source
initiative focused on building aflexible credit money layer on
top of Bitcoin for enabling businesses to finance working
capital needs using bills of exchange and E cash.
(00:45):
Hi, Burtis, welcome to the show.Hi, Cody, Thanks for the kind
introduction and happy to speak to you again.
You know, I keep having these conversations with both
Bitcoiners and people close to the traditional banking world
who seem to talk over each otherwhen it comes to the question,
why is Bitcoin not being used inthe real economy?
(01:07):
The real economy, of course, refers to the creation and
exchange of non financial goods and services.
Thinking farms, factories, schools, hospitals, that kind of
thing. And as we know, Bitcoin is an
incredible long term store of value.
It's hard money, but there are still almost no supply chains or
service contracts priced in Bitcoin.
(01:28):
And for the most part businessesdon't want to have anything to
do with it. What is missing from this
equation? Hebertus.
Yeah, Well, thanks for the question.
As you say correctly, I think, Iguess the, the central bankers
whenever they are so to say. I mean, I had this story
recently, for instance, there was the Europeans, as you may
(01:49):
know, are currently desperately trying to get a CBDC, the
digital or Euro off the ground. And I was this guy on stage from
the from the EZB presenting thischart, you know, where, where
they show the various quantitiesof digital money out there in
terms of market capitalisation. And on top, of course, there was
(02:11):
Bitcoin there with its 2 trillion plus dollar market cap.
And then came already Tether, Tether or U.S. dollar based
digital currency. And then they showed this, I
don't know, 1% or so maximum layer of stable coin, EUR and
(02:32):
the kind of synthesis. Yeah, the DSP needs to do that
now because otherwise we're going to be left behind by the
Yanks and the dollars doing it all.
So, So I, I, I kind of felt compelled to ask the slightly
provocative question. Guys, you can see that nobody
wants a digital euro. On the other hand, Bitcoin is 20
(02:54):
times bigger than than the digital dollar.
So why don't you join the winning the winning team instead
of trying it there? And the answer is the same,
always to say we can't do that. Bitcoin is too volatile.
Yeah, that's the explanation andit's true, Yeah.
Yeah, so this volatility question is really quite
(03:16):
interesting because I just was rereading the classic Austrian
economics text Denationalizationof Money by Friedrich Hayek,
which is is a Seminole piece. It came a little bit later, came
and I think around the late 1970s, that book. 76 and 78 in
the second version, yeah. So I was, I was having a look
(03:38):
through that and really this idea of volatility, again, it's
the words that are coming out ofthe mouths of central bankers
when I talk to them about Bitcoin.
And it's also the thing that just normal people seem to have
an issue with is volatility. And from a Bitcoin perspective,
I understand, you know, that's kind of the price of, you know,
riding, riding the wave. You know, it is price discovery.
(03:59):
This thing is, is going, going up and up over the long term.
But trying to contextualize thisin, in, in a business sense,
stability is incredible. There's a reason why central
banks have price stability targets for better or for worse.
And maybe we can dive into the Austrian take on what that
actually means. But stability doesn't come that
often in nature. It's not really something that
(04:20):
we have around us. And so when you do find it, it's
incredibly valuable. So tell, maybe you can tell me
more about how stability, price stability at least plays into
the side of supply chains and and businesses.
Oh yeah, that's this huge topic,Cody, maybe first of all, why is
it so important for businesses to to be able to adopt Bitcoin
(04:43):
that we have a stable currency, a stable money?
Yeah, the the answer is quite simple.
Many businesses depending on industry have very low margins.
Like, for instance, if you take wholesale, sometimes they work
on a 234 percent margin for is already high.
And you can imagine if they do some business and, and Bitcoin,
(05:04):
you know, fluctuate something like 10% in in a matter of days
or maybe even a single day, thatsimply would wipe out that
company. And the companies are the
infrastructure, the supply chains are what gives us our
abundance. This is why most people nowadays
can live a fairly good life, a life which was unimaginable not
(05:27):
so long ago. So it, it that's the problem of
volatility. It's it's a very hard problem
and that's why central bankers focus so much about it.
But not only the they, it was also in the Austrian school very
clear that you need a stable money.
Mises said it multiple times in in theory of money and credit
(05:50):
already in 1912. The whole debate at the time was
how do we get to a stable currency in in 2019 twelve
because gold was getting scarce for for certain reasons and
which we can come go into if youwant and and which which caused
deflationary pressures, which again causes so-called
(06:13):
deflationary spiral whereby businesses shut down one and the
after. And essentially there's there's
misery, hardship, people can't get food stuff which we need and
which we're used to can't be produced.
That's why you need a stable money.
And Hayek, since you mentioned the nationalization of money was
(06:34):
also very clear about it says you, you cannot have a stable
money if the supply of money is fixed.
And if you don't have a stable money, then you don't have
abundance and you don't have full employment.
So that's that's that's simply afact that Austrians have always
said it. Yeah.
(06:55):
So I, I want to maybe start herejust to dive in and again to
contextualize this role of Austrian economics in the
foundational, how would you say ideology of Bitcoin.
Now we talk about Austrian economics.
There's actually 2 schools of thought here, right?
There is the hierarchy and school, which is really
concerned around the problems, coordination problems, the the,
(07:17):
the importance of price, the incentives.
And then there's the Rothbardianschool, which is this idea of
property rights, of justice and,and that side of things.
