Hal Finney (PGP & Bitcoin)

Harold Thomas Finney II (May 4, 1956 – August 28, 2014) was a developer for PGP Corporation, and was the second developer hired after Phil Zimmermann. In his early career, he was credited as lead developer on several console games. He also was an early bitcoin contributor and received the first bitcoin transaction from bitcoin’s creator Satoshi Nakamoto.[1]

Is Bitcoin the Future of Money? Peter Schiff vs. Erik Voorhees

On July 2, 2018, Reason and The Soho Forum hosted a debate between Erik Voorhees, the CEO of ShapeShift, and Peter Schiff, CEO and chief global strategist of Euro Pacific Capital. The proposition: “Bitcoin, or a similar form of cryptocurrency, will eventually replace governments’ fiat money as the preferred medium of exchange.”

_____

Subscribe to our YouTube channel:

http://youtube.com/reasontv

Like us on Facebook:

https://www.facebook.com/Reason.Magaz

Follow us on Twitter:

https://twitter.com/reason

Subscribe to our podcast at iTunes:

https://goo.gl/az3a7a

Reason is the planet’s leading source of news, politics, and culture from a libertarian perspective. Go to reason.com for a point of view you won’t get from legacy media and old left-right opinion magazines.

_____

It was an Oxford-style debate in which the audience votes on the resolution at the beginning and end of the event, and the side that gains the most ground is victorious. Voorhees won by changing the minds of 15 percent of attendees.

The Soho Forum is held every month at the SubCulture Theater in Manhattan’s East Village. At the next debate, which will be held on August 27, William Easterly, professor of economics at NYU, and Joseph Stiglitz, a Nobel Prize Winner in economics and professor at Columbia, will discuss whether free markets or government action is the best way to eliminate global poverty. You can buy tickets here.

What Is Lightning Network And How It Works

When Bitcoin was first proposed by Satoshi Nakamoto in 2008, the very first public comment on the system made by James A. Donald contained the following line: “the way I understand your proposal, it does not seem to scale to the required size”. Ten years later, scalability is still the biggest problem for Bitcoin as well as other veteran cryptocurrency systems.

What exactly does scalability mean? Well, throughout its existence Bitcoin has only been capable of processing around 7 transactions per second. While this was enough at the very beginning, the system has been congested for a few years now. As a result, transactions take a long time to process and transaction fees are extortionate.

If Bitcoin is ever to become a fully-fledged alternative to currently existing payment systems, it will obviously need to be able to compete with them. As of now, it’s not even close. To understand the magnitude of the situation, simply compare Bitcoin’s minuscule 7 transactions per second to Visa’s average of 24,000, and its peak capacity of around 50,000 transactions per second.

Over the years, Bitcoin’s community came up with various proposals on how to improve Bitcoin’s scalability, but an overall resounding consensus is yet to be reached. That’s why we currently have several Bitcoin-like networks branching out from the original one. There is, however, one proposed solution currently being tested that might just work. It’s called the Lightning Network.

What is the Lightning Network?

At some point in history, sending a telegram was the quickest and most efficient way of long-distance communication. To do so, you had to go to your local post office, fill in a form and pay for your message based on how many letters it contained. Then, the message would get telegraphed to the nearest telegraph office for transmission to the distant end. A postman would then deliver the telegram to its destination.

Basically, there were a lot of people involved in sending a simple short message and you had to pay quite a bit of money for it. That’s pretty much the current state of the Bitcoin network. In this analogy, the Lightning Network is essentially like having a person you want to talk to on speed-dial: you just need to press ‘1’ and your friend’s phone is already ringing.

Captain Jack Sparrow uses Lightning Network technology

To put it simply, the idea behind the Bitcoin Lightning Network might’ve sounded something like this: we really don’t need to keep a record of every single transaction on the blockchain.

Instead, the Lightning Network adds another layer to Bitcoin’s blockchain and enables users to create payment channels between any two parties on that extra layer. These channels can exist for as long as required, and because they’re set up between two people, transactions will be almost instant and the fees will be extremely low or even non-existent.

How does it work?

Enter Danny and Jon. They may be working together, they might be relatives or a couple, the point is they need to send money to each other rather often, quickly and with minimal fees. Thus, they set up a channel on the Lightning Network.

Firstly, they need to create a mulitisignature wallet, which is a wallet that they can both access with their respective private keys. Then, they both deposit a certain amount of Bitcoin – say, 3 BTC each – into that wallet.

Bitcoin mulitisignature wallet

From then on, they can perform unlimited transactions between the two of them. Essentially, these transactions are redistributions of the funds stored in the shared wallet. For instance, if Danny wants to send 1 BTC to Jon, she will need to transfer the ownership right of that amount to him. Then, the two of them use their private keys to sign for an updated balance sheet.

The actual distribution of funds happens when the channel gets closed. The algorithm uses the most recently signed balance sheet to determine who gets what. If Danny and Jon would decided to close the channel after that one transaction, Danny will get 2 BTC and Jon will receive 4 BTC.

A girl uses Lightning Network technology

Only after the channel is closed, the information about it’s initial and final balance is broadcasted to the Bitcoin blockchain. So, the way the Lightning Network works is it enables users to conduct numerous transactions outside of the main blockchain and then record them as a single one.

The most exciting thing here is that once the technology is widely adopted, you won’t necessarily even need to set up a dedicated channel to send funds to a certain person. Instead, you will be able to send payment to someone using channels with people that you are already connected with. The system will automatically find the shortest route.

This is how the Lightning Network might eventually provide an answer to the never-ending debate about buying a cup of coffee for Bitcoins. By the looks of it, doing so through the network of Lightning channels may just work, as it will be an almost instance purchase that won’t incur any fees.

Security. However, it is worth noting that the concept of the Lightning Network means that the system will work on top of the blockchain, but won’t actually have its security behind itself. Thus, it’s very likely that it will be mostly used for small or even relatively microscopic transactions. Larger transfers that require decentralized security will most likely still be done on the original layer.

Secure Bitcoin wallet

Finally, another fascinating feature of the Lightning Network being tested at the moment is cross-chain atomic swaps, which are transfers of tokens between different blockchains. Simply put, it’s a way of swapping any given cryptocurrency to a different one without using cryptocurrency exchanges.

Ultimately, this technology might make unsafe centralized cryptocurrency exchanges as well as the hassle associated with trading on them obsolete. The first test of exchanging tokens between the Bitcoin and Litecoin test blockchains has already proved to be a success.

Who developed it?

Lightning Network was first described in a white paper by Joseph Poon and Thaddeus Dryja in 2015 – the current version of the white paper can be found here. There are currently three teams collectively carrying out most of the work on the development of the Lightning Network: Blockstream, Lightning Labs and ACINQ, with input from other members of the Bitcoin community.

Each of the startups mentioned above is working of their own implementation of the Lightning Network Protocol written in different programming languages.

Blockstream logo

Blockstream works on LN version in C.

Lightning Labs logo

Lightning Labs is developing a Lightning Network Daemon (lnd) written in Golang.

ACINQ logo

ACINQ is responsible for a Scala implementation.

Moreover, there are other implementations currently in development. The full list is available here. Finally, it is important to mention that the recent tests have proven that the three major implementations are fully interoperable, which means they can seamlessly work with one another.

Where, when and why will it be used?

It seems that the cryptocurrency community is eagerly anticipating the launch of the Lightning Network.

Over the years, Bitcoin’s community came up with various proposals on how to improve Bitcoin’s scalability, but an overall resounding consensus is yet to be reached. That’s why we currently have several Bitcoin-like networks branching out from the original one. There is, however, one proposed solution currently being tested that might just work. It’s called the Lightning Network.

What is the Lightning Network?

At some point in history, sending a telegram was the quickest and most efficient way of long-distance communication. To do so, you had to go to your local post office, fill in a form and pay for your message based on how many letters it contained. Then, the message would get telegraphed to the nearest telegraph office for transmission to the distant end. A postman would then deliver the telegram to its destination.

Basically, there were a lot of people involved in sending a simple short message and you had to pay quite a bit of money for it. That’s pretty much the current state of the Bitcoin network. In this analogy, the Lightning Network is essentially like having a person you want to talk to on speed-dial: you just need to press ‘1’ and your friend’s phone is already ringing.

Captain Jack Sparrow uses Lightning Network technology

To put it simply, the idea behind the Bitcoin Lightning Network might’ve sounded something like this: we really don’t need to keep a record of every single transaction on the blockchain.

Instead, the Lightning Network adds another layer to Bitcoin’s blockchain and enables users to create payment channels between any two parties on that extra layer. These channels can exist for as long as required, and because they’re set up between two people, transactions will be almost instant and the fees will be extremely low or even non-existent.

How does it work?

Enter Danny and Jon. They may be working together, they might be relatives or a couple, the point is they need to send money to each other rather often, quickly and with minimal fees. Thus, they set up a channel on the Lightning Network.

Firstly, they need to create a mulitisignature wallet, which is a wallet that they can both access with their respective private keys. Then, they both deposit a certain amount of Bitcoin – say, 3 BTC each – into that wallet.

Bitcoin mulitisignature wallet

From then on, they can perform unlimited transactions between the two of them. Essentially, these transactions are redistributions of the funds stored in the shared wallet. For instance, if Danny wants to send 1 BTC to Jon, she will need to transfer the ownership right of that amount to him. Then, the two of them use their private keys to sign for an updated balance sheet.

The actual distribution of funds happens when the channel gets closed. The algorithm uses the most recently signed balance sheet to determine who gets what. If Danny and Jon would decided to close the channel after that one transaction, Danny will get 2 BTC and Jon will receive 4 BTC.

A girl uses Lightning Network technology

Only after the channel is closed, the information about it’s initial and final balance is broadcasted to the Bitcoin blockchain. So, the way the Lightning Network works is it enables users to conduct numerous transactions outside of the main blockchain and then record them as a single one.

The most exciting thing here is that once the technology is widely adopted, you won’t necessarily even need to set up a dedicated channel to send funds to a certain person. Instead, you will be able to send payment to someone using channels with people that you are already connected with. The system will automatically find the shortest route.

This is how the Lightning Network might eventually provide an answer to the never-ending debate about buying a cup of coffee for Bitcoins. By the looks of it, doing so through the network of Lightning channels may just work, as it will be an almost instance purchase that won’t incur any fees.

Security. However, it is worth noting that the concept of the Lightning Network means that the system will work on top of the blockchain, but won’t actually have its security behind itself. Thus, it’s very likely that it will be mostly used for small or even relatively microscopic transactions. Larger transfers that require decentralized security will most likely still be done on the original layer.

Secure Bitcoin wallet

Finally, another fascinating feature of the Lightning Network being tested at the moment is cross-chain atomic swaps, which are transfers of tokens between different blockchains. Simply put, it’s a way of swapping any given cryptocurrency to a different one without using cryptocurrency exchanges.

Ultimately, this technology might make unsafe centralized cryptocurrency exchanges as well as the hassle associated with trading on them obsolete. The first test of exchanging tokens between the Bitcoin and Litecoin test blockchains has already proved to be a success.

Who developed it?

Lightning Network was first described in a white paper by Joseph Poon and Thaddeus Dryja in 2015 – the current version of the white paper can be found here. There are currently three teams collectively carrying out most of the work on the development of the Lightning Network: Blockstream, Lightning Labs and ACINQ, with input from other members of the Bitcoin community.

Each of the startups mentioned above is working of their own implementation of the Lightning Network Protocol written in different programming languages.

Blockstream logo

Blockstream works on LN version in C.

Lightning Labs logo

Lightning Labs is developing a Lightning Network Daemon (lnd) written in Golang.

ACINQ logo

ACINQ is responsible for a Scala implementation.

Moreover, there are other implementations currently in development. The full list is available here. Finally, it is important to mention that the recent tests have proven that the three major implementations are fully interoperable, which means they can seamlessly work with one another.

Where, when and why will it be used?

It seems that the cryptocurrency community is eagerly anticipating the launch of the Lightning Network. Originally, it was designed specifically for Bitcoin, but the technology is currently being developed for an array of other cryptocurrencies, such as Stellar, Litecoin, Zcash, Ether and Ripple.

Real Bitcoin has actually already been sent and nearly always received using Blockstream’s, Lightning Labs’ and ACINQ’s implementations, proving that all three of those are interoperable. Moreover, the first version of the lightning specifications outlining the rules of the network has been published.

Those specifications are a huge step forward for the network, as they can be used by developers of applications and the implementation of the Lightning Network in other programming languages.

However, the network is still very much in its infancy. As of yet, there’s no software with which real-life casual users of the network can make transactions. Moreover, the current implementations are still quite buggy. Lightning Network developers have urged users to learn about the network using Bitcoin’s testnet and not send any real money.

Lightning Network implementations are quite buggy

The developers are also advising users to stay patient, as the network’s code is very complex and requires rigorous testing. To be fully adopted by the Bitcoin community, the Lightning Network will need to prove itself to be safe and usable. With that and many other factors in mind, experts predict that a fully working Lightning Network can be from several months to a couple of years away.

As to the reason why the network will be used, the answer is simple: scalability. If the network will actually provide a solution to Bitcoin’s main issue, it will most likely be adopted by other cryptocurrencies.

If that happens, there is a possibility of cross-chain atomic swap technology being developed further, thus marking a first step towards building truly decentralized cryptocurrency exchanges.

Bitcoin Lightning Network

Pros

As it was mentioned before, the Lightning Network is only making its very first steps. It’s still very much in development, and whether it will actually work as the developers imagine it still remains to be seen. If it does, here are some of the most important advantages of the Lightning Network you can benefit from:

Transaction speed. Once the network is live, you won’t have to wait for several confirmations of every transaction you’re trying to make. The transactions will be almost instantaneous no matter how busy the network is. If this happens, the cryptocurrency market will make huge steps towards being able to compete with traditional payment systems like Visa, MasterCard and PayPal.

