Erik Voorhees discusses the role of Bitcoin as money at the Bitcoin 2013 Conference in San Jose, CA, May 18, 2013, hosted by the Bitcoin Foundation. He shares a lot of benefits that Bitcoin can offer to both business and non-business process.
Transcript
Transcript generated by YouTube auto-captions. May contain errors.
uh how is everyone doing today you guys having a good time here at the Bitcoin conference um it was about a year and a half ago that I was at the uh the first ever Bitcoin conference in New York City and uh there were only about 60 or 70 people there but the uh the number of friendships and businesses and uh projects that came out of that meeting uh led to a tremendous number of of great things we have today so I can't imagine what this conference with over a th000 people is going to yield in in a year or two years it's going to be very exciting uh my name is Eric Vorhees some of you know me as eoris on the the forums and on Reddit um I discovered Bitcoin in May of 2011 just before the first bubble and uh through 2012 I was the head of marketing and Communications for bit instant which is uh one of the largest Bitcoin companies in the world based out of New York City and uh a couple months ago I left bit instant to be the CEO of coinapult which is now based down in Panama uh coinapult allows people to send Bitcoin to uh to email and SMS um through your phone and uh some of you may know that I'm involved in a little project called Satoshi dice which is the world's largest uh and most popular Bitcoin game um it is responsible for roughly half of all Bitcoin transactions that have ever occurred and and uh more than more than half of all the mining fees that have ever been paid um but this talk is about how we get around the 21 million Bitcoin limit I started to think that it's a very silly Rule and that we actually need a monetary Supply that can grow with the economy I'm just kidding uh it's actually about the role of Bitcoin as money and um it's intended to give people a better understanding of money itself because to really understand Bitcoin you have to understand money from a very fundamental point of view um so for this talk you can forget the tech you can forget the mining you can forget all the cryptography and the peer-to-peer networks and the open source code and you can forget these things cuz I don't understand them either but more importantly all these things are really secondary to an understanding of money itself the core of the Bitcoin experiment is not about tech it is about money um so unfortunately most people do not spend enough time pondering the nature of money and this is strange and somewhat tragic because we spend our lives chasing it money is half of every transaction it is the most important commodity in the world and yet for the most part people have only the most superficial understanding of it and from an early age we understand that money is good right we want it we're happy when we have it and we're sad when we don't and we learned that to obtain money we must work hard and as we leave childhood we go to school for many years and work very hard so that we may obtain more money so much of our Lives is spent searching and grasping for something that we don't really understand now on the surface the reason that we seek this money is is very simple right it it lets us buy things the utility of a new car or the entertainment value of an Xbox or the the delicious flavor of a nice steak dinner uh all these things are apparent to us and if we want those things we have to get money in order to buy them but what we don't spend enough time considering is why the money we use actually enables us to obtain the car the Xbox and the dinner why is a shoe maker willing to give us his shoes in return for our money and you cannot answer this by saying that the Sho maker will in turn uh hand his money over to someone else because this begs the question why does that person want the money and if nobody actually wants the money and they only care about what the money can buy how did this whole crazy system get started who is the first person tricked into accepting something so silly as money in return for something real so this is what we want to examine we want to see how we got to this point now in school we learned that before we had money we had something called a barter system caveman number one would trade his fresh Mammoth meat for a nice new spear from caveman 2 and and uh baring in this way makes intuitive sense to us and even as children we engage in it school then tells us that there is something wrong with bartering something called a coincidence of wants for if caveman 1 wants the spear from from caveman 2 then that's fine but what if he doesn't want to spear in a barter system few trades are able to occur because of this dilemma and the extent of the market is severely limited and again this makes intuitive sense so we learn it Get Around The Coincidence of once dilemma money was invented and money is simply the name for a common medium of exchange whereby everyone agrees to trade money instead of other objects and we learned that things like wam shells were early forms of money and that eventually people began to use gold and silver and now today we've used Fiat paper bills as our form of money and since this narrative is presented to us as one of ongoing human development most children tend to grow up assuming that dollars or Euros or or or Yen are proper money and things like seashells and gold are outdated relics further they come to perceive dollars as a very physical item because they can hold physical bills in their wallet and we all see movies with the bad guys robbing the bank and stealing big piles of cash and we all want that pile of cash so even though nearly all of our digital our dollars are digital today we still perceive them as something very physical and with this as our frame of reference Bitcoin looks kind of absurd doesn't it if One Compares dollars to bitcoin Bitcoin looks like a joke it's purely digital it's not backed by any trusty government unregulated no presidential heads or Latin incantations inscribed upon it clearly is nothing more than magic internet money an absurd fad a bubble tulip Mania pets.com Ponzi scheme but why is it that some people believe