And I think maybe we can talk a little bit about those two
because I think most people involved with Bitcoin would
agree that Austrian economics has played a role, at least
ideologically, theoretically in the development of what we call
(07:39):
Bitcoin. But as you say, the idea of a
fixed supply, 21 million certainly is not what Hayek
talked about. It is part of the puzzle though,
And so there's nuance there. So maybe you can expand on just
so those two schools of thought and how those have influenced
our view on Bitcoin? Yeah, I think, I think the
(07:59):
problem is just one of a gap. I think all Austrians,
Gothbardians, Hayekians, museums, we all agree that the
fixed supply of base money is the right thing.
It's just the word money is so often used without neons, even
though it's extremely important to distinguish between base
(08:23):
money, credit money and fiduciary media and money
substitute, so to say created out of thin air, which obviously
we don't want. So I think, I think Austrians
are are very clear on that. And if some of us have, so to
say, focused more on the, on thefixed element of money, it's,
it's probably due because that'sthe battle.
(08:46):
That is the battle which we haveas, as free market proponents
versus the status which centralized money and
essentially created a kind of communist foothold in the
economy, which essentially dominates everything.
So you can't ever really say we have a free market economy, a
(09:07):
capitalistic economy, which, which is productive, growing
and, and progressive. If if you have this central
plan, are hiding in plain sight.Yeah.
So I think I think we can agree,generally speaking, again
quoting Hayek here, that the central theme is crystal clear.
Government has failed, must fail, and will continue to fail
to supply good money. And I think all of us here know
(09:29):
that and we understand that. And it really then comes down
into the implementation of what does a new system look like.
And again, the denationalizationof money in the 1970s, this is
coming off the back of the inflation of the 1970s, which
was incredibly damaging to a a lot of economies.
Interestingly, my understanding was a lot of it was in in it
wasn't the oil shock per SE, butit was the response to the oil
(09:52):
shock from nation states that led to that inflation.
As usual, yes. And so I think Bitcoin is as
anyone who's prudent would understand that the state
doesn't have the right incentives.
And this is maybe something thatwe can talk about just to kind
of begin this journey to step through the logic of the
importance of credit money. So talk about incentives, how
how do incentives play into the nature of good money?
(10:15):
And maybe in terms of, say, how the government approaches
incentives when it comes to money.
Let's start with what you just said.
It was that it it was the response of the governments to
the oil price shock which causedthe whole thing.
Yeah. I mean, ever since we had Fiat
money early 1900's, the, the regulation of the money supply
(10:42):
was not anymore a spontaneous market process.
It was centrally planned, like the Soviet Union or any
communist state. Yeah.
And So what did these guys do to, to regulate the, the amount
of money, the measured inflation, CPI, consumer price
index, producer price index, youknow, all these kinds of things,
(11:04):
leaving out the asset price, mostly asset price inflation.
And then they, they they were very confused and, and, and
puzzled when they adjusted the money supply according to the
CPI and still, still had problems.
Yeah. And, and why is that?
(11:24):
I mean, you need, you need don'tneed to know much about Austrian
school to know the, the resolution, the, the the pie
shocks which come in certain sectors for various fundamental
reasons should not trigger a monetary response.
Yeah. So if computers get cheaper.
(11:45):
Yeah. It it doesn't mean you need to
change the the money supply of base money.
Yeah, if if oil gets more expensive, that also doesn't
mean it, it just means that oil is now dearer.
We should reduce our our use of oil in favour of other things
that and, and, and to try to cancel out that correct
(12:09):
adjustment of quantities. It's just completely wrong.
And, and so, yeah, and, and so with that, that's responding to
political pressure, that's responding to maybe demands upon
the government to do something about it, right.
And this, I think, again, we allknow this, you know, this is a
pretty, pretty obvious Bitcoin story.
We we, we understand that the government is kind of bound to
(12:32):
do this and yet this role of incentives comes in.
So that led to this period of 1970s high inflation.
Following that, there was innovations in central banking,
you know, quote UN quote, innovations that led to central
bank independence. And in a sense, there was the
introduction of some kind of incentives.
And again, quoting Hayek, he talks about how New Zealand, my
(12:55):
home country, that brought in incentives for the governor of
the Reserve Bank to target and hit those inflation rates and so
started to bring in some kind ofmechanism to hold somebody
responsible. And yet still we have massive
inflation when the political wins push push it in a certain
way. And, and in a sense, central
bank independence is arguably not as independent as it might
(13:17):
seem on paper. And so the story of Bitcoin, the
story of private banking, the story of Austrians is that we
can actually get the state out of this.
We can separate money and state.And here we are today with a
very, very good opportunity withBitcoin, yet it hasn't usurped
the role of Fiat and business supply chains.
And so it's kind of like, well, what's the missing piece here?
(13:40):
That was the opening question. And what is the missing piece
here? And I think you, you, you
alluded to this a little bit. Herbert has this idea of the
different layers of money. And so maybe we can come into
there and sort of start with base layer money.
What, what does that mean for Bitcoin?
What is base? Layer Well, the first thing
which is important to know that if you have a perfectly secure
(14:01):
claim to money, you can pass on that came in payment of things
just like you could pass on money.
So for instance, if you have a banknote, we can discuss where
the banknotes are wise thing. But if you have a banknote and
it's it's perfectly secure that the bank will make good of on
(14:23):
it, then everybody will accept it, particularly if the banknote
has, let's say some practically advantages to gold, you know,
like it's, it's less heavy, it'smore divisible, all these nice
things which which you have withsymbolic money.
So, so the the layers which you are alluding to come from the
(14:48):
fact that there are two kinds ofmoney necessary in an ideal
money system. But the problem is there are
other types of money possible and as well as the missing
needed layer of money as well asthe fake possible layer of money
which we should not accept any more.