Transaction fees. As the transactions will actually take place within the Lightning Network channels and outside of the blockchain, you will only need to pay the tiniest fees, if any at all. This is one of the main advantages of the Lightning Network, as this will fully enable Bitcoin to be used as a form of payment in shops, cafes, bars and so on.

Bitcoin transaction fees and an airport

Scalability. The Lightning Network is said to be able to take the transactions per second figure of Bitcoin and other cryptocurrencies to unprecedented heights of at least 1 million transactions per second.

Cross-chain atomic swaps. The first tests of cross-blockchain transactions worked, and this is all very exciting. As long as the two blockchains share the same cryptographic hash function (and most major one do), the users will be able to send money from one chain to another without having to trust a third-party intermediary, such as an exchange. This technology has a truly revolutionary potential.

Security and Anonymity. The vast majority of cryptocurrencies out there are not fully anonymous. The transitions can still be traced from one wallet to another. When it comes to the Lightning Network, though, most of the transactions happen outside of the main blockchain, so all the micropayment made via Lightning channels will be almost impossible to trace.

Cons

Not fully operational. Perhaps the main disadvantage of the Lightning Network at the moment is the fact that’s it’s not fully operational yet, so there’s no way of fully asserting how good it actually is. Moreover, it’s concept looks great on paper, but as of yet it’s impossible to find out whether it’ll look as great once realized.

Complexity of channels. The Lightning Network is conceptualized as sort of a web of channels which, once established, should theoretically allow for seamless transactions. However, there is no telling what will happen if the payment will have to take too convoluted a route. Surely, if your transaction will need to go through dozens of intermediate channels, the fees will add up.

Channel caps. Another drawback of the network is the fact that in its current version the channels are capped. That is, the amount of Bitcoins stored in the wallet by the two users upon establishing a channel is the maximum amount of funds in that channel. This setup creates a situation where some users might need to choose between having liquidity within the Lightning Network channels and having liquidity outside of them, on the main blockchain. This is far from ideal, especially for those with rather limited resources.

Hubs. Moreover, there have been concerns voiced over forming of ‘hubs’ – a sort of nodes with a lot of capital that the majority of transactions will go through. Many Bitcoin enthusiasts see this as further centralization of the network. But, it is unlikely that such hubs will be able to make any significant profit of transactions fees.

Again, it is worth pointing out that at the moment both the advantages and drawbacks of the Lightning Network listed above are very speculative.

Should I use the Lightning Network?

Well, as a matter of fact, if you’re not an advanced user, you can’t use Lightning Network just yet. So, the best – if not the only thing you can do right now is wait and see whether the lightning network lives up to the hype, whether it can actually function and described and whether it’s safe.

Bear in mind, the Lightning Network is not the only scaling proposal out there, and it’s by no means an undisputed leader in that race, with Bitcoin Cash (BCH) being its main rival. The debate between the BCH adepts and the Lightning supporters is fierce and there’s no end in sight. It could be that one of those proposals comes out on top, they could potentially coexist, or there can be an entirely different solution.

Bitcoin and Bitcoin Cash walking on a path

The Lightning Network sounds exciting. If it actually delivers, consider what you actually use your Bitcoins for. If you use the tokens as a long-term investment and nothing else, you might not even need the Lightning Network, as currently it doesn’t seem entirely safe to entrust it with handling big transfers.

But, if you view Bitcoin as an alternative form of payment, the Lightning Network, provided it lives up to the expectations, will be essential for you. Instant micropayments, increased anonymity, almost non-existent fees – it really seems to offer solutions to most of the Bitcoin’s problems.

, but the technology is currently being developed for an array of other cryptocurrencies, such as Stellar, Litecoin, Zcash, Ether and Ripple.

Real Bitcoin has actually already been sent and nearly always received using Blockstream’s, Lightning Labs’ and ACINQ’s implementations, proving that all three of those are interoperable. Moreover, the first version of the lightning specifications outlining the rules of the network has been published.

Those specifications are a huge step forward for the network, as they can be used by developers of applications and the implementation of the Lightning Network in other programming languages.

However, the network is still very much in its infancy. As of yet, there’s no software with which real-life casual users of the network can make transactions. Moreover, the current implementations are still quite buggy. Lightning Network developers have urged users to learn about the network using Bitcoin’s testnet and not send any real money.

Lightning Network implementations are quite buggy

The developers are also advising users to stay patient, as the network’s code is very complex and requires rigorous testing. To be fully adopted by the Bitcoin community, the Lightning Network will need to prove itself to be safe and usable. With that and many other factors in mind, experts predict that a fully working Lightning Network can be from several months to a couple of years away.

As to the reason why the network will be used, the answer is simple: scalability. If the network will actually provide a solution to Bitcoin’s main issue, it will most likely be adopted by other cryptocurrencies.

If that happens, there is a possibility of cross-chain atomic swap technology being developed further, thus marking a first step towards building truly decentralized cryptocurrency exchanges.

Bitcoin Lightning Network

Pros

As it was mentioned before, the Lightning Network is only making its very first steps. It’s still very much in development, and whether it will actually work as the developers imagine it still remains to be seen. If it does, here are some of the most important advantages of the Lightning Network you can benefit from:

Transaction speed. Once the network is live, you won’t have to wait for several confirmations of every transaction you’re trying to make. The transactions will be almost instantaneous no matter how busy the network is. If this happens, the cryptocurrency market will make huge steps towards being able to compete with traditional payment systems like Visa, MasterCard and PayPal.

Transaction fees. As the transactions will actually take place within the Lightning Network channels and outside of the blockchain, you will only need to pay the tiniest fees, if any at all. This is one of the main advantages of the Lightning Network, as this will fully enable Bitcoin to be used as a form of payment in shops, cafes, bars and so on.

Bitcoin transaction fees and an airport

Scalability. The Lightning Network is said to be able to take the transactions per second figure of Bitcoin and other cryptocurrencies to unprecedented heights of at least 1 million transactions per second.

Cross-chain atomic swaps. The first tests of cross-blockchain transactions worked, and this is all very exciting. As long as the two blockchains share the same cryptographic hash function (and most major one do), the users will be able to send money from one chain to another without having to trust a third-party intermediary, such as an exchange. This technology has a truly revolutionary potential.

Security and Anonymity. The vast majority of cryptocurrencies out there are not fully anonymous. The transitions can still be traced from one wallet to another. When it comes to the Lightning Network, though, most of the transactions happen outside of the main blockchain, so all the micropayment made via Lightning channels will be almost impossible to trace.

Cons

Not fully operational. Perhaps the main disadvantage of the Lightning Network at the moment is the fact that’s it’s not fully operational yet, so there’s no way of fully asserting how good it actually is. Moreover, it’s concept looks great on paper, but as of yet it’s impossible to find out whether it’ll look as great once realized.

Complexity of channels. The Lightning Network is conceptualized as sort of a web of channels which, once established, should theoretically allow for seamless transactions. However, there is no telling what will happen if the payment will have to take too convoluted a route. Surely, if your transaction will need to go through dozens of intermediate channels, the fees will add up.

Channel caps. Another drawback of the network is the fact that in its current version the channels are capped. That is, the amount of Bitcoins stored in the wallet by the two users upon establishing a channel is the maximum amount of funds in that channel. This setup creates a situation where some users might need to choose between having liquidity within the Lightning Network channels and having liquidity outside of them, on the main blockchain. This is far from ideal, especially for those with rather limited resources.

Hubs. Moreover, there have been concerns voiced over forming of ‘hubs’ – a sort of nodes with a lot of capital that the majority of transactions will go through. Many Bitcoin enthusiasts see this as further centralization of the network. But, it is unlikely that such hubs will be able to make any significant profit of transactions fees.

Again, it is worth pointing out that at the moment both the advantages and drawbacks of the Lightning Network listed above are very speculative.

Should I use the Lightning Network?

Well, as a matter of fact, if you’re not an advanced user, you can’t use Lightning Network just yet. So, the best – if not the only thing you can do right now is wait and see whether the lightning network lives up to the hype, whether it can actually function and described and whether it’s safe.

Bear in mind, the Lightning Network is not the only scaling proposal out there, and it’s by no means an undisputed leader in that race, with Bitcoin Cash (BCH) being its main rival. The debate between the BCH adepts and the Lightning supporters is fierce and there’s no end in sight. It could be that one of those proposals comes out on top, they could potentially coexist, or there can be an entirely different solution.

Bitcoin and Bitcoin Cash walking on a path

The Lightning Network sounds exciting. If it actually delivers, consider what you actually use your Bitcoins for. If you use the tokens as a long-term investment and nothing else, you might not even need the Lightning Network, as currently it doesn’t seem entirely safe to entrust it with handling big transfers.

But, if you view Bitcoin as an alternative form of payment, the Lightning Network, provided it lives up to the expectations, will be essential for you. Instant micropayments, increased anonymity, almost non-existent fees – it really seems to offer solutions to most of the Bitcoin’s problems.

The Number Zero and Bitcoin

Satoshi gave the world Bitcoin, a true “something for nothing.” His discovery of absolute scarcity for money is an unstoppable idea that is changing the world tremendously, just like its digital ancestor: the number zero.

Zero is Special

“In the history of culture the discovery of zero will always stand out as one of the greatest single achievements of the human race.” — Tobias Danzig, Number: The Language of Science

Many believe that Bitcoin is “just one of thousands of cryptoassets”—this is true in the same way that the number zero is just one of an infinite series of numbers. In reality, Bitcoin is special, and so is zero: each is an invention which led to a discovery that fundamentally reshaped its overarching system—for Bitcoin, that system is money, and for zero, it is mathematics. Since money and math are mankind’s two universal languages, both Bitcoin and zero are critical constructs for civilization.

For most of history, mankind had no concept of zero: an understanding of it is not innate to us—a symbol for it had to be invented and continuously taught to successive generations. Zero is an abstract conception and is not discernible in the physical world—no one goes shopping for zero apples. To better understand this, we will walk down a winding path covering more than 4,000 years of human history that led to zero becoming part of the empirical bedrock of modernity.

Numerals, which are symbols for numbers, are the greatest abstractions ever invented by mankind: virtually everything we interact with is best grasped in numerical, quantifiable, or digital form. Math, the language of numerals, originally developed from a practical desire to count things—whether it was the amount of fish in the daily catch or the days since the last full moon. Many ancient civilizations developed rudimentary numeral systems: in 2000 BCE, the Babylonians, who failed to conceptualize zero, used two symbols in different arrangements to create unique numerals between 1 and 60:

Babylonian cuneiform was a relatively inefficient numeral system — notice how many more written strokes are necessary for each number symbol — and calculation using it was even more cumbersome.

Vestiges of the base-60 Babylonian cuneiform system still exist today: there are 60 seconds in a minute, 60 minutes in an hour, and 6 sets of 60 degrees in a circle. But this ancient system lacked a zero, which severely limited its usefulness. Ancient Greeks and Mayans developed their own numeral systems, each of which contained rough conceptions of zero. However, the first explicit and arithmetic use of zero came from ancient Indian and Cambodian cultures. They created a system with nine number symbols and a small dot used to mark the absence of a number—the original zero. This numeral system would eventually evolve into the one we use today:

The first known written zero: from the Bakhshali manuscript which contains pages dating back to the 3rd and 4th centuries AD.

Inscription K-127 bears the earliest zero ever discovered—dated from the 7th century, it was discovered in the 19th century in Cambodia.

In the 7th century, the Indian mathematician Brahmagupta developed terms for zero in addition, subtraction, multiplication, and division (although he struggled a bit with the latter, as would thinkers for centuries to come). As the discipline of mathematics matured in India, it was passed through trade networks eastward into China and westward into Islamic and Arabic cultures. It was this western advance of zero which ultimately led to the inception of the Hindu-Arabic numeral system—the most common means of symbolic number representation in the world today:

The Economization of Math

When zero reached Europe roughly 300 years later in the High Middle Ages, it was met with strong ideological resistance. Facing opposition from users of the well-established Roman numeral system, zero struggled to gain ground in Europe. People at the time were able to get by without zero, but (little did they know) performing computation without zero was horribly inefficient. An apt analogy to keep in mind arises here: both math and money are possible without zero and Bitcoin, respectively—however both are tremendously more wasteful systems without these core elements. Consider the difficulty of doing arithmetic in Roman numerals:

If you thought you were bad at arithmetic using numbers, just try doing it with letters.

Calculation performed using the Hindu-Arabic system is significantly more straightforward than with Roman numerals—and energy-efficient systems have a tendency to win out in the long run, as we saw when the steam engine outcompeted animal-sourced power or when capitalism prevailed over socialism (another important point to remember for Bitcoin later). This example just shows the pains of addition—multiplication and division were even more painstaking. As Amir D. Aczel described it in his book Finding Zero:

Roman numeral inefficiency would not be tolerated for long in a world enriching itself through commerce. With trade networks proliferating and productivity escalating in tandem, growing prospects of wealth creation incentivized merchants to become increasingly competitive, pushing them to always search for an edge over others. Computation and record-keeping with a zero-based numeral system was qualitatively easier, quantitatively faster, and less prone to error. Despite Europe’s resistance, this new numeral system simply could not be ignored: like its distant progeny Bitcoin would later be, zero was an unstoppable idea whose time had come:

Functions of Zero

Zero’s first function is as a placeholder in our numeric system: for instance, notice the “0” in the number “1,104” in the equation above, which indicates the absence of value in the tens place. Without zero acting as a symbol of absence at this order of magnitude in “1,104,” the number could not be represented unambiguously (without zero, is it “1,104” or “114”?). Lacking zero detracted from a numeral system’s capacity to maintain constancy of meaning as it scales. Inclusion of zero enables other digits to take on new meaning according to their position relative to it. In this way, zero lets us perform calculation with less effort—whether its pen strokes in a ledger, finger presses on a calculator, or mental gymnastics. Zero is a symbol for emptiness, which can be a highly useful quality—as Lao Tzu said:

More philosophically, zero is emblematic of the void, as Aczel describes it:

“…the void is everywhere and it moves around; it can stand for one truth when you write a number a certain way — no tens, for example — and another kind of truth in another case, say when you have no thousands in a number!”