in money in Bitcoin is money when it is so clearly different to to Dollars which are clearly the ve the best form of money that we could ever hope to have and I think it's because these people have a different understanding of money itself and this different understanding is not really taught to us in school consider that a crucial question may have been missed why were seashells or gold chosen as money in the first place was there a vote did people just wake up and start using it do people switch over one morning as they do with daylight savings time I believe that the question of why gold became money is in fact one of the most egregious lapses in modern education gold was the money of the world all the way up until 1971 why was this the case why was it gold and not rubies or eggs or feathers and if gold was chosen as money and no one ever seems to have enough money then why wasn't something more plentiful like grass chosen as money clearly if grass had been chosen as money we would all have plenty of it and poverty would have been wiped out thousands of years ago so whose bright idea was it to choose gold in an absence of a proper education most people assume that Society just arbitrarily decided to make gold money and that any other commodity would have worked roughly as well they perceive money as an arbitrary token but this is a mistake and this is where the grand misunderstanding of Bitcoin begins because if money is an arbitrary token and we already have an arbitrary token backed by the full faith and credit of the United States government why should we get distracted by some other arbitrary token and the reason is that money is not arbitrary money is selected with very good reason and through a very natural process now gold became money gradually over time not by mistake but because it had specific attributes that made it highly useful in exchange it is these attributes these specific properties of gold which led it to be used increasingly as a medium of exchange simply put gold had better properties than anything else so what are these properties of gold gold is scarce and this is important because if something like grass was our medium of exchange how many wheelbarrows full of grass would you need to take to the store in order to buy your food gold is fungible and and uniform every ounce of gold is the same as every other this is why things like rubies or diamonds while they could work as money aren't as ideal as gold gold is transportable it has a high value to weight ratio it's easily identifiable and it is highly durable it will not rot when you tried to save it and the supply of gold is relatively steady and predictable and so if you understand that these attributes make gold a great means of exchange you'll understand why gold was inreased inly sought in the marketplace and what this means is that a money-based system is not actually something separate from a barter system at all it's simply a barter system that has been running for a while a barter system that has coalesced around one or several key Goods we're actually still in a barter system and most people today prefer to barter for goods called gold or dollars or Bitcoin we call these most exchangeable of goods money so money is thus nothing more than the outcome of barter and historically this is tended to be gold simply because it had the best use the best attributes for use and exchange and so if we understand this and we see the Genesis of Gold's monetary use that it was nothing nothing magical or arbitrary gold simply had the best properties for exchange and was thus frequently Bartered for then it should not be a stretch to imagine that a commodity with even better properties than gold might make an even better money and this is what I found when I discovered Bitcoin now but wait Eric some of you might say this we already have something better than gold it's called the United States Federal Reserve Note also known as the dollar certainly the Federal Reserve Note is superior to gold and that's why we use it today well let's examine the properties of this form of money dollars are fungible and uniform that's good they are transportable perhaps even more easily than gold they have a high value to weight ratio they're fairly easy to divide and recombine so this looks pretty good so far but what else well they've lost 98% of their value since the Federal Reserve created them why is that well it's because they are constantly created out of thin air every year vast new quantities of dollars are produced this is called inflation and while most people assume that inflation is just a natural phenomenon like rain or Sunshine that's incorrect it's just money being created and debased constantly and in fact it may be the greatest scam ever devised but a scam needs a victim why would anyone choose to accept a form of money that could be constantly created out of thin air and which loses purchasing power with every passing day the reason is that they are forced to they are forced to pay tribute to the government using this money through a scheme called Taxation and through legal tender laws in other words dollars are not used over gold because the attributes of the dollars are superior a free market does not choose dollars because of the of the Merit of the dollars dollars are used because people are forced to use them and we could discuss why the government forces people to use dollars or the various ways in which it does this but those are topics for different discussion so these are the concepts behind money that people need to understand gold value is used is due to its specific attributes while the Dollar's value is due to Legal Force so how does this relate to Bitcoin bitcoin's value as money needs to be understood like gold which comes not from legal Force but from its specific attributes bitcoin's attributes make it an amazing form of money and it was engineered just for that purpose so what are these attributes Bitcoin is easy to divide and recombine Incredibly easy in fact you can divide it into 100 million pieces and recombine it on your phone Bitcoin cannot be counterfeited unlike dollars and to some degree unlike gold which is occasionally filled with tungsten Bitcoin is highly durable so long as certain precautions are taken Bitcoins will