Everything There Is, Divided by 21 Million
A high level overview of time, money and Bitcoin from my recent keynote.
In 2009, Simon Sinek gave one of the most viewed TED talks of all time called ‘Start With Why’. In it, he talked about how great leaders inspire action by sharing a vision for why they do what they do what they do instead of focusing on what.
It seemed to work for him, as the talk has more than 60 million combined views on TED.com and YouTube. So, I’m not going to reinvent the wheel, and instead I’ll start at the beginning with why cryptocurrency exists in the first place and what problem it’s aiming to solve.
I believe that without this fundamental understanding, nothing else will make sense and one cannot successfully navigate the crypto space. Quick disclaimer….
The ideas I’m about to share are the summary of my deeply held opinions after spending thousands of hours researching crypto, finance, economics, game theory and the history of money, which I wrote about in my series on my website, and produced on my YouTube and substack, called ‘The Future of Money’.
Watch the full Keynote here:
I’m also sharing mini content from the keynote daily on my Twitter and Instagram.
That said, I wouldn’t be objective without telling you that I don’t have a degree in economics nor finance, and many people will disagree with my conclusions. If playing poker has taught me anything, it’s that I’m often wrong and I may be here. Also, nothing I’m sharing with you in this talk is original. I didn’t invent these ideas, right down to the title, which is a popular meme in the Bitcoin community, but my skill lies in connecting the dots and simplifying things in a way that anyone can understand.
Bitcoin and money are quite a deep rabbit hole, so let’s see if I can live up to the challenge. So, let’s go. By now you may be familiar with the origin story of crypto, so I’ll keep it brief. On October 31st, 2008 a computer programmer by the pseudonym Satoshi Nakomoto released a white paper for a peer to peer electronic cash system called Bitcoin. Nakamoto implemented the bitcoin software as open-source code and released it on January 3rd, 2009.
What many people don’t know is the message that was embedded into the blockchain itself. “The Times Jan 3rd, 2009 Chancellor on the brink of second bailouts for banks”. It was the middle of the global financial crisis, and the stability of our current financial system was in question.
This is a dense statement, and l can see how on the offset, Bitcoin and crypto is confusing and overwhelming. But really, the idea of it is quite simple, so I’m going to attempt to explain things using what are called first principles, meaning reducing things to their absolute essence.
If you’re new here, my name is Alec Torelli and I’ve spent thousands of hours in crypto, DeFi and NFTs. My mission at CrypTorelli is to simplify crypto so anyone can understand it. I’ll also share the latest, most exciting opportunities in the space before anyone else. Join the thousands of others to stay up to date.
From this standpoint one can begin to understand the problem that cryptocurrency, specifically Bitcoin, is attempting to solve. To me this is everything. You may have been told about the wonders of crypto or your friend who got in early and is now retired, but without a deep understanding of the why, you won’t have the conviction to hold through the what. But more on that later.
When one is just entering the rabbit hole, they ask, ‘what is Bitcoin? In a word, Bitcoin is money. But then you ask, ‘what is money?’ And this is where everyone’s Bitcoin journey begins, with a simple, yet profound question.
To summarize, money is time. Money is our best attempt to preserve and transfer time through space. Anyone can exchange their time for money. Contrary to what most people believe, and what Benjamin Franklin famously wrote in his 1748 essay, “Advice to a Young Tradesman,” ‘time is NOT money.’
Just ask any 20-year-old if they’d want to trade their time for a dying billionaire’s wealth. You can’t spend a nickel if you’ve run out of time to do it. So, similarly to how all squares are rectangles, but not all rectangles are squares, money is time, but time is not money.
Money is our way of encapsulating that time in a medium which we can trade with others. This is why we use the verb “spend” in reference to how we allocate it.
Think of money as the middle layer between one’s time and what they want to trade it for. This necessary intermediary serves to preserve the preciousness of the base layer. It can be said then that humanity’s quest to discover money was essentially a desire to bottle time in a way that was both permanent and transferrable.
One thing to think about and a question for you to ponder is, why do we have a financial system that relies on an ever-increasing amount of debt, when the asset the debt represents, time, is absolutely finite?
To put it another way, given that money is meant to encapsulate time, doesn’t it only make sense that the currency which backs it is the one with the most limited supply (and therefore the scarcest), just like time itself?