Drawing analogies to the functions of money: zero is the “store of value” on which higher order of magnitude numerals can scale; this is the reason we always prefer to see another zero at the end of our bank account or Bitcoin balance. In the same way a sound economic store of value leads to increased savings, which undergirds investment and productivity growth, so too does a sound mathematical placeholder of value give us a numeral system capable of containing more meaning in less space, and supporting calculations in less time: both of which also foster productivity growth. Just as money is the medium through which capital is continuously cycled into places of optimal economic employment, zero gives other digits the ability to cycle—to be used again and again with different meanings for different purposes.

Zero’s second function is as a number in its own right: it is the midpoint between any positive number and its negative counterpart (like +2 and -2). Before the concept of zero, negative numbers were not used, as there was no conception of “nothing” as a number, much less “less than nothing.” Brahmagupta inverted the positive number line to create negative numbers and placed zero at the center, thus rounding out the numeral system we use today. Although negative numbers were written about in earlier times, like the Han Dynasty in China (206 BCE to 220 BCE), their use wasn’t formalized before Brahmagupta, since they required the concept of zero to be properly defined and aligned. In a visual sense, negative numbers are a reflection of positive numbers cast across zero:

Zero is the center of gravity for our entire numeral system, just as money is central to any economic system.

Interestingly, negative numbers were originally used to signify debts—well before the invention of double-entry accounting, which opted for debits and credits (partly to avoid the use of negative numbers). In this way, zero is the “medium of exchange” between the positive and negative domains of numbers—it is only possible to pass into, or out of, either territory by way of zero. By going below zero and conceptualizing negative numbers, many new and unusual (yet extremely useful) mathematical constructs come into being including imaginary numbers, complex numbers, fractals, and advanced astrophysical equations. In the same way the economic medium of exchange, money, leads to the acceleration of trade and innovation, so too does the mathematical medium of exchange, zero, lead to enhanced informational exchange, and its associated development of civilizational advances:

The Mandlebrot Set: one of the most famous examples of a fractal, a mind-bending mathematical structure formed with complex numbers that models the geometry of nature and its intrinsic complexity. One of the best known examples of mathematical beauty, this fractal exhibits infinite depth, breadth, and non-repeating self-similarity. Zero is a necessary prerequisite to such fractal modeling.

Zero’s third function is as a facilitator for fractions or ratios. For instance, the ancient Egyptians, whose numeral system lacked a zero, had an extremely cumbersome way of handling fractions: instead of thinking of 3/4 as a ratio of three to four (as we do today), they saw it as the sum of 1/2 and 1/4. The vast majority of Egyptian fractions were written as a sum of numbers as 1/n, where n is the counting number—these were called unit fractions. Without zero, long chains of unit fractions were necessary to handle larger and more complicated ratios (many of us remember the pain of converting fractions from our school days). With zero, we can easily convert fractions to decimal form (like 1/2 to 0.5), which obsoletes the need for complicated conversions when dealing with fractions. This is the “unit of account” function of zero. Prices expressed in money are just exchange ratios converted into a money-denominated price decimal: instead of saying “this house costs eleven cars” we say, “this house costs $440,000,” which is equal to the price of eleven $40,000 cars. Money gives us the ability to better handle exchange ratios in the same way zero gives us the ability to better handle numeric ratios.

Numbers are the ultimate level of objective abstraction: for example, the number 3 stands for the idea of “threeness” — a quality that can be ascribed to anything in the universe that comes in treble form. Equally, 9 stands for the quality of “nineness” shared by anything that is composed of nine parts. Numerals and math greatly enhanced interpersonal exchange of knowledge (which can be embodied in goods or services), as people can communicate about almost anything in the common language of numeracy. Money, then, is just the mathematized measure of capital available in the marketplace: it is the least common denominator among all economic goods and is necessarily the most liquid asset with the least mutable supply. It is used as a measuring system for the constantly shifting valuations of capital (this is why gold became money—it is the monetary metal with a supply that is most difficult to change). Ratios of money to capital (aka prices) are among the most important in the world, and ratios are a foundational element of being:

“In the beginning, there was the ratio, and the ratio was with God, and the ratio was God.” — John 1:1*

*(A more “rational” translation of Jesus’s beloved disciple John: the Greek word for ratio was λόγος (logos), which is also the term for word.)

An ability to more efficiently handle ratios directly contributed to mankind’s later development of rationality, a logic-based way of thinking at the root of major social movements such as the Renaissance, the Reformation, and the Enlightenment. To truly grasp the strange logic of zero, we must start with its point of origin—the philosophy from which it was born.

Philosophy of Zero

“In the earliest age of the gods, existence was born from non-existence.” — The Rig Veda

Zero arose from the bizarre logic of the ancient East. Interestingly, the Buddha himself was a known mathematician — in early books about him, like the Lalita Vistara, he is said to be excellent in numeracy (a skill he uses to woo a certain princess). In Buddhism, the logical character of the phenomenological world is more complex than true or false:

Or not true,

Or both true and not true,

Or neither true nor not true.

This is the Lord Buddha’s teaching.”

This is the Tetralemma (or the four corners of the catuskoti): the key to understanding the seeming strangeness of this ancient Eastern logic is the concept of Shunya, a Hindi word meaning zero: it is derived from the Buddhist philosophical concept of Śūnyatā (or Shunyata). The ultimate goal of meditation is the attainment of enlightenment, or an ideal state of nirvana, which is equivalent to emptying oneself entirely of thought, desire, and worldly attachment. Achievement of this absolute emptiness is the state of being in Shunyata: a philosophical concept closely related to the void—as the Buddhist writer Thich Nhat Hanh describes it:

“The first door of liberation is emptiness, Shunyata

Emptiness always means empty of something

Emptiness is the Middle Way between existent and nonexistent

Reality goes beyond notions of being and nonbeing

True emptiness is called “wondrous being,” because it goes beyond existence and nonexistence

The concentration on Emptiness is a way of staying in touch with life as it is, but it has to be practiced and not just talked about.”

Or, as a Buddhist monk of ancient Wats temple in Southeast Asia described the meditative experience of the void:

A direct experience of emptiness is achievable through meditation. In a true meditative state, the Shunyata and the number zero are one and the same. Emptiness is the conduit between existence and nonexistence, in the same way zero is the door from positive to negative numbers: each being a perfect reflection of the other. Zero arose in the ancient East as the epitome of this deeply philosophical and experiential concept of absolute emptiness. Empirically, today we now know that meditation benefits the brain in many ways. It seems too, that its contribution to the discovery of zero helped forge an idea that benefits mankind’s collective intelligence — our global hive-mind.

Despite being discovered in a spiritual state, zero is a profoundly practical concept: perhaps it is best understood as a fusion of philosophy and pragmatism. By traversing across zero into the territory of negative numbers, we encounter the imaginary numbers, which have a base unit of the square root of -1, denoted by the letter i. The number i is paradoxical: consider the equations x² + 1 = 0 and x³ + 1 = 0, the only possible answers are positive square root of -1 (i) and negative square root of -1 (-i or i³), respectively. Visualizing these real and imaginary domains, we find a rotational axis centered on zero with orientations reminiscent of the tetralemma: one true (1), one not true (i), one both true and not true (-1 or ), and one neither true nor not true (-i or i³):

Zero is the fulcrum between real and imaginary number planes.

Going through the gateway of zero into the realms of negative and imaginary numbers provides a more continuous form of logic when compared to the discrete either-or logic, commonly accredited to Aristotle and his followers. This framework is less “black and white” than the binary Aristotelean logic system, which was based on true or false, and provides many gradations of logicality; a more accurate map to the many “shades of grey” we find in nature. Continuous logic is insinuated throughout the world: for instance, someone may say “she wasn’t unattractive,” meaning that her appeal was ambivalent, somewhere between attractive and unattractive. This perspective is often more realistic than a binary assessment of attractive or not attractive.

Importantly, zero gave us the concept of infinity: which was notably absent from the minds of ancient Greek logicians. The rotations around zero through the real and imaginary number axes can be mathematically scaled up into a three-dimensional model called the Riemann Sphere. In this structure, zero and infinity are geometric reflections of one another and can transpose themselves in a flash of mathematical permutation. Always at the opposite pole of this three-dimensional, mathematical interpretation of the tetralemma, we find zero’s twin—infinity:

Scaling the real and imaginary number planes into the third dimension, we discover zero’s twin: infinity.

The twin polarities of zero and infinity are akin to yin and yang — as Charles Seife, author of Zero: Biography of a Dangerous Idea, describes them:

In Eastern philosophy, the kinship of zero and infinity made sense: only in a state of absolute nothingness can possibility become infinite. Buddhist logic insists that everything is endlessly intertwined: a vast causal network in which all is inexorably interlinked, such that no single thing can truly be considered independent — as having its own isolated, non-interdependent essence. In this view, interrelation is the sole source of substantiation. Fundamental to their teachings, this truth is what Buddhists call dependent co-origination, meaning that all things depend on one another. The only exception to this truth is nirvana: liberation from the endless cycles of reincarnation. In Buddhism, the only pathway to nirvana is through pure emptiness:

Nirvana, the ultimate spiritual goal in Buddhism, is attained by entering the void in meditation—this is where zero was discovered.

Some ancient Buddhist texts state: “the truly absolute and the truly free must be nothingness.” In this sense, the invention of zero was special; it can be considered the discovery of absolute nothingness, a latent quality of reality that was not previously presupposed in philosophy or systems of knowledge like mathematics. Its discovery would prove to be an emancipating force for mankind, in that zero is foundational to the mathematized, software-enabled reality of convenience we inhabit today.

Zero was liberation discovered deep in meditation, a remnant of truth found in close proximity to nirvana — a place where one encounters universal, unbounded, and infinite awareness: God’s kingdom within us. To buddhists, zero was a whisper from the universe, from dharma, from God (words always fail us in the domain of divinity). Paradoxically, zero would ultimately shatter the institution which built its power structure by monopolizing access to God. In finding footing in the void, mankind uncovered the deepest, soundest substrate on which to build modern society: zero would prove to be a critical piece of infrastructure that led to the interconnection of the world via telecommunications, which ushered in the gold standard and the digital age (Bitcoin’s two key inceptors) many years later.

Blazing a path forward: the twin conceptions of zero and infinity would ignite the Renaissance, the Reformation, and the Enlightenment — all movements that mitigated the power of The Catholic Church as the dominant institution in the world and paved the way for the industrialized nation-state.

Power of The Church Falls to Zero

The universe of the ancient Greeks was founded on the philosophical tenets of Pythagoras, Aristotle, and Ptolemy. Central to their conception of the cosmos was the precept that there is no void, no nothingness, no zero. Greeks, who had inherited their numbers from the geometry-loving Egyptians, made little distinction between shape and number. Even today, when we square a number (x²), this is equivalent to converting a line into a square and calculating its area. Pythagoreans were mystified by this connection between shapes and numbers, which explains why they didn’t conceive of zero as a number: after all, what shape could represent nothingness? Ancient Greeks believed numbers had to be visible to be real, whereas the ancient Indians perceived numbers as an intrinsic part of a latent, invisible reality separate from mankind’s conception of them.

The symbol of the Pythagorean cult was the pentagram (a five-pointed star); this sacred shape contained within it the key to their view of the universe—the golden ratio. Considered to be the “most beautiful number,” the golden ratio is achieved by dividing a line such that the ratio of the small part to the large part is the same as the ratio of the large part to the whole. Such proportionality was found to be not only aesthetically pleasing, but also naturally occurring in a variety of forms including nautilus shells, pineapples, and (centuries later) the double-helix of DNA. Beauty this objectively pure was considered to be a window into the transcendent; a soul-sustaining quality. The golden ratio became widely used in art, music, and architecture:

A simple sequence of calculations converges on the golden ratio, the “beautiful number” bountiful in nature. Beauty of this caliber heavily influenced many domains including architecture (as seen in the design of The Parthenon here).

The golden ratio was also found in musical harmonics: when plucking a string instrument from its specified segments, musicians could create the perfect fifth, a dual resonance of notes said to be the most evocative musical relationship. Discordant tritones, on the other hand, were derided as the “devil in music.” Such harmony of music was considered to be one and the same with that of mathematics and the universe—in the Pythagorean finite view of the cosmos (later called the Aristotelean celestial spheres model), movements of planets and other heavenly bodies generated a symphonic “harmony of the spheres”—a celestial music that suffused the cosmic depths. From the perspective of Pythagoreans, “all was number,” meaning ratios ruled the universe. The golden ratio’s seemingly supernatural connection to aesthetics, life, and the universe became a central tenet of Western Civilization and, later, The Catholic Church (aka The Church).