not just disappear or Decay over time and perhaps most important Bitcoin can be sent anywhere instantly at near zero cost now if you were to create a superhero currency this is an attribute that you would give it it is essentially the ability to fly now you can't do this with gold due to physical constraints and you can't do this with dollars due to Legal constraints further Bitcoin is scarce it is has a known Supply and a very fixed inflation schedule that everyone understands further gold cannot be manipul or sorry Bitcoin cannot be manipulated restricted or seized by any Central party it shares this property with gold nobody has special privileges in this way it is very Democratic and egalitarian and just as Bitcoin just as mankind has engineered houses to be used as shelter and cars to be used used as Transportation so too can we engineer something to be used as an ideal medium of exchange but while the dollar is a very poorly engineered money so poorly in fact that it requires coercion for its value Bitcoin is a brilliantly engineered money and it might not be perfect but Bitcoin is pretty damn good and this is why people are using it as money despite despite the fact that nobody is forced and given that it is so useful as money due to its attributes it should not be a surprise to anyone that it commands a market price any good that is useful and scarce will have a price economists and journalists often get caught up in this question why does Bitcoin have value and the answer is very easy because it is useful and scarce I think these people should be asking the more important question why do they have value and the correr here is that bitcoin's value can never reach zero unless it is no longer useful or no longer scarce so this brings us to the more interesting topic for if Bitcoin is so well engineered as money won't it necessarily be begin competing with other forms of money a fair question would be well if that were true Eric why have people not tended toward gold over the dollar isn't gold as you claim a superior form of money the reason is that while gold works very well as a store of value indeed the best that the world has ever known it doesn't work so well as a means of Exchange in our modern society and this should be obvious transacting in physical gold is unfortunately quite a burden and while services like eold had huge potential they inevitably fail because as soon as they become successful the government shuts them down to those of you who don't know eold was a company several years ago that allowed you to have a digital currency that was backed by gold held by the eold company and this was brilliant and it worked very nicely until they got too big and they were shut down if a digital gold company becomes too successful the government will simply destroy it and this is why gold remains safely in vaults it is used for storing wealth but not used so well as a currency so we see that physical bullion is too inconvenient and a digital bullion currency is a fantasy because it requires backing by a party that can be shut down this is also why anyone who suggests that Bitcoin should be backed by a real asset such as gold is Gravely misunderstanding the situation backing injects counterparty risk because a specific person or entity must be obligated to fulfill the backing a backing requires a backer Bitcoin does not need backing because it is a digital commodity that is valuable itself and valuable in large part because it carries no physical burdens or constraints it is this lack of physical backing which enables it to move anywhere instantly at near zero cost so one can see that Bitcoin is revolutionary in this regard for the first time ever a form of money Superior to all others due to its specific attributes has been successfully decentralized and decoupled from the material world in such a way that nobody can turn the system off and the world has never seen this before I think that there is now a certain inevitability that markets around the world will gradually gravitate toward the superior money after all money is a good like all others and it competes for the attention of the using it so I think it is fair to say that Bitcoin is a Monumental invention that has finally been captured by mankind and if you understand the deep and Central role that money plays in every aspect of Our Lives then might might not Bitcoin be considered as important as things like the printing press or the automobile or the internet and considering these other inventions not everybody is literate not everybody has a car and not everybody's online but everybody uses money and for those who are wondering you do not even need the internet to use Bitcoin so all of you who are involved in this right now are making history and perhaps most exciting about this is that the only thing which can derail this invention is an even better invention if you play through the various scenarios in your mind you'll realize that Bitcoin can only fail if a superior currency takes its place in which case mankind is even better off and the promise of Bitcoin will carry forward into its successor so the genie is truly out of the bottle and we are right now in the middle of a very Grand experiment to see what this Genie is capable of the point is this Bitcoin like gold has properties that make it an excellent form of money however unlike gold Bitcoin can actually be used in our modern economy for day-to-day exchange unlike gold Bitcoin as an asset with no counterparty risk can be transferred to anyone on the planet in one second it is superhero currency and nobody's permission is needed there is no terms of service further bitcoin's decentralized nature means that it is not in danger of being shut off the incumbent monetary monopolist cannot stop it perhaps you know to who am I referring thus Bitcoin can actually achieve critical mass and nothing has ever been able to claim these attributes before and this is why it is very foolish to compare Bitcoin to any other digital currency from Facebook credits to World of Warcraft gold to everyone's favorite virtual currency the United States dollar bitcoin's attributes enable it to operate freely and grow with an increasingly larger sphere of activity inevitably this means it will start displacing monies with