Never forget this idea, because so long as you remember that money is time, I’m confident that the more you learn about Bitcoin, the more it will make sense why Bitcoin is the best form of money ever invented and why it’s desperately needed to save us from the time theft that exists in our centralized financial system.
It can then be said that fiat currency, or money that is centrally controlled and backed by government decree is a broken system. When we leave the management of the currency supply to a central agency, who can print it at whim without consequence, it leads to the debasement of value for those who save in the currency. Unfortunately, this is most often the poor, who live paycheck to paycheck and don’t have the means to store their wealth in hard assets, which appreciate in value over time.
This in turn leads to an increase in the wealth gap. Known as the Cantillion Effect, the idea is that those who are closest to the money printer benefit the most, since they borrow the newly printed money at the best interest rates (because they are the most credit worthy) and then get to buy the assets with the money printed out of thin air first. This increases those asset prices, such as stocks and real estate, which then makes it more expensive for the average person who are left paying the higher prices instead of benefitting from them.
When prices rise over time due to their being more money competing for the same amount of goods, the poor people are stuck paying the bill. It’s been said that inflation is a hidden tax because most don’t understand how it works. Tax doesn’t quite do it justice. What’s really happening is money, which again is just bottled-up time, is being siphoned from the poor and given to the rich, or those who are closest to the newly printed money. If you look throughout history, the forced stealing time from others is best defined as slavery. For just how pervasive the time theft of central banking has been on humanity, I implore you to read Bitcoin philosopher Robert Breedlove’s work titled “Masters of Slaves and Money”.
Of course, this theft of human time isn’t the only problem with fiat. The excess printing of money has led to many hyperinflations throughout history, most notably in the Weimar Reuplic in the late 1920’s, which is best accounted in the book ‘When Money Dies’. But more recently we’ve seen this in Zimbabwe and Venezuela.
What’s important to understand, and the real a-ha moment for me was when I realized that we weren’t on a different curve than these countries, because we operate under the same monetary system as them, we’re simply at a different point on the same curve. Some would argue we’re not far behind, as here in the United States we’ve printed 40% of all dollars in existence in the past 12 months alone. Most experts believe this trend will continue, which has people worried about our currency holding value. Ray Dalio, arguably the best macro investor of all time famously said, ‘cash is trash’.
Once you see the problems with fiat, you can’t unsee them. Once one loses faith in fiat currency, they never regain it. It’s because of this that eventually there will be a run on the bank scenario, where the mass collective wakes up and we reach a tipping point where people no longer trust storing their wealth in fiat and look to move into hard assets. Like Hemmingway famously observes, this process happens gradually, then suddenly, which is subsequently the title of one of Parker Lewis’ recent series on finance and Bitcoin, one my favorite macro investors.
Put simply, our entire financial system can be thought of as a game of musical chairs. Everyone’s singing and dancing merrily so long as the music is playing, but you don’t want to be the one scrambling for a chair when the music stops. Better early than late, and for this reason I’ve spent the last five years searching for chairs. It’s important to realize I didn’t start by learning about Bitcoin because I have some bias toward it. Instead, I learned about money and the problems with our centralized system, which ultimately led me to Bitcoin.
Now that you’re aware of the problems of fiat, it’s time to examine the properties of money. Once you compare two monies side by side, you can decide where you rather store your wealth. Typically, independent economic participants like you and me, but even corporations and governments all have a choice over which medium we use for savings. Most commonly, this is one’s local currency or gold. That all changed in 2009 when Satoshi Nakomoto released Bitcoin into the world, introducing a new, and I’d argue superior, form of money.
Before we examine the properties of Bitcoin and what make it unique, let’s first examine what properties lead a commodity to being used as money. Recall that for something to be used by money in a society it is the consensus of independent market participants converging around one commodity. Since this has happened countless times throughout history and many items have been used as money, from shells to beads to tobacco and precious metals, we have a long history of the commonalities of these elements, and we can compare them to examine what makes some forms of money better than others.
For something to be considered money, it must possess these seven traits:
First it must be fungible, meaning one unit is interchangeable with another. I can exchange my $1.00 for your $1.00 because they are the same.
Second, it must be portable: Money must be able to be easily moved from one place to another.
Third is durable: Money must be able to be resist wear or decay.
Fourth, acceptable: Money must be able to be generally distributed and widely accepted.
Fifth, uniform: All versions of the same denomination must have the same purchasing power.
Sixth, divisible: One unit can be broken down into smaller units to pay for a wide range of goods and services.