Zero posed a major threat to the conception of a finite universe. Dividing by zero is devastating to the framework of logic, and thus threatened the perfect order and integrity of a Pythagorean worldview. This was a serious problem for The Church which, after the fall of the Roman Empire, appeared as the dominant institution in Europe. To substantiate its dominion in the world, The Church proffered itself as the gatekeeper to heaven. Anyone who crossed The Church in any way could find themselves eternally barred from the holy gates. The Church’s claim to absolute sovereignty was critically dependent on the Pythagorean model, as the dominant institution over Earth—which was in their view the center of the universe—necessarily held dominion in God’s universe. Standing as a symbol for both the void and the infinite, zero was heretical to The Church. Centuries later, a similar dynamic would unfold in the discovery of absolute scarcity for money, which is dissident to the dominion of The Fed—the false church of modernity.

Ancient Greeks clung tightly to a worldview that did not tolerate zero or the infinite: rejection of these crucial concepts proved to be their biggest failure, as it prevented the discovery of calculus—the mathematical machinery on which much of the physical sciences and, thus, the modern world are constructed. Core to their (flawed) belief system was the concept of the “indivisible atom,” the elementary particle which could not be subdivided ad infinitum. In their minds, there was no way beyond the micro barrier of the atomic surface. In the same vein, they considered the universe a “macrocosmic atom” that was strictly bound by an outermost sphere of stars winking down towards the cosmic core—Earth. As above, so below: with nothing conceived to be above this stellar sphere and nothing below the atomic surface, there was no infinity and no void:

A finite universe with Earth at the center was the central tenet of ancient Greek philosophy and, later, of The Catholic Church’s institutional dominion over the world.

Aristotle (with later refinements by Ptolemy) would interpret this finite universe philosophically and, in doing so, form the ideological foundation for God’s existence and The Church’s power on Earth. In the Aristotelean conception of the universe, the force moving the stars, which drove the motion of all elements below, was the prime mover: God. This cascade of cosmic force from on high downward into the movements of mankind was considered the officially accepted interpretation of divine will. As Christianity swept through the West, The Church relied upon the explanatory power of this Aristotelean philosophy as proof of God’s existence in their proselytizing efforts. Objecting to the Aristotelean doctrine was soon considered an objection to the existence of God and the power of The Church.

Infinity was unavoidably actualized by the same Aristotelean logic which sought to deny it. By the 13th century, some bishops began calling assemblies to question the Aristotelean doctrines that went against the omnipotence of God: for example, the notion that “God can not move the heavens in a straight line, because that would leave behind a vacuum.” If the heavens moved linearly, then what was left in their wake? Through what substance were they moving? This implied either the existence of the void (the vacuum), or that God was not truly omnipotent as he could not move the heavens. Suddenly, Aristotelean philosophy started to break under its own weight, thereby eroding the premise of The Church’s power. Although The Church would cling to Aristotle’s views for a few more centuries—it fought heresy by forbidding certain books and burning certain Protestants alive—zero marked the beginning of the end for this domineering and oppressive institution.

An infinite universe meant there were, at least, a vast multitude of planets, many of which likely had their own populations and churches. Earth was no longer the center of the universe, so why should The Church have universal dominion? In a grand ideological shift that foreshadowed the invention of Bitcoin centuries later, zero became the idea that broke The Church’s grip on humanity, just as absolute scarcity of money is breaking The Fed’s stranglehold on the world today. In an echo of history, us moderns can once again hear the discovery of nothing beginning to change everything.

Zero was the smooth stone slung into the face of Goliath, a death-stroke to the dominion of The Church; felled by an unstoppable idea, this oppressive institution’s fall from grace would make way for the rise of the nation-state—the dominant institutional model in modernity.

Zero: An Ideological Juggernaut

Indoctrinated in The Church’s dogma, Christianity initially refused to accept zero, as it was linked to a primal fear of the void. Zero’s inexorable connection to nothingness and chaos made it a fearsome concept in the eyes of most Christians at the time. But zero’s capacity to support honest weights and measures, a core Biblical concept, would prove more important than the countermeasures of The Church (and the invention of zero would later lead to the invention of the most infallible of weights and measures, the most honest money in history—Bitcoin). In a world being built on trade, merchants needed zero for its superior arithmetic utility. As Pierre-Simon Laplace said:

“…[zero is] a profound and important idea which appears so simple to us now that we ignore its true merit. But its very simplicity and the great ease which it lent to all computations put our arithmetic in the first rank of useful inventions.”

In the 13th century, academics like the renowned Italian mathematician Fibonacci began championing zero in their work, helping the Hindu-Arabic system gain credibility in Europe. As trade began to flourish and generate unprecedented levels of wealth in the world, math moved from purely practical applications to ever more abstracted functions. As Alfred North Whitehead said:

The point about zero is that we do not need to use it in the operations of daily life. No one goes out to buy zero fish. It is in a way the most civilized of all the cardinals, and its use is only forced on us by the needs of cultivated modes of thought.”

As our thinking became more sophisticated, so too did our demands on math. Tools like the abacus relied upon a set of sliding stones to help us keep track of amounts and perform calculation. An abacus was like an ancient calculator, and as the use of zero became popularized in Europe, competitions were held between users of the abacus (the abacists) and of the newly arrived Hindu-Arabic numeral system (the algorists) to see who could solve complex calculations faster. With training, algorists could readily outpace abacists in computation. Contests like these led to the demise of the abacus as a useful tool, however it still left a lasting mark on our language: the words calculate, calculus, and calcium are all derived from the Latin word for pebble—calculus.

The algorists competing against the abacists: contests like these empirically proved the supremacy of a zero-based numeral system over others, even when aided by ancient mathematical tools like the abacus.

Before the Hindu-Arabic numerals, money counters had to use the abacus or a counting board to keep track of value flows. Germans called the counting board a Rechenbank, which is why moneylenders came to be known as banks. Not only did banks use counting boards, but they also used tally sticks to keep track of lending activities: the monetary value of a loan was written on the side of a stick, and it was split into two pieces, with the lender keeping the larger piece, known as the stock—which is where we get the term stockholder:

An ancient loan tracking device called a tally stick: the lender kept the larger portion, the stock, and became a stockholder in the bank that made the loan.

Despite its superior utility for business, governments despised zero. In 1299, Florence banned the Hindu-Arabic numeral system. As with many profound innovations, zero faced vehement resistance from entrenched power structures that were threatened by its existence. Carrying on lawlessly, Italian merchants continued to use the zero-based numeral system, and even began using it to transmit encrypted messages. Zero was essential to these early encryption systems—which is why the word cipher, which originally meant zero, came to mean “secret code.” The criticality of zero to ancient encryption systems is yet another aspect of its contribution to Bitcoin’s ancestral heritage.

At the beginning of the Renaissance, the threat zero would soon pose to the power of The Church was not obvious. By then, zero had been adapted as an artistic tool to create the vanishing point: an acute place of infinite nothingness used in many paintings that sparked the great Renaissance in the visual arts. Drawings and paintings prior to the vanishing point appear flat and lifeless: their imagery was mostly two-dimensional and unrealistic. Even the best artists couldn’t capture realism without the use of zero:

Pre-Renaissance art: still better than a banana duct taped to a canvas.

With the concept of zero, artists could create a zero-dimension point in their work that was “infinitely far” from the viewer, and into which all objects in the painting visually collapsed. As objects appear to recede from the viewer into the distance, they become ever-more compressed into the “dimensionlessness” of the vanishing point, before finally disappearing. Just as it does today, art had a strong influence on people’s perceptions. Eventually, Nicholas of Cusa, a cardinal of The Church declared, “Terra non est centra mundi,” which meant “the Earth is not the center of the universe.” This declaration would later lead to Copernicus proving heliocentrism—the spark that ignited The Reformation and, later, the Age of Enlightenment:

By adding the vanishing point (a visual conception of zero) to drawings and paintings, art gained the realistic qualities of depth, breadth, and spatial proportion.

A dangerous, heretical, and revolutionary idea had been planted by zero and its visual incarnation, the vanishing point. At this point of infinite distance, the concept of zero was captured visually, and space was made infinite—as Seife describes it:

“It was no coincidence that zero and infinity are linked in the vanishing point. Just as multiplying by zero causes the number line to collapse into a point, the vanishing point has caused most of the universe to sit in a tiny dot. This is a singularity, a concept that became very important later in the history of science—but at this early stage, mathematicians knew little more than the artists about the properties of zero.”

The purpose of the artist is to the mythologize the present: this is evident in much of the consumerist “trash art” produced in our current fiat-currency-fueled world. Renaissance artists (who were often also mathematicians, true Renaissance men) worked assiduously in line with this purpose as the vanishing point became an increasingly popular element of art in lockstep with zero’s proliferation across the world. Indeed, art accelerated the propulsion of zero across the mindscape of mankind.

Modernity: The Age of Ones and Zeros

Eventually, zero became the cornerstone of calculus: an innovative system of mathematics that enabled people to contend with ever-smaller units approaching zero, but cunningly avoided the logic-trap of having to divide by zero. This new system gave mankind myriad new ways to comprehend and grasp his surroundings. Diverse disciplines such as chemistry, engineering, and physics all depend on calculus to fulfill their functions in the world today:

Calculus enables us to make symphonic arrangements of matter in precise accordance with our imaginations; this mathematical study of continuous change is fundamental to all physical sciences.

Zero serves as the source-waters of many technological breakthroughs—some of which would flow together into the most important invention in history: Bitcoin. Zero punched a hole and created a vacuum in the framework of mathematics and shattered Aristotelean philosophy, on which the power of The Church was premised. Today, Bitcoin is punching a hole and creating a vacuum in the market for money; it is killing Keynesian economics—which is the propagandistic power-base of the nation-state (along with its apparatus of theft: the central bank).

In modernity, zero has become a celebrated tool in our mathematical arsenal. As the binary numerical system now forms the foundation of modern computer programming, zero was essential to the development of digital tools like the personal computer, the internet, and Bitcoin. Amazingly, all modern miracles made possible by digital technologies can be traced back to the invention of a figure for numeric nothingness by an ancient Indian mathematician: Brahmagupta gave the world a real “something for nothing,” a generosity Satoshi would emulate several centuries later. As Aczel says:

A composition of countless zeroes and ones, binary code led to the proliferation and standardization of communications protocols including those embodied in the internet protocol suite. As people freely experimented with these new tools, they organized themselves around the most useful protocols like http, TCP/IP, etc. Ossification of digital communication standards provided the substrate upon which new societal utilities—like email, ride sharing, and mobile computing—were built. Latest (and arguably the greatest) among these digital innovations is the uninflatable, unconfiscatable, and unstoppable money called Bitcoin.

A common misconception of Bitcoin is that it is just one of thousands of cryptoassets in the world today. One may be forgiven for this misunderstanding, as our world today is home to many national currencies. But all these currencies began as warehouse receipts for the same type of thing—namely, monetary metal (usually gold). Today, national currencies are not redeemable for gold, and are instead liquid equity units in a pyramid scheme called fiat currency: a hierarchy of thievery built on top of the freely selected money of the world (gold) which their issuers (central banks) hoard to manipulate its price, insulate their inferior fiat currencies from competitive threats, and perpetually extract wealth from those lower down the pyramid.

Given this confusion, many mistakenly believe that Bitcoin could be disrupted by any one of the thousands of alternative cryptoassets in the marketplace today. This is understandable, as the reasons that make Bitcoin different are not part of common parlance and are relatively difficult to understand. Even Ray Dalio, the greatest hedge fund manager in history, said that he believes Bitcoin could be disrupted by a competitor in the same way that iPhone disrupted Blackberry. However, disruption of Bitcoin is extremely unlikely: Bitcoin is a path-dependent, one-time invention; its critical breakthrough is the discovery of absolute scarcity—a monetary property never before (and never again) achievable by mankind.

Like the invention of zero, which led to the discovery of “nothing as something” in mathematics and other domains, Bitcoin is the catalyst of a worldwide paradigmatic phase change (which some have started calling The Great Awakening). What numeral is to number, and zero is to the void for mathematics, Bitcoin is to absolute scarcity for money: each is a symbol that allows mankind to apprehend a latent reality (in the case of money, time). More than just a new monetary technology, Bitcoin is an entirely new economic paradigm: an uncompromisable base money protocol for a global, digital, non-state economy. To better understand the profundity of this, we first need to understand the nature of path-dependence.

The Path-Dependence of Bitcoin

Path-dependence is the sensitivity of an outcome to the order of events that led to it. In the broadest sense, it means history has inertia:

Path-dependence entails that the sequence of events matters as much as the events themselves: as a simple example, you get a dramatically different result if you shower and then dry yourself off versus if you dry yourself off first and then shower. Path-dependence is especially prevalent in complex systems due to their high interconnectivity and numerous (often unforeseeable) interdependencies. Once started down a particular pathway, breaking away from its sociopolitical inertia can become impossible—for instance, imagine if the world tried to standardize to a different size electrical outlet: consumers, manufacturers, and suppliers would all resist this costly change unless there was a gigantic prospective gain. To coordinate this shift in standardization would require either a dramatically more efficient technology (a pull method—by which people stand to benefit) or an imposing organization to force the change (a push method—in which people would be forced to change in the face of some threat). Path-dependence is why occurrences in the sociopolitical domain often influence developments in the technical; US citizens saw path-dependent pushback firsthand when their government made a failed attempt to switch to the metric system back in the 1970s.

Bitcoin was launched into the world as a one of a kind technology: a non-state digital money that is issued on a perfectly fixed, diminishing, and predictable schedule. It was strategically released into the wild (into an online group of cryptographers) at a time when no comparative technology existed. Bitcoin’s organic adoption path and mining network expansion are a non-repeatable sequence of events. As a thought experiment, consider that if a “New Bitcoin” was launched today, it would exhibit weak chain security early on, as its mining network and hash rate would have to start from scratch. Today, in a world that is aware of Bitcoin, this “New Bitcoin” with comparatively weak chain security would inevitably be attacked—whether these were incumbent projects seeking to defend their head start, international banking cartels, or even nation-states:

Bitcoin’s head start in hash rate is seemingly insurmountable.