inferior attributes Bitcoin will grow like a benevolent Hydra with heads sprouting up in every country and every Community it will gobble up Commerce that has until now been Shackled to the economic witchcraft of a decrepit Fiat Financial system and it will leave an expansive frictionless Marketplace in its wake it is up to all of you guys to grow and capture and nurture that new Marketplace someday in school I think that the curriculum will be different the children will be taught the true nature of money they'll learn the difference between a real asset like Bitcoin which is based on Merit and a virtual currency like the US dollar which is based on coercion they learn how powerful a market can be when Mee of exchange is honest and I learn how a small group of idealistic entrepreneurs saved the world from a monetary Dark Age I feel very excited for my children to someday grow up in this world and I am deeply honored to be here with all of you in San Jose working on this project and I can't wait to see what happens thank you very much [Music] uh so we'll open it up to questions I don't know how much time we have left but questions here at the mic hi Eric uh as a fellow libertarian I'm very sympathetic to your point of view uh but I think you will also be sympathetic to the idea that Bitcoin is presents an existential threat to the state and that the state isn't going to go down without fighting um what are your thoughts on the importance of the exchanges and how they how are we going to get past the exchanges of central points being attacked by the state you seem to have an optimistic perspective that we're just going to get get to the other side um I want to know what you think about the path to getting there people often complain that the exchanges in Bitcoin mean that actually decentralization is a myth and that we're far too centralized what people forget is that while a certain exchange may be centralized the concept of exchange is decentralized any exchange that becomes taken down or molested in some way can be very easily replaced by an exchange somewhere else and not just a formal Corporate Exchange with millions of dollars but people meeting in a Starbucks or people transacting just over the Internet with each other other so the fact that Bitcoin is currently exchanged mostly centrally in a couple of large exchanges does not mean that that's always how it has to be and if there is any resistance to that problem Bitcoin can route around that very easily yes good afternoon I'm a surveillance and monetary scholar writing my thesis on bitcoin and I thank the foundation for giving me a grant to come here and I've been puzzling over these same questions that rais I appreciate that you brought up the state theory of money and I just wanted to ask you if if you really believe that this is a new form of money that we're starting to use uh do you believe that we're in fact entering a new form of time no I'm not sure what you mean by a new form of time well I mean it's something I'm I'm trying to puzzle through too but uh just to give you an example I mean every time we um make a deposit in our bank account or we write a dat on a check uh we are in fact inserting money into the teos of Christ and I don't imagine that there are a lot of evangelicals here and you could even say you could even theorize that uh money is the kind of the the faith of the atheist if you will or the stranger and so um it's just a question that occurred to me well I certainly don't want to mess with anyone's Tios actually I just want to give a followup point that you're talking about about this myth of barter well um in Dr David graver's book the credit for 5,000 years it talks about that exact same point where that actually from Barter credit came before money where like let's say you had these um The Coincidence of wants well maybe the trusted person in your tribe or your social group would be the person all that would coales to and you would go to this person he'd kind of be your Marketplace your or G what how he put gold in currencies and in in a paradigm of in low trust environments people would go through um uh payment methods that you can settle right there like if you had soldiers coming through the town and you had some Goods to trade as they're going off to battle you don't want to extend them credit to someone that's going to go off and maybe come back or not but if they have some gold or something you'll settle with them right there but then in times of high trust and usually Pro uh peace and prosperity it's when you have a more of a robust credit system and as we look through different monetary instruments that you see over history you see lots of evidence of not money but lots of credit instruments and even in um Egyptian H Hogs uh one of the first things we saw was actual tablets uh showing different transactions and kind of balancing out the goods of payments so I think that's something that kind of follows up with what you're saying is that there that is a a myth that's been put on to us but I don't think it's correct that we kind of went to this bartering and all a sudden we just created money went forward what I was saying is certainly a gross oversimplification bar was not the only means of exchange and uh certainly may have only been a minority of it but I think the fact that people will know that we trade with each other and and we can see that if you trade with each other more and more you'll you'll tend to trade for things that you can trade with other people and uh I I think it's very it's a very natural process and uh so I'm I'm sadden to see that a lot of people don't seem to understand that how that whole phenomenon works but I agree that uh you know if we were to dive into more of the credit stuff that it would get a little more complicated thank you yeah yeah so there's uh there's been a lot of discussion about the generation limit of Bitcoin and whether that's a feature or in the long term that's actually going to um hold back the currency by setting an artificial limit to the money supply um I was wondering if you had any thoughts on that um about the strengths of Bitcoin as as a currency relative to other currencies out there when there is this hard limit on the money supply if we look forward 50 Maybe 100 