Last and in fact the most important is money must be a store of value: The limited supply of the money in circulation ensures its value is preserved over time.
Fiat currency possesses the first 6 characteristic of money, but because it’s designed to lose value over time due to inflation, it is not a store of value and therefore cannot be considered money, but rather currency.
Gold on other hand is a store of value as its purchasing power has been preserved through time for thousands of years, and therefore can be considered money. Learning to distinguish between money and currency may seem subtle, but it’s profound. Neurolinguistic programming or NLP is a field of study which examines how words shape our beliefs and are used to literally program how we see the world. If you begin to properly identify fiat as currency and gold and Bitcoin as money, then it helps to reinforce the problems with fiat and benefits of hard money to yourself and others.
The core of my talk, and a first principle upon which to build one’s assumptions about the future, is that people will ultimately converge around the best form of money to store their wealth. The reason is due to game theory, a field of study which unlike economics and finance which I had to learn about from scratch, I can say I’m an expert in thanks to poker.
Game theory is a framework for decision-making in situations where competing players are motivated by differing incentives.
Pioneered by John von Neumann, game theory was developed as he aimed to solve the problem of bluffing in poker, a situation in which one has imperfect information, yet still must make a decision. It just so happens that I’ve played poker professionally for more than 15 years, so I’ve gotten to see the applications of this phenomenon firsthand countless times. When playing poker, my objective is to understand the tendencies of my competition and design a strategy to outplay them.
For example, if I discover my opponent bluffs too often, I’ll begin calling him down more. This approach works against inferior players who have easily exploitable betting patterns. Against top professionals, however, things aren’t so simple.
Imagine my thinking opponent begins our match by bluffing 100% of the time. I adjust by calling more. Upon seeing that I never fold, he’ll switch to betting exclusively with premium holdings, at which point I’ll readjust by folding more. As this pattern continues, less time will pass between each subsequent adjustment until we’re both changing our game plan hand by hand.
Now he’s forced to adopt a mixed strategy, betting with both strong and weak holdings to avoid being too predictable. The only way for me to counter is by calling with my strong hands and folding my weaker ones.
Taken to the extreme, if two supercomputers were playing against one another, they would inevitably reach a point where both machines adopt a perfectly balanced strategy, neither bluffing too often nor too little, neither calling nor folding too frequently, resulting in neither machine having an edge over the other.
Poker players call this a game theory optimal (GTO) strategy, and top professionals use it when they believe no edge can be gained by exploiting the opposition’s weaknesses.
In game theory, this is referred to as the Nash equilibrium. Named after the mathematician John Forbes Nash Jr., the Nash equilibrium is a solution in non-cooperative games in which each player is assumed to know the equilibrium strategies of the other players, and therefore, no player has anything to gain by changing his own strategy. What I didn’t expect in studying game theory was that it would help me to understand money.
The logic behind why a professional poker player uses game theory can also be applied to a society’s choice for money.
When it comes to choosing a type of money, game theory teaches us that people are incentivized to choose the option that is both the most efficient and best maintains its value.
Failure to store value in the hardest money will result in losing one’s wealth as the inferior money gets replaced by a better one. Inevitably, the most efficient money will win in the long run, just as the player utilizing the best poker strategy inevitably pulls ahead over a large enough sample size. We can illustrate this phenomenon with a simple thought experiment.
Imagine the members of a tribe are debating whether gold or aluminum would better serve as money. They can’t agree, so they use both with an exchange rate of 1:1. It’s obvious how this plays out: The aluminum corrodes, and they eventually end up using gold.
This eventually played out on a global scale, as countries around the world converged on gold as money. Known as the la belle epoque,(bell epaw-kuh) the entire world was on a gold standard in the early 1900’s.
Failure to adopt the hardest money has historically led to economic calamity. In 15th century West Africa glass beads functioned as money as they were very hard for locals to produce. Meanwhile the Europeans utilized the gold standard, and superior technology in Venice made glass relatively easy to manufacture. Seeing the opportunity, savvy entrepreneurs seeking currency arbitrage filled boats with beads, sailed south and bought things for pennies on the pound, or more specifically, glass on their gold.
This brought such destruction to the wealth of Africa that their currency became known as ‘slave beads’ as the debasement of the supply of glass beads literally enslaved the Africans at the hands of the Venetians. In short, the Europeans use of gold as money allowed them siphon wealth from Africa whose currency could easily be manipulated. Brought to their knees with an inferior ‘soft’ money, the Africans were ultimately forced to adopt the gold standard.