Path-dependence protects Bitcoin from disruption, as the organic sequence of events which led to its release and assimilation into the marketplace cannot be replicated. Further, Bitcoin’s money supply is absolutely scarce; a totally unique and one-time discovery for money. Even if “New Bitcoin” was released with an absolutely scarce money supply, its holders would be incentivized to hold the money with the greatest liquidity, network effects, and chain security. This would cause them to dump “New Bitcoin” for the original Bitcoin. More realistically, instead of launching “New Bitcoin,” those seeking to compete with Bitcoin would take a social contract attack-vector by initiating a hard fork. An attempt like this was already made with the “Bitcoin Cash” fork, which tried to increase block sizes to (ostensibly) improve its utility for payments. This chain fork was an abject failure and a real world reinforcement of the importance of Bitcoin’s path-dependent emergence:

Bitcoin Cash is considering a rebrand to Bitcoin Crash.

Continuing our thought experiment: even if “New Bitcoin” featured a diminishing money supply (in other words, a deflationary monetary policy), how would its rate of money supply decay (deflation) be determined? By what mechanism would its beneficiaries be selected? As market participants (nodes and miners) jockeyed for position to maximize their accrual of economic benefit from the deflationary monetary policy, forks would ensue that would diminish the liquidity, network effects, and chain security for “New Bitcoin,” causing everyone to eventually pile back into the original Bitcoin—just like they did in the wake of Bitcoin Cash’s failure.

Path-dependence ensures that those who try to game Bitcoin get burned. Reinforced by four-sided network effects, it makes Bitcoin’s first-mover advantage seemingly insurmountable. The idea of absolute monetary scarcity goes against the wishes of entrenched power structures like The Fed: like zero, once an idea whose time has come is released into the world, it is nearly impossible to put the proverbial genie back in the bottle. After all, unstoppable ideas are independent lifeforms:

Finite and Infinite Games

Macroeconomics is essentially the set of games played globally to satisfy the demands of mankind (which are infinite) within the bounds of his time (which is strictly finite). In these games, scores are tracked in monetary terms. Using lingo from the groundbreaking book Finite and Infinite Games, there are two types of economic games: unfree (or centrally planned) markets are theatrical, meaning that they are performed in accordance with a predetermined script that often entails dutifulness and disregard for humanity. The atrocities committed in Soviet Russia are exemplary of the consequences of a theatrical economic system. On the other hand, free markets are dramatic, meaning that they are enacted in the present according to consensual and adaptable boundaries. Software development is a good example of a dramatic market, as entrepreneurs are free to adopt the rules, tools, and protocols that best serve customers. Simply: theatrical games are governed by imposed rules (based on tyranny), whereas rulesets for dramatic games are voluntarily adopted (based on individual sovereignty).

From a moral perspective, sovereignty is always superior to tyranny. And from a practical perspective, tyrannies are less energy-efficient than free markets because they require tyrants to expend resources enforcing compliance with their imposed rulesets and protecting their turf. Voluntary games (free market capitalism) outcompete involuntary games (centrally planned socialism) as they do not accrue these enforcement and protection costs: hence the reason capitalism (freedom) outcompetes socialism (slavery) in the long run. Since interpersonal interdependency is at the heart of the comparative advantage and division of labor dynamics that drive the value proposition of cooperation and competition, we can say that money is an infinite game: meaning that its purpose is not to win, but rather to continue to play. After all, if one player had all the money, the game would end (like the game of Monopoly).

In this sense, Bitcoin’s terminal money supply growth (inflation) rate of absolute zero is the ultimate monetary Schelling point a game-theoretic focal point that people tend to choose in an adversarial game. In game theory, a game is any situation where there can be winners or losers, a strategy is a decision-making process, and a Schelling point is the default strategy for games in which the players cannot fully trust one another (like money):

Among many spheres of competing interpersonal interests, scarcity is the Schelling point of money.

Economic actors are incentivized to choose the money that best holds its value across time, is most widely accepted, and most clearly conveys market pricing information. All three of these qualities are rooted in scarcity: resistance to inflation ensures that money retains its value and ability to accurately price capital across time, which leads to its use as an exchange medium. For these reasons, holding the scarcest money is the most energy-efficient strategy a player can employ, which makes the absolute scarcity of Bitcoin an irrefutable Schelling point—a singular, unshakable motif in games played for money.

A distant digital descendent of zero, the invention of Bitcoin represents the discovery of absolute scarcity for money: an idea as equally unstoppable.

Similar to the discovery of absolute nothingness symbolized by zero, the discovery of absolutely scarce money symbolized by Bitcoin is special. Gold became money because out of the monetary metals it had the most inelastic (or relatively scarce) money supply: meaning that no matter how much time was allocated towards gold production, its supply increased the least. Since its supply increased the slowest and most predictable rate, gold was favored for storing value and pricing things—which encouraged people to voluntarily adopt it, thus making it the dominant money on the free market. Before Bitcoin, gold was the world’s monetary Schelling point, because it made trade easier in a manner that minimized the need to trust other players. Like its digital ancestor zero, Bitcoin is an invention that radically enhances exchange efficiency by purifying informational transmissions: for zero, this meant instilling more meaning per proximate digit, for Bitcoin, this means generating more salience per price signal. In the game of money, the objective has always been to hold the most relatively scarce monetary metal (gold); now, the goal is to occupy the most territory on the absolutely scarce monetary network called Bitcoin.

A New Epoch for Money

Historically, precious metals were the best monetary technologies in terms of money’s five critical traits:

  1. divisibility,
  2. durability,
  3. portability,
  4. recognizability, and
  5. scarcity.

Among the monetary metals, gold was relatively the most scarce, and therefore it outcompeted others in the marketplace as it was a more sound store of value. In the ascension of gold as money, it was as if free market dynamics were trying to zero-in on a sufficiently divisible, durable, portable, and recognizable monetary technology that was also absolutely scarce (strong arguments for this may be found by studying the Eurodollar system). Free markets are distributed computing systems that zero-in on the most useful prices and technologies based on the prevailing demands of people and the available supplies of capital: they constantly assimilate all of mankind’s intersubjective perspectives on the world within the bounds of objective reality to produce our best approximations of truth. In this context, verifiable scarcity is the best proxy for the truthfulness of money: assurance that it will not be debased over time.

As a (pre-Bitcoin) thought experiment, had a “new gold” been discovered in the Earth’s crust, assuming it was mostly distributed evenly across the Earth’s surface and was exactly comparable to gold in terms of these five monetary traits (with the exception that it was more scarce), free market dynamics would have led to its selection as money, as it would be that much closer to absolute scarcity, making it a better means of storing value and propagating price signals. Seen this way, gold as a monetary technology was the closest the free market could come to absolutely scarce money before it was discovered in its only possible form—digital. The supply of any physical thing can only be limited by the time necessary to procure it: if we could flip a switch and force everyone on Earth to make their sole occupation gold mining, the supply of gold would soon soar. Unlike Bitcoin, no physical form of money could possibly guarantee a permanently fixed supply—so far as we know, absolute scarcity can only be digital.

Digitization is advantageous across all five traits of money. Since Bitcoin is just information, relative to other monetary technologies, we can say: its

  1. divisibility is supreme, as information can be infinitely subdivided and recombined at near-zero cost (like numbers); its
  2. durability is supreme, as information does not decompose (books can outlast empires); its
  3. portability is supreme, as information can move at the speed of light (thanks to telecommunications); and its
  4. recognizability is supreme, as information is the most objectively discernible substance in the universe (like the written word). Finally, and most critically, since Bitcoin algorithmically and thermodynamically enforces an absolutely scarce money supply, we can say that its
  5. scarcity is infinite (as scarce as time, the substance money is intended to tokenize in the first place). Taken in combination, these traits make absolutely scarce digital money seemingly indomitable in the marketplace.

In the same way that the number zero enables our numeric system to scale and more easily perform calculation, so too does money give an economy the ability to socially scale by simplifying trade and economic calculation. Said simply: scarcity is essential to the utility of money, and a zero-growth terminal money supply represents “perfect” scarcity — which makes Bitcoin as near a “perfect” monetary technology as mankind has ever had. Absolute scarcity is a monumental monetary breakthrough. Since money is valued according to reflexivity, meaning that investor perceptions of its future exchangeability influence its present valuation, Bitcoin’s perfectly predictable and finite future supply underpins an unprecedented rate of expansion in market capitalization:

Bitcoin is truly unique: a perfectly scarce and predictably supplied money.

In summary: the invention of Bitcoin represents the discovery of absolute scarcity, or absolute irreproducibility, which occurred due to a particular sequence of idiosyncratic events that cannot be reproduced. Any attempt to introduce an absolutely scarce or diminishing supplied money into the world would likely collapse into Bitcoin (as we saw with the Bitcoin Cash fork). Absolute scarcity is a one-time discovery, just like heliocentrism or any other major scientific paradigm shift. In a world where Bitcoin already exists, a successful launch via a proof-of-work system is no longer possible due to path-dependence; yet another reason why Bitcoin cannot be replicated or disrupted by another cryptoasset using this consensus mechanism. At this point, it seems absolute scarcity for money is truly a one-time discovery that cannot “disrupted” any more than the concept of zero can be disrupted.

A true “Bitcoin killer” would necessitate an entirely new consensus mechanism and distribution model; with an implementation overseen by an unprecedentedly organized group of human beings: nothing to date has been conceived that could even come close to satisfying these requirements. In the same way that there has only ever been one analog gold, there is likely to only ever be one digital gold. For the same quantifiable reasons a zero-based numeral system became a dominant mathematical protocol, and capitalism outcompetes socialism, the absolute scarcity of Bitcoin’s supply will continue outcompeting all other monetary protocols in its path to global dominance.

Numbers are the fundamental abstractions which rule our world. Zero is the vanishing point of the mathematical landscape. In the realm of interpersonal competition and cooperation, money is the dominant abstraction which governs our behavior. Money arises naturally as the most tradable thing within a society—this includes exchanges with others and with our future selves. Scarcity is the trait of money that allows it to hold value across time, enabling us to trade it with our future selves for the foregone opportunity costs (the things we could have otherwise traded money for had we not decided to hold it). Scarce money accrues value as our productivity grows. For these reasons, the most scarce technology which otherwise exhibits sufficient monetary traits (divisibility, durability, recognizability, portability) tends to become money. Said simply: the most relatively scarce money wins. In this sense, what zero is to math, absolute scarcity is to money. It is an astonishing discovery, a window into the void, just like its predecessor zero:

Actual footage of Bitcoin devouring fiat currencies.

Fiat Currency Always Falls to Zero

Zero has proven itself as the capstone of our numeral system by making it scalable, invertible, and easily convertible. In time, Bitcoin will prove itself as the most important network in the global economic system by increasing social scalability, causing an inversion of economic power, and converting culture into a realignment with Natural Law. Bitcoin will allow sovereignty to once again inhere at the individual level, instead of being usurped at the institutional level as it is today—all thanks to its special forebear, zero:

Central planning in the market for money (aka monetary socialism) is dying. This tyrannical financial hierarchy has increased worldwide wealth disparities, funded perpetual warfare, and plundered entire commonwealths to “bail out” failing institutions. A reversion to the free market for money is the only way to heal the devastation it has wrought over the past 100+ years. Unlike central bankers, who are fallible human beings that give into political pressure to pillage value from people by printing money, Bitcoin’s monetary policy does not bend for anyone: it gives zero fucks. And in a world where central banks can “just add zeros” to steal your wealth, people’s only hope is a “zero fucks” money that cannot be confiscated, inflated, or stopped:

Central banks literally “just add zeros” to steal vast swathes of societal wealth.

Bitcoin was specifically designed as a countermeasure to “expansionary monetary policies” (aka wealth confiscation via inflation) by central bankers. Bitcoin is a true zero-to-one invention, an innovation that profoundly changes society instead of just introducing an incremental advancement. Bitcoin is ushering in a new paradigm for money, nation-states, and energy-efficiency. Most importantly, it promises to break the cycle of criminality in which governments continuously privatize gains (via seigniorage) and socialize losses (via inflation). Time and time again, excessive inflation has torn societies apart, yet the lessons of history remain unlearned—once again, here we are:

Thank you internet for all the hilarious yet meaningful memes.

The Zero Hour

How much longer will monetary socialism remain an extant economic model? The countdown has already begun: Ten. Nine. Eight. Seven. Six. Five. Four. Three. Two. One. Liftoff. Rocket technicians always wait for zero before ignition; countdowns always finalize at the zero hour. Oil price wars erupting in Eurasia, a global pandemic, an unprecedented expansionary monetary policy response, and another quadrennial Bitcoin inflation-rate halving: 2020 is quickly becoming the zero hour for Bitcoin.

Inflation rate and societal wellbeing are inversely related: the more reliably value can be stored across time, the more trust can be cultivated among market participants. When a money’s roots to economic reality are severed—as happened when the peg to gold was broken and fiat currency was born—its supply inevitably trends towards infinity (hyperinflation) and the functioning of its underlying society deteriorates towards zero (economic collapse). An unstoppable free market alternative, Bitcoin is anchored to economic reality (through proof-of-work energy expenditure) and has an inflation rate predestined for zero, meaning that a society operating on a Bitcoin standard would stand to gain in virtually infinite ways. When Bitcoin’s inflation rate finally reaches zero in the mid 22nd century, the measure of its soundness as a store of value (the stock-to-flow ratio) will become infinite; people that realize this and adopt it early will benefit disproportionately from the resultant mass wealth transfer.