years from now if we're still using Bitcoin and and we're we are limited to those 21 million Bitcoins that are circulating and I know you can divide them up to to as many decimal places as you want but there is still that hard Cod coded limit and there's only so far you can go with decimal places before it gets convoluted I think you can go pretty far with decimal places um I think that if there was no hard living on bitcoin I never would have gotten interested it in the first place I think that is a a core fundamental um purpose of the this entire currency we can call it an experiment we can see well maybe in the future people will look back and say ah yes it was the hard limit which prevented Bitcoin from succeeding but I think they're going to be saying the very opposite that it was a hard limit that actually allowed it to be something new and different and that's what everyone latched on to in this time where any any money could be printed by any group of people except for this one hi um I'm on not I'm a graduate student in self assembling uh materials so very libertarian in spirit um yeah so I wanted to ask a few questions uh to refine the the thesis you know back in campus I'm also preaching sort of similar arguments but in this friendly environment I thought to sort of sharpen our uh understanding so one of the questions that comes is why not silver right we don't have the same coercion perhaps of being able to not being able to trade with it and it fits all our um variables it's scarce spongeable transportable durable there's a steady supply of it so why why not silver should there be some other variable that you know gold lived up to uh and Bitcoin can live up to um I I think that silver and gold fall into a very similar category neither of them can be sent anywhere anywhere in the world instantly at near zero cost so so that's again going back to the ease of uh transmitting it which is a huge huge point right um so that's what you meant by transportable okay um the the way I thought the argument was being developed was here is gold and it you know did its job great but then we needed to supplant this alternative which is US Dollars and we ruled out gold and we needed this other alternative um but you're saying no that's not what I was saying okay I think I get it so not not to be rude but there are a bunch of people and we only have a couple minutes so I might ask for other questions thank you though hi I'd like to thank you for coming um I'm currently an economic student and I haven't pledged allegiance to any school of economic thought just yet but um I must ask um how do you address the the wealth of evidence that does support um that in at least the short term um an increase in you know monetary Supply um has an effect on on growth um well if you measure growth as a as spending then of course printing money is going to increase growth we we measure growth in this country by GDP which is simply a measure of how much money is being spent if the government prints a whole bunch of money and everyone goes around buying refrigerators GDP is going to Skyrocket but everyone's now poorer so this whole idea that that economy should be measured measured by GDP in the first place I think is uh is is abhorent and has led to a lot of the problems that we have today I agree thank you um thank you Eric for your very eloquent uh speech um I see a very striking U similarity between Bitcoin and the internet and while the internet um at the beginning you know um open the flaws of of um the gates of information to everybody um I think nowadays is being uh used in a very um a strategic Way by government to you know Target on Leakes and spy on everyone um so to keep it short uh although while you know us Libertarians have a lot of control over Bitcoin I'm actually a Democrat oh I'm sorry uh Bitcoin proponents then how about that uh um this question applies for everybody uh do you think that the government in in the near future will actually abuse some of the of the openness of Bitcoin and actually we might end up worse uh than using cash I don't think that anything that allows individuals to take ownership of private property is ever going to make anything worse will the government try to use it for nefarious purposes absolutely um but the fact that any individual now can pull the the wealth into their into their own possession and send it to anyone else and it is in their own possession um I don't I don't see any way that the government could corrupt that my name is Charles Evans I teach Finance in Florida at Florida Atlantic University and um one of the things that gets lost in a lot of these talks is that there's a lot more to the protocol than just the payment system it has incorporated within it the ability to sign contracts and there's a key to a particular account have we map an individual or company or club or whatever to an account is a separate topic uh but it is tractable an insurance policy is a contract an option is a contract future a forward is a contract a bill of sale is a contract a prospectus is a contract that spawns shares a bond is a contract a lease is a contract an employment agreement as a contract you could gun down every exchange operator in the world as long as the wallets are running the protocols running and I will write promisory notes for cigarettes and use those as many as I have to and those of you who are worried about the Satoshi being the smallest unit I'll be more than happy to write promisory notes for one one trillionth of a Satoshi and then if you bring me a trillion of those I'll give you Satoshi that's what he's trying to get at this thing is kidney punched already many many times and that's why we're still fixated on mining and day trading but if you take that away you've got this thing underneath I'm actually appalled that I have as much value as I have on bitcoin thank you very much but I would be just as pleased if we were play the damn protocol and and creating well it's it's open source have you heard no I I heard the rumor but that's communism open source is communism yeah it open source is the absolute oppos opposite of Comm um okay I think I think we're out of time but I'm sorry that was that was the last one but you can talk to me afterward all right thanks everyone [Applause]