As world renown economist Seifadean Ammous observes in his most notable work, The Bitcoin Standard, ‘History shows it is not possible to insulate yourself from the consequences of others holding money that is harder than yours.
To borrow a poker terminology, gold has historically been the game theory optimal choice for money because no other option has yet proven itself to better satisfy the criteria of money. One of the key things we’re taught when we first learn about investment is that past performance doesn’t guarantee future results. So the question remains, if a better form of money were discovered, would society ultimately converge around it as the world’s store of wealth?
Well, using the first principles we outlined here, that the best form of money ultimately wins, and that money tends to one, meaning society converges upon one medium as money, the one which best preserves the base layer of time which it represents, then it’s only fair to reason that if a better form of money were discovered, game theory would incentivize people to store their wealth there, and ultimately lead society to using this harder form of money. I present to you Bitcoin.
Placed upon a side-by-side comparison, Bitcoin best satisfies the properties of money, outshining even gold. While we don’t have time to go into all 7 characteristics, two that I would like to highlight are divisibility and of course, scarcity.
Bitcoin solves one of the problems of gold (which is why silver was often used instead) in that it’s easily divisible.
One bitcoin can be divided into 100,000,000 units, (called Satoshi’s). This limit can be broken down further if necessary, making bitcoin the most divisible money in history. But most notably, Bitcoin shines in that it’s scarce, the closest thing we must mimic time itself. Bitcoin has a fixed supply of 21 million. No more Bitcoin will ever be issued, and it has a predictable and fixed inflation schedule which will issue new bitcoins until the year 2140. We don’t have time to get into why this is the case, but I encourage you to go deeper down the rabbit hole to better understand Bitcoin’s security and why this fixed supply cannot be altered.
The point I want to drive home is that Bitcoin is the most efficient form of money, and I believe this will lead it to be globally adopted as the universal store of value.
The reason it’s so volatile now is that it’s a new technology which is subject to market and price discovery. The market is not only tradable 24/7, but as people go down the rabbit hole and learn about the problems with fiat, they slowly wake up to what is going on and decide to store their wealth in Bitcoin. This has led to Bitcoin being the best performing asset of the past decade. Volatility means opportunity. When Bitcoin’s price is no longer volatile, it means it’s achieved its mission of becoming the global store of value, at which point it will be a unit of account and merely a savings technology for people worldwide.
As the price increases due to people waking up and choosing to store their wealth in harder money and opt out of the madness of fiat, some people decide to consume things with their newly appreciated savings, and buy a house for example. This leads to sell offs in Bitcoin in exchange for real world goods and services which causes a drop in price.
We talked about Bitcoin being the best form of money, and I do believe that. But Bitcoin’s evolution to money isn’t something that happens overnight. It’s the result of society ultimately converging on Bitcoin as the world’s best store of value. This requires people to become educated on things we frankly don’t learn in school, such as the problems with our fiat system, why some forms of money are better than others and of course, the lost field of Austrian economics, which should just be called economics, but that’s a debate for another talk.
Money has historically evolved over three phases. First, it’s a store of value, then a medium of exchange and finally a unit of account. Bitcoin is still relatively new and is in the store of value phase. Although it’s widely debated as to how the timeline of this transition will unfold, one thing is clear, and that is it will take some amount of time. That time I believe is a window of opportunity.
I wish we had more time to discuss other important topics such as how Bitcoin operates and why I believe it cannot be copied nor disrupted by another cryptocurrency, but for that I’ll have to point you to some resources at the end of this talk. For now, I’d like to address something which I know is on everyone’s mind and that is, what is the value of Bitcoin and how does this transition play out.
Depending on the day, the current market of Bitcoin is around 1 trillion dollars. This is 1/10th of the market cap of gold which is sitting at 10 trillion. But remember that Bitcoin is a far better form of money than gold, so if one believes that efficiency will win, we have an easy 10x from here.
But I believe we’re just getting started and in fact are living through the greatest wealth transfer in history. We’re living through the death of an asset class, where global bonds are paying negative yields. That’s some 30 trillion dollars that’s going to eventually be looking for a new home, when people finally wake up and smell the coffee. The boomer generation will likely own gold and not bitcoin. People in their 40’s may own some of both, but the millennials will ultimately own bitcoin and not gold.