Zero and infinity are reciprocal: 1/∞ = 0 and 1/0 = ∞. In the same way, a society’s wellbeing shrinks towards zero the more closely the inflation rate approaches infinity (through the hyperinflation of fiat currency). Conversely, societal wellbeing can, in theory, be expanded towards infinity the more closely the inflation rate approaches zero (through the absolute scarcity of Bitcoin). Remember: The Fed is now doing whatever it takes to make sure there is “infinite cash” in the banking system, meaning that its value will eventually fall to zero:

Market value of money always converges to its marginal cost of production: “Infinite cash” means dollars will inevitably become as valuable as the paper on which they are printed.

Zero arose in the world as an unstoppable idea because its time had come; it broke the dominion of The Church and put an end to its monopolization over access to knowledge and the gates to heaven. The resultant movement—The Separation of Church and State—reinvigorated self-sovereignty in the world, setting the individual firmly as the cornerstone of the state. Rising from The Church’s ashes came a nation-state model founded on sound property rights, rule of law, and free market money (aka hard money). With this new age came an unprecedented boom in scientific advancement, wealth creation, and worldwide wellbeing. In the same way, Bitcoin and its underlying discovery of absolute scarcity for money is an idea whose time has come. Bitcoin is shattering the siege of central banks on our financial sovereignty; it is invoking a new movement—The Separation of Money and State—as its revolutionary banner; and it is restoring Natural Law in a world ravaged by a mega-wealth-parasite—The Fed.

Only unstoppable ideas can break otherwise immovable institutions: zero brought The Church to its knees and Bitcoin is bringing the false church of The Fed into the sunlight of its long-awaited judgement day.

Both zero and Bitcoin are emblematic of the void, a realm of pure potentiality from which all things spring forth into being — the nothingness from which everything effervesces, and into which all possibility finally collapses. Zero and Bitcoin are unstoppable ideas gifted to mankind; gestures made in the spirit of “something for nothing.” In a world run by central banks with zero accountability, a cabal that uses the specious prospects of “infinite cash” to promise us everything (thereby introducing the specter of hyperinflation), nothingness may prove to be the greatest gift we could ever receive…

Thank you Brahmagupta and Satoshi Nakamoto for your generosity.

Bitcoin vs. Gold: Is Bitcoin Really A New ‘Safe Haven’ Asset?

Is bitcoin a new digital gold?

That’s the question on everyone’s mind recently.

Over the weekend, Barron’s laid out the skeptical case in an article titled “Is Bitcoin A Safe Haven?”:

“This week certainly would appear to qualify as a good test for an asset’s safe-haven bona fides,” the magazine wrote. “There was a market meltdown in Argentina, escalating trade tensions between the U.S. and China, inversion of the Treasury yield curve (viewed as a recession indicator), grim economic news from Germany, and anti-government protests in Hong Kong.”

And yet, it noted, bitcoin ended the week down 10%.

I guess the whole “bitcoin = digital gold” thesis is dead, right?

Today In: Money

Wrong.

Bitcoin Is Like Gold … Just In The 1970s

Safe haven assets are supposed to be boring. Take gold, for instance: The annualized return of gold since 1980 is 2.3%/year. Adjusted for inflation, it’s -0.7%/year. While there have been good years, like the 2000s, for the most part, it’s just sat there, like a dumb rock, holding its value.

Which is, after all, what it’s supposed to do.

If you’re interested in wealth creation, history suggests you don’t actually want a store of value; you want an emerging store of value. That is, an asset that has all the characteristics of a store of value, but doesn’t yet have widespread acceptance amongst investors.

We know this by studying the history of gold. The vast majority of returns gold has enjoyed in the modern era came in the 1970s. Consider the returns by decade:

  • 1970s: 1,365%
  • 1980s: -22%
  • 1990s: -28%
  • 2000s: 281%
  • 2010s: 50%

The 1970s was, of course, when the U.S. abandoned the gold standard. At the time, people didn’t know what to make of gold. Would it succeed as a “safe haven” asset, untethered from the dollar, or be cast aside as a “barbarous relic,” as John Maynard Keynes once called it?

The result was a period of significant volatility, as the two forces argued back and forth. There were years, like 1975, when gold tumbled in value, falling 25%. And years, like 1979, when it soared, rising 120%.

There was daily volatility too: In 1973, gold’s price moved more than 3% one out of every ten days! Sounds almost like bitcoin to me.

It was exactly this risk, however–the possibility that gold could be cast into the dustbin of history, like cowry shells and other forgotten stores of value–that led to gold’s volatility and strong returns. As evidence mounted that gold would in fact continue to serve as a safe haven, returns spiked and more investors made gold a part of their portfolios.

That same process is taking place in bitcoin today.

(Note: In the mid-2000s, gold saw a large run largely catalyzed in part by the launch of the first gold bullion ETF, the SPDR Gold Shares (GLD), which opened up access for a new wave of investors; easy monetary policies also helped).

Bitcoin Is Both A Safe Haven Asset And Volatile. Let’s Get Used To It.

People love to make analogies and put unfamiliar things in a box. The bitcoin=gold narrative is an easy crutch because bitcoin shares many characteristics with gold. It’s

  • scarce,
  • portable,
  • fungible,
  • divisible,
  • doesn’t degrade over time, and
  • has value even though it has no cash flows.

Moreover, in certain moments, bitcoin has shown signs of behaving like a classic store of valueWhen the U.S. labeled China a currency manipulator in early August, for instance, bitcoin prices spiked.

But at the same time, bitcoin is also a risk asset. It’s new, and much like gold in its first decade, its long-term position in the world is not yet secure. As a result, it shares characteristics with other risk assets, like stocks and venture capital investments. When markets enter a risk-off mode, some buy it as a safe haven while others lose faith and sell to peel back their risk.

These two forces—shelter from macro threats, and exposure to risk—can come into direct conflict. When the market stumbles for macro reasons, for instance, the day-to-day returns of bitcoin become hard to parse.

Over time, however, the dominant paradigm is clear: Bitcoin is an “emerging store of value. Each day, more investors gain greater confidence in bitcoin’s place in the world. Each day, it gets easier for institutional investors and financial advisors to buy. Each day, millennials—who prefer bitcoin to gold by a 9-to-1 ratio—inch closer to their prime investing years.

Like gold in the 1970s, this has translated into volatile but strong returns. Given the level of skepticism that remains about bitcoin’s role in society, there’s still plenty of upside left.

Some day, maybe, bitcoin will also be boring as dirt. But chances are, if we get to that point, prices will be significantly higher than they are today.

Hedging with Bitcoin: Everyone Should Have 1% of their Net Worth in Bitcoin

Chamath Palihapitiya: UWaterloo Electrical Engineering Grad

Everyone Should Own 1% of their Net Worth in Bitcoin

 

Hedge Funds are Levered 12-15 Times

Transcript

00:00
and our special guest hostess our social
00:02
capital founder and virgin we people
00:05
have been caught at virgin Galactica
00:06
which i think is a good name because it
00:08
merges all the different culture /
00:13
chairman trim off probably Hypatia it’s
00:16
good to have you here
00:17
great to see you you got more things
00:19
going on this is just one of them but
00:20
this is yeah you know compared to the
00:22
last time you were on it’s like why are
00:24
you doing this pie-in-the-sky type stuff
00:26
next thing you know the stocks worth
00:28
like eight billion dollars or something
00:30
for a market the real thing
00:31
the real thing it was a real thing when
00:33
we did it I told we were talking
00:35
off-camera about you know Tomas has to
00:37
wait like everyone else to go up and I
00:38
said you can put me on the waiting list
00:40
can I be like ten millionth person you
00:43
said go before I’ll take you I want to
00:47
see it film it when you go send it to
00:50
IMAX and I’m gonna go in and experience
00:52
it like right over here at the New
00:53
Jersey Science Center it’s close enough
00:56
for me US equity futures at this hour I
00:58
guess I’m going up 77 points back up we
01:01
were just unchanged her down again been
01:04
all over the map this morning
01:06
the SP indicated up about 12 Nasdaq
01:09
rebounding a little bit this morning of
01:12
32 maybe the most important thing to
01:15
watch is that 10-year and earlier we
01:17
were down under 135 and now our 137 as
01:20
that goes up it’s kind of a fear gauge
01:23
of for Believe It or Not for the
01:26
pandemic and the coronavirus there the
01:28
more the yield goes down to all-time
01:29
lows the more you worry about global
01:33
growth slowing because of a possible
01:35
pandemic okay let’s show you how we got
01:37
here right now markets began the day
01:40
yesterday in the green socks are
01:42
positive out of the gate if you recall
01:44
at 9:30 with the dow up nearly 200
01:47
points at one time then fortunes changed
01:49
and indexes fell throughout the day with
01:51
investors nervous about the coronavirus
01:52
cases in new countries and then the cdc
01:55
came in and coming out and saying the
01:56
global spread of the illness suggesting
01:58
a pandemic was likely and that everybody
02:00
should get prepared the taliban ended
02:02
down 879 points add that to monday’s
02:06
thousand point to call it a rout now and
02:09
we’ve now seen the Dow’s biggest two-day
02:12
point drop ever with one
02:13
point seven trillion dollars in market
02:15
cap just wiped straight off the sp500
02:18
that index down now more than six
02:20
percent for the week the only two thirds
02:22
of stocks in the S&P are now in
02:24
correction territory the tech sector now
02:26
in correction territory is well down
02:27
more than ten percent in just the last
02:29
week and of course bond yields as Joe
02:31
was mentioning continuing their own
02:33
slide the 10-year note hitting an
02:35
all-time low of just one point three
02:37
percent the 30-year bond hitting an
02:39
all-time low under 1.8 percent that’s
02:41
more than a full percentage point lower
02:43
than last Friday’s close and we are
02:46
looking up at the moment but we’ll see
02:49
where things are the four Chema the most
02:53
yeah the most recent stuff is the Virgin
02:55
Galactic the the report don’t on
02:58
earnings in and where things are headed
03:00
but we’ve got to just we all have
03:03
feelings about coronavirus and you’ve
03:05
got a lot of investments all over the
03:07
world all over the world in a lot of
03:09
different areas so I got to ask you
03:10
about our guest OSes Tomas probably –
03:11
Tia founder and CEO of social capital
03:13
also chairman of Virgin Galactic but a
03:16
social capital has tentacles in a lot of
03:19
different yeah places and and this is on
03:21
everyone’s mind obviously when the
03:23
market goes down almost 2000 points in
03:25
two days yeah what do you make of it you
03:28
know I think that we are at a really
03:30
important inflection point the thing
03:32
that we don’t know quite honestly is
03:34
what is the real denominator in China
03:35
like this is the very complicated thing
03:37
that nobody knows we’ve been told it’s
03:40
in the tens of thousands but the reality
03:42
is this number could be in the hundreds
03:44
of thousands and it could be in the
03:45
millions and then you have to account
03:47
for all the people that are latent ly
03:49
carrying coronavirus not just within
03:50
China but all over the world so if you
03:53
ask me the deaths are hard to hide so
03:55
there’s been several thousand of those
03:57
but but the denominator probably tells
03:59
me that if if it’s in the hundreds of
04:01
thousands or Millions
04:02
then what we’re really dealing with is
04:03
something that’s akin to a flu right now
04:05
that’s much more of a tractable thing
04:08
because we know how to deal with flus
04:10
although what if it’s two to five times
04:12
the mortality rate as we’ve had some
04:15
people to die this is why I think it’s
04:18
really important to understand what the
04:19
denominator is hardly the denominator is
04:21
high enough it’s the flu if the
04:23
denominator is as low as it is but then
04:26
the viral spread and
04:27
viral coefficient is as fast as we’re
04:29
being told this is a really serious
04:30
problem too late right and it’s it’s
04:33
it’s not a question of too late but I
04:34
mean it’s going to it’s gonna shut down
04:36
not just how you know countries work
04:39
cities work but borders and it’s going
04:42
to be something that we haven’t really
04:43
seen in a very long time and that’s
04:45
going to be the only thing that a
04:46
responsible government should do to
04:48
react so is a responsible investor what
04:50
do you do well it’s a really complicated
04:52
question so you know the problem is I
04:54
have billions of dollars a private
04:55
company equity I can’t do anything about
04:58
it you know just kind of holding you
05:00
know billions of dollars of no wonder
05:02
you dress like that you’re you you of
05:05
billions of dollars of equity there’s
05:10
nothing I can do about that so how do I
05:11
hedge how do you hedge
05:13
how would you head you have some public
05:15
marketing I have I have a fair amount of
05:16
concentrated public market exposure and
05:19
increasingly I’m trying to find
05:20
opportunities where I can just short
05:22
broad base indices and just get some
05:25
hopefully relief and then the rest of it
05:28
is I come back and I ask myself as long
05:31
as I can re underwrite the things that I
05:33
own just remember that I’m not owning
05:35
stocks you know kind of the Buffett
05:37
thing I own companies and as long as I
05:39
can maintain some semblance of normalcy
05:41
this will take eight to nine months I
05:44
think to roll its way through the
05:46
markets and for the markets to rewrite
05:48
and probably at the tail end of this a
05:51
net buyer and right now if I can just
05:53
you know manage my own psychology for
05:57
the next five or six months by not
05:59
losing as much as I think I’m going to
06:00
lose I think it’ll feel like a it means
don’t be leveraged right

I’ve never wrong I mean this is the
thing by the way can I just say
something I I’ve been meeting a lot of
great folks the last three days here
every time I come to New York I meet
some of the best hedge funds and one of
the things that really struck out to me
this time around is how levered
everybody is I mean folks are running
five six seven eight nine turns
if
they’re actually running something
that’s more liquid like a you know
typical macro strategy they’re running
12 13 14 15 times levered
that song I
have never run an iota of leverage and
I’ve always felt like I’ve been on the
when I see people printing these
enormous gains and I thought to myself
why am I being so conservative but in
moments like this I feel really really
cost math you’re the first person that’s
kind of said that on this set that there
are a lot of hedge funds that are super
levered up out there
and that caught you
off guard that to me sounds like a
potential problem when you see activity
like we’ve seen the last couple of days
I mean you know that this is a much
bigger problem because I think just the
hedge fund industry has a completely you
know misaligned upside down business
model so they try to have very very
small exposures but then they lever the
whole thing up to make the whole thing
work they’re not necessarily hedged to
begin with there’s a ton of correlation
and when things like this happen and
everything rewrites and you’re you know
07:21
running five six seven eight times then
07:23
the selling gets exacerbated so the
07:25
thing that we haven’t seen is what if
07:28
that happens because I think it’s fair
07:30
to say that you can oh you’ll go risk
07:32
off and people will take money out of
07:34
the market that’ll represent you know
07:37
the first maybe eight hundred points in
07:39
the Dow or the first thousand points in
07:41
the Dow but then if this thing moves
another two or three thousand points
it’s just forced sellers
okay let’s I
want talk space because it’s so exciting
by the way I see space we Eddie news the
07:51
President Trump is going to hold a news
07:52
conference about about coronavirus at
07:55
6:00 p.m. this evening I did ask him
07:57
about that great for it was a so glimmer
08:00
in our eyes in Davos and that was my
08:02
first question that’s a man I know I’ve
08:04
been worried and he said Larry coming
08:06
about to say he’s not worried obviously
08:07
the CDC has a very different view of
08:09
that but well a lot of people get
08:11
focused on what the president has to say
08:13
so choo-choo moth you’ve taken companies
08:17
from you know again a glimmer in
08:21
someone’s eyes all the way to where
08:22
they’re their major companies so you
08:24
know about how things get valued is
08:26
space ahead of it as is verging ahead of
08:29
itself if you’ve been surprised at
08:30
what’s happened based on the
08:31
fundamentals and where the market cap is
08:33
right now is it a story stock in your
08:35
view well can I take a step back and
08:37
actually just give you the set up so and
08:39
I think this set up not it doesn’t just
08:41
apply to virgin but it also applies to
08:43
Tesla and those two things are actually
08:46
the most similar stories and the set up
08:48
goes along the following lines first
08:50
let’s look at the fixed income markets
08:51
for the last ten years
everything that is look like a nail has
been dealt with the following hammer
which is print money cut rates you know
the Patriots when the Superbowl print
money cut rates Trump tweets print money
cut rates coronavirus print money cut
rates and while that’s happened rates
have gone to zero and there’s trillions
of excess capacity just sloshing around
in the fixed income side then on the
equity side the number of companies you
can invest in has shrank by 1/3
there’s really no growth outside of
multiple expansion and there’s no growth
outside of buybacks
so everybody crowds into the 5
technology companies right the fang
stocks which represent 20% of the market
cap of the S&P so when you put those two
things together there’s a set up where
there’s no real growth there’s no unique
stories and there’s nothing that can
give you long term outlook so then when
a company comes along that has a unique
narrative and is trying to do something
that is differentiated high margin and
could theoretically grow for 10 years
where there’s an enormous amount of
consumer demand these things get
09:58
repriced in ways that are
10:00
non-traditional sounds to me like you’re
10:02
saying yes it’s a story stock but that
10:04
doesn’t mean that it’s not gonna turn
10:05
into something huge I I really believe
10:08
in virgin I mean I didn’t invest the
10:09
amount of money that I did or put myself
10:11
on the line to do this deal because I
10:13
did the ones that first like of it’s not
10:15
gonna be June anymore right well the the
10:17
goal is to fly Richard on a commercial
10:19
flight this year this year
10:21
yeah we’re no longer do yeah I think the
10:23
point is that you know setting an
10:24
arbitrary date for something like
10:26
spaceflight is not the right thing to do
10:27
I think you want to move forward in a
10:29
plan not move backwards from a date and
10:31
give that team who are you know the best
10:34
scientists from NASA JPL gives them the
10:37
chance and the opportunity to just build
10:38
an exceptionally beautiful experience
10:40
the thing for you and you just said it
10:42
is we want you to not say you want to be
10:44
the millionth customer that you want to
10:45
be the ten thousandth customer or the
10:47
thousandth customer did you say Sorkin
10:48
what you said ten thousands of customers
10:50
I said a multiple of lata no over 8,000
10:54
because you said we think that we said
10:55
yeah okay so you’re the hey by the way
10:57
guys like and what George suggested is
10:59
they’re making amazing progress like you
11:01
know working through the FAA working
11:03
through the technical capabilities
11:05
flying the machines back down to
11:07
New Mexico and then on top of that all
11:10
this demand keeps piling up 124 percent
11:13
increase in the number of people that
11:14
want to buy tickets we’ve now started to
11:17
accept pre reservations or if those
11:19
8,000 people just those 8,000 people
11:22
doesn’t seem like a lot but when you
11:24
think that the price could be around 300
11:26
grand
11:26
that’s 2.4 billion of pipeline a real
11:30
quick question is there an insurance
11:31
program ya know for individuals I
11:33
believe there will be yeah so if
11:35
something tragic were to happen do you
11:38
know what the payout would be relative
11:39
to a regular airliner and I just curious
11:42
because I think that’s actually I mean I
11:44
don’t know what people think about it
11:46
like that I don’t know but I do know
11:47
that there will be a really robust
11:49
insurance very quickly Mike Santoli
11:50
brings up a good question to just point
11:52
out that when you bought the into the
11:54
SPAC it was at half the valuation of
11:56
like one and a half billion now it’s a
11:58
lot harder did you take Richard Branson
12:01
to the cleaners or is this current
12:04
valuation overdone or did things just
12:06
change that drastically no neither I
12:08
think that I think Richard and I found a
12:10
way for us to do a deal we give to
12:11
remember like you know we put 800
12:14
million dollars into the business I mean
12:16
between secondary and primary so you
12:19
know there aren’t a lot of people that
12:20
can are walking around with 800 million
12:23
dollars burning a hole in their pocket
12:24
so we found a fair valuation for him and
12:26
for me I think the the other thing
12:28
though Becky that happened is when you
12:30
take these things that I just talked
12:31
about you know the dearth of
12:33
opportunities and the fact that there’s
12:34
so much money on the sidelines and then
12:36
apply it to a unique story I think what
12:38
happened in the fall was people finally
12:40
woke up to Tesla and then people started
12:42
to say what else
12:44
Kim looks very similar to this I mean
12:45
you have to remember you people missed
12:47
out on a 75 X on Tesla over the last
12:50
decade I didn’t I was a proponent of the
12:53
Tesla converts I’ve been shredded on
12:54
Twitter for years and years being a
12:57
supporter of Elon in that company we
12:59
turned out to be right the shorts turned
13:00
out to be wrong and I feel just as
emotionally invested and intellectually
invested in virgin Leon what do you say
to like the 50 million plus people that
believe that if you read the policies
and take the label of socialism aside he
really looks more like a social democrat
that’s akin to a politician in the noir
country’s than he does to you know Fidel
Castro 2.0 I don’t know that’s not how
Bernie Sanders sounds to me my main
hang-up has been all along the the
constant attacking of wealthy people
the villainizing of the billionaire
class now I luckily got into the
billionaire class but I’m one of these
guys I’m gonna give it all the way I
don’t care much about money okay I don’t
I don’t get it you know I look at a Mike
Bloomberg the way he’s treated in these
debates whether he’s attacked Mike
Bloomberg new unemployment he was lost
out in a power struggle with linguas his
mid-30s he had this vision of building a
machine he built a ubiquitous machine
that you need if you’re in the
investment business he’s built the 60
billion dollar at worth he gave away
nine billion dollars to charity on his
own well before he became a PO you know
and involved in a big political way he
did a fabulous job as mayor of New York
okay in the biggest city in the world
and they’re attacking him and he had a
great line in the last night last night
where he said I’m the only guy in this
platform that built the business and he
oh they all looked at each other
blank Bernie more Bernie Sanders is not
worth his life EE and I just think at
the end of the day look i-i’ve been
equally blessed as you so I’m in the
same fortunate position urine but at the
end of the day if the worst thing that
happens is people name call us a little
bit and call us billionaires and detach
that’s not such a it’s not the worst
thing in the world if it allows us to
wake up to the reality that a lot of
people haven’t been able to participate
in what has really been you know an
equity market expansion where you know
14:59
folks like you and I who can be you know
15:01
long equities in a massive way levered
15:03
up you know access to certain products
15:05
can do well to a degree that everybody
15:08
else can it’s so it’s got people let’s
15:11
just acknowledge that that’s happened
15:12
and you know it’s it’s it’s it’s not an
15:14
easy it goes beyond it goes beyond that
15:18
it goes beyond that I believe in the
15:21
progressive income tax structure I
15:22
believe rich people should pay more okay
15:25
what we have to do as a nation is agree
15:27
upon what to the maximum marginal tax
15:29
rate be on wealthy people that will
15:31
define the revenue yield to the
15:32
government and we have to saw
15:33
the government to that revenue the yield
15:34
now I’m prepared to work six months a
15:37
year for the government the six months
15:38
of myself that’s a fifty percent
15:40
marginal tax rate unfortunately
15:42
depending on what state you live in you
15:43
already passed there between state and
15:44
federal income taxes and as it gets to
15:47
be confessor Kotori there’s a great
15:49
comment that I read recently by Thomas
Sowell he said since this is an era when
many people are concerned about fairness
and social justice
what is your fair share of what someone
else has worked for okay I’m willing to
give pay a 50% mark okay I have no
problem with that
16:06
okay I just think that the dialogue is
16:09
destructive it’s not inclusive so I give
16:12
you a perfect example I spoke at the
16:14
delivering alpha conferences number of
16:16
months ago nothing whatsoever was said
16:18
about politics the moderator Scott
16:20
Wapner the question after I gave my
16:22
formal presentation he said what do I
16:24
think the marker would do if the
16:26
Elizabeth Warren was elected president
16:27
and I said who go down 25% I think you
16:30
had a different view I’ve heard you were
16:32
previously okay and the next day she
16:36
tweets Leon I’m only looking for 2% give
16:39
others a chance of the American dream
16:40
she has no clue about anything about me
16:42
okay I’ve given away 700 million dollars
16:45
in less three years to charity that’s
16:47
why Rick it let me finish please if I
16:49
may I yeah I said firing kids to college
16:51
in Newark New Jersey I pay their their
16:54
tuition okay
16:55
and basically I decide to take the high
16:58
road okay Michelle Obama said when they
17:01
go low we go high I said they’re rather
17:03
well written letter very respectful very
17:06
conciliatory with a closing paragraph
17:08
that always has to work together deal
17:10
with the issues but there are issues I
17:11
don’t deny that there are issues my
17:14
approach to resolving the issues is to
17:16
education and hopefully faster economic
17:18
growth what does she do she puts out a
17:21
you know excuse me common
17:24
insider trader and own stock in navien
17:26
very constructive The Wall Street
17:28
Journal wrote an editorial page coming
17:30
that day she said that said mr. Koopman
17:32
won the case what is Sheik accusing them
17:34
them but it was nothing constructive she
17:37
was a politician in the worst sense of
17:38
the word
17:39
okay and that we need people that see
17:42
the issues I like the fact that certain
17:46
Mike Bloomberg was a Republican and
17:47
certain respects as a Democrat these
17:49
voting issues okay we have to avoid the
17:53
labels we have to work together in a
17:55
cooperative manner and all this income
17:57
differentiation it’s been really the
17:59
result of monetary policy response but I
18:03
want to add one other piece to it and
18:04
I’ll speak not for you but but I’ll add
18:07
another element to this which is
18:09
assuming that a Bernie Sanders or an
18:12
Elizabeth Warren were put into office
18:14
and and and I know that you’re you’re
18:17
okay with maybe some of the the
18:20
criticism that the vocal criticism that
18:23
they have about built the billionaire
18:25
class but the question is from a policy
18:27
perspective are you okay or encouraging
18:30
of that policy and to the extent that
18:33
you can appoint the head of the
18:36
Department of Justice and and say you
18:39
know please go look at these individuals
18:40
if you could say you know if you can
18:42
appoint the head of the SEC who is going
18:44
to maybe look into various companies in
18:47
a more aggressive way I’m not saying
18:49
they shouldn’t I’m just I’m just raising
18:50
the issues even if you have a completely
18:52
divided Congress how you see this
18:55
playing itself out if it doesn’t matter who gets elected
in my opinion it does I I have sort of
generally lost faith in the power and
the impact of the presidency in domestic
policy for years it is generally been
the case that the President of the
United States is given one hall pass to
do one meaningful piece of legislation
in the first two years of their term at
which point the American population
either flips the house or flips the
Senate and create stasis and it has
happened relatively predictably now and
I think that it will continue to happen
and so the question is what do we think
is the most likely thing to happen when
Trump came into office the only thing
that they were able to get done in which
Republicans were able to corral the
wagons was tax cuts and tax change but
everything else basically just came to a
grinding halt Obama was the same thing I
don’t agree with that I think that the
wouldn’t Trump I’m not a Trump fan okay
but I believe the man deserves
a certain amount of credit for what was
going on you know I don’t like his style
and so at the end of the day you have to
decide you vote your values you vote
your pocketbook I’m gonna stage in my
life where I want to vote my values my
values tell me that it is wrong to call
Mitt Romney a jackass it is wrong to
tell reptillus and he’s dumb as a rock
it’s wrong to denigrate John McCain who
was a true war hero it’s wrong basically
to say John Dingell is looking up and
not down even though I had totally
different political views to him okay
but the president deserves credit okay
when he came in it was like they took
the foot off to throw the economy the
economy and the stock market is at
record high unemployment for the
minorities is a record low overall
employment economy is at record high
we’ve opened up a long overdue
constructive dialogue and trade with
20:50
China we focus attention or illegal
20:53
immigration all this is good stuff the
20:55
problem with it is his deportment and I
20:58
analogize him to Ronald Reagan Ronald
21:01
Reagan was very beloved president okay
21:03
when Ronald Reagan ran for office he
21:04
said I had a three-prong program prong
21:07
one get the government off the backs of
21:08
people and I do that reducing taxes and
21:10
regulations you know for Trump you said
21:13
I’m going to restore the lost prestige
21:14
United States after the Carter years and
21:16
I do that by rebuilding our defense
21:18
ditto for Trump the crux of the matter
21:22
is even if you Softsoap Bernie Sanders
21:25
policies and say it’s a Nordic style
21:27
democratic socialism it would still
21:30
reverse a lot of these positive things
21:33
that has happened it’s that simple 60
21:35
trillion degree New Deal or 50 trillion
21:38
dollars on Medicare for all is not just
21:41
having a conversation about non that has
21:43
not dissipated a lot of young people
21:49
talking about we don’t need about a
21:54
gridlock in government we don’t
understand economics anymore to not
understand the capitalism got us where
we are so you can have these great
high-minded Nordic social democratic
conversations but it’s a dangerous place
you’re trying to take
you say we can’t get there so just have
the conversation but why not acknowledge
that it’s capitalism and it’s free more
time somebody taught us where we are
exact we’re a lot to have a diversity of
22:19
opinions okay that’s an entire cohort of
22:22
young people you’ve got Bernie Sanders
22:24
leading the pack in the Democratic field
22:26
and that is a problem for Democrats my
22:28
my that’s okay that he’s going to get
22:31
the nomination that’s fine I think you
22:33
dig Doug Doug or I take a lot of energy
22:37
in learning about what’s happening I
22:40
take a lot of energy reframe is stuck
22:42
with Bernie versus Trump that could be
22:45
the end result of all this happen let me
22:47
do this we weren’t gonna talk about it
22:51
basically when Bob first got the job
22:57
people thought of him dare I say as a
22:59
suit they did not think of him as some
23:01
kind of creative genius they thought of
23:03
him as a business person so to some
23:05
degree che Peck has that same kind of
23:07
reputation how important do you think it
23:09
is for a CEO of a media company or media
23:13
entertainment company in this day and
23:15
age to be both a the the numbers
23:18
business guy if you will and also a sort
23:21
of left-brain right-brain situation
23:25
well what’s particularly interesting in
23:27
this transition is Bob Iger saying he’s
23:30
going to spend the next year and a half
23:31
or however long it is being an executive
23:34
chairman ‘those focused mainly on
23:37
creative because as you say he came in
23:40
as not as the creative person he came in
23:44
as a business suit so to speak in the in
23:47
the Hollywood jargon I think Bob Meyer
23:51
has great taste he has great great
23:53
fingertip feel you know for both
23:56
television and stars but he’s not one of
23:59
these Hollywood people who is known as
24:02
let me be the creative product person so
24:06
it’ll be interesting to see that he
24:07
decided to cast himself in that role for
24:10
the next year and a half all right
24:12
samatha you’re making faces what are you
24:15
thinking I mean Bezos has this term
24:18
called narrative fallacy which is after
24:20
something works you look backwards and
24:21
you kind of
24:22
invent whatever you want to say to make
24:24
yourself seem amazing you know that’s a
24:27
business that I think frankly more than
24:29
anything else has proved the value of
24:31
really good M&A by using the highly
24:33
levered security that’s what they’ve
24:36
done because when you look at Pixar
24:37
Pixar was moderately successful
24:40
the stock was just kind of flat for
24:42
three years once they tagged Marvel then
24:44
it was a game changer and so that single
24:47
acquisition was I think the
24:49
transformational event and so in my mind
24:51
what it proves was the value of M&A and
24:53
so if you have a balance sheet like
24:55
Disney I would kind of think why not put
24:58
somebody who has an eye more towards a
25:00
transactional impetus than an
25:03
operational focus and so you have to get
25:05
you give him credit for for I mean you
25:07
got people set us way too much to pay
25:09
for Pixar I mean you have to give Agri
25:11
credit for doing the M&A deals it’s an
25:16
incredibly successful in the M&A guy and
25:18
now wants everyone bows to but even
25:22
Spielberg and I think Britain betrays
25:24
what he’s really good at but that’s
25:25
brilliant but if the new guy is an
25:27
Operations guy you’ve built up this huge
25:28
company now you need somebody who knows
25:30
how to run it well well I don’t say next
25:32
step or you think it’s no I think Disney
25:34
isn’t he is it’s such an excellent
25:36
exceptional example of what an old-line
25:39
industry company needs to do which is
25:42
you need to find where the puck is going
25:44
and then aggressively acquire it not do
25:47
it organically
25:47
you can’t do it organically it’s not
25:49
possible even Facebook can’t do it
25:51
organically they need to acquire so
25:53
facebook can’t do it if Google can’t do
25:55
it and their requirement why do you and
25:57
if you listen to the words of Bob Iger
25:59
yesterday he said look we have now all
26:01
of our assets in place in fact I thought
26:03
the suggestion that he was making was
26:05
definitely though a difficulty the
26:07
domore M&A know the difficulty is now
26:10
what they’re finding and this was
26:11
Netflix that’s going to do this is
26:13
Netflix has transformed the court
26:15
cutting streaming business into a
26:17
consumer surplus business it’s going to
26:19
basically take margins to zero and as
26:21
they do that and as they fight for
26:23
subscribers the only way to survive for
26:25
somebody like Disney is to acquire and
26:27
to bolt on acquisitions over and over
26:29
and over again so I think you probably
26:32
need someone who has the wherewithal the
26:34
risk tolerance and the vision to take
26:36
that risk
26:37
this our tamale Hypatia Virgin Galactic
26:40
chairman and social capital CEO got a
26:42
couple quick questions for you one this
26:45
was a SPAC that you did do you believe
26:47
and we talked about this used to talk
26:49
about this as being the IPO 22.0 yeah do
26:51
you think this is actually changing the
26:53
game in terms of how a company to grow
26:55
publicly yeah completely I think that
26:57
what we showed was that there’s a lot of
26:59
high-growth companies in Silicon Valley
27:00
and increasingly as well in Europe and
27:03
in China where this is actually a much
27:05
better way to go public it’s better than
27:06
the traditional IPO and it’s better than
27:08
a direct listing even though it looks
27:10
like mr. Branson may have given you a
27:11
lot for this I think that what you’re
27:14
gonna see is like back to you the price
27:15
action right has been nothing but
27:17
positive like what you don’t want to
27:19
have happen is a complete miss pricing
27:20
on the front end where people are locked
27:23
up volatility moves and the people that
27:25
make the money are the people that
27:27
entered in at the point of the IPO
27:30
because of relationship with ranks and
27:31
otherwise we unlocked
27:33
everybody from day one and we allowed
27:35
everybody to participate up to you know
27:37
42 bucks a share wherever it went to um
27:40
let me ask a couple other questions we
27:41
you’ve talked about Tesla briefly but
27:43
not really which is how high do you
27:45
think you can go since I know you’re
27:47
long yeah I mean I you know I bought
27:49
these converts a long time ago I was it
27:51
was kind of like my big picot zone you
27:53
know three years ago
27:55
I really believe in this business
27:56
because what they’re now moving into is
27:59
beyond cars and transportation but
28:02
sustainability and I think that you know
28:04
strip away whether you believe in
28:06
climate change or not it doesn’t matter
28:08
what they offer is a set of products
28:11
that I think will be increasingly in
28:12
demand how much are your convertibles
28:14
worth what’s the stake you have right
28:16
now good it’s a large number are you
28:19
surprised to see the stock run so
28:21
quickly
28:21
so fast this year yeah you know that’s
28:24
why I actually started to put together a
28:26
framework of like what is actually
28:27
happening and this is what I said before
28:29
with rates at zero with trillions of
28:31
dollars of printed money with no
28:32
investable equities companies that are
28:35
unique in and of one Tesla Virgin
28:36
Galactic are going to have a bid and
28:38
then if you do something that really
28:40
captures consumer imagination retail is
28:42
now going to be a huge part of it ESG
28:45
rila marketing it’s a complete fraud
28:47
complete fraud it’s so ridiculous
28:49
governance has been a
28:50
that’s useful but you know this idea
28:52
that you’re gonna get a stamp that says
28:54
oh listen like you know my supplier you
28:56
know I’ve offset their carbon credits
28:57
and now I understand my AM it’s a joke
29:00
it’s jargon and I think what people are
29:02
doing right now is using it as a way to
29:05
you know for example like if you can
29:08
paint yourself as ESG in Europe you can
29:10
essentially borrow money from the ECB at
29:12
negative rates I’m gonna come over but
29:20
but I I personally believe in climate
29:23
change I know we need to do something
29:24
and so the problem with the SG is it’s
29:27
gonna take years for this over this
29:29
alone you hear JP Morgan yesterday says
29:31
no they’re not gonna finance fossil
29:33
fuels or you hear at Bastion at Delta
29:35
say he’s gonna spend 100 million dollars
29:36
of real money by the way effectively
29:38
buying carbon offsets and investing in
29:39
new biofuels every year you say two
29:42
things
29:43
JP Morgan by saying what they said will
29:46
be able to borrow billions of dollars
29:48
from the ECB at negative rates you think
29:50
that’s what that is
29:51
it’s obviously what it is it doesn’t
29:53
have to work they don’t need to do
29:55
anything they are now getting free money
29:56
from Europe and basically being able to
29:58
say this and you don’t think they would
29:59
get that money otherwise no cuz Europe
30:01
basically has this condition where you
30:02
can issue green bonds and you have all
30:04
of this you know
30:05
checks and balances at the– so that’s
30:07
one thing okay it’s going to be very
30:09
important for you to really be able to
30:11
diligence the supply chain all the way
30:13
down to the supplier and the supplier
30:15
supply Microsoft is very large in for
30:17
example these are these are useful
30:20
statements it’s great marketing but
30:23
again it’s a lot of sizzle no steak I
30:25
think that what we need to do is invest
30:28
in actual companies that can go and
30:30
count right and can go and you know
30:34
legitimize the actual impact that
30:38
companies have so that you can do the
30:39
right amount of carbon offsets and then
30:42
you have to have a legitimate exchange
30:43
where you can actually trade them you
30:44
really believe in climate change you got
30:46
to do some hard work now by the way
30:48
Virgin Galactic is gonna be throwing up
30:50
a lot of carbon do you buy offsets
30:51
collective yeah we have a plan to sort
30:55
of get to what you do why if it’s
30:57
important he believe he just said he
31:00
believes it the other stuff was great
31:02
I’d need a cigarette in fact
31:04
after that it was so good for me but God
31:06
tell me how crypto does that ever become
31:10
a an actual means of transacting yeah it
31:14
does still everything I said crypto am I
31:18
allowed to say crypto I hope I’m allowed
to say crypto can I bring it up I would
really like Bloomberg to take this
article that I wrote for them into 2013
out of their pay wall but basically you
know my view at the time which I’ve held
since today haven’t changed is that
everybody should problem have 1% of
their assets in Bitcoin specifically I
still believe that today and I think it
is just a fantastic hedge so if you go
ack to the conversation this morning
when you see the amount of leverage the
financial industry is running and you
think about all these dislocations and
all these exhaustion as things that are
happening that you can’t predict there’s
a lot of risk to the downside and it
would be great that an an average
individual citizen of any country in the
world has an uncorrelated hedge and I’ve
said this repeatedly at nauseam on the
show every financial instrument is
correlated but money but except bit but
Jomon uncorrelated hedge it that Warren
Buffett says has zero value 0 in here
III unless someone pays more I think
he’s an exceptional person I’ve learned
an enormous amount both from afar and
the few interactions I’ve had with him
he is completely wrong and operated on
student the prices have gone up during
this career most a few issued Haven went
down like gold if it was really digital
gold I think that you have to look more
at volumes these are not necessarily
event-driven
strategies meaning you don’t you don’t
want all the digital gold no you didn’t
say that
no he didn’t that’s that’s that’s the
people say I don’t think you buy I don’t
think when you know you wake up and you
see a coronavirus care in the Dow down
mm you should not be going in and buying
Bitcoin that is an idiotic strategy I
think a reasonable strategy is to say
one percent of my net worth should be in
something that is completely
uncorrelated to the world and how the
world works you quietly and quick you
know over some number at a time
accumulate a position and then you just
never look at it again and hope that
that insurance under the mattress never
has to come due right but if it does it
will protect you because then that thing
will be hundreds of thousands or million
dollars a coin okay and when we get we
got to go but Fang stocks do you like
them or hate them
I’m a net seller you’re a net seller of
tech companies other than Amazon because
33:39
I think Facebook gets regulated I think
33:43
Google will have to go through a bunch
33:44
of divestitures to avoid regulation I
33:46
think Netflix has turned into a consumer
33:48
surplus business and their their
33:50
viability to cash flow is de minimis and
33:53
Amazon just keeps growing by 25% every
33:56
year like clockwork it’s an incredible
33:58
incredible business okay
34:00
Thank You Tomas appreciate that thanks
34:01
guys
34:03
you
34:11
you

 

Seniors disrespecting the younger generation