(15:09):
They are all based on credit. Credit which is nominally
repayable in base money, but credit which can also fulfill
the function of money in a good fashion in the case of, of, of
real credit money and in a bad fashion in the case of bad
(15:31):
credit money, or let's call it fiduciary media, to use a very
old fashioned Austrian term for it.
So there are these three possibilities and and the Fiat
system is a is a perversion of all of it because it's entirely
made-up of bad credit money. The base money which we are
working in made by by a central bank is essentially 90% more
(15:56):
these days. Credit money in terms of
government bonds. So which which which we call in
a in a bit flippant way out of thin air, but it just means
there's no real business activity, no production, no
supply chain behind that money. It's pure future consumption of
future consumption of of governments and the future
(16:18):
income they have from taxes, which which so to say give some
form of assurance that this camewill be on that at some stage.
But of course, we all know they don't do that to just blow up
the deficit year by year ever since we had Fiat money.
So what we need to focus on thisas bitcoiners are these two good
(16:40):
layers of money which are neededfor the economy. 1 is the base
money layer. We all know it, love it.
It's the 21 million Bitcoin you need proof of work to produce
Bitcoin energy ASICS, you know, facilities.
And the same is true for for real money, real credit money,
which may only be issued againstreal goods being produced and
(17:03):
going into the supply chain. And the important thing to know
when we we talk about elastic money is that this money is
produced as a medium of exchangeagainst real goods when they
enter the supply chain and it must be destroyed, burned.
When those goods leave this the supply chain and go to the
(17:24):
ultimate consumer, That's the moment when credit money must be
destroyed again. Of course, this is very hard to
understand because it's a continuous process.
There are continuously goods being fed into the supply chain
and there are continuously goodsbeing bought out of it.
So this breathing credit money layer, you can also call it
(17:46):
elastic, is what makes what willmake Bitcoin work in the real
economy, without which the real economy simply cannot function.
Mostly because of that what we we discussed before that if you
just have a fixed layer, a constant quantity of money is
high, called it in the nationalization of money, full
employment and productive rich abundant society is impossible
(18:10):
because it's impossible to keep up division of Labor.
Yeah, So something I want to sayas well, you know, I, I bring up
this topic with my Bitcoin friends and I know when none of
us have to argue the fact that if you hold Bitcoin, it goes up,
number go up. That's that's a pretty clear
thing. But the issue is, again, as you
say, if you're in a company in an industry that has tight
(18:31):
margins, whether it's up or downit it, it can really mess with
your ability to deliver a product or service and even all
for your business partners. You know, an increase in
appreciation or depreciation cancause a lot of issues.
And again, to quote hierarchy, when it comes to private money,
(18:53):
you know, it is conceivable thata limited amount of notes of
such of an appreciating currencymight be issued and used for
special purposes, but it would seem most unlikely that they
would become generally used. The chief demand for holding
would probably be for the currency in which people expect
to have to pay debts. And it seems to me the case at
the moment is we've got half thestory about us.
We've got a very, very good basemoney that goes up in value.
(19:17):
But in most situations, outside of say investing in Bitcoin
related derivatives, it's very hard to put that Bitcoin to work
in the real economy because it'sso volatile, right?
And so you're almost playing on hard mode with something that
can bounce up and down 10% in a day.
(19:37):
And that's just really hard to run a business on, right?
And so the actual alternative ofa slowly depreciating Fiat
currency, in fact, despite what we may believe is, is a little
bit, you know, it's more appealing to a business because
they know at least that that's going to hold its value
day-to-day. And so again, coming back to
this idea of elasticity, anotherthing that Hayek says is keeping
the quantity of money constant does not assure that the money
(20:00):
stream will remain constant. And in order to make the volume
of money stream behave in a desired manner, the supply of
money must possess considerable elasticity.
And that's exactly what you said, this credit layer on top
of of a hard money base layer. So maybe we can just elucidate a
little bit more on that because,sorry, it's maybe a little bit
hard for people to visualize. As you say, it's a flow, right?
(20:24):
Yeah. And and the, the problem is that
the narrative has gotten a little bit out of hand within
Bitcoin. Yeah, I think in the in the very
beginning, the very first discussions which we which we
read on P2P foundation between Satoshi and the first people
discussing that people who knew about private money, for
(20:46):
instance, because they were fromthese German, you know, regional
money aficionados. I always want to say these fans
who despite the difficulty triedto establish regional money
systems like the the Reingold guys or the Keemsey guys around
the Keemsey in in in Germany, which had which, which still
(21:10):
exist. Yeah.
There's. One in Strasbourg as well, I
think it's called, yeah. There's there's a couple of
them. I couldn't even put a number on
that Cody. So, so yeah, but they're around.
But what you said is completely correct.
So for instance, what we've seenso far in economies which
breakdown is that they unfortunately because of what we
(21:31):
just talked about before, the impossibility of bit businesses
to adopt Bitcoin while it's a volatile, they turn to
stablecoin. Yeah, I, I recently saw a
recording of Peter McCormack from a while ago that he visited
Lebanon. Yeah, which as we all know broke
down in 2019 after some shenanigans of the the boss of
(21:54):
the central bank and people did not switch to Bitcoin.
You know, they did not switch toBitcoin.
They switch to U.S. dollar basedstable coins.
The countries which lose the faith into their own Fiat
currency, they switch to dollar.You know, even even El Salvador
where where Bitcoin still is nominally legal tender, maybe
(22:17):
not in the traditional sense which the status want, but
obviously even there it didn't take root.
And when I was there for adopting Bitcoin last year in
November, I was actually told bypeople that the businesses get
kind of negative on Bitcoin because they put everything in
(22:38):
place to be able to accept Bitcoin.
And then nobody comes along or very few people come along to
pay with Bitcoin. It might be the odd Bitcoin from
foreign countries coming along and that's it.
And then they have one transaction every half year.
And it's just not enough to warrant attention.
The significant know how which you need with today's Bitcoin to
(23:00):
to keep these things up. So, so yeah.
So Hayek, of course, is correct here.
You need this elasticity and, and, but we must be very
careful. It doesn't.
He did not say that the base money layer needs to be elastic.
Yeah, he was for money which waspegged or even in a certain form
(23:23):
redeemable into competing commodities.
But he did not yet know about digital commodities, of course.
So he thought of various kinds of metals and and other
commodities. So that can be fixed.
And then if you add the elastic credit money layer, then of
course also the total is elasticbecause fixed plus elastic as a
(23:45):
total system. What you can observe if you were
a central bank for instance, is means that the total is elastic.
They don't distinguish those twocomponents anymore.
So, so that's why we need the credit money layer.
You know what's interesting as well?
So I picked up on that piece of the commodity money, what Hayek
talks about. And he actually is quite clear
that token money, paper money isprobably a better idea than gold
(24:09):
in his context. But that was a token money that
was redeemable maybe in other token monies or in commodities.
Other commodities as, as, as faras I understand the, the, the
limits of gold, he seems to be quite clear about maybe if, if
you want to expand on that, but he seemed to think that having a
(24:29):
number of competing currencies that maybe hold each other as,
as, as a way of doing it. That's maybe perhaps better than
gold, which has got a geographicdistribution.
There's some challenges there. What?
What do you think about that? Yeah, that, that was also what
you just mentioned was a significant amount of debate and
it it, it gets, so to say even more confusing, let's say for
(24:52):
the normie, because at later higher correctly clarified that
there are two types of competition going on.
Yeah, it's on one, the competition.
What's the better base money? Well, Fiat money, of course, and
by FEMA is the worst kind of basement you can think about.
It's unlimited because governments can make unlimited
debt. They're prone to do that.
(25:14):
But is it gold? Is it silver?
Is it a digital currency? My personal opinion is, is that
that the digital currency is way, way preferable to the
digital commodity is way, way preferable to physical commodity
because governments will always be able to get The Dirty little
fingers on on physical commodities simply by, you know,
(25:35):
confiscating it. Bitcoiners know about that and
you know, the, the executive orders and things so that with,
with Bitcoin, it's very hard for, for interventionism, for
politicians to do that. So this is 1 competition and the
other competition which which Hayek in his in the 1978 version
(25:57):
of the book expanded, said what's the competition of
people? He didn't say it in those words,
but issuing currency, meaning credit money on top of whatever
is the best commodity. So there's the the competition
between for instance, gold, Bitcoin, if you want Ethereum
(26:19):
and things on one layer. And then there will will be a
competition, which is not happening at all yet to issue
credit money on top of such basemonies.
So that's completely missing notonly in Bitcoin, but also in the
sheet coin sphere. Yeah.
They all talk about formal like adjustment of the quantity of
(26:40):
money and that's impossible. Satoshi knew that.
He said it verbatim. We know it from from from as we
discussed already, the central banks can do it with the CPI.
It's just impossible. It needs to be a market process
where those businesses who need to create credit money can do
so. And here's the important thing.
(27:01):
And there was this this interesting podcast which Tucker
Carlson had recently with Richard Werner.
I don't know if you've if you'veseen it.
Yeah. So here's The funny thing about
about Werner. Yeah.
So he he correctly said that credit creation for speculation
and for consumption is a very bad idea.
Yeah. It's, it's so to say, unlimited,
(27:24):
but he was very outspoken about that.
The creation of credit money or just money as he called it for
production is a very important thing.
Yeah, he was very clear about that.
So unfortunately, he then arguesthat the the investment that,
excuse me, the central banks need to take care of that, which
they can't. Yeah, but but it's it's very
(27:47):
interesting. So what we need to do as
Bitcoiners who who understand proof of work is we understand
proof of work to create base money.
The next thing we need to understand is that the real
economy also does proof of work when they produce goods.
OK, there's always a limited amount of goods in the in the in
the supply chain. And that proof of work is what
(28:09):
must back the valid, the real credit money layer.
If we ensure that we will be fine, we will have the most
stable currency which we ever had and there will possibly be a
competition on various ways to produce Bitcoin based credit
money. And some of them may have good
(28:30):
quality credit money and others may have bad quality credit
money and they will drop out by a very natural market selection
principle because they simply will will go bankrupt.
Yeah. Can you just clarify?
I, I think this is important that we get this right.
So just having a look back through through Hayek and he is
he says here better even than gold, that there is just not
(28:53):
enough gold about an international gold standard
could today mean only that a fewcountries maintained a real gold
standard while the others hung on to them through a gold
exchange standard, which sounds a little bit like Bretton Woods
to me. And so I'm just trying to
conceptualize maybe we can linger on this point.
The idea of a redeemability intoa commodity, whether it's gold
(29:15):
or Bitcoin at at a base layer is, is one thing.
And it seems, and maybe I need to read this closer, but it
seems that Hayek also talks about the idea that the value of
the credit layer is based on itsability to hold a stable price.
However, that is done and they're kind of almost two
(29:35):
different mechanisms. I'm just trying to think how how
we sort of connect those two in a way.
OK, sorry. That's a very good point, Cody.
If it's done correctly, if it ifthe credit money layer is based
on real goods, what's happening?Yeah, it's it's actually much
simpler than meets the eye. If, if credit money is only
(29:58):
generated when, when goods enterthe channel, enter the supply
chains, there was a fair price negotiated between the buyer and
the seller, whatever that is. It, it's, it's, it, it could be
very situational. I mean, a tank of water is more
valuable in the desert than here, right?
Besides the Danube River in Vienna.
(30:20):
So, so it's very situational andit's the buyer and the seller
each to the best to get the bestbargain for their side.
So that the seller obviously wants more money, the the buyer
wants to pay less wherever they meet.
It's an objective truth. It's the the negotiated actual
price. And what happens if you create
medium of exchange credit money at that moment?
(30:43):
Yeah, which which works by a very well known instrument
called the bill of exchange. That's why it's called so and,
and they agree for instance, to pay this credit after let's say
90 days, three months. Then within that period these
these goods stay in the channel and they are being sold to
(31:04):
consumers only in the end. And the, it is the the value of
those goods which stabilizes themoney.
And we have to take into consideration that the credit
money layer is, is way, way bigger than the, than the base
money layer. I mean, Hayek reported in, in,
(31:25):
in theory of money and credit, afactor of 10.
Jevons about 50 years later reported a factor of 1 to 20
credit money over over base money on gold.
So there's much, much more credit money available than than
base money. But that's actually not even the
the important thing because they're holding the storing of
(31:48):
base money. It will end up in some wallet
somewhere and it will be needed to finalize, verifiably finalize
the repayments the the cancellation of credit money.
So, so it's, it's, it's the constant production of credit
money which stabilizes the priceof money because the quantity of
(32:12):
demand when when shifting is metwith a adjusting quantity of
supply. And what adjusts the quantity of
supply is the so-called discountrate or in a Bitcoin system, we
probably call it better than minting fee of of Bitcoin based
credit money. So, so as the as the demand for
(32:34):
money, total money, credit moneyplus base money rises, the
minting fee to mint imperfect credit into perfect credit money
will rise. And as demand goes down, that
fee will fall. So that's that's the spontaneous
order which which the free market can give to it and it
(32:55):
will put use the money exactly there where it's needed.
So good to go back to your example of the oil price chalk.
Yeah. So when when the the oil
producing countries increased the the the price of oil, it was
not the total economy which all of a sudden needed more money.
It was those people who needed to buy oil yet to put it into
(33:18):
refineries, to put it in warehouses to distribute it to
service stations, to service stations to to store it until
finally a car comes by and and fill fills up the tank.
So, so it was only that specificpart of the money supply which
was which needed to expand to adjust to the new to the new
(33:39):
system. And the central banks can't do
that. They look at the CPI and they,
oh, CPI is going up. We need to increase the quantity
of money by giving it to the government to spend, which is
crazy. So here's a context then.
So what you've just explained, to be fair that there's a little
bit of complexity there. I think some, some people might
listen to that and and struggle to follow along.
(34:00):
But I think what, and it's OK, we'll, we'll elucidate.
I've just got this concept though that I've just come up
with. So looking at hierarchy, he
again talks about the idea of convertibility, which still
talking at this base layer, he says convertibility is a
safeguard necessary to impose upon a monopolist, but
unnecessary with competing suppliers.
Now that would argue that, you know, maybe it's not needed, but
(34:22):
the reality is we are living in a system of a monopoly money,
which is the state is issuing money.
And so in a sense, you know, andthis was, you know, written a
long time ago, Is it possible that the innovation that allows
us to now be in a position wherewe can realistically consider
the possibility of private moneythat is separate to the state is
because Bitcoin has given us this private peer-to-peer
(34:46):
censorship resistant base layer that we can then use to disrupt
the monopoly, which for it to organically work, it would be
maybe quite challenging, right? You know, there's been attempts
in the past in the 90s and, and,and that with various digital
monies, but because they didn't have that base layer, right,
they sort of struggled to reallymake any headways, right?
(35:08):
And so they. Tried to adjust the base layer
instead of distinctly separatingthose two layers.
Yeah. Oh, and, and, and also the
decentralization, right, they got shut down.
Let's be real, you know, these, these various digital currencies
in the 90s, they just couldn't stand up to the, to the federal
government of the United States.You know, So if we think of that
as the innovation that has meantthat we can now have a very
(35:30):
serious conversation about this becoming a a global monetary
system, that is the innovation perhaps that we've got a
censorship resistant base, we'vegot a decentralized base money
now just kind of expanding upon this, though, the reality it is,
as we discussed in the beginning, there is no supply
chains, there's no factories people, you, you, you often have
to give a discount if you want to, you know, get Bitcoin.
(35:52):
You know, there's all of these things that are kind of strange
when it is the hardest money we know.
And so kind of diving into the side of of a credit layer, maybe
you can tell me more about sort of what this means because
people get allergic to this wordcredit, right?
This, this, this idea that there's going to be trusted
parties involved. There's going to be banks.
You know, I thought Bitcoin was about, you know, getting rid of
(36:14):
the banks, becoming your own bank.
There's all this kind of narrative out there.
Can we maybe expand on exactly what we're talking about here?
Is it about bringing banks back into the system?
No, it's it's, it's, it's more or less it's, it's the opposite.
Yeah, it it means getting banks,all kinds of banks out of the
(36:37):
system for part of it. OK, so banks will be needed, but
they have centred both central banks and commercial banks have
right now usurped. I don't even know how you
pronounce that word. Usurped the the creation of
money. And they shouldn't.
Yeah, gold can be perfectly produced without banks.
(37:00):
Yeah. You just need a mint to to mint
it in in value units. Yeah, Bitcoin can be perfectly
produced without the government,without central banks.
It's it's in fact, we're all worried about making sure it
stays decentralized enough. Yeah.
And the same is true for credit money.
Banks should not be allowed to produce credit money.
(37:23):
And here, here is is a fine linewhere I think even the Austrian
school is sometimes not specificenough.
Because when you produce credit money, it must be produced only
(37:44):
from credit. And as long as it's production
companies granting each other that credit against real goods
which are going in the supply chain, it is in reality the
production companies which coulduse the credit which is
necessary for perfection to become credit money.
(38:09):
So what I'm saying is as long aswe make 100% sure as Bitcoiners
that the credit which is used toenhance it into fungible
divisible symbolic money for Bitcoin, we call it bit credit.
For the bit credit protocol. As long as we make sure that
that's only uses productive credit, we'll be fine.
(38:32):
There will be no, no inflation because the, the goods which go
into the into the supply channel, they approve of work
and when they are being consumed, those bills of
exchange are automatically repaid or paid as it called and
and that credit money disappearsagain.
So that's, that's the reason whywe are why bitcoiners correctly
(38:56):
are so allergic to credit is that this principle has been
completely perverted because of what happened.
We all thinking today of banks to create to to give us credit,
but in the future the banks willessentially not do any more
demand deposits because we bitcoiners, we will hold both
(39:19):
base money as well as credit money, self sovereign in our own
wallets. Not your keys, not your coin.
That's true for credit money. That's true for, for and the
trick how this all came about, if you allow me, the, IT was
became into being after the appeal act in, in the United
Kingdom in in 1844, when they sort of say correctly restricted
(39:43):
the issuance of, of banknotes toessentially be warehouse receipt
backed by gold. And that did not allow any other
credit creation by banks, but the left out, unfortunately, the
the bills of exchange. So what happened is that all of
a sudden the, the banks created demand deposits, Yep, with which
(40:05):
people could dispose of via paying with checks.
So that's bank money creation. Of the bad kind, but it was
necessary because otherwise the British economy would have
broken down. And in fact the for the first
three years after the Peel Act 1844, which we did see
substantial pressures in the in the economic system.
It's just people didn't realize what it was and and so does that
(40:28):
the solution to accept demand deposits of banks as money was
very obvious. But this is a wrong solution.
The correct solution is that that mints take credit produced
by the real economy by production and minted into
fungible Bitcoin credit unit. So that's shorten it to the name
(40:49):
of bit credits or just credits in the future.
So that's that's the correct process.
OK. Because I, we talk about demand
deposits, that is probably actually how a lot of people
think about their bank account, right?
They're not using cash like physical cash, they're they're
using their checking account. And that that is just numbers in
a in a spreadsheet somewhere that can be given to someone to
(41:10):
buy a house from, from the bank,right?
Yeah, Unlimited, yeah. Unlimited and so this is very
interesting. So I think I'm beginning to get
an the, the idea of sort of whatwe're talking about here is it's
bringing, I want must think, coming back like agriculture,
agricultural examples. It's like you've got this, like
this, the seed, right? There's these, you know, these
things that this capital, you know, original capital and it
(41:33):
can become, you know, food. It can become something or you
can eat the seed and you there'sthere's a potential energy in
there. And with credit that's based on
production, you know, there willbe, you know, some, some, some
weight come out of this. Or in the case of timber, there
will be some product, some manufactured good that comes out
(41:53):
of this. That actually is the bridge
between the real world, the realeconomy and the financial
economy. And again, you can't eat paper.
You can't live off that. You you live off the real
economy. That is what gives us
prosperity. Exactly.
Yeah. And in a sense, this modern
project where the financialization of everything
(42:14):
in a sense that mirror of the financial economy has become
tarnished. It's not reflecting the reality
of the productive economy. And so you do get the classic
business cycle boom and bust in misallocation of capital and all
these issues that we're aware of, right, speculative bubbles
as well when it comes to housing.
But this is still, I think, I know it's just we're limited on
(42:36):
time here, Hibertus. But this is still, I think a
little bit complicated for people who are used to the
simple narratives of fixed supply of huddle, you know, hold
your Bitcoin, these kinds of things.
But that has still LED us to thecase.
Here we are 16 years later where, you know, there's no,
(42:57):
there's no, there's no production, there's no.
Yeah, what I what I would what Iwould remind people of Yeah,
it's the question, where do you want to be?
Yeah, it's it's nice for each ofus wanting to be safe.
Yeah, we we put some of our wealth in Bitcoin.
While it's not 100% sure assuredthat Bitcoin will win, we
(43:19):
probably should also still keep a bit of gold and and thereby
escape the Fiat scam. But what but must be aware of is
Bitcoiners. Just because we are personally
safe, it doesn't mean that essentially the economy can get
better. We will still have inflation if
the economy runs on on Fiat. We will still have boom, bust,
(43:42):
boom, bust because the banks cancreate money for speculation and
for consumption instead of instead of just for production.
This will still have asset priceinflation because money being
created for speculation then instead of just for production.
As part of the asset price inflation, there will still be
people who try to protect the net worth not only in Bitcoin,
(44:05):
not only in gold, but also in houses in real estate, which
makes houses unaffordable for for the younger generation, with
all the implication that has on,on our values on family on and
you know, the social fabric. And and of course they can will
still be able to print for war and all kinds of stupid ideas
which the politicians have daily.
(44:27):
Yeah, I mean, I always say, look, if you have a a venture
found one and you try to get venture money, every venture is
fully aware that 90 to 95% of ofnew ideas are rubbish.
Whereas the politicians can implement all those ideas
without any any market control whether they're actually
damaging. Yeah, well, I, I do hope people
(44:49):
are still with us at this point.And I guess coming back to what
what I'm trying to do here, which is, you know, understand
what what's going on. Because there is maybe this the
simple argument that, you know, we're just early, that, you
know, this thing just continues going up in value.
And then at some point, you know, it is it gets used more
(45:12):
and more. But I mean, the reality is, you
know, it's, as I said, it's pretty hard to get a cafe up the
road to accept Bitcoin and it's a much even harder thing to get
them to pay their employees and Bitcoin and then for those
employees to then buy their own groceries and Bitcoin and so on
and so forth. Yeah, it's, it's an uphill
battle. And so I think what I'm looking
for is, is kind of a level headed analysis of like the
(45:34):
situation, which I know you're looking at with, but credit,
certainly the Austrians have given us some material to work
with, but something's up. And as you say, we might, you
know, we might be OK personally,we, you know, number go up, you
know, we have a stack. But if there is the continual
degradation of Fiat money, that has some real implications
(45:55):
because in a case where the realeconomy is massively impacted,
how much stuff can you actually buy with Bitcoin when you know
your economy is actually in a recession or a depression,
right? There's some connection there.
Yeah, exactly. So we will still have this, this
production misallocation distorted because of Fiat money.
(46:16):
But what's even more important and, and I think I proposed a
debate here to adopting Bitcoin in El Salvador these days, I
think that it is actually an absolute impossibility for
Bitcoin to remain a store of value medium or long term if we
(46:37):
don't also get it to win as a medium of exchange.
So I hope adopting Bitcoin will will record the debate.
But the argument is very simple.Right now we have a little bit
of breathing space because of, you know, the, the attitude of,
of the Trump administration towards, towards Bitcoin and
(46:58):
other cryptocurrencies, which isso to say, accommodating.
But there could be a political change tomorrow.
And some other politicians in the world, particularly in
Europe, are still very authoritarian and are continuing
to buy to, to build the mass surveillance state and, and
suppose the communist model of, of central planning, price,
(47:21):
price controls and all these things are happening as we
speak. So I'm saying it is impossible
for Bitcoin to remain a store ofvalue because the politicians
will build new laws, new regulations, new punishments to
avoid that that Bitcoin can be exchanged into into Fiat, which
(47:45):
is necessary if Bitcoin is only store of value.
And once they get out with the, with the CPDCS, they will have
total control about that. They will, if you, if you sell
Bitcoin for Fiat in CBDC, they can just switch it off and, and,
and, and that's to me, that's very key.
(48:06):
And that's the end. There might be other countries
where they still have that, but that's the end also of the store
value. Whereas if we do what's needed
so that the real economy can accept Bitcoin, that if we have
the credit money layer, which always used to be what's called
to, to fund the so-called wage fund with which people working
(48:28):
for businesses get paid and thenbuy goods.
If we get that going, even just in a small area to play out
correctly, then we have an insurance for that day when they
switch on CBDC. Yeah, this is, I think this is
important. And again, I, I appreciate this,
this truth that we're trying to find together.
(48:49):
Hibertus maybe not that many people are talking about this,
but you know, Hayek, if you lookat his writing from 78, he was
very pessimistic about the idea of the euro, which I don't think
it was just a glimmer and, and afew people's eyes, some
authoritarians. But now, as you say, today we
are in a state where the, the EUhas become this totalitarian
(49:11):
monster, exactly what Hayek was warning about, you know, in the
70s and it has come to fruition.And so I think we do need to
look at that with clear eyes andnot maybe rest on on our pride
and our hubris. That number go up because of a
favorable US administration. The, you know, going back to the
original idea of this whole thing is that we separate money
(49:33):
and state. And I think the questions we're
asking today and the questions Ihope I can explore again.
Maybe we expand on this with youagain soon, But how can we
actually achieve that? Because as you say, when you've
got real economy, real production, real factories out
there who are integrated and intimate with Bitcoin, they're
not just holding it as as as a nice to have that's going to,
(49:54):
you know, line their pockets, but it's actually essential and
part of their production. That's part of their supply
chains. It's in their contracts.
That's what's going to give bargaining power and political
power to this project, I think. I mean, it's, it's the right
question and answers them. If I know Cody, it's actually
what's keeping lots of the people involved in the bit bit
(50:18):
credit initiative up at night. How do we do it then?
How how do we make sure that Bitcoiners understand and that
we do the correct credit money there?
Sorry, you said? Yeah.
This so just quickly then on this debate adopting Bitcoin,
who who are you hoping to talk with on that or is that already
happened? I, I don't know, but I think
there's 99% of, of bitcoiners who think that the SOV story can
(50:41):
go on forever. So there won't be a lack of, of
people to, to argue against medium of exchange.
Funnily enough, Chuck Dorsey recently seemed to have made a
couple of of of comments and given his, you know, following
that probably has much more weight than a little project
like like bit credit, even though it's spreading throughout
(51:03):
the world. So there's more and more
countries where people say idea,we want to have that.
We want to talk to real economies, try to orange peel
them. So so that's that's going very
organically. But of course somebody like
Chuck Dorsey has has a huge following and then he says guys
go back on medium of exchange that has that has power.
Yeah, yeah. Just in our last few minutes
(51:24):
then Hubertus, tell me more justabout bit credit.
So where is the project at and kind of what, what stage are you
guys at? Any updates on that front?
Yeah, earlier this. So the project right now is
probably a dozen or so extremelyactive core core people writing
code and and thinking through the, let's say the business part
(51:47):
of how to make that happen goinggrowing rapidly.
We, we had a full prototype working prototype ready in Q1
this year, which we demoed. It's you can find it on, on, on
Twitter. The account of the of the
initiative which is bit bit CR under score ORGORG where we
(52:08):
recorded how it works is essentially this wholesale money
layer made of bills of exchange between businesses, between
production businesses, which then is given to mints who
enhanced this credit with a guarantee and make the bill of
exchange divisible into mini bills as we call them.
And we we essentially used cashew as a as a base to build a
(52:35):
new form of mint which we call which we calling Wildcat, which
is a credit mint. And those Wildcats make these
bills of exchange divisible and into a payment instrument.
Because we discussed before, a perfect claim to money is like
money. It's just perfect claim to base.
Money is credit, money is money.So you can use this with E cash
(52:57):
in in, so to say every Bitcoin astream of how how a payment
should be. It's absolutely no fees.
It's absolutely instant. It is scalable to whatever
number of transactions you want in the world.
It is perfectly fungible, which of course means that it's also
private and non sensible becauseif something is not private and
(53:20):
therefore sensible, it cannot ever be fungible.
So it's it's essentially the ideal money.
So I really love it and the difficulty is really the chicken
egg problem. How how do we get committed
businesses to do at least a little bit of the supply chain
business in Bitcoin while it is so volatile.
(53:41):
That's that's the nut we are needing.
We need to crack now. Yeah.
And I think ecash is very interesting and it seems like
there's more and more interest in that space where it is a very
smooth and and kind of elegant system.
I mean, obviously payments on chain and payments with
Lightning have an infrastructurecost.
There is sort of overhead for the user.
But with E cash, it's it's kind of a more simple instrument in a
(54:03):
sense because it's higher up thestack.
You know it is a lot easier and lighter weight, Lighter weight
from my understanding to use forthe actual payments, right?
Yeah, yeah, I mean it is and andthe problem with Xiaomi and E
Cash ever since its foundation was that it's custodial.
Now this is this is also at least my interpretation why
David Chalm originally, apart from some personality problems,
(54:27):
failed to to get it going and and Satoshi, so to say, did did
refer to E cash when building Bitcoin.
And so this is the the what we have also now in in Bitcoin is
to sit back to the roots. There are two two projects,
fedement and and cashew, which tried which tried the the
Charmin E cash specifically on Bitcoin, which, and as I said, I
(54:52):
think the the better one to build upon with with some pretty
big changes is is cashew becauseit needs to be made non
custodial. Yeah, if if we can't get like
Bitcoin, if we can't get E cash to be non custodial,
governments, politicians will beable to do their usual thing to
(55:13):
to capture it ultimately. So, so that's that's the effort
which is ongoing right now knocking on wood that will be
able to present non custodial E cash latest in Q4 this week, Q4
this year, excuse me. And and then I think the system
is ready to be be released in inthe wild.
(55:35):
It probably will take some 2-3 years for hardening, but the
idea is to harden the system andbe ready when the next Fiat
currency collapses. They collapse all the time as we
know. Nobody knows where.
Maybe it's Bolivia or wherever and and be ready when the next
country is looking for somethingand they hopefully don't switch
to stables but then do a Bitcoinwhich can stabilize.
(55:58):
Yeah, interesting. No, Well, that look, that's
fascinating and, and thanks for sharing this again, I do
appreciate this as as a complex topic.
I'm going to have to do a bit more reading on this.
Certainly diving into the Austrian classics has given me
some more insight into the way we can look at this.
But it is an ongoing conversation.
I think the take away is, is certainly that we cannot rest on
(56:18):
our laurels. You know, Bitcoin isn't
guaranteed as much as the numberfurnishes our, our, our egos
that we were right. That can also go away when
political forces come into play because there's no claims on the
real economy as it stands. It is all just speculative and
you know, some good properties there.
But once it's actually embedded into supply chains and factories
(56:42):
and businesses, that's got a lotmore power.
I appreciate that from you, Hiberto.
So if people want to find out more as well, the website bit
dot CR people can go there, check out, but credit, I think
you've even got a demo people can download, right?
Yeah, there's a demo video on, as I already mentioned, bit CR
to under score org on on X, we're probably going to upload
(57:05):
on the bit CR page 2. The bit CR page is dedicated to
wholesale money. So the bills of exchange
essentially between businesses. We will very soon now have a
retail oriented website showing the the wallet with which you
can use those divisible mini bills just like you would be
(57:27):
using a Lightning wallet today, essentially self custodial.
So like Phoenix or like like Breeze, these types of things,
but non custodial expected also in Q4.
Meanwhile, we are working hard talking to trying to find the
odd bitcoiner in the trade finance segment of of banking to
(57:47):
start talking to businesses to adopt it.
So any Bitcoiner who hears that,who is hearing this podcast and
knows a real economy businesses with a Bitcoiner who might want
to do this with a couple of sets, please point them into our
directions. And yeah, this is going to be
the way to to Orangeville businesses and not just Bitcoin
(58:08):
is * of value. Yeah, awesome.
Thank you very much, Roberto. Thanks, Cody.
Goodbye. Speak soon.
Thank you for listening. I am Cody Allingham and that was
the transformation of value. If you would like to support
this show, please consider making a donation either through
my website or by directly tipping to the show's Bitcoin
wallet. Or just pass this episode on to
(58:29):
a friend who you think may enjoyit.
And you can always e-mail me at hello at the
transformationofvalue com.
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