That means in the span of a few generations, as the richest generation in history transfers their wealth to the millennials and beyond, we’ll see incredible inflows of capital into Bitcoin and the greatest wealth transfer the world has ever seen, with much of that money flowing into Bitcoin.
But it really doesn’t stop there. Remember that money evolves over three phases, ending with a unit of account. This means that if Bitcoin is to become globally adopted as money, all prices will be denominated in it.
Here in America, we currently use the U.S. dollar to denominate transactions, but this is inefficient because we don’t know current supply nor future supply. In a Bitcoin economy, we can simply say that the value of a Bitcoin will be the entire economy, divided by the 21 million Bitcoins. It sounds radical and far off, but here’s a simple thought experiment to ponder.
Imagine an economy with 2 people, Alice and Bob. Alice fishes and Bob catches squirrels. Each own 1 bitcoin. Alice now builds a net to catch more fish, and can therefore catch more efficiently than Bob, thereby wildling away his Bitcoin. Bob adapts by building a spear. These two items, the net, and the spear, are called capital goods. They exist within the economy. But remember, there are still only 2 bitcoin.
Therefore, the value of the bitcoin is essentially everything that exists within the economy. But it doesn’t end there, it’s also the value of everything that will exist in the economy.
Ultimately, I imagine a world where most of the wealth is stored in Bitcoin, as people can defer their consummation of present goods and rest assured, they will preserve their future purchasing power. When they desire something, they’ll sell the Bitcoin for the good or service.
At this time, we’ll have a quite stable ‘price’ of Bitcoin, as volatility will come down as the market cap increases and more people store their wealth in it. A fiat world where our currency loses purchasing power every year incentivizes people to speculate on assets which will outpace inflation, most notably real estate, and equities in the stock market. This has led to huge bubbles in both assets, which I believe will soften in the future as Bitcoin takes a large share of this pie.
Stocks will trade at more reasonable multiples and on a hard money standard like Bitcoin, people won’t need to speculate to outpace any inflation. Most don’t want to take on additional risk and would simply like to bottle their time to spend it later. That luxury becomes possible in a Bitcoin world where those with a lower time preference and more future oriented decision makers are rewarded by simply deferring consumption.
On a Bitcoin standard, one’s purchasing power increases over time, since technology brings the cost of goods down and increases their quality, and therefore one is incentivizing to defer consumption today to buy something better tomorrow.
This is just the beginning of the very, very deep rabbit hole that is not just Bitcoin, but value, economics, finance, history, psychology, and game theory. I encourage you to explore it further, because I personally believe it’s the most captivating thing happening in society today.
These predictions may sound far off, impossible even, so let me leave you with a framework for which you can use to come to your own conclusions. For one to conclude that Bitcoin will become a global reserve currency and the ultimate store of value for savers worldwide, they really only have to believe two things.
First, they must conclude that Bitcoin is in fact the best form of money. We discussed this briefly, but I’d encourage you to do your own research and verify this for yourself. You can start by reading or watching my series The Future of Money, or reading The Bitcoin Standard, or if you’re more financially savvy, ‘Gradually, Then Suddenly’ by Parker Lewis.
Second, one must believe that efficiency always wins in the end. While I believe this first principle applies to many facets of life, in the case of Bitcoin, it means that society will ultimately converge on the best form of money to store their value.
Remember that our fiat system can be thought of as one big game of musical chairs, and right now the music is playing loud as we’re printing money and only feeling the subtle effects of inflation, so right now many are dancing as their hard assets are appreciating in dollar terms.
But also remember that Bitcoin is the ultimate unit of account, and since it’s invention just over a decade ago, the dollar has gotten crushed in Bitcoin terms. One thing you can begin to do as you enter the rabbit hole is begin denominating your wealth in Bitcoin. As the popular meme goes in the crypto community, 1 Bitcoin = 1 Bitcoin.
Finally, it’s been said that the further you look into the past, the further you can see into the future.
Every single instance of fiat currency has ultimately failed given a long enough time horizon. As Voltaire says, ‘fiat always returns to its intrinsic value, zero.’ So, I’d encourage you to look for your chair while the music is still playing, because you don’t want to be scrambling when it stops.
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Thank you for your attention.
So do you still think we will live in a world with thousands of tokens and people using "coffee coin" and "sports authority coin" or do you see that money is the ultimate competition and we will only have one